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Credit Programmes for the Poor and Seasonality in Rural Bangladesh
Abstract
This article examines the effect of group-based credit used to finance self-employment by landless households in Bangladesh on the seasonal pattern of household consumption and male and female labour supply. This credit can help smooth seasonal consumption by financing new productive activities whose income flows and time demands do not seasonally covary with the income generated by existing agricultural activities. The results, based upon 1991/92 survey data, strongly suggest that an important motivation for credit programme participation is the need to smooth the seasonal pattern of consumption and male labour supply. It is only the extent of lean season consumption poverty that selects household into these programmes. In addition, the largest female and male effects of credit on household consumption are during the lean season.
... Then, spending per capita on food for Grameen members was 8 percent higher than non-members in Grameen villages, and 35 percent more on food and 32 percent more on clothing than non-members in non-Grameen villages (Banerjee et al., 2015;De Silva, 2012;Hossain, 1988). Various models have been developed to provide credit for the poor, the first and most sophisticated econometric study on the impact of Micro-credit on poor households was done by Pitt & Khandker (2002); Khandker (2005). The results, in 1991-1992 (Pitt & Khandker, 2002) raised the confidence of Microfinance by demonstrating highly positive effects on bank members and their families. ...
... Various models have been developed to provide credit for the poor, the first and most sophisticated econometric study on the impact of Micro-credit on poor households was done by Pitt & Khandker (2002); Khandker (2005). The results, in 1991-1992 (Pitt & Khandker, 2002) raised the confidence of Microfinance by demonstrating highly positive effects on bank members and their families. In 1998-1999, the results showed that moderate poverty in all the villages was declined by 17 points, by 18 points in villages with Microfinance, and by 13 points in non-program villages (Khandker, 2005). ...
... Therefore, it is not possible to estimate the impact using a randomized trial. Thus, we use a quasiexperimental design within a non-equivalent control group between treated and control in the treatment model (Pitt & Khandker, 2002;Banerjee et al., 2015. To compare the average of propensity scores between groups, we use propensity score matching which is more representative to reduce the bias selection between groups. ...
This research aims todetermine propensity of household access to financial services and to examine their impact on helping reduce poverty in Indonesia, Nov-2018 until Feb-2019 by the National Socioeconomic Survey (SUSENAS), March 2019, around 315,672 households. To determine the propensity of household access to financial services, we use a probit model integrated with propensity score matching. With a quasi-experimental design, data were analyzed using the average treatment effect on treated (ATT) by household access to financial services (treatment) within 77,602 households with access (treated) and 238,070 households without access (control) to financial services. Estimation of propensity score was used to reduce selection bias of ATT on the outcome variables. The empirical findings show that household poverty status was reduced which would have occurred if they had access to financial services. Accessing financial services as transitory income has a negative impact, thus we conclude it was an unfavorable income. For poor, it is not yet significant enough but has a positive impact on increasing their expenditure per capita a month, averagely. Thus, the decrease or increase in their incomes didn’t increase or decrease their expenditure in the short-run, but in the long-run, it occurred.
... Seasonal feeding programmes, particularly prior to the monsoon season, could attempt to combat temporal fluctuations in food and nutrition security and peaks in wasting prevalence (Sullivan, 2013;WFP, 2012), while targeted feeding programmes in poorly performing SESs could reduce spatial inequalities (WFP, 2012). Households in rural Bangladesh often take out loans and credit as a coping strategy, when seasonal poverty is often highest, reducing the ability to accumulate assets for the following year (Adams et al., 2018b;Béné et al., 2015;Devereux et al., 2008;Mohsena et al., 2018;Pitt & Khandker, 2002). Previous research has found that the greatest effects of credit on household consumption are found during the lean seasons in rural Bangladesh, to smooth seasonal patterns of consumption (Pitt & Khandker, 2002). ...
