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Impact of Rural Credit on Household Welfare: Evidence from a Long-Term Panel in Bangladesh

Md. Alamgir Hossain (), Mohammad Malek () and Zhengfei Yu

Tsukuba Economics Working Papers from Faculty of Humanities and Social Sciences, University of Tsukuba

Abstract: Access to rural credit has long been considered a potential solution to ease liquidity constraints and improve household welfare in Bangladesh.Earlier studies on rural credit mostly focused on the impact of microfinance; however, the available results could not provide conclusive findings and failed to suggest how different sources of credit, namely, banks, microfinance institutes, and informal channels affect household welfare in the long term. This study aims to evaluate the long-term impact of different rural credit sources on household welfare indicators. To generate evidence, we use five-round (1988, 2000, 2004, 2008, and 2014) panel datasets of a nationally representative sample survey. We use a household-level panel fixed-effect model to estimate the impact on different outcome indicators. The results suggest that access to rural credit from any source has no significant impact on the increase in the household economic welfare in the long term. However, in the short term, access to bank credit increases the access to rented-in land, improves rice yield, and enhances girls' school enrollment among rural households. The impact estimates are found to be consistent across different model specifications, implying the robust internal validity of the study results. Key words: Long-term impact, panel data, rural credit sources, rural households, economic welfare, Bangladesh.

Date: 2021-03
New Economics Papers: this item is included in nep-ban, nep-dev, nep-fdg and nep-mfd
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