Impact of Microfinance on Poverty and Vulnerability:  A Review of the Existing Evidence in Bangladesh

Md Shahnewaz Khan

doi:10.65537/jebr.202691.175

Authors

Md Shahnewaz Khan Jatiya Kabi Kazi Nazrul Islam University, (BANGLADESH) https://orcid.org/0009-0008-4506-8486

DOI:

https://doi.org/10.65537/jebr.202691.175

Keywords:

Microcredit, Microfinance, Impact evaluation, Poverty, Vulnerability, Resilience, Shocks

Abstract

Bangladesh has been at the forefront of microfinance for more than four decades. This article reviews current evidence on the impact of microfinance on poverty and vulnerability in Bangladesh. Existing evidence on the impacts of microfinance on poverty reduction is mixed – few studies have reported significant positive impacts, while others have yielded contested findings. A few studies have suggested heterogeneous impacts, depending on households’ socio-economic and community backgrounds. The limited literature on vulnerability suggests that microfinance generally helps households cope with shocks, though evidence remains sparse. The review suggests that future research should examine aggregate economic outcomes and evaluate the impacts of extreme poverty programs. They should investigate the impacts of microfinance on covariate shocks such as climate events. They should also assess how social capital, debt cycles, and the seasonality of labour markets mediate household resilience.

References

Government of Bangladesh (2024). Bangladesh economic review 2024. Finance Division, Ministry of Finance, Government of the People’s Republic of Bangladesh.

Bangladesh Bureau of Statistics (2023). (Preliminary report) Household income and expenditure survey 2022. Statistics & Information Division, Ministry of Planning, Government of the People’s Republic of Bangladesh.

Santos, I., Sharif, I., Rahman, H.Z. & Zaman, H. (2011). How do the poor cope with shocks in Bangladesh? Evidence from survey data. Policy Research Working Paper. The World Bank, South Asia Region, Social Protection Unit.

Osmani, S.R., Ahmed, M., Latiff, M.A., & Sen, B. (2015). Poverty and vulnerability in rural Bangladesh. The University Press Limited and Institute of Microfinance.

Microcredit Regulatory Authority (2022). Microfinance in Bangladesh (Annual Statistics) June 2022.

Microcredit Regulatory Authority (2024). Microfinance in Bangladesh (Annual Statistics) June 2024.

Pitt, M. M., & Khandker S. R. (1998). The impact of group-based credit programs on poor households in Bangladesh: Does the gender of participants matter? Journal of Political Economy, 106 (5), 958-996. https://doi.org/10.1086/250037

Morduch, J. (1998). Does microfinance really help the poor? New evidence from flagship programs in Bangladesh. Unpublished Mimeo.

Pitt, M.M. (1999). Reply to Jonathan Morduch’s ‘Does microfinance really help the poor? New evidence from flagship programs in Bangladesh’. Unpublished Mimeo.

Chemin, M. (2008). The benefits and costs of microfinance: Evidence from Bangladesh. Journal of Development Studies, 44(4), 463–484.https://doi.org/10.1080/00220380701846735

Duvendack, M. & Palmer-Jones, R. (2012). High noon for microfinance impact evaluations: Re-investigating the evidence from Bangladesh. Journal of Development Studies, 48 (12), 1-17. https://doi.org/10.1080/00220388.2011.646989

Roodman, D. & Morduch, J. (2014). The impact of microcredit on the poor in Bangladesh: Revisiting the evidence. Journal of Development Studies, 50 (4),583-604. https://doi.org/10.1080/00220388.2013.858122

Pitt, M. M. (2014). Response to ‘The impact of microcredit on the poor in Bangladesh: Revisiting the evidence’. The Journal of Development Studies, 50(4),605-610. https://doi.org/10.1080/00220388.2013.858122

Khandker, S. R. (2005). Microfinance and poverty: Evidence using panel data from Bangladesh. The World Bank Economic Review, 19(2), 263-286.

Razzaque, M. A. (2010). Microfinance and poverty reduction: Evidence from Longitudinal household panel database. The Bangladesh Development Studies, 33(3), 47-68.

