The anti-politics of impact investment: Financial self-regulation,market competition and over-indebtedness in Cambodia

Introduction

Social impact investors argue that globalized private capital is necessary to achieve the United Nation’s Sustainable Development Goals by 2030 (GIIN, 2022). By claiming to embed social values into financial markets, impact investors aim to achieve both a profitable return on investment and solve pressing global challenges like poverty alleviation (Chiapello and Knoll, 2020; Dal Maso et al., 2022; Langley, 2020a). While social impact investors channel funds into a range of sectors like health, education and housing across the global north and south, a major destination for impact investment is the microfinance industry. Working closely with impact investors, this industry has integrated into mainstream capital circuits to scale up financial services, notably credit, to poor and low-income households (Aitken, 2013; Bernards, 2022; Mader, 2015).

Economic geographers and critical development scholars have demonstrated that social impact investment reinforces a neoliberal agenda of governing poverty through financial markets (Chiapello and Knoll, 2020; Harvie and Ogman, 2019; Langley, 2020a, 2020b; Mitchell, 2017; Rosenman, 2019). Championed by financiers and philanthropists alike, impact investment reorients social life around financial logics, technologies and accumulation imperatives. In doing so, it has further supplanted, or impeded, the provisioning of welfare services by the state. In its place, impact investors have devolved the governance of social challenges like poverty to a diverse landscape of actors who together have erected the regulatory, institutional and technological infrastructures to measure, monitor and change people’s economic behaviour (Berndt and Wirth, 2018; Hughes-McLure and Mawdsley, 2022; Stolz and Lai, 2019; Williams, 2024; Wirth, 2021). Such intervention is legitimized through discourses of the moral nature of markets, alongside the scientific rationality of results-oriented development, which the financial industry is supposedly best suited to provide (Dal Maso et al., 2022; Kish and Fairbairn, 2018; Mitchell, 2017). However, this critical research has not yet looked at how impact investors seek to resolve the very problems that they have helped to create in the first place. This is a problem, because examining how impact investors seek to get the markets right, despite constant failure, can provide important insight into how social challenges like poverty are governed through finance in ways that entrench social and economic injustices (Bernards, 2022; Cohen et al., 2022; Mitchell and Sparke, 2016).

To address this issue, I analyse how the microfinance industry in Cambodia has recently adopted a new code of conduct to resolve a crisis of over-indebtedness across the country. Over the past 20 years, a range of impact investors, including development finance institutions, private fund managers and philanthropic groups, have channelled billions of dollars to Cambodia’s commercial microfinance industry, helping it to become the largest in the world on a per capita basis (Bevacqua, 2017; Green, 2023a, 2023b). However, these foreign impact investors have recently faced criticism by Cambodian human rights organizations, journalists and academics, who argue that impact investors have fuelled irresponsible growth within the industry (Equitable Cambodia and LICADHO, 2021). By driving borrowers into over-indebtedness, whereby hundreds of thousands of people now struggle to repay their debts, banks and microfinance institutions have forced households to take desperate measures that impoverish them further. These measures include distress land sales, forced migration, eating less food and child labour, among others (Bateman, 2019; Brickell et al., 2023; Bylander, 2014; Green and Bylander, 2021; Natarajan et al., 2021). In response to rising criticisms, foreign impact investors have worked closely with national regulators and industry leaders to create a new code of conduct. Adopted in March 2022, this code of conduct requires all formal lenders in Cambodia to follow a set of responsible lending guidelines and encourages them to become certified for client protection by Cerise + Social Performance Task Force, a joint venture of two organizations that promote social performance management in the global microfinance industry. At the launch of this new code of conduct, industry leaders claimed that it would usher in a more ethical and responsible era of financial service provisioning in Cambodia.

