Micro-Credit and Rural Poverty: An Analysis of Empirical Evidence

Do NGO-led microcredit schemes work better at poverty alleviation than state-led schemes?
Download 11 pages

This paper reviews empirical evidence on non-government-organization (NGO) - led microcredit programs in several developing countries, and compares them with state-led poverty alleviation schemes in India.

The paper examines the performance of the NGO-led microcredit system on the basis of a set of indicators that include:

  • Targeting the poor;
  • Increase in earning and asset holdings of the poor;
  • Employment generation and skill improvement;
  • Financial viability.

The paper is divided into four sections as follows:

  • Section 1 brings out the context in which the NGO-led microcredit alternative has emerged in literature and policy-making;
  • Section 2 discusses the concept and features of microcredit institutions beginning with the Grameen Bank;
  • Section 3:
    • Compares the available empirical evidence on microcredit programs and institutions with state-led credit-based poverty alleviation programs and institutions in India;
    • Discusses issues involved in the expansion and replication of Grameen-type programs and institutions across various countries.

The paper concludes that:

  • NGO-led microcredit programs have been successful in reaching their target groups more effectively than state-led ones;
  • However, they have been able to bring about only a marginal improvement in the beneficiaries' income;
  • The beneficiaries have not gained much by way of technological improvements, given the emphasis on survival skills;
  • In Bangladesh, the practice of repayment of Grameen Bank loans by taking fresh loans from moneylenders has resulted in the creation of 'debt cycles'.

About this Publication

By Chavan, P. & Ramakumar, R.