Expanding access to commercial credit is a key ingredient of financial development strategies. There is less consensus on whether expanding access to consumer credit helps borrowers, particularly when loans are extended at high interest rates. Popular skepticism about "unproductive," "usurious" lending is fueled by research highlighting behavioral biases that may induce overborrowing. We estimate the impacts of expanding access to consumer credit at a 200% annual percentage rate (APR) using a field experiment and follow-up data collection. The randomly assigned marginal loans produced significant net benefits for borrowers across a wide range of outcomes. There is also some evidence that the loans were profitable.

Summary of "Expanding credit access: using randomized supply decisions to estimate the impacts"

Web: www.cgap.org Introduction The United Nations’ Millennium Development Goals (MDGs) have galvanized the development community with an urgent challenge to improve the welfare of the world’s neediest people. Donor agencies are orienting their programming around the attainment of the MDGs and are mobilizing new resources to reduce hunger and poverty, eliminate HIV/AIDS and infectious diseases, empower women and improve their health, educate all children, and lower child mortality.1 The MDGs are framed as concrete outcomes in the areas of nutrition, education, health, gender equity, and environment. Thus work in these specific areas will be a large part of any development strategy driven by the MDGs. But decades of experience has shown that progress in these areas is powerfully affected by other factors in the broader context, such as a functioning government, physical security, economic growth, and basic infrastructure (for example, transportation). This paper reviews the mounting body of evidence showing that the availability of financial services for poor households (“microfinance”) is a critical contextual factor with strong impact on the achievement of the MDGs. Microfinance, and the impact it produces, go beyond just business loans. The poor use financial services not only for business investment in their microenterprises but also to invest in health and education, to manage household emergencies, and to meet the wide variety of other cash needs that they encounter. The range of services includes loans, savings facilities, insurance, transfer payments, and even micro-pensions. Evidence from the millions of microfinance clients around the world demonstrates that access to financial services enables poor people to increase their household incomes, build assets, and reduce their vulnerability to the crises that are so much a part of their daily lives. Access to financial services also translates into better nutrition and improved health outcomes, such as higher immunization rates. It allows poor people to plan for their future and send more

Is microfinance an effective strategy to reach the Millennium Development Goals

Expanding access to commercial credit is a key ingredient of financial development strategies. There is less consensus on whether expanding access to consumer credit helps borrowers, particularly when loans are extended at high interest rates. Popular skepticism about "unproductive," "usurious" lending is fueled by research highlighting behavioral biases that may induce overborrowing. We estimate the impacts of expanding access to consumer credit at a 200% annual percentage rate (APR) using a field experiment and follow-up data collection. The randomly assigned marginal loans produced significant net benefits for borrowers across a wide range of outcomes. There is also some evidence that the loans were profitable. The Author 2009. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

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Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts

This article examines the effects of men’s and women’s participation in micro credit programs on various indicators of women’s empowerment using data from a special survey carried out in rural Bangladesh. These credit programs are well suited to studying how gender‐specific resources alter intrahousehold allocations because they induce differential participation by gender through the requirement that only one adult member per household can participate in any micro credit program. Empowerment is formalized as an unobserved latent variable reflecting common components of qualitative responses to a large set of questions pertaining to women’s autonomy and decision‐making power. The empirical methods are attentive to various sources of endogeneity, and the results are consistent with the view that women’s participation in micro credit programs helps to increase women’s empowerment. The effects of male credit on women’s empowerment were generally negative.

https://www.jstor.org/stable/10.1086/503580

Empowering Women with Micro Finance: Evidence from Bangladesh

The most-noted studies on the impact of microcredit on households are based on a survey fielded in Bangladesh in the 1990s. Contradictions among them have produced lasting controversy and confusion. Pitt and Khandker (PK, 1998) apply a quasi-experimental design to 1991–92 data; they conclude that microcredit raises household consumption, especially when lent to women. Khandker (2005) applies panel methods using a 1999 resurvey; he concurs and extrapolates to conclude that microcredit helps the extremely poor even more than the moderately poor. But using simpler estimators than PK, Morduch (1999) finds no impact on the level of consumption in the 1991–92 data, even as he questions PK’s identifying assumptions. He does find evidence that microcredit reduces consumption volatility. Partly because of the sophistication of PK’s Maximum Likelihood estimator, the conflicting results were never directly confronted and reconciled. We end the impasse. A replication exercise shows that all these studies’ evidence for impact is weak. As for PK’s headline results, we obtain opposite signs. But we do not conclude that lending to women does harm. Rather, all three studies appear to fail in expunging endogeneity. We conclude that for non-experimental methods to retain a place in the program evaluator’s portfolio, the quality of the claimed natural experiments must be high and demonstrated.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1872033_code1349245.pdf?abstractid=1872033&mirid=3

The Impact of Microcredit on the Poor in Bangladesh: Revisiting the Evidence

The impact of participation in group-based credit programs, by gender of participant, on the health status of children by gender in rural Bangladesh is investigated. These credit programs are well suited to studies of how gender-specific resources alter intra-household allocations because they induce differential participation by gender. Women's credit is found to have a large and statistically significant impact on two of three measures of the healthiness of both boy and girl children. Credit provided to men has no statistically significant impact and the null hypothesis of equal credit effects by gender of participant is rejected.

Credit Programs for the Poor and the Health Status of Children in Rural Bangladesh

The impact of participation in group-based credit programs, by gender of participant, on the health status of children by gender in rural Bangladesh is investigated. These credit programs are well suited to studies of how genderspecific resources alter intra-household allocations because they induce differential participation by gender. Women’s credit is found to have a large and statistically significant impact on two of three measures of the healthiness of both boy and girl children. Credit provided to men has no statistically significant impact and the null hypothesis of equal credit effects by gender of participant is rejected. This article examines the effect of additional resources supplied to and controlled by women, as compared to men, on child health outcomes, by gender of child. The source of these additional resources is group-based credit programs for the poor in rural Bangladesh. These credit programs are well suited to studying how gender-specific resources alter intra-household allocations because they induce differential participation by gender through the requirement that only one adult member per household can participate in any micro-credit program. This article thus contributes to the growing literature in which joint family decisions are derived from the possibly divergent interests of husbands and wives. The empirical literature has suggested that a mother’s relative control over resources importantly alters the human capital of her children; specifically that children seem to be better off when their mothers control relatively more of their family’s resources. Some of this literature has used the relative earnings of mothers and fathers to indicate control over resources. The endogeneity of earnings makes any

Credit programs for the poor and the health status of children in rural bangladesh

This study evaluated the effects of group-based credit programs in rural Bangladesh: Grameen Bank Bangladesh Rural Advancement Committee (BRAC) and Bangladesh Rural Development Boards (BRDB) Rural Development RD-12 program. The study determined the impact on childrens nutritional status. The article includes a description of economic theory of household allocation and the estimation and identification of structural equations with covariance restrictions based on regression errors with a factor-analytic structure. Credit programs are expected to improve nutrition by income and substitution effects and by increasing womens role and power in the household resource allocation process. All programs work with the rural poor. Data were obtained from a 1991-92 survey among 1798 households in 87 villages in rural areas. The sample included program recipients and non-program persons who were eligible for the program. The research design eliminated the unobserved who might have biased estimates of the impacts of these programs. The residual includes left-out household and individual level variables. The residual covariance matrix was restricted by nutritional status at two points in time and a factor-analytic structure. Results indicate a large positive statistically significant impact from womens credit programs on two measures of nutritional well-being. Mens credit had no significant impact. A 10% increase in credit provided to females increased the arm circumference of daughters by 6.1% and of sons and increased the height for age for boys and girls. Male or female credit did not affect Body Mass Index.

https://www.econstor.eu/bitstream/10419/102600/1/1998-04.pdf

Credit programs for the poor and the nutritional status of children in rural Bangladesh.

Trapped in the realm between market failure and social justice, Bangladesh’s objective of alleviating poverty is marred by its inability to mobilize enough domestic resources to launch large-scale anti-poverty programs. Moreover, this inability is further strained by the accumulation of large domestic, and more importantly, foreign debt, along with a declining share of concessionary aid. Against the backdrop of such development constraints, this paper therefore addresses the question of affordability to finance poverty reduction programs in a dynamic context. In doing so, it stresses the need for approaching the problem from a human rights perspective, with particular emphasis on progressive realization of these rights. In reviewing the functions and performance of the existing safety net programs in Bangladesh, the paper argues that the resources for carrying out social protection programs for the economically and socially vulnerable individuals and groups need to be augmented by reducing the leakages and improving the appallingly low tax effort of the country compared to the potential of the economy. It also suggests that as a result of the scarcity of resources, although the per capita public expenditure on health and education sectors is increasing, it is nevertheless limited by South Asian standards (with the exception of Sri Lanka). Additionally, the potentials of local government in this respect are also discussed.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1757927_code1382430.pdf?abstractid=1757927&mirid=4

Omar Haider Chowdhury

Papers

Credit Programs for the Poor and the Health Status of Children in Rural Bangladesh

Credit programs for the poor and the health status of children in rural bangladesh

Credit programs for the poor and the nutritional status of children in rural Bangladesh.

Affordability to Finance Poverty Reduction Programs