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Does microcredit reach the poor and vulnerable? Evidence from northern Bangladesh

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  • Amin, Sajeda
  • Rai, Ashok S.
  • Topa, Giorgio

Abstract

Subsidized loans have a history of being diverted to the rich. Yet recently microcredit programs, such as the Grameen Bank in Bangladesh, have become popular among donors and governments as a way to channel funds to the poor. This paper uses a unique panel dataset from two Bangladeshi villages to test if the modern microcredit movement is different from its predecessors. Poverty is measured by levels of consumption. Vulnerability is measured as fluctuations in consumption associated with inefficient risk sharing. We find that subsidized credit is largely successful at reaching the poor and vulnerable. The probability that a microcredit member is below the poverty line is substantially higher than that of a randomly picked household in both villages. In the village where female headed households were found to be vulnerable, nearly half of the female headed households belonged to microcredit programs yet only a quarter of male headed households were microcredit members. While restricting loans to the landless is not effective in reaching the poor and vulnerable, targeting female headed households is.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 70 (2003)
Issue (Month): 1 (February)
Pages: 59-82

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Handle: RePEc:eee:deveco:v:70:y:2003:i:1:p:59-82

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  1. Jalan, Jyotsna & Ravallion, Martin, 1997. "Are the poor less well-insured? Evidence on vulnerability to income risk in rural China," Policy Research Working Paper Series 1863, The World Bank.
  2. Anderson, Gordon, 1996. "Nonparametric Tests of Stochastic Dominance in Income Distributions," Econometrica, Econometric Society, vol. 64(5), pages 1183-93, September.
  3. Robert M. Townsend, . "Risk and Insurance in Village India," University of Chicago - Population Research Center 91-3a, Chicago - Population Research Center.
  4. Quentin Wodon, 1997. "Food energy intake and cost of basic needs: Measuring poverty in Bangladesh," Journal of Development Studies, Taylor & Francis Journals, vol. 34(2), pages 66-101.
  5. Jonathan Morduch, 1998. "Does Microfinance Really Help the Poor? New Evidence from Flagship Programs in Bangladesh," Working Papers 198, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
  6. Martin Ravallion & Gaurav Datt, 1995. "Is Targeting Through a Work Requirement Efficient? Some Evidence for Rural India," Development Research Unit Working Paper Series archive-41, Monash University, Department of Economics.
  7. Navajas, Sergio & Schreiner, Mark & Meyer, Richard L. & Gonzalez-vega, Claudio & Rodriguez-meza, Jorge, 2000. "Microcredit and the Poorest of the Poor: Theory and Evidence from Bolivia," World Development, Elsevier, vol. 28(2), pages 333-346, February.
  8. Mark M. Pitt & Shahidur R. Khandker, 1998. "The Impact of Group-Based Credit Programs on Poor Households in Bangladesh: Does the Gender of Participants Matter?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 958-996, October.
  9. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
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