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Do microfinance institutions fulfil their promise? Evidence from cross-country data

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  • K. Lopatta
  • M. Tchikov

Abstract

The concept of microfinance promises poverty reduction and economic growth. We empirically challenge this economic and social promise in an attempt to prove its fulfilment. Our multivariate regressions of economic development variables such as per capita gross national income based on PPP converted to international dollars (GNI per capita PPP), GDP growth, as well as gross capital formation and labour participation rate against specific microfinance institutions’ (MFI) variables show that the success and performance of MFIs significantly influence economic development. Microfinance directly influences economic growth through the value that MFI performance adds to purchasing power. An indirect impact comes from an improvement in capital accumulation and employment rates. These insights are valuable as the interdependencies between microfinance and economic development that this article verifies offer new and progressive insights into purposeful action that can be taken to stimulate economic development and growth. Targeted development programmes as well as socially responsible investments can be applied in developing economies in order to strengthen their growth and alleviate poverty.

Suggested Citation

  • K. Lopatta & M. Tchikov, 2016. "Do microfinance institutions fulfil their promise? Evidence from cross-country data," Applied Economics, Taylor & Francis Journals, vol. 48(18), pages 1655-1677, April.
    • Handle: RePEc:taf:applec:v:48:y:2016:i:18:p:1655-1677
    DOI: 10.1080/00036846.2015.1105924
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    1. Heather A. Clark, 2006. "When There Was No Money," Springer Books, Springer, number 978-3-540-28877-0, June.
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    Cited by:

    1. Kerstin Lopatta & Magdalena Tchikov, 2017. "The Causal Relationship of Microfinance and Economic Development: Evidence from Transnational Data," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 8(3), pages 162-171, July.
    2. Malikov, Emir & Hartarska, Valentina, 2018. "Endogenous scope economies in microfinance institutions," Journal of Banking & Finance, Elsevier, vol. 93(C), pages 162-182.
    3. Mukendi, Suzan & Manda, Simon, 2022. "Micro-financial institutions and processes of women empowerment in Zambia," World Development Perspectives, Elsevier, vol. 28(C).
    4. Donou-Adonsou, Ficawoyi & Sylwester, Kevin, 2017. "Growth effect of banks and microfinance: Evidence from developing countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 44-56.
    5. Abrar, Afsheen & Hasan, Iftekhar & Kabir, Rezaul, 2021. "Finance-growth nexus and banking efficiency: The impact of microfinance institutions," Journal of Economics and Business, Elsevier, vol. 114(C).
    6. Ivailo Marinov, 2019. "Trans-Border Expansion In The Quick Loans Sector (Problems And Solutions)," Economic Archive, D. A. Tsenov Academy of Economics, Svishtov, Bulgaria, issue 2 Year 20, pages 43-62.
    7. Banto, Jean Michel & Monsia, Atokê Fredia, 2021. "Microfinance institutions, banking, growth and transmission channel: A GMM panel data analysis from developing countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 126-150.
    8. Mario La Torre & Helen Chiappini (ed.), 2020. "Contemporary Issues in Sustainable Finance," Palgrave Studies in Impact Finance, Palgrave Macmillan, number 978-3-030-40248-8, February.
    9. Daniel Bamfo, 2022. "Microfinance Impacts and SME’S: Evidence from Ayawaso West Municipality, Ghana," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 6(1), pages 724-731, January.
    10. Hossain, Shahadat & Galbreath, Jeremy & Hasan, Mostafa Monzur & Randøy, Trond, 2020. "Does competition enhance the double-bottom-line performance of microfinance institutions?," Journal of Banking & Finance, Elsevier, vol. 113(C).
    11. Josphat Nyoni & Precious Kwashirai & Oliver Kapepa & Linience Tsitsi Charuma & Andrew Jeremiah & Martin Dandira, 2021. "Organizational Capabilities that Can Improve Profitability of Micro-Finance Institutions in Periods of Economic Crisis. Experiences from the Zimbabwe," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 5(08), pages 459-466, August.

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