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Does Microfinance Reduce Poverty in Bangladesh? New Evidence from Household Panel Data

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Author Info

  • Katsushi S. Imai

    (Economics, School of Social Sciences, University of Manchester (UK) and RIEB, Kobe University (Japan))

  • Md. Shafiul Azam

    (Economics, School of Social Sciences, University of Manchester, UK)

Abstract

The purpose of the present study is to examine whether microfinance reduces poverty in Bangladesh drawing upon the nationally representative household panel data covering 4 rounds from 1997 to 2005. A special attention was drawn to the issue of endogeneity by applying treatment effects model and propensity score matching (PSM) for the participants and non-participants of microfinance programmes. It has been found by treatment effects model applied to panel data that the simple household access to general loans from microfinance institutions (MFIs) did not increase per capita household income significantly, but household access to loans for productive purposes from MFIs significantly increased per capita household income. This suggests that the purpose and monitoring of how clients use the loans is important for increasing household income, and thus decreasing household poverty. However, the application of treatment effects model and PSM to each cross-sectional component of the panel data shows that the poverty reducing effect of MFI on poverty was significantly reduced over the years. This suggests the importance of more attention to the primary purpose of microcredit, that is, poverty reduction, and also to monitoring loan usages in the situations where the profits of MFIs became increasingly squeezed and their activities became more commercialised under severe competitions among MFIs in recent years.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2010-24.pdf
File Function: Revised version, 2011
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Bibliographic Info

Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2010-24.

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Length: 34 pages
Date of creation: Sep 2010
Date of revision: Nov 2011
Handle: RePEc:kob:dpaper:dp2010-24

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Keywords: microfinance; MFI (microfinance institution); Microcredit; Poverty; Bangladesh;

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Cited by:
  1. Subhasish Dey & Katsushi S. Imai, 2014. "Workfare as "Collateral": The Case of the National Rural Employment Guarantee Scheme (NREGS) in India," The School of Economics Discussion Paper Series 1412, Economics, The University of Manchester.
  2. Dan Brockington & Nicola Banks, 2014. "Exploring the Success of BRAC Tanzania’s Microcredit Programme," Brooks World Poverty Institute Working Paper Series 20214, BWPI, The University of Manchester.
  3. Jing You & Samuel Annim, 2013. "The impact of microcredit on child education: quasi-experimental evidence from rural China," Brooks World Poverty Institute Working Paper Series 18313, BWPI, The University of Manchester.
  4. You, Jing, 2013. "The role of microcredit in older children’s nutrition: Quasi-experimental evidence from rural China," Food Policy, Elsevier, vol. 43(C), pages 167-179.

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