Impact of Microcredit on Poverty: Evidence from Bangladesh

This paper empirically examines the impact of microcredit on poverty in Bangladesh.

Empirical evidence on the impact of microcredit on poverty is mixed. While some impact evaluation studies have found that access to credit by the poor has a large positive effect on living standards, other studies have found that poverty is not reduced through microcredit. Since more money for microcredit means less money for other programs with similar aims, it is important to evaluate whether or not microfinance really works. The study focuses on objective and subjective poverty. It pays particular attention to the length of time that program participants have had access to microcredit.

The study carries out a household-level survey to collect information about individuals receiving microcredit from the three main microcredit organizations in Bangladesh, namely, Grameen Bank, Bangladesh Rural Advancement Committee and Action for Social Advancement. The study uses a logit regression analysis. Findings include:

• Microcredit is associated with lower objective and subjective poverty;
• Impact of microcredit on poverty is particularly strong for about six years with some leveling off after that point;
• For microcredit to permanently reduce poverty it must have a long-run impact.