Three Essays on the Impact Assessment of Microcredit Program Participation in Bangladesh Using ...

176 Pages·2016·3.67 MB·English

by  Ghulam Hussain

Three Essays on the Impact Assessment
of Microcredit Program Participation in
Bangladesh Using Household
Longitudinal Survey

A Dissertation
Presented for the degree of Doctor of Philosophy (Economics) to
the Faculty of Social Sciences at the University of Dhaka, Dhaka,
Bangladesh

By
AKM Ghulam Hussain
Department of Economics
June 2016

Supervisors:

Professor Dr. SM Ashiquzzaman
(Department of Economics, University of Dhaka, Bangladesh)
&
Professor Dr. Fahad Khalil
(Department of Economics, University of Washington, Seattle, USA)

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CERTIFICATE

This is to certify that the thesis ―Three Essays on the Impact Assessment of Microcredit Program
Participation in Bangladesh Using Household Longitudinal Survey‖ submitted for the award of
the Degree of Doctor of Philosophy in Economics, to the University of Dhaka is a record of
bonafide research carried out by AKM Ghulam Hussain, under our supervision.

No part of the thesis has been submitted for any degree, diploma, title or recognition before.

He is permitted to submit the thesis.

( Dr. SM Ashiquzzaman, (Dr. Fahad Khalil,
Professor, Professor & Chair,
Department of Economics, Department of Economics,
University of Dhaka, University of Washington,
Dhaka, Bangladesh) Seattle, USA)

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DECLARATION

By submitting this dissertation, I declare that the entirety of the work contained therein is my
own, original work, that I am the sole author thereof (save to the extent explicitly otherwise
stated), that reproduction and publication thereof by the University of Dhaka will not infringe
any third party rights and that I have not previously in its entirety or in part submitted it for
obtaining any qualification.

June 2016

_____________________________________
(AKM Ghulam Hussain)
Copyright © 2016Dhaka University
All rights reserved

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BIOGRAPHICAL SKETCH

AKM Ghulam Hussain was born to Mrs. Suryaban Hashem and Mr. Abul Hashem Miah on
September 6, 1966, in Bangladesh. He grew up in a village in Barguna District near the Bay of
Bengal. He obtained his Bachelor of Arts degree from Visva Bharati University in West Bengal,
India in 1991. He obtained his Master of Social Science degree in Economics from the
University of Dhaka in 1995. He obtained his second Master Degree in Development Economics
from Australian National University in 2000. He has been working as a faculty member of the
Department of Economics at the University of Dhaka since 1997.

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ACKNOWLEDGEMENTS

The impact evaluation of microcredit studies raised a great debate during the last decade. On the
one hand, the pioneer organization of microcredit and its founder were awarded Nobel prize in
2006 for its contribution to development and on the other hand series of studies began to appear
with results of impact assessment not with conformity to that claim. I began my research during
the time the debate was at its peak. My supervisors were very kind to encourage me to take the
challenge when dealing with such issues was frightening as most of the stalwarts of microcredit
research started casting doubt on the matter. My heartiest thanks to both of my supervisors who
trusted my ability to pick this issue and face the challenge. Professor Ashiquzzaman was all
along the source of my inspiration even from the very day he first came to our department. He
was inspiring me to work on microcredit since 1995 when after the completion of my masters
examination I joined Save the Children (USA) to study the contribution of Microcredit
participation by women in terms of women empowerment. I must also thank my wife Dr. Nigar
Nargis who first introduced me to the PKSF data set and inspired me to work with it. We were
first working on this data set out of academic curiosity. And slowly I got addicted. Professor
Khalil first asked me to take this interest to a meaningful end like the dissertation for my PhD
degree. Professor Fahad Khalil gave me hours of his precious time despite his tight schedule
during his visit to Bangladesh. He was so nice and kind to keep always some time for me
whenever any scope came to him to meet me. Even in Canada where he came to deliver lecture
in two occasions, he took the trouble to come to Canada two days earlier to meet me in Montreal
once and once in Toronto. Even on an occasion of visiting Toronto University, Professor Khalil
kindly came down to Waterloo to discuss the issue of microcredit at the very early phase of my
thesis idea. Professor Ashiquzzaman spent hours discussing the role of microcredit and was
patient to hear my wild ideas immediately before I formally registered for PhD degree at the
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University of Dhaka. This thesis would not have been finished unless his supervision. I must
thank Professor MM Akash, Prof. Shamsunnaher Ahmed and Dr. MN Alam who were always
after me to finish it.

I must admit that all of my colleagues including my senior colleagues Professor Ashraf Uddin
Chowdhury, Professor Abu Ahmed, Professor Momtazuddin Ahmed, Professor Barkat-e-Khuda,
Professor Abul Barakat, Late Professor Nasreen Khundker, Professor MA Taslim, Professor
Nazma Begum, Professor Shamsun Naher Ahmed, Professor Shafiquzzaman and Professor Farid
Uddin Ahmed always encouraged me to pursue my PhD work. They were always considerate to
share my course load to allow me more free time. My special thanks to our present and previous
chairpersons of the Department Economics and present Dean of Social Sciences Professor Farid
Uddin Ahmed for their continuous support and issuance of leave at needs even during the tight
class schedule.

