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The Impact of Microcredit on the Poor in Bangladesh: Revisiting the Evidence - Working Paper 174

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David Roodman and Jonathan Morduch

06/18/2009

The idea that access to small loans can help poor families build businesses, increase their income, and escape poverty has blossomed into a global movement. Its appeal is manifold. It is at once radical in its suggestion that the poor are creditworthy and conservative in its insistence on individual responsibility.

But how robust is the evidence that microcredit improves the lives of the poor by, for example, increasing or stabilizing household consumption? Three landmark studies put microfinance to that test in Bangladesh, but the contradictions among them have produced lasting controversy and confusion. While two of the studies indicate that microcredit raises household spending, the third instead suggests that it helps families stabilize spending.

In this working paper, research fellow David Roodman and Jonathan Morduch reevaluate the previous studies and find a way to end the impasse. They replicate the statistical analysis in each study, one of them with Roodman’s cmp program, and show that none convincingly rules out reverse causation. A positive association between microcredit and household spending, for example, may merely indicate that richer families borrow more. With these studies in doubt, solid academic evidence that microcredit reduces poverty is even scarcer than previously understood. For non-experimental methods to retain a place in the program evaluator’s portfolio, the quality of the claimed natural experiments must be high and demonstrated.

A complete version of Morduch's 1998 paper, "Does Microfinance Really Help the Poor: New Evidence from Flagship Programs in Bangladesh," is here.

Files needed to generate the paper's results are available for download:

Primary data not available at the World Bank site, obtained from Mark Pitt in the late 1990s

  • CPIYEAR.DTA—Stata file with Consumer Price Indexes by month and region of Bangladesh
  • LANDREL1.DTA—Details of relatives’ landholdings
  • WGHT123.DTA—Sampling weights

Data sets

Stata .do files