Microcredit in rural Bangladesh

Asia

Bangladesh

Labour Market

Microcredit

A Islam, C Choe

2016

Islam, A. and C. Choe. 2013. Child Labor and Schooling Responses to Access to Microcredit in Rural Bangladesh. Economic Inquiry, 51 (1), 46-61.
View publication

-

2012

The paper examines the impact of microcredit provided by different microcredit organizations including ASA and Proshikha, respectively the third and fourth largest microcredit organizations in Bangladesh.

N.A.

N.A.

The covered microcredit organizations follow the Grameen Bank-style lending procedure and typically give access to microcredit to households owning less than a half-acre of land.

Provision of microcredit

• In work: Children are considered to be working if they perform any economic activity as their primary or secondary activity
• In school: A child is considered to be in school if he/she is currently enrolled in school and attended school in the last month of the survey period.
• Subcategories of work: Employed in the household enterprise, in agricultural activity, in day labor, and in service related activities.

Regression discontinuity

Data: The study relies on a survey covering 91 villages, 80 with a microcredit organization and 11 without, spread evenly across Bangladesh. A census of all households in these villages was conducted before the survey was administered in early 1998. From the village census lists of households, 34 households were drawn from each program and non-program village.
Estimation strategy: To estimate the impact of the program, two sources of endogeneity have to be dealt with. First, program placement may not be random. To deal with this, the authors control for village fixed effects.
Second, households may self-select into the program. To deal with this, the authors exploit the eligibility criterion described above, by generating an instrument that is the interaction of program availability, household eligibility, and the number of years microfinance has been available in a village. Because wealth or land could have independent effects on child labor and schooling the authors control for land ownership in their regressions.

The authors find that “participation in microcredit programs adversely affects children’s schooling and exacerbates the problem of child labor.” Girls are particularly likely to be adversely affected, while the effect for boys is ambiguous. “Younger children, who are more exposed to the program, are more likely to be put to work and less likely to attend school as their parents take out microcredit.” “The adverse effect differs depending on the gender of participating parents.” “For children from participating households, the odds of being in self-employment activities instead of being in school are more than doubled than nonparticipating households. This suggests that increased child labor is in large part because of household enterprises set up with microcredit.”

Child Labour

Households

National

Household participation in a microcredit program increased child labour in Bangladesh. The adverse effects are more pronounced for girls than boys. Younger children are more adversely affected than their older siblings and the children of poorer and less educated households are affected most adversely.

Household participation in a microcredit program reduced school enrollment in Bangladesh.

-