This paper uses long panel survey data spanning over 20 years to examine the dynamics of microcredit programs in Bangladesh. With the phenomenal growth of microfinance institutions representing 30 million members with over $2 billion of annual disbursement over the past two decades, it is important to understand the dynamics of microcredit expansion and its induced impact on household welfare. ... See More + A dynamic panel model is used to address a number of issues, such as whether credit effects are declining over time, whether market saturation and village diseconomies are taking place, and whether multiple program membership, which is rising as a consequence of microcredit expansion, is harming or benefiting the borrowers. The paper's results confirm that microcredit programs have continued to benefit the poor by raising household welfare. The beneficial effects have also remained higher for female than male borrowers. There are diseconomies of scale caused by higher levels of village-level borrowing, especially for male members. Multiple program membership is also growing with competition from microfinance institutions, but this has rather helped raise assets and net worth more than it has contributed to indebtedness. See Less -
Policy Research Working Paper WPS6821 MAR 01, 2014
Khandker, Shahidur R.; Samad, Hussain A.
The Government of Bangladesh, with help from the World Bank and other donors, has provided aid to a local agency called Infrastructure Development Company Limited and its partner organizations to devise a credit scheme for marketing solar home system units and making these an affordable alternative to grid electricity for poor people in remote areas. ... See More + This paper uses household survey data to examine the financing scheme behind the dissemination of these solar home systems, in particular the role of the subsidy; the factors that determine the adoption of the systems in rural Bangladesh; and the welfare impacts of such adoption. The paper finds that while the subsidy has been declining over time, the demand for solar home systems has seen phenomenal growth, mostly because of technological developments that have made the systems increasingly more affordable. Households with better physical and educational endowments are more likely to adopt solar home systems than poor households. The price of the system matters in household decision making -- a 10 percent decline in the price of the system increases the overall demand for a solar panel by 2 percent. As for the benefits, adoption of a solar home system improves childrens evening study time, lowers kerosene consumption, and provides health benefits for household members, in particular for women. It is also found to increase women's decision-making ability in certain household affairs. Finally, it is found to increase household consumption expenditure, although at a small scale. See Less -
Policy Research Working Paper WPS6724 DEC 01, 2013
Samad, Hussain A.; Khandker, Shahidur R.; Asaduzzaman, M.; Yunus, Mohammad
This paper proposes an estimator for the endogenous switching regression models with fixed effects. The estimator allows for endogenous selection and for conditional heteroscedasticity in the outcome equation. ... See More + Applying the estimator to a dataset on the productivity in agriculture substantially changes the conclusions compared to earlier analysis of the same dataset. This paper proposes an estimator for the endogenous switching re-gression models with fixed effects. The estimator allows for endogenous selection and for conditional heteroscedasticity in the outcome equation. Applying the estimator to a dataset on the productivity in agriculture substantially changes the conclusions compared to earlier analysis of the same dataset. See Less -
Policy Research Working Paper WPS6658 OCT 01, 2013
Woutersen, Tiemen; Khandker, Shahidur R.
