Paper

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

Do NGO-led microcredit schemes work better at poverty alleviation than state-led schemes?
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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'.

About this Publication

By Chavan, P., Ramakumar, R.
Published