Does microfinance reduce poverty? Some international evidence

In this paper, the hypothesis that microfinance is an effective tool for reducing poverty at the macro level is tested using a unique cross-country panel data set from 106 countries for the period 1998-2013. Taking into account the potential problem of sample selection bias and endogeneity, this paper shows that microfinance has a negative effect on poverty. The results are robust to the choice of microfinance measures and poverty indicators. They suggest that in developing and emerging countries, the establishment of more MFIs should be encouraged, and more funds should be directed from development agencies and governments into MFIs, to reduce poverty.