Open Access | Original Research

International Journal of Social Sciences and Economic Review, 4(1), 2022 | PP: 01– 09
[Link]

The Role of Microfinance In Poverty Reduction:

Countries Experiences by Regions 2000-2018
Heba El-Nasharty1
Abstract: The purpose of this study is to evaluate the impact of microfinance provisions on poverty
reduction across various developing and a few developed countries, examining how regional differences
and time influence the performance of the microfinance industry. The study employs a panel data model
and pooled Ordinary Least Squares (OLS) to analyze the effect of key microfinance indicators—namely,
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El-Nasharty, H. (2022). The Role growth, trade openness, and the contributions of agriculture and industry to GDP. The empirical analysis
Of Microfinance In Poverty is conducted using panel data from 91 countries across six regions, covering the period from 2000 to 2018,
Reduction: Countries with data sourced from the World Development Indicators and the Microfinance Information Exchange
(MIX) Market. The findings of the study indicate that microfinance indicators significantly reduce poverty,
Experiences by Regions 2000-
highlighting the critical role of microfinance in improving the living standards of disadvantaged
2018. International Journal of
populations. Additionally, the study finds that certain control variables also contribute to poverty
Social Sciences and Economic reduction, further supporting the efficacy of targeted economic policies. This study underscores the
Review, 4(1), 01-09. importance of microfinance as a tool for poverty alleviation, particularly in regions with high poverty rates
[Link]/10.36923/ijsser.v4i1.101 and low financial inclusion. The research also suggests that enhancing the performance of the
microfinance sector can aid governments in achieving their poverty reduction goals. The implications of
©2022 by author(s). This is an this study are significant for policymakers and stakeholders in the microfinance industry. It calls for the
development of regulatory frameworks, legislative reforms, and policies aimed at strengthening the
open-access article distributed
microfinance sector. Moreover, the study highlights the need for continuous training, capacity building,
under the terms of the Creative and support to ensure the sustainability and effectiveness of microfinance initiatives.
Commons Attribution License
4.0 International License. Keywords: Poverty, Microfinance, Financial Sector, Employment, Egypt

1. Introduction
Corresponding Author(s):
Poverty, defined as a "pronounced deprivation in well-being" (Boonperm, Haughton,
Heba El-Nasharty & Khandker, 2009), remains a pervasive global concern. According to the World
Faculty of Economics and Bank, over 1.29 billion people lived on less than $1.25 per day in 2010, representing
Political Science, Cairo almost 22% of the population in developing countries. Despite a reduction in the
University, Egypt. Email: poverty rate by over half from 1990 to 2010, about one billion people still lived in
hebnash@[Link] extreme poverty by the end of 2015 (Beegle & Christiaensen, 2019). In 2017, the
global extreme poverty rate fell further to 9.2%, yet approximately 700 million people
continued to live below the World Bank's poverty line of $1.90 per day. At higher
poverty thresholds, 24.1% of the global population lived on less than $3.20 per day,
and 43.6% lived on less than $5.50 per day (Munoz Boudet, Bhatt, Azcona, Yoo, &
Beegle, 2021). By 2018, nearly half of the world’s population—about 4 billion
people—survived on a daily family income of less than $2.50. Notably, approximately
50% of these individuals—368 million—reside in just five countries: India, Nigeria,
the Democratic Republic of Congo, Ethiopia, and Bangladesh. These nations harbour
the largest numbers of people living in poverty, who often remain excluded from
economic growth and prosperity.
Given the global economic system's exclusion of the impoverished, microfinance
institutions (MFIs) have emerged to address this "risky segment," offering micro-
financial services that help alleviate poverty in developing countries (Battilana &
Dorado, 2010). Research in Africa, Asia, Latin America, and the Caribbean
demonstrates the positive impact of microfinance programs on household income,
consumption, women’s empowerment, and children’s education (Vaessen et al.,
2014). Microfinance has been recognized as a key contributor to poverty reduction,
offering a range of financial services, including credit, payment services, money
transfers, and insurance to poor and low-income families and their microenterprises.
Given its significant role in job creation and revenue generation for governments, the
United Nations has acknowledged microfinance as one of the most effective tools for
poverty alleviation (Saad & Duasa, 2010).
MFIs typically offer standardized products, primarily small loans, to a vast
number of unbanked individuals in developing countries, complementing rather than
substituting traditional financial services (Bauchet & Morduch, 2013). In contrast,

