Key characteristics of indebted households and their indebtedness
A total of 47 representatives of households indebted due to health care costs were interviewed. They were questioned about household characteristics, degree of indebtedness and associated amounts, the concerned health problem for which loans were sought, care seeking behaviour, borrowing practices, source(s) of credit and related conditions, and coping mechanisms.
Table
1 summarises key characteristics of the 47 indebted households and their indebtedness according to place of residence. About half of them were from rural areas, the rest were urban residents. The main sources of income were daily labour and small business for the urban group compared to farming and foraging for the rural group. Based on socio-economic assessment criteria of HEF, they were all poor households at the time of interview.
Table 1
Key characteristics of the indebted households and their indebtedness
Male-headed households (%) | 16 (67) | 16 (70) | 32 (68) |
Mean number of household members (SD) | 4.5 (1.8) | 6.1 (2.2) | 5.3 (2.2) |
Mean number of dependents (SD) | 2.8 (1.5) | 4.2 (2.1) | 3.5 (1.9) |
Households by main source of income (%)
| | | |
Farming | 0 | 20 (87) | 20 (43) |
Casual labourer | 11 (46) | 1 (4) | 12 (26) |
Small business | 9 (38) | 0 | 9 (19) |
Other sources | 4 (17) | 0 | 4 (8) |
No income | 0 | 2 (9) | 2 (4) |
Households by socio-economic status (%)
| | | |
Very poor | 10 (42) | 7 (30) | 17 (36) |
Poor | 13 (54) | 15 (65) | 28 (60) |
Near-poor | 1 (4) | 1 (4) | 2 (4) |
Median (mean) of total debt in US$ | 138 (516) | 70 (211) | 125 (367) |
Median (mean) number of outstanding loans | 2 (2.7) | 1 (1.8) | 2 (2.3) |
Median (mean) rate of monthly interests in % | 10 (11) | 7.0 (23.4) | 10 (17) |
Main sources of debt (%)
| | | |
Money lenders | 15 (63) | 10 (44) | 25 (53) |
Relatives/friends/neighbours | 4 (17) | 9 (39) | 13 (28) |
Microfinance organisations | 3 (13) | 1 (4) | 4 (9) |
Banks | 1 (4) | 2 (9) | 3 (6) |
Others | 1 (4) | 1 (4) | 2 (4) |
The average amount of pending debt was largest in the urban group. The main sources of reported loans in both groups were money lenders (53%) and relatives/friends/neighbours (28%). Urban interviewees reported the highest monthly interest rate.
As mentioned by Phlong [
25], loans with interest from informal money lenders or Changkar are mostly used for urgent and unanticipated financial requirements as they are relatively flexible and easily accessible with no or limited paper work. Often no collateral is requested except for big loans or for persons without permanent residence. A clear deadline for repayment is set though not strictly respected, as failure to respect the deadline does not necessarily result in severe sanctions but translates into harassment by the lender against the borrower to identify means to repay the debt, including sale of assets.
The
Changkar include five different kinds of loans, each with proper requirements and implications (Table
2), as elaborated with examples below.
