The Asian Infrastructure Investment Bank (AIIB) is facing intense criticism for its recent involvement in Cambodia's microfinance and MSME loan market, amid concerns about human rights violations due to predatory lending and abusive collection practices. AIIB approved significant loans to PRASAC Microfinance Institution Plc. and ACLEDA Bank Plc., despite ongoing complaints against them, leading to outrage from civil society organizations.
Cambodia's microfinance sector has grown rapidly due to international investments, but this expansion has also given rise to predatory lending, large loan sizes, and high household debt. Lack of client protection mechanisms has led to threats to land tenure security and harm to indigenous communities.
PRASAC and ACLEDA have faced scrutiny for their unethical lending practices, including coerced land sales and violations of consumer protection policies and Cambodian laws. Borrowers, often vulnerable, were pressured into loans far beyond their means, using their land titles as collateral, resulting in catastrophic consequences such as debt-induced child labor, forced migration, and loss of homes and livelihoods.
The controversy highlights weaknesses in AIIB's Environmental and Social Framework, which fails to directly address predatory practices by microfinance providers. These practices have caused significant social harm.
Civil society organizations call for accountability and reform. AIIB's framework needs reinforcement to address the root causes of social harm caused by microfinance activities. Until these issues are resolved, AIIB should reconsider further funding for microfinance providers in Cambodia to protect the nation's poorest and most vulnerable communities from unethical practices.
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