Skip to main content
SpringerLink
Log in

Microfinance, Poverty and Education

  • Published:
Comparative Economic Studies Aims and scope Submit manuscript

Abstract

This paper studies the relationship between microfinance, education and poverty at the macrolevel using a cross-country panel dataset of 116 countries over the period of 1999–2018. Disaggregating the effects by income levels and taking account of the potential problem of endogeneity related to microfinance institutions’ loans, this analysis reveals that any increase in the size of the gross loan portfolio of MFIs leads to a reduction in poverty in high- and middle-income economies. Moreover, I show that there is no significant relationship between microfinance and poverty in countries with lower levels of income. I also examine the channels through which microfinance affects poverty and find that any increase in the size of the microfinance sector fosters education which, in turn, reduces poverty.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

Notes

  1. “Transforming our world: the 2030 Agenda for Sustainable Development” The United Nation General Assembly, 25 September 2015.

  2. There are some missing data on poverty indicators. Following Bangoura et al. (2016), I solve this problem by using linear interpolation through the average annual growth rate. The formula used to calculate the average annual growth rate (Rg) is as follows :\(\ R_{g} = (\root n \of {\frac{value_{t+n}}{value_{t}}}-1)\), n is the difference between years t and t + n (poverty data between these two years are missing). At this interval, the poverty variables are assumed to change at a constant rate (Bangoura et al. 2016).

  3. For convenience and to make the article easier to read, I do not report the results of the first stage estimation. However, these results are available on request from the author.

  4. A potential endogeneity between microfinance and education has not been confirmed by previous literature on the education–microfinance nexus. Moreover, endogeneity tests do not verify this hypothesis. This is why, I don’t use the IV estimator in this part of the paper.

References

  • Abdullah, A., H. Doucouliagos, and E. Manning. 2015. Does education reduce income inequality? a meta-regression analysis. Journal of Economic Surveys 29 (2): 301–316.

    Article  Google Scholar 

  • Agbola, F.W., A. Acupan, and A. Mahmood. 2017. Does microfinance reduce poverty? New evidence from northeastern Mindanao, the Philippines. Journal of Rural Studies 50: 159–171.

    Article  Google Scholar 

  • Awaworyi Churchill, S., J. Danso, and S. Appau. 2016. Microcredit and poverty reduction in bangladesh: average effects beyond publication bias. Enterprise Development and Microfinance 27 (3): 59–72.

    Google Scholar 

  • Banerjee, S.B., and L. Jackson. 2017. Microfinance and the business of poverty reduction: Critical perspectives from rural bangladesh. Human Relations 70 (1): 63–91.

    Article  Google Scholar 

  • Bangoura, L., M.K. Mbow, A. Lessoua, and D. Diaw. 2016. Impact of microfinance on poverty and inequality a heterogeneous panel causality analysis. Revue d’économie Politique 126 (5): 789–818.

    Article  Google Scholar 

  • Barnes, C., Gaile, G., and Kimbombo, R. (2001a). Impact of three microfinance programs in uganda.

  • Barnes, C., E. Keogh, and N. Nemarundwe. 2001b. Microfinance program clients and impact: An assessment of zambuko trust, zimbabwe. Washington, DC: Aims.

    Google Scholar 

  • Barro, R.J. 2000. Inequality and growth in a panel of countries. Journal of Economic Growth 5 (1): 5–32.

    Article  Google Scholar 

  • Barro, R.J. 2001. Education and economic growth. The contribution of human and social capital to sustained economic growth and well-being, 14–41.

  • Beck, T., Demirgüç-Kunt, A., and Levine, R. (2004). Finance, inequality, and poverty: Cross-country evidence. The World Bank.

  • Beck, T., A. Demirgüç-Kunt, and R. Levine. 2007. Finance, inequality and the poor. Journal of Economic Growth 12 (1): 27–49.

    Article  Google Scholar 

  • Castañeda, A., D. Doan, D. Newhouse, M.C. Nguyen, H. Uematsu, J.P. Azevedo, et al. 2018. A new profile of the global poor. World Development 101: 250–267.

    Article  Google Scholar 

  • Chen, M.A., and D. Snodgrass. 2001. Managing resources, activities, and risk in urban india: The impact of sewa bank. Washington, DC: AIMS.

    Google Scholar 

  • Chen, S., and M. Ravallion. 2010. The developing world is poorer than we thought, but no less successful in the fight against poverty. The Quarterly Journal of Economics 125 (4): 1577–1625.

