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Microfinance and Poverty -A Macro Perspective

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  • Katsushi S. Imai

    (Economics, School of Social Sciences, University of Manchester (UK) and RIEB, Kobe University (Japan)
    Massachusetts Institute of Technology (USA) and Faculty of Management Studies, University of Delhi (India))

  • Ganesh Thapa

    (International Fund for Agricultural Development, Italy)

  • Samuel Kobina Annim

    (Economics, School of Social Sciences, University of Manchester, UK)

Abstract

This paper tests the hypothesis that microfinance reduces poverty at macro level using cross-country 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.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2010-30.pdf
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Bibliographic Info

Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2010-30.

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Length: 45 pages
Date of creation: Oct 2010
Date of revision:
Handle: RePEc:kob:dpaper:dp2010-30

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  1. Martin Ravallion & Shaohua Chen & Prem Sangraula, 2009. "Dollar a Day Revisited," World Bank Economic Review, World Bank Group, vol. 23(2), pages 163-184, June.
  2. Hisako, KAI & Shigeyuki, HAMORI, 2009. "Microfinance and Inequality," MPRA Paper 17537, University Library of Munich, Germany.
  3. Imai, Katsushi S. & Arun, Thankom & Annim, Samuel Kobina, 2010. "Microfinance and Household Poverty Reduction: New Evidence from India," World Development, Elsevier, vol. 38(12), pages 1760-1774, December.
  4. P. Mosley, 2001. "Microfinance and Poverty in Bolivia," Journal of Development Studies, Taylor & Francis Journals, vol. 37(4), pages 101-132.
  5. Khandker, Shahidur R., 2003. "Microfinance and poverty - evidence using panel data from Bangladesh," Policy Research Working Paper Series 2945, The World Bank.
  6. Cull , Robert & Demirguc-Kunt , Asli & Morduch, Jonathan, 2009. "Does regulatory supervision curtail microfinance profitability and outreach ?," Policy Research Working Paper Series 4948, The World Bank.
  7. Cull, Robert & Demirguc-Kunt, Asli & Morduch, Jonathan, 2006. "Financial performance and outreach : a global analysis of leading microbanks," Policy Research Working Paper Series 3827, The World Bank.
  8. Dean Karlan & Jonathan Zinman, 2007. "Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts," Working Papers 956, Economic Growth Center, Yale University.
  9. Ahlin, Christian & Lin, Jocelyn & Maio, Michael, 2011. "Where does microfinance flourish? Microfinance institution performance in macroeconomic context," Journal of Development Economics, Elsevier, vol. 95(2), pages 105-120, July.
  10. Morduch, Jonathan, 1999. "The role of subsidies in microfinance: evidence from the Grameen Bank," Journal of Development Economics, Elsevier, vol. 60(1), pages 229-248, October.
  11. Katsushi Imai & Raghav Gaiha & Ganesh Thapa, 2010. "Is the Millennium Development Goal on Poverty Still Achievable? The Role of Institutions, Finance and Openness," Oxford Development Studies, Taylor & Francis Journals, vol. 38(3), pages 309-337.
  12. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
  13. World Bank, 2011. "World Development Indicators 2011," World Bank Publications, The World Bank, number 2315, October.
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Cited by:
  1. Katsushi S. Imai & Raghav Gaiha & Ganesh Thapa & Samuel Kobina Annim, 2013. "Financial Crisis In Asia: Its Genesis, Severity And Impact On Poverty And Hunger," Journal of International Development, John Wiley & Sons, Ltd., vol. 25(8), pages 1105-1116, November.
  2. Wagner, Charlotte & Winkler, Adalbert, 2013. "The Vulnerability of Microfinance to Financial Turmoil – Evidence from the Global Financial Crisis," World Development, Elsevier, vol. 51(C), pages 71-90.
  3. Shahidur R. Khandker & Hussain A. Samad, 2013. "Microfinance Growth and Poverty Reduction in Bangladesh: What Does the Longitudinal Data Say?," Working Papers 16, Institute of Microfinance (InM).

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