Microfinance Institutions and Income Inequality: Empirical analysis of Latin American and Caribbean countries

     Past research suggests that a greater presence of microfinance institutions (MFIs) allows for an increase in financial services for lower income individuals. To examine the effectiveness of these pro-poor... [ view full abstract ]

     Past research suggests that a greater presence of microfinance institutions (MFIs) allows for an increase in financial services for lower income individuals. To examine the effectiveness of these pro-poor institutions, this study examines how the number of MFIs and the number of borrowers affects income inequality within a certain region. This impact is found through a longitudinal analysis of the number of borrowers and number of MFIs within Latin American and Caribbean countries from 1999-2015. This geographic region is used due to the high levels of income inequality and poverty where the pro-poor services of MFIs will be more beneficial. This study uses an OLS regression to address the two MFI intensity variables effect on the Gini coefficient of the country. The findings suggest that increasing the number of borrowers and number of MFIs significantly decreases the income inequality of the country. These results combat the theory that increasing the number of MFIs leads to a greater incentive to lend to richer individuals in order to maximize profit.  More importantly, these results suggest the presence of MFIs in high income inequality countries can positively affect the less fortunate population through a more equal distribution of wealth within the country.