In contrast, I argue that impact investment for microfinance functions as an ‘anti-politics’ of development (Ferguson, 1994), contributing to the very over-indebtedness crisis in Cambodia that voluntary regulations aim to prevent. As impact investors have poured capital into the country’s microfinance industry, they have claimed that over-indebtedness is best resolved through a set of technical and market-based reforms outlined by the industry’s new code of conduct. However, in this process of ‘rendering technical’ over-indebtedness (Li, 2007: 7), they have overlooked the structural political-economic conditions that have caused microfinance borrowers to be impoverished from debt. Nor have impact investors acknowledged how they consciously built up a microfinance industry driven by shareholder profit and lack of consumer protection regulation, in which market competition has undermined proper loan underwriting and driven aggressive debt collection practices. Finally, lacking any legal mechanism or public accountability to enforce the industry’s voluntary regulations, banks and microfinance institutions regularly violate their own code of conduct with impunity. In these ways, impact investors have reinforced finance as a political technology of neoliberal governance.

In making this argument, I aim to advance critical scholarship on impact investment and the financialization of development. Although impact investment still constitutes a small share of global assets, it has major political significance because it provides an ideological cover for the reproduction of capitalist social relations under conditions of financialization (Cohen et al., 2022: 2357; Green, 2023b). Arising in the aftermath of 2008, impact investment is the latest attempt of financiers to ‘capitalize on crisis’ (Krippner, 2012). Financial markets have been recast as the solution, rather than the cause, of social problems. Impact investment thus provides a moral justification for the broader goal of maximizing private finance for development – a goal championed by a range of powerful global development actors (Alami et al., 2021; Carroll and Jarvis, 2014; Gabor, 2021; Mawdsley, 2018a, 2018b). By analysing how impact investors aim to resolve financial crises through the extension of even more finance – however ‘ethical’ in nature – I demonstrate that impact investors not only entrench neoliberal governance, they also exacerbate the contradictions inherent to a finance-driven mode of development, namely the tension between financial self-regulation and market competition.

I begin this paper by conceptualizing social impact investment as a political technology of neoliberal governance in the wider context of the financialization of development. Following this, I describe my research methodology. I then explain how impact investors have helped create Cambodia’s microfinance industry before analysing two voluntary regulations of the industry’s new code of conduct: Cerise + Social Performance Task Force client protection certification and the responsible lending guidelines. I maintain that these regulations are based on financial logics and technologies that have failed due to contradictions within the self-regulated market. I conclude by way of summarizing the argument and identifying its broader implications.

Governing poverty through financial markets

In recent years, a consensus has emerged that official development assistance and philanthropic charity are insufficient to fund the investments required to address global issues like climate change and poverty. Instead, public and charitable money are supposed to escort private capital into frontier and emerging markets (Carroll and Jarvis, 2014; Mawdsley, 2018b). State policymakers assist this effort by connecting domestic economies to the global financial system and creating investment opportunities in key areas like infrastructure and climate change mitigation. Rather than regulate market rule or provide services for citizenry, the primary role of the state is now to de-risk private investment for development. This is achieved by adopting inflation-targeting monetary policy, promoting public-private partnerships and provisioning guarantees to private investors (Gabor, 2021). Such financialization of development has been rolled out alongside ongoing structural adjustment on a global scale, in which austerity policies have either dismantled, or impeded, the welfare state (Mitchell and Sparke, 2016).

Social impact investment plays an important role within this trend. On the one hand, the global market for impact investment has grown rapidly in the past 15 years. Following the 2008 financial crisis, national and multinational groups launched numerous initiatives to promote impact investment. Hence, by 2022, global assets under management by impact investors had grown to more than one trillion USD (GIIN, 2022). This market is set to continue growing, particularly as mainstream institutional investors increasingly manage their portfolios in the name of social and environmental benefits (Clark and Dixon, 2023). On the other hand, impact investment provides an ideological justification for utilizing finance to solve pressing problems. Impact investment combines a liberal bourgeois faith that markets can be used to achieve ethical goals alongside a neoliberal epistemology that markets are the most efficient means to organize human life (Dal Maso et al., 2022). In short, impact investment is a tool to reform capitalism without dismantling the system itself (Chiapello and Knoll, 2020).

