Microfinance and Sustainable Development: A Meta Analytic Review

Abstract

Purpose: This paper discusses upon microfinance as an instrument for achieving sustainable development with regards to different activities taken by various organizations. Secondary data has been gathered from the annual reports of different departments, journals, books & research papers. The main objective of this study is to quantitatively aggregate the findings of prior literature on the effect of Microfinancing on Sustainable development using the meta-analysis technique developed by Hunter et al. (1982). Design/methodology/approach: A set of 50 research papers that directly studied the relationship between Microfinance and Sustainable development was analyzed for the purpose. In addition to overall meta-analysis, a detailed subgroup study was also conducted to test whether the differences in results are due to moderating effects related to different sustainable development aspects. Findings: The findings of this meta-analysis confirm that Microfinance is negatively associated with sustainability, which means an aggressive approach of microfinancing policy leads to higher sustainability. Originality/value: Unlike narrative literature review papers, this meta-analysis provides quantitatively aggregate evidence on the relationship of microfinance and sustainability. To the best of authors’ knowledge, no previous meta-analysis paper is published on the topic.

Introduction

I. INTRODUCTION

Microfinance, a financial innovation, originated in Bangladesh, when Prof. Mohd. Yunus changed the lives of millions of Bangladeshis by creating the concept of micro loans. The idea came to his mind by involving himself in fighting poverty during the 1974 famine in Bangladesh.

Microfinance is a broad spectrum of financial services provided to the people of low-income groups who cannot take assistance banking and allied services. The purpose of methodology that employs effective collateral substitutes to deliver and recover short-term working loans to micro entrepreneurs’’ CGAP (2003). Microfinance is “the provision of financial services to low-income poor and very poor self-employed people” Otero (1999, p.8).

The major objective of microfinance is to outreach the poor, making positive impact and maintaining financial sustainability. Microfinance is a model specially designed for serving the poor. Microfinance programs provide small loans to poor persons for self-employment projects, taking little or no collateral. “Microfinance is a provision of thrift, credit and other financial services/products of very small amounts are provided to the poor in rural, semi-urban and urban areas. Anyone availing this facility has to engage in some productive activity that will generate income.” It includes financial products like micro-savings, micro-credit, micro-insurance, etc. Besides technical assistance, capacity building, social and cultural programs can also be considered as motivating activities.

Microfinance across the world began as the activity of informal savings and credit groups, moneylenders, donors, and NGOs. In many if not most developing countries, microfinance activity has grown to the point where financial regulators see the need to frame a policy, and eventually to integrate some portion of the microfinance spectrum into the framework of regulated financial services institutions. (Patrick Meagher 2002)

The mission of microfinance and MFIs is to contribute of sustainable development ,social welfare an progress (Hassan et al, 2011; Hudon 2009; Schreiner 2002) by spending up financial development and economic growth (Delia 2011; Lopatta and Tchikov, 2016; Swamy and Tulasimala, 2011; Vanroose and D’ Espaller, 2013) and accounting for poverty alleviation (Barr 2005; Casselman et al 2015); Imai et. al 2012; Kleynjans and Hudon, 2014).

Over the last 30 years, major theoretical developments have occurred in the areas of microfinance and sustainable development. Many of these new concepts and related techniques are now being employed successfully in microfinance industrial practice. In contrast, far less attention has been paid to the areas of sustainable development. Such neglect might be acceptable because of microfinance lending is relatively little importance to the sustainable development. Due to this reason, only peripheral research interest in studying microfinance process has been shown in the literature.

This may occur for several other motives, because decisions dealing with microfinance lending and its impact are routine in nature in developing and underdeveloped countries.

II. SCOPE OF THE STUDY

The central idea of this study is to provide a comprehensive. Literature review on determinants of microfinance. To the best of our knowledge, