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The Impact of Microcredit on the Poor in Bangladesh: Revisiting the Evidence

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  • David Roodman
  • Jonathan Morduch

Abstract

The most-noted studies on the impact of microcredit on households are based on a survey fielded in Bangladesh in the 1990s. Contradictions among them have produced lasting controversy and confusion. Pitt and Khandker (PK, 1998) apply a quasi-experimental design to 1991–92 data; they conclude that microcredit raises household consumption, especially when lent to women. Khandker (2005) applies panel methods using a 1999 resurvey; he concurs and extrapolates to conclude that microcredit helps the extremely poor even more than the moderately poor. But using simpler estimators than PK, Morduch (1999) finds no impact on the level of consumption in the 1991–92 data, even as he questions PK’s identifying assumptions. He does find evidence that microcredit reduces consumption volatility. Partly because of the sophistication of PK’s Maximum Likelihood estimator, the conflicting results were never directly confronted and reconciled. We end the impasse. A replication exercise shows that all these studies’ evidence for impact is weak. As for PK’s headline results, we obtain opposite signs. But we do not conclude that lending to women does harm. Rather, all three studies appear to fail in expunging endogeneity. We conclude that for non-experimental methods to retain a place in the program evaluator’s portfolio, the quality of the claimed natural experiments must be high and demonstrated.

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Bibliographic Info

Paper provided by Center for Global Development in its series Working Papers with number 174.

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Length: 47 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:cgd:wpaper:174

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Web page: http://www.cgdev.org

Related research

Keywords: microcredit; impact evaluation; Grameen Bank; Bangladesh; replication; mixed-process models;

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Cited by:
  1. Antonello Zanfei, 2010. "Multinational Firms and the Pursuit of Social Benefits," Working Papers 1003, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2010.
  2. repec:etr:series:v:3:y:2012:i:11:p:330-340 is not listed on IDEAS
  3. Pablo Samaniego & Luis Tejerina, 2010. "Financial Inclusion Through the Bono de Desarrollo Humano in Ecuador: Exploring Options and Beneficiary Readiness," IDB Publications 8430, Inter-American Development Bank.
  4. Montgomery, Heather & Weiss, John, 2011. "Can Commercially-oriented Microfinance Help Meet the Millennium Development Goals? Evidence from Pakistan," World Development, Elsevier, vol. 39(1), pages 87-109, January.
  5. Duvendack, Maren, 2010. "Smoke and Mirrors: Evidence of Microfinance Impact from an Evaluation of SEWA Bank in India," MPRA Paper 24511, University Library of Munich, Germany.
  6. Duvendack, Maren & Palmer-Jones, Richard, 2011. "The microfinance of reproduction and the reproduction of microfinance: understanding the connections between microfinance, empowerment, contraception and fertility in Bangladesh in the 1990s," MPRA Paper 32384, University Library of Munich, Germany.
  7. Mohummed Shofi Ullah Mazumder & Lu Wencong, 2013. "Micro-Credit and Poverty Reduction: A Case of Bangladesh," Prague Economic Papers, University of Economics, Prague, vol. 2013(3), pages 403-417.
  8. M.A. Majid Pramanik & Lu Qian, 2012. "Does RDA-credit differ from others’ microcredit? A case study of Bangladesh," E3 Journal of Business Management and Economics., E3 Journals, vol. 3(10), pages 330-340.
  9. Fulford, Scott L., 2013. "The effects of financial development in the short and long run: Theory and evidence from India," Journal of Development Economics, Elsevier, vol. 104(C), pages 56-72.
  10. Anzoategui, Diego & Demirguc-Kunt, Asli & Peria, Maria Soledad Martinez, 2011. "Remittances and financial inclusion : evidence from El Salvador," Policy Research Working Paper Series 5839, The World Bank.
  11. Rashid, Salim & Yoon, Youngeun & Kashem, Shakil Bin, 2011. "Assessing the potential impact of Microfinance with agent-based modeling," Economic Modelling, Elsevier, vol. 28(4), pages 1907-1913, July.
  12. Hermes, Niels & Lensink, Robert, 2011. "Microfinance: Its Impact, Outreach, and Sustainability," World Development, Elsevier, vol. 39(6), pages 875-881, June.
  13. Duvendack, Maren & Palmer-Jones, Richard, 2011. "High Noon for Microfinance Impact Evaluations: Re-investigating the Evidence from Bangladesh," MPRA Paper 27902, University Library of Munich, Germany.
  14. Salim, Mir M., 2013. "Revealed objective functions of Microfinance Institutions: Evidence from Bangladesh," Journal of Development Economics, Elsevier, vol. 104(C), pages 34-55.
  15. Swamy, Vighneswara, 2014. "Financial Inclusion, Gender Dimension, and Economic Impact on Poor Households," World Development, Elsevier, vol. 56(C), pages 1-15.
  16. Kabeer, Naila & Mahmud, Simeen & Isaza Castro, Jairo G., 2012. "NGOs and the Political Empowerment of Poor People in Rural Bangladesh: Cultivating the Habits of Democracy?," World Development, Elsevier, vol. 40(10), pages 2044-2062.
  17. Asadul Islam & Pushkar Maitra, 2008. "Health Shocks And Consumption Smoothing In Rural Households: Does Microcredit Have A Role To Play?," Development Research Unit Working Paper Series 22/08, Monash University, Department of Economics.
  18. Hisako, KAI & Shigeyuki, HAMORI, 2009. "Microfinance and Inequality," MPRA Paper 17537, University Library of Munich, Germany.

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