Health Shocks and Consumption Smoothing in Rural Households: Does Microcredit have a Role to Play? A Research by Asadul Islam and Pushkar Maitra
The Overlooked Role of Microcredit in Rural Bangladesh
Microcredit is often discussed as a tool for entrepreneurship and poverty alleviation, but research on rural Bangladesh shows another equally important function: microcredit as informal insurance against health shocks.
The Hidden Dangers of Illness
In rural areas, a serious illness is not just a medical crisis—it is an economic one. Families frequently face the risk of selling livestock, pulling children out of school, or falling deeper into poverty. With almost no access to formal insurance, they must find their own ways to cope.
Key Findings from the Research
Longitudinal household data reveal an important pattern: while families generally avoid sharp declines in food and non-food consumption after a health shock, this stability often comes at the cost of selling livestock—their most important productive asset.
For households with access to microcredit, the situation is different. These families are significantly less likely to sell livestock when illness strikes. Instead, they rely on quick, low-barrier loans that protect both consumption and long-term livelihood security.
Microcredit: More Than Meets the Eye
The evidence highlights microcredit as an effective risk management tool. It reduces the need for desperate, irreversible measures and safeguards upward mobility. Microcredit programs are therefore not only about income generation—they also function as a social safety net.
Policy Implications
Recognizing the insurance value of microcredit is crucial for development policy. Expanding inclusive financial services can help rural households withstand future shocks—whether health, climate, or economic—by providing them with a much-needed safety net.
To read the full article, please click on this link- https://users.monash.edu.au/~maitra/healthpaper_June23_2009.pdf
In their insightful 2012 study published in the Journal of Development Economics, Asadul Islam and Pushkar Maitra deliver a compelling analysis of how rural Bangladeshi households navigate health shocks to maintain stable consumption. Drawing on a robust panel dataset, they uncover that while families often resort to selling vital assets like livestock—incurring long-term costs—access to microcredit acts as a powerful buffer. This innovative finding highlights microcredit's untapped insurance potential, offering practical hope for vulnerable communities and enriching the discourse on financial inclusion.
ReplyDeleteThe study's use of large-scale panel data from rural Bangladesh offers robust evidence that access to microcredit enables better coping mechanisms, reducing the need for costly asset liquidation during health crises—an insight that's both innovative and practically significant for policy design.607fe6 Overall, it's an insightful and impactful piece that underscores microfinance's broader protective benefits.
ReplyDeleteThe panel data methodology shines here; adding a comparison to recent RCTs on health shocks could strengthen the discussion on microcredit's evolving impact in development economics.
ReplyDeleteThis insightful study by Asadul Islam and Pushkar Maitra brilliantly highlights the insurance potential of microcredit, showing how it helps rural Bangladeshi households preserve productive assets like livestock during health crises— a game-changer for long-term resilience.160f84
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