The effect of Micro-credit on Low income: Evidence from Bangladesh (*)


M. Jahangir Alam Chowdhury

Division of Fund and Bank

University of Dhaka

Dhaka, Bangladesh

Email: [email protected] com


Dipak Ghosh

Office of Economics

University of Stirling

Stirling, Scotland



Robert At the. Wright

Division of Economics

University of Stirling

Stirling, Scotland


Middle for Financial Policy Research (CEPR)

90-98 Goswell Street

London, Great britain


Institute for the Study of Work (IZA)


D-53113 Bonn


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. ” 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? ” 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




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