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Loans and Leaving: Migration and the Expansion of Microcredit in Cambodia

Abstract

Over the last decade, the expansion of microfinance institutions (MFIs) has dramatically shifted the availability of credit across the developing world. This recent development provides an opportunity to examine the relationship between household labor migration and access to and use of formal credit. Both theories of migration and the expectations of formal credit providers have suggested that labor migration and credit are substitute solutions to the demand for capital in the developing world, with the implication that greater access to formal financial services may stem migration out of rural places. Using household survey data from Cambodia, an MFI-saturated country, we find that households using formal credit and households with greater access to formal credit are more likely to have labor migrants than households without access. This association persists across size of loan, purpose of loan, remittances behavior, and for domestic migrations. These findings complicate our understanding of the relationship between credit and migration, and call for a greater recognition of the importance of context in framing migration behavior.

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Notes

  1. Microfinance refers to the range of financial services targeted for the poor, including but not limited to the provision of microcredit/micro loans. However, the term is often used to specifically refer to microcredit, which makes up the bulk of the services offered by MFIs. Throughout this paper, we use the term microcredit when referring specifically to the provision of loans by MFIs and NGOs, and microfinance when referring to the sector or the types of institutions offering these services.

  2. These data are limited to MFIs who report to MIX Market, and which MIX estimates make up the majority of the microfinance sector. However, the real size of the microfinance sector is likely significantly larger. Clark (2006) estimates that perhaps upwards of 60 NGOs are also active in microcredit but do not report data to the government or international organizations.

  3. The CSES was also collected in 2004, but in that year, the survey did not collect information about current migration, so we cannot use it in this analysis.

  4. The CSES did not collect adequate information on the timing of migration or loans in order to assess which came first among households with both. Specifically, timing information for migrants is measured in years, whereas length of loans is reported in months. Only current loans are reported, and most microloans have year-long terms, so we cannot observe order even among households with migrants who departed in the past year. Timing information might suggest an explanation for an association between migration and loans—for example, if households borrow first and then migrate, they may be funding migration with loans. If households migrate first and then borrow, they may be financing a loan with remittances. Lacking detailed timing information, we cannot adjudicate between these possibilities in the CSES. Assessing whether households with current loans have current migrants is still an appropriate test of NELM theory, given that the theory presents credit and migration as substitutes. Evidence that households engage in both borrowing and migration, regardless of the time order between the two, is inconsistent with the theory.

  5. Most MFIs in Cambodia note in either their vision or mission an interest in providing loans for income generation, microenterprise, or self-employment. For example CBIRD, an MFI located in the northwest of the country, explicitly states on its website that part of its mission is “to provide an alternative to high risk urban migration by generating opportunity in rural areas” (CBIRD 2014).

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Bylander, M., Hamilton, E.R. Loans and Leaving: Migration and the Expansion of Microcredit in Cambodia. Popul Res Policy Rev 34, 687–708 (2015). https://doi.org/10.1007/s11113-015-9367-8

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Keywords

  • Migration
  • Microfinance
  • Debt
  • Credit
  • New economics of labor migration
  • Cambodia