Does high remittances lead to high demand for credit?

Analyzing the scenario in El Salvador, Anzoategui et al. argue that remittances do not necessarily led to “a significant and robust” demand for and use of credit from formal institutions. However, it has positive impact on financial inclusion by promoting the use of deposit accounts. Remittances account for about 17 percent of GDP of El Savador. Here is the abstract of the paper:

---

This paper investigates the impact of remittances on financial inclusion. This is an important issue given recent studies showing that financial inclusion can have significant beneficial effects on households. Using household-level survey data for El Salvador, the authors examine the impact of remittances on households' use of savings and credit instruments from formal financial institutions. They find that although remittances have a positive impact on financial inclusion by promoting the use of deposit accounts, they do not have a significant and robust effect on the demand for and use of credit from formal institutions. If anything, by relaxing credit constraints, remittances might reduce the need for external financing from financial institutions, while at the same time increasing the demand for savings instruments.

---

The latest household survey in Nepal shows that with massive increase in remittances (which is close to 25 percent of GDP), the proportion of households taking loans from financial institutions increased (from 15.1 percent of total households in 2003/04 to 20 percent in 2010/11). Meanwhile, there was a decline in the proportion of households taking loans from money lenders and relatives.

Electricity theft and electoral cycle in UP

Here is an interesting paper on the relationship between the magnitude of electricity theft and electoral cycle in UP, India’s most populous state. Golden and Min argue that during election years electricity theft is significantly greater than in other years and it increases with the intensity of tubewells. Interestingly, they find that the probability of being re-elected is higher when power theft in locality increases. They show that power theft is most intense in the state’s most agricultural localities, suggesting it is largely due to unmetered agricultural use. Below is the abstract of the paper.

---

Utilizing data from the power corporation of Uttar Pradesh, India’s most populous state, we study the politics of electricity theft over a ten year period (2000–09). Our results show that electricity theft is substantial in magnitude. The extent of theft varies with the electoral cycle of the state. In years when elections to the State Assembly are held, electricity theft is significantly greater than in other years. Theft is increasing with the intensity of tubewells, suggesting that it is linked to unmetered electricity use by farmers. Incumbent legislative members of the state assembly are more likely to be reelected as power theft in their locality increases. Our interpretation of these various results is that power theft exhibits characteristics consistent with the political capture of public service delivery by local elites. Our results fail to substantiate that theft is linked either to political criminality or is the product of weak institutions.

---

Electricity theft is also an acute problem in Nepal, increasing load-shedding hours and inflicting loss of revenue to government. The leakage was thought to be as high as 30 percent few years back, but it has come down in recent years due to active monitoring by the relevant government agencies. The increase in load-shedding hours in areas with more electricity theft has also worked to some extent. The leakage occurs from three sources: illegal hookups, meter fraud (by bribing inspection officials, meter tempering by using magnets to slow spinning disk that records the amount of power that is being drawn) and unmetered use (paying in bulk instead of according to meter reading as the cost of installing meter is high; agriculture consumers do it in some places with flat system of electricity pricing).