Microfinance and Poverty—A Macro Perspective

Abstract

This paper tests the hypothesis that microfinance reduces poverty at macro level using crosscountry and panel data, based on the Microfinance Information Exchange (MIX) data on MFIs and the new World Bank poverty estimates. Taking account of the endogeneity associated with loans from MFIs, our econometric analysis shows that a country with higher MFIs' gross loan portfolio tends to have lower levels of FGT class of poverty indices. Contrary to recent micro evidence based on randomised evaluations pointing to no or weak effect on poverty, there is robust confirmation of the poverty reducing role of microfinance. Significantly, microfinance loans are negatively associated with not only the poverty headcount ratio, but also with the poverty gap and squared poverty gap, implying that even the poorest benefit from them. The case for channelling funds from development finance institutions and governments of developing countries into MFIs is thus reinforced. Our assessment has added significance as the tide seems to be turning against microfinance as a means of poverty alleviation.

A comparative analysis of the effect of aid and microfinance on growth

“…Among them, Buera, Kaboski and Shin (2012) and Ahlin and Jiang (2008) propose two theoretical models to study the potential of MF to generate a gradual process of development and create a redistributive effect on the overall economy in a country, respectively. Imai et al (2012) study the impact of MF on national poverty levels. Finally, Ahlin, Lin and Maio (2011) and Hermes and Meesters (2011) investigate the relationship between macroeconomic conditions and the performance of MF institutions.…”

Doing business with the poor: the rules and impact of the microfinance institutions

“…A number of success stories appeared in the academic literature soon after the introduction and operationalization of the approach (e.g. Imai, Gaiha, Thapa, & Annim, 2012;Morduch, 1999;Morduch & Haley, 2002;Mosley & Hulme, 1998;Robinson, 2001;Zaman, Khilji, Awan, Ali, & Naseem, 2014). As well as being heavily dependent upon grants and subsidies, the non-sustainability of such institutions soon surfaced.…”

Managing Multi‐Faceted Risks in Microfinance Operations

“…As with all development instruments, there have been mixed reviews of microfi nance with two camps at opposite sides of the debate. Th ere are those who present it as an eff ective and proven model for alleviating poverty (Imai et al, 2012;Pitt and Khandker, 1998) and then there are those who believe it is antagonistic to sustainable economic and social development (Bateman, 2010). 2 With the sector highlighted so widely, MFIs are coming under increasing scrutiny for their reliability, resilience, and maturity.…”