The brief summarizes the subsidy to promote girls secondary education: the female stipend program in Bangladesh. The intervention started in 1994. ... See More + Girl's grade 6-10 received the stipend once a year. Secondary school enrollment rates in the developing countries are usually lower for girls than boys, especially in rural areas. In the mid 1990's a female school stipend program was introduced to subsidize girls' secondary education in rural Bangladesh. Although all of rural Bangladesh was eventually covered by this program, it was not introduced at the same time in all areas and to all class cohorts. This variation in timing is the source of parameter identification in the analysis. Using two different datasets and school and village-level fixed effects, the author estimate the effects of this stipend program on school enrollments. The analysis based upon two cross-sectional household surveys covering a common set of villages finds that the female stipend program increased girls' secondary education substantially, but had no discernible effect on the schooling of boys. The analysis performed with an annual panel of school-level data also finds a significant effect of the stipend program on girl's enrollment and reduced the enrollment of boys in coeducational secondary schools. See Less -
Brief 81464 AUG 14, 2013
Khandker, Shahidur; Pitt, Mark; Fuwa, Nobuhiko
This brief summarizes the results of a gender impact evaluation study, entitled The poverty impact of rural roads : evidence from Bangladesh, conducted during the time period 1995 to 1996 in Bangladesh. ... See More + The study observed that a rationale for public investment in rural roads is that households can better exploit agricultural and nonagricultural opportunities to employ labor and capital more efficiently. Significant knowledge gaps persist, however, as to how opportunities provided by roads actually filter back into household outcomes as well as distributional consequences. Rural road investments are found to reduce poverty significantly through higher agricultural production, higher wages, lower input and transportation costs, and higher output prices. Road investments are pro-poor, meaning the gains are proportionately higher for the poor than for the non-poor. See Less -
Brief 81507 AUG 14, 2013
Khandker, Shahidur; Bakht, Zaid; Koolwal, Gayatri
This brief summarizes the welfare impacts of rural electrification: evidence from Vietnam for the period 2000-2004. Access to electricity is a key to any development initiative and there is a growing body of literature on the impact of rural electrification on development. ... See More + However, most studies have so far relied on cross-sectional surveys comparing households with and without electricity, which have well known causal attribution problems. This paper is one of the first studies to examine the welfare impacts of households' rural electrification based on panel surveys conducted in 2002 and 2005 for some 1,100 households in rural Vietnam. The findings indicate that grid electrification has been both extensive (connecting all surveyed communes by 2005) and intensive (connecting almost 80 percent of the surveyed households by 2005). Vietnam is fairly unique in that once electricity is locally available, both rich and poor households are equally likely to get the connection. The econometric estimations suggest that grid electrification has significant positive impacts on households' cash income, expenditure and educational outcomes. The benefits, however, reach a saturation point after prolonged exposure to electricity. Finally, this study recommends investigating long-term benefits of rural electrification - not just for households, but for rural economy as a whole. See Less -
Brief 81520 AUG 14, 2013
Khandker, Shahidur; Barnes, Douglas; Samad, Hussain; Minh, Nguyen Huu
Microcredit programs in Bangladesh have experienced spectacular growth in recent years, with a growing number of borrowers availing credit from multiple microcredit agencies. ... See More + There is a growing concern that if there are not sufficient returns to borrowing from microfinance institutions (MFIS), some borrowers might be taking loans that they will not be able to repay. A household may be considered over-indebted, for example, if its debt liability exceeds 40 percent of its income or assets. Using a long panel of household survey data from Bangladesh, the paper finds that some 26 percent of microcredit borrowers are over-indebted on this measure versus 22 percent of non-microcredit borrowers. Econometric analysis suggests that both MFI competition and multiple borrowing raise indebtedness. However, repeated borrowing, while it affects short-term liability adversely, does affect the long-term debt-asset ratio favorably. That is, repeated borrowing helps increase assets more than debt over time. Microcredit borrowers in Bangladesh are thus not necessarily over-indebted. But when borrowing is seen as protection against shocks such as floods even at the cost of being indebted, MFIs may offer micro-insurance schemes to safeguard borrowers against economic shocks. See Less -
Policy Research Working Paper WPS6574 AUG 01, 2013
Khandker, Shahidur R.; Faruqee, Rashid; Samad, Hussain A.
This paper addresses whether microcredit participants in Bangladesh are trapped in poverty and debt, as many critics have argued in recent years. ... See More + Analysis of data from a long panel survey over a 20-year period confirms this is not the case, although numerous participants have been with microcredit programs for many years. The results of the analysis suggest that participants derive a variety of benefits from microcredit: It helps them to earn income and consume more, accumulate assets, invest in children's schooling, and be lifted out of poverty. This is not to say that non-participants have failed to progress over the same period. Both participants and non-participants have gained as the economy has grown; however, the rates of poverty reduction have been higher for participants. Testing the net effect of microcredit programs requires applying an econometric method that controls for why some households participated and others did not, conditional on their initial characteristics. In addition, the method must control for time-varying, unobserved heterogeneity that affects everyone over time, albeit in possibly different ways. The paper's econometric estimates show significant welfare gains resulting from microcredit participation, especially for women. They also show that the accrued benefits of borrowing outweigh accumulated debt. As a result, households' net worth has increased, and both poverty and the debt-asset ratio have declined. See Less -
Policy Research Working Paper WPS6404 APR 01, 2013
Khandker, Shahidur R.; Samad, Hussain A.