1 Faculty of Economics and Political Science, Cairo University, Egypt. Email: hebnash@[Link]

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MFIs in developed countries, where banking services are widespread, focus on facilitating self-employment among
a smaller group of micro-entrepreneurs overlooked by commercial banks. In Europe, the primary objectives of
microfinance are job creation, the promotion of small enterprises, financial and social inclusion, and the
empowerment of target groups. In 2011, active MFIs in the European Union (E.U.) disbursed over 204,080 loans
worth EUR 1,047 million in total. Many MFIs in the E.U. benefit from government subsidies, which are crucial
during their startup phase and come in various forms, such as insurance against default risk, tax incentives, loans
at preferential rates, and business development services.
The landscape of microfinance in developed countries differs from that in developing regions, where the
distinction between clients served by conventional banks and MFIs is blurred. Some MFIs serve clients eligible
for bank loans, while others fill the gaps left by traditional financial institutions. The financial sector's response to
the growth of microcredit activities has been mixed; some banks have established or partnered with MFIs, while
others have advocated for stricter market regulations and greater oversight of microfinance activities. Micro-
entrepreneurs often prefer MFIs over traditional banks due to less stringent screening processes and a stronger
social orientation. MFIs provide business advice, technical assistance, and other appealing credit conditions and
products such as savings and insurance, which makes them a formidable challenge to traditional banks (Bendig,
Unterberg, & Sarpong, 2014).
The purpose of this study is to investigate and evaluate the impact of microfinance provisions on poverty
reduction across various regions, including both developing and developed nations. Additionally, the study aims
to assess the influence of regional and temporal factors on the performance of microfinance businesses.
2. Literature Review
The prominence gained by the Microfinance industry marks a significant milestone within a historical framework.
It has reshaped preconceived notions about the poor as consumers of financial services, debunked the myth that
the poor are unbankable, introduced a variety of lending methodologies proving the feasibility of delivering cost-
effective financial services to the impoverished, and mobilized substantial "social investment" for the
underprivileged (Mutua, Nataradol, Otero, & Chung, 1996). The principal goal of the microfinance movement has
always been poverty reduction. Microfinance institutions (MFIs) sought to be self-sustaining and even profitable
while providing the poor with the necessary repayable funds, which led to the global institutionalization of
microfinance. “Microfinance is perhaps the best strategy for poverty alleviation in developing nations. Although
it has traditionally been supported by non-governmental organizations and socially-oriented investors, MFIs have
increasingly proven their value as standalone entities, offering a variety of products and services to serve the
underserved.”
In Thailand, the impact of funds on income and expenditure levels was investigated through an empirical
study using panel data from the Thailand Socioeconomic Surveys of 2002 and 2004, employing propensity score
matching. Launched in 2001, the Thailand Village and Urban Community Fund (VF) provided working capital
for local credit associations with a total of US$2 billion for Thailand's 78,000 rural villages. A fixed-effects model
using a panel of rural households concluded that VF borrowing is associated with an average 3.5% increase in
current spending and a 1.4% increase in income. A similar study using propensity score matching on nationwide
data in 2004 found that VF loans are linked to the acquisition of durable goods, indicating increased spending
(Boonperm, Haughton, & Khandker, 2013).
The impact of microfinance on key needs indices, such as family consumption and housing improvements,
was examined through a four-round panel dataset on farm households with access to microfinance in northern
Ethiopia. The use of fixed-effects and random trend models to mitigate potential biases showed that borrowing
significantly enhanced consumption and housing improvements over the long term. These findings suggest that
short-term impact estimates might overstate the benefits of microfinance (Berhane & Gardebroek, 2011).
Bangladesh, the birthplace of the modern microfinance era, has been the focal point of numerous studies on
microfinance's effect on poverty. Imai and Azam (2012) examined the impact of MFI loans on poverty reduction
using a household panel covering 1997 to 2004. They assessed the effects of general MFI loans and loans for
productive purposes on income, food consumption, and women's Body Mass Index. The study found that MFI
loans positively impacted income and food consumption, with the purpose of the loan being a key factor in
improving household welfare indicators. Alternative evaluation methods confirmed the positive impact of MFI
loans on food consumption and poverty reduction in Bangladesh.
In Pakistan, Rajper, Ghumro, Mangi, and Lund (2018) analyzed the impact of microloans disbursed by
Khushhali Bank Limited in the Sukkur region of Sindh. They studied the effect of generated income on poverty
alleviation among a sample of 370 individuals. The study revealed significant relationships among various
variables, including occupation, residential area, age, gender, education, income, and the microloans provided.
The findings suggest that microfinance plays a crucial role in alleviating poverty among the bank's customers in
Sindh and that MFIs can significantly enhance their performance in this regard.
In India, a large segment of the population remains financially excluded, particularly among the poor and
marginalized. Prathap, Mahesh, and Karthik (2018) explored the impact of microfinance initiatives on income
levels, employment opportunities, and living standards in Karnataka State. Through structured questionnaires

