Last December, a complaint was made against Oikocredit, a Dutch global social investor, for allegedly funding local microfinance institutions (MFIs) despite alleged knowledge of its involvement in predatory lending, coercion and related serious harm since 2017, and even increasing its investment in 2022.
The complaint was jointly lodged with Netherlands-based National Contact Point for Responsible Business Conduct (Dutch NCP) by the Cambodian League for the Promotion and Defence of Human Rights, Equitable Cambodia and Fian Germany.
The Dutch NCP is a government-supported grievance mechanism for complaints regarding Dutch companies’ responsible business conduct and compliance with the OECD Guidelines.
Today, the NGOs stated that the Dutch NCP has “accepted and will proceed” with the complaint alleging that Oikocredit has “contributed to severe adverse human rights impacts” in Cambodia’s microfinance sector.
In its initial assessment on September 15, the Dutch NCP mentioned that the complaint “merits further examination” after reviewing the NGOs’ allegations against the NCP’s admissibility criteria.
These criteria include whether the “issue is material and substantiated, plausible and related to the OECD Guidelines for Multinational Enterprises” and if a “link” between Oikocredit’s activities and the issues raised in the “specific instance” exists.
According to the NGOs, the Dutch NCP’s next phase will be to hold a dialogue between parties, such as mediation or conciliation, which the Dutch NCP has offered to facilitate.
The Dutch NCP would issue a “public final statement” on the case following the parties’ “confidential attempt” to reach an agreement.
“While there is no time limit on the negotiations, if the parties cannot reach an agreement, the Dutch NCP would examine the issues and provide recommendations consistent with the OECD Guidelines, before issuing its final statement,” they said.
Naly Pilorge, outreach director at LICADHO, alleged that serious human rights violations in Cambodia’s microfinance sector have been escalating for almost a decade, while “foreign investors have turned a blind eye”.
“Oikocredit and other investors claim to improve the lives of low-income communities. So, we expect them to actually remedy the problems faced by long-suffering borrowers,” she said.
Similarly, Vuthy Eang, executive director of Equitable Cambodia, who was pleased to see the process moving forward, said it is time Oikocredit and “other social impact” investors “stop delaying and start taking concrete measures to remedy the harms they have contributed to”.
Since 2019, the NGOs have published five reports on abuses in Cambodia’s microfinance sector, with Debt Threats, its most recent study which highlights “food insecurity, pressured land sales, child labour, migration, and other abuses associated with overwhelming levels of microloan debt”.
Take reports seriously
Questions to Oikocredit were not responded to immediately. However, in December 2022, Oikocredit said it was aware of the joint complaint lodged with the Dutch NCP, and that it would fully cooperate with it by “providing all the necessary information”.
In response to Kiripost’s questions on the allegations, Oikocredit said it has been financing organisations that provide financial services, such as microcredit to people who are usually excluded from formal financial services, for decades.
“We believe that microfinance is an important tool for development. Microcredit is not a panacea and microfinance cannot replace public social services, nor can it alone bring global justice,” it said.
As an investor in the MFIs, its goal is to “sustainably” improve the quality of life of low-income people by supporting our partners in their provision of responsible and inclusive financial services.
“We, therefore, take any reports of potential unethical behaviour by our partners very seriously. As an investor in Cambodia’s microfinance sector, our channel of influence and positive impact is with our carefully selected partners. We have investigated and will investigate any allegations of unethical practices with our partners,” it asserted.
‘Room for improvement’
In the meantime, it also discusses with other lenders to the sector for a coordinated response and works closely with international organisations committed to ensuring the protection of microfinance clients, and improving business practices and local microfinance associations.
While it remains “confident” that its “carefully selected partners are fulfilling their agreements with Oikocredit” and are committed to best practices in client protection, it “continues to be vigilant”.
“We are engaging with our partners to address any misalignment with client protection and ethical standards,” it said, adding that it remains mindful that there will “always be room for improvement in any market”.