Macroeconomics of Microfinance: How Do the Channels Work?

Nargiza Maksudova
Authors registered in the RePEc Author Service: Nargiza Alimukhamedova ()

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: Recent changes in the microfinance landscape are characterized by increasing patterns of its integration with national financial systems and entry of commercial banks. Microfinance is no longer perceived as an isolated marginal sector of informal intermediation but rather constitutes particular lower-end segment of the broader financial system. Addressing the limited research on the interaction of microfinance with the broader economy I aim to reveal whether and how microfinance is transferred to growth through the identification of causality. I also consider the indirect impact of microfinance through its complement/substitute nature with mainstream banks. The empirical analysis is based on data from 1433 microfinance institutions pooled into 102 countries on which I perform a Granger-causality test using the Arellano and Bond (1991) methodology. The results indicate different transfer channels of microfinance to growth for middle and low-income countries, implying that the strength of the impact depends on the underlying level of development. The nature of microfinance interaction with commercial banks and money aggregates is of significant importance due to competition, spillover effects and (counter) cyclical influence, which hints at the potential of microfinance institutions to affect financial sector structure in the long-term.

Keywords: microfinance; economic growth; financial intermediation; dynamic panel (search for similar items in EconPapers)
JEL-codes: G15 G21 O16 O57 (search for similar items in EconPapers)
Date: 2010-10
New Economics Papers: this item is included in nep-ban and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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