What kinds of impacts have we seen with microfinance in Bangladesh?
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Answer:
How microfinance has reduced rural poverty in Bangladesh
As microfinance institutions (MFIs) grow in many countries worldwide, debate continues over whether such programs truly benefit the poor. Proponents emphasize the need for innovative ways to provide poor populations access to financial services. Critics argue any successes may be temporary because microfinance programs require training and entrepreneurship skills, which many poor populations lack. In addition, some fear that beneficiaries may be charged high interest rates or become dependent on MFIs, borrowing more than they can pay back and becoming further trapped in poverty.
When Bangladesh’s microfinance sector was first established in the 1970s, its main goal was reducing rural poverty by providing microcredit loans for non-crop activities such as trading, and raising livestock and poultry. These loans were funded mainly by the government of Bangladesh and bilateral donors through group-based savings and lending programs.
Microcredit also helped to diversify borrowers’ economic activities, boosting incomes in the process. Household income grew over the study period, driven by rising non-farm income. For households diversifying into non-farm activities, income growth was almost 29 percent higher than that of their counterparts who stuck exclusively to farming. The reduction in moderate and extreme poverty for this group was almost 8 percent higher. Better access to credit was found to be a key factor in promoting this shift.
But MFIs, despite their traditional focus on non-farm activities, have also aided farmers. Borrowing from an MFI raised farm income and reduced reliance on wage income, producing significant positive effects for women and marginal farmers. In addition, borrowing by both men and women has had important impacts on income, labor supply, household assets and net worth, and children’s schooling.
Demand for microfinance continues to grow in Bangladesh, and the book concludes with several policy recommendations to ensure that the microfinance sector is able to grow in a sustainable, pro-poor way.
Answer:
Borrowing from an MFI raised farm income and reduced reliance on wage income, producing significant positive effects for women and marginal farmers. A 10 percent increase in women's credit use was found to increase crop income by 3.5 percent, non-crop income by 2.8 percent, and total farm income by 0.7 percent.