Table 2
Overview of informal credit types and associated conditions
Short-term loan (Luy Roab) | | +++++ | ++++ |
· Short lending period: 10–20 days | · Quick, easy access; addressing urgent requirements | | |
· Relatively small amounts | · High interest rates coupled to daily repayment | | |
· Daily repayment | | | |
· High interest (20%), to be paid as extra days of repayment | | | |
· Common in areas with commercial activities | | | |
· Usually no requirement for collateral or paper work | | | |
Medium-term loan (Luy Ruos) | | +++ | +++ |
· Lending period few months to a year | · Large amount for relatively long period | | |
· Relatively big amount | · High interest rates and requirement for collateral, making it less accessible for poor people | | |
· Interest rates of 5-10% per month | | | |
· Deadline for repayment | | | |
· Collateral required as well as official transaction | | | |
Seasonal loan | | ++ | ++ |
· In-between season lending: 6–10 months | · Easy access for farmers | | |
· Relatively big amounts | · Repayment follows the farming cycle which is convenient for rural people | | |
· Interest rates of 50-100% for the season | · Repayment in kind, just following harvest when prices are low | | |
· Repayment after harvest, in crops | | | |
· Very common Simple or no conditions | | | |
Loans for unspecified period (Luy Ngoab or Luy Chho) | | ++++ | ++ |
· Unspecified period | · Easy access for the poor | | |
· Variable amount | · Absence of repayment deadline is favourable for poor people | | |
· Relatively high interest: 1%/day; 5-30%/month | · High interest rates, | | |
| · requirement for collateral for big amounts | | |
· Flexible timing for repayment | | | |
· Collateral for large amounts | | | |
Loans with repayment in labour (Yok Dai) | | + | + |
· Variable, though mostly short, lending period | · Easy access, especially for the poorest | | |
· Relatively small amount | · No money required, independent of cash flow | | |
· Interest of 100% for whole period | · Undervalued labour | | |
· Repayment in labour valued at 50% | · Hampers foraging on which poor depend for survival | | |
· Only available in rural areas | · High interest rates | | |
· No lending conditions | | | |
Short-term loans cover a very short time period, typically between 10 and 20 days, though exceptionally 60 days or more. The amount is relatively small, often less than USD100. The payment is done through daily instalments of a fixed amount till the total amount is paid off with a few extra days for the interest (this may not be explicitly seen by some borrowers as interest). The interest often amounts to 20% of the loan. These loans are called ‘Luy Roab’ (counting money) in the vernacular and are common in areas with business activity such as markets. Because of its accessibility, this type of borrowing is commonly used by the poor to meet their health care costs.
"
An HIV-infected widow with a 4-year old child residing in a village in Siem Reap. She has no property and lives with her brother. Her husband died of AIDS 10 months before the interview. When he was still alive, he was shopping around to treat his disease, mainly consulting private health practitioners and traditional healers. He spent about US$5,000 for various treatments whereby they borrowed many times from different lenders. The last loan was US$200 obtained from a money lender in their village. The amount to pay back was US$240 with a daily repayment of US$20 during 12 days, including the 20% interest rate. Unfortunately, her husband died after which she sold her plot of land and finally her house to reimburse the debts. She still had a debt of US$500 when interviewed, 10 months past the deadline. The lenders came to ask her every day. She sells wine, which allows her to earn a maximum of US$0.5 a day. She receives free antiretroviral treatment from an NGO, enabling her to restore her health but is of the opinion that she will never be able to pay back her outstanding debts.
"
Medium-term loans are called ‘Luy Ruos’ (living money). The period of lending ranges from several months to one year. The amount of this type of loans can be significantly bigger than the short-term loans, up to USD500 or more. Interest is to be paid monthly and the loan capital should be repaid as a lump sum by the agreed deadline. The monthly interest rate is usually between 5% and 10%. Because the amount of the loan is considerable, collateral is often required and an official transaction document such as a signed paper is made. However, with trustful relationships built from previous loans with the lender, some households can borrow without collateral, but often have to pay double amounts of interest instead. This kind of loan is not common for covering costs of illness because the procedures to obtain it are unfit for meeting urgent financial needs.
"
A young couple living with 3 relatives in a slum in Phnom Penh. The wife used to work in a garment factory at US$40 per month. Because of a worsening chronic heart condition she stopped working. Her husband and brothers are daily labourers and can jointly earn about $5 per day. Her husband borrowed US$600 from a private money lender in the village to buy a motorbike and to pay for health related expenses of his wife (about 40% of the loan). It was a loan for 4 months at a monthly interest rate of 6%. Unfortunately, his motorbike was stolen; he put a pair of golden ear rings as collateral, estimated at US$40. The creditor confiscated them because he was unable to pay the monthly interest for almost two months at the time of interview.
"
Seasonal loans (no particular local name) are common among farmers who face cash constraints during certain periods, especially before planting season. The lending period ranges from six to ten months, typically till the next harvest. The interest rate for the whole lending period varies from 50% to 100%. The interest and the loan capital are repaid at harvest time in the form of rice, but calculated in monetary value. This mode of repayment is unfavourable to the borrower as it occurs just after the harvest, when the commodity price is low. Additionally, the borrower often does not realise the loan comes with such a high interest rate. Although this loan is commonly used for agricultural investment, few use it to pay for health care-related costs.
