Asset Accumulation and Poverty Dynamics in Rural Bangladesh: The Role of Microcredit

Asset Accumulation and Poverty DynamicsInM organised a national seminar entitled “Asset Accumulation and Poverty Dynamics in Rural Bangladesh: The Role of Microcredit” at PKSF Auditorium (PKSF Bhaban, Agargaon, Dhaka-1207) on August 24, 2011. The seminar was aimed at addressing and disseminating the findings from a study entitled “Dynamics of Poverty in Rural Bangladesh” regarding the role of microcredit in terms of asset accumulation and poverty dynamics in the rural areas of Bangladesh.

Dr. Muhammad Abdur Razzaque, Honourable Member of the Parliament and Minister for Food and Disaster Management of the Government of the People’s Republic of Bangladesh, graced the event as the Chief Guest. The Asset Accumulation and Poverty Dynamics01seminar was chaired by Dr. Qazi Kholiquzzaman Ahmad, Chairman, Palli Karma-Sahayak Foundation (PKSF). Dr. Atiur Rahman, Governor, Bangladesh Bank was present as the Special Guest.

Dr. Md. Mosleh Uddin Sadeque, Interim Executive Director, InM welcomed the participants to the seminar. In his welcome speech, Dr. Sadeque showed gratitude to the distinguished guests and other audiences for their valuable participation. He briefly introduced InM and its activities to the participants.

The Chair of the seminar Dr. Qazi Kholiquzzaman Ahmad appreciated InM’s achievement in such short period after Asset Accumulation and Poverty Dynamics02its inception, especially in research activities. He expected that InM would flourish more in near future and that it would greatly contribute to its pertinent sector.

The keynote speaker of the seminar was Professor Siddiqur Rahman Osmani, Department of Development Economics, University of Ulster, UK, and Visiting Fellow, InM. Professor Osmani, in his presentation, mentioned that the study was based on the findings from the first phase survey of long-term panel surveys covering 6500 rural households in 63 districts, and it examined the factors, including the role of microfinance, that have a causal influence on poverty dynamics.

The objectives of the study were to examine how the dynamics of poverty in rural Bangladesh is shaped by the process of asset accumulation, to identify the factors that affect the process of asset accumulation and thereby the dynamics of poverty, and while examine the factors, particularly observing at the role of microcredit.

The major findings of the study show that access to microcredit enhances the probability of moving up the asset ladder. While this is true for both poor and non-poor households, the effect is much stronger for the poor. For the poor borrowers, microcredit reduces the probability of falling through the asset ladder by 7 per cent and increases the probability of moving up by 4.5 per cent.

Asset Accumulation and Poverty Dynamics03The study has found that households do not perceive interest rate to be serious impediment to borrowing. This is evident that among those who stopped borrowing from the MFIs, only 2 per cent cited high interest rate as the main reason. For nearly 80 per cent of the borrowers the self-estimated breakeven interest rate is above 20 per cent (on flat rate method), which is comfortably above the rates charged by most MFIs in Bangladesh.

The study has also found that access to microcredit reduces the probability of being poor by 2.5 per cent through asset accumulation. If it is considered that only those borrowers who have used credit for productive purposes, the probability of being poor falls even more – by 6.8 per cent.

The contribution of microcredit towards poverty reduction in rural Bangladesh was found to be at least 4 per cent. By comparison, the contribution of foreign remittance was found to be about 5 per cent, not much different from the effect of microcredit. The findings of such a study are expected to help policymakers understand which factor deserves special attention in reducing poverty.

At the event, the participants also took part in the open discussion session. Dr. Shamsul Alam, Member of General Economic Division, Planning Commission; Dr. Quazi Mesbahuddin Ahmed, Managing Director, PKSF; Dr. Mahabub Hossain, Executive Director, BRAC asked relevant questions on the study, and Professor Osmani answered to their queries.

The Special Guest of the seminar Dr. Atiur Rahman, in his speech, thanked Professor Osmani for such rich analysis and presentation. He mentioned that in spite of being in all problems and limitation, Bangladesh has achieved a milestone in poverty reduction and set a model for the rest of the world. Dr. Rahman stated, microcredit is not a panacea, nonetheless, it has the elements whose effective utilisation could greatly contribute to poverty reduction.

Honourable Minister Dr. Muhammad Abdur Razzaque, the Chief Guest of the seminar, congratulated Professor Osmani for the nice presentation and thanked InM for organising such a constructive seminar. In his speech, Dr. Razzaque portrayed a vivid scene of poverty situation in Bangladesh. He mentioned, the government needs to keep the positive sides of microcredit in mind, as well as should imply effective monitoring and governance policies. He also hoped that this InM research study would be very useful to microfinance, sector stakeholders as well as to policymakers.

In his concluding remarks, Dr. Qazi Kholiquzzaman Ahmad admitted that, microcredit alone is not sufficient to eliminate poverty. The concept was overestimated and has passed its generation. Now, it is the perfect time to start ‘Modern Microcredit’ and let Bangladesh be its birthplace again.

The national seminar became lively by the active participation of microfinance stakeholders, practitioners, academicians, researchers, policymakers, and other eminent personnel from reputed institutions and organisations.

The Institute for Inclusive Finance and Development (InM) is registered as an independent non-profit institution under the Societies Registration Act 1860.
The Institute works for developing the overall capacity of the financial sector and strengthening the links between the financial and real sectors through undertaking research, training, education, knowledge management and other programmes in priority areas including inclusive finance, microfinance, poverty and development.

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