Micro-Credit and Rural Poverty: An Analysis of Empirical Evidence

This paper reviews empirical evidence on non-government-organization (NGO) - led microcredit programs in several developing countries, and compares them with state-led poverty alleviation schemes in India.

The paper examines the performance of the NGO-led microcredit system on the basis of a set of indicators that include:

• Targeting the poor;
• Increase in earning and asset holdings of the poor;
• Employment generation and skill improvement;
• Financial viability.

The paper is divided into four sections as follows:

• Section 1 brings out the context in which the NGO-led microcredit alternative has emerged in literature and policy-making;
• Section 2 discusses the concept and features of microcredit institutions beginning with the Grameen Bank;
• Section 3:
  • Compares the available empirical evidence on microcredit programs and institutions with state-led credit-based poverty alleviation programs and institutions in India;
  • Discusses issues involved in the expansion and replication of Grameen-type programs and institutions across various countries.

The paper concludes that:

• NGO-led microcredit programs have been successful in reaching their target groups more effectively than state-led ones;
• However, they have been able to bring about only a marginal improvement in the beneficiaries' income;
• The beneficiaries have not gained much by way of technological improvements, given the emphasis on survival skills;
• In Bangladesh, the practice of repayment of Grameen Bank loans by taking fresh loans from moneylenders has resulted in the creation of 'debt cycles'.