Does Microcredit Reach the Poor and Vulnerable? Evidence from Northern Bangladesh

This paper investigates the long and disappointing history of subsidized credit intended for the poor being politically manipulated and diverted to the rich and powerful. It uses a unique panel dataset from two Bangladeshi villages to test if the modern microcredit movement is different from its predecessors in terms of reach to the poor and vulnerable. Findings reveal that:

• Subsidised credit is largely successful at reaching the poor and vulnerable;
• The probability that a microcredit member is below the poverty line is substantially higher than that of a randomly picked household in both villages;
• In the village where female headed households were found to be vulnerable, nearly half of the female headed households belonged to microcredit programs while only a quarter of male headed households were microcredit members;
• While restricting loans to the landless is not effective in reaching the poor and vulnerable while targeting female headed households is.