Does Microfinance Reduce Poverty among the Poorest? A Macro Quantile Regression Approach

Abstract

The goal of this paper is to provide empirical evidence to determine whether microfinance, measured through a country's gross loan portfolio per capita, has a heterogeneous effect on poverty reduction among countries with different levels of poverty. We have used a panel‐data quantile regression with a data set for 57 countries for the years 2005, 2008, and 2011 to estimate the distributional impacts of microcredits on two poverty indices. Results reveal not only that microfinance significantly reduces the incidence and depth of poverty, but also that this effect differs across the different poverty levels (quantiles). The effect of microcredit on poverty reduction is slightly larger among countries where the incidence and depth of poverty are the highest, suggesting that microcredit reaches and benefits even the poorest individuals.

Credit Constraint, Credit Adjustment, and Sustainable Growth of Farmers’ Income

“…Also, the elite capture mechanism is widely distributed over the rural credit market in China, leading to potential structure distortions, function dislocation, and target deviation. This conclusion is different from that of Khandker [29] and Lacalle-Calderon et al [31], who found that microfinance benefits those in extreme poverty more than those in moderate poverty, suggesting that microcredit reaches and benefits even the poorest individuals. Farmers at the lowest income level may be unable to fulfill their basic production and living consumption demand.…”

“…Beaman et al [28] employed a two-stage loan and grant experiment and found that returns to capital were higher for farmers who borrowed than those who did not. Lacalle-Calderon et al [29] found not only that microfinance significantly reduced the incidence and depth of poverty, but also that this effect differed across different poverty levels (quantiles).…”

“…Microfinance has become a buzzword in the credit markets as an effective tool for poverty reduction and socioeconomic development [29][30][31][32][33][34][35][36][37][38]. As shown in the literature, microfinance can have a significantly positive impact on poverty reduction.…”

“…As shown in the literature, microfinance can have a significantly positive impact on poverty reduction. This is because microfinance institutions can provide microloans to farmers, women, or families in remote areas and vulnerable groups, and this can help reduce their financial exclusion [29][30][31][32][33][34][35][36][37][38]. The poverty reduction effects of microfinance include income improvement [25,35,[39][40][41][42][43] and reduced financial vulnerability [40,[44][45][46][47][48][49].…”

Poverty volatility and poverty in developing countries

“…1 1See e.g. Bergh and Nilsson (2014); Fosu (2018); Gnangnon (2019); Lacalle‐Calderon, Perez‐Trujillo, and Neira (2018); Le Goff and Singh (2014); Kiendrebeogo and Minea (2016); Kpodar and Singh, (2011); Santos‐Paulino (2017); Singh and Huang (2015); and Sotomayor (2021). …”