Statement on the CAO Compliance Investigation Report: Cambodia Microfinance Sector

Luxembourg, July 2026. The Global Gender-Smart Fund (GGSF) has reviewed the Compliance Advisor Ombudsman (CAO)'s October 2025 investigation report regarding IFC's exposure to six financial institutions in Cambodia. GGSF welcomes the CAO's contribution to strengthening standards across the microfinance sector and is providing this statement to clarify its historical relationship to the case and the steps it has taken since its restructuring.

CAO's investigation primarily concerns an assessment of IFC's own compliance with its Sustainability Framework, in connection with 13 IFC investments spanning 20 years. As part of the broader review, the CAO report includes observations regarding the due diligence and reporting practices of several fund vehicles financed by IFC and other development institutions during that period, including the Microfinance Enhancement Facility (MEF), the predecessor to GGSF.

CONTEXT

In January 2024, MEF was restructured into the Global Gender-Smart Fund under a new Theory of Change centred on gender-lens investing, with a mandate to advance the provision of gender-smart and responsible financial services to underserved women and women-led businesses in developing countries. This restructuring brought a new Board of Directors and a new portfolio management team, with a revised legal structure and governance policies, including strengthened ESG and impact-related requirements for partner institutions. Innpact continues to serve as the fund's Alternative Investment Fund Manager (AIFM), providing continuity of operational infrastructure, while the new Board now leads investment strategy and oversight

Between 2010 and 2022, MEF provided loans to four of the six Cambodian financial institutions covered by the CAO investigation: Amret, Hattha Bank, LOLC, and PRASAC. All these loans have since been fully repaid, with no arrears and no further lending. GGSF notes the CAO’s observations and is using this opportunity to reaffirm and further strengthen the practices described below, consistent with the evolving standards CAO references in its report.

The issues highlighted in the report, including over-indebtedness, inadequate borrower protections, and gaps in grievance mechanisms, underscore the importance of continuously strengthening processes by which financial institutions identify, manage, and mitigate risks affecting low-income and vulnerable client segments.

OUR POSITION

GGSF’s investment framework has always endeavoured to incorporate environmental and social safeguards aligned with the International Finance Corporation (IFC) Performance Standards. However, the events that transpired in Cambodia together with findings from CAO have led us to assess evolving sector risks more closely. Consequently, we are now focusing on continuous improvement beyond reliance on existing frameworks and third-party certifications.

We also recognise that adherence to the IFC Performance Standards alone is not sufficient to ensure financial consumer protection. Responsible lending, borrower affordability assessment, and fair debt collection practices require dedicated standards in client protection and monitoring as part of environmental and social risk management, and GGSF has strengthened its approach accordingly.

Our ongoing commitments:

• Microfinance borrowers must be explicitly recognised as vulnerable stakeholders within investment processes.
• Environmental and social risk management must extend throughout the value chain, including sub-clients.
• Robust safeguards are needed in high-risk, over-indebted markets, in particular when serving marginalised groups (such as indigenous people).
• Strong consideration of client protection in the investment process to ensure responsible lending, affordability, and fair collection practices that require dedicated attention distinct from, and in addition to, Performance Standards compliance.

IMMEDIATE ACTIONS

GGSF's ESG risk management framework, strengthened since its 2024 restructuring, addresses the core issues raised in the CAO report and includes:

1. Strengthening of Due Diligence and Risk Screening

We have reinforced our Impact Management System (IMS) to ensure:

Systematic screening of partner financial institutions against IFC Performance Standards, including Performance Standards 1, 2 and 7 to the extent applicable to financial institutions where borrowers may be Indigenous People. Continued consideration of borrower-level risks, including over-indebtedness and exposure to coercive practices as part of due diligence assessments.

2. Strengthening Financial Consumer Protection

Beyond compliance with Performance Standards, GGSF has enhanced its due diligence, portfolio monitoring, and impact assessment, specifically regarding financial consumer protection. This includes assessing partner institutions' responsible lending policies and practices, borrower affordability and over-indebtedness screening at the point of lending, and debt collection practices. GGSF will continue to monitor developments in this area, including the World Bank Group's forthcoming approach to financial consumer protection in microfinance following its Board presentation, and will align its own standards accordingly.

3. Enhanced Oversight for High-Risk Markets

An additional risk assessment checklist has been introduced to help investment teams identify and manage emerging risks in countries with elevated client protection concerns. This includes indicators related to aggressive lending and recovery practices, collateral policies affecting livelihoods, as well as repayment capacity and refinancing patterns.

4. Strengthening Client Protection and Grievance Mechanisms

We require partner institutions to establish and/or strengthen independent and accessible grievance mechanisms, ensure fair and respectful treatment of borrowers, including safeguards against coercive practices, along with improving transparency and borrower understanding of loan terms.

5. Integration into Investment Governance

The GGSF is managed by a third-party Alternative Investment Fund Manager (AIFM) and as such includes an additional layer of control where all investment decisions will continue to undergo independent ESG and impact review through the AIFM non-objection process.

FORWARD-LOOKING COMMITMENTS

GGSF supports broader sector efforts to address systemic risks in microfinance and welcomes the CAO’s recommendations, including strengthening borrower protection frameworks, enhancing financial literacy and empowerment and promoting responsible lending practices across the industry.

We will continue to work closely with partners, investors, and stakeholders to ensure that financial inclusion efforts deliver positive outcomes without causing harm.

Financial inclusion remains a critical driver of economic opportunity. However, it must be pursued responsibly. GGSF is committed to ensuring that its investments contribute to sustainable development while safeguarding the dignity, rights, and resilience of the communities we serve.