The impact of microfinance programs on monetary poverty reduction

Abstract

Purpose The purpose of this paper is to examine the impact of microfinance programs sponsored by Sudanese microfinance institutions (SMFIs) on monetary poverty reduction in Sudan where poverty is widely spread. Design/methodology/approach The study adopted the control group approach, where income and expenditure are taken as welfare indicators. The updated World Bank’s international poverty line of 1.90 per person per day was adopted to separate the poor from non-poor. The data were collected by the means of a questionnaire distributed to a random sample of beneficiaries in the institution under study. The study adapted the Foster, Greer and Thorbecke (FGT) model to evaluate the role of microfinance programs in poverty reduction. Furthermore, to gain more insight into the impact of the program, a preliminary analysis was conducted using the independent-samples t-test to examine the difference in the welfare indicators for the sample of the control group and treatment group as well as that of the small loan group and micro-loan group. Findings The findings show that the microfinance program provided by SMFIs has reduced the monetary poverty among the participants. The results also reveal that beneficiaries who had received a larger volume of loan were noted lesser poverty than those who had received very small loan size. Moreover, the results demonstrate that poverty indices based on expenditure as a welfare indicator are far lower than those based on income for both groups. Originality/value This study contributes to the available literature by filling the gaps through including income and expenditure as monetary variables, which included separately in previous studies adopted the FGT model in the area of microfinance, in addition to exploring the role of loan size in the effect of microfinance on poverty reduction.

Microcredit Impact on Socio-Economic Development and Women Empowerment in Low-Income Countries: Evidence from Yemen

“…The emphasis on women has also been attributed to women's nature of investing their incomes in essential household and children expenditures, compared to men who allot their incomes for entertainment solely [10]. The governments of these nations strive to eradicate poverty and empower women by implementing numerous anti-poverty programmes to fight poverty, such as the microfinance policy, for almost thirty years [5].…”

“…The experience of the less developed countries in the Middle Eastern Region exhibited the positive impact of microfinance on the clients' welfare. For example, Elsafi et al [5] asserted that microfinance in Sudan has led to declining poverty. However, research in Ethiopia [14] discovered that microcredit positively affects indicators of household income, such as income from self-employment activities and wage, but this is statistically insignificant.…”

“…With the fairly high loan costs and risk factors, the Kremen Bank offered a robust model to minimise study gap implications by selecting women as beneficiaries under social borrowing. The strategy proved highly successful with household financial developments as female behaviour consumption primarily involved household quality improvements, such as income [5], food [6], children's education, and health [7]. Collective lending between five to ten women under social collateral efficiently minimised the knowledge gap between banks and borrowers.…”

“…For example, studies undertaken in Thailand [12] and Vietnam [12] asserted the absence of microcredit effects. Additionally, research in Sub-Saharan Africa [5] indicated mixed microcredit impacts (positive, zero, and negative), specifically on loan utilisation decisions where husbands named the spouses as proxies for loans and loans repayment. Other studies affirmed the negative impacts of microcredit in the Philippines and Ghana [3,13].…”

“…Although microcredit catalysed positive financial impacts, the influence could be linked to negative impacts, such as marital friction, increased child labour, and the perceived negligence of female domestic duties [13]. Several studies recently examined the role of microcredit in less developed countries, particularly in the Middle East, such as in Ethiopia [14], Djibouti [15], and Sudan [5]. These studies focused on the economic impact, particularly on household income compared to social empowerment, and found that microfinance impact varies from positive in Sudan to no impact in Ethiopia and Djibouti.…”