Micro-loans have increased in popularity over the last decade, causing households to become increasingly reliant on them for investment and consumption smoothing. The study attempts to investigate the impact of micro-loans and increased access to credit as a coping strategy in the context of COVID-19 and the ensuing economic fallout in Bangladesh.
Researchers: Dr Narayan C. Das; Khandker Wahedur Rahman; Sakib Mahmood; Md. Raied Arman; Semab Rahman
Partners: BRAC
Timeline: June – December 2021
Status: Completed
Method: Quantitative
Contact: Dr Narayan C. Das; narayan.das@bracu.ac.bd
Context
Microfinance has played a vital role in reducing poverty and diversifying the economic activities of people in Bangladesh. While there is ample evidence of its efficacy in poverty reduction, little is known about the impact of microcredit against the backdrop of the pandemic and its unique ramifications for the economy. Given the dependence of the economy—especially among rural poor households—on microcredit, it is important that we understand the impact and efficacy of this tool in combating the unique social and economic shock of COVID-19.
Objectives
The study aims to utilize the natural variation among borrowers that occurred due to the lockdown in March 2020 to assess the impact of micro-finance loans on borrowers and borrowing households. The study will attempt to do this by assessing the impact of micro-finance on poverty, food security, and unemployment and on mechanisms such as substitution of loans from money lenders. Moreover, the study hopes to understand whether micro-finance aids the survival of small and medium enterprises and to look into the impact of microcredit on the investment decisions and survival of agricultural tenants. Finally, the study will evaluate the impact of micro-finance on secondary factors such as child labour and domestic violence.
Methodology
Due to the countrywide lockdown in 2020, BRAC, the world’s largest microfinance institution, had to stop its loan disbursement activities for a period of one and a half months (26 March–10 May 2020). Borrowers with loan renewal dates before 26 March were eligible for a loan renewal while those with renewal dates between 26 March and 10 May were not. Since loan disbursements are not related to household characteristics, the situation is similar to a natural random assignment. Therefore, the study will survey the treatment (those who were eligible for loan renewal) and control groups (those who were not) to gain insight using a Regression Discontinuity Design.
We will conduct phone-based surveys on samples from two different groups of people: general microfinance borrowers and agricultural tenants who take microfinance loans. In total, 8,000 individuals will be surveyed using a survey questionnaire, which will be the main quantitative tool.
Findings and Recommendations
Study ongoing.
