Zaman examines the extent to which micro-credit reduces poverty and vulnerability through a case study of BRAC, one of the largest providers of micro-credit to the poor in Bangladesh.
Household consumption data collected from 1,072 households is used to show that the largest effect on poverty arises when a moderate-poor BRAC loanee borrows more that 10,000 taka (US$200) in cumulative loans. Different control groups and estimation techniques are used to illustrate this point.
Zaman discusses several ways by which membership in micro-credit programs reduces vulnerability - by smoothing consumption, building assets, providing emergency assistance during natural disasters, and contributing to female empowerment.
The reduction in female vulnerability in a patriarchal society is illustrated using 16 female empowerment indicators developed from data on 1,568 women. The results suggest that micro-credit's greatest impact is on the set of indicators relating to female control over assets and knowledge of social issues.
The author also argues that micro-credit's impact on poverty and vulnerability can be strengthened if credit is provided jointly with other financial (savings and insurance) and nonfinancial (legal education, food relief) interventions.
This paper is a product of the Office of the Senior Vice President and Chief Economist, Development Economics. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Bezawork Mekuria, room MC4-328, telephone 202-458-2756, fax 202-522-1158, Internet address bmekuria@worldbank.org. The author may be contacted at hzaman@worldbank.org. (49 pages)
The full report is available in PDF format.