An empirical study on the impact of microfinance institutions on development

This paper examines the impact of microfinance institutions on development in an empirical setting, and therewith aims at filling a gap in econometric assessments of microfinance institutions. Using data of MFIs operating in selected African and Asian countries and choosing average savings and loan balances per client as proxies for development, there is empirical evidence for significant positive impact of microfinance institutions on development. Microcredit is the most robust mechanism to enhance development in recent years. While an MFI’s size is mostly irrelevant, its experience was found to be especially enhancing for the amount of credit granted to the poor. Savings is found to be the best estimator for development in recent years, yet a structural break between 2003 and 2006 is possible. While African development is generally in arrears compared to Asia, there is no statistical evidence for differences in the marginal impact of microfinance institutions subject to geographical positions, which allows for the conclusion of environment independent positive impact of microfinance institutions on development in low-income countries.