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The impact of credit and non-credit aspects on self-employment profit: a comparison of microcredit programs and commercial lenders in rural Bangladesh

Author

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  • Saad Alam

    (University of St Thomas, USA)

Abstract

Rural credit programs in Bangladesh help the poor by providing collateral-free loans or credits at a low cost. In addition, they provide social development programs such as vocational and business training through a group-based peer monitoring system. These non-credit aspects may add to the success of microcredit programs. This article examines the effects of the credit and non-credit aspects of microcredit programs on self-employment profits. Using a household level data and an Instrumental Variable-Fixed Effect approach, the results show that the non-credit social aspects of the microcredit programs affect profit above and beyond the credit aspects and increase self-employment profit by 50% to 81%. This article also compares microcredit programs to existing commercial lenders which do not offer non-credit services. The results show that credit effects are larger while non-credit effects are smaller for commercial loans and demonstrate the efficacy of the non-credit aspects of the microcredit programs in raising profits.

Suggested Citation

  • Saad Alam, 2013. "The impact of credit and non-credit aspects on self-employment profit: a comparison of microcredit programs and commercial lenders in rural Bangladesh," Journal of Developing Areas, Tennessee State University, College of Business, vol. 47(1), pages 23-45, January-J.
    • Handle: RePEc:jda:journl:vol.47:year:2013:issue1:pp:23-45
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    File URL: http://muse.jhu.edu/journals/journal_of_developing_areas/v047/47.1.alam.html
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    Citations

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    Cited by:

    1. Bairagya, Indrajit & Bhattacharya, Tulika & Bhattacharjee, Manojit, 2020. "Impact of Credit Accessibility on the Earnings of Self-employed Businesses in India," Journal of Asian Economics, Elsevier, vol. 69(C).
    2. Al Mamun, Abdullah & Thurasamy, Ramayah & Fazal, Syed Ali, 2021. "Entrepreneurial index for low-income households in Malaysia," Socio-Economic Planning Sciences, Elsevier, vol. 77(C).

    More about this item

    Keywords

    Microfinance; commercial lending; self-employment profit; Bangladesh;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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