... Households in rural Bangladesh often take out loans and credit as a coping strategy, when seasonal poverty is often highest, reducing the ability to accumulate assets for the following year (Adams et al., 2018b;Béné et al., 2015;Devereux et al., 2008;Mohsena et al., 2018;Pitt & Khandker, 2002). Previous research has found that the greatest effects of credit on household consumption are found during the lean seasons in rural Bangladesh, to smooth seasonal patterns of consumption (Pitt & Khandker, 2002). Seasonal social protection systems could make households more resilient to fluctuations in income and food and nutrition insecurity throughout the seasons, although dependent on the credit provider (Chowdhury et al., 2016;Feed the Future, 2018;Mohsena et al., 2018;Raihan et al., 2018;Schaafsma et al., 2021;Sullivan, 2013). ...
... Provision of loans to purchase fishing equipment or resources for shrimp and prawn production may also assist in diversifying diets. Diversification of income, especially incomes that are not tied to agriculture or seasonal variation, may also assist in smoothing consumption and economic access to food (Khandker, 2012;Pitt & Khandker, 2002). This is widely acknowledged in the literature relating to seasonal migration to urban and peri-urban areas (Cattaneo, 2018;Kartiki, 2011;Mohsena et al., 2018). ...
The impact of short-term environmental changes on child nutritional status is not constant within populations. In many countries, the seasons are closely linked with many factors that are known to affect nutritional outcomes, such as food consumption, crop harvests, employment opportunities and illness. With extreme seasonal variation becoming more common, understanding how seasonality is related to child nutritional outcomes is vital. This study will explore spatial and temporal variation and determinants for acute malnutrition in a coastal river delta in south-west Bangladesh over the period of a year. Using a rural longitudinal survey, conducted in 2014–15 with 3 survey waves, wasting amongst children under 5 was studied. Spatial variation was analysed through ‘socio-ecological systems’, which capture interactions between ecosystems, livelihoods and populations. Wasting prevalence varied from 18.2% in the monsoon season to 8.7% post-major rice harvest (Aman). Seasons did not relate to wasting consistently over socio-ecological systems, with some systems showing greater variability over time, highlighting distinct seasonal dynamics in nutritional status. Wealthier socio-ecological systems had lower wasting generally, as expected, with greater livelihood diversification opportunities and strategies to smooth consumption. Nutrition interventions must consider seasonal peaks in acute malnutrition, as well as the environmental context when implementing programmes to maximise effectiveness. With increasing variability in seasonal changes, inequalities in the impact of season must be accounted for in health promotion activities. Furthermore, timing and season of survey implementation is an important factor to be accounted for in nutrition research, especially when comparing between two cross-sectional surveys.
... The studies have unearthed vital findings that help propose policy interventions that could help deal with the developmental challenges of accessing financial services, especially for the poor. The literature indicates a considerable number of studies that have unearthed factors or determinants that lead to access to credit (Kochar, 1997;Atieno, 1997;Jabbar et al., 2002;Pal, 2002;Pitt and Khandker, 2002;Zeller and Sharma, 2002;Swain, 2007;Barslund and Tarp, 2008). There has also been a fair amount of focus on the determinants of access to savings (Deaton, 1992;Gurgand et al., 1994;Muradoglu and Taskin, 1996;Spio and Groenwald, 1996;Kimuyu, 1999;Aryeteey and Udry, 2000;Kiiza and Pederson, 2002). ...
... The empirical research findings are a mixture of different conclusions. For example, Pitt and Khandker (2002) indicate that households with a female head are negatively related to financial services. On the other hand, some researchers indicate that household size is an essential determinant of access to financial services (Dror et al., 2007;Swain, 2007;Barslund and Tarp, 2008). ...
... Several other studies indicate that an individual is more likely to access financial services, especially loans (Kiiza and Pederson, 2002;Pal, 2002;Pitt and Khandker, 2002) or contract insurance with increasing income or wealth of the individual (Jütting, 2003;Pauly, 2004;Bhat and Jain, 2006;Dror et al., 2007;Gine et al., 2008). Lower levels of income have a negative correlation with access to financial services. ...
