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Cambodia’s informal economy slips through the cracks

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Waste pickers can be seen atop mountains of rubbish looking for items they can sell to support their family. SANGEETHA AMARTHALINGAM

Cambodia’s informal economy slips through the cracks

Informal workers have largely fed and clothed Cambodians for years but they continue to suffer with little benefits and social protection

Just before the entrance to the towering Dangkor landfill, Phnom Penh’s largest dump site, lies a cluster of makeshift wooden huts with tin roofs glistening in the sun.

The stench of decaying rubbish wafts in the hot air as several people are seen sitting in their verandah minding their children and chatting during their lunch break.

Most of them either sell hand-sewn sacks to recyclers who collect items from the landfill or are recycle item collectors themselves.

The repurposed sacks are made from used rice or cement bags and sold to rubbish collectors for 1,500 riel to 4,500 riel (about $1), depending on the size.

“The price has come down by about 200 riel because of the pandemic, yet rubbish collectors can’t afford to buy as many as before,” said 43-year-old Chan Ny, who has been in this business for six years, since her move to the site.

The village has no official name, seeing that it was established by migrants from neighbouring provinces, who had lost their livelihood and farmland for various reasons and hoped to secure a better life in the city.

This fairly new cluster is just 20 metres from another group of houses, which had been set up many years ago, as the landfill expanded.

Over time, and especially at the height of the pandemic when service industry workers lost their jobs and income, many turned to picking bottles, cans, cardboards and other scraps from rubbish bins and streets.

It made sense for some to relocate to the dumpsite and build simple shelters, and scavenge for useful items from the mountain of rubbish during the day, and sell their loot to recycling centres, said Ny.

“More and more people are moving here to work in the landfill after losing their jobs or small businesses they used to operate as they could not sustain the pandemic.

“We now have about 150 households. There used to be 130, until recently,” said the self-appointed village head, adding that everybody there possessed loans from microfinance institutions (MFI) and private creditors.

Among them is Ny, who has a $20,000 loan from a MFI which she took to build a house. She has has applied to restructure the loan because she is not able to service the debt but had yet to hear from the institution at the time of the interview with The Post last October.

In the meantime, the mother of two, aged 13 and five, has been borrowing from “other sources” to meet interest payments and daily household needs, which has inadvertently added to her debt burden.

Unfortunately, it is a common scenario with existing borrowers, particularly women and disabled persons in the informal sector, who are likely to borrow more from banks, MFIs or relatives, a study by UN Development Programme between July 2020 and January 2021 stated.

According to Vorn Pao, president of Independent Democracy of Informal Economy Association (IDEA), Ny’s situation is reflective of the state of affairs of informal workers, who represented nearly 90 per cent of total employment in 2019.

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Source: UN Development Programme

Back in 2016, the International Labour Organisation found that more than a third of those in the sector worked in non-agricultural segments including the service and industrial sectors.

However, during Covid-19, workers had to cope by relying on piecemeal income and additional jobs at construction sites, for example, while some returned to their hometowns to farm or fish.

Based on a survey conducted on 224 female street vendors, Pao said 70 to 80 per cent of those interviewed between early 2020 and March 2021 were facing “bankruptcy”.

The outcome was the similar with about 50 per cent of tuk-tuk drivers, some of whom were forced to sell their vehicles to support household needs.

Because they also depend on garment and other industrial workers, suspensions and unemployment faced by the latter meant that informal workers were equally hit, if not worse.

Assuming the average income loss by garment workers is 30 per cent, the knock-on effect on the informal economy would be double – 50 to 60 per cent, said Roth Vathana, director of Cambodia Development Resource Institute (CDRI)’s Centre for Development Economy and Trade.

Meanwhile, Pao told The Post that when the country reopened in November, street vendors could not operate their business again, as many had disposed off their street carts for money.

“If they wanted to do business again, they would have to borrow more money from the bank,” he said.

The situation is just as dire on a broader scale, given that many have eaten into their savings, as well as sold their assets including livestock, leaving them with little financial security, he said in a podcast with CDRI in December last year.

At the time, Pao shared that 90 per cent of IDEA’s 10,000 members, comprising motor-taxi drivers, tuk-tuk drivers, food and courier delivery riders and street vendors, were doing two to three jobs to make ends meet.

What he gleaned from the members was also that women were more impacted than men, given their greater presence in the informal sector where they hold jobs as maids, food sellers and scavengers.

“Since the time of the podcast on the debt situation, nothing has changed,” he said, adding that the only positive outcome from the country’s reopening was that “some” workers could “slightly afford” to service their loans.

Inefficient, insufficient

That being said, Pao opined that the loan restructuring process imposed by the National Bank of Cambodia (NBC) in March 2020 has not “really helped the borrowers” in the informal economy.

He suggested that financial institutions delay both the interest and principal of loans, rather than the interest only, which is the current practice.

“Both must be suspended … however, it is not [the case] as interest payments are still required. This is only delaying the payment of the principal. When the restructuring period is over, they [financial institutions] will recoup the interest and principal. This is why we say it hasn’t helped,” he remarked.

Echoing him, CDRI’s Vathana also felt that a household debt crisis might be looming as the loan restructuring initiative introduced by the NBC has been “inefficient” in dealing with the issue of debt.

“There are a number of risks. First, is the sale of assets because of the debt situation. Secondly, it’s reduced consumption and thirdly, the depletion of savings. I think, so far, we have seen the results from a number of surveys and our study [CDRI] which also points to similar risks,” he said.

In terms of loan restructuring, he explained, it is very “targeted” and looks at priority sectors such as businesses in the tourism and hospitality sectors, given the strong negative impact.

