Does Microfinance Really Help The Poor? New Evidence from Flagship Programs in Bangladesh

This paper draws on a new cross-sectional survey of nearly 1800 households, some of which are served by the Grameen Bank and two similar programs, and some of which have no access to programs.

The paper finds that:

• Households that are eligible to borrow and have access to the programs do not have notably higher consumption levels than control households, and, for the most part, their children are no more likely to be in school;
• Households eligible for programs have substantially (and significantly) lower variation in consumption and labor supply across seasons;
• The most important potential impacts are associated with the reduction of vulnerability, not of poverty per se;
• Consumption-smoothing appears to be driven largely by income-smoothing, not by borrowing and lending.

The document concludes that the microfinance programs may make important absolute differences in the lives of borrowers, even if the relative differences are small. Tens of millions of dollars worth of subsidized resources support these programs, and the question now is whether these benefits are justified by their substantial costs.