The Association of Banks in Cambodia (ABC) and the Cambodia Microfinance Association (CMA) have introduced new guidelines for their members.
They require financial institutions to adopt a more flexible approach when dealing with clients who have used land as collateral, in a move to protect vulnerable borrowers.
Under the new rules, banks and microfinance institutions are explicitly prohibited from coercing clients into selling their land to repay loans.
Instead, these institutions are urged to engage in fair and flexible negotiations that prioritise the borrower’s ability to repay without resorting to the forced sale of their assets.
“For clients with collateral, financial institutions must be flexible in negotiating with them, without resorting to forcing them to sell their land,” explained Sok Chan, head of financial inclusion and public relations at the ABC.
“We are concerned about indigenous borrowers who have mortgaged assets such as land,” he said, emphasising the importance of protecting these vulnerable groups.
The guidelines also set out strict measures to safeguard borrowers who have already pledged such lands as collateral.
The guidelines, effective from August 16, also prohibit the acceptance of certain types of collectively-owned or state-owned land as collateral for new loans.
This includes state private land, public state land that is already registered, indigenous community land, collective land, land which is under the jurisdiction of the APSARA National Authority, wildlife sanctuary land, protected areas and other protected land.
These categories of communally-held or state-owned lands may not be accepted as security for new loan agreements.
In accordance with institutional guidelines, any collateral involving land must be handled with the utmost care and integrity. All financial institutions are strictly prohibited from using coercive sales tactics or encouraging customers to sell their land.
Upon full repayment of the loan, the title deed used as collateral must be promptly returned to the customer.
Additionally, the institution is explicitly forbidden from accepting personal identification documents –such as National Identity Cards, family books, residence books, passports, birth certificates or equity cards (ID Poor) – as collateral for credit.
Chan stressed that these measures are part of the broader responsibility of financial institutions to adhere to ethical lending practices, as outlined in the Code of Conduct which was issued in March 2022.
To ensure compliance, the ABC has established a hotline for customer complaints and plans to evaluate 30 institutions in the initial phase of enforcing these guidelines.
