Islamic microfinance in Cambodia : economic impact on poverty alleviation among households

Abstract

Poverty remains a dire problem for many Cambodians. Several intervention programmes have been launched to eradicate poverty since the end of the civil war in 1990s. This research examines factors that influence households to become Islamic microfinance beneficiaries and assesses its impact on poverty alleviation in Cambodia. The survey questionnaire was personally administered to collect data, with a total sample size of 313 consisting of treatment group (203) and controlled group (110). Logistic regression and ordinary least square were used to determine factors influencing accessibility and assess the impact of Islamic microfinance on household economic performance in the form of income, expenditure, and durable assets. In addition, the poverty measurement was constructed using the Foster, Greer, and Thorbecke (FGT) approach. The result of the average marginal effect showed that household with good social networks are more likely to become Islamic microfinance beneficiaries by 21.6%. Similarly, owning a house increased the probability of becoming beneficiaries by 18.5 %, holding other variables constant. The explanatory variables such as occupation (fisherman), education (illiterate), gender (female), and age suggested a significant positive relationship with Islamic microfinance accessibility. The findings of the economic impact at household level showed that receiving Islamic microfinance facilities had a positive significant impact on household income (7.2%) and household expenditure (4.7%) but the coefficients were very small and did not suggest a significant relationship with household’s durable assets. However, the poverty measurement indicated that Islamic microfinance as an intervention programme could reduce the ratio of headcount poverty, poverty gap, and poverty severity. The headcount ratio of beneficiaries reduced from 87% to 44% upon joining the Islamic microfinance programme. This pioneering study on Islamic microfinance in Cambodia offers important implications to several stakeholders including the Muslim community, academics, Islamic microfinance institutions, community leaders, and the government. Keywords: Islamic Microfinance, Impact Assessment, Poverty Alleviation, Cambodia