The Role Of Microfinance In Poverty Reduction: Countries Experiences by Regions 2000-2018

Abstract

Purpose of the Study: This study aims to assess the effect of microfinance provisions on poverty reduction in some developing and few developed countries across different regions and assess the effect of regions and time on the performance of the microfinance industry. Methodology: A panel data model and pooled OLS are used to estimate the effect of microfinance indicators; the number of microfinance institutions, gross loan portfolio, microfinance intensity (gross loan % GDP), along with other control variables; inflation, employment, population growth, trade openness, agriculture and industry shares in GDP, on the three poverty headcount ratios ($1.9, $3.2 & $5.5 a day). The empirical model is estimated using panel data of 91 countries across six different regions from 2000 till 2018. The study depends on World Development Indicators and Microfinance Information Exchange (MIX) Market data. Main Findings: The study findings reveal a significant effect of the three microfinance indicators and some control variables on reducing poverty. And that enhancing the performance of this sector will help governments in their goals towards poverty reduction. Research limitations: Literature covering the effect and performance of microfinance in developed and many developing countries are still to be considered insufficient thus, studying the impact of microfinance and its performance in such economies is challenging. Further, enhanced studies are needed for better assessments and identifying the gaps and means of improvements required. Novelty/Originality of the study: This empirical study estimated the effect of microfinance variables, along with other control variables, on the three poverty headcount ratios across many developing and developed countries in different regions over nearly two decades, which is not tested before.