Over the past 20 years, Bangladesh has witnessed strong competition among microfinance institutions. Using program-level panel data from 2005-2010, this paper studies the microfinance institutions' recent competitive roles in their pricing of products, targeting strategies and portfolio shifts, as well as their ability to recover loans. ... See More + The findings do not support the view that newer microfinance institutions are less risk-averse in their targeting, or that increased borrowing among households due to microfinance institution competition has lowered recovery rates. There is also a considerable urban-rural distinction; although newer microfinance institutions tend to attract riskier clients in urban areas, the opposite is true in rural areas. Loan recovery rates are also the highest among the newest microfinance institutions for women in rural areas, suggesting that microfinance institutions may offer distinct products in these areas to attract better-risk clients. The portfolio of newer microfinance institutions also has a greater share of lending for agriculture, and fewer savings products. See Less -
Policy Research Working Paper WPS6408 APR 01, 2013
Khandker, Shahidur R.; Badruddoza, Syed; Koolwal, Gayatri B.
In less-developed economies such as Bangladesh, the farm sector is the major source of employment and income, while the rural nonfarm sector provides as an additional source of income. ... See More + But the rural nonfarm sector increasingly plays an important role in fostering the development of the rural economy. A significant share of this sector is made up of microenterprise activities, which requires investment and access to adequate funds. This paper investigates the role access to finance plays in promoting the efficiency and growth of microenterprise activities. The findings suggest that households engaged in microenterprise activities, in addition to farm and other nonfarm activities, are much better off (in terms of income, expenditure and poverty) than those not engaged in such activities. Fewer than 10 percent of the enterprises have access to institutional finance (formal banks or microcredit), although the rate of return on microenterprise investments is more than sufficient (36 percent per year) to repay institutional loans. The research suggests that credit constraints may reduce the enterprises' profit margin by as much as 13.6 percent per year. As the returns to microenterprise investment are found to be high, microfinance institutions can play a larger role in supporting microenterprise growth in Bangladesh. See Less -
Policy Research Working Paper WPS6333 JAN 01, 2013
Khandker, Shahidur R.; Samad, Hussain A.; Ali, Rubaba
Seasonal hunger may result from seasonality of agriculture when households fail to smooth income and consumption. Using household survey data from the northwest region of Bangladesh, this paper examines alternative measures of seasonal hunger, and provides some evidence to support policies and programs needed to mitigate seasonal hunger. ... See More + The results suggest that a large majority of food-vulnerable households are the perpetual poor, as opposed to a small percentage of households who are subject to food deprivation only during the lean period. Findings suggest that government safety net programs and microcredit provide a cushion for the poor to stave off seasonal hunger. See Less -
Journal Article 79391 NOV 20, 2012
Khandker, Shahidur R.; Khalily, M. A. Baqui; Samad, Hussain A.
In 2009, buffeted by the great recession, Thai gross domestic product fell by 2.3 percent. Using monthly data from the socio-economic surveys of 2007-2010, this paper finds, after controlling for household variables, that real consumption per capita rose in 2009 relative to 2008 for most groups, including the poor, urban and rural households, men, women, and children. ... See More + The losers were residents of Bangkok, especially those aged 20-29, and those working in sales and services. During the recession year of 2009, school enrollment rates did not fall, and durable goods purchases actually rose; households probably reduced their savings, and also benefitted from the lower food prices that prevailed in 2009. A simulation exercise based on the slowdown in growth of gross domestic product would have missed these effects, as would models based solely on readily-available data series. This points to the importance of country-specific policy analysis, rooted in timely local evidence, including household survey data. See Less -
Policy Research Working Paper WPS6255 NOV 01, 2012
Khandker, Shahidur R.; Haughton, Jonathan
"The Impact of Microcredit on the Poor in Bangladesh: Revisiting the Evidence," by David Roodman and Jonathan Morduch (2011) is the most recent of a sequence of papers and postings that seeks to refute the findings of the Pitt and Khandker (1998) article "The Impact of Group-Based Credit on Poor Households in Bangladesh: Does the Gender of Participants Matter?" ... See More + that microcredit for women had significant, favorable effects on poverty reduction. In this paper the authors show that these latest Roodman and Morduch claims are based on seriously flawed econometric methods and theory and a lack of due diligence in formulating models and interpreting output from packaged software. On the basis of Roodman and Morduch's preferred two-stage least squares regression, an alternative calculation of the standard errors would lead one to conclude that the problem with Pitt and Khandker is that they underestimate the positive and statistically significant effect of women's credit on household consumption. As in their previous efforts, the methods of Roodman and Morduch are shown to bias the findings in the direction of rejecting the results of Pitt and Khandker. We also further examine two aspects of our instrumental variable approach that have been attacked by Roodman and Morduch. The first is the validity of the exclusion restrictions underlying the use of interactions between program choice and the set of exogenous variables (including the village fixed effects) as instruments. The second is the application of the "one-half acre" program eligibility rule. The authors show that identification does not require both of these, and present new results dropping each assumption in turn. The results originally reported in the Pitt and Khandker paper hold up extremely well in this new analysis. See Less -
Policy Research Working Paper WPS6273 NOV 01, 2012
Khandker, Shahidur R.; Pitt, Mark M.
