Trade-off between Formal and Informal Financial Institutions: A Case Study from Rural Cambodia

Abstract

Formal financial institutions for poverty alleviation may have negative impacts on the viability of existing informal financial institutions. Conversely, the existence of informal institutions may mitigate the effect of formal institutions on poverty alleviation. This paper aims to test these hypotheses for financial institutions in rural Cambodia. We examine the dynamic changes in borrowing from formal and informal institutions using a panel data of households.We also investigate whether borrowing from micro-finance institutions has a significant effect on borrowing and receiving gifts of money from rela-