The impact of micro-finance on long-run economic growth

  • Shah Hassan

Student thesis: Master's Thesis

Abstract

Micro-finance, banking and financial services to the poor, is a highly debated global phenomenon introduced by Nobel Prize Winner Dr Mohammad Yunus of Bangladesh in the 1970s. Dr Yunus has proven that the poor are in fact sufficiently responsible to manage credit and repay loans on time. The aims of micro-finance are to improve the borrowers' standard of living, education, nutrition, health and so forth.According to the United Nations, 2005 was the International Year of Micro-finance. Since then, micro-finance has been shown to be an efficient and compelling economic tool for the poor sector of an economy where access to formal financial services is restricted. It demonstrates that access to efficient provision of micro-finance can empower the poor to smooth their consumption, better manage their risks, build up their own assets, develop their small and medium-sized enterprises, increase their income earning capacity, and improve their standard of living.This study investigates the relationship between Real Per Capita growth rate and standard growth determinants, conventional finance and micro-finance determinants in a sample of 124 countries over the period 1995-2013. The data on growth and conventional finance variables were collected from the World Bank Indicators, Barro-Lee database, Beck & Demirguc-Kunt database and International Financial Statistics database, and the micro-finance data were collected from the Micro-finance Exchange (MIX) market.The basic estimation technique, Ordinary Least Square (OLS) is applied; this study uses the initial values of variables as well as the averages of the variables. This study provides empirical evidence as to the impact of conventional finance and micro-finance determinants on economic growth. The results suggest that conventional finance indicators, i.e. liquid liabilities to GDP and domestic credit provided by the financial sector, and micro-finance variables, i.e. gross loan portfolio and active borrowers, have impacts on economic growth.
Date of Award1 Jun 2016
LanguageEnglish
Awarding Institution
  • University Of Strathclyde
SponsorsUniversity of Strathclyde
SupervisorRoger Perman (Supervisor) & Nikolaos Danias (Supervisor)

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