By Maryann Bylander
School of Oriental and African Studies, University of London
A woman making traditional mats in Cambodia. (Photo courtesy of Emmanuel Maillard/www.bordersandmargins.com)
Over the past three decades the developing world has seen a revolution in access to credit. This has occurred largely through the expansion of microcredit — relatively small loans primarily accessible to poor households for the purposes of investment and microenterprise. Microcredit has expanded dramatically and consistently across the developing world: Today, an estimated 100 million people in more than 90 countries are actively borrowing from microfinance institutions (MFIs). The majority of these loans target women, those in rural areas, and the poor.
Migration typically has little place in discourses of microfinance, since what credit is expected to do is allow people to stay home. Most MFIs assert that microcredit loans are both used for and repaid through local microenterprise — and many have explicit policies requiring this. These policies and expectations relate to the way that microfinance is purported to reduce poverty — through allowing poor households a way to invest in income-generating activities at home.
Yet increasingly, there are threads of discourse linking migration and microfinance. MFIs (sometimes with the support of development institutions) are targeting migrant households for a variety of microfinance services, including loan products. These organizations, as well as some policymakers and academics, view microfinance institutions as ideal actors through which to empower migrant households.
Moreover, there is increasing recognition that migration and microfinance have already been interacting — in unexpected and sometimes problematic ways. Some households use microcredit as an advance on expected remittances from family members abroad; others use loans to finance the costs of migration. There is also evidence that migration is used as a coping mechanism to manage debt when microenterprises fail, pushing loan recipients abroad in search of better economic opportunity. These connections highlight that linking migration and microfinance has the potential to expand opportunities for migrants and their families, as well as generate or exacerbate vulnerabilities.
This article explores the connections between microcredit and migration, unpacking the suggestion that microcredit can support migration as a development strategy and exploring the questions that should be asked about this potential. Informed by a qualitative study conducted in a rural Cambodian community with strong links to Thailand, the article discusses how households are already using microcredit in coordination with migration, and addresses critical questions about who benefits from these linkages — and what vulnerabilities they might create for migrants.
Microfinance: Leveraging International Migration for Development?
The optimism around microfinance as a way to support migrants (and migration as a development strategy) centers on remittances — the earnings that migrants send back to their countries of origin.
Over the past decade, developing countries, including Cambodia, have seen a marked increase in remittances received from migrants abroad. Estimates from the World Bank suggest that the level of remittance flows to developing countries (upwards of $400 billion dollars in 2012) is almost as large as foreign direct investment and more than twice the size of aid flows to developing countries. This tremendous growth, coupled with the dominance of neoliberal ideas, has led to renewed policy interest around the idea of leveraging migration for development. As a result, policymakers, governments, and international institutions have invested in a variety of strategies aimed at putting remittances to work to generate sustainable development.
Microfinance institutions are perceived to be uniquely equipped to support remittance-led development programs. MFIs tend to be located in the same poor, rural areas where migration is common, and they are already providing financial services in those contexts. Thus they are primed to be providers of financial products aimed at migrant families.
The dominant way that MFIs are already engaging in remittance-led development is through money-transfer products. In much of the developing world, migrants remit money through informal networks, where they pay high fees and have little security in ensuring that money arrives at its intended destination. Where migrants can use microfinance institutions to transfer money home, the assumption is that this will be cheaper, easier, and more reliable, thus allowing migrants to retain more of their earnings.
Increasingly MFIs are interested in working with migrants in more substantial ways, specifically related to credit. Most MFIs are interested in continuing to expand their loan portfolios, tapping into new markets, and offering a wider range of products. Migrants — and the potential remittances they represent — offer a lucrative new market.
As a result, MFIs are now considering not only money-transfer services for migrants but also credit products specifically tailored for migrant households. Such programs have already been piloted in Latin America through the support of international development institutions, and are being considered elsewhere. In these kinds of migrant-targeted loan programs, remittances are viewed as a stable source of income, and are essentially treated as evidence of credit worthiness. MFIs can then both help migrants send money home and expect those remittances to be used as a means of repaying loans.
These kinds of migrant-targeted microcredit programs are relatively new and still quite rare. However, MFIs are already routinely connected with migration in ways that are less overt, often overlooked, and which raise critical questions about microcredit as a strategy of leveraging migration for development. Across the developing world, evidence suggests that at least some microfinance institutions routinely lend to households who either already have a family member working abroad or intend to send someone abroad shortly after receiving a loan. In both cases, loans which are ostensibly intended to be repaid through local enterprise are actually repaid via remittances. Taken as a group, these can be thought of as migra-loans — loans taken from microfinance institutions which are then used in tandem with strategies of international migration.
Migra-Loans: Migration and Microfinance in Cambodia
A study conducted by the author in Cambodia from 2008-10 inquired into the patterns and practices of migra-loans in more detail. Cambodia is a revealing case study to understand how the expanding microfinance sector has encountered (and perhaps shaped) patterns of international migration, as it is a country where both international migration and microfinance have grown dramatically over the past two decades.