Expanding access to financial services is seen as a promising means of dealing with developmental challenges, reducing poverty,and promoting economic development. Greater access to financial services is essential to people’s well-being as it promotes entrepreneurship, moves people out of poverty, and provides hope for a better economic future. Tools such as savings, payment, andcredit services are crucial to smoothing household level consumption, helping insure against risk, and allowing investment in education and other capital forms. As a result, many developing countries have committed to increasing people’s access to financialservices, especially the poor. However, achieving access to financial services remains a challenge despite this high-level importance. This article focuses on the determinants of individuals’ access to financial services. It uses available literature and the National Income Dynamics Survey (NIDS) data for analyses.
... Furthermore, beneficiary banks in some cases adopt a group-based lending approach like the one adopted widely in micro-credit programs to reduce the default risk (Jointliability mechanism works successfully as a safeguard against credit default in many microcredit programs, particularly in Bangladesh [27,28]. Therefore, these two criteria of selecting borrowers-an SMEF beneficiary and being a part of group-based lending-reduce the asymmetry of information about the borrowers and increases the probability of loan repayment significantly. ...
... From 2009 to 2017, though the overall disbursement had an annual growth of 53.75%, the credit amount is still meager compared to SMEs' needs, ranging between Tk. 0.05 to 2 million with a maximum of 4 years of loan repayment period ( Figure 3). liability mechanism works successfully as a safeguard against credit default in many micro-credit programs, particularly in Bangladesh [27,28]. Therefore, these two criteria of selecting borrowers-an SMEF beneficiary and being a part of group-based lending-reduce the asymmetry of information about the borrowers and increases the probability of loan repayment significantly. ...
A sustainable financing strategy for SMEs should aim to enhance a low-cost collateral-free supply of loans to SMEs with good track records of repayments to banks. In this paper, we suggest two alternative financing models for SMEs that address certain borrowing constraints of SMEs. First, the model incorporates institutional mechanisms involving the government, banks, and SMEs. The strategy employs a two-pronged approach: (i) the government enhances the supply of loanable funds to banks, and (ii) identifies good SME borrowers through skills development programs and introduces them to banks. This model will reduce default risk and allow banks to offer lower-interest and collateral-free credit to SMEs, thereby improving their access to finance and performance. Second, the model could be extended to accommodate digital finance using a data-driven credit risk score of the borrowers to reduce banks’ default risks and transaction costs with or without government funds. The proposed model could resolve the moral hazard and selection bias problems. Our proposed models are based on a public-private partnership approach and therefore could solve certain borrowing constraints of SMEs. Our empirical results support the model outcomes and therefore are consistent with the predictions of our theoretical models.
... The group funds, accessible at any time in the form of micro-loans, allow members to balance out asymmetric income and spending patterns. Hence, they allow households to manage idiosyncratic risks and cash-flow shocks (Aker et al., 2020;Pitt et al., 2002). Similarly, additional risk-insurance mechanisms are ensured by the social fund which offers interest-free loans to members in case of an emergency (Allan & Panetta, 2010). ...
Savings Groups (SGs) are informal community-based entities that act as grassroots financial cooperatives. They provide financial services to their members over an agreed-upon time period, commonly referred to as a ‘cycle’. During this cycle, saving and borrowing transactions take place during regular member meetings. Using new data on SGs worldwide, we conceptualize and quantify SG performance at the group level. Starting from the financial economics of the SG model, we introduce the savings capacity, profit-generating capacity, and borrowing conditions as complementary performance dimensions. We study these dimensions both across and within cycles to capture the financial efficiency of SGs. Our findings suggest that while SGs strengthen savings capacity over time, they primarily act as short-term cash-management vehicles. Groups prefer easy and affordable loans for emergencies over profit generation via micro-lending. The profit-generating capacity is curtailed by two major implementation restrictions, namely, loan-tying and unproductive periods at the beginning and end of the cycle. Based on our statistics, we formulate recommendations related to the cycle setup and lending policies.
... 70. This is evidenced in India, and elsewhere, such as Bangladesh and Peru (Marr 1999;Pitt and Khandker 2004;Premchander 2003a;UNDP 1997). 71. ...