    Article  Google Scholar 

  • Chowdhury, A. and Bhuiya, A. (2001). Poverty alleviation programmes reduce inequities in health: evidence from Bangladesh. Leon,D., Walt, G. (eds.) Poverty inequity and health. Oxford University Press, Oxford (2001).

  • Clarke, G.R., L.C. Xu, and H.-F. Zou. 2006. Finance and income inequality: what do the data tell us? Southern economic journal, 578–596.

  • Cull, R., C. Demirgü, A. Kunt, and J. Morduch. 2007. Financial performance and outreach: A global analysis of leading microbanks. The Economic Journal 117 (517): F107–F133.

    Article  Google Scholar 

  • Cull, R., C. Demirgü, A. Kunt, and J. Morduch. 2011. Does regulatory supervision curtail microfinance profitability and outreach? World Development 39 (6): 949–965.

    Article  Google Scholar 

  • Dollar, D., and A. Kraay. 2002. Growth is good for the poor. Journal of Economic Growth 7 (3): 195–225.

    Article  Google Scholar 

  • Dollar, D., and A. Kraay. 2004. Trade, growth, and poverty. The Economic Journal 114 (493): F22–F49.

    Article  Google Scholar 

  • Duclos, J.-Y. and Araar, A. (2006). Poverty and equity: Measurement, policy and estimation with DAD, volume 2. IDRC.

  • Foster, J., Greer, J., and Thorbecke, E. (1984). A class of decomposable poverty measures. Econometrica: journal of the econometric society, pp 761–766.

  • Frankel, J.A., and D.H. Romer. 1999. Does trade cause growth? American Economic Review 89 (3): 379–399.

    Article  Google Scholar 

  • Ghalib, A.K., I. Malki, and K.S. Imai. 2015. Microfinance and household poverty reduction: Empirical evidence from rural pakistan. Oxford Development Studies 43 (1): 84–104.

    Article  Google Scholar 

  • Gregorio, J.D., and J.-W. Lee. 2002. Education and income inequality: new evidence from cross-country data. Review of Income and Wealth 48 (3): 395–416.

    Article  Google Scholar 

  • Gupta, S., H. Davoodi, and R. Alonso-Terme. 2002. Does corruption affect income inequality and poverty? Economics of Governance 3 (1): 23–45.

    Article  Google Scholar 

  • Hahn, J., J. Hausman, and G. Kuersteiner. 2004. Estimation with weak instruments: Accuracy of higher-order bias and mse approximations. The Econometrics Journal 7 (1): 272–306.

    Article  Google Scholar 

  • Hermes, N. 2014. Does microfinance affect income inequality? Applied Economics 46 (9): 1021–1034.

    Article  Google Scholar 

  • Hulme, D. 2000. Is microdebt good for poor people? a note on the dark side of microfinance. Small Enterprise Development 11 (1): 26–28.

    Article  Google Scholar 

  • Imai, K.S., R. Gaiha, G. Thapa, and S.K. Annim. 2012. Microfinance and poverty: A macro perspective. World Development 40 (8): 1675–1689.

    Article  Google Scholar 

  • Johnson, S. and Rogaly, B. (1997). Microfinance and poverty reduction. Oxfam.

  • Khandker, S.R. 2005. Microfinance and poverty: Evidence using panel data from bangladesh. The World Bank Economic Review 19 (2): 263–286.

    Article  Google Scholar 

  • Khandker, S.R., et al. 1998. Fighting poverty with microcredit: experience in Bangladesh. Oxford: Oxford University Press.

    Google Scholar 

  • Khandker, S. R. and Samad, H. A. (2018). Bangladesh’s achievement in poverty reduction: The role of microfinance revisited. In Economic and social development of Bangladesh, pp 177–198. Springer.

  • Kwon, H.-J., and E. Kim. 2014. Poverty reduction and good governance: Examining the rationale of the millennium development goals. Development and Change 45 (2): 353–375.

    Article  Google Scholar 

  • Li, H., H.-F. Zou, et al. 2002. Inflation, growth, and income distribution: A cross-country study. Annals of Economics and Finance 3 (1): 85–101.

    Google Scholar 

  • Lønborg, J.H., and O.D. Rasmussen. 2014. Can microfinance reach the poorest: evidence from a community-managed microfinance intervention. World Development 64: 460–472.

    Article  Google Scholar 

  • Milanovic, B. 2005. Can we discern the effect of globalization on income distribution? evidence from household surveys. The World Bank Economic Review 19 (1): 21–44.

