Finance-Growth Nexus and Banking Efficiency: The Impact of Microfinance Institutions

Afsheen Abrar, Iftekhar Hasan, Rezaul Kabir

Research output: Working paper

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Abstract

This paper investigates the relative importance of microfinance institutions (MFIs) at both the macro (financial development, economic growth, income inequality, and poverty) and micro levels (efficiency of traditional commercial banks). We observe a significant impact on most of the fronts. MFIs’ participation increases overall savings (total bank deposits) and credit allocation (loans to private sector) in the economy. Their involvement enhances economic welfare by reducing income inequality and poverty. Additionally, their active presence helps to discipline the traditional commercial banks by subjecting them to more competition triggering higher efficiency.
Original languageEnglish
Place of PublicationEnschede
PublisherUniversity of Twente
Number of pages52
Publication statusPublished - 1 Nov 2020

Keywords

  • Microfinance institutions
  • Commercial banks
  • Financial development
  • Income inequality
  • Poverty
  • Efficiency

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