Imai, K. S. & Azam, M. S. (2012). Does microfinance reduce poverty in Bangladesh? New evidence from household panel data. Journal of Development Studies, 48 (5), 633-653. https://doi.org/10.1080/00220388.2012.661853

Karlan, D. & Zinman, J. (2011). Microcredit in theory and practice: Using randomized credit scoring for impact evaluation. Science, 332,1278-1284. DOI: 10.1126/science.1200138

Angelluci, M., Karlan, D., & Zinman, J. (2015). Microcredit impacts: Evidence from a randomised microcredit program placement experiment by Compartamos Banco. American Economic Journal: Applied Economics, 7(1), 151-182. http://dx.doi.org/10.1257/app.20130537

Banerjee, A., Karlan, D. & Zinman, J. (2015). Six randomized evaluations of microcredit: Introduction and further steps. American Economic Journal: Applied Economics, 7(1), 1-21. DOI: 10.1257/app.20140287

Banerjee,A., Duflo, E., Glannerster, R. & Kinnan, C. (2015). The miracle of microfinance? Evidence from a randomized evaluation. American Economic Journal: Applied Economics, 7 (1), 22-53. DOI: 10.1257/app.20130533

Ausburg, B., Haas, R.D., Harmgart, H., & Meghir, C. (2015). The impacts of microcredit: Evidence from Bosnia and Haarzegovina. American Economic Journal: Applied Economics, 7(1),183-203. http://dx.doi.org/10.1257/app.20130272

Crépon, B., Devoto, F., Duflo, E. & Parienté, W. (2015). Estimating the impact of microcredit on those who take it up: Evidence from a randomized experiment in Morocco. American Economic Journal: Applied Economics, 7(1), 123-150. DOI: 10.1257/app.20130535

Khandker, S.R. & H.A. Samad (2014). Microfinance growth and poverty reduction in Bangladesh: What does the longitudinal data say? Bangladesh Development Studies, 37 (1 & 2), 127-157.

Islam, A. (2011). Medium-and-long term participation in microcredit: An evaluation using a new panel dataset from Bangladesh. American Journal of Agricultural Economics, 93(3):847-866. DOI:10.1093/ajae/aar012

Khandker, S. R., Khalily, M.A. Baqui & Samad, H.A. (2015a). Who benefits most from microfinance in Bangladesh? Bangladesh Development Studies, 37(4).

Islam, A. (2015). Heterogeneous effects of microcredit: Evidence from large scale programs in Bangladesh. Journal of Asian Economics, 37, 48-58. https://doi.org/10.1016/j.asieco.2015.01.003

Bateman, M. & Chang, Ha-Joon (2012). Microfinance and the illusion of development: From hubris to nemesis in thirty years. World Economic Review, 1, 13-36.

Jordan, J.C. (2020). Climate shocks and adaptation strategies in coastal Bangladesh: Does microcredit have a part to play? Climate and Development, 454-466. https://doi.org/10.1080/17565529.2020.1799737

Bastiaensen, J., Romareo, M. & Huybrechs, F. (2019). Addressing climate change with microfinance plus: Experiences in cattle and coffee regions of Nicaragua. In M. O’Connor & J. S. Afonso (Eds.), Emerging challenges and innovations in microfinance and financial inclusion. Palgrave Macmillan.

Calis, T.,Gangopadhyay, S., Ghosh, N., Lensink, R., Meesters, A. (2017). Does microfinance make households more resilient to shocks? Evidence from the cyclone Phailin in India. Journal of International Development, 29 (7), 1011-1015. DOI:10.1002/jid.3301.

Fenton, A., Paavola, J. & Tallontire, A. (2017). The role of microfinance in household livelihood adaptation in Satkhira district, southwest Bangladesh. World Development, 92, 192-202. https://doi.org/10.1016/j.worlddev.2016.12.004

Fenton, A., Paavola, J. & Tallontire, A. (2015). Microfinance and climate change adaptation: An overview of the current literature. Enterprise Development and Microfinance, 26 (3), 262-273. DOI:10.3362/1755-1986.2015.023

Becchetti, L. & Castriota, S. (2011). Does microfinance work as a recovery tool after disasters? Evidence from the 2004 tsunami. World Development, 39 (6), 898-912. https://doi.org/10.1016/j.worlddev.2009.10.020

Khandker, S. R. (2007). Coping with flood: Role of institutions in Bangladesh. Agricultural Economics, 36(3), 169-80. https://doi.org/10.1111/j.1574-0862.2007.00196.x