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targeting members of Self Help Groups (SHGs) engaged in microfinance for at least two years, the study found
that 82% of borrowers were able to start businesses, with 61% reporting an increase in income levels. The study
highlighted the positive impact of microfinance on employment opportunities and overall living standards.
Aggarwal, Klapper, and Singer (2013) examined the role of microfinance in promoting long-term economic
growth for small businesses in Sub-Saharan Africa. The study found that access to finance leads to business
growth, though the economic gains from microfinance were lower than expected due to challenges in mobilizing
household savings and empowering individuals through financial services. The study concluded that promoting
savings methods could be more effective in reducing poverty than loans.
The long-term success of microfinance is tied to the "graduation rate," where successful microfinance
"graduates" often achieve sustained benefits through saving and business success. Ahlin and Jiang (2008) studied
the long-term economic effects of microfinance, finding that the sustainability of microfinance loans could be
improved by enhancing the productive efficiency of self-employed borrowers. This can be achieved through data
sharing, automated transactions, and developing borrower programs. Incentives for MFI loan officers and
performance measures are also crucial for MFI’s success.
Regarding MFI sustainability, microfinance sustainability can be divided into four interconnected concepts:
economic viability, financial suitability, institutional feasibility, and borrower reasonability. Economic viability
relates to how a lending institution compares the cost per unit of currency lent to the interest charged to borrowers.
Financial suitability involves ensuring that the monetary return on assets used for lending activities meets the costs
incurred. Khandker (2005) suggested that loan repayment rates might be an indicator of MFI’s financial
sustainability, as low default rates support future lending. Meyer (2002) emphasized that the poor need long-term
access to financial services rather than one-time financial assistance, as short-term loans could worsen their
welfare.
Microfinance's financial sustainability challenges arise from low repayment rates or the non-fulfilment of
funding promises by donors or governments. "Measuring financial sustainability requires that MFIs maintain good
financial accounts and follow recognized accounting practices that provide full transparency for income, expenses,
loan recovery, and potential losses" (Meyer, 2002). Microfinance has emerged as a key financial delivery
innovation, widely regarded as a poverty alleviation tool that supports economic development and provides vital
financial services. Numerous MFIs worldwide have demonstrated the feasibility of reaching the poor while
remaining profitable.
3. Microfinance Performance Worldwide
3.1. Micro Finance Institutions’ Performance
Micro Microfinance Institutions (MFIs) have consistently demonstrated their crucial role in poverty alleviation by
providing loans to the poor or those with limited access to credit through commercial banks. In 2017, MFIs served
139 million clients, with a total credit portfolio of USD 114 billion. Microfinance continues to reduce financial
exclusion, with 69% of adults accessing financial services in 2017, a 7% improvement from 2014. Over the past
decade, MFIs have lent hundreds of billions of dollars, maintaining an average annual growth rate of 11.5% since
2014.
With nearly 66% of the world's borrowers in 2017, South Asia remains the global leader in microfinance.
India led the way, with 50.9 million borrowers and an outstanding loan portfolio of EUR 17.1 billion, followed by
Bangladesh, Vietnam, Mexico, and the Philippines (Barometer, 2019).
Agriculturl sector Increase in no of
constiitues 65% of Other MFI Top 100 MFI
borrowers
the total no of loans 2016:+9.6%
2017:+5.6%
2018:+9.5%
24%, 24%
$124

increase in the no of No of borrowers

MFIs 76%, 76% reached 140 million
2016:+9.4% as of 2018
2017:+15.6% * 20% : MEN
* 80%: Women

Figure 1: Worldwide MFI performance. Source: Barometer (2019)

3.2. Number Of Microfinance Institutions
Although the microfinance revolution began in Bangladesh, data from Mix-market indicates that the Latin America
and Caribbean region has the largest number of microfinance institutions, followed by Sub-Saharan Africa, with
the MENA region having the fewest. The region with the highest volume of loans disbursed is East Asia and the
Pacific, while South Asia has the highest number of borrowers. Sub-Saharan Africa has the highest microfinance
intensity.

