Flood-affected households borrow to keep afloat

PHNOM PENH (Cambodia Herald) - Poor households affected by last year's floods are borrowing money at annual rates of up to 65 percent, according to a survey released Wednesday.

The survey by international non-governmental organizations Care, Oxfam, Catholic Relief Services and Pact in January covered 390 households in Prey Veng, Kompong Thom and Kandal provinces. 

A joint statement said that two thirds of the households were already in debt before the floods and that about half had since taken out additional loans while one in ten households had multiple loans.

Annual interest rates ranged from 32 percent for microfinance institutions to 65 percent for private money lenders. About 60 percent of the households surveyed said they would have difficulties in meeting repayments while almost 10 percent said they had no hope of repaying.

"These results present sobering reading," said Bill Pennington, acting director of Care Cambodia. "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."

Pennington said recovery programs needed to "carefully target their interventions to ensure that debt can be addressed and the situation not made any worse.

"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," he said.

Oxfam America regional director Brian Lund said policy makers, government agencies and microfinance lenders must begin to take into account the impact of a disaster on their borrowers.

"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," Lund said.

"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.

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