Half of Microcredit Goes to Well-off People: Study

Monday, August 29, 2011

Although the microfinance concept was developed to assist marginal people to address poverty, around 50 percent of micro credit goes to the well-off, reports UNB.

“A lot of microcredit is wasted on the well-off; there is yet another problem that many of the poorer households do not benefit from it,” said Prof SR Osmani, teacher of Development Economics at the University of Ulster, UK and a visiting fellow of Institute of Microfinance in Dhaka.

Referring to the findings of a recent study, he said there is probably a scope for enhancing the contribution of microcredit by bringing about some design changes.

Prof SR Osmani conducted the first phase study of the long-term panel surveys titled ’Asset Accumulation and Poverty Dynamics in Rural Bangladesh: The Role of Microcredit’ covering 6,500 rural households in 63 districts. It examined various factors including the role of microfinance that have a casual influence on this dynamics. The study reveals that a good deal of microcredit appears to be wasted while only about half of the borrowers belong to the categories of poor and marginal poor, and the other half are well-off; and the microcredit does very little good to the well-off. It shows that almost half of marginal and poor households are left out. Many of them will perhaps never take microcredit and probably should not earlier, because like any other intervention microcredit is not suitable for everybody.

The study found that access to microcredit enhances the probability of moving up the asset ladders and reduce the probability of falling. While this is true for both poor and non-poor households, the effect is much stronger for the poor.

For the poor borrowers, the microcredit reduces the probability of falling through the asset ladder by seven percent and increase the probability of moving up by 4.5 percent.

The study showed that the contribution of microcredit to asset accumulation has translated itself into contribution to poverty reduction. Access to microcredit reduces probability of being poor by 2.5 percent.

Source: The Financial Express (link opens in a new window)