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As of 2018, the top 100 MFIs accounted for 76% of the total loans disbursed, amounting to $US124 billion,
with 80% of the beneficiaries being women. The number of MFIs has been growing steadily, with increases of
9.4%, 15.6%, and 8.5% in 2016, 2017, and 2018, respectively, alongside a rise in the number of borrowers
(Microfinance Barometer 2019). South Asia remains the global leader in terms of the number of borrowers,
accounting for 60% of global borrowers in 2017. India led the way among active countries in microfinance
worldwide in 2017, with 50.9 million borrowers and an outstanding gross loan portfolio of $19.5 billion, followed
by Bangladesh, Vietnam, Mexico, and the Philippines.
3.3. Number Of Borrowers And Gross Loan Portfolio
In In 2018, 139.9 million borrowers benefited from MFIs, compared to 98 million in 2009. Of these 139.9 million
borrowers, 80% are women, and 65% are rural borrowers—ratios that have remained stable in recent years despite
the increase in the number of borrowers (Barometer, 2019).
Geopolitical situations and economic models influence the performance of MFIs, especially regarding
profitability, which varies from one region to another. In Eastern Europe and Central Asia, MFIs experienced a
decline in performance, while returns in Africa were positive. Performance in South Asia improved, supported by
high efficiency and effectiveness.
Data from Mix-Market highlights that Africa is one of the fastest-growing regions for MFIs. Between 2002
and 2014, the gross loan portfolio of African MFIs grew from $0.6 billion to $8.48 billion. The expanding loan
portfolio is driven by the increasing consumer base opting for this alternative financing solution. Between 2002
and 2011, depositors grew from 3 million to 20 million, and the number of active borrowers increased from 3
million to 6 million. The demand for microfinance products stimulated the supply, with the number of MFIs
growing from 177 in 2002 to 394 in 2011.
South Asia continues to dominate global microfinance, being the region with the largest number of borrowers
(85.6 million in 2018). This number has been increasing faster than in other regions (+13.8% between 2017 and
2018). The region also hosts the three leading microfinance markets: India, Bangladesh (where micro-credit was
first ignited by Professor Yunus), and Vietnam, with 73% of clients being women and 79% being rural borrowers.
With 500 MFIs operating between 2000 and 2018, India accounts for half (250 MFIs), followed by Bangladesh
(86 MFIs). Microfinance loans disbursed in the region continued to grow, with a portfolio of $21.5 billion in 2018.
That same year, 20.8 million recipients borrowed from microfinance organizations in the region (+10.2% versus
2017). From 2012, the total number of MFIs in the region grew by an average of 16% annually, accompanied by
continuous, albeit slower, growth in the number of clients (+6%/year). Although South Asia accounts for nearly
two-thirds of global borrowers, it ranks second in terms of outstanding portfolio, with an estimated $36.8 billion
in 2018 (Barometer, 2019).
The Asia-Pacific microfinance sector has undergone transformational change. It has grown extensively as
innovations in the financial industry have helped MFIs diversify their product offerings. Furthermore, enterprises
served by these microfinance institutions are becoming more dynamic, along with the increasing complexity of
financing requirements. Significant contrasts exist across the region, as MFIs undergo structural changes, adapting
their business models to various financial institutions, such as small banks.
The East Asia & Pacific and Latin America and Caribbean regions have the largest Gross Loan portfolios,
together accounting for 44% of the total microfinance sector portfolio, with $48 billion in outstanding loans (+5%
annually since 2012). These regions were the first to integrate microfinance into their economies, drawing from
Bangladesh's experience. The region is the second largest for the number of borrowers, with 23 million clients in
2018, a slightly lower figure (-0.3%) following years of growth.
South Asia has the highest number of borrowers, followed by Latin America and the Caribbean. However,
financial inclusion in the MENA region remains among the lowest globally, with only 18% of the population
having a formal bank account and just 13% of the female population participating. The MENA region also has the
lowest number of borrowers and the least amount of microloans disbursed. Microfinance is an effective method
for increasing financial access. However, specific microfinance regulations and an effective support structure are
necessary to strengthen the sector in the MENA region. Moreover, there should be provisions for training,
information sharing, monitoring techniques, and capacity building for MFI staff to scale up and expand their
outreach. This will enable them to better provide borrowers with the necessary advice to ensure business success
and loan repayment, which in turn will ensure the sustainability and success of MFIs.
4. Methodology
This section examines the effect of microfinance on the poverty headcount rate while controlling for other variables
that have been identified in the literature as typically influencing poverty. The dependent variable in this study is
the poverty headcount ratio at three poverty lines: $1.90, $3.20, and $5.50 per day. In addition to microfinance
variables that might influence poverty rates—such as the number of microfinance institutions, the total gross loan
portfolio disbursed, and the percentage of microfinance loans to GDP (referred to as microfinance intensity)—
other determinants of poverty rates are included in the model as control variables. Based on the literature, these
control variables include inflation, employment rate, gross capital formation, trade openness, and agriculture and
industry value added (% of GDP).

