Jul 16, 2012

Microfinance and Poverty—A Macro Perspective

We test the hypothesis that microfinance reduces poverty at the macro level using cross-country and panel data which are constructed by the Microfinance Information Exchange data on Microfinance Institutions (MFIs) and the World Bank data. Taking account of the endogeneity associated with MFIs’ loans, we show that a country with higher MFIs’ gross loan portfolio per capita tends to have lower levels of poverty indices. Contrary to recent micro evidence, our results suggest that microfinance significantly reduces poverty at macro level and thus reinforce the case for channeling funds from development finance institutions and governments of developing countries into MFIs.
That is from a paper by Imai et al (World Development, August 2012). An early draft is here. In this case the instrumental variable includes average lags of loan portfolio and the number of borrowers, both weighted by the number of Microfinance Institutions in each country. It looks good to me.

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