Competing theories increasingly support the positive role of social capital in small loan default costs of group lending; at the same time, potential group collusion may increase loan delinquencies. ... See More + Findings from the available literature are mixed on the role of the various attributes of group lending. But past studies suffer from estimation bias due to the unobserved sorting behavior of group members and their other attributes. This paper attempts to resolve that estimation bias by utilizing longitudinal data from 297 Grameen Bank groups since their inceptions. A dynamic lagged dependent model with correction for time-varying heterogeneity of group and individual behavior is applied to estimate the effect of group liability in the Grameen Bank. The results suggest that group liability matters in both loan disbursement and repayment, with women less of a credit risk than men and women's groups more homogeneous than men's. Finally, the benefits of social capital outweigh the costs of group collusion, especially for women's groups, thereby reducing overall default rates. The risk-pooling behavior of diverse men's groups increases men's repayment behavior. Overall, group lending as practiced by Grameen Bank appears to increase repayment rates. See Less -
Policy Research Working Paper WPS6204 SEP 01, 2012
Khandker, Shahidur R.
Seasonal hunger induced by agricultural seasonality is often a characteristic feature of rural poverty. The evidence of seasonal distress in many agrarian societies can be found in the narratives of economic historians. ... See More + With agricultural diversification made possible through technological breakthroughs in many parts of the developing world, the severity of seasonal stress and adversities has been reduced considerably, if not altogether eliminated. In certain agricultural settings, however, the seasonality of poverty and hunger, along with the associated seasonal shortfalls in income and consumption, is still a policy quagmire. The problem gets more complicated when agricultural seasonality is locked into a cycle of endemic poverty, seasonal hunger, and risk of further impoverishment. Poverty and seasonality may also reinforce each other through various other forces that create and sustain both. The thrust of policy needs to be to break this interlocking cycle of poverty and seasonality. The book has nine chapters. Chapter two looks at the key conceptual issues and presents a global perspective on the challenge of addressing seasonal hunger. Chapter three brings Bangladesh's reality to the fore regarding seasonal poverty and food insecurity and the vulnerability of the northwest region. Chapter four analyzes the vulnerability of households to seasonal hunger, their coping strategies, and the extent to which income seasonality affects seasonal poverty and food deprivation. Chapter five reports some findings for both the Rangpur region and the country as a whole regarding the effects of policies and programs on poverty and food deprivation. The findings reported in the next three chapters are mainly related to the Rangpur region only. Chapter six examines the issue of seasonal migration in the context of mitigating seasonal deprivation. In chapter seven, the impact of the social safety-net programs is tested, whereas the effectiveness of microfinance is assessed in chapter eight. The concluding chapter, chapter nine, looks at the policy implications while also pointing to some emerging challenges. See Less -
Publication 70268 JUN 16, 2012
Khandker, Shahidur R.; Mahmud, Wahiduddin
This paper applies an econometric analysis to estimate the average and distribution benefits of rural electrification using rich household survey data from India. ... See More + The results support that rural electrification helps to reduce time allocated to fuelwood collection by household members and increases time allocated to studying by boys and girls. Rural electrification also increases the labor supply of men and women, schooling of boys and girls, and household per capita income and expenditure. Electrification also helps reduce poverty. But the larger share of benefits accrues to wealthier rural households, with poorer ones having more limited use of electricity. The analysis also shows that restricted supply of electricity, due to frequent power outages, negatively affects both household electricity connection and its consumption, thereby reducing the expected benefits of rural electrification. See Less -
Policy Research Working Paper WPS6095 JUN 01, 2012
Khandker, Shahidur R.; Samad, Hussain A.; Ali, Rubaba; Barnes, Douglas F.
