Effect of microcredit loans on household resource allocation in Bangladesh

Background: Microcredit loans, providing collateral free loans to the poor worldwide, are often hailed as a tool to improve health. Although the relationship between wealth and health is well established, the role of microcredit in this framework has not been well studied.

Purpose: To compare household consumption patterns of new microcredit clients and a control population of similar households eligible for and with access to microcredit. To determine which measures of welfare are affected by loan receipt, and the direction of the effect.

Methods: Household consumption survey administered to 1999 randomly selected households in 128 study villages in rural Bangladesh. Total and proportional household consumption determined after validating costs and annualizing data with limited recall periods. Descriptive and bivariate analyses conducted on real, log adjusted and proportionate consumption values.

Results: Households with and without microcredit are similar on 18 of 20 baseline variables, including household size, women's empowerment score, education and household dependency ratio. Proportionate consumption is significantly different for meals eaten outside of the home (p=0.01), and for health care related expenses (p=0.015).

While the proportion of total consumption devoted to food is similar (66.5%) in both groups, participation in microcredit significantly increases total real value of food consumption by 3.7% (p=0.004) and of total consumption by 2.9% (p=0.03).

Conclusion: Preliminary results demonstrate a relationship between microcredit participation and total household consumption, a proxy for household income. This relationship extends to food, a key aspect of household welfare, and portent of future health status.