Towards Understanding the Mismatch between Micro and Macro Level Effects of Microcredit: Causes and Imperatives
This paper explains why microcredit activities in Bangladesh have not led to significant poverty reduction, despite pro-poor income distribution in rural areas.
Although micro studies show robust household level impacts of microcredit, national level aggregate statistics cannot corroborate them. The paper resolves this puzzle, by stating that unless new entry into the poverty trap is checked, overall improvement of the poverty situation is not possible. The study recommends:
- Institutional support for small and medium farmers who are narrowly free from the poverty trap;
- Widening and deepening the production and technological base of rural economy;
- Expansion of public services, such as primary education, health services and transport and communication in rural areas.
Government spending to increase the rate of return of activities in which the poor are involved will have strong equity implications as well as positive externalities for other sectors and socioeconomic groups. The government should invest its resources for infrastructural development so that the borrowers of non-governmental microcredit programs can reap the benefit of their loans.
