The World Bank Economic Review Advance Access originally published online on September 8, 2005
The World Bank Economic Review 2005 19(2):263-286; doi:10.1093/wber/lhi008
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Microfinance and Poverty: Evidence Using Panel Data from Bangladesh
Shahidur R. Khandker is lead economist in the World Bank Institutes Poverty Reduction and Economic Management Division and the Development Research Group at the World Bank; his email address is skhandker{at}worldbank.org.
Microfinance supports mainly informal activities that often have a low return and low market demand. It may therefore be hypothesized that the aggregate poverty impact of microfinance is modest or even nonexistent. If true, the poverty impact of microfinance observed at the participant level represents either income redistribution or short-run income generation from the microfinance intervention. This article examines the effects of microfinance on poverty reduction at both the participant and the aggregate levels using panel data from Bangladesh. The results suggest that access to microfinance contributes to poverty reduction, especially for female participants, and to overall poverty reduction at the village level. Microfinance thus helps not only poor participants but also the local economy.
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