Drown in Debt Press Release

PRESS RELEASE For Immediate Release 22 February 2012

Thousands of Cambodians survived floods only to ‘drown in debt’ Thousands of poor Cambodians have been placed at increased financial risk due to the 2011 floods, according to a report released today in Phnom Penh by four international NGOs. The report, Drowning in Debt, is the result of a January survey of nearly 400 poor floodaffected households which reveals the alarming levels of debt into which alreadyimpoverished Cambodians have been forced following the disaster.

The study, produced by CARE, OXFAM, Catholic Relief Services and PACT in their joint commitment to improving rural Cambodians’ access to finance, was conducted in Prey Veng, Kampong Thom and Kandal provinces. The report’s findings include:  

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Before the floods, nearly two thirds of all households had some form of existing external debt. The sources of this debt include microfinance institutions, private moneylenders and personal borrowings.

As a direct result of the floods, nearly half of all households (48%) have had to take out an additional loan, the average size of which is $635. Over half (56%) of all households estimate their annual income at US$500 or less – or less than US$0.24 per person per day.

More than one in ten households (11%) have multiple loans, and frequently these additional loans are used to pay back earlier loans.

Additional loans force many families into informal borrowing from private money lenders, where interest rates can be up to 65 per cent per annum.

More than 8 in 10 households (83.6%) report that the flood will reduce their income over the next year.

Sixty per cent of all households said that they would have difficulty repaying loans, while nine per cent said that they currently had “no hope” of repayment.

The loss of crops in the most recent growing season due to the flood further exacerbates households’ abilities to repay loans.

“These results present sobering reading,” said CARE Cambodia Acting Country Director Bill Pennington. “We know that poor families have suffered disproportionately during the flood emergency, and due to this we now know these same families have been forced into acute levels of debt in trying to rebuild their livelihoods and incomes.”

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Loans are usually sought by farmers to finance agricultural inputs for the next growing season; however, the study found that nearly one quarter of all loans are now being used to pay immediate costs such as food, health and education. Food shortages, in particular, are cited by many households as the main reason for taking out loans. The number of households now expecting food shortages for periods between 4 and 8 months increased from 13% pre-flood to 31% post-flood.

Pennington said that as the current emergency moves into a livelihood recovery phase, the importance of household debts needs to be taken into account by providers of assistance.

“Recovery programs need to carefully target their interventions to ensure that debt can be addressed and the situation not made any worse,” he said. “This means increasing our understanding of the cycle of debt in poor communities and offering opportunities for relieving chronic debt, through cash transfers, cash-for-work programs or other means to generate immediate household income.”

Providing affordable finance to rural Cambodians is the aim of many international and local organizations, including the growing microfinance sector. OXFAM America Regional Director Brian Lund said microfinance lending can be an effective means of enabling farming households to invest in productive activities, in some but not all cases.

“The poorest households have the least capacity to make loan repayments and in these circumstances savings-led microfinance, where people save together, may be more appropriate. The study clearly highlighted that households with access to savings did much better than those without.”

“Policy makers, government agencies and microfinance lenders must begin to take into account the impact of a disaster on their borrowers,” Lund said. “Options may include waiving the interest on loans until such time as the household recovers, rescheduling repayments and making sure that any new loans allow for the changed circumstances.”

“What we don’t want to see is a situation where poor families are in a cycle of debt, where they use new loans just to pay off existing borrowings or simply to buy food - yet unfortunately, we are seeing that happening now,” he said. ### For further information contact: CARE

OXFAM

Bill Penington, 012 222 660 or bill.pennington@care-cambodia.org

Brian Lund, 012 444 827 or Blund@OxfamAmerica.org Oxfam America

Note to editor: Copies of the Drowning in Debt report are available from member organizations of the Access to Finance Consortium. An Executive Summary can also be provided.