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Cost effectiveness or serving the poor? Factors determining program placement of NGOs in Bangladesh

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  • Mallick, Debdulal
  • Nabin, Munirul H.

Abstract

The trade-off between poverty alleviation and cost effectiveness (profit maximization) encountered by NGOs is a global concern for the microfinance industry. To understand this trade-off at the micro level, we investigate the factors determining the program location choice of NGOs using village level survey data from Bangladesh. We document that NGO coverage in a village—measured by the percentage of NGO member households, number of NGOs working, and NGO density in the village—decreases with distance of the village from marketplaces and increases with the adoption of modern irrigation methods. The results suggest that cost effectiveness and loan repayment concerns serve as barriers to reaching the poor. They also suggest the inability of the microfinance program to mitigate credit market imperfections in the presence of output market imperfections, and this implication can be generalized for the microfinance industry worldwide. The results also shed light on the specific nature of the selection bias previously unknown and can be important for impact evaluation of the microfinance program.

Suggested Citation

  • Mallick, Debdulal & Nabin, Munirul H., 2018. "Cost effectiveness or serving the poor? Factors determining program placement of NGOs in Bangladesh," Economic Modelling, Elsevier, vol. 69(C), pages 281-290.
    • Handle: RePEc:eee:ecmode:v:69:y:2018:i:c:p:281-290
    DOI: 10.1016/j.econmod.2017.10.001
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    Cited by:

    1. Berg Claudia & Emran Shahe & Shilpi Forhad, 2020. "Microfinance and Moneylenders: Long-run Effects of MFIs on Informal Credit Market in Bangladesh," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(3), pages 1-35, July.
    2. Nahla Dhib & Arvind Ashta, 2020. "How far can we go? Determining the optimal loan size in progressive lending," Working Papers hal-03001840, HAL.
    3. Ansari, Ali H., 2020. "Cream skimming? Evaluating the access to Punjab’s public-private partnership programs in education," International Journal of Educational Development, Elsevier, vol. 72(C).

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    More about this item

    Keywords

    Market imperfection; Microfinance; Location choice; NGO; Poverty;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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