Both microfinance and contemporary patterns of international migration can be traced back to the early 1990s, when Cambodia finally began to recover from the devastation left by the Khmer Rouge regime (1975-79), which resulted in an estimated 1.5 million to 2 million Cambodian deaths by execution, starvation, and disease.
The subsequent Vietnamese occupation lasted for the next decade, until a United Nations-backed transitional authority came to the country in 1991, ushering in organized democratic elections two years later. Most of the contemporary social and financial institutions, and many of the demographic patterns seen today in Cambodia, began during this period of newfound stability. Prior to this period, formal financial institutions were basically nonexistent— the Khmer Rouge even abolished money (as well as private property, markets, and health and education systems) during their brief rule.
Microfinance began in Cambodia in 1992, first as a small internationally supported project aimed at employment generation for demobilized soldiers. The contemporary (more commercial) models prevalent today evolved over time, but since the early 2000s microfinance has been truly explosive in its growth (see Table 1). Today, Cambodia is among the top five countries in terms of the total number of microfinance borrowers as a percentage of the population, and average MFI loan sizes exceed the level of gross national income (GNI) per capita, according to statistics from MIX Market, the Microfinance Information Exchange's platform for delivering microfinance information.
Table 1: Cambodia Microfinance Expansion: 1997-2011*
||Number of MFIs
||Number of MFI Offices/ Branches
||Number of Active Borrowers
||Average Loan Balance per Borrower**
||Average Loan Balance per Borrower / GNI Per Capita**
* All data based on MFIs reporting to MIX Market. This does not include those providing microfinance but not reporting to MIX.
** Weighted average.
Source: MIX Market Cross-Market Analysis, downloaded June 4, 2013. Available online.
Alongside the expansion of formal credit, international migration has also grown in importance and scope. An estimated 250,000 Cambodians live and work in Thailand (the primary migration destination for Cambodians), a number that has increased significantly over the past decade. Most are migrating from marginalized rural areas — places where the recent growth of the Cambodian economy has not trickled down to substantively improve livelihoods.
Migrants leave for reasons of poverty, joblessness, environmental distress, a desire for mobility, or simply a lack of better options. In many communities, migration has become normative in such a way that young people coming of age grow up with eyes turned towards Thailand — visualizing their futures as necessarily involving work abroad.
The author's qualitative study (in a rural Cambodian community where migration to Thailand is common) highlighted how households use migration and microfinance in tandem. Some households explicitly used microfinance loans to finance the costs of migration; for others, migration was a coping strategy to manage shocks resulting in overindebtedness. Most commonly, microfinance loans were taken out by households receiving remittances or those who expected to. Here, remittances were seen as a steady means of repaying newly available low-cost loans, and were used for a variety of purposes, including home construction and the purchase of large consumer items, such as motorbikes. These migra-loans formed a kind of self-imposed savings strategy that ensured families were able to purchase or invest at home prior to having money in hand to do so.
It was both common and perceived as strategic to use microfinance loans in coordination with international migration. In contrast, loans were seen as risky where used for local microenterprise. Because it was difficult to make a consistent profit through local livelihood strategies, holding a loan was often seen as necessitating migration. A former migrant characterized the connections in this way: "The biggest problem is we can't make a living here… If we don't earn enough, our only choice is to borrow money from private banks, and then how can we pay it back? So we migrate." A non-migrant, non-borrower respondent put it more simply: "We can manage in the village if we're not in debt. If we are in debt though, there's no way."
The connections between microcredit and migration were seen by interview subjects as both empowering and problematic. For example, using loans as an advance on remittances was seen as an innovative strategy that creatively co-opted the goals and policies established by MFIs (purportedly oriented to locally sustainable microenterprise). Moreover, it both encouraged savings (in the words of one respondent, this kind of strategy "kept the beer money small"), and also boosted household consumption at times that were important for families.
However, these loans also often generated pressures for family members to remit more, spend less, or migrate, as the imperative to pay down debt was significantly more powerful than the desire to save. As a result, young people were often pressured at young ages to drop out of school and migrate to repay MFI debts.
Moreover, where migration failed in some way (for example, where migrants were deported, cheated out of salaries, or detained by police), household debt to MFIs could quickly become problematic, inspiring a range of alternative coping strategies that drew down household resources.
Migration and Microcredit Beyond Cambodia: Expanding Freedoms, or Exacerbating Vulnerabilities?
Recent observations suggest that links between migration and microfinance are present in other countries as well. In 2012, anthropologist David Stoll published an extensive ethnographic account of how microcredit has supported clandestine migration from Guatemala to the United States. Similar to the author's findings in Cambodia, Stoll's work highlights that households in Guatemala use microcredit in ways both unexpected and unintended by those promoting it, and that migra-loans generated new vulnerabilities and pressures for households holding them. Importantly, this relates not only to the need to repay debts, but also to the vulnerabilities inherent in migrants' positions in destination countries, particularly when they arrive without proper documentation.
