Rural Finance Schemes Miss the Target: An Empirical Analysis of Gender and Social Inequality Effects

Abstract

Using survey data from over 1,700 households in rural Bangladesh, this study explores whether access to credit has gender-specific impacts and whether this credit is associated with income distribution effects. To estimate these effects, a panel data model is used to explore the empirical association between access to credit, borrower gender and village income. Contrary to the common claim that microfinance benefits women the most, the results in this study suggest that women benefit from microfinance, but only marginally. The observed positive correlation between access to credit and income inequality may be explained by the fact that wealthier male borrowers benefit more from receiving micro loans. This study has important implications for credit program design. If microloans are targeted towards poor rural women in an effort to empower them and bring them out of poverty, we must design credit programs in ways that achieve these objectives.