Microcredit has helped borrowers earn and consume more, accumulate assets, invest in children’s schooling, and move out of poverty, according to a recent study.
The study showed significant welfare gains resulting from microcredit participants, especially women.
The accrued benefits of borrowing also outweighed accumulated debt, said the study that tracked the changes microcredit has brought in more than 2000 households in 20 years.
Both participants and non-participants of microcredit gained over the last 20 years but poverty reduction was higher for participants than for the non-participants, said Shahidur R Khandker, lead economist of the World Bank.
The WB and Institute of Microfinance, a research organisation in Bangladesh, jointly conducted the study.
The rate of extreme poverty declined by 2.95 percent a year among the microcredit recipients, while the rate was 2.77 percent for the non-participants, he said.
Khandker shared the findings of the study at a discussion on “are microcredit participants in Bangladesh trapped in poverty and debt?” organised by the microfinance institute at the auditorium of Palli Karma-Sahayak Foundation in the city yesterday.
“This is not to say that the non-participants have failed to progress over the period. Both the participants and non-participants have gained as the economy has grown,” he said.
The amount of household net worth rose by 320 percent to Tk 2.87 lakh among the microcredit participants during fiscal 1992-2011, while such net worth increased to Tk 2.69 lakh among the non-participants, according to the study.
“So borrowers are not trapped in poverty or debt due to microcredit,” said Khandker, who is also the team leader of the study — Long-term Dynamics of Microcredit Programmes in Bangladesh.
The study also said long-term membership with a microfinance institute is not bad as continuous participation is not necessarily a liability.
Extreme poverty reduction was 3.2 percent for average and 3.6 percent for continuous participants, it said.
Khandker said welfare gains still vary by programme. Grameen Bank has the highest impacts on income gains, while BRAC has the highest effect on social gains.
He said income gains are as high as the average cost of borrowing (average returns of 36 percent against 32 percent interest rates).
Khandker, however, said all participants do not benefit equally as “microfinance is not a cure for all.”
“It’s a very powerful study as the survey is based on ’20-year panel data’ on the same households,” said Mahabub Hossain, executive director of BRAC, a leading non-government organisation.
Incidence of borrowing was only 26 percent in 1991, whereas it is 69 percent in 2011, and the average size of borrowing registered a 4 percent growth annually over the last 20 years, he said.
He stressed targeting the extreme poor while designing beneficiary groups as it will bring more impact on poverty reduction.
“It’s clear that microfinance can protect households from shocks, contribute to changing societal norms about the role of women in society and lead to some households moving out of poverty,” said Atiur Rahman, governor of Bangladesh Bank.
Overall, it has played its part in the impressive progress Bangladesh has made in poverty reduction over the past two decades, he said.
But not everyone utilises loans productively and there is a risk of falling into over-indebtedness. So, the role of microfinance should be strengthened through further innovations which take into account these pitfalls, he said
Microcredit is obviously helpful to reduce poverty. But it is time to reexamine the traditional model, said Qazi Kholiquzzaman Ahmad, chairman of the institute.
The system of weekly loan recovery should change and half yearly or yearly recovery systems should be in place, he said.
He also stressed the need for including a number of issues such as education and healthcare in the microcredit programmes for sustainable development.
Quazi Mesbahuddin Ahmed, former managing director of PKSF, and MA Sattar Mandal, a member of the Planning Commission, also spoke.
Source: The Daily Star