Swain, R. B. & Floro, M. (2012). Assessing the effect of microfinance on vulnerability and poverty among low income households. Journal of Development Studies, 48(5),605-618. https://doi.org/10.1080/00220388.2011.615917

Islam, A., & Maitra, P. (2012). Health shocks and consumption smoothing in rural households: Does microcredit have a role to play? Journal of Development Economics, 97, 232-243. https://doi.org/10.1016/j.jdeveco.2011.05.003

Berg, C. & Emran, M.S. (2020). Microfinance and vulnerability to seasonal famine in a rural economy: Evidence from monga in Bangladesh. The B.E. journal of Economic Analysis Policy, De Gruiter, 20 (3), 1-36.

Pitt, M. M., & Khandker S. R. (2002). Credit Programmes for the Poor and Seasonality in Rural Bangladesh. The Journal of Development Studies, 39 (2),1-24. https://doi.org/10.1080/00220380412331322731

Hammill, A., Matthew, R. & Mcarter, E. (2008). Microfinance and climate change adaptation. IDS Bulletin, 39 (4). DOI:10.1111/j.1759-5436.2008.tb00484.x

Chirambo, D. (2016). Integrating microfinance, climate finance and climate change adaptation: A Sub-Saharan Africa perspective. In Filho, W. L., Musa, H., Cavan, G., O’Hare, P. & Seixas, J. (eds.). Climate change adaptation, resilience and hazards. Springer International Publishing Switzerland.

Banerjee, S. B. & Jackson, L. (2017). Microfinance and the business of poverty reduction: Critical perspectives from rural Bangladesh. Human relations, 70 (1), 63-91. DOI: 10.1177/0018726716640865

BBC (28 October 2013) The Bangladesh poor selling organs to pay debts (https://www.bbc.com/news/world-asia-24128096).

Associated Press (24 February, 2012). Hundreds of Suicides in India Linked to Microfinance Organizations (https://www.businessinsider.com/hundreds-of-suicides-in-india-linked-to-microfinance-organizations-2012-2)

Shoji, M. (2010). Does contingent repayment in microfinance help the poor during natural disasters? The Journal of Development Studies, 46 (2), 191-210. https://doi.org/10.1080/00220380902952381

Emran, M.S. & Forhad, S. (2021). Microfinance, moneylenders, and economic shocks: An assessment of the Bangladesh experience. Munich Personal RePEc Archive. https://mpra.ub.uni-muenchen.de/111159/

Khandker, S. R., Khalily, M.A. Baqui & Samad, H.A. (2015b). Mitigating seasonal hunger with microfinance: how does a flexible programme compare with the regular ones. Journal of Development Effectiveness, 7(1),23-42. https://doi.org/10.1080/19439342.2014.988166

Rajasekhar, D., Manjula, R. & J.Y. Suchitra (2017). Can microfinance promote livelihoods and reduce vulnerability among adivasis? A study of some NGO interventions from Karnataka and Tamil Nadu. Social Change, 47(1):1-16. DOI:10.1177/0049085716683101

Guermond, V., Parsons, L., Ly Vouch, L., Brickell, K., Michiels, S., Fay, G., Bateman, M., Zanello, G., Natarajan, N., Iskander, D. & Picchioni, F. (2022). Microfinance, over-indebtedness and climate adaptation: new evidence from Rural Cambodia. Royal Holloway, University of London.

Arif, A. E., MD. Shajahan, K., Radović - Marković, M. and Marković, D. (2025) “Resilience for Smallholder Farmers in Rural Entrepeneurship: Case from Bangladesh”,Journal of Entrepreneurship and Business Resilience, 8(1), pp. 45–61. Available at: https://jebr.fimek.edu.rs/index.php/jebr/article/view/142

Islam, S., Begum, I. A., Saha, C. K., Alam, M. M., Ethen, D. Z. and Kabir, M. S. (2023) “FARMERS’ PERCEPTIONS ABOUT BAU-STR DRYER: A GENDER-SENSITIVE ANALYSIS IN BANGLADESH”, Journal of Entrepreneurship and Business Resilience, 6(1), pp. 19–32. Available at: https://jebr.fimek.edu.rs/index.php/jebr/article/view/93