Microcredit in Bangladesh provides small loans to disadvantaged groups, particularly women, allowing them to engage in entrepreneurial activities and improve their living conditions. The program has successfully reduced poverty and increased consumption expenditure, with significant benefits for female borrowers. However, challenges such as high operational costs and potential social disruptions from changing gender roles remain topics of debate.

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Microcredit and Rural
Development in Bangladesh
Mahmud Naser Jhony
Addl.SP
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 Micro-credit means small loans made to poor households to
finance small-scale entrepreneurial activities.
 Micro-credit is provided to rural landless, disadvantaged
women, marginal farmers, and wage laborers - who depend
largely on selling their labor for their living.
 The poor have little or no access to institutional credit
because they do not have (adequate) assets that can be used
as collateral.
 Micro-credit emerged as a dominant instrument to improve
the access of the poor to financial services.
 Thus, microcredits, which are otherwise unavailable to the
poor or available only at exorbitant conditions from
moneylenders, enable poor households to undertake
productive economic activities and provide an opportunity to
escape poverty.
Microcredit and its Use

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 Though public and private sector organizations are involved
with micro-credit in Bangladesh, NGOs are now the major
player.
 In the microfinance sector as of June, 2014 total loan
outstanding is around BDT 403 billion (including Grameen
Bank, 10 Government project and Commercial Banks)
billion.
 Total clients of this sector is 33.73 million (including 8.62
million clients of the Grameen Bank)
 Grameen Bank has received international recognition for its
micro-credit services. Together, NGOs and Grameen Bank
have enrolled around nine million poor in their micro-credit
programs.
Microcredit in Bangladesh

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Microcredit in Bangladesh

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Some Evidence: Impacts of
Microcredit on Different Aspects
of Rural Development
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 Microfinance has been successful in reaching the poor, especially
women, who do not have access to mainstream financial
institutions
 Placement of microcredit program such as Grameen Bank at the
village level improves household per capita expenditure and
lowers their poverty. For example, placement of Grameen Bank
at the village level lowers extreme poverty by 1.8 percentage
points [Khandker, S.R. and Samad, H.A. (2013) .
• Khandker (2005) discovers that access to microcredit reduces
poverty. His results suggest that microcredit benefits the local
economy by reducing the overall poverty at the village level.
microfinance reduces the average village poverty level by 1
percentage point each year in program areas.
Source: Khandker, S.R. and Samad, H.A. (2013) ‘Microfinance Growth and Poverty Reduction in Bangladesh: What Does
the Longitudinal Data Say?’ Khandker, S.R (2005). Microfinance and Poverty: Evidence Using Panel Data from Bangladesh
Microcredit and Poverty Reduction

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 Khandker (2005) finds that microfinance can account for some 40 percent
of the overall reductions in moderate poverty in rural Bangladesh. The
impact of microfinance is slightly higher for extreme poverty than for
moderate poverty, at both the individual and the village level. The
microfinance impacts are much stronger for female borrowing than for
male borrowing.
 Pitt and Khandker (1998) find that access to microcredit significantly
increases consumption and reduces poverty. program credit has positive
effects on household consumption and female labor supply but has
negative effects on the male labor supply. They also discover that the
effect is greater for female than for male participants.
 Islam (2011) finds that microcredit benefits the long-term borrowers the
most, with the benefits not being significant for short-term borrowers.
 Islam and Maitra (2012) finds that microcredit can act as a form of
insurance against shocks. They find that microcredit helps its clients to
insure against health shocks.
Microcredit and Poverty Reduction

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 The effect of microcredit on household consumption expenditure
is large.
 The estimates indicate an average gain of 30–40% in the monthly
consumption expenditure of participating households. With the
average length of a household’s participation in microcredit being
about 3.8 years, this length translates to a 10% increase in
consumption per annum.
 The results also indicate that female participants gain more than
do male participants.
 The less land a household owns, the stronger is the effect of their
participation in microcredit. The benefits are low for households
that are marginal to the participation decision (households that
own more land).
Microcredit and Household Consumption
Source: Islam, Asadul (2015). Heterogeneous effects of microcredit: Evidence
from large-scale programs in Bangladesh, Journal of Asian Economics

