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Microfinance and Debt Trap: An Ethnographic Evidence From a Village in Bangladesh

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  • Md Akther Uddin

    (University of Creative Technology, Chittagong, Bangladesh)

  • S. M. Sohrab Uddin

    (University of Chittagong, Bangladesh)

Abstract

This paper studies microfinance and debt trap nexus. We have used an ethnographic approach, unstructured observation and interviews, to develop scenarios with the help of which we try to explain the phenomenon. Our research was carried out in DipKalaMoral, a small village located in Shikalbaha union under Karnaphuli Upazila of Chittagong in Bangladesh. We have found that excessive leverage through multiple borrowing lead to debt trap when households face unexpected income shocks due to economic cycle, unexpected weather (like heavy monsoon), wedding expenditure or paying dowry, and unexpected healthcare expenditure. In addition to that, we have found that informal money lenders tend to exploit households when households are heavily leveraged. Interestingly, we have identified a new phenomenon, ‘borrowing for others’ when households borrow from Micro Finance Institutions (MFIs) to lend money to others. A number of policy measures have been recommended which could be beneficial for policy makers and MFIs.

Suggested Citation

  • Md Akther Uddin & S. M. Sohrab Uddin, 2021. "Microfinance and Debt Trap: An Ethnographic Evidence From a Village in Bangladesh," International Journal of Asian Business and Information Management (IJABIM), IGI Global, vol. 12(3), pages 1-11, July.
    • Handle: RePEc:igg:jabim0:v:12:y:2021:i:3:p:1-11
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    References listed on IDEAS

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    1. Osmani, S. R., 2017. "Is Microcredit a Debt Trap for the Poor? Sifting Reality from Myth," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 40(3-4), pages 33-74, Sep-Dec.
    2. Khandker, Shahidur R. & Samad, Hussain A., 2014. "Dynamic effects of microcredit in Bangladesh," Policy Research Working Paper Series 6821, The World Bank.
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    4. Abhijit Banerjee & Emily Breza & Esther Duflo & Cynthia Kinnan, 2019. "Can Microfinance Unlock a Poverty Trap for Some Entrepreneurs?," Discussion Papers Series, Department of Economics, Tufts University 0832, Department of Economics, Tufts University.
    5. Law, Siong Hook & Singh, Nirvikar, 2014. "Does too much finance harm economic growth?," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 36-44.
    6. Nazrul Islam, 2009. "Can Microfinance Reduce Economic Insecurity and Poverty? By How Much and How?," Working Papers 82, United Nations, Department of Economics and Social Affairs.
    7. Pål Vik, 2017. "What’s So Social About Social Return on Investment? A Critique of Quantitative Social Accounting Approaches Drawing on Experiences of International Microfinance," Social and Environmental Accountability Journal, Taylor & Francis Journals, vol. 37(1), pages 6-17, January.
    8. Sohini Kar & Caroline Schuster, 2016. "Comparative projects and the limits of choice: ethnography and microfinance in India and Paraguay," Journal of Cultural Economy, Taylor & Francis Journals, vol. 9(4), pages 347-363, August.
    9. Khandker, Shahidur R. & Samad, Hussain A., 2013. "Are microcredit participants in Bangladesh trapped in poverty and debt ?," Policy Research Working Paper Series 6404, The World Bank.
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