Poverty alleviation or poverty traps? Microcredits and vulnerability in Bangladesh

Purpose It is imperative that microcredit organisations (MCOs) have a high level of awareness of the environmental context in which their clients pursue their livelihoods. This is particularly true for regions that experience regular environmental and economic shocks. However, to date this level of analysis has been largely absent from impact studies. The purpose of this paper is to overcome this lack of contextual analysis by using Bangladesh as a pertinent example. Design/methodology/approach Drawing on empirical data and a wide range of literature from a variety of disciplines, including geography, development studies, economics and anthropology, the paper aims to provide an in‐depth analysis of the dual impact of flooding and microcredits in Bangladesh. Findings Over the last few years the use of preventive mitigation and coping strategies has declined in Bangladesh. The most widely cited reason for this is financial constraints as a result of declining rural incomes despite a large presence of MCOs in the country. In order to overcome cash shortages many people have resorted to borrowing from a variety of sources, which has become effectively the single most important coping strategy employed. In conjunction with lowered debt capacity and restrictive terms under which microcredits are disbursed, higher indebtedness, creating a potential for poverty traps, is the outcome. Originality/value For MCOs to be able to claim that their work alleviates poverty they have to demonstrate sensitivity towards the needs of their clients. Yet, the added risks imposed by recurring environmental stressors have been markedly absent from their studies. This paper proposes that the environmental context not only is important but also draws attention to some of the negative consequences that it can have on livelihood sustainability.