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Microfinance in Bangladesh

Microfinance institutions for decades have positively impacted financial inclusion, savings, and lending, especially in remote areas of Bangladesh.

Several studies confirm that micro-credit programs help households partially insure against shocks so that they effectively play an important "safety net" role. One carefully designed study finds that microcredit borrowers are about 50% less prone to consumption fluctuation than their counterpart non-member poor households in Bangladesh.

It is clear that microfinance can protect households from shocks, contribute to changing societal norms about the role of women in society and lead to some households moving out of poverty. Overall, it has played its part in the impressive progress Bangladesh has made in poverty reduction over the past two decades. Clearly, not everyone utilizes loans productively, and there is a risk of falling into over-indebtedness. So, the role of microfinance should be strengthened through further innovations that take into account these pitfalls.

The available evidence indicates that in many cases microcredit has facilitated the creation and the growth of businesses. It has often generated self-employment, but it has not necessarily increased incomes after interest payments.

Microcredit has been directed at women because it was believed that, compared to men, they are better clients of microfinance institutions and that women's access to microcredit has more desirable development outcomes since women tend to spend more money on basic needs compared to men.

Finally, microfinance is not a panacea and will clearly not eliminate all poverty in any country. Thus, the potential of microfinance can be best exploited by recognizing the lessons from careful impact evaluation studies, strengthening programs based on this research and field experience, and by incorporating micro-finance programs into Bangladesh's overall poverty-reduction strategy.

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