A number of recent studies have hinted at similar patterns in other countries. For example geographer Amelia Duffy-Tumasz, through ethnographic work in Senegal, describes how households use microcredit as a cash advance on remittances from relatives living abroad. She suggests that microcredit in this context is not seen as a source of cheap credit for business expansion but rather a means of sustaining the household when remittance payments are uneven.
Marcus Taylor, a sociologist studying microfinance in Andhra Pradesh, India, also notes the prevalence of households using remittances to repay MFI loans, and argues that microcredit can also motivate migration, as households cope with debt burden and inability to repay loans through local livelihood strategies.
In addition, volunteers for Kiva — an online platform that began in 2005 and serves as a peer-to-peer lending middleman — have also documented in public blogs the connections between migration and microcredit. Meg Gray who worked in Nagarote, Nicaragua as a Kiva Fellow, wrote in her blog in November 2009 that occasionally MFIs even have clients sending remittances directly to loan officers with instructions to use the money to pay off family members' current loans. Rosalind Piggot, working in Tajikistan also as a Kiva Fellow, noted in June 2010 that during the worst of the recent financial crisis, only MFI borrowers with family members who remitted earnings from Russia could afford to make their monthly loan payments.
These studies and others suggest that microcredit, although aiming to be a stand-alone development strategy, may be seen by potential borrowers as most useful when used in coordination with migration, not as a replacement for migration. In other words, context matters. In areas characterized by poor infrastructure, lack of access to markets, and/or environmental insecurities, it is unlikely that credit alone (or remittances alone) will lead to profitable investment opportunities or sustainable locally driven development.
From a microfinance perspective, using migration in tandem with borrowing is arguably not problematic as long as loans are repaid. In fact, several loan officers in Cambodia interviewed by the author regarded migration as an ideal means of loan repayment — as it was far easier to earn money in Thailand than in poor rural areas of Cambodia. Clearly this problematizes the local development goals that MFIs often assert.
However migra-loans pose questions from the migrant's perspective: What happens when migration is the only (or best) secure means of repaying microcredit loans? Do debts often lead to distress migration? Where migrants are repaying loans via wage labor abroad, do jobs abroad offer protection, security, a minimum level of rights, and stability? Do migrants holding loans risk being deported, therefore curtailing their ability to successfully repay?
Since many MFIs are subsidized by development dollars, it seems particularly important to ask how these loans are promoting sustainable development, and how they might generate or exacerbate vulnerabilities among those they aim to serve.
Impacts of the Credit Revolution on Migration and Mobility
The expansion of access to credit through microfinance — now a multibillion-dollar sector — has resulted in profound shifts across the developing world. Yet while a wealth of research has sought to document the impacts of microcredit on poverty reduction, very little has explored the social impacts of the credit revolution — or specifically its impact on mobility.
The author's research highlighted that Cambodian migrant households largely saw newly available credit as a way to supplement migration — the most profitable and secure way of ensuring repayment. While this worked quite well in some cases, many Cambodians felt the effects of migration dependency: Long separation from family members; intense pressure to migrate to ensure their families' well-being; and trouble repaying debt when the migration strategy failed. Microfinance was seen as useful, but only to a certain extent. It was also regarded as potentially dangerous, creating financial risk as often as it mediated it. Most importantly, it rarely enabled what many migrants asserted they wanted — an ability to make a living at home.
Expanding access to credit can shift, shape, constrain, and generate migration opportunities. It can increase the potential for investment, or put migrants in risky situations. As a result, there is a need to further examine how expanding access to credit interacts with pre-existing migration patterns, and what safeguards should be put in place to ensure that programs aimed at using microfinance to leverage remittances do so in a way that supports and protects migrants.
Duffy-Tumasz, Amelia. 2009. Paying back comes first: why repayment means more than business in rural Senegal. Gender and Development 17(2):243-54.
Piggot, Rosalind. 2010. How Useful is Microfinance (Migration v. Microfinance). Hosted on Kiva Fellows Blog: Stories from the Field. June 28 2010. Available online.
Gray, Meg. 2009. Microfinance, Migration, and a Constant Stream of Remittances. Hosted on Kiva Fellows Blog: Stories from the Field. November 24, 2009. Available online.
O'Connell Davidson, Julia. 2013. Troubling freedom: migration, debt and modern slavery. Migration Studies 1(1): doi:10.1093/migration/mns002
Shaw, Judith. 2005. Ed. Remittances, Microfinance and Development: building the links. Brisbane: The Foundation for Development Cooperation.
Stoll, David. 2012. El Norte or Bust. How Migration Fever and Microcredit Produced a Financial Crash in a Latin American Town. Rowman & Littlefield.
Taylor, Marcus. 2011. Freedom from Poverty is Not for Free: Rural Development and the Microfinance Crisis in Andhra Pradesh, India. Journal of Agrarian Change 11(4):484-504.
USAID. 2008. Remittances and Microfinance in Latin America and the Caribbean: Steps forward on a long road ahead. Microreport #118: USAID.