Contribution of microfinance to economic growth: Transmission channel and the ways to test it

Abstract

address: Politických vězňů 7, 111 21 Prague 1, Czech Republic Since its birth in 1970s microfinance has been growing rapidly with the aim to lift people out of poverty and promote economic growth. Its role and importance has been amplified amidst the global financial crisis when trust into formal banking is shaken. Despite global recognition and popularity of microfinance there is mixed evidence of its net benefits and very limited work on its contribution to financial intermediation and economic growth. This paper first, identifies and discusses possible transmission channels for microfinance and second, establishes the choice of appropriate methodology for robust empirical test. Adapted for panel data the Arellano-Bond (1991) technique allows for the Granger-Causality type test to reveal the direction of causality and overcome endogeneity issue. The main purpose of the estimation is to check whether microfinance matters -matters for financial sector development and economic growth. JEL Classifications: G15, G21, O16, O57

Spillover effects of microcredit on the GDP of surrounding cantons in Ecuador

“…With regard to specific works that clearly deduce a positive relationship between microcredit and GDP, the majority are focused on Asian economies, particularly in Bangladesh (Imai and Azam, 2011;Raihan et al, 2017;Roodman and Morduch, 2009;Sultan and Masih, 2016), in South and East Asia (Alimukhamedova, 2014), in Vietnam (Thanh et al, 2019) and in India (Negi, 2020). Similar results are found in global studies involving more than 30 countries from different geographical regions (Hook Law and Boon Tan, 2009;Levine, 2004;Lopatta and Tchikov, 2016;Sethi and Acharya, 2018;Sugiyanto and Yolanda, 2020).…”

Human Resources and Islamic Microfinance Sustainability: An Empirical Study of Baitul Maal wat Tamwil in Indonesia

“…In addition, Abbas et al (2014) also emphasized that microfinance as a financial institution that provide affordable financial access to microentrepreneurs and low income people who have difficulty being able to get loans from the conventional banks at all times. Since those groups of people are considered lack of collateral, no credit history, and low business income groups, They are getting the financial services from the moneylenders, relatives and cooperatives (Alimukhamedova, 2014). Furthermore, the establishment microfinance movement was initiated by various traditional and informal civil system in assisting the needy and poor based on mutual trust for centuries (Hearth, 2018).…”

Patterns of Access to Microfinance Loans in India

“…Economists have been concerned about the provision of micro-financial services to low-income earners as the social benefit from the provision of these services differs from the private benefit. The link of MFIs with the formal banking system contributes towards the development of the financial sector and the economy (Alimukhamedova, 2013). It enhances the income generating capacities of individuals, thereby positively impacting consumption, capital formation and other indicators of well-being (Awojobi, 2011).…”