The Microfinancing Village Household and Loan Return: Do Credit Source, Education, Land Assets, and Gender Matter?

Disbursements of small-scale credit to poor entrepreneurial households in developing countries have become a popular tool for promoting self-sufficiency and alleviating poverty. The success of such programs, however, has been inconsistent across self-sufficiency and poverty measures. This study explores the effects of small-scale loans, household assets, and other household characteristics on household income. The study uses longitudinal survey data collected by the World Bank and the Bangladesh Institute of Development Studies from over 1,700 households in rural Bangladesh. The results suggest that microloans disbursed by microfinance institutions and other formal programs have a positive impact on income for borrowers. Loans received from relatives and other noninstitutional moneylenders, however, only benefit male borrowers. The findings document differential impacts by loan source, gender, education assets, and labor assets. Households that are resource poor in land assets and education, benefit the most from receiving small-scale credit. This study provides important policy insights. The results suggest that one-size-fits-all approaches to development finance may not be appropriate given that program outcomes can be sensitive to credit source, borrower's gender, and other household characteristics. To address endogeneity issues in the data, the study relies on a quasi-experiment survey design to reduce bias in the estimates. A quasi-experiment imposes a cutoff criterion for eligibility to allow us to trace treatment group impacts. A panel data model was also used to further control for unobserved effects. [ABSTRACT FROM AUTHOR]