Financing Seasonal Migration: A New Use for Microcredit?

In many places, agriculture is highly seasonal. That presents difficulties for subsistence farmers who have to stretch incomes year-round. If farmers (or family members) could migrate during the off-season to areas where wage labor is available, they could substantially smooth their annual income and consumption. Indeed, this is what happens in many places. But even where seasonal migration does happen, many people don't migrate even when it seems it would be advantageous to do so. Why?  

In recent work, Bryan, Chowdhury and Mobarak study the role of risk aversion in preventing households from migrating. You can see a presentation of this work here.

While migrating from poorer areas to wealthier ones, particularly from rural to urban locations, can provide access to more and (much, much) better-paying wage labor, it comes at a significant cost. The risk, stress and work involved in moving can be daunting, particularly for the poorest households. There are significant financial and social costs of a move. Worse, those costs are amplified if the hoped for gains don’t materialize. Failed migrants return home poorer, hungrier and with lost status after not finding employment. Insuring against some of these costs could therefore help members of poor households make the leap to migrate and increase their incomes.

The authors looked at households in northwestern Bangladesh where over 5 million people live below the poverty line and endure a seasonal famine known as “monga.”  The study randomly assigned an incentive of $8.50 in cash or credit (a zero interest loan) to households conditional on seasonal migration during the monga.

Households given an incentive (cash or credit) had rates of migration almost double those of households who did not (60 percent versus 36 percent). The study found that migration increased food and education expenditures and improved caloric intake. Total earnings during migration were around $1.21 per day and total savings plus remittances were around a dollar a day. Moreover, households in the treatment condition continued to migrate at higher rates even after the incentive was removed. A large majority of migrants reported returning to the same employer in subsequent years, meaning they connected to an employer and gained a valuable asset. Interestingly, those in the control group who had already been regularly migrating did earn, save and remit more since they were more experienced than the new migrants in the treatment group.  

Offering credit had similar impacts as cash and is a less costly alternative. The authors suggest providing credit to enable households to look for jobs may be another way to enhance the microcredit concept, which typically focuses on creating new businesses.