Bangladesh’s Achievement in Poverty Reduction: The Role of Microfinance Revisited

Abstract

Poverty in Bangladesh has been decreasing steadily over the last 25 years. For example, during the period 1991–2010, moderate poverty dropped by 25 percentage points (from 57% to 32%), and extreme poverty by 23 percentage points (from 41% to 18%) (World Bank 2013). The corresponding drops in rural areas, where more than 70% of the country’s 150 million people live, show similar trends—24 percentage points and 23 percentage points, respectively. While part of this decline in poverty is due to an economic growth rate of more than 6% over the last decade (World Bank 2013), there are other factors that have contributed to poverty reduction. One such factor is microcredit growth—the topic of this chapter. There has been a remarkable growth in the coverage of microfinance institutions (MFIs) and their members over the last two decades in Bangladesh, and it can be hypothesized that the scale of microfinance operations has had some effect on the economy. This chapter attempts to answer the question of whether microfinance has contributed at all to poverty reduction, and if so, how much of the recent poverty reduction in Bangladesh can be attributed to the increasing use of microfinance.