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Financial Permeation As a Role of Microfinance: Has Microfinance Actually been Helpful to the Poor?

Discussion Papers


by INOUE Takeshi and HAMORI Shigeyuki
May 2011


This article is distinct in its application of the logit transformation to the poverty ratio for the purpose of empirically examining whether the financial sector helps improve standards of living for low-income people. We propose the term financial permeation to describe how financial networks expand to spread money among the poor. We measure financial permeation by three indicators related to microfinance institutions (MFIs) and then examine its effect on poverty reduction at the macro level using panel data for 90 developing countries from 1995 to 2008. We find that financial permeation has a statistically significant and robust effect on decreasing the poverty ratio.

Keywords: Financial Permeation, Microfinance, Panel Data, Poverty Reduction
JEL classification: G21, O16, O50

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