Financial Inclusion and Microfinance: On the Cases of ODA and Analysis of the Poverty Reduction Effect

Abstract

This study analyzes the microfinance ODA projects of Germany and Australia, and presents the exemplary characteristics of each country that Korea will be able to use for Korean microfinance ODA projects. Moreover, this study makes an empirical analysis of whether the use of microfinance reduces poverty by using the methodology of Imai et al. (2012). In particular, this study casts light on the two aspects overlooked by Imai et al. (2012): (1) suitability tests for instrumental variables using a variety of methods and (2) estimation of poverty reduction effect by using two explanatory variables — average amount of microfinance loan per person and microfinance market size per country measured by the ratio of the total microfinance loan amount to GDP. We find evidence that the poverty rate significantly decreases by 0.463% as the average microfinance loan amount per person increases by 10%.