Studies

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: Narayan C. Das, PhD; Khandker Wahedur Rahman, PhD; Sakib Mahmood, PhD; Md. Raied Arman; and Semab Rahman 

Partners: BRAC

Timeline: June – December 2021

Status: Completed

Method: Quantitative

Contact: Narayan C. Das, PhD; 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 in loan access created by the COVID-19 lockdown in March 2020 to assess the impact of microfinance loans on business income, food expenditure, and household food security.

Methodology

Due to the nationwide COVID-19 lockdown in 2020, BRAC, the world’s largest microfinance institution, suspended its loan disbursement activities for one and a half months (26 March–10 May 2020). Borrowers whose loan renewal dates fell before 26 March were able to renew their loans, while those with renewal dates between 26 March and 10 May were not. Leveraging this variation in loan access, the study employs a difference-in-differences (DiD) approach to compare borrowers who borrowed only in the pre-lockdown period against borrowers who successfully borrowed in both the pre- and post-lockdown periods