Does Microfinance Really Help the Poor ? New Evidence from Flagship Programs in Bangladesh
Abstract
The microfinance movement has built on innovations in financial intermediation that reduce the costs and risks of lending to poor households. Replications of the movements flagship, the Grameen Bank of Bangladesh, have now spread around the world. While programs aim to bring social and economic benefits to clients, few attempts have been made to quantify benefits rigorously. This paper draws on a new cross-sectional survey of nearly 1800 households, some of which are served by the Grameen Bank and two similar programs, and some of which have no access to programs. Households that are eligible to borrow and have access to the programs do not have notably higher consumption levels than control households, and, for the most part, their children are no more likely to be in school. Men also tend to work harder, and women less. More favorably, relative to controls, households eligible for programs have substantially (and significantly) lower variation in consumption and labor supply across seasons. The most important potential impacts are thus associated with the reduction of vulnerability, not of poverty per se. The consumption-smoothing appears to be driven largely by income-smoothing, not by borrowing and lending. The evaluation holds lessons for studies of other programs in low-income countries. While it is common to use fixed effects estimators to control for unobservable variables correlated with the placement of programs, using fixed effects estimators can exacerbate biases when, as here, programs target their programs to specific populations within larger communities.
Does Microfinance Really Help the Poor ? New Evidence from Flagship Programs in Bangladesh
New Evidence from Flagship Programs in Bangladesh
Jonathan Morduch
Department of Economics and HIID
Harvard University
and Hoover Institution
Stanford University
First complete draft: 2/26/98
Comments welcome
June 27, 1998
This paper builds on conversations with Anne Case, Angus Deaton, Esther Duflo, Paul Gertler, Guido Imbens,
Anjini Kochar, Margaret Madajewicz, Dick Meyer, and, especially, Mark Pitt. I have also benefitted from
conversations with Grameen Bank and BRAC staff in June 1997 and from comments at seminars at Stanford
University, UC-Berkeley, the University of Washington, and RAND. Aimee Chin provided critical insights and
excellent research assistance. I am particularly grateful to Shahid Khandker, the World Bank, and the Bangladesh
Institute of Development Studies for making their household-level data set accessible. The paper was completed
while I was a National Fellow at the Hoover Institution, Stanford University. The views expressed here do not
necessarily reflect those of the individuals or institutions above. All views and errors are mine only.
The microfinance movement has built on innovations in financial intermediation
that reduce the costs and risks of lending to poor households. Replications of the
movement’s flagship, the Grameen Bank of Bangladesh, have now spread around
the world. While programs aim to bring social and economic benefits to clients,
few attempts have been made to quantify benefits rigorously. This paper draws on
a new cross-sectional survey of nearly 1800 households, some of which are served
by the Grameen Bank and two similar programs, and some of which have no
access to programs. Households that are eligible to borrow and have access to the
programs do not have notably higher consumption levels than control households,
and, for the most part, their children are no more likely to be in school. Men also
tend to work harder, and women less. More favorably, relative to controls,
households eligible for programs have substantially (and significantly) lower
variation in consumption and labor supply across seasons. The most important
potential impacts are thus associated with the reduction of vulnerability, not of
poverty per se. The consumption-smoothing appears to be driven largely by
income-smoothing, not by borrowing and lending.
The evaluation holds lessons for studies of other programs in low-income
countries. While it is common to use fixed effects estimators to control for
unobservable variables correlated with the placement of programs, using fixed
effects estimators can exacerbate biases when, as here, programs target their
programs to specific populations within larger communities.
Key words: microfinance, project evaluation, Grameen Bank, Bangladesh
Address for correspondence:
Jonathan Morduch
Hoover Institution L217
Stanford University
Stanford, CA 94305-6010
(650) 725-8557
jmorduch@harvard.edu
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