The effect of microfinance on income inequality: Perspective of developing countries

Aim/purpose – Studying the impact of microfinance on income inequality from a macro- -economic perspective. Design/methodology/approach – Cross-sectional regression analysis is used to measure the effect of microfinance on the Gini index in a sample of 30 developing countries from across Africa, Asia, Latin America, and Europe. A set of control variables are added to the model including: inflation, educational attainment, democracy, population growth, percentage of arable land to strengthen the model’s reliability. Findings – Results indicate that neither a positive nor a negative impact of microfinance on Gini index could be significantly proved for the sample countries. Research implications/limitations – Due to lack of data availability, research is conducted on a small sample of 30 countries. Therefore, to obtain more generalisable results, it is recommended for future research to use a larger sample. Originality/value/contribution – Microfinance is becoming a focal issue in alleviating poverty and inequality, and this paper’s main contribution is that it explores this matter from a macro-economic perspective by looking at the holistic impact of microcredit on a sample of developing countries. Hence, the paper provides further investigation and suggestions for a better implementation of microfinance policies.