Microfinance and Inclusive Growth in Sub-Saharan Africa

Abstract

The aim of the study is to examine the impact of microfinance on inclusive growth in Sub-Saharan Africa. The dependent variable, inclusive growth, is an index of income and non-income measures and it is constructed after normalization with principal component analysis (PCA). Microfinance services and microfinance outreach are used as proxies for microfinance. A fixed effect regression with Driscoll Kraay standard error was used to assess the impact. The study employs a dataset of 821 MFIs across 35 countries in Sub-Saharan Africa (SSA) over the period 2003-2017. The study finds evidence that microfinance services (microcredit and savings) constitute a small percent of GDP in many countries in Sub-Saharan Africa. While savings promotes inclusive growth, microcredit does not. The study also provides evidence that microfinance outreach (active borrowers and depositors) leads to greater inclusive growth. This implies that countries in Sub-Saharan Africa (SSA) that participate in microfinance programs are able to promote inclusive growth. In light of these results, this study advocates that MFIs should develop products and services to encourage savings. National governments should also provide incentives to encourage MFIs to design services and products to expand access to savings among poor people. Furthermore, we recommend that international organizations and donor countries that commit to the goal of poverty alleviation and achieving high inclusive growth should intensify their efforts in reaching the poor through microfinance programs. Keywords – Microfinance, Inclusive Growth, Poverty, Sub-Saharan Africa