Social impact investment has developed hand-in-hand with the global microfinance industry. As the first industry to supposedly demonstrate that social returns and profits are not mutually exclusive, microfinance has inspired many social impact investment schemes worldwide (Rosenman, 2019: 147). Moreover, as the impact investment market took off in the 2010s, the commercial microfinance industry was well positioned to channel private funds to so-called ‘beneficiaries’ in the name of economic development and social impact, particularly in poorer nations (Aitken, 2013; Mader, 2015). At this time, the mission of the microfinance industry shifted from enterprise-based lending to a much broader remit of financial inclusion, in which expanding access to finance for any purpose was claimed to be the best strategy to promote economic development and reduce poverty. Proponents of financial inclusion have argued that the only way to scale-up access to finance is to connect the microfinance industry into mainstream circuits of globalized finance (Mader and Sabrow, 2019).

Impact investors have facilitated this process with great alacrity. In 2015, the microfinance industry accounted for the largest allocation of impact investments globally. Despite a declining share, the microfinance industry was still the third largest destination for impact investment around the world in 2020 (GIIN, 2020: XVII). This capital investment has come from a range of sources. Large multilateral and bilateral development finance institutions have mobilized public and private capital to fund the commercial industry, offering concessional debt financing, technical assistance and start-up equity. Private investment funds focusing on financial inclusion, known as microfinance investment vehicles, have also created a range of new opportunities for institutional and retail investors to invest in microfinance (Aitken, 2013). Together, these different impact investors have forged hybrid alliances to manage special funds, such as the Microfinance Enhancement Facility, which channel public and private capital to the microfinance industry.

Microfinance thus forms a core pillar in the global effort to reduce poverty through impact investment. This effort has two key characteristics. First, impact investors have cast themselves as the purveyors of superior knowledge and ethical practices, those experts who know best how to enable others to aid themselves through formal financial markets (Langley, 2020a; Rosenman, 2019). In this sense, as Mitchell (2017) has argued, impact investment has roots in efforts to scientifically manage poverty first pioneered by early 20th century philanthro-capitalists like Andrew Carnegie. Impact investment is also linked to the results-oriented metrics of neoliberal public management, in which the logics of corporate capitalism have infused the institutional structures of state bureaucracies, nonprofits and charities. Such scientific, capitalist rationalities inform the adoption of social monitoring and evaluation programmes. They also provide legitimacy to the political narrative that impact investment promotes positive social outcomes more effectively than official development assistance or state services (Chiapello and Knoll, 2020).

Second, impact investment for microfinance has redistributed governmental power over poverty throughout a multi-scalar network populated by a multitude of institutional actors. Impact investors have worked closely with rating agencies, consultancies, credit bureaus, professional groups and semi-autonomous regulatory bodies to create the financial technologies and infrastructures required to measure and monitor impact (Stolz and Lai, 2019). These technologies of governance are crucial for ‘setting conditions and devising incentives so that prudent, calculating individuals and communities choosing “freely” and pursuing their own interests will contribute to the general interest as well’ (Mitchell, 2017: 756). By setting the market conditions, impact investors aim to cultivate market subjects who engage in entrepreneurial self care that will enable investors to achieve returns on investment (Langley, 2020b; Wirth, 2021). In the case of microfinance, borrowers are subjected to rigorous new technologies of control, including credit scoring, strict debt repayment schedules, financial literacy training and paternalistic discourses of thrift and entrepreneurialism (Bylander et al., 2019; Green et al., 2023; Mader, 2015).

Based on these two characteristics, impact investment has been conceptualized as a political technology of neoliberal governance (Langley, 2020a; Mitchell, 2017; Rosenman, 2019). Impact investment governs by simultaneously erecting a boundary between experts and beneficiaries and building a network of actors who exercise power by conducting beneficiaries’ behaviour from a distance. As financiers become the new experts on poverty, they have framed social problems in ways that ignore the structural, and political, causes of poverty. Intractable issues like poverty are recast as a lack of access to finance, a lack which can only be filled by developing the financial infrastructures and technologies to include more people into financial markets. However, this process of ‘rendering technical’ poverty is fundamentally anti-political (Ferguson, 1994: 256; Li, 2007: 7). It advances a broader neoliberal agenda in which rights-based, social-justice movements and groups come to channel their energies through markets, rather than through political collective action, class-based solidarities or confrontations and negotiations with the state (Mitchell and Sparke, 2016).

