Effectiveness of Micro-Credit for Poverty Alleviation Under Agricultural Intensification Projects in Bangladesh

• Main Author: Mahmud, Kazi Tanvir
• Format: Thesis
• Language: English; English
• Published: 2006
• Online Access: http://psasir.upm.edu.my/id/eprint/596/1/t_fp_2006_37.pdf; http://psasir.upm.edu.my/id/eprint/596/

The rural poor generally have low income to sustain their livelihood. They do not have the capacity to start any income generating activities due to lack of financial capital. They also have very limited access to the formal financial institutions because of the inability to fulfill the collateral requirements. Thus, in order to widen the rural poor’s access to finance, microcredit programs have been launched which require no collateral to obtain loans. The major goal of the microcredit program is to provide financial capital to the rural poor in order to engage them in income generating activities for alleviating their poverty. The main objective of this study is to assess the effectiveness of microcredit program in alleviating poverty among rural borrowers in Bangladesh. Primary data were collected from three local Non-Governmental Organizations (NGOs) and a government agricultural project. Eight hundred borrowers were selected through simple random sampling technique. Data were collected from those borrowers who took loan for the first time in 2003 and were involved in agricultural activities. A conditional demand equation on household income, household expenditure and borrower’s saving was estimated using the Weighted Two Stage Least Square (WTSLS) technique. Logit model was used to examine whether the microcredit program benefited the borrowers. Household income was found to increase significantly due to the influence of loaned money. The study results also showed that the amount of credit taken by the borrowers had positive influence on the households’ food expenditure and borrower’s saving. Nevertheless, microcredit was found to have no influence on the households’ total expenditure due to the fact that the majority of the borrowers were poor and they could not even fulfill their basic needs like food. Thus, they had to spend more on food items as compared to other non-food items. Results of the logit analysis revealed that six variables had significant and positive influence on the binary dependent variable ‘Borrower well-being’. The significant variables were educational level, per day time spending on income generating activities by the family members, number of training received, expenditure on health care and share of food expenditure to total expenditure and mobility of the borrowers. Increase level of these six variables would provide higher probability for improving their well-being.