“[However] as you know, Cambodia has a large informal economy, so I would say that a significant segment of the economy [has been] left out and loan restructuring activities might not sufficiently reach these segments,” he stressed.

Furthermore, loan restructuring is based on applications submitted by borrowers, which Vathana opined that there was a “chance” that some clients might not want to apply.

This implied that the borrower would be inclined to keep a clean credit score so that they are able to access more credit in future. Instead, they may resort to “some other means” of solving or mitigating the shocks.

In addition to the short-term loan restructuring period, lasting only three to six months, there is also the likelihood that some might not even be aware of the availability of the loan forbearance option.

“In fact, we [did] a separate survey and one of the questions we asked [is] if they knew about the loan restructuring initiative, and a majority [said] they did not know about the initiative.

“So, that is something we have seen so far. Hence, [the NBC initiative] is not sufficient in order to cover those who are affected and not sufficient to probably help mitigate the shocks,” he said.

Manageable level

There is no data on the type of loans dispensed to the informal sector yet, Kaing Tongngy, head of communications for Cambodia Microfinance Association (CMA) contended when asked, but instead shared NBC’s breakdown on loans approved in 2020.

The data revealed that although household loans moderated to 31.3 per cent in 2020 compared to 34.1 per cent in 2019, it constituted the largest portion of credit disbursed by MFIs.

Studies have shown that loans taken by the informal sector are often consumption loans, which can be categorised as household loans.

“The microfinance sector will follow the new NBC guide on loan restructure to ensure the quality of loan in the sector as a part of our Covid-19 exit strategy,” he said, in reference to NBC’s prakas on the treatment of loans issued late last year.

Separately, the Socio-Economic Survey by Ministry of Planning’s National Institute of Statistics (NIS) stated that 34 per cent of Cambodians or some 1.3 million households were living in debt or faced liabilities in 2019/2020.

Content image - Phnom Penh Post
Source: NBC Annual Supervision Report 2020

Content image - Phnom Penh Post
Source: NBC Annual Supervision Report 2020

This is an uptick of 2.5 per cent from 2017 or 24.1 per cent from 2014, with average household loan size ballooning 85 per cent at 17.7 million riel (about $4,300) from 9.6 million riel in 2017.

By the end of 2021, Tongngy said CMA members had restructured loans with a total value of over $1.7 billion to 360,000 clients from various sectors.

While there is no guidance on the credit risk on loans in the informal sector, CMA predicts an overall increase of portfolio at risk of over 30 days, a measure for non-performing loan (NPL) ratio, in the early months of 2022.

However, he assured that it would be at a “manageable level”, from below two per cent currently. The forecast is on the basis that 10 per cent of active MFI loans will mature in the initial months this year.

NBC assistant governor Chea Serey did not respond to questions relating to a possible credit risk emanating from the informal sector.

Asked if those in the informal sector would be financially supported once NBC unwinds the loan restructuring policy, believed to be after June this year, Ministry of Planning spokesman Srey Da said the issue was not under his ministry’s purview.

“Cash transfer is provided by the [government] to poor people and families affected by Covid-19 without referring to informal people.

“As an IDPoor procedure, if a family thinks they are poor, they must apply to the commune authority where they live, as stated in the family book,” Da said, requesting that questions be directed to the Ministry of Labour and Vocational Training.

However, its spokesman Heng Sour said the informal economy is within the jurisdiction of the Ministry of Economy and Finance (MEF). The MEF failed to reply to a question on additional assistance apart from cash transfer programmes.

In the meantime, the government’s cash transfer programmes have been ongoing where some 700,000 people with IDPoor cards and unemployed persons in the tourism sector continue to receive cash aid.

Although, UNDP’s study showed that informal workers in micro, small and medium enterprises claimed to “not have received any government support”, while 70 per cent of those surveyed in January last year still hoped for government assistance.

“It is true that many informal workers have not received social protection because 80 per cent of informal workers are urban migrants, especially to Phnom Penh, and they live in rental homes. So registration is not easy,” Pao said.

Social protection law

Nevertheless, there are other ways the government can help the sector, including programmes on how to run a small business using smartphones, enhancing e-commerce knowledge and skills, vocational training, and ensuring social benefits and decent working conditions.

For those facing bankruptcy, Pao said the government via the National Social Protection Council could provide temporary funds to help safeguard vulnerable households.

Additionally, he urged that the CTP document registration mechanism be improved, including training lower level government officers to understand the process and significance of financial assistance to vulnerable communities.

Notwithstanding that, Pao pointed out that the Social Protection Policy Framework 2016-2025 which led to the enactment of the draft law on social protection system, also covers self-employed and informal workers.

“In the legal document, healthcare and pensions are mentioned but the law is not clear on this. It would need an anukrit [sub-decree] so that they can receive the benefits,” he said.

Back in the Dangkor village, Srey Chan, relies on the sale of repurposed sacks and the salary of her husband, a delivery van driver, to run their household, which includes her four-year-old and five-months-old daughters, and elderly in-laws.

Chan, 28, said together they earn around 40,000 riel (about $10) on a “good day”, which is still a “little better” than it was in the province.

“We are from Prey Veng but we had to sell our farm land as we needed money. My parents are old, so I also send money home because they don’t have an IDPoor card,” said Chan, who moved to the village early 2021.

That means, her husband does odd jobs including collecting plastic bottles and scrap metal from the dumpsite to sell to ensure they have enough.

Going forward, assuming the social protection law is promulgated along with strengthened mechanisms, Chan and scores of others in the informal economy would be able to live more productive lives. That is the hope.

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