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CGD in the News

The Migrant Debt Cycle (Washington Post)

November 4, 2019

From the article: 

"...It isn’t only financial institutions that are funding migration. Migrants also borrow from family and friends who serve as informal lenders, a shadow microfinance network that has ballooned in recent years — and can be just as unforgiving of delinquent loans.

In Nebaj, microfinance became a crowded, fiercely competitive market. Some cooperatives put out slick television advertisements with actors. More billboards with catchy slogans appeared: “We believe in you!” and “Multiply your investment!” But in most cases, they were for-profit endeavors, which could seize the property of debtors who defaulted.

In parts of South Asia and Africa — and in Nebaj in 2008 — a surge in delinquent microloans provoked crises for some of the world’s poorest people. But here the sector has ballooned once again, in part because of the surge in migration.

Guatemalans can multiply their purchasing power almost seven times by working in the United States and sending their wages home, researchers from Harvard University, the World Bank and the Center for Global Development reported this year.

'Nothing else that most of these households could invest in can compete with those astonishing returns to investment,' said Michael Clemens, a senior fellow at the Center for Global Development and one of the study’s authors. 'So it absolutely makes sense that when some families are able to access capital through microlending, they invest it in migration.'

A spokesman for USAID said the agency has “not had any direct-lending microfinance programs in Guatemala for more than 10 years.

'USAID helped to establish Fundación Génesis Empresarial and Banrural more than 20 years ago,' said the spokesman, who did not provide his name per the organization’s rules. 'These are now significant, independent lending institutions in Guatemala contributing to private-sector growth in the country.'

Marcela Escobari, who headed USAID’s Bureau for Latin America and the Caribbean under the Obama administration, said some microfinance organizations became increasingly driven by profit, relying less on USAID support and more on capital markets.

'It exploded too much and without the care to understand the development implications,” she said. “There’s a lot of money to be made on poor people, but there need to be checks and balances...'"

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Photo of Michael Clemens
Director of Migration, Displacement, and Humanitarian Policy and Senior Fellow