The Thailand Village Fund is the second-largest microcredit scheme in the world. Nearly 80,000 elected local Village Fund committees administer loans that reach 30 percent of all households. ... See More + The value of Village Fund loans has remained steady since 2006, even without new infusions of government funds, and loans go disproportionately to the poor. Based mainly on a custom-built survey of more than 3,000 Village Funds conducted in 2010, this paper evaluates the performance of Village Funds, which it argues are best modeled as altruistic, and do not appear to be subject to elite capture. As expected, profit rates are difficult to model, but the regression analysis shows that loan recovery rates, total lending, credit ratings, and the proportion of loans going to the poor are all higher when a Village Fund borrows additional funds from a formal bank and on-lends to households, as was done by one in five Village Funds. An economic analysis suggests that Village Fund benefits exceed the costs. Most Village Funds are social rather than financial intermediaries; they have little incentive to take risks or to innovate, which explains why Village Fund lending has not kept pace with the growth of the Thai economy. See Less -
Policy Research Working Paper WPS5998 MAR 01, 2012
Khandker, Shahidur R.; Rukumnuaykit, Pungpond; Haughton, Jonathan; Boonperm, Jirawan
The crash of global financial markets in 2008 caused a ripple effect on economic demand and growth worldwide. Export-oriented economies were hit particularly hard, and many governments stepped in quickly with broad-ranging stimulus programs to lessen the effects on households of rising unemployment and falling income. ... See More + To better understand the role that stimulus policy might play in softening the effects of these shocks, this paper examines recent nationally-representative data from Thailand, an export-dependent economy where a large-scale stimulus program was introduced in 2009. Using monthly data spanning 2006-2010, the paper uses sub-province-level community panel data to examine the effects of major components of the stimulus on household consumption, income, borrowing, and debt repaid. To address simultaneity of changes in government spending and household outcomes, the analysis estimates a dynamic panel regression, instrumenting the stimulus effect with second-order lagged outcome variables, and estimating the model using the Generalized Method of Moments. The results suggest that household participation in these programs helped smooth consumption. This increase in monthly consumption was not supported from household receipts from the government stimulus, but more likely through a reallocation of consumption and savings that included greater debt repayment. The paper typically finds stronger effects in urban compared with rural areas. See Less -
Policy Research Working Paper WPS6016 MAR 01, 2012
Khandker, Shahidur R.; Haughton, Jonathan; Jitsuchon, Somchai; Koolwal, Gayatri B.
