Impact of Microfinance on Poverty Alleviation in Developing Countries : The Case of Pakistan

This study investigates the role of microfinance in developing countries like Pakistan especially to reduce poverty. The impact of microfinance on poverty reduction is analyzed taking into consideration three core dimensions of poverty that includes health, education and living standards. Three ordinal logistic regression econometrics models are specified for estimation. The estimations are based upon the primary data of microfinance rural clients of Khushhali Bank, which is a micro finance bank (MFB) in Pakistan. Results explain that micro finance provided from MFB to poor households lead to increase employment opportunities, assets of poor, savings and their livestock possession. Livestock possessions have positive and significant relation with increase in access to education while possession of land has no association with education in first model. Second model shows positive and significant association between money received from MFB and increased access to healthcare. The empirical results of third model explain that money received from MFB has positive and significant effect on improvement in living standards. We conclude that microfinance improves the healthcare facilities, education and living standards of the poor clients. Policy makers may recommend enhancing the access of credit and microfinance to poor people living in the rural areas of Pakistan to mitigate poverty. For overall poverty reduction, provision of microfinance is necessary especially to the poor segment of the society