MICROFINANCE AND Article in: The World Bank

POVERTY: EVIDENCE USING Economic Review

Published Date: February 2005
PANEL DATA FROM Author: Shahidur R. Khandker
BANGLADESH
  Introduction
Background of the Study
Literature Review
Objective of the Study
Materials and Methods
CONTENTS: Hypotheses
Data and Sources
Methodology
Results and Discussions
Conclusion
INTRODUCTION
 •Microfinance mainly supports informal activites that
have low return and low market demand.

BACKGRO •Therefore, it might be hypothesized that the aggregate

impact on poverty reduction is modest or non-existent.
UND OF •This article examines the effects of microfinance on

THE poverty reduction both on the participant and

aggregate level using panel data.

STUDY •The results suggest that microfinance:

• Contributes to poverty reduction especially for female
participants and in the village level.
• Helps local economy as well (spillover effect)
 •Khandker and Pitt (2003) examined the impact of
microfinance using panel household survey from
Bangladesh.
•Specifically they studied issues such as:
LITERATU • Whether the effects of microfinance are saturated or crowded
out over time.

RE • Whether programs generate externalities.

• Checked the robustness of estimated microfinance impacts.
REVIEW •They found:
• Declining long term effects of microfinance
• Possibility of village saturation from microfinance loans
OBJECTIV
E OF THE •The study by Khandkar and Pitt (2003) did not focus
on the poverty reduction impact.
STUDY •In this paper Shahidur R. Khandkar focused on the

(RESEARC poverty reduction impact using the same panel data

from the previously mentioned study.

H GAP)
MATERIALS AND
METHODS
 •H0: Poverty impact of microfinance is modest or non-
HYPOTHE existent.

SES •H1: Poverty impact of microfinance is significant and

contributes to poverty reduction.
 •The study conducted an impact assessment using
panel data analysis through a survey in 1998-99. This
was a follow up survey to the one conducted in 1991-
DATA AND 92.

SOURCES •The study also uses cross-section data from 1991-92

to estimate the returns to women’s borrowings from
microfinance programs along with impact on poverty
reduction.
 •Used fixed effect method for estimating the credit
demand function and consumption equation in panel
METHOD analysis.

OLGY
• The household-fixed effect method was used in consumption
equation.
• Village-fixed effect method was used in reduced form
borrowing.
METHODOLOGY: FIXED
EFFECT METHOD
Village Fixed Effect: Household Fixed Effect:
•Used to control for unobserved time invariant •Used to control for unobserved time invariant
characteristics at the village level in panel data. characteristics at the household level in panel
data
METHODOLOGY: IMPACTS OF THE
FIXED EFFECT METHOD
RESULTS AND
DISCUSSIONS
CONCLUSION
 •Access to microfinance contributes to poverty
reduction especially for female participants.

CONCLUS •Impact is greater on extreme poverty than on

moderate poverty.
ION •Microfinance has a positive impact on local economy
by benefitting non-participants as well.