An important effect of such anti-politics is that efforts to govern through markets are prone to failure. By rendering technical poverty, the political-economic conditions that fall outside of the gaze of impact investors continuously disrupt, and hinder, their interventions. In defining the problem of poverty as a lack of finance, impact investors for microfinance overlook how financial markets themselves reinforce unequal relations of class power predicated on the appropriation of value from debtors (Soederberg, 2014). This is because impact investors, as a type of capitalist trustee, ‘cannot address—indeed may not acknowledge—the contradictory forces in which they are engaged’ (Li, 2007: 21). These contradictory forces arise from the effort to improve populations through capitalist growth, which can only be achieved through state-backed violence and the dispossession of marginal groups. Hence, trustees must ‘distance themselves from complicity in chaos and destruction’ wrought by their own will to improve or else confront the contradictions embedded in capitalist projects of improvement (Li, 2007: 21). Consequently, despite impact investment efforts to govern by financial markets, these markets are always likely to fail on their own terms – a consistent truth in the long history of attempts to govern poverty through financial markets (Bernards, 2022).

It is in this context of anti-politics, and the recurrent failures to achieve positive social impact through capitalist markets, that I interpret the rise of responsible investment standards that have become the hallmark of the social impact investment industry. Impact investors are continuously creating new market mechanisms to correct for, and resolve, the problems created by finance-driven modes of development. At the multilateral level, these mechanisms include a host of voluntary guidelines, such as the UN’s Principles for Responsible Investment and the International Finance Corporation’s Operating Principles for Impact Management. These guidelines inform the dominant ethical framework by which impact investors manage their funds, distinguishing them from mainstream investment. Within the impact investment market for microfinance specifically, Cerise + Social Performance Task Force has standardized social performance management within the sector. As I discuss in more detail below, this global partnership has worked closely with impact investors and rating agencies around the world to certify microfinance institutions as socially responsible. Certification has become both the basis of demonstrating social impact and coping with the fallout of financial market excess.

In the remainder of this paper, I examine how impact investors aim to regulate their own markets as they ‘fail and flail forward’ in order to better understand the anti-politics of impact investment (Peck, 2010: 7 cited in Bernards, 2022: 8). I demonstrate how voluntary guidelines are rooted in the scientific rationality of governing poverty at a distance through a diffuse network of institutional actors. However, these market instruments are brought down by the contradictions within a self-regulated financial market structured by competition and profit maximization. In the context of impact investment for microfinance, these contradictions have significantly contributed to a growing crisis of over-indebtedness among borrowers.

Methodology

This paper is based on a qualitative, interview-based research project about investment and regulation within Cambodia’s microfinance industry. I carried out part of this research project in partnership with a Cambodian research institute between November 2021 and May 2022. My research partners and I conducted interviews with key actors in the Cambodian microfinance industry virtually, because I was unable to travel to Cambodia due to the Covid-19 pandemic. Following the removal of travel restrictions, between September 2022 to June 2023, I made multiple trips to Cambodia, where I conducted new and follow-up interviews by myself.

In the interviews for this project, I sought to understand the contested processes and relations of power within the impact investment landscape for microfinance in Cambodia. Given the complex network of actors involved in this sector, I purposefully selected a range of different interviewees to triangulate perspectives. I carried out a total of 70 interviews with banking and MFI executives, spokespeople of industry associations, industry consultants, impact investors, state regulators and civil society organizations. Interviews with microfinance executives were structured to compare different perspectives on investment and regulation. Otherwise, all interviews were semi-structured, with question guides tailored for specific interviewees depending on their expertise within the industry. Nearly all interviews for this project were conducted in English, while a few were conducted in Khmer by my research partners. Interviews were later imported into NVivo qualitative software for descriptive and analytical coding.

