Child Labour and Schooling Responses to Access to Microcredit in Rural Bangladesh

This paper investigates the impact of microcredit on human capital formation. It develops a model examining the relation between microcredit and child labor. The paper empirically examines the impact of access to microcredit on children's education and child labor using data from rural Bangladesh. Study results show that household participation in a microcredit program may increase child labor and reduce school enrolment. Findings include:

• Adverse effects are more pronounced for girls than for boys;
• Younger children are more adversely affected than their older siblings;
• Children of poorer and less educated households are affected most adversely;
• Adverse effect on girls' schooling tends to be smaller when credit is obtained by the mother than when it is obtained by the father.

Overall, study results suggest that effectiveness of microcredit programs must be assessed carefully. Successful microcredit programs can alleviate poverty and contribute to rural economy. They, however, can also alter parents' incentives in a way that adversely affects children's schooling, which could exacerbate poverty in the longer term.