Does microfinance program innovation reduce income inequality? Cross-country and panel data analysis

Abstract

This paper uses cross-country and panel data set to test the significance of microfinance on income inequality reduction at the macro level for a sample of 57 developing countries for the periods 2000–2006 and 2007–2013. This study adopts panel data methodologies, such as ordinary least square (OLS), pooled ordinary least square (POLS) and instrumental variables (IV) estimations to overcome the endogeneity problems among the variables. Empirical results show that countries with higher MFIs’ gross loan portfolio per capita tend to have lower income inequality, which confirm the beneficial outcome of microfinance in reducing inequality at the macro level. Moreover, our results suggest that microfinance loans can lead to improve the relative income position of the poor in developing countries, albeit slowly. Our findings have relevant recommendations to policymakers, as they could generate suitable strategies to consider microfinance institutions as a more popular tool for fighting against both poverty and inequality.

Social Benefits of Financial Performance - an Econometric Analysis of Financial Management of Indian Microfinance Institutions (MFIs)

“…This study aims to resolve the conflict between the above two findings by different research papers i.e., if focusing on social performance leads to better financial performance or deteriorates it and then further shed light on the relationship between asset position 4 of the MFIs and their returns to society i.e., increase in financial inclusion (social performance). In the study conducted by (Miled, Younsi, & Landolsi, 2022), observed results confirmed that the countries where MFIs have higher gross loan portfolio per capita have lower income inequality, hence, corroborative of the positive outcome of microfinance at the macro level due to which one of the variables chosen in the study as a proxy for asset position is gross loan portfolio. This research paper aims to fill that gap in the literature by further selecting the variable 'average number of borrowers' as an indicator of social performance and then examining its relationship with the financial performance.…”

Impact of microfinance on women’s economic empowerment

“…Women who got more credit are more likely to achieve higher economic empowerment level than those who received low amount of credit. According to Miled et al (2022) microfinance loans can lead to improve the relative income position of the poor in developing countries, albeit slowly. The finding of this study is similar with the research findings of Khan and Noreen (2012) study in Pakistan.…”

Investigating the Rural and Entrepreneurial Development through Microfinance

“…Microfinance is usually regarded as an efficient means of poverty reduction/rural development, as access to microfinance helps people/beneficiaries to formulate long-standing consumption-and investment decisions-, participate in productive/ decision-making activities and tackle unforeseen short-range shocks (e.g., Bika et al, 2022;Caskey et al, 2006;Lal, 2018). Further, the basic reason is that owing to increasing financial services, lowest-income individuals have the capability to take part in the economic marketplace and use entrepreneurial opportunities via start-up novel businesses, expanding the present business and/ or initiating novel activities (Bansal & Singh, 2019;Milana & Ashta, 2020;Miled et al, 2022). It is thus an important link and primary step to attaining comprehensive growth and development (Lakshmi & Visalakshmi, 2013).…”