As will become clear below, over-indebtedness within Cambodia’s microfinance industry has become politicized in recent years. Many of the investors and industry executives with whom I spoke tended to assume that I was conducting research that would either disprove critical accounts of their work, or at least offer an unbiased assessment. They framed criticisms of impact investment, microfinance and regulation in terms of challenges to be overcome, rather than indictments of their work. However, I have arrived at different conclusions about the challenges and pitfalls of impact investment for microfinance than my interlocuters. Given our different conclusions, and the political sensitivity of this topic, I have chosen to anonymize nearly all of my interviewees throughout this paper, even though most gave their informed consent to be identified. I have named only people who spoke to me as official spokespersons for their associations, or who actively wished to be identified.

Impact investment into the Cambodian microfinance industry

Social impact investors have played a fundamental role in creating the structural political-economic conditions that have caused many of Cambodia’s microfinance borrowers to become over-indebted. The country’s microfinance industry was only established in the 1990s following decades of war, when charitable and international development organizations arrived in the country to start up non-governmental organizations (NGOs) that provided microfinance services in the countryside. However, large development finance institutions (DFIs), such as the International Finance Corporation, quickly sought to transform these microfinance NGOs into commercial banks. They provided the start-up equity, concessional debt investments, loan guarantees and technical assistance to make this transition. These DFIs leveraged public funds to mobilize private capital, issuing hundreds of millions of dollars in equity and debt financing over the past two decades to the country. Moreover, by entering the market first, they helped to create the conditions that would attract private investors and lenders into the industry. These private actors arrived in the mid- to late-2000s. They included microfinance investment vehicles (MIVs), such as BlueOrchard, Incofin and Oikocredit, which also operate funds that invest into the microfinance industry outside of Cambodia (Bevacqua, 2017).

By the 2010s, Cambodia had become one of the most popular countries in the world for impact investment into the microfinance industry. MIVs have channelled social impact funds to newly commercialized microfinance institutions, providing the capital to expand financial services across the country. By 2016, Cambodia received nearly 10% of global investments from MIVs – the second largest amount in the world after India (Symbiotics, 2016). Furthermore, to diversify the channels for delivering funds to the industry, they worked closely with DFIs to create a number of new funds, such as BlueOrchard’s Microfinance Initiative for Asia. Private impact investors have been attracted by the country’s dollarized economy, strict prudential requirements and extremely high rate of repayment as the national loan portfolio is largely secured with land-based collateral (Green, 2023a). By integrating Cambodia’s microfinance industry into globalized circuits of capital, household debt relations have become increasingly shaped by the imperative to provide return on investment for foreign shareholders and investors (Green et al., 2023).

Alongside these impact investors, the Cambodian state has actively encouraged foreign investment into the industry as part of its broader neoliberal path of development. In the late 1990s, it passed a series of banking reforms in line with International Monetary Fund structural adjustment conditionalities. These reforms included privatizing the banking sector, establishing an independent national bank with an inflation-targeting mandate, and adopting fiscal austerity measures to reign in public spending (Green, 2023a). Meanwhile, the Asian Development Bank worked closely with the Ministry of Economy and Finance and the National Bank of Cambodia to design the blueprint for a regulatory environment that would promote financial deepening with minimal direct state intervention. Since the adoption of the first National Financial Development Strategy in 2006, modelled on this blueprint, Cambodian policymakers have created a market-based domestic financial system with little regulation in order to attract foreign investors (Green, 2020). As the microfinance industry has developed, for example, the National Bank of Cambodia has supervised DFIs’ and MIVs’ sale of equity shares to East Asian commercial banks seeking to expand their regional portfolios (Bateman, 2019).

In fostering a commercial microfinance industry capitalized by foreign impact investors, the Cambodian state has outsourced much of the governance of social challenges to the private financial sector. Against a broader backdrop of economic transformation defined by precarious work and life, microfinance has become a key pillar of the country’s national poverty alleviation strategy (Green and Estes, 2019). This fits with a consistent trend of the state to rely on foreign investors, development partners and NGOs to provide basic social services and infrastructural investments throughout the country (Springer, 2010). Though the state’s fiscal expenditures have increased in the past decade, they remain constrained by inflation-targeting monetary policy alongside national elites who strongly resist increasing tax revenues by combatting corruption (Ear, 2013). As such, state spending on healthcare and education has been insufficient to meet the daily needs of households. Similarly, in a country where agriculture continues to be a key component of many household incomes, the state has invested little into agricultural extension or value chain development. In place of public spending, the commercial microfinance industry has stepped in to provide loans to households in the name of poverty alleviation, a push for financial inclusion that social impact investors have helped to finance (Green, 2023a, 2023b).