... . This potential explanation is supported with evidence inPitt and Khandker (2002) for Bangladesh, which cites women's small amount of time spent in paid market work relative to women's time spent in all types of work as the main reason why their labor supply responsiveness to credit does not vary much by seasons, in contrast to that of men.11. See the October 2008 special issue of Feminist Economics on AIDS, sexuality, and economic development on these issues. ...
This paper identifies the linkages between gender equality and financing for development, with an eye to connecting these results to concrete policy implications that can be adopted by developing countries to ensure a win-win outcome: greater gender equality, resource mobilization, and improvements in societal well-being. Under the conditions of financial resource constraints, especially, investing in the improvement of gender equality in a country can stimulate economic growth for the whole society. A blind pursuit of neoliberal policies, privileging an export-led growth strategy over any other economic strategy, and making use of cheap female labor in export industries, is not the means to achieve economic and social development for the long run.
... There is, by now, a substantial empirical literature investigating farmers' borrowing decisions (e.g., binary choice models of borrower status, regression models of the amount borrowed or debt levels, and discrete dependent variable models of choice over formal versus informal credit). As motivation for our disaggregation of nonborrowers by CPTs, we observe that, in this literature, people who became nonborrowers for different reasons are typically aggregated into a single nonborrower reference class or excluded from the kinds of empirical Explanatory variables in previous studies that were found to significantly influence the probability of choosing a particular type of credit include: the household head's sex (Kochar 1997;Pitt and Khandker 2002;Petrick 2004), age (Barslund and Tarp 2008), education (Kochar 1997), household size (Yadav, Otsuka, and David 1992), dependency ratio (Kochar 1997;Barslund and Tarp 2008), wealth and income (Siamwalla et al. 1990;Karaivanov and Kessler 2018), and experimentally measured trusting behavior (Etang, Fielding, and Knowles 2011). Assets used to generate farm income (e.g., landholding size and livestock value) are frequently used as explanatory variables in empirical models of credit demand (Siamwalla et al. 1990;Tsai 2004, Barslund andTarp 2008;Karaivanov and Kessler 2018). ...
Nonborrowers are defined as debt averse if they have never borrowed in the past and prefer avoiding debt in the future, even when offered generous borrowing terms such as zero interest rates, zero collateral, and easy debt‐forgiveness. Other nonborrower types have either borrowed in the past or are open to doing so in the future. To better understand nonborrowing behavior, credit preference types (CPTs) were measured among 575 low‐income farmers in Mekong Delta, Vietnam. Among 208 current nonborrowers, 156 had never borrowed and only seven were credit rationed. Among never‐borrowers, 102 were debt averse. Thus, more than half of eligible nonborrowers (102 out of 201) were debt averse. This high prevalence challenges the assumption of unmet credit demand among the poor. Disaggregating CPTs reveals heterogeneity among nonborrowers that would remain observationally equivalent otherwise. We report reasons for not borrowing and investigate how observable characteristics influence the likelihood of debt aversion. This article is protected by copyright. All rights reserved.
ABSTRACT This paper examines the effect of group-based credit for the poor in Bangladesh, by gender of participant, on participatinghousehold’s mix of agricultural contracts (quantities of land sharecropped and rented), and the supply of agricultural labor which takes the form of own- cultivation as opposed to agricultural wage labor. The group-based micro-credit programs examined,provide production credit for nonagricultural activities to essentially landless and assetless rural households. Landless cultivators are more likely to have their contractual choices shaped by credit market constraints than others. On a priorigrounds,it is important to distinguish credit effects by the gender of participant. Male program credit, if properly monitored, should induce men to substitute away from supplying agricultural labor and contracting for agricultural land to supplying the nonagricultural labor required by the nonagricultural self-employment activity financed by the micro-credit program. Program participation by women, who are otherwise much less involved in income-generating activities, diversifies the sources of household income not merely by the type of activity undertaken but also across individuals within the household, outcomes that permit households to choose higher return but riskier agricultural contracts. Econometric analysis of a 1991/92 household survey provides strong evidence that participation in these group-based micro-credit programs substantially alters the mix of agricultural contracts chosen by participatinghouseholds. In particular, both female and male participation induce a significant increase in own-cultivation through sharecropping, coupled with a complementary increase in male hours in field crop self-employment and a reduction in male hours in the wage agricultural labor market, consistent with its presumed effects in diversifying income and smoothing,consumption. Female,credit effects are larger than male credit effects in increasing sharecropping and in reducing male wage labor and increasing agricultural self-employment,as predicted.
