Asset dynamics and the long-term impact of microfinance in rural Bangladesh

Deep global poverty persists despite decades of coordinated development efforts seeking to eradicate it. Recent literature has taken a new approach to defining the underlying mechanisms of lasting poverty in terms of asset ownership and the ways in which households accumulate productive assets over time. Using a panel data set from Bangladesh, this study identifies the productive assets of rural households in three different study sites over two rounds. Using panel fixed effects methods and a non-parametric lowess estimator, the expected household asset accumulation trajectory is predicted to determine if households are stuck in a poverty trap. The results indicate that, on average, households are escaping asset poverty and increasing consumption expenditures in part due to a broader asset base over time. There is no evidence for low-level poverty traps. The observed growth may be dependent on development initiatives seeking to intervene to raise household income. This study then turns its attention to the microfinance phenomenon unfolding across rural Bangladesh. Growth in household per capita expenditures over two periods is explained as a function of the duration of access to microfinance services. In two of the three study sites, access to microfinance services appears to have no effect on growth. In the third site, there is evidence that microfinance institutions preferentially opened branches in villages susceptible to negative covariate shocks. The households in those villages likely increased their consumption over time as a result of their access to microfinance services