This paper examines the extent to which micro-credit reduces poverty and vulnerability through a case study of BRAC, one of the largest providers of micro-credit to the poor in Bangladesh. Household consumption data is used to show that the largest effect on poverty arises when a moderate-poor BRAC loanee borrows more that 10,000 taka (US$200) in cumulative loans. Different control groups and estimation techniques are used to illustrate this point. The author discusses several ways by which membership in micro-credit programs reduces vulnerability -by smoothing consumption, building assets, providing emergency assistance during natural disasters, and contributing to female empowerment. The reduction in female vulnerability in a patriarchal society is illustrated using a number of female empowerment indicators. The results suggest that micro-credit's greatest impact is on the set of indicators relating to female control over assets and knowledge of social issues. The author also argues that micro-credit's impact on poverty and vulnerability can be strengthened if credit is provided jointly with other financial (savings and insurance) and nonfinancial (legal education, food relief) interventions.
Bibliography: Policy Research Working Paper 2145, Office of the Senior Vice President and Chief Economist, Development Economics, World Bank
