The Cambodia Microfinance Association, an industry regulatory body, stipulated that such high-risk refinancings should be less than 5% of a lender’s portfolio. Prasac had breached that ceiling, according to Heimes, though it wasn’t clear by how much. ResponsAbility says on its website that the 5% limit is an important “countermeasure against market overheating.” But Heimes says the firm assessed the breach as “ultimately acceptable” and considered Prasac still certified. He says responsAbility was assured by Cambodia’s central bank and the Cambodian Microfinance Association that the largest microlenders were not involved in pressuring delinquent borrowers to sell their land. “They are also monitoring the behavior of their staff looking for any bad apples that might not be behaving well,” he says, adding that LOLC Cambodia and Prasac also denied being involved.
LOLC Cambodia said in an emailed statement that its agents do not pressure delinquent borrowers to sell land or homes to repay debts and that such behavior is prohibited by the firm’s code of ethics. The lender said it has not received any complaints from customers alleging such practices.
Fixler says she played no role in choosing which firms were included in the CLO. Her intention was to help improve poor people’s lives by opening up the microfinance industry to institutional investors to help bridge a funding gap. Fixler became an impact investing celebrity in 2021 after blowing the whistle on greenwashing at DWS Group, Deutsche Bank AG’s asset management unit, where she was head of sustainability until she was fired that April. She alleged in an interview with the Wall Street Journal in August that DWS had exaggerated how many of the firm’s assets had been screened for ESG criteria, claims now being investigated by authorities in the US and Germany.
Fixler’s back in New York working as a consultant for companies looking to burnish their ESG credentials. Although she isn’t working on any impact investing deals, she says she’s open to doing so again.
While Sokna and other Cambodians lost their livelihoods during the pandemic, Prasac reported a $155.5 million profit in 2021, a 43% rise over the previous year. Six of the eight largest Cambodian microlenders, including Prasac and LOLC Cambodia, also reported record profit that year. Prasac and LOLC have posted returns on equity of more than 27% in most of the past seven years, almost double the rate many in the industry view as the border between a fair profit and exploitation.
“If someone is doing good and making a good return out of it, I don’t think that’s a bad thing,” says responsAbility’s Mueller. “You’ve hit the sweet spot maybe. We’re not judging them on their profits.”
Mueller says microfinance has had a positive impact in Cambodia and that responsAbility has deals with both lenders in the pipeline. But, he says, his fund is “acutely aware” of the risks of over-indebtedness and unfair client treatment.
Last year responsAbility sold a $177.5 million “social bond” marketed as contributing to United Nations sustainable development goals in a post-Covid world. The Swedish International Development Agency and Danske Bank A/S were investors. Prasac and LOLC Cambodia received funds from that deal too. ResponsAbility has started work on a follow-up deal that Heimes and Mueller say they hope will appeal to a broader range of investors, including hedge funds and insurance companies.
As for Sokna, she has only recently returned to work after giving birth at the end of January. She says she’s concerned about her family’s future. The man who bought her house and land has put it on the market for $50,000 — $20,000 more than she sold it for — but she has no hope of raising that much money to buy it back. She used all her savings to repay Prasac and now has only $75 to her name. “I need to spend more for my children’s study,” she says. “I am very worried.”
— With Michael O’Boyle, Sinduja Rangarajan, and Christopher Cannon.