Microfinance and Poverty Eradication in the North African Countries: A Heterogeneous Panel Causality Analysis

Abstract

Microfinance is considered as an effective tool for poverty reduction and socioeconomic development. This paper examines the impact of microfinance on poverty eradication by analyzing the causal links between the intensity of microfinance and poverty estimates. It employs heterogeneous panel causality techniques on a sample of North African countries over the period 1990-2021. Furthermore, the paper studies the impact of other control variables on poverty namely: arable land; agricultural value added; inflation; youth population; trade openness; school expenditure; health expenditure; rural population and per capita GDP growth rate. Parameters are measured using the fixed-effect estimation. Results reveal that, access to microfinance through the increase in the number of active borrowers along with the average loan size reduce poverty significantly in the sample countries as measured by the headcount ratios and poverty gap. Policymakers and regulators should ensure that microfinance is targeted at more efficient and equitable lending which will create more opportunities, thus increasing income, economic empowerment and reducing poverty.