Is Micro Too Small? Microcredit vs. SME Finance

In this paper NYU economists Jonathan Buachet and Jonathan Morduch compare the employment and poverty outreach of SMEs to that of microenterprises. There is surprisingly little data on the profile of microcredit borrowers, and even less that might be matched to comparable surveys of SME employees. They draw on a series of surveys of both microcredit borrowers and SME employees, building from a 2008 survey of Bangladeshi SMEs which are customers of BRAC Bank, a for-profit arm of Bangladesh’s largest NGO.

The survey is particularly valuable in including questions that can be used to predict the likelihood that the employees’ households are below global poverty lines. They then compare those household-level predictions to similarly-constructed likelihood scores taken from independent data on microcredit borrowers in Bangladesh. Bauchet and Morduch relate those results to data from an additional microcredit survey with detailed consumption data. In focusing on customers of BRAC Bank, they narrow attention to SMEs that are most likely to align with BRAC’s broader imperatives of development, social welfare improvement, and poverty reduction.

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