80% of Cambodia’s total population lives in rural areas, relying mainly on subsistence agriculture and rice cultivation.
In a survey of 133 households across 6 villages, more than half reported needing to borrow money to pay for healthcare services in the last two years. Interest on these loans range from 24% - 60% per annum.This is a significant burden in the context of small land holdings, rising cost of inputs into production and uncertain income levels.
This research report aims to understand the level of debt due to health care costs amongst surveyed households in rural communities in Prey Veng and Kampong Chhnang provinces, and gain insights into the challenges faced by households who are indebted and their coping mechanisms particularly with regard to healthcare and agriculture production. It also looks to understand the role and policies governing the operation of Micro-Finance Institutions (MFIs) and commercial banks in Cambodia.
Section 1: Background and literature review
Despite strong economic growth, poverty remains a prevalent issue in Cambodia, particularly in rural areas.
Prior to 1996, access to healthcare was officially free for Cambodian people. The government subsidized the provision of health services and people could access services, regardless of their economic status. However, supply was limited and under-the-table charges were common. In the mid-1990s, a health sector reform was initiated which aimed to expand health infrastructure coverage, improve management and find ways to finance health service delivery and quality. In 1996, a Health Financing Charter was adopted and the right to charge a scheduled user fee at public health facilities was approved. This was one of the loan conditions of the World Bank. By 2008, user fees were implemented in almost all government health facilities. Studies show that this has had the biggest impact on the poorest segment of the population, with financial cost being a key barrier preventing the poorest people from accessing healthcare. This is partially mitigated by the Health Equity Fund where poor households are paid for healthcare services they use, and associated costs such as food and transport during hospitalization.
At the national level, total health expenditure for 2012 was US$763 million, representing more than 5% of Gross Domestic Product, or US$52 per capita. Of this, private out-of-pocket expenditure accounted for 61% (or US$ 31.72 per capita); government spending represents 15% (or US$7.80per capita). This OOP spending is among the highest in Asia. An Oxfam study in 2000 revealed that cost of healthcare contributed to an emergence of landlessness in Cambodia. Another study conducted by the UN Development Program found that on average about 20% of household loans is spent on healthcare. Healthcare expenditure is an important determinant in explaining poverty at the household level in Cambodia, particularly among poor families. It is both a cause and consequence of poverty.
As in other developing nations, Cambodian households pay for healthcare by using savings, reducing consumption, borrowing from friends and relatives, selling assets or obtaining loans. A major cause of indebtedness among rural households in Cambodia can be attributed to unexpected healthcare expenditure, such as treatment for dengue fever (which is common and widespread in rural areas). It is common for people to resort to selling productive assets such as land and animals to cover healthcare spending or repay loans used for healthcare.
The connection between healthcare indebtedness and landlessness is a feature of the vulnerability of rural households and a major cause of falling deeper into poverty. In fact, the unexpected cost of healthcare can have a greater economic impact than crop failure.
Section 2: Research Methodology
In February 2014, 133 households in six villages, across Kampong Chhnang and Prey Veng provinces were interviewed. In April and May, further in-depth interviews were conducted with 22 of these households. In addition, the research team interviewed local authorities, officials from the Department of Agriculture, Forestry and Fisheries, health authorities, bank and MFI representatives, informal credit providers, savings groups and local informants.
Section 3: Research Findings
Respondents in the study are mainly rice farmers who depend on incomes from rice harvests and remittance from migration work to supplement day-to-day expenditure and any unexpected expenditure that the family may face. A small proportion of households surveyed operate small businesses such as a grocery store, collecting and selling firewood, wage laborers or cake/food selling in the village.
While most own their own farm land, only 3% own two or more hectares. 59% own one hectare or less.
Just over one third keep all rice production to feed their families, while 60% keep some for family consumption and sell some (at a price ranging from 700R to 1,400R per kg).
Only 42% of respondents reported that the rice yield they harvest is sufficient to feed the family throughout the year. 53% reported that it is not. When the rice paddy is consumed, respondents depend on income from wage labor on the rice field or construction site, or remittance from family members to buy white rice.
While keeping rice for family consumption is vital for self-sufficiency, the situation in many households does not allow this. A significant number of households in the survey and in-depth interviews reported that they are forced to sell a considerable portion of their rice harvest in order to repay the cost of agricultural inputs (such as chemical fertilizer, harvest machinery fees or labor costs), meet other daily expenses or repay debt. Many agricultural inputs are bought on credit.
There is no government policy to control the minimum price of rice or control the cost of inputs such as rice seeds or chemical fertilizer.
76% of respondents are indebted, with an average debt of 3,103,513R (US$776), though 57% have a debt of less than 1,000,000R (US$250)
40% of those in debt used the loan to pay for healthcare.
There are 3 main types of loans that households in the study utilize:
A. loan provided by formal registered lending entities such as local bank and MFIs (with interest rate of 24-36% per year),
B. loan provided by informal lending sources such as local money lender or unregistered creditor (with interest rate of 36% - 60% per year),
C. loan from savings scheme or NGO program (interest rates between 0% - 24% per year).
Loans from relatives/family members that charge no interest are also obtained sometime.
In terms of household expenditure, spending on healthcare is second highest, after food.
Often, families wait and see how an illness develops before seeking medical care. This delay can lead to higher cost of expenditure and increased severity of illness. Two thirds of respondents prefer to use private health facilities rather than public health facilities due to lack of resources at public health facilities.
Impact of debt and households’ coping mechanism
In order to cope with debt repayment, surveyed households resort to taking new loans from formal and informal sources, selling rice and/or draft animals and migrating to seek alternative income.
Labor migration, both seasonal and permanent, is a vital coping mechanism for debt among the surveyed households. Common destinations include nearby cities, areas near the Thailand-Cambodia border and factories in Thailand. The main types of work include factory work, construction and work in plantations. For the many workers seeking employment and an immediate wage in cassava plantations, there are few, if any, labor, health, welfare or other protections.
Section 4: Discussion and conclusion
Although the government has set ambitious targets for production and export of rice, there are no guarantees on a minimum rice price nor are there controls on the price of inputs such as chemical fertilizers.
Farmers, who often do not produce enough to sustain their families, need to borrow money to pay for inputs and are then forced to sell some of their crop to repay debts. Where an unexpected health event such as a major illness occurs, further debt is incurred to pay for the cost of treatment.
In 2009, the new Civil Code of Cambodia stated that interest rates should not exceed 5% a year, unless otherwise agreed by both parties. There is no other regulation that caps the interest rate charged by MFIs and unregistered money lenders in Cambodia, leading to organizations and individuals charging 24%-60% interest on loans. As seen after the 2011 floods, a critical number of new loans are taken to repay an existing loan. This creates a cycle where households are unable to get themselves out of debt, most particularly if the loan has been used for healthcare. Households have to pay money regardless of whether they use state or private health facilities. However, the service from private providers is timelier but the cost is higher.
Labor migration appears to be a common and crucial coping mechanism among rural households. Remittance from laborers plays an important role in the rural economy and has multifaceted uses, including purchasing inputs for production, household survival, repaying debt, medical treatment, education and other vital support for the household function. There is cause for concern though, with little wage movement, massive numbers of workers being returned from Thailand due to policy instability in this country, and agricultural plantations operating with little or no labor protection.
It is crucial that the Royal Government of Cambodia, through regulations and other measures, ensures that there are sufficient protections for farmers with small holdings both in their rice production and access to credit at low interest rates.