As a result of abundant foreign investment and a conducive regulatory environment, the Cambodian microfinance industry has grown to become the most saturated market in the world (MIMOSA, 2020). In 2022, the industry was comprised of seven commercial banks with small-loan portfolios, five microfinance deposit-taking institutions, 82 microfinance non-deposit-taking institutions and 223 rural credit institutions (NBC, 2022). Together, these institutions held approximately three million micro- and small-loan accounts in a country with only 3.6 million households (CMA-NIX, 2022). According to the World Bank, Cambodia’s private debt to GDP ratio stands at 180%, one of the highest of any lower middle-income country in the world. Moreover, the average loan size within the microfinance industry has exceeded GDP per capita threefold for the past 5 years (Green and Bylander, 2021). With extensive outreach and high levels of household debt, the industry’s national portfolio is valued at more than 16 billion USD, equivalent to more than 65% of national GDP (CMA-NIX, 2022).

Within this saturated market, many households have taken on debt to pay for their basic needs. While the original goal of impact investors was to build up the microfinance industry to provision loans for small business, enterprise-based lending has fallen by the wayside following the global mission drift within the industry (Mader and Sabrow, 2019). In Cambodia, business-related loans, including for agriculture, only made up 31% of the national portfolio in 2016. The remainder of loans were taken out to pay for housing, consumption, healthcare, education and other basic needs not met by state social services (Green and Bylander, 2021: 211). This trend towards consumer debt has only increased since that time. Moreover, while overall demand for loans can be attributed in part to rising household incomes, the average size of microfinance loans has far outpaced per capita incomes over the past two decades. Finally, rising debt levels are frequently driven by households borrowing multiple loans at the same time or taking out new loans to repay old loans (Green et al., 2023).

In this political-economic context of a for-profit microfinance industry and minimal state welfare, hundreds of thousands of Cambodian borrowers have been pushed into over-indebtedness (Bylander et al., 2019; Green and Bylander, 2021). In the Cambodian microfinance context, over-indebtedness has been defined primarily by two national studies carried out in 2013 and 2017. These studies used objective and subjective indicators to measure over-indebtedness; the former referred to debt payments that exceeded household monthly incomes, and the latter referred to feelings that households made unwanted strategies to repay their debts (Liv, 2013). Indeed, as Guérin et al. (2014: 2) explain, over-indebtedness, ‘can take many different shapes, ranging from material loss to feelings of downward social mobility, extreme dependency, shame and humiliation, leading to a variety of manifestations and perceptions of over-indebtedness’. In the 2013 study, it was found that 22% of borrowers living in microfinance-saturated villages were objectively over-indebted (Liv, 2013). The follow-up 2017 survey concluded that nearly one-half of all borrowers nation-wide were either objectively over-indebted or at risk of becoming over-indebted (MFC and Good Return, 2017). However, industry leaders and impact investors deemed the results of this second study to be too controversial and never published their findings. A more recent 2022 national survey funded by the German government corroborated these earlier studies, documenting widespread over-indebtedness throughout the country (Bliss, 2022).

Faced with such debt burdens, over-indebted borrowers and their families have been pushed into pursuing harmful measures to manage their debts. They regularly reduce the quantity and quality of their food, exacerbating a chronic malnutrition problem in the country (Brickell et al., 2023). Moreover, families report taking children out of school to work to repay debts and contribute to household incomes (Seng, 2020). A rise in rural out-migration, to both urban areas and abroad to Thailand, is also driven by debt obligations that cannot be repaid through rural livelihoods (Bylander, 2014). In these destinations, debt operates as a mechanism of labour control across the formal and informal waged economies, where workers feel the obligation and pressure to work long hours, often in duress and in unsafe conditions, to help repay their loans or their families’ loans (Green and Estes, 2022; Natarajan et al., 2021). Finally, in the past 5 years, an estimated 167,400 people have sold land in distress to repay debts, much of it to the microfinance industry (Bliss, 2022: 83).

