Session Three: Microfinance and Poverty

“Micro credit removes poverty of One in Ten”, says Professor S. R. Osmani, Visiting Fellow, InM, at the National Conference on “Microfinance and Development”.

The session  on “Microfinance and Poverty” of the National Conference was chaired by Mr. Khandakar Muzharul Haque, Executive Vice Chairman, Microcredit Regulatory Authority (MRA). The Chief Guest of the session was Dr. Qazi Kholiquzzaman Ahmad, Chairman, InM.


Professor S. R. Osmani, Department of Economics, University of Ulster, UK, was the keynote speaker in this session and presented the paper entitled “Has Microcredit Helped the Rural Poor of Bangladesh? An Analytical Review of the Evidence So Far”. Dr. Quazi Mesbahuddin Ahmed, Former Managing Director, Palli Karma-Sahayak Foundation (PKSF) and Dr. Rushidan Islam Rahman, Research Director, Bangladesh Institute of Development Studies (BIDS) were present in the session as the panelists.

Professor Osmani emphasized on the methodological challenge to identify the true impact of microcredit on poverty as well as other outcome variables. He focused on two basic questions in his presentation:

  • Does microcredit capture the pure causal effect of itself or does it get mixed up with the effect of other factors?
  • If the mix up occurs, the estimate of the credit variable will become biased.

Microfinance-and-Poverty-(10)The study found that, the effect of microcredit on the economic condition of the poor borrowers is found to be positive. Professor Osmani showed while the benefits of microcredit accrue to the borrowers generally, the extreme poor among them gain the most.

Female borrowing has a stronger short run impact on the economic well-being of the household compared to male borrowing. But male borrowing appears to have a stronger impact in the long run through accumulation of assets. The longer the duration of participation the stronger is the positive impact of credit – the study revealed.

The extent and nature of benefit vary depending on the use of credit, but there is no basis for the popular perception that sustainable benefits accrue only when credit is used for productive purposes, Professor Osmani said.

He also said that microcredit has enabled the vast majority of borrowers to strengthen the long-term economicMicrofinance-and-Poverty-(11) viability of their households by expanding their asset base and by helping them to preserve assets in the face of periodic crises. While in many cases debts have also increased along with assets, this has not on the whole led to an unsustainable debt burden as assets growth has outstripped the growth of debt.

As a result, on the average the net worth of the borrowers has improved relative to non-borrowers and the debt-asset ratio has declined. Counterfactual poverty is estimated with the help of ‘entitlement mapping’. Entitlement mapping shows how a household’s ‘initial’ assets translate into ‘current’ economic status. If the borrowers’ are given the non-borrowers’ entitlement mapping but retain their own initial assets, we get their counterfactual poverty. Adding counterfactual poverty of borrowers with the actual poverty of non-borrowers gives overall counterfactual poverty.

Microfinance-and-Poverty-(12)Professor S.R. Osmani concluded that the effect of microcredit on poverty reduction is Microfinance-and-Poverty-(14)modest, but one should not expect to have any large affect for any type of single intervention. Rather than having nihilistic view about the effect of microcredit, one should concentrate on the details of how microcredit can be made more useful to the poor.

Necessity of the follow-up survey has been highly recommended by both the panelists which will help to answer many unsolved questions using the longitudinal data. The panelists have suggested that some newer dimension, such as- Human Development Index, women empowerment, children’s education, repayment performance, etc. can also be incorporated in the future studies.