    Article  Google Scholar 

  • Morduch, J. 1999. The microfinance promise. Journal of Economic Literature 37 (4): 1569–1614.

    Article  Google Scholar 

  • Morduch, J. and Haley, B. (2002). Analysis of the effects of microfinance on poverty reduction. New York: NYU Wagner Working Paper, 1014.

  • Mosley, P. 2001. Microfinance and poverty in bolivia. Journal of Development Studies 37 (4): 101–132.

    Article  Google Scholar 

  • Mosley, P., J. Hudson, and A. Verschoor. 2004. Aid, poverty reduction and the ‘new conditionality’. The Economic Journal 114 (496): F217–F243.

    Article  Google Scholar 

  • Murray, M.P. 2006. Avoiding invalid instruments and coping with weak instruments. Journal of Economic Perspectives 20 (4): 111–132.

    Article  Google Scholar 

  • Navajas, S., M. Schreiner, R.L. Meyer, C. Gonzalez-Vega, and J. Rodriguez-Meza. 2000. Microcredit and the poorest of the poor: Theory and evidence from bolivia. World Development 28 (2): 333–346.

    Article  Google Scholar 

  • PovcalNet (2018). The on-line tool for poverty measurement developed by the development research group of the world bank. Banque mondiale, Washington(http://iresearch.worldbank. org/PovcalNet/).

  • Rachel, M., Porter, B., and Harper, C. (1999). Money Matters: Understanding Microfinance. Save the Children, 1999.

  • Rodgers, G. 1983. Population growth, inequality and poverty. Int’l Lab. Rev. 122: 443.

    Google Scholar 

  • Tesfamicael, B. A. (2005). Poverty and natural resource management in the Central Highlands of Eritrea. PhD thesis, Centre for Development Studies, University of Groningen.

  • Teulings, C., and T. Van Rens. 2008. Education, growth, and income inequality. The Review of Economics and Statistics 90 (1): 89–104.

    Article  Google Scholar 

  • UNESCO (2013). Teaching and learning: Achieving quality for all. The EFA global monitoring report, Paris http://unesco.nl/sites/default/files/dossier/gmr_2013-4.pdf.

  • UNESCO (2016). Global education monitoring report summary 2016: education for people and planet: creating sustainable futures for all.

  • Weiss, J., and H. Montgomery. 2005. Great expectations: microfinance and poverty reduction in asia and latin america. Oxford Development Studies 33 (3–4): 391–416.

    Article  Google Scholar 

  • Winters, L.A., N. McCulloch, and A. McKay. 2004. Trade liberalization and poverty: the evidence so far. Journal of Economic Literature 42 (1): 72–115.

    Article  Google Scholar 

  • WorldBank (2018). Piecing together the poverty puzzle.

  • Yang, J., and M. Qiu. 2016. The impact of education on income inequality and intergenerational mobility. China Economic Review 37: 110–125.

    Article  Google Scholar 

  • Zeller, M., M. Sharma, C. Henry, and C. Lapenu. 2006. An operational method for assessing the poverty outreach performance of development policies and projects: Results of case studies in africa, asia, and latin america. World Development 34 (3): 446–464.

    Article  Google Scholar 

  • Zhang, Q. 2017. Does microfinance reduce poverty? some international evidence. The BE Journal of Macroeconomics, vol 17, no 2.

Download references

Author information

Authors and Affiliations

  1. Univ. Orléans, CNRS, LEO, FRE 2014, Rue de Blois, 45067, Orléans, France

    Asma Boussetta

  2. Faculté des Sciences Economique et de Gestion de Tunis, Université de Tunis El Manar, 2092, Tunis, Tunisie

    Asma Boussetta

Authors
  1. Asma Boussetta
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Asma Boussetta.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

I would like to thank the anonymous referees and Katsushi S. Imai for the constructive remarks and suggestions that helped me to improve the paper. I also thank the participants of the 18th Annual Conference of the EEFS, the International Conference Current Economic Trends in Emerging and Developing Countries TIMTED 2019 and the 7th International PhD Meeting in Economics - Thessaloniki 2019 for insightful comments on a previous version of the paper. All remaining errors are mine.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Boussetta, A. Microfinance, Poverty and Education. Comp Econ Stud 64, 86–108 (2022). https://doi.org/10.1057/s41294-021-00145-4

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/s41294-021-00145-4

Keywords

Mathematics Subject Classification

Search

Navigation