Report shows effect of debt burden on garment workers6 min read

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Garment workers protest in front of the Labor Ministry on June 29 to demand compensation after their factory had closed, leaving them without pay for several months. Panha Chhorpoan
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A report released by a group of labor rights organizations this week highlighted how the burden of debt on garment workers has grown in recent months in the wake of Covid-19, calling on microloan providers and the government to relieve the burden by suspending loan payments and interest accrual for at least three months.

In the report, titled “Worked to Debt”, released jointly by the Cambodian Alliance of Trade Unions (CATU), human rights group Licadho, and labor rights group Central, workers said that the “vast majority” of the 158 microloan borrowers interviewed in the report had seen their quality of life become “much worse” since taking out a loan.

“The majority of microloan borrowers ate less food in order to repay their debts,” said the report, which was carried out between March and May said. “Any number of borrowers selling land, eating less, or taking children from school should be unacceptable to microfinance institutions and investors.”

It said the primary reason the workers from the three factories had taken out a microloan was to ‘build a house’, followed closely by ‘pay off an existing loan’.

“In addition, the most common reason for taking a loan from a private lender was to “repay existing debt”, suggesting that microloan clients often turn to private lenders in order to keep up with their formal debt repayments. In fact, the most common reason for taking a loan of any kind was to “repay existing debt”,” the report said.”

Prum Tola, 38, a former employee at New Best Global Factory, said she had gone without pay since February 11, when the factory owner had fled the country, leaving herself and several hundred other workers without their family’s primary source of income and with no way to repay their loans. 

Tola said that she owed  Sathapana Bank $20,000, on which she must make payments of $650 per month. Since losing her job, she has had to sell her belongings and borrow money from relatives to make ends meet.

“Now I have had difficulty paying the bank since factory owner ran away,” she said. “I had to sell my jewelry such as necklaces and bracelets, and borrowed some money from my relatives to pay the bank over the past few months.”

She added that she needs more funds to be able to make a living because she had two children and her husband takes in only a meagre income at a small shop selling grocery items.

“I have no choice but to find money to pay back the bank, so I must reduce expenses on food for my family to eat,” Tola said.

Khun Tharo, program manager at labor rights group Central, one of the organizations that released the report, emphasized that based on their research, garment and footwear workers spend a majority of their wages on loan repayments. 

“Now, since they have suspended or had their contracts terminated, they end up suffering twice as much while trying to repay their debts with no income,” Tharo said. “Because of this, they end up owing more money to someone else.” 

He said most workers do not have money saved to help them through economic hardships, and are now attempting to support their families on a heavily reduced budget.

“To make matters worse, during the factories’ suspensions, they are not receiving at least 50 percent of their salary. They are only receiving $40 from the government and $30 from the factory owner [per month],” Tharo said. “This is making their living situations much worse.”

The report noted that actions taken by garment workers to repay their debts decrease their quality of life so greatly that it can often amount to human rights abuses by the lender.

Another former New Best Global factory employee, Ngeth Srey Nak, 27, also said she was struggling to make her loan payments, and had borrowed from family members after the factory closed its doors in February. 

“Since I do not have work, I borrowed $600 to pay bank but this time, I do not have money to pay bank more else,” Srey Nak said, referring to a payment that was due last week.

She said she had borrowed $6,000 from MFI Amret about two years ago, and had been making $200 payments each month.

However, she said she had now asked Amret to delay her payments multiple times since April, but had been turned away each time and told to “wait” for a decision.

“I need to pay the bank on June 27 but I didn’t have the money, so I told the bank to know about my current living situation,” she said.

As a solution to the inevitable looming rise in loan defaults, the report recommends that micro lenders and banks cancel loan repayments for at least 3 months for all borrowers due to Covid-19.

“Microloan providers in Cambodia should ensure that they do not violate the human rights of their borrowers in order to ensure loan repayments,” the report says.

Kaing Tongngy, head of the communications department at the MFI umbrella group Cambodia Microfinance Association (CMA), said that the National Bank had issued a policy in March on delaying payments to MFIs, which he said the lenders had been carrying out. He said the National Bank’s policy stipulated that customers were required to either pay back only the interest on their loans for, or could defer payments entirely a few months.

“Everyone — including garment workers who are encountering more problems — can make a request to microfinance institutes directly [for a delay],” Tongngy said, adding that a representative from the MFI would then personally visit the borrower to assess their situation.

“Based on the law, if their customers do not have the ability to pay them, the [lender] needs to restructure their loan repayment plans,” Tongngy said.

Government spokesman Phay Siphan said that regarding microloan repayments, Prime Minister Hun Sen had previously appealed to banks and MFIs to follow the National Bank’s plan, saying that micro lender representatives would visit anyone who had requested a loan payment deferral due to Covid-19.

“We appeal to anyone who does not feel that they have received justice or who feels that they have been discriminated against by a microfinance institution to bring their requests to the court help judge, because it’s only court that can judge this case,” Siphan said.

He added that the government had already done its part to address garment and footwear workers’ financial problems.

“The government has its policies, but we do not have the right to interfere in the private sector,” Siphan said.

According to the Labor Ministry as of late May, around 100,000 workers have been unemployed and more than 200 factories had shuttered or suspended operations amid the Covid-19 outbreak.

Labor Ministry spokesman Heng Sour could not be reached for comment.

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