Resource information
This paper addresses whether microcredit
participants in Bangladesh are trapped in poverty and debt,
as many critics have argued in recent years. Analysis of
data from a long panel survey over a 20-year period confirms
this is not the case, although numerous participants have
been with microcredit programs for many years. The results
of the analysis suggest that participants derive a variety
of benefits from microcredit: It helps them to earn income
and consume more, accumulate assets, invest in
children's schooling, and be lifted out of poverty.
This is not to say that non-participants have failed to
progress over the same period. Both participants and
non-participants have gained as the economy has grown;
however, the rates of poverty reduction have been higher for
participants. Testing the net effect of microcredit programs
requires applying an econometric method that controls for
why some households participated and others did not,
conditional on their initial characteristics. In addition,
the method must control for time-varying, unobserved
heterogeneity that affects everyone over time, albeit in
possibly different ways. The paper's econometric
estimates show significant welfare gains resulting from
microcredit participation, especially for women. They also
show that the accrued benefits of borrowing outweigh
accumulated debt. As a result, households' net worth
has increased, and both poverty and the debt-asset ratio
have declined.
