In this report, we analyze the evidence that improved and expanded access to financial services can be a pathway out of poverty in Bangladesh and Tanzania. A brief background review of finance and poverty reduction evidence at the country, household, and individual level emphasizes the importance of a functioning financial system and the need to remove individual and household barriers to capital accumulation. We follow with an in-depth literature review on studies that link poverty reduction in Bangladesh or Tanzania with one or more of five financial intervention categories: remittances; government subsidies; conditional and unconditional cash transfers; credit; and combination programs. The resulting empirical evidence from these sources reveal a high share (61%) of positive reported associations between a financial intervention and outcome measure related to our five chosen financial interventions. The remaining studies found insignificant or mixed associations, but very few (3 out of 56) indicate that access to a financial mechanism was associated with worsened poverty. The heterogeneity of study types and interventions makes it difficult to draw conclusions about the efficacy of one intervention over another, and more research is needed on whether such approaches constitute a durable, long-term exit from poverty.
The vast literature on poverty in developing countries offers a variety of explanations for why poverty persists in some areas, while in others poor individuals and households are able to escape it. The challenges in identifying precise pathways out of poverty are compounded by a lack of consensus on the most appropriate empirical methods to measure poverty, and to determine causality in cross-country studies of the impacts of financial access on poverty outcomes. Even in studies within countries using survey or panel data, household level evidence on pathways out of poverty is difficult to generalize to different demographic groups or geographic areas that are outside of the specific area studied. In addition, comparing effect sizes across interventions targeting poverty can be complicated, making it difficult to identify any one pathway as more or less effective than others. In this report, we set aside the broad and ongoing debate over what matters most to poverty reduction in order to focus on a single set of possible pathways out of poverty via improved and expanded access to financial services, focusing on South Asia and sub-Saharan Africa, and considering empirical evidence from Bangladesh and Tanzania.
See also EPAR Technical Report #316: Pathways out of Poverty: Outcomes Associated with Poverty Alleviation in Developing Countries