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 Microcredit programs made desirable impacts at the village level
in terms of income, employment and production, especially in
the non-farm sector. For example, program placement of the
Grameen Bank, BRAC, and RD-12 increased average household
income by 29 percent, 33 percent and 21 percent respectively
 Household production is increased by 56 percent, 57 percent, and
48 percent by the placement of Grameen Bank, BRAC and RD-
12 respectively
 Placement of Grameen Bank has positive impact on the average
village wage by about 14 percent.
Microcredit and Impact on Income, Employment
and Production
Source: Khandker, S.R., Samad, H. and Khan, Zahed, H. (1998). ‘Income and
employment effects of microcredit programs village level evidence from
Bangladesh’, the Journal of Development Studies

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 Borrowing from a microcredit program such as the Grameen
Bank increases women’s non-land assets, women’s labor
supply to cash income earning activities, children’s school
enrolment, contraceptive use and fertility.
Source: Pitt and Khandker (1996). ‘Household and intra-household impacts of the Grameen Bank and similar
targeted credit programs in Bangladesh, World Bank Discussion Paper No. 320
 Women’s participation in group-based credit programs
increases their contraceptive use relative to non-participants.
Participation of poor women in micro-credit activities and
cash earning ability give them status and power in the
household decision matters including capability to interact
with the husbands regarding desired family size and use of
contraception.
Source: Hossain, Kabir and Kabir, M. 1999. Does Microcredit Program in Rural Bangladesh has any Impacts
on Reproductive Behavior of Poor Rural Women. Genus, pp.113-130
Microcredit and Impact on Women

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 Overall, NGOs have made positive impacts on social
development. For example, a study found that BRAC
member households spent significantly more on food, which
reflected higher calorie intake, decline in malnutrition, and
increase in the rates of child survival compared to those not
involved in BRAC programs.
A Study carried out jointly by Research and Evaluation Division under BRAC and the International Centre
for Diarroheal Diseases Research, Bangladesh (ICDDR,B) to examine the impact of BRAC's multi-sectoral
programs on a variety of indicators.
 BRAC has also made a significant success in introducing
new technology in its micro-credit programme. The
technologies include: high yielding varieties of birds,
vaccination, modern hatchery, and chick rearing units in
poultry, insemination of livestock and many others
Microcredit and Social Development

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 People with prior access to microcredit are more likely to migrate
during an agricultural lean season. It may be explained in two
ways
 Firstly, microcredit taken in the non-lean season probably does not
translate into substantial income generating activities for
households, and therefore borrowers need to migrate to earn extra
income to tackle seasonal unemployment. Moreover, strict loan
repayment scheme by MFIs, coupled with the threat of future
consequences in case of default, may have played a role for
borrowing households to migrate.
 Alternatively, microcredit taken by the borrowing households
contributes toward sufficient income-generating activities that
facilitate the cost of seasonal migration in the lean season. In this
case, households are diversifying their coping strategy in the lean
seasons by combining migration with the microcredit option.
Source: Abu S. SHONCHOY 2015. Seasonal Migration and Microcredit during agricultural lean seasons
Evidence from northwest Bangladesh. The Developing Economies 53, no. 1 (March 2015): 1–26
Microcredit and Migration

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 Some of the studies have shown that microcredit benefits
rural households in many ways
 However, a new experimental study by Bruno Crépon,
Florencia Devoto, Esther Duflo and William Pariente
investigates the impact of a microcredit programme in
rural Morocco. They found that microcredit is not an
instrument “that fuels an exit from poverty...at least in the
medium run.”
Microcredit and Some Issues

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 Microcredit involves high operational costs, particularly
they charge high interest rates
 Ongoing debate about whether the NGO practitioner
should only provide microloans, or whether small-
business training ought to be included
 Should the loans go to only women? Argument is that men
can also be responsible and that loaning only to women
upsets the traditional patriarchal structure leading to
unintended consequences, such as role loss, marital
conflicts, and so forth.
Microcredit and Some Issues

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Thank you
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