The Theory and Practice of Microcredit
Routledge Studies in Development Economics Series

The remarkable speed at which microcredit has expanded around the world in the last three decades has piqued the curiosity of practitioners and theorists alike. By developing innovative ways of making credit available to the poor, the idea of microcredit has challenged many traditional assumptions about both poverty reduction strategies and financial markets. While this has encouraged new theorising about how microcredit works, the practice of microcredit has itself evolved, often in unpredictable ways, outpacing the development of theory.

The Theory and Practice of Microcredit aims to remedy this imbalance, arguing that a proper understanding of the evolution of practice is essential both for developing theories that are relevant for the real world and for adopting policies that can better realize the full potential of microcredit. By drawing upon their first-hand knowledge of the nature of this evolution in Bangladesh, the birthplace of microcredit, the authors have pushed the frontiers of current knowledge through a rich blend of theoretical and empirical analysis. The book breaks new grounds on a wide range of topics including: the habit-forming nature of credit repayment; the institutional strength and community-based role of microfinance institutions; the relationships between microcredit and informal credit markets; the pattern of long-term participation in microcredit programmes and the variety of loan use; the scaling up of microenterprises beyond subsistence; the "missing middle" in the credit market; and the prospects of linking micro-entrepreneurship with economic development.

The book will be of interest to researchers, development practitioners and university students of Development Economics, Rural Development, or Rural Finance, as well as to public intellectuals.

List of figures

List of tables

Preface

1 Introduction

2 Microcredit in Bangladesh: how the credit markets work

3 Microcredit in Bangladesh: how the microcredit model works

4 Theories of microcredit: group lending and moral hazard

5 Theories of microcredit: adverse selection and repayment enforcement

6 When theory meets reality: testing the theories of microcredit

7 Economic impact of microcredit: the experience of Bangladesh

8 The patterns of loan use

9 The economics of microenterprise

10 Micro-entrepreneurship and economic development

References

Index

Wahiduddin Mahmud was, until recently, Professor of Economics at the University of Dhaka and is currently Chairman, Economic Research Group, Dhaka, Bangladesh. He is a founder and former chairman of Palli-Karma Sahayak Foundation (PKSF), the apex wholesale microcredit lending institution in Bangladesh. He is also a Senior Country Advisor of International Growth Centre, the Chairman of the South Asia Network of Economic Research Institutes, and is on the Governing Board of the Global Development Network. He served as a member of the UN Committee for Development Policy and has held visiting positions at the World Bank, UN Development Programme (UNDP), International Food Policy Research Institute (IFPRI) and Institute of Development Studies (IDS) at Sussex University.

S. R. Osmani is Professor of Development Economics at Ulster University, UK. He obtained a PhD in economics from the London School of Economics and worked at the Bangladesh Institute of Development Studies, Dhaka, and at the World Institute for Development Economics Research, Helsinki, before joining Ulster University. He has published widely on issues related to employment and poverty, inequality, hunger, famine, nutrition, rights-based approaches to development, and development problems in general.