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Each microfinance variable/indicator will be tested separately, alongside all other control variables that may
affect the poverty rate, to assess each microfinance indicator's effect and significance in reducing poverty rates.
More specifically, this study employs an enhanced model following the approach used by Inoue and Hamori (2013)
to estimate the effect of microfinance on poverty headcount ratios at $1.90, $3.20, and $5.50 per day. A panel data
model is applied to study 91 countries, clustered into six regions: Sub-Saharan Africa, Middle East and North
Africa, East Asia and Pacific, South Asia, Europe and Central Asia, over the period 2000-2018.
The Model is as follows:
PHRit = β0+ β1 MFit + β2 Pop Growthit + B3 Inflationit + β4 Trade %GDPit + β5 GCF2it + β6 Agg% GDPit + β7
Ind% GDPit + β8 Employment Rateit + uit,
Where i= 1, 2,….N , t=1,2,…T
Microfinance variables include the number of microfinance institutions, total loans, and microfinance
intensity as examples of explanatory factors for microfinance (MF). The control variables include trade as a
percentage of GDP, gross capital formation, employment rate (male and female %), and agriculture and industry
value added (% of GDP). The coefficient Βit measures the partial effect of microfinance or any other control
variables on poverty headcount ratios, while uit is the error term for country i at time t.
A Hausman test is performed on the panel data to determine whether to use Random Effects or Fixed Effects.
Due to data limitations, the model tests the effect of these variables across six regions over five periods (using
averages). Dummy variables for the regions and time periods are included in the model to capture the effects of a
country being in a specific region and the impact of time. Consequently, pooled OLS will be used to test for the
significance of these dummies.
5. Data And Estimated Results
Data was estimated using Fixed Effect (FE) and Random Effect (RE) models, with the Hausman test employed to
determine the more appropriate model. Since the results of the Hausman test for all model variations rejected the
null hypothesis, with all P values being less than 0.05, the FE model was deemed the most appropriate, and the
results were interpreted accordingly. The model was estimated individually at each poverty level, with each
microfinance indicator tested alongside the control variables. This approach allowed for assessing the impact of
each microfinance indicator independently.
Table 1 presents the estimated results at a poverty headcount ratio (PHR) of $1.90 using three FE models to
test the effect of Total Gross Loans Disbursed, the Total Number of Microfinance Institutions, and Microfinance
Intensity (Number of Microfinance Institutions as a % of GDP), each on its own, along with the control variables.
The results indicate that all microfinance indicators have a significant negative effect on PHR at $1.90. The greater
the number of microfinance institutions, the higher the volume of loans disbursed, and the larger the percentage
of GDP represented by these loans, the lower the poverty rates. This demonstrates the positive impact of
microfinance in reducing poverty and improving the living standards of disadvantaged populations. As for the
control variables: Gross Capital Formation (GCF) and Agriculture Value Added have a significant negative effect
on poverty across all three model variations, indicating that higher GCF and a more substantial contribution from
the agriculture sector to GDP correlate with lower poverty rates. Conversely, at this poverty level, a greater
contribution from the industrial sector to GDP correlates with higher poverty rates. Therefore, higher involvement
of the poor in the agricultural sector appears to be beneficial at this poverty level. The estimates also show that a
higher percentage of female employment reduces the poverty rate, underscoring the importance of encouraging
female participation in the labor force. The literature highlights that female engagement in microfinance projects
is generally higher than that of males, and women have higher repayment rates, as reflected in the estimated
models. In contrast, a higher percentage of male employment correlates with increased poverty. Additionally, the
higher the Trade % of GDP, the Population Growth Rate, and the Inflation Rate, the higher the poverty rate;
however, in the first model, inflation has an insignificant negative impact.
Table 1: Estimated results of the Model at Poverty headcount ratio $ 1.9
Model 1 Testing for Gross Loan Model Testing for Number of Model 3 Testing for Microfinance
Microfinance Institutions Intensity
Gross Loan Portfolio (-1.17e- No of Microfinance (- Microfinance Intensity (-0.450)***
09***) Institutions 0.0970)**
0.000 (0.04) (0.15)
Population Growth 2.148* Population Growth 1.628 Population Growth 2.053
(1.251) (1.310) (1.26)
Inflation -0.00405 Inflation 0.104 Inflation 0.00518
(0.080) (0.11) (0.08)
Trade(%GDP) 0.024 Trade(%GDP) 0.034 Trade(%GDP) 0.0191
(0.03) -0.0297 (0.03)
Gross Capital (- Gross Capital Formation (- Gross Capital Formation (-0.527)***
Formation 0.544)** 0.580)***
*
(0.102) (0.10) (0.10)