This paper examines the role of social safety-net programs in Bangladesh run by the government and nongovernmental organizations to mitigate seasonal deprivation in the country's highly vulnerable northwest region. ... See More + Specifically, the paper explores whether social safety nets are limited to averting seasonal deprivation or can also address seasonality of income and employment more generally. Using a recent survey from the greater Rangpur (northwest) region, the paper finds that social safety nets have a positive effect on mitigating both seasonal and non-seasonal food deprivation. The results are robust, owing to the recent expanded coverage of social safety-net programs run by nongovernmental organizations active in the region. But given the annual recurrence of monga (seasonal food insecurity) in the northwest region owing to agricultural seasonality and an overwhelming dependence on agriculture for livelihoods, social safety nets are not a reliable tool for monga eradication. Programs are also needed to promote the income and productivity of the poor through diversification of income and employment. See Less -
Policy Research Working Paper WPS5865 OCT 01, 2011
Khandker, Shahidur R.; Samad, Hussain A.; Khaleque, M. Abdul
Infrastructure investments are typically long-term. As a result, observed benefits to households and communities may vary considerably over time as short-term outcomes generate or are subsumed by longer-term impacts. ... See More + This paper uses a new round of household survey as part of a local government engineering department's rural road improvement project financed by the World Bank in Bangladesh to compare the short-term and long-term effects of rural roads over eight years. A dynamic panel model, estimated by generalized method of moments, is applied to estimate the varying returns to public road investment accounting for time-varying unobserved characteristics. The results show that the substantial effects of roads on such outcomes as per capita expenditure, schooling, and prices as observed in the short run attenuate over time. But the declining returns are not common for all outcomes of interest or all households. Employment in the rural non-farm sector, for example, has risen more rapidly over time, indicating increasing returns to investment. The very poor have failed to sustain the short-term benefits of roads, and yet the gains accrued to the middle-income groups are strengthened over time because of changing sectors of employment, away from agriculture toward non-farm activity. The results also show that initial state dependence -- or initial community and household characteristics as well as road quality -- matters in estimating the trajectory of road impacts. See Less -
Policy Research Working Paper WPS5867 OCT 01, 2011
Khandker, Shahidur R.; Koolwal, Gayatri B.
|Title||Document Date||Report No.||Document Type||Also available in|
|Dynamic effects of microcredit in Bangladesh (English) See More +||MAR 01, 2014||WPS6821||Policy Research Working Paper|
|The benefits of solar home systems :an analysis from Bangladesh (English) See More +||DEC 01, 2013||WPS6724||Policy Research Working Paper|
|Estimating the effects of credit constraints on productivity of Peruvian agriculture (English) See More +||OCT 01, 2013||WPS6658||Policy Research Working Paper|
|Subsidy to promote girls secondary education : the female stipend program in Bangladesh (English) See More +||AUG 14, 2013||81464||Brief|
|The poverty impact of rural roads : evidence from Bangladesh (English) See More +||AUG 14, 2013||81507||Brief|
|Welfare impacts of rural electrification : evidence from Vietnam (English) See More +||AUG 14, 2013||81520||Brief|
|Are microcredit borrowers in Bangladesh over-indebted ? (English) See More +||AUG 01, 2013||WPS6574||Policy Research Working Paper|
|Are microcredit participants in Bangladesh trapped in poverty and debt ? (English) See More +||APR 01, 2013||WPS6404||Policy Research Working Paper|
|How does competition affect the performance of MFIs ? evidence from Bangladesh (English) See More +||APR 01, 2013||WPS6408||Policy Research Working Paper|
|Does access to finance matter in microenterprise growth ? evidence from Bangladesh (English) See More +||JAN 01, 2013||WPS6333||Policy Research Working Paper|
|Seasonal hunger and its mitigation in North-West Bangladesh (English) See More +||NOV 20, 2012||79391||Journal Article|
|The surprising effects of the great recession : losers and winners in Thailand in 2008-2009 (English) See More +||NOV 01, 2012||WPS6255||Policy Research Working Paper|
|Replicating replication : due diligence in Roodman and Morduch's replication of Pitt and Khandker (1998) (English) See More +||NOV 01, 2012||WPS6273||Policy Research Working Paper|
|Grameen bank lending : does group liability matter ? (English) See More +||SEP 01, 2012||WPS6204||Policy Research Working Paper|
|Seasonal hunger and public policies : evidence from Northwest Bangladesh (English) See More +||JUN 16, 2012||70268||Publication|
|Who benefits most from rural electrification ? evidence in India (English) See More +||JUN 01, 2012||WPS6095||Policy Research Working Paper|
|Appraising the Thailand village fund (English) See More +||MAR 01, 2012||WPS5998||Policy Research Working Paper|
|Household coping and response to government stimulus in an economic crisis : evidence from Thailand (English) See More +||MAR 01, 2012||WPS6016||Policy Research Working Paper|
|Can social safety nets alleviate seasonal deprivation ? evidence from northwest Bangladesh (English) See More +||OCT 01, 2011||WPS5865||Policy Research Working Paper|
|Estimating the long-term impacts of rural roads : a dynamic panel approach (English) See More +||OCT 01, 2011||WPS5867||Policy Research Working Paper|