Microfinance and vulnerability to poverty

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Low-income households face various risks that heighten their vulnerability to poverty, particularly in rural Cambodia, where most are engaged in agriculture. These households experience low productivity, limited land and assets, unstable income, fluctuating prices, debt, and poor credit access. Angkor Mikroheranhvatho Kampuchea (AMK) Co. Ltd., a microfinance institution, aims to provide financial products to these households. AMK's Market and Social Research Department collects annual socio-economic data from selected loan clients and a control group of non-clients, focusing on household profiles, cash-flow analysis, food consumption, risk sources, and coping strategies. This study utilizes AMK's survey database, analyzing cross-sectional data from 2006/07 and validating it with 2008 panel data. A theoretical framework is developed to explore how AMK services impact clients' risk management abilities, linking vulnerability to risks and poverty dynamics. Findings reveal that 85% of households are vulnerable to poverty, significantly higher than static assessments suggest. In 2006/07, 72% of sampled households were poor, compared to 58% among non-clients and 75% of AMK clients. The study indicates that clients who remained with AMK accumulated assets and reduced reliance on agriculture, suggesting improved safety nets and strategic options for future shocks.