The ombudsman of the International Finance Corporation (IFC) has determined that a compliance investigation is warranted in response to a complaint that IFC’s investments in six microfinance institutions in Cambodia, as well as four funds and investors, contributed to harms suffered by Cambodian borrowers. However, in an unprecedented move, IFC management has requested that the IFC Board review the ombudsman’s decision – which could delay or end the compliance investigation process.

The Board has 10 working days to review the request. It may either allow the compliance investigation to move forward, reverse the CAO’s decision, or give itself additional time to review the request.

“An investigation is a crucial step toward justice and remediation for Cambodian borrowers who continue to suffer due to predatory lending,” said Naly Pilorge, outreach director of LICADHO. “The IFC management’s request for board review, after the CAO decided an investigation is merited, is a shameful ploy to avoid scrutiny. The IFC needs to prove that it is committed to accountability through the CAO and stop trying to corrupt an independent process.”

The Compliance Advisor Ombudsman (CAO), the internal accountability mechanism of the IFC, posted on its website that it had “completed a compliance appraisal for this case and concluded that an investigation is merited” on 13 June 2023.

According to CAO policy, such a decision is made based on several criteria, including: “preliminary indications of harm or potential harm”; “preliminary indications that IFC may not have complied with its [Environmental & Social] Policies”; and “whether the alleged harm is plausibly linked to the potential non-compliance.”

A new policy instituted in 2021 allows for IFC management to request a board review of the CAO’s decision on specific technical grounds. This is the first such request that has been made since the policy was implemented.

The “Cambodia: Financial Intermediaries - 04” complaint was submitted to the CAO in February 2022 by The Cambodian League for the Promotion and Defense of Human Rights (LICADHO) and Equitable Cambodia (EC) on behalf of Cambodian microloan borrowers. It alleges, among other things, failures in IFC’s pre-project due diligence and violations of IFC Performance Standards caused by unethical and predatory lending practices in Cambodia.

An investigation would cover six banks or MFIs in Cambodia (ACLEDA, Amret, Prasac, Hattha Bank, LOLC, and Sathapana), and four investors or funds (Microfinance Enhancement Facility, Microfinance Initiative for Asia Debt Fund, Advans S.A., and North Haven Thai Private Equity Fund L.P.).

The CAO has produced an Appraisal Report detailing the reasoning for their decision to move forward with a compliance investigation. However, that report cannot be published until the conclusion of the board review process.

“We hope this investigation can move forward as quickly as possible to advance borrowers’ right to remedy and begin to address the serious harms caused by these investments,” said Eang Vuthy, executive director of EC. “Cambodian borrowers continue to suffer from the effects of Cambodia’s microfinance and microloan sector, and we look forward to working with the CAO team to address this ongoing crisis.”

For more information, please contact:
▪ Naly Pilorge, outreach director of LICADHO, on Signal at (+855) 12214454
▪ Eang Vuthy, executive director of EC, on Signal at (+855) 12791700

PDF: Download full statement in English - Download full statement in Khmer
MP3: Listen to audio version in Khmer