"
A rural family of 9 people (parents with 7 children) with an income based on farming and foraging. The mother was admitted to the provincial hospital in Siem Reap for post-operative complications three months prior to interview. Her situation had not improved since. About US$500 was spent on hospital fees, transport, food and other immediate needs during the hospitalization. The money was borrowed despite benefiting from free hospitalisation through the health equity fund. To meet the above mentioned expenses they borrowed US$250 from a relative and another US$250 from a money lender, without putting collateral. Both loans are to be paid back at the following harvest. The relative did not charge interest while the money lender demands 50% for the whole period (Repayment of US$375 for the loan of US$250).
"
Loans for an unspecified period, called Luy Ngoab or Luy Chho (death money or stand-by money), are provided until the borrower can repay. Interest has to be paid regularly on a daily, weekly or monthly basis and the interest rates depend on the lender and amount of loan with bigger loans tending to have lower interest rates. The daily interest rate is often 1%, while monthly interest rates vary from 5% to 30%. The amount of loan also varies from around USD25 for a loan with daily interest payment to USD400 for loans with weekly and monthly interest payments. This type of loan is commonly used by poor households to pay for health care, but often the sum of interest exceeds the amount borrowed.
"
A rural middle class family of 6 people with three children employed and one at school. The children earn US$1-1.5 per day while the father gets US$1.25 -1.75 per day. The family had a plot of land valued at US$5,000, five hectares of rice land and 4 adult cows. The wife was diagnosed with diabetes one year before the interview. Initially she was hospitalised at the district hospital after which she sought care from private providers in town. They sold 4 cows for US$500 and twice rice land for a total of US$475 and borrowed US$250 from a money lender to pay for her health care and other related costs. The loan was without collateral or deadline but came with a monthly interest rate of 5%. They intend to sell their remaining land if they are unable to meet the monthly debt repayment of US$12.5. She pays monthly US$16.5 for drugs and laboratory tests at a private provider.
"
Loans with repayment in labour are provided in cash but reimbursed in labour and termed ‘Yok Dai’ (taking hand). Respective borrowers are often very poor with limited ability to find enough cash to pay back. The loan is thus calculated in terms of the amount of daily work required, mostly farming work such as cutting or planting rice. The interest is hidden in the reduced value of labour which is repaid at below market prices. This type of loan is not everywhere practiced and related amounts tend to be small, often not more than a few dollars. Consequently, it is not so helpful for the poor to meet their health care costs, as these are often far higher.
"
A very poor family consisting of a 15-year old orphan and his 68-year grandmother. The family has no regular income and relies on donations by relatives and neighbours. For treatment of the grandmother’s chronic illness they borrowed US$20 from a well-off farmer in the village. Since they had no income, the child had to work to repay the farmer. The daily payment for his labour was US$0.50 versus the prevailing market price of US$1 or more. Theoretically they could repay the US$20 within 40 days but, two years later, they had not been able to do since new loans were taken.
"
The reported health problems leading to borrowing among the 47 households were a mixture of major infectious diseases (such as AIDS, dengue, typhoid fever, severe malaria, meningitis, severe injuries and acute abdominal syndromes) that require hospitalization, including major surgery, and chronic non-communicable diseases (such as diabetes, hypertension, heart diseases, asthma and cancer), which require lifelong treatment. Two respondents in Phnom Penh reported normal delivery as a cause of their indebtedness.
Care for infectious diseases and other acute problems was mainly sought from public hospitals. For chronic diseases, on the contrary, both public health facilities and private providers were consulted. Major expenses for chronic diseases were reported to stem from consulting private providers. The cost correlated with the number of providers consulted which resulted from shopping around for successful treatment. It is interesting to note that many of the indebted households were poor and eligible for HEF assistance; some did benefit from such assistance.
In response to the question of how would they pay off the debt, the large majority of the respondents said that they had no way to do so. For those who thought they were able to repay, most would resort to selling their last piece of land, working more or borrowing from relatives and friends.