Influence of Microfinance on Poverty Reduction in Pakistan: An Analytical Approach

Abstract

This study's goal is to empirically examine how microfinance tools have affected Pakistan's efforts to combat poverty. The panel data of Pakistani microfinance institutions—both deposit-taking and non-deposit-taking institutions—was selected from Microfinance Information Exchange (MIX) and the World Bank data resources between 2004 and 2018. Due to the presence of endogeneity and heteroskedasticity in the model we apply One Step Robust System GMM model. This paper's major objective is to determine how gross loan portfolio affects the country's efforts to combat poverty. The assertion made in the hypothesis that there is a negative association between them was disproved by our findings. The other macro level control variable unemployment rates is significant and accepting the hypothesis that unemployment is negative to poverty. When applied to the regression analysis, the other variables show that OSS and TA are negatively related to poverty. This suggests that loans should be distributed through large size microfinance institutions that are capable of sustaining themselves in such a way that it will increase employment, which will ultimately lead to a reduction in poverty.