Dynamic Effects of Microcredit in Bangladesh

Paper
Date Published: 
Mar 2014
Author: 
Khandker, S.R. & Samad, H.A.
Publisher: 

Examining the dynamics of microcredit programs in Bangladesh

This paper uses long panel survey data spanning over 20 years to study the effects of microcredit programs in Bangladesh. It uses a dynamic panel model to address a number of issues, such as whether credit effects are declining over time, whether market saturation and village diseconomies are taking place, and whether multiple program membership, which is rising as a consequence of microcredit expansion, is harming or benefiting the borrowers. The paper makes the following observations:

  • Group-based credit programs have significant positive effects in raising household welfare including per capita consumption, household non-land assets and net worth;
  • Microfinance increases income and expenditure, the labor supply of males and females, non-land asset and net worth as well as boys' and girls' schooling;
  • Microfinance, especially female credit, reduces poverty;
  • Past credit has a higher impact on income and expenditure than current credit;
  • With higher village-level aggregate current male borrowing, the marginal effect of male borrowing on per capita income gets lower.

The paper concludes that the current microfinance policy of credit expansion alone may not be enough to boost income and productivity, and, hence, sustained poverty reduction.

Type: 
Paper
Regions: 
South Asia
Countries: 
Bangladesh