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The World Bank Economic Review Advance Access published online on September 8, 2005
The World Bank Economic Review, doi:10.1093/wber/lhi008
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© The Author 2005. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: journals.permissions@oupjournals.org.

Article

Microfinance and Poverty: Evidence Using Panel Data from Bangladesh

Shahidur R. Khandker 1*

1 Lead economist in the World Bank Institute’s Poverty Reduction and Economic Management Division and the Development Research Group at the World Bank

* To whom correspondence should be addressed.
Shahidur R. Khandker, E-mail: skhandker{at}worldbank.org


  Abstract

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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