Microfinance and Poverty Reduction: An Empirical Study On Sub-Saharan Africa

Degree Name

MA in Sustainable Development

First Advisor

Dr Davina Durgana


According to the 2014 Global Financial Development Report by the World Bank, about two billion or 38% of adults in the world do not use formal financial services; a pandemic that is even more severe in developing countries where about 80% of those living under the $2/day poverty line do not have an access to formal finance. In response, microfinance has been widely advocated as an alternative to mainstream finance because it promises to target and serve financially deprived enterprises and individuals. Accordingly, this paper empirically investigates the nexus between microfinance and poverty reduction in the world’s poorest region, Sub-Saharan Africa (SSA). This panel data study covers 36 SSA countries from the year 2005 to 2011. The interaction term between Asset per capita and Gross Loan Portfolio per capita is used to proxy microfinance in an Ordinary Least Square regression model. The main findings suggest that microfinance does have a positive and statistically significant correlation with poverty reduction in SSA, especially when complemented with basic education, a stable macroeconomic environment, financial openness, and sound regulatory frameworks.

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