Ana Marr, University of Greenwich, London, UK Julian Schmied,
Potsdam University, Germany Third European Research Conference on
Microfinance, Norway, June 2013 Slide 2 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 MFIs drivers of Financial Inclusion 6.
Conclusions 2 Slide 3 The importance of the study One of the first
studies on financial inclusion taken 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. 3 Slide 4
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 4 Slide 5 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. 5 Slide 6 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 ? 6 Slide 7
PERU: Incidence of poverty by department, 2010 7 Slide 8 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.) Poverty it = t + 1Financial Inclusion it + 2GDP
perCapita it + 3 technology it +5 Internet Access it +
4DevelopementAid it + 5 DominantIndustry it + 6Rurality it
+7EducationalLevel it + e it Applied model: panel data random
effect model. 8 Slide 9 IMPACT OF FINANCIAL INCLUSION ON POVERTY -
Results Significant poverty-alleviating effects, i.e. negative
correlation with poverty indicators, of: Financial inclusion
Internet access Average loan size per client Significant
poverty-worsening effect, i.e. positive correlation with poverty
indicators, of: Rurality Estimation problems: Endogeneity through
reversal causality. Instrumental variable: Population by department
Result: Effect of FI on poverty almost disappears! 9 Slide 10 10
Slide 11 11 Slide 12 MFI DETERMINANTS OF FINANCIAL INCLUSION
Methodology 12 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. Slide 13 MFI DETERMINANTS OF
FINANCIAL INCLUSION Results 13 Significant inclusion-fostering
influence, i.e. positive correlation between MFI size and financial
inclusion, of: 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: The average loan
size of the clients Slide 14 14 Slide 15 Conclusions 15 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. Slide 16 Future
research 16 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? Slide 17 THANK YOU Email: [email protected]@gre.ac.uk
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