Can microcredit worsen poverty? Cases of exacerbated poverty in Bangladesh

Abstract

Worldwide, microcredit has been recognised as a successful innovation in poverty alleviation. However, some claim that microcredit exacerbates poverty in developing countries. This study examines cases in Bangladesh where microcredit has actually worsened poverty among borrowers and investigates the underlying reasons for this adverse trend. Our results show that microcredit can exacerbate poverty in four interrelated circumstances. We argue that households living in extreme conditions of poverty who possess minimal or no surplus financial capacity to cope with contingencies are prone to adverse effects of microcredit, and suggest ways to avoid microcredit borrowers falling victims to such unintended consequences.

Le microcrédit peut-il aggraver la pauvreté ? Quelques cas de pauvreté exacerbée au Bangladesh

De par le monde, le microcrédit a été reconnu comme une innovation efficace en vue de réduire la pauvreté. Cependant, certains affirment que le microcrédit exacerbe la pauvreté dans les pays en développement. Cette étude traite de cas observés au Bangladesh où le microcrédit a de fait aggravé la pauvreté parmi les emprunteurs et se penche sur les raisons sous-jacentes de cette tendance négative. Nos résultats montrent que le microcrédit peut exacerber la pauvreté dans quatre situations interconnectées. Nous soutenons que les ménages qui vivent dans des conditions extrêmes de pauvreté et qui possèdent une capacité financière minime ou inexistante pour faire face aux imprévus sont sujets aux effets négatifs du microcrédit et nous suggérons des manières d'éviter que les récipiendaires de microcrédit deviennent les victimes de conséquences non voulues de ce type.

O microcrédito pode agravar a pobreza? Casos de pobreza exacerbada em Bangladesh

No mundo todo, o microcrédito tem sido reconhecido como uma inovação bem-sucedida na redução da pobreza. Porém, alguns afirmam que o microcrédito agrava a pobreza em países em desenvolvimento. Este estudo examina casos em Bangladesh em que o microcrédito na verdade tem agravado a pobreza entre tomadores de empréstimo e investiga as razões subjacentes para esta tendência adversa. Nossos resultados mostram que o microcrédito pode agravar a pobreza em quatro circunstâncias inter-relacionadas. Argumentamos que as famílias que vivem em condições extremas de pobreza e que possuem mínima ou nenhuma capacidade financeira excedente para lidar com contingências são suscetíveis aos efeitos adversos do microcrédito e sugerimos maneiras de se evitar que os tomadores de microcrédito tornem-se vítimas de tais consequências não pretendidas.

¿Pueden los microcréditos incrementar la pobreza? Casos donde aumentó la pobreza en Bangladesh

Los microcréditos han sido ampliamente reconocidos como una iniciativa eficaz para disminuir la pobreza. Sin embargo, hay quienes afirman que los microcréditos incrementan la pobreza que ya existe en los países en desarrollo. Este ensayo analiza diversos casos en Bangladesh, donde se ha comprobado que los microcréditos agudizaron la pobreza de los prestatarios, e investiga las principales causas de esta tendencia negativa. Los autores señalan que los microcréditos pueden incrementar la pobreza en cuatro circunstancias que se relacionan entre sí. Sostienen también que las familias que viven en condiciones de pobreza extrema y cuentan con una mínima reserva financiera para imprevistos, o con ninguna, tienden a sufrir los efectos adversos de los microcréditos. El ensayo sugiere maneras de evitar que los prestatarios se expongan a estas consecuencias no previstas de los microcréditos.

Keywords:

• Gender and diversity
• Labour and livelihoods
• South Asia

Notes

A major administrative unit based on geographic territory; Bangladesh is divided into six divisions.

Cases included in Table 2 (281) are only those cases (among the total number of 320 survey respondents) for whom sufficient and detailed enough data were available to estimate the proportion of business investment derived from microcredit.

Note that income refers here to the income generated from microcredit-funded projects, not the total household income of the borrowers' family. As noted above, income categories are derived from categories defined by the Bangladesh Bureau of Statistics, Household Income and Expenditure Survey (HIES), 2005 (see Rahman et al. 2008: 29–41; World Bank et al. 2009).

Throughout the paper this form of pseudonym is used to protect the anonymity of respondents, and village locations are not identified. Interviews were conducted in December 2008 and January 2009.

Additional information

Notes on contributors

ATM Jahiruddin

ATM Jahiruddin is a faculty member in Business Administration, Khulna University, Bangladesh. Although he holds Bachelor and Masters degrees in Business Administration, his research interests have shifted to the area of poverty and development. Currently he is in the final stage of a PhD programme at The University of Queensland. <[email protected]>

Patricia Short

Patricia Short is a sociologist. Her research interests include social inequality and social risk in the fields of health and housing, welfare relations in informal economies, and family/household relations, with particular reference to the survival strategies of vulnerable householders and the impacts of market-state-community relations upon household provisioning.

Wolfram Dressler

Wolfram Dressler is an anthropologist. His principal research interests are in political ecology, rural livelihoods, conservation, and development and neo-liberalism. His current research is focused on Palawan Island in the Philippines, and he has published widely on the impacts of development on swidden agriculture, and forest management. <[email protected]>

M. Adil Khan

M. Adil Khan holds an adjunct position at The University of Queensland. A development practitioner, and former Chief of the Socio-Economic Governance and Management Branch of United Nations Department of Economic and Social Affairs, New York, his recent work has focused upon civic engagement and public governance, poverty studies, global level policy advocacy, and partnership building. <[email protected]>