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Aggriculture Value (0.681)* Aggriculture Value (0.700)*** Aggriculture Value (0.670)***
Added (% GDP) ** Added (% GDP) Added (% GDP)
(0.14) (0.15) (0.14)
Industry Value (0.282)* Industry Value Added (0.355)** Industry Value Added (% 0.248
Added (% GDP) (% GDP) GDP)
(0.17) (0.18) (0.17)
Per cent of Female -0.115 Percent of Female -0.239 Percent of Female (-0.316)*
Employment Employment Employment
(0.19) (0.19) (0.18)
Percent of Male (0.560)* Percent of Male (0.619)*** Percent of Male (0.621)***
Employment * Employment Employment
(0.23) (0.23) (0.23)
Constant -24.27 Constant -24.18 Constant -18.03
(17.70) (15.46) (14.98)
No of Obsv 266 No of Obsv 265 No of Obsv 264
R-squared 0.445 R-squared 0.41 R-squared 0.413
Source: Calculated by author. Note: ***p<0.01, **p<0.05, *p<0.1
Table 2 presents the estimated results of the three FE models on the Poverty Headcount Ratio (PHR) at $3.20.
The results indicate that all microfinance indicators have a significantly negative effect; the higher the
microfinance indicators, the lower the poverty rate. Among the control variables, higher GCF, a greater
contribution from female employment, and a higher Trade % of GDP are associated with lower poverty rates. At
this PHR, Agriculture Value Added % of GDP and Industry Value Added % of GDP increase poverty, along with
Inflation, Population Growth, and Percent of Male Employment.
Table 2: Estimated results of the Model at Poverty headcount ratio $ 3.2
Model 1 Testing for Gross Loan Model Testing for Number of Model 3 Testing for Microfinance
Microfinance Institutions Intensity
Gross Loan (-1.16e- No of (-0.119)** Microfinance Intensity (-0.669)***
Portfolio 09***) Microfinance
Institutions
0.000 (0.06) (0.19)
Population Growth 0.169 Population Growth -0.487 Population Growth -0.00531
(1.63) (1.72) (1.62)
Inflation 0.105 Inflation (0.322)** Inflation 0.118
(0.10) (0.14) (0.10)
Trade(%GDP) -0.0151 Trade(%GDP) -0.00238 Trade(%GDP) -0.0214
(0.04) (0.04) (0.04)
Gross Capital (-0.547)*** Gross Capital (-0.600)*** Gross Capital Formation (-0.514)***
Formation Formation
(0.13) (0.14) (0.13)
Aggriculture Value (1.307)*** Aggriculture Value (1.327)*** Aggriculture Value Added (1.283)***
Added (% GDP) Added (% GDP) (% GDP)
(0.18) (0.19) (0.18)
Industry Value (0.685)*** Industry Value (0.806)*** Industry Value Added (% (0.625)***
Added (% GDP) Added (% GDP) GDP)
(0.22) (0.23) (0.22)
Percent of Female (-0.423)* Percent of Female (0.806)** Percent of Female (-0.726)***
Employment Employment Employment
(0.24) (0.25) (0.29)
Percent of Male 0.468 Percent of Male (0.573)* Percent of Male (0.541)*
Employment Employment Employment
(0.29) (0.31) (0.29)
Constant -1.514 Constant -4.408 Constant 9.43
(19.50) (20.23) (19.28)
No of Obsv 266 No of Obsv 265 No of Obsv 264
R-squared 0.445 R-squared 0.41 R-squared 0.413
Source: Calculated by the Author. Note: *** p<0.01, ** p<0.05, * p<0.1
Table 3 presents the estimated results of the three FE models on the Poverty Headcount Ratio (PHR) at $5.50.
The results show that all microfinance indicators significantly reduce poverty. Among the control variables, higher
GCF (except in the last model) and greater engagement of the female labour force correlate with lower poverty
rates. Higher inflation rates are associated with increased poverty, and at this poverty level, neither Agriculture
nor Industry % of GDP improves poverty outcomes. A higher Trade % of GDP correlates with a lower poverty
rate, though the impact is insignificant. As in the previous models, a higher percentage of male employment does
not improve the poverty rate, and higher inflation rates correspond with higher poverty rates.

