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

43 Pages Posted: 21 Jun 2017 Last revised: 6 Feb 2018

See all articles by Claudia N. Berg

Claudia N. Berg

International Monetary Fund (IMF)

M. Shahe Emran

George Washington University - Department of Economics

Date Written: January 11, 2018

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 estimation strategy that exploits a jump and a kink at the 10 decimal land ownership threshold driven by MFI 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 1 and 2 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.

Keywords: Microfinance, Ultra-Poor, Seasonal Famine, Monga, Coping Mechanisms, Food Security, Distress Sale of Labor, Short-term Migration, Local 2SLS

JEL Classification: O1, I3

Suggested Citation

Berg, Claudia N. and Emran, M. Shahe, Microfinance and Vulnerability to Seasonal Famine in a Rural Economy: Evidence from Monga in Bangladesh (January 11, 2018). Available at SSRN: https://ssrn.com/abstract=2989732 or http://dx.doi.org/10.2139/ssrn.2989732

Claudia N. Berg

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

M. Shahe Emran (Contact Author)

George Washington University - Department of Economics ( email )

2115 G Street NW
302 Monroe Hall
Washington, DC 20052
United States

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