Analysis of Poverty Reducing Effects of Microfinance from a Macro Perspective: Evidence from Cross-Country Data


This paper tests the hypothesis that microfinance reduces poverty at macro level using the cross-country data in 2007. The results of econometric estimation for poverty head count ratio show, taking account of the endogeneity associated with loans from microfinance institutions (MFIs), that microfinance loans significantly reduce poverty. Thus, a country with higher MFI's gross loan portfolio tends to have lower poverty incidence after controlling the other factors influencing poverty. We also found that poverty reducing effect tends to be larger in Sub Saharan Africa (SSA) as suggested by the negative and significant coefficient estimate of the SSA dummy and gross loan portfolio. From a policy perspective, our results would justify increase in investment from development finance institutions and governments of developing countries into microfinance loans as a means of poverty reduction.


Katsushi S. IMAI
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059

Raghav GAIHA
Massachusetts Institute of Technology, USA & 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