Ana Marr, University of Greenwich, London, UK
Julian Schmied, Potsdam University, Germany
Third European Research Conference on Microfinance,
Norway, June 2013
Content
 1. The importance of the study
 2. Poverty: definition and measurement
 3. Financial Inclusion: concept and indicator
 4. Impact of Financial Inclusion on Poverty
 5. Major MFI’s drivers of Financial Inclusion
 6. Conclusions
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The importance of the study
 One of the first studies on financial inclusion – taken
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as a specific subject of research.
Applied to one of the most dynamic microfinance
markets in the world, i.e. Peru.
Obtained exclusive information about financial
inclusion of all regulated MFIs in Peru. 2008-2010
We employ the simplest concept of financial
inclusion, i.e. access to micro-credit.
Panel data analysis of impact of financial inclusion on
poverty and the determinants of financial inclusion.
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POVERTY: definition and measurement
 Poverty is ostensibly a multi-dimensional issue. From
income/expenditure to social exclusion approaches,
including issues of vulnerability and risk.
 Applied Indicators:
 Incidence of poverty  share of population below a
pre-defined poverty line.
 Poverty Gap  the distance between the poverty
level and the poverty line.
 Severity of Poverty  the squared distance between
the income and the poverty line, i.e. inequality.
Source: World Bank/ INEI Peru
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FINANCIAL INCLUSION: concept & indicator
 Various concepts which seems similar: Financial….
… Development, Integrity, Depth ???
 Financial Inclusion: To provide access to financial
services to formerly-excluded or “unbanked”
people who demand those services.
 Our definition focuses on one of the major
financial service: Access to Credit.
 Applied Indicator: The number of people who
received a micro-loan for the VERY first time.
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IMPACT OF FINANCIAL INCLUSION ON POVERTY Theories
How can financial inclusion alleviate poverty ?
 Investment theory: Financial inclusion
disproportionally benefits the poor population, via the
lowering of collateral requirements and borrowing costs.
 Human Capital theory: People need access to credit in
order to invest in human capital; e.g. via schooling,
university, etc. to find eventually well-paid jobs.
 Firm-behavior theory: Financial inclusion has positive
external effects that the cost of capital is reduced. This
can lead to a rise of production and hence generate
employment opportunities.
 others ?
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PERU: Incidence of poverty by department, 2010
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IMPACT OF FINANCIAL INCLUSION ON POVERTY Methodology
 Panel data 2008-2009-2010 on department level: own
data merged with information from the national
institute of statistics of Peru.
 Measure the correlation between (1) the number of
financially included people and (2) different measures
of poverty
 …taking into account factors (ceteris paribus) which
influence poverty: (economic growth, unemployment,
development aid, education, rurality etc.)
Povertyit = αt + β1Financial Inclusionit + β2GDP perCapitait + β3 technologyit+β5 Internet
Accessit + β4DevelopementAidit + β5 DominantIndustryit + β6Ruralityit
+β7EducationalLevelit + eit
 Applied model: panel data random effect model.
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IMPACT OF FINANCIAL INCLUSION ON POVERTY Results
 Significant poverty-alleviating effects , i.e. negative
correlation with poverty indicators, of:
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Financial inclusion
Internet access
Average loan size per client
 Significant poverty-worsening effect, i.e. positive
correlation with poverty indicators, of:
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Rurality
 Estimation problems: Endogeneity through reversal
causality.
 Instrumental variable: Population by department
 Result: Effect of FI on poverty almost disappears!
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MFI DETERMINANTS OF FINANCIAL INCLUSION
Methodology
 Own MFI level panel data (2008, 2009, 2010) merged
with MixMarket data.
 The model measures the effect of MFIs’ characteristics
such as: Size, Returns, Risk disposition, Interest etc…
 …on the number of financially included people.
 Holding constant: profit status and age of the
institution.
 Applied estimation model: Panel data random effect
model.
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MFI DETERMINANTS OF FINANCIAL INCLUSION
Results
 Significant inclusion-fostering influence, i.e. positive
correlation between MFI size and financial inclusion,
of:
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The size of the MFI (measured by its total assets)
 Significant inclusion-reducing influence, i.e. negative
correlation between loan size and financial inclusion, of:
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The average loan size of the clients
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Conclusions
 We found alleviating effects of financial inclusion,
internet access and development aid on poverty but a
worsening effect of rurality.
 Empirically, larger MFIs (in terms of their total assets)
and MFIs that serve smaller-size micro-loans, i.e.
proxy for poor clients, are including more people.
 Unresolved research questions:
 Possible effects of the provision of other financial
services such as saving accounts, micro-insurance,
remittances, etc.
 The effect of financial inclusion on MFIs’ financial
performance.
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Future research
How exactly does financial inclusion help
alleviate poverty? What are the mechanisms /
channels / processes?
 What other factors are influencing poverty in
this process?
 New instrumental variables?
 Why MFIs that extend small-scale loan sizes
financially-include more people? What
theories can help explain this?
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THANK YOU
Email: a.marr@gre.ac.uk
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