Despite being aware of this crisis of over-indebtedness, impact investors have continued to channel capital into the Cambodian microfinance industry. They have justified their investments by working closely with the industry and the National Bank of Cambodia to implement voluntary regulations to limit market competition and reduce debt stress. As I analyse in the remainder of this paper, such self-regulation is fundamentally anti-political. It underpins impact investment as a neoliberal political technology that has failed to resolve over-indebtedness due to contradictions built into Cambodia’s finance-driven mode of development.

Contradictions of self-regulating over-indebtedness

On the morning of 4 March 2022 in Phnom Penh, the Director General of Banking Supervision at the National Bank of Cambodia presided over the signing ceremony of a new banking and microfinance code of conduct. The ceremony marked the end of a years-long effort by impact investors and the industry to find a solution to an over-indebtedness problem of their own making. The code of conduct was spearheaded by a taskforce comprised of leaders within the Cambodia Microfinance Association and the Association of Banks in Cambodia. This taskforce had worked closely with foreign impact investors, technical consultants and financial institutions within the industry. Modelled after the Cerise + Social Performance Task Force’s (Cerise + SPTF) Universal Standards for Social and Environmental Performance Management, the code of conduct outlines 22 responsible practices that all formal lenders in the country must incorporate into their businesses. These practices range from enhancing good governance to cracking down on unethical debt collection. Most importantly, the code of conduct encourages banks and MFIs to become certified for client protection by Cerise + SPTF. It also requires them to comply with a set of rules known as the responsible lending guidelines.

In this section, I demonstrate how these two rules exemplify a process of rendering technical over-indebtedness. Rather than address structural drivers of rising household debt, such as paying for basic services like healthcare and education with credit, impact investors have worked with the industry to address this problem through new certification processes, performance indicators, data infrastructures and reporting mechanisms. In the process, impact investors and the industry claim that expanding access to finance has promoted positive social outcomes.

The anti-politics of impact investment

Having examined how impact investors and the microfinance industry in Cambodia have aimed to address over-indebtedness through technical solutions, in this final section I examine how this promotes an anti-politics of development. First and foremost, voluntary regulations do not address the underlying reasons that households are taking on debt they cannot repay. The Cambodian state and impact investors have fostered a banking and microfinance industry whose function is to finance basic needs of households. Yet financial markets cannot resolve social problems, because the roots of these problems are not financial in nature (Bernards, 2022). In the context of Cambodia, they are the outcomes of a violent neoliberal political economy that has produced precarious work and life (Springer, 2010). Yet by seeking to manage over-indebtedness through certification standards and data-intensive lending guidelines, the problem has been rendered technical (Li, 2007). Impact investors and industry leaders do not acknowledge that people are becoming impoverished from debt as they are squeezed between rising debt burdens, taken on to pay for basic needs like healthcare, and low-paid, irregular work (Brickell et al., 2023; Bylander et al., 2019; Natarajan et al., 2021). Alongside income earned through agricultural commodity production, loans today are often repaid by household members working in labour markets dependent on export manufacturing and speculative real-estate investment. If and when those jobs dry up, borrowers that have collateralized their farmland back home may have no option but to pursue coping strategies that harm their material wellbeing like cutting back on food or that just lead deeper into over-indebtedness, such as refinancing their debts or taking on private loans at higher interest rates (Green et al., 2023; Green and Estes, 2019, 2022).

Alongside this process of rendering technical, impact investors have refused to acknowledge their complicity in creating a self-regulated market rife with contradictions. On the one hand, there is conflict of interest within Cambodia’s voluntary-based forms of regulation, because impact investors and auditors stand to profit from certifying banks and MFIs for client protection. On the other hand, over the past two decades, social impact investors have consciously built up a lightly regulated industry that has become highly competitive, saturated and profit-oriented. Foreign shareholder demand for return on investment in an intensely competitive market, particularly following large capital acquisitions by regional banks, has pushed boards and executives to oversee aggressive portfolio expansion, driving many borrowers into over-indebtedness (Green et al., 2023). Voluntary regulations do not work in such a political-economic context of shareholder capitalism and stiff market competition.

