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Are microcredit participants in Bangladesh trapped in poverty and debt ?

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  • Khandker, Shahidur R.
  • Samad, Hussain A.

Abstract

This paper addresses whether microcredit participants in Bangladesh are trapped in poverty and debt, as many critics have argued in recent years. Analysis of data from a long panel survey over a 20-year period confirms this is not the case, although numerous participants have been with microcredit programs for many years. The results of the analysis suggest that participants derive a variety of benefits from microcredit: It helps them to earn income and consume more, accumulate assets, invest in children's schooling, and be lifted out of poverty. This is not to say that non-participants have failed to progress over the same period. Both participants and non-participants have gained as the economy has grown; however, the rates of poverty reduction have been higher for participants. Testing the net effect of microcredit programs requires applying an econometric method that controls for why some households participated and others did not, conditional on their initial characteristics. In addition, the method must control for time-varying, unobserved heterogeneity that affects everyone over time, albeit in possibly different ways. The paper's econometric estimates show significant welfare gains resulting from microcredit participation, especially for women. They also show that the accrued benefits of borrowing outweigh accumulated debt. As a result, households'net worth has increased, and both poverty and the debt-asset ratio have declined.

Suggested Citation

  • Khandker, Shahidur R. & Samad, Hussain A., 2013. "Are microcredit participants in Bangladesh trapped in poverty and debt ?," Policy Research Working Paper Series 6404, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6404
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    References listed on IDEAS

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    11. Khandker, Shahidur R. & Samad, Hussain A., 2014. "Microfinance Growth and Poverty Reduction in Bangladesh: What Does the Longitudinal Data Say?," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 37(1-2), pages 127-157, March-Jun.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Art of Pointless and Misleading Microcredit Impact Evaluations
      by guestxborders in governance across borders on 2013-05-29 15:23:03

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    Cited by:

    1. Islam, Asadul & Nguyen, Chau & Smyth, Russell, 2015. "Does microfinance change informal lending in village economies? Evidence from Bangladesh," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 141-156.
    2. repec:aer:wpaper:323 is not listed on IDEAS
    3. Hafiz ZahidMahmood & Kausar Abbas & Mehreen Fatima, 2017. "Islamic microfinance and household welfare nexus: empirical investigation from Pakistan," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 7(1), pages 1-15, December.
    4. Abraham Abebe & Meketaw Kegne, 2023. "The role of microfinance institutions on women’s entrepreneurship development," Journal of Innovation and Entrepreneurship, Springer, vol. 12(1), pages 1-24, December.
    5. Khandker, Shahidur R. & Samad, Hussain A., 2014. "Dynamic effects of microcredit in Bangladesh," Policy Research Working Paper Series 6821, The World Bank.
    6. Md Akther Uddin & S. M. Sohrab Uddin, 2021. "Microfinance and Debt Trap: An Ethnographic Evidence From a Village in Bangladesh," International Journal of Asian Business and Information Management (IJABIM), IGI Global, vol. 12(3), pages 1-11, July.

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    More about this item

    Keywords

    Rural Poverty Reduction; Debt Markets; Banks&Banking Reform; Poverty Monitoring&Analysis;
    All these keywords.

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