Medium‐ and Long‐Term Participation in Microcredit: An Evaluation Using a New Panel Dataset from Bangladesh

Abstract

The objective of this paper is to estimate the impacts of medium-and long-term participation in microcredit programs. It utilises a new and large panel dataset collected from treatment and control households from 1997 to 2005. The data enables us to identify continuing participants in the program as well as newcomers and leavers. We employ di¤erent estimation strategies including triple-di¤erence and propensity score matching methods to control for selection bias. The impact estimates indicate that the bene…ts from microcredit vary more than proportionately with the duration of participation in a program. Larger bene…ts are realized from longer-term participation, and that the bene…ts continue to accrue beyond departure from the program. The …ndings indicate the need to observe longer periods of participation to provide a reliable basis for assessing the e¤ectiveness of microcredit lending.JEL Classi…cation: C21, C33, H43, G21, I31, O12, O16

Factor Analysis of Drop out Clients in Microfinance Institutions (MFIs) in Satkhira District in Bangladesh

“…But in the past two decades around the world, it is found that mostly the least developing countries have seen the development of new microfinance technologies (Islam, 2011;Berhane & Gardebroek, 2011) that have successfully lowered the risk and the cost of lending to poor entrepreneurs and households. Microcredit obviously reduces the financial vulnerability among the poor by building assets, giving proper education, providing emergency assistance during natural disasters, generating income and contributing to female empowerment (Khandker, 2005;Shahriar, 2012).…”

“…Competition among increasing numbers of MFIs has been diffused extensively in product development, service offered, customer relationship and management efficiency (Khavul, 2010). The level of proficiency in managing the microfinance institutions can be gauged by the fact that while most MFIs recognize the importance of client retention, however only a few have designed business strategies to maximize customer loyalty (Churchill, 2000;Islam, 2011). Retaining clients is very important for the MFI's very survival because it not only can reduce the MF's administrative costs, but it can also lower default risks and increase the average loan balance as well as the institutional financial productivity (Pagura et al, 2001;Mustafa, 1996).…”

“…Satisfied clients attract new clients by word-of-mouth communication which has a very high inducement factor to maximize membership participation into the microfinance organizations (Kotir & Obeng-Odoom, 2009;Shahriar, 2012). Microfinance practitioners have realized the importance of customer satisfaction and retention and they have even come to the conclusion that it costs them more to acquire new customers than to satisfy and retain the existing customers (Westover, 2008;Islam, 2011). The inherent factors on rejection by customers to microfinance institutions have been identified by previous studies on a wide range of reasons most of which are mainly due to the organizational failures, idiosyncratic shocks and/or systemic shocks, client maturity and institutional market competition (Pagura et al, 2001;Wright & Al, 2001;Hulme et al, 1999;Stark & Nyirumuringa, 2002;Musona & Coetzee, 2001).…”

“…Staff resignation is also a loss to the organization as certain amount of costs has been expended on the training of staff (Islam, 2011). This malevolent endogenous factor affects the MFI's operational efficiency and stunts its growth, decreases efficacy, increases costs and also damages its image (Silva, 2012) as well as delaying its sustainability thus contributing to the overall lowering of morale within the organization itself.…”

“…This malevolent endogenous factor affects the MFI's operational efficiency and stunts its growth, decreases efficacy, increases costs and also damages its image (Silva, 2012) as well as delaying its sustainability thus contributing to the overall lowering of morale within the organization itself. Not only does the operation of the MFI suffer from the effect of customer rejection and staff resignation (Islam, 2011), but its progress is also unnecessarily stunted and its long-term plans immitigably disrupted (Shahriar, 2012). This Hybrid Organization (HO) primarily pursues a social mission mixed with commercial activities and heavily relies on commercial revenues to sustain operations and market competitiveness and in order to comfortably survive; it must strike a balance between the social responsibility and the economic logic of self-survival (Garmaise & Natividad, 2010).…”