The realities of microfinance lending in small developing countries which lack strong financial regulators has been once again illustrated by new research on the role of South Korean banks in Cambodia.
“Preying on Poverty” was published in June by Korean Transnational Corporations Watch. The research is based on interviews with 14 Cambodian families who borrowed from the South Korean-owned KB Prasac and Woori banks, carried out in August 2024.
The interviewees said that their families had to cut back on food to try to meet repayments, and most of the children had dropped out of school in order to work. The banks were routinely seeking land and property as collateral, and engaging in high-pressure tactics including public humiliation to get repayments.
Staff at the banks were highly incentivized with small basic salaries and commission payments for selling loans. Non-performing loans had to be avoided at all costs, with KB Prasac staff losing all their commission if the ratio of such loans in their portfolio rose above 3 percent.
The Diplomat has contacted KB Prasac and Woori to seek responses.
The report’s sample is small, but the evidence does not exist in isolation. The U.N. Special Rapporteur on human rights in Cambodia in July 2023 said that 167,000 families had been forced to sell their land over the previous five years due to excessive microfinance debt.
KB Prasac is already under investigation by the World Bank’s International Finance Corporation (IFC) following a series of complaints in June 2024. The IFC is investigating the cases because it made an investment in KB Prasac via its holding in the Microfinance Enhancement Facility.
In March 2025, the IFC published an assessment report based on its investigation into one of four cases. A separate IFC compliance investigation started in 2023 regarding the practices of six financial institutions in Cambodia, including Prasac.
Flawed From the Start
Prasac was established in 1995 as a European Union development project intended to try and help Cambodia to rebuild after the 1991 Paris Peace Agreements. The belief at the time was that such NGOs could help Cambodia to recover from the effects of the Khmer Rouge regime of 1975 and 1979, and the decade of war which followed Vietnam’s 1979 invasion.
The idea was that NGOs such as Prasac, which stands for Programme de Réhabilitation et Appui au Secteur Agricole du Cambodge, could help to remedy the shortfalls in government services due to the lack of capacity of local institutions. It originally focused on roles often played by government, such as irrigation schemes and water supply, as well as lending and small business development.
Research from the International NGO Training and Research Center (INTRAC) published in 1996 found that Prasac displayed “serious weaknesses in design in planning, primarily because the developmental sectors in which it works are not amenable to a ‘rapid impact’ approach.”
INTRAC’s report said that Prasac’s “institution building objectives are not made explicit and have led to confusion about outcomes, particularly in the credit sector.” Even in 1996, INTRAC found, people borrowing $50 from Prasac were being required to provide written evidence of land holdings.
The pitfalls of trying to graft microfinance onto a complex and fragile local political reality were ignored. This is not hindsight. It was clear in 1996 to INTRAC, which found that large numbers of government staff were getting additions to their salaries from the Prasac budget. These payments were usually many times greater than the official government salaries. INTRAC cautioned that “working in direct support of government departments may often not be the most productive type of intervention for NGOs in Cambodian circumstances.”
Cambodia at the time was ruled by a coalition between the royalist Funcinpec party, the winner of the 1993 elections organized by the U.N. and Hun Sen’s Cambodian People’s Party. INTRAC in 1996 pointed out that Prasac’s planning largely disregarded the possibility of political change in Cambodia. In the following year, 1997, Hun Sen ousted Funcinpec in a violent coup.
The close relationship between the government and Prasac continued under Hun Sen. Prasac was licensed by the National Bank of Cambodia as a microfinance lender in 2003 and became one of the largest such lenders in the country. In 2017, Hun Sen had to order Prasac to change its logo because of public confusion as to whether the lender represented the government. South Korea’s Kookmin Bank bought 70 per cent of Prasac in 2020, with the lender being rebranded as KB Prasac Bank in February 2024.
Today it is clear that the early optimism of the EU was misplaced. Prasac stands accused of playing a leading part in turning microfinance lending in Cambodia into an exercise in sharp commercial banking which seeks to extract maximum profits from one of the world’s poorest populations.