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The macro impact of microfinance in Bangladesh: A CGE analysis

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  • Raihan, Selim
  • Osmani, S.R.
  • Khalily, M.A. Baqui

Abstract

A lot has been written on the impact of microfinance on poverty and well-being at the household level, but little is known about its macro impact. The present paper makes a pioneering attempt to estimate the macro impact of microfinance in Bangladesh. The expansion of microfinance constitutes an important dimension of financial development, which can affect the real economy through multiple channels. The present paper examines how microfinance has affected the gross domestic product (GDP) of Bangladesh by operating through a number of such channels – viz., capital accumulation, productivity improvement, and reallocation of capital and labor among different sectors. A static Computable General Equilibrium (CGE) model has been used in order to capture these transmission mechanisms. The study estimates that microfinance has added somewhere between 8.9% and 11.9% to the GDP of the country depending on the assumptions made about the working of the labour market. The contribution to rural GDP is even higher – between 12.6% and 16.6%. There is scope to refine these estimates further in future research by including additional transmission mechanisms and employing a dynamic version of the CGE model.

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  • Raihan, Selim & Osmani, S.R. & Khalily, M.A. Baqui, 2017. "The macro impact of microfinance in Bangladesh: A CGE analysis," Economic Modelling, Elsevier, vol. 62(C), pages 1-15.
    • Handle: RePEc:eee:ecmode:v:62:y:2017:i:c:p:1-15
    DOI: 10.1016/j.econmod.2017.01.002
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    Cited by:

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    2. Tchapo Gbandi & Mawuli K. Couchoro & Mawulolo J. Agossou, 2021. "From the top to the bottom: The global environment and microfinance institution (MFI) performance in the West African Economic and Monetary Union countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 33(7), pages 1087-1111, October.
    3. Tetsuji Tanaka & Jin Guo, 2020. "Realistic Specifications and Model Predictability: Testing the Performance of a Stochastic CGE Model with Regionally Correlated Yield Variability in the Wheat and Rice Sectors," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 8(1), pages 55-75, March.
    4. Caserta, Maurizio & Monteleone, Simona & Reito, Francesco, 2018. "The trade-off between profitability and outreach in microfinance," Economic Modelling, Elsevier, vol. 72(C), pages 31-41.
    5. Mohsin, Muhammad & Ullah, Hafeez & Iqbal, Nadeem & Iqbal, Wasim & Taghizadeh-Hesary, Farhad, 2021. "How external debt led to economic growth in South Asia: A policy perspective analysis from quantile regression," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 423-437.
    6. Dioum, Sokhna Bousso, 2024. "Pauvreté et microfinance dans l’espace de la CEDEAO : un cluster macroéconomique appliqué [Poverty and microfinance in the ECOWAS region: an applied macroeconomic cluster]," MPRA Paper 121581, University Library of Munich, Germany.
    7. Rashiqa Abdul Salam & Khuram Pervez Amber & Naeem Iqbal Ratyal & Mehboob Alam & Naveed Akram & Carlos Quiterio Gómez Muñoz & Fausto Pedro García Márquez, 2020. "An Overview on Energy and Development of Energy Integration in Major South Asian Countries: The Building Sector," Energies, MDPI, vol. 13(21), pages 1-37, November.
    8. Thanh, Pham Tien & Saito, Katsuhiro & Duong, Pham Bao, 2019. "Impact of microcredit on rural household welfare and economic growth in Vietnam," Journal of Policy Modeling, Elsevier, vol. 41(1), pages 120-139.
    9. Omorose A. Ogiemudia & Igbinovia Lawson Eghosa & Amenze S. Airhiavbere, 2022. "MICROFINANCE BANKS OPERATIONS AND ECONOMIC DEVELOPMENT IN NIGERIA The paper explored the influence of Microfinance Banks (MBs) on Economic Development (ED) in Nigeria. It was embarked upon against the," Oradea Journal of Business and Economics, University of Oradea, Faculty of Economics, vol. 7(2), pages 75-86, Septembri.
    10. Leif Atle Beisland & Bert D’Espallier & Roy Mersland, 2019. "The Commercialization of the Microfinance Industry: Is There a ‘Personal Mission Drift’ Among Credit Officers?," Journal of Business Ethics, Springer, vol. 158(1), pages 119-134, August.
    11. Koffi Sodokin, 2022. "Access to Microfinance Institutions and Official Banks and the Impact on Small Business in Togo," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 14(1), pages 1-46, January.
    12. Tanjinul Hoque Mollah & Sharmin Shishir & Wahid Ullah & Takaaki Nihei, 2019. "Assessing NGOs micro-credit programs: a geo-spatial and socio-economic scenario from rural Bangladesh," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 66(2), pages 79-99, June.
    13. Mallick, Debdulal & Nabin, Munirul H., 2018. "Cost effectiveness or serving the poor? Factors determining program placement of NGOs in Bangladesh," Economic Modelling, Elsevier, vol. 69(C), pages 281-290.
    14. Anupam Das & Leanora Brown & Adian McFarlane, 2023. "Asymmetric Effects of Financial Development on CO 2 Emissions in Bangladesh," JRFM, MDPI, vol. 16(5), pages 1-18, May.
    15. Farzana Sharmin & Ridzwan Bakar, 2018. "Effect of Household Factors on Repayment Ability among Islamic Microfinance Borrowers in Bangladesh," International Journal of Business and Management, Canadian Center of Science and Education, vol. 13(8), pages 1-40, June.
    16. Ishraq Ahmed & Erick Kitenge, 2022. "Microfinance outreach and aggregate welfare," Journal of International Development, John Wiley & Sons, Ltd., vol. 34(3), pages 652-669, April.
    17. Islam, Khan & O’Gorman, Melanie, 2019. "Microcredit contract design: A macroeconomic evaluation," World Development, Elsevier, vol. 124(C), pages 1-1.
    18. Md. Ali Rasel & Sandar Win, 2020. "Microfinance governance: a systematic review and future research directions," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 47(7), pages 1811-1847, April.
    19. S.R. Osmani, 2018. "Socio-economic development in South Asia: The past 50 years," WIDER Working Paper Series 105, World Institute for Development Economic Research (UNU-WIDER).
    20. S. R. Osmani, 2018. "Socio-economic development in South Asia: The past 50 years," WIDER Working Paper Series wp-2018-105, World Institute for Development Economic Research (UNU-WIDER).
    21. Dairo Ayiber Estrada & Ana María Yaruro-Jaime & Felipe Clavijo-Ramírez & Laura Marcela Capera Romero & Jairo Gómez, 2023. "The Development of Microcredit in Colombia," Books, Banco de la Republica de Colombia, number 2023-isbn:9786289511222 edited by Asomicrofinanzas & Banco de la República, March.

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    More about this item

    Keywords

    Microfinance; Impact assessment; Bangladesh; CGE modelling;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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