Furthermore, monitoring of the industry’s own voluntary regulations is not transparent. While the National Bank of Cambodia officially supported the banking and microfinance code of conduct in 2022, the central bank only enforces this code of conduct – if at all – through private, informal channels. This fits the authoritarian logic of the Cambodian state, which often exercises its sovereign power through networks of informality (Beban, 2021). Impact investors have reinforced this informal exercise of regulatory power in their support of the microfinance industry. For example, data from the Credit Bureau of Cambodia, including the monthly lending guideline dashboard reports, are not made public. Instead, these data are monitored behind closed doors. This was an explicit choice of leaders in the industry, particularly the Cambodia Microfinance Association. When designing the lending guidelines, according to a lead consultant on the project, leaders in the Cambodia Microfinance Association were concerned that releasing dashboard data would open up the industry to criticism, which might drive out social impact investors from the country (Daniel Rozas, 13 April 2022, personal communication).

Indeed, over the past 4 years, several human rights organizations have campaigned to draw impact investors’ attention to human rights abuses caused by the industry, and to hold these investors accountable for their role in facilitating those abuses. For example, two human rights organizations, Licadho and Equitable Cambodia, have published multiple reports documenting predatory lending and aggressive loan collection tactics that have contributed to distress land sales, child labour and debt bondage within over-indebted communities (Equitable Cambodia and LICADHO, 2021). Not only have industry and government leaders accused these two organizations of being ideologically motivated and lacking in scientific research expertise, they have explicitly threatened these organizations and some of the borrowers that they represent. According to the outreach director of Licadho, ‘when we revealed the first report on MFIs, we were attacked by everyone, the government, the Cambodia Microfinance Association, MFIs, investors, our donors, embassies. . .everyone attacked us’ (Naly Pilorge, 13 September 2022, personal communication). In one instance, the Cambodia Microfinance Association even sent employees to track down over-indebted borrowers who had spoken with Licadho, coercing them to recant their stories and deny that they had suffered from taking on too much debt (anonymous, 19 November 2021, personal communication). In short, the industry has removed opportunities for public oversight, reinforcing market engagement as the only legitimate way to address problems associated with over-indebtedness.

Conclusion

Through the case of microfinance over-indebtedness in Cambodia, I have argued that impact investment is an anti-politics of development. This anti-politics has three key parts. First, impact investment has rendered technical a crisis of over-indebtedness by silencing the political-economic conditions that push households to borrow for basic needs beyond their capacity to repay. Second, impact investors have constructed themselves as experts of poverty, capable of managing people’s behaviour at a distance through new financial technologies, infrastructures and practices. From this perspective, impact investors do not, and cannot, acknowledge their own complicity in creating a commercial, competitive industry that now provisions loans to people on the basis of shareholder profit. Third, impact investment for microfinance has not only reduced the opportunities of engagement solely to market reform, but even such technocratic reform has been removed from any public accountability. Critical voices that do seek to challenge such anti-politics are condemned and threatened.

In making my argument, I have called into question the notion that impact investment is a more ‘ethical’ form capitalism, capable of mobilizing private capital to promote social good. Instead, I have conceived of impact investment as a political technology of neoliberal governance. While this study focused explicitly on microfinance, conceptualizing impact investment as anti-political can help to explain other forms of finance-driven development as well. As there continue to be widespread calls to maximize finance for development – catalysing private capital to fund the so-called gap needed to reach the UN’s Sustainable Development Goals – it is likely that we will see a proliferation of certification standards and voluntary codes of conduct across all sectors of private investment. These anti-political mechanisms do not challenge the underlying financial logics of neoliberal government – in fact they help to constitute them. They serve an ideological role of convincing investors that their investments are benefitting target beneficiaries, even if such self-regulatory mechanisms produce harmful outcomes. In this sense, voluntary, market-based regulation fetishizes the relationship between impact investors and their intended beneficiaries. And as the Cambodian case illustrates, they are likely to fail and flail forward under the weight of their own contradictions.