Estimating the Long-Run Impact of Microcredit Programs on Household Income and Net Worth

Discussing the effect of microcredit on borrowers in Bangladesh
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This paper investigates whether the utilization of microcredit programs has a significant impact on the income and net worth of the participants in the program. It uses more than 20 years of panel data covering around 1,509 households to estimate bounds on the causal effects of microcredit programs. For the analysis, the paper allows for unobserved characteristics to be correlated with regressors through a fixed effects regression model. The paper suggests that several MFIs are optimistic on the beneficial effects of these programs while others describe microcredit with interest rates in excess of 20% as a poverty trap. Through the analysis, the paper finds moderately positive effects of such credit programs on household welfare and it rejects the hypothesis of microcredit acting as a poverty trap. It covers the following sections in detail:

  • Review of relevant literature;
  • Sources of data on microcredit programs;
  • Discussion of the model used for data analysis;
  • Evaluation of three hypothesis related to the impact of microcredit programs in Bangladesh;
  • Discussion on the findings and concluding remarks.

About this Publication

By Woutersen, T. , Khandker, S.R.