Microfinance and Poverty: Using Panel Data from Bangladesh

Microfinance supports mainly informal activities that often have a low return and low market demand. It may therefore be hypothesized that the aggregate poverty impact of microfinance is modest or even nonexistent. If true, the poverty impact of microfinance observed at the participant level represents either income redistribution or short-run income generation from the microfinance intervention. This article examines the effects of microfinance on poverty reduction at both the participant and the aggregate levels using panel data from Bangladesh. The results suggest that access to microfinance contributes to poverty reduction, especially for female participants, and to overall poverty reduction at the village level. Microfinance thus helps not only poor participants but also the local economy.

Khandker (2005)

Region:

Rural.Ex-post evaluation with panel data of clients and non-clients.Group-liability credit for income-generation activity. Some loans for consumption and housing. Credit led to much higher poverty reduction among women clients' HHs than among men's. Slightly higher impact on HHs in exterme poverty, than those in moderate poverty. MF accounts for more than half of the 3% decline in poverty among clients. Female borrowing has a positive effect on HH food consumption (male borrowing has no effect).Mainly women; very poor and poor.