Measuring the Social Value of Microcredit: A Social Distance Approach

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Background:Microcredit is the distribution of loans that are too small for commercial banks to undertake as pricing of risk for such loans is usually not feasible. Moreover, such type of loans are usually taken by the unemployed and impoverished, and as such, they are typacally not leveraged or secured. Losses on such have a high probability and is the reason commercial banks shy away from these due to targets on their interest margins and NPLs. However, there is evidence that the poorer customers are afraid of deteroriating relationships with banks and are thus safer borrowers (Federal Reserve Bank of Kansas, 2010).Research Objective: Given the prevelance of Microcredit in Bangladesh, the effect of microcredit in a different jurisdiction would build the literature with much needed insight, on the pricing and value these microcredit facilities have on the society. The study will undertake a different approach, a social distance approach, which implies to the different societal classes and demography such as race. The impact on the various classes would add to existing literature which mainly focuses on locational distance (Ouma R, Ogaga W, 2015).While it is widely believed that the above program has uplifted millions of poor from the cycles of poverty across the globe, a growing concern is whether it has widened the social distance among borrowers and non-borrowers. Growing social distance impacts cohesion and stability in any socio-economic system. We develop quantitative procedures to rigorously quantify social impacts of microcredit provisions and provide predictive effects of such a development for future policy and planning.Research Methodology: The study will be undertaken using Bangladeshi panel data over a period of 40 years, (1978-2018) with the intention of capturing vast information for analysis. Changes over time can be noted with analysis being undertaken using STATA and R. The use of both will be so as to ensure robustness in the output.