I owe my heartiest thanks to participants at the conference of Canadian Economic Association in
2008 at the University of British Columbia and in2011 at the University of Ottawa, and the
seminar participants in 2011 and 2012 at the Center for Advanced Studies of Social Sciences at
the University of Dhaka. I greatly benefitted from their feedbacks and comments. I am also
indebted to the discussants Professor S Anderson of University of British Columbia, Professor
Anwarul Huq of Concordia University, Professor Anam of York University, Dr. Subrota from
UBC, Dr. Munshi Solaiman from UCL, UK and Dr.Atonu Robbani from DU at those
conferences and seminars. Their valuable suggestions helped improving and polishing my
results. I also owe my thanks to Dr. Rachel Heath, University of Washington, Seattle who gave
her valuable comments on the methodology of my first paper. She took patience to go through all
the paper line by line and gave her valued comments which helped me built my confidence to
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move forward with the soundness of the techniques. I must thank PKSF for issuing permission to
use its data set.
I am responsible for all errors and omissions in my dissertation.

June, 2016 (AKM Ghulam Hussain)

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THREE ESSAYS ON THE IMPACT ASSESSMENT OF MICROCREDIT
PROGRAM PARTICIPATION IN BANGLADESH USING HOUSEHOLD
LONGITUDINAL SURVEY

AKM Ghulam Hussain

University of Dhaka

ABSTRACT

ESSAY I
THE EMPLOYMENT IMPACT OF MICROCREDIT PROGRAM PARTICIPATION IN
BANGLADESH: EVIDENCE FROM A LONGITUDINNAL HOUSEHOLD SURVEY

The employment impact of microcredit, in the existing literature, has so far been assessed using
cross sectional data stratified by target and non-target villages and households. However, the
relevance of this experimental set up is weakened due to the rapid expansion of the microcredit
program far and wide and growing competition among microfinance institutions to attract
members since the mid-nineties. Now, there is hardly any village in Bangladesh where there is
no microcredit program in operation. The implication of this lack of stringency in the division
between control and treatment villages for program evaluation is that it has turned cross-
sectional comparison of outcomes between participant and non-participant groups across
program and control villages less convincing. This paper responds to this loss of quasi-
experimental design in microcredit program evaluation by using household level longitudinal
data in Bangladesh collected by the Pally Karma Sahayak Foundation (PKSF) in 1998 and 2004
for the Monitoring and Evaluation Study of Microfinance Institutions.

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Using panel data of over 2000 households, this paper examines the employment impact of
microcredit program in Bangladesh on self-employment activity during 1998-2004. The pooled
ordinary least squares regression of household annual self-employment work hours shows that
participants worked significantly longer hours than non-participants. The household fixed effects
model produces lower estimate of the contribution of microcredit to self-employment work hours
suggesting that self-employment growth is also attributable to the time-invariant household
characteristics such as, initial conditions and entrepreneurial skills. According to this estimate,
microcredit program participation accounts for 245 hours of self-employment on average per
household in a year which is equivalent to around 7 weeks of employment for a person annually.
At the average hourly income around 14.40 Taka in the study area, the income generated from
245 hours of work is 3,528 Taka. This is equivalent to about 5% of the average annual household
income of the households surveyed in this study.It is also observed that the participant
households do not have as much non-labor income earning opportunities as the non-participants
and the former group is more dependent on non-farm sector for generating their income than the
latter group.

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ESSAY II
THE IMPACT OF MICROCREDIT PROGRAM PARTICIPATION ON INCOME AND
CONSUMPTION IN BANGLADESH: EVIDENCE FROM A LONGITUDINNAL
HOUSEHOLD SURVEY

Using data of about 2750 households in Bangladesh from a longitudinal survey for the period of
1998-2004, this paper undertakes a welfare economic analysis of the impact of microcredit
program on household income and consumption in Bangladesh. First, the welfare dominance
approach shows that aggregate welfare of the rural households improved over the period of
1998-2004. Household income and consumption increased across all income and consumption
percentiles for both regular participant and non-participant groups. Regular participants
experienced the lowest welfare gain and non-participants gained most when we compare them in
terms of the growth in average household income. The scenario reverses when we compare
welfare gain in terms of the growth of average household labor income in isolation from income
of non-labor sources. The microcredit is meant to increase employment through generating self-
employment. Therefore, it is more rational to see the gains of participation in terms of labor
income and not in terms of total income which has a major component of non-labor income. In
terms of consumption, the participating households and especially the eligible participants gained
the most.

Second, the regression analysis using ordinary least squares (OLS) and fixed effects (FE)
estimation shows that the participating households gained in terms of labor income. The FE
estimate of the coefficient of participation is, however, smaller than the OLS estimate which
suggests that there is unobserved heterogeneity in household characteristics that influence both
MFI participation and household labor income; and the effect of program participation on
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