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Macroeconomics of microfinance: how do the channels work?

Publication at Faculty of Social Sciences, Faculty of Mathematics and Physics, Centre for Economic Research and Graduate Education |
2010

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.