Paper
Does Microfinance Reduce Poverty in Bangladesh? New Evidence from Household Panel Data
Examining ability of microfinance to reduce poverty
This paper draws upon nationally representative household panel data for four years to examine whether microfinance reduces poverty in Bangladesh.
It pays special attention to the issue of endogenity by applying treatment effects model and propensity score matching (PSM) for participants and non-participants of microfinance programs. Findings include:
- Simple household access to general loans from MFIs did not increase household per capita income significantly;
- Household access to loans for productive purposes from MFIs significantly increased per capita household income;
- Monitoring how clients use loans is important for increasing household income and decreasing household poverty;
- Policy effect of household access to MFI general loans on per capita household income turned from positive in 1997-98 to negative in 2004-05;
- Effect of household access to MFI loans for productive purposes on per capita household income also turned from positive in 1997-98 to negative in 2004-05.
It is not clear why the income enhancing effects weakened over the period under study. Results suggest that greater attention should be paid to guaranteeing poverty reduction effects through better systems of monitoring of loan usage.
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