Land Titling Improves Access to Microcredit in Cambodia: Be Careful What You Wish For

Abstract

The poverty reduction and developmental role of land titles has been a contested issue since the concept was popularised in the early 2000s by Peruvian economist Hernando de Soto and the World Bank. Among other things, land titles were held to provide vital local economic development impetus because they could be used as collateral in order to increase the supply of microcredit, thereby supposedly allowing every individual in poverty an opportunity to escape their predicament by engaging in individual entrepreneurship. Initially, financial institutions in the global south resisted to accept land titles, resulting in minimal impact, but land titles are now increasingly used as collateral. The one country where this process has gone furthest is Cambodia, where land titles are now almost obligatory and this has helped to increase the volume of microcredit in circulation to world-record levels. This paper addresses the question as to whether or not this breakthrough institutional development has had the positive impact on Cambodia’s poor that de Soto, the World Bank and other advocates of land titling have long argued it would. The conclusion is that it has not: the supply of microcredit has indeed increased exponentially, but this has ultimately had a negative impact on the mass of clients while the narrow elite associated with the supply of microcredit (CEOs, senior management and shareholders of the leading microcredit institutions, investors, foreign advisors) have all very made significant financial returns. It appears that de Soto and the World Bank were thus ultimately proved wrong in the one country that most approximated the preconditions they suggested would lead to economic and social success.