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Microfinance and Vulnerability to Seasonal Famine in a Rural Economy: Evidence from Monga in Bangladesh

Claudia Berg and M. Shahe Emran

Abstract

This paper uses a unique data set on 143,000 poor households from Northern Bangladesh to analyze the effects of microfinance membership on a household’s ability to cope with seasonal famine known as Monga. We develop an identification and estimation strategy that exploits a jump and a kink at the 10-decimal land ownership-threshold driven by the Microfinance Institution screening process to ensure repayment by excluding the ultra-poor. Evidence shows that microfinance membership improves food security during Monga, especially for the poorest households who survive at the margin of one and two meals a day. The positive effects on food security are, however, not driven by higher income, as microcredit does not improve the ability to migrate for work, nor does it reduce dependence on distress sale of labor. The evidence is consistent with consumption smoothing being the primary mechanism behind the gains in food security of MFI households during the season of starvation.

JEL Classification: O1; I3

Acknowledgements

We would like to thank Syed Hashemi, Wahiduddin Mahmud and Munshi Sulaiman for helpful discussions at various stages of this project. We are grateful to an anonymous referee for suggestions that improved the paper substantially. We thank Baqui Khalily and the Institute of Microfinance for sharing the data used in this research paper.  Some of the materials in this paper were circulated earlier under the title “Does Microfinance Help the Ultra-Poor Cope with Seasonal Shocks? Evidence from Seasonal Famine (Monga) in Bangladesh”. The main empirical results reported here are new, and this version supersedes the earlier version.

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Supplementary Material

The online version of this article offers supplementary material (DOI:https://doi.org/10.1515/bejeap-2018-0359).

Published Online: 2020-02-01

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