Cambodians are bingeing on microfinance loans

BANGLADESH MAY be the homeland of microcredit, but no country is keener on it than Cambodia. According to its central bank, there were some 160,000 branches of microfinance institutions around the country in 2016—one for almost every square kilometre of Cambodian territory. Almost 2.2m of Cambodia’s 10m-odd adults have a microcredit loan outstanding, according to the Cambodian Microfinance Association (CMA), an industry group. The average debt is $3,320—roughly twice the country’s annual GDP per person. Credit is growing by 40% a year.

The microfinance boom has brought many benefits. An obvious one is a decline in the use of loan sharks. Between 2004 and 2017 the share of households borrowing from formal sources jumped from 8% to 30% while the proportion using informal moneylenders dropped from 32% to less than 6%, according to research published last year by the World Bank. The shift saved people money. The interest rates charged by formal lenders are lower and have been falling for more than a decade, even though some microcredit outfits are purely commercial operations.

All this has made it possible for many Cambodians to fund a new business, obtain an education or pay for urgent medical care. The CMA links growing access to credit to falling levels of poverty. The share of Cambodians living below the national...

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