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Table 3: Estimated results of the Model at Poverty headcount ratio $ 5.5
Model 1 Testing for Gross Loan Model Testing for Number of Model 3 Testing for Microfinance
Microfinance Institutions Intensity
Gross Loan Portfolio (-2.05e- No of Microfinance (-0.114)* Microfinance (-0.909)***
09***) Institutions Intensity
0.000 (0.07) (0.22)
Population Growth -2.773 Population Growth (-3.497)* Population -2.916
Growth
(1.89) (1.99) (1.86)
Inflation (0.239)*** Inflation (0.541)*** Inflation (0.254)***
(0.12) (0.16) (0.12)
Trade(%GDP) -0.0185 Trade(%GDP) -0.00703 Trade(%GDP) -0.0261
(0.04) (0.05) (0.04)
Gross Capital (-0.280)* Gross Capital (-0.335)** Gross Capital -0.24
Formation Formation Formation
(0.150) (0.15) (0.15)
Aggriculture Value (1.350)*** Aggriculture Value (1.379)*** Aggriculture (1.309)***
Added (% GDP) Added (% GDP) Value Added (%
GDP)
(0.21) (0.22) (0.21)
Industry Value Added (0.613)*** Industry Value Added (0.738)*** Industry Value (0.558)***
(% GDP) (% GDP) Added (% GDP)
(0.24) (0.26) (0.24)
Percent of Female (-0.801)*** Percent of Female (-1.016)*** Percent of Female (-1.142)***
Employment Employment Employment
(0.28) (0.29) (0.27)
Percent of Male (0.377)** Percent of Male 0.545 Percent of Male 0.449
Employment Employment Employment
(0.34) (0.36) (0.33)
Constant (41.05)* Constant 35.14 Constant (53.93)**
(17.70) (23.54) (22.25)
No of Obsv 266 No of Obsv 265 No of Obsv 264
R-squared 0.445 R-squared 0.41 R-squared 0.413
Source: Calculated by the author.
Microfinance can play a significant role in poverty reduction by providing poor people with the necessary funds
to start and develop their businesses, generating income that improves the quality of life for their families,
including better nutrition, education, and health, as evidenced by the above estimates at various poverty headcount
ratios. Moreover, microfinance can alleviate the burden of unemployment by creating job opportunities for
entrepreneurs and through induced job creation. Microfinance encourages female participation in the labor force,
and females' high repayment rates contribute to the sustainability of their businesses. As the estimates indicate, the
larger the percentage of employed females, the lower the poverty rates at all levels. Therefore, policies and
regulations should encourage female employment and provide the necessary support to facilitate their engagement
and contribution to the economy. Microfinance should also be supported to increase and strengthen its role in the
business sector, not only by expanding the number of microfinance institutions and loans but by enriching the
business environment with the tools necessary to ensure the sustainability of this sector. Training, technical
assistance, capacity building, follow-up, guidance, support, and appropriate policies are all essential to elevate the
performance of all partners involved in the microfinance business.
Pooled OLS was used to assess the effects of different regions and time periods on poverty rates. Countries
were divided across six regions, and the analysis was conducted over a five-year average period. The MENA
region served as the reference region, and the last period (P5) was the reference period. The estimated results at
PHR $1.90 show that all regions exhibit significantly higher poverty rates than the reference period, except for
Europe & Central Asia and Latin America & Caribbean, where the results are not significant. Regarding the effect
of time, higher poverty rates are observed, though the first and fourth periods are insignificant.
At PHR $3.20, Europe & Central Asia exhibit lower, yet insignificant, poverty rates compared to the MENA
region; all other regions show significantly higher poverty rates, except for Latin America & Caribbean, which
show insignificant results. All periods also exhibit significantly higher poverty rates, except for the first period,
which shows a lower yet insignificant poverty rate. The regional and temporal effects show that Europe and Central
Asia have lower but insignificant poverty rates, Latin America and the Caribbean have insignificantly higher
poverty rates, while the other three regions—Sub-Saharan Africa, East Asia Pacific, and South Asia—exhibit
significantly higher poverty rates than the MENA region at PHR $5.50. As for the effect of time, all periods show
significantly higher poverty rates, except for the first period, which shows a significantly lower rate than the last
period under study.

