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Does Microfinance Really Help the Poor? New Evidence from Flagship Programs in Bangladesh

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Author Info
Jonathan Morduch (Harvard University and Stanford University)

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Abstract

The microfinance movement has built on innovations in financial intermediation that reduce the costs and risks of lending to poor households. Replications of the movement’s flagship, the Grameen Bank of Bangladesh, have now spread around the world. While programs aim to bring social and economic benefits to clients, few attempts have been made to quantify benefits rigorously. This paper draws on a new cross-sectional survey of nearly 1800 households, some of which are served by the Grameen Bank and two similar programs, and some of which have no access to programs. Households that are eligible to borrow and have access to the programs do not have notably higher consumption levels than control households, and, for the most part, their children are no more likely to be in school. Men also tend to work harder, and women less. More favorably, relative to controls, households eligible for programs have substantially (and significantly) lower variation in consumption and labor supply across seasons. The most important potential impacts are thus associated with the reduction of vulnerability, not of poverty per se. The consumption-smoothing appears to be driven largely by income-smoothing, not by borrowing and lending. The evaluation holds lessons for studies of other programs in low-income countries. While it is common to use fixed effects estimators to control for unobservable variables correlated with the placement of programs, using fixed effects estimators can exacerbate biases when, as here, programs target their programs to specific populations within larger communities.

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Paper provided by Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies. in its series Working Papers with number 198.

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Date of creation: Jun 1998
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Handle: RePEc:pri:rpdevs:198

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Related research
Keywords: microfinance; project evaluation; Grameen Bank; Bangladesh;

Cited by:
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  1. Mariapia MENDOLA, 2005. "Agricultural technology and poverty reduction: a micro-level analysis of causal effects," Departemental Working Papers 2005-14, Department of Economics University of Milan Italy. [Downloadable!]
  2. Raffaello Bronzini & Guido de Blasio & Guido Pellegrini & Alessandro Scognamiglio, 2008. "The effect of investment tax credit: Evidence from an atypical programme in Italy," Temi di discussione (Economic working papers) 661, Bank of Italy, Economic Research Department. [Downloadable!]
  3. Mark Schreiner, 2001. "Aspects of Outreach: A Framework for the Discussion of the Social Benefits of Microfinance," Development and Comp Systems 0109003, EconWPA. [Downloadable!]
  4. Rohini Somanathan & Isha Dewan, 2003. "Identifying targeting with nonparametric methods: An application to an Indian microfinance program," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 03-11, Indian Statistical Institute, New Delhi, India. [Downloadable!]
  5. Asadul Islam Author-X-Name-Asadul, 2008. "Who Benefits From Microfinance? The Impact Evaluation Of Large Scale Programs In Bangladesh," Monash Economics Working Papers 29/08, Monash University, Department of Economics. [Downloadable!]
  6. Ulrike Vogelgesang, 2001. "The Impact of Microfinance Loans on the Clients' Enterprises: Caja Los Andes, Bolivia," GK working paper series 2001-03, Post Graduate Programme "Allocation on Financial Markets", University of Mannheim, revised Nov 2001. [Downloadable!]
  7. Beatriz Armendariz & Nigel Roome, 2008. "Empowering women via microfinance in fragile states," Working Papers CEB 08-001.RS, Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB). [Downloadable!]
  8. Bali Swain, Ranjula & Varghese, Adel, 2008. "Does Self Help Group Participation Lead to Asset Creation?," Working Paper Series 2008:5, Uppsala University, Department of Economics. [Downloadable!]
  9. Dean Karlan & Jonathan Zinman, 2007. "Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts," Working Papers 956, Economic Growth Center, Yale University. [Downloadable!]
    Other versions:
  10. Khandker, Shahidur R., 2003. "Microfinance and poverty - evidence using panel data from Bangladesh," Policy Research Working Paper Series 2945, The World Bank. [Downloadable!]
  11. Demirguc-Kunt, Asli & Levine, Ross, 2009. "Finance and inequality : theory and evidence," Policy Research Working Paper Series 4967, The World Bank. [Downloadable!]
    Other versions:
  12. Jonathan Conning, 2005. "Monitoring by Peers or by Delegates? Joint Liability Loans and Moral Hazard," Hunter College Department of Economics Working Papers 407, Hunter College: Department of Economics. [Downloadable!]
  13. Islam, Asadul & Choe, Chongwoo, 2009. "Child Labour and Schooling Responses to Access to Microcredit in Rural Bangladesh," MPRA Paper 16842, University Library of Munich, Germany. [Downloadable!]
  14. Esther Duflo, 2005. "Évaluer l'impact des programmes d'aide au développement : le rôle des évaluations par assignation aléatoire," Revue d’économie du développement, De Boeck Université, vol. 19(2), pages 185-226. [Downloadable!]
  15. Isha Dewan & Rohini Somanathan, 2004. "Poverty targeting in public programs: A comparison of alternative nonparametric methods," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 04-16, Indian Statistical Institute, New Delhi, India. [Downloadable!]
  16. Christy, Ralph D. & Wenner, Mark D. & Dassie, Wylin, 2000. "A Microenterprise- Centered Economic Development Strategy For The Rural South: Sustaining Growth With Economic Opportunity," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 32(02), August. [Downloadable!]
  17. Navajas, Sergio & Schreiner, Mark & Meyer, Richard L. & Gonzalez-Vega, Claudio & Rodriguez-Meza, Jorge, 1998. "Microcredit And The Poorest Of The Poor: Theory And Evidence From Bolivia," Economics and Sociology Occasional Papers 28334, Ohio State University, Department of Agricultural, Environmental and Development Economics. [Downloadable!]
    Other versions:
  18. Beck, Thorsten, 2008. "The econometrics of finance and growth," Policy Research Working Paper Series 4608, The World Bank. [Downloadable!]
  19. Jonathan Zinman, 2008. "Restricting consumer credit access: household survey evidence on effects around the Oregon rate cap," Working Papers 08-32, Federal Reserve Bank of Philadelphia. [Downloadable!]
  20. Berhane Tesfay, G. & Gardebroek, C., 2008. "Joint-liability borrowing decisions under risk: Empirical evidence from rural microfinance in Ethiopia," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44202, European Association of Agricultural Economists. [Downloadable!]
  21. Hoque, Serajul, 2008. "Does Micro-credit Program in Bangladesh Increase Household’s Ability to Deal with Economic Hardships?," MPRA Paper 6678, University Library of Munich, Germany. [Downloadable!]
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