This paper estimates the impact of participation, by gender, in the Grameen Bank and two other group-based micro credit programs in Bangladesh on labor supply, schooling, household expenditure, and assets. The empirical method uses a quasi-experimental survey design to correct for the bias from unobserved individual and village-level heterogeneity. We find that program credit has a larger effect on the behavior of poor households in Bangladesh when women are the program participants. For example, annual household consumption expenditure increases 18 taka for every 100 additional taka borrowed by women from these credit programs, compared with 11 taka for men.
Group-based lending programs for the poor have drawn much attention recently. As many of these programs target women, an important research question is whether program participation significantly changes reproductive behavior and whether the gender of the participant matters. Using survey data from 87 Bangladeshi villages, we estimate the impact of female and male participation in group-based credit programs on reproductive behavior while attending to issues of self-selection and endogeneity. We find no evidence that women's participation in group-based credit programs increases contraceptive use or reduces fertility. Men's participation reduces fertility and may slightly increase contraceptive use.
Examines the performance and sustainability of two BRAC programs: the Rural Development Program (RDP) and the Rural Credit program (RCP). In 1994, the 195 branches of these two programs covered over one million members, of whom 88% were women, and disbursed $55.2 million in small loans of which 75% were borrowed by women. There has been a shift towards loans for rural non-farm activities, with trading, food processing and livestock comprising about 70% of all loans in 1994. The BRAC had mobilized about $11.7 million as savings with $37.5 million in loans outstanding by 1994, with women accounting for more than 85% of both. Although the loan recovery rate has remained high and RCP branches are financially viable, estimates indicate that the two programs together required 18% subsidy per unit loan outstanding. Given the present growth trend, all RCP branches will become self-sustainable in 2001, while both RCP and RDP will be free of economic subsidy by 2010. Through expansions in membership and loan disbursement, these BRAC programs can reduce their subsidy dependencies and become sustainable programs for the rural poor.
A test of weak exogeneity in the simultaneous equation Tobit model is proposed and illustrated using a female labour supply model estimated using cross-section data. The test statistic can be simply output from any standard Tobit maximum likelihood package, and is asymptotically efficient. The procedure provides consistent estimators for the simultaneous Tobit model whose asymptotic covariance matrix is a simple extension of the usual Tobit formula. We also provide the Lagrange Multiplier test of weak exogeneity.
This paper is concerned with exploring the role of the household as a risk-mitigating institution in low-income rural settings, with particular attention to the relationship between the structure of households and ex post income (consumption) smoothing. Aside from the family's pre-eminent role in determining population growth and human capital investment, two key development factors, the ties of common experience, altruism and heritage among family members enable families to transcend some of the information problems barring the development of impersonal markets, a salient characteristic of low-income environments.
This paper formulates and estimates a finite-horizon, structural dynamic model of agricultural investment behavior that incorporates the major features of low-income agricultural environments: income uncertainty, constraints on borrowing and rental markets, and the use of investment assets to generate income and smooth consumption. The model is fit to longitudinal Indian household data on farm profits, bullock stocks, and pump sets. The estimated structural parameters are used to assess th e effects on the life-cycle accumulation of bullocks, agricultural profits, and welfare associated with complete markets and bullock liquidity and with second-best policies that provide assured sources of income to farmers and weather insurance. Copyright 1993 by University of Chicago Press.
Thsi paper develops and estimates a real wage model for the agricultural sector in Bangladesh for the period 1973:2–1985:4. The model is developed within the framework of the market theory of labour demand and labour supply. The empirical results are supportive of the market theory of wages.
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. Copyright 2003 By The Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association