The persistence of credit–labor interlinked transactions in rural Myanmar: The case of Kanyingu Village in Ayeyarwady Delta: Fid-Bau Portal

The persistence of credit–labor interlinked transactions in rural Myanmar: The case of Kanyingu Village in Ayeyarwady Delta

Okamoto, Ikuko / Lwin, Hnin Yu / Fujita, Koichi

Abstract

Abstract Financial inclusion has been one of the key agendas for poverty reduction in development practices since the mid-2000s. However, informal finance has clearly not been completely replaced by formal finance in the Global South. This study examines labor-tying credit, which is one type of informal finance, and based on a case study in the Delta region of Myanmar, the study explores the reason for which it persists despite the promotion of financial inclusion policies. This paper found that credit–labor interlinked credits or advance wage payments from farmers to agricultural laborers persist because subsistence is still the key element of life for the poor in rural Myanmar. Formal finance, which includes microfinance and conventional types of informal finance such as credit from money lenders, is only a partial substitution. The poor must stabilize consumption or meet other basic needs in the lean season, and there is no better option or credit source available. In the reality of the subsistence-oriented poor, “How much is left?” is more important than “How much is taken?” Therefore, the high interest rates involved in labor-tying credit is not the major concern of its recipients because of the immediacy of such advances.

Highlights • Credit-labor interlinkage is persistent under the financial inclusion policy. • Credit-labor interlinkage contributes to consumption smoothing of the poor. • Credit-labor interlinkage's features serve as an economic safety net for the poor. • Rural financial policy should consider both promotion and protection of the poor.