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6. Conclusion
Poverty remains one of the most significant global challenges. This study empirically investigates the impact of
microfinance provision on the welfare of those who access it and highlights its potential as a powerful tool for
poverty reduction. The literature has extensively discussed the effectiveness of microfinance in enhancing the
welfare of low-income populations. The small loans provided by microfinance institutions or commercial banks
do not require collateral or formal documentation, making them suitable for the poor, who typically lack such
resources. However, the microfinance sector in the MENA and Sub-Saharan Africa regions is not yet fully
developed and has not reached its potential demand. A notable issue in the MENA region is the lack of an
appropriate financial management system, monitoring and information systems, product diversification, and
innovation in microfinance programs that meet clients' needs. Microfinance can also be an effective tool for
empowering women by involving them in social activities, as they have demonstrated their ability to sustain
businesses and repay loans successfully. The estimated results indicate that an increase in the number of
microfinance institutions, gross loans disbursed, and the share of loans to GDP correlate with lower poverty rates.
Furthermore, engaging more women in the workforce significantly contributes to poverty reduction. The results
underscore the importance of the microfinance industry in alleviating poverty and the need to enhance its role in
the economy, particularly in regions with high poverty rates and low levels of financial inclusion. Regulatory,
legislative, and policy reforms are essential to improving and strengthening the business environment to ensure
the sustainability of loan provision. Simultaneously, continuous follow-up, training, capacity building, and
guidance are necessary. It is crucial to design and implement appropriate criteria for selecting beneficiaries to
ensure loan repayment and that these loans are used effectively to establish and grow businesses.
7. Limitations And Further Recommendations
This study faced several limitations. Due to data constraints, not all countries in the studied regions were covered,
particularly concerning poverty rates, which necessitated using five-year averages. Additionally, microfinance
data available from MIX Market was not comprehensive for all countries over the entire period from 2000 to 2018.
The availability of microfinance literature, especially concerning developed countries that have incorporated
microfinance into their financial systems, is still limited, making it challenging to study the impact of microfinance
and its performance in such economies. These limitations present future research opportunities that require more
updated data and further investigation. More research and empirical studies are needed for developed countries as
well as the MENA regions and Arab countries to identify their performance, gaps, and the means required for
enhancement and improvement.
Governments aiming to reduce poverty should focus on developing a robust legal framework to legitimize
and promote the inclusion and expansion of microfinance activities. This will increase confidence in the system
and contribute to poverty reduction efforts. Microfinance must move away from reliance on grants or charity and
transition towards self-sufficiency and financial sustainability. The creation of incentive mechanisms for
microfinance, along with the provision of necessary supervision, training, technical advice, assistance, and
management tools, is crucial to enhance and develop this sector and enable it to have a more significant impact on
poverty reduction.
Acknowledgement Statement: The authors would like to thank all participants and the reviewers for providing
comments in helping this manuscript to completion.
Conflicts of interest: The authors declare that they have no known competing financial interests or personal
relationships that could have appeared to influence the work reported in this paper.
Funding statements: This research has not received any funding.
Data availability statement: Data is available at request. Please contact the corresponding author for any
additional information on data access or usage.
Disclaimer: The views and opinions expressed in this article are those of the author(s) and contributor(s) and do
not necessarily reflect IJSSER's or editors' official policy or position. All liability for harm done to individuals or
property as a result.
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About The Author

The author is a current PhD candidate in Economics at the Faculty of Economics and Political Science, Cairo
University, Egypt. With a master's and Bachelor of Economics from the American University in Cairo. The author
has over 15 years of working experience in the Financial and Industrial sectors in Egypt. Born in 1976, Cairo
Egypt.

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