Asset Accumulation and Poverty Dynamics in Rural Bangladesh: The Role of Microcredit

This paper investigates the link between asset accumulation and poverty dynamics in rural Bangladesh by using a recently conducted large-scale household survey and applying a conceptual framework that adapts the well-known entitlement approach to the dynamic context. The study found evidence of a systematic relationship between asset accumulation in the past and poverty status at present. Those who have been able to accumulate more and move up the asset ladder are found to have a higher likelihood of belonging to the better off groups today. In trying to identify the factors that shaped the dynamics of asset transition itself, the paper examined a number of factors, including microcredit, remittances, schooling, gender, and the scope for employment opportunities. Access to microcredit was found to enhance the probability of moving up the asset ladder and to reduce the probability of falling. While this is true for both poor and non-poor households, the effect is much stronger for the poor. Most of the poor borrowers started their journey in life with fewer assets compared to poor non-borrowers. But over time they have been able to accumulate assets at a faster pace in comparison with poor non-borrowers, thereby narrowing the original gap in endowments, and access to microcredit is found to have made a positive contribution in this regard. Furthermore, faster pace of asset accumulation has not remained confined only to those borrowers who have utilised the loan productively; it has also extended to those who have used the loans mainly for consumption purposes. For the latter group, access to microcredit has helped by reducing the need for asset depletion at times of crises. The study has also found that microcredit’s contribution to asset accumulation has translated itself into contribution to poverty reduction. Access to microcredit reduces the probability of being poor by 2.5 per cent. If only the borrowers who have used credit for productive purposes are considered, then the probability of being poor falls even more – by 6.8 per cent. The study finally made an attempt to answer the question: how much of the observed poverty reduction in rural Bangladesh can be attributed to microcredit? The dynamic adaptation of the entitlement approach was utilised for the purpose of answering this question. A conservative estimate was about 5 per cent – in the sense that if microcredit had not existed rural poverty would have been almost 5 per cent higher than what it was in 2010. The contribution to the reduction of extreme poverty was found to be considerably higher – about 9 per cent.