Microfinance Safety Net: Back to Basics

Abstract

Malnutrition among families living in poorer communities has increased in the past two decades. Initiatives advocated by the World Bank include microfinance programs. Research attributing the success of these programs however, has mixed results. In this article we investigate how additional income provided by microfinance is associated with increased consumption of nondurables for households in rural villages in Bangladesh. For our purposes we compare consumption or money expensed on food, medicine, doctor fees, and smoking. Fisher's least significant difference (LSD) procedure was used to address multiple comparison issues among households. Our findings reinforce the importance of microfinance credit as a safety net. Access to additional income for poor villagers improves the consumption of basic needs as expected, regardless of how many loans are taken; consumption of “bads” remains virtually the same.

Acknowledgments

The authors acknowledge the outstanding support received from Hussain Samad and Shahid Khandker of the World Bank in helping us with our many data questions. We also thank the reviewers and Peter Arno, PhD, for their thoughtful review and helpful insights that guided the revision of our manuscript.