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What Drives Financial Inclusion at the Bottom of the Pyramid? Empirical Evidence from Microfinance Panel Data

Catalina Martinez () and Annette Krauss
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Catalina Martinez: Center for Finance and Development, The Graduate Institute, Geneva; Center for Microfinance, Department of Banking and Finance, University of Zurich, http://www.graduateinstitute.ch/cfd
Annette Krauss: Center for Microfinance, Department of Banking and Finance, University of Zurich

No 07-2015, CFD Working Papers from Centre for Finance and Development, The Graduate Institute

Abstract: Microfinance has played a key role in including the poor in financial markets. This paper uses microfinance data to approximate financial inclusion in the poorer segments of the population and proposes a quantile regression approach to study the development of microfinance markets. Our approach accounts for the dynamic and heterogeneous impacts that key drivers may have across different stages of market development. It also allows us to go beyond correlations and gets us closer to identifying causal relationships. Our key findings indicate that: i) Microfinance markets are more responsive to the needs of the bottom of the pyramid than to potential growth opportunities. ii) Enabling institutions that provide credit information become increasingly important with higher market complexity. iii) Formal financial development is a complement of microfinance development. iv) Technologies can help to overcome market entry barriers, and to enable a higher inclusion in markets with a high degree of complexity. Our results could help policymakers and investors better understand and influence financial inclusion at the bottom of the pyramid across different stages of market development.

Keywords: financial inclusion; microfinance; market penetration; quantile regression (search for similar items in EconPapers)
JEL-codes: G21 L16 O16 (search for similar items in EconPapers)
Pages: 77 pages
Date: 2015-03-31
New Economics Papers: this item is included in nep-mfd
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