The effect of Micro-credit on Low income: Evidence from Bangladesh (*)
M. Jahangir Alam Chowdhury
Division of Fund and Bank
University of Dhaka
Email: [email protected] com
Office of Economics
University of Stirling
Robert At the. Wright
Division of Economics
University of Stirling
Middle for Financial Policy Research (CEPR)
90-98 Goswell Street
London, Great britain
Institute for the Study of Work (IZA)
May possibly 2002
(*) Financial support from the Commonwealth Scholarship Commission rate, the Regal Economic Society, and the Teachers Research Pay for of the University of Stirling, is gratefully acknowledged.
The effect of Micro-credit on Low income: Evidence from Bangladesh
Fuzy: This newspaper is to look at empirically the effect of micro-credit on lower income in Bangladesh. Unlike earlier studies, primary is upon both aim and subjective poverty and particular focus is paid to the period of time programme individuals have had usage of micro-credit. A household-level review (N = 954) was carried out geared towards collecting info on individuals acquiring micro-credit through the three main micro-credit organisations in Bangladesh (Grameen Financial institution, BRAC and ASA). A logit regression analysis facilitates two key findings. The foremost is that microcredit is linked to both lower objective and subjective low income. The second is the impact of micro-credit in poverty is specially strong for approximately six years with some levelling off after that point.
Keyworks: Asia, Bangladesh, micro-credit, subjective, objective lower income
The Impact of Micro-credit on Poverty: Evidence coming from Bangladesh
1 ) Introduction
It is usually argued that the financial sector in low-income countries has failed to provide the poor. With regards to the formal sector, banks and also other financial institutions generally require significant collateral, have a preference for high salary and substantial loan clientele, and have extended and bureaucratic application types of procedures. With respect to the relaxed sector, money-lenders usually fee excessively high interest rates, tend to undervalue collateral, and quite often allow racist and/or sexist attitudes to guide lending decisions. The failing of the formal and casual financial groups to provide inexpensive credit for the poor is often viewed as one of the primary factors that reinforces the vicious group of friends of monetary, social and demographic buildings that finally cause poverty.
As a partial response to this kind of failure, there have been significant growth in what could be termed " micro-credit" over the past two decades. Micro-credit is essentially the dispersion of small collateral-free loans to jointly liable borrowers in groups in order to foster cash flow generation and poverty reduction through boosting selfemployment. Perhaps the best-known micro-credit institution may be the pioneering Grameen Bank in Bangladesh. Yet , the Grameen model continues to be replicated in many countries (including high-income countries like the United States). One estimation suggests that more than 10 mil households globally are maintained by microcredit (see Morduch, 1999). In addition , there is a perspective amongst key decision-makers that micro-credit offers played a significant role in the reduction of poverty. This kind of optimism is usually reflected inside the outcome of the Microcredit Peak held in 97 where
policy-makers, NGOs, charitable footings and professionals enthusiastically agreed to reach 75 million people with micro-credit by the yr 2005, at an anticipated expense of some 20 dollars billion (see Microcredit Peak Report, 1997). The scientific evidence for the impact of micro-credit in poverty is incredibly mixed (see for example , Edgecomb and Barton, 1998; Morduch, 1998, 99; Schrieder and Sharma, 1999; Sebstad and Chen, 1996; Coleman, 99; Hossain, 1988, 1998). A lot of...
References: Coleman, B. At the. (1999). " The Impact of Group Lending in Northeast Thailand. "
Journal of Development Economics, vol
Chowdhury, M. J. A. (2000). Microcredit, Development of Entitlement and Alleviation
of Low income: An Investigation into the Grameen Bank's Role in Bangladesh.
Edgecomb, E. and L. Barton. (1998). Social Intermediation and Microfinance
Programs; A Literary works Review
GOB. (1998). Examination of Simple Needs Dimension of Lower income, Volume III. Dhaka:
Bangladesh Bureau of Statistics, Federal government of Bangladesh.
Hossain, Meters. (1988). Credit rating for alleviation of Rural Poverty: the Grameen Lender in
Hulme, D. (2000). " Impact Examination Methodologies pertaining to Microfinance: Theory,
Experience and Better Practice. " Universe Development, vol
Hussain, A. and Meters. Muazzam (eds. ) (1998). Poverty Alleviation and Empowerment:
The Second Effects Assessment Study of BRAC 's Countryside Development
Jain, P. H. (1996). " Managing Credit rating for the agricultural Poor: Lessons from the Grameen
Bank. " World Advancement, vol
Khalily, M., A. Baqui, M. O. and, S. A. khan. (2000). " Performance and Sustainability of
Formal and Quasi-formal Microfinance Programmes-An Analysis of Grameen
Lender and ASA. вЂќ Bangladesh Development Studies, vol. 26, nos. 2/3, pp. 103146.
Khandker, T. (1998). Fighting Poverty with Microcredit: Encounter in Bangladesh.
Morduch, J. (1998). Does Mocrofinance Really Help the Poor? New Evidence from
Range topping Programs in Bangladesh
Morduch, J. (1999). " The Microfinance Guarantee. " Diary of Financial Literature,
Mircrocredit Peak Report (1997). Washington: Results Educational Finance.
Pitt, M. and S. Khandker. (1998). " The Impact of Group-based Credit Programmes on
Poor Households in Bangladesh: Will the Gender of Participants Subject? "
Rahman, A. (1999). " Microcredit Initiatives for Equitable and Sustainable
Development: Who Pays? вЂќ World Development, vol
Rutherford, S i9000. (1995). ASA-The Biography associated with an NGO. Dhaka: Association of Social
Schrieder, G. and Meters. Sharma. (1999). " Impact of Fund on Poverty Reduction and
Social Capital Formation: An evaluation and Activity of Scientific Evidence. "
Grameen Lender, BRAC and ASA Micro-credit Programmes, 2000