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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Paper provided by Center for International Development at Harvard University in its series CID Working Papers with number
28.
Find related papers by JEL classification: O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment I38 - Health, Education, and Welfare - - Welfare and Poverty - - - Government Programs; Provision and Effects of Welfare Programs Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
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