Microfinance illusion, poverty and welfare in Cambodia

Recent studies at national level have emphasized the failure of microfinance services as a means for development in Cambodia due to high interest rates, non-productive use of loans, over-indebtedness, often landless customers and intergenerational migration. This paper examines the effect of access to microfinance on household poverty and welfare using cross-sectional data from a 2015 survey of 411 households in 48 districts located in nine of Cambodia's provinces. These households were beneficiaries of the Agriculture Cooperative (AC) community development project supported by World Vision and the Australian Government. Applying the Wald test of exogeneity and Newey's minimum chi-squared estimators with the two-step option, probit models of household poverty status were estimated, as well as tobit models of household welfare level with endogenous treatment effects. The findings suggest that access to microfinance is associated with poverty reduction and increased per capita income of the household, but access to microfinance services has an insignificant impact on household welfare proxied by per capita economic assets and expenditure on child well-being. However, the results must be interpreted with caution due to sample selection effects.