Aug 12, 2023

In this paper, Dr Bateman examines the Cambodian microcredit industry and argues against prior claims that increases in land titling lead to access to credit that enables poor landowners to increase their incomes. The results are based on two research visits to the country, a review of prior research performed by others and testimony from two executives of microfinance institutions (MFIs) in Cambodia.

Dr Bateman reviews arguments from Peruvian economist Dr Hernando de Soto about land titling to mount a broader critique of microfinance as it commonly is practiced. Dr de Soto argued that if poor people in the Global South were to acquire formal titles to the land they customarily use, then they could use these titles as collateral for microloans. Subsequently, they could deploy this microcredit to invest in their microenterprises and thereby emerge from poverty.

Cambodia has seen an extensive program of land titling since 1989, and land titles are used routinely now as collateral for microloans. Furthermore, a 2020 study indicates that Cambodia has the highest volume of microcredit per capita of any nation: USD 12 billion in microloans in a country with a population of 17 million.

The paper indicates that the increased supply of microcredit arising from land titling programs in Cambodia has not, as Dr de Soto and others predicted, significantly reduced poverty. Rather, it has fueled a crisis of over-indebtedness, destabilized the nation’s financial system and hindered economic development. Microenterprise borrowers have generally either failed in their businesses or succeeded by displacing other microenterprises, thus resulting in no net increase in employment or income needed to repay the loans. Another problem is that more microloans have been used for non-productive consumption over time, resulting in increasing levels of indebtedness. Estimates indicate borrowers have lost as much as 15 percent of all rural land in Cambodia from land sales resulting from the need to repay loans.

The author attributes these problems primarily to the commercialization of MFIs in Cambodia and the ensuing pressure from foreign investors to maximize profit by reducing the standards for extending new loans and refinancing existing ones.

The paper also indicates that overall economic development in the country has been harmed because lending to microenterprises has diverted capital away from small and medium-sized enterprises (SMEs), which are generally more productive, stable, and compliant with wage and environmental regulations.

This is a summary of a paper by Milton Bateman, forthcoming in an issue of the journal Land to be titled Critical Insights on Tenure Security in the Global South; 37 pages, available at https://www.findevgateway.org/paper/2023/06/land-titling-and-microcredit-in-cambodia.

By James Stevenson, Research Associate

Additional Resources

Land webpagehttps://www.mdpi.com/journal/land

More research summaries from MicroCapitalhttps://www.microcapital.org/?s=wrap

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Additional Resources