Finance-growth nexus and banking efficiency: The impact of microfinance institutions

•What is the role of MFI in influencing financial development, economic growth, income inequality, and poverty?•What is the role of MFI in influencing the competitiveness of traditional commercial banks?•Evidence reveals a significant impact on most of the fronts.•MFIs’ participation increases overa...

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Bibliographic Details
Published in:Journal of economics and business 2021-03, Vol.114, p.105975, Article 105975
Main Authors: Abrar, Afsheen, Hasan, Iftekhar, Kabir, Rezaul
Format: Article
Language:English
Subjects:
Bank loans
Bank management
Commercial banks
Economic growth
Efficiency
Financial development
Income distribution
Income inequality
Microfinance institutions
Poverty
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Summary:•What is the role of MFI in influencing financial development, economic growth, income inequality, and poverty?•What is the role of MFI in influencing the competitiveness of traditional commercial banks?•Evidence reveals a significant impact on most of the fronts.•MFIs’ participation increases overall savings and credit allocation in the economy.•MFIs’ involvement enhances economic growth and reduces income inequality and poverty.•MFIs’ presence helps to enhance competitiveness triggering higher efficiency of traditional banks. This paper investigates the relative importance of microfinance institutions (MFIs) at both the macro (financial development, economic growth, income inequality, and poverty) and micro levels (efficiency of traditional commercial banks). We observe a significant impact on most of the fronts. MFIs’ participation increases overall savings (total bank deposits) and credit allocation (loans to private sector) in the economy. Their involvement enhances economic welfare by reducing income inequality and poverty. Additionally, their active presence helps to discipline the traditional commercial banks by subjecting them to more competition triggering higher efficiency.
ISSN:0148-6195
1879-1735
DOI:10.1016/j.jeconbus.2020.105975