MICROFINANCE RELATED TO THE ECONOMIC MOVEMENT

Has Micro-Finance Related To the Economic Movement?

Abstract

Microcredit is found to have improved social welfare by stimulating income and selfemployment growth among the borrowers of partner microfinance institutions of Pally Karma Sahayak (rural self-employment generation) Foundation-a non-profit government-initiated umbrella organization for microfinance in Bangladesh. The program has thus contributed to poverty reduction and income equalization. Using data of 2500 households from a longitudinal survey, this study further observes that during 1998 2004 regular microcredit participant's experienced faster growth in annual earnings and work hours compared to occasional participants followed by non-participants, although non-participants fared better in terms of reduction of poverty and within-group inequality. The slow rate of reduction in poverty headcount index among participants to the extent of less than one percentage point a year points to the inadequacy of microcredit program as a fast-track poverty eradication strategy in near future.

Table of Contents

Abstract2

Introduction5

Background of the Study6

CHAPTER II9

Literature Review9

Vulnerability to hazards: exposure, susceptibility and integrated approaches9

From exposure to susceptibility: risk-hazard and social constructivist approaches9

Hazardousness of place: integrated approaches to vulnerability10

Vulnerability, poverty and poverty traps11

Vulnerability to poverty11

Vulnerability and poverty traps11

Microfinance Evidence from Bolivia13

Natural hazards and micro-credits: a case study of Bangladesh18

Research site and data collection18

Natural hazards in Bangladesh18

Borrowing: a prime coping strategy in Bangladesh20

Debt capacity and repayment suspension22

MCOs: organisational structures and loan recycling24

Further research and policy implications25

CHAPTER III40

Methodology40

The model45

Econometric approach50

The data56

Chapter IV61

Results61

Chapter V70

Conclusions70

References72

Appendices83

Has Micro Finance Related To the Economic Movement of the Developing Countries?

Introduction

Since the 1998 flood my family's life has become much harder. We were not rich before, but we had a house and most of the time we did not go hungry. Then the floods came and we could not honour our micro-credit repayments. We had to take out more loans, to buy food, to rebuild the house. Now we have nothing; and my husband left too.

Over the past two decades microcredits have advanced from a “novel” idea to a Nobel Peace Prize winning concept for poverty alleviation (Rogaly, 1996; Carlin, 2006). Microcredit Organisations (MCOs) reporting of low default rates and stories of “empowered” women have created an impression that poverty in low income countries (LICs) is slowly being obliterated (see Develtere and Huybrechts, 2005). Yet, only a few studies pay attention to the environmental context in which people pursue their livelihoods and in which MCOs offer their services (see Nagarajan, 1998; Zaman, 1999; Pearl and Phillips, 2001; AIDMI, 2005; Chakrabarti and Bhatt, 2006; AIDMI, 2006; Aliage and Moseley, 2007). While hazard and development studies are filled with life-stories in which a crisis event is followed by a slow decent into poverty, these are intriguingly absent in microcredit narratives. Perhaps many studies applied the same restrictions that Chowdhury et al. (2005, p. 301) imposed on their research by selecting only areas in Bangladesh that were not affected by the 1998 flood “because the devastation and deprivation created by this tragic event would mask any underlying impact of micro-credit”. A peculiar decision given the country's proclivity for disasters.

To explore the question of the interplay between vulnerability ...