Does Microfinance Reduce Poverty? A Study of Latin America

• Main Author: Franco, Nicholas
• Format: Others
• Language: English
• Published: Boston College 2011
• Subjects: Microfinance; Latin America; Poverty; Development; Financial Access
• Online Access: http://hdl.handle.net/2345/1997

Thesis advisor: Richard McGowan === Thesis advisor: Robert Murphy === Microfinance has been heralded as the solution to global poverty by optimists in the development field. Many regard the practice of extending unprecedented financial access to the poor through small loans as a necessary and important tool in the development process. The industry has grown and changed shape over the last two decades and recently has come under fire. The new face of microfinance has included for-profit lenders, usurious interest rates, loan sharks, and suicides. Many critics are beginning to question the ethics, practices and efficacy of microfinance. They claim that microfinance cannot make more than a marginal impact on poverty, and more serious development efforts should address structural causes of underdevelopment. This paper will examine the effects microfinance on extreme poverty as defined by the poverty headcount ratio at $2 a day and $1.25 a day. The study will focus on the Latin America and Caribbean. Through regression analysis, this paper measures the effects of microfinance on the poverty rate while controlling for structural economic changes. We will conclude that microfinance has a statistically significant effect on extreme poverty in this region. These results are an important response to critics who posit that the costs of microfinance outweigh the benefits. === Thesis (BA) — Boston College, 2011. === Submitted to: Boston College. College of Arts and Sciences. === Discipline: Economics Honors Program. === Discipline: Economics.