Around 50 per cent of microcredit goes to the well-off although the microfinance concept was developed to assist marginal people to address poverty, according to a study.
'A lot of microcredit is wasted on the well-off; there is also the opposite problem that many of the poorer households do not benefit from it,' said Professor SR Osmani, teacher of Development Economics at the University of Ulster, UK and a visiting fellow of Institute of Microfinance in Dhaka.
Referring to the findings of a recent study, he said there was probably a scope for enhancing the contribution of microcredit by bringing about some design changes.
Professor Osmani conducted the first phase study of the long-term panel surveys titled 'Asset Accumulation and Poverty Dynamics in Rural Bangladesh: The Role of Microcredit' covering 6,500 rural households
in 63 districts. It examined various factors
including the role of microfinance that have a casual influence on this dynamics.
The study reveals that a good deal of microcredit appears to be wasted while only about half of the borrowers belong to the categories of poor and marginal poor, and the other half are well-off; and the microcredit does very little good to the well-off.
It shows that almost half of marginal and poor households are left out. Many of them will perhaps never take microcredit and probably should not earlier, because like any other intervention microcredit is not suitable for everybody.
The study found that access to microcredit enhances the probability of moving up the asset ladders and reduce the probability of falling. While this is true for both poor and non-poor households, the effect is much stronger for the poor.
For the poor borrowers, the microcredit reduces the probability of falling through the asset ladder by seven per cent and increase the probability
of moving up by 4.5
per cent.
The study showed that the contribution of microcredit to asset accumulation has translated itself into contribution to poverty reduction. Access to microcredit reduces probability of being poor by 2.5 per cent.
The households perceive interest rate to be serious impediment to borrowing. This is evident from the fact that among those who stopped borrowing, only two per cent cited high interest rate as the main reason. For nearly 80 per cent borrowers the self-estimated breakeven interest rate is above 20 per cent, which is comfortable above the rate charged by the microfinance institutions, it says.
About overall contribution of microfinance to poverty reduction, the study interestingly found that microcredit contributes little — 4 per cent — to reduce poverty while foreign remittance contributes to reduce poverty by 5 per cent, employment opportunity by 16.2 per cent and education of households head by 20.3 per cent.
Highlighting his study findings, Professor Osmani said: 'Our estimate of microcredit's contribution towards poverty reduction in rural Bangladesh is about 4 per cent, but its benefits for the poor
could be judged by the impact on poverty rate alone, because it captures only those who ceased to be poor.
'Poverty reduction is much more comprehensive contribution. One must count also the improved consumption levels of those who remain poor,' he added.
Professor Osmani stressed enhancing the effectiveness of microfinance by targeting it much more sharply on the poor and especially the extreme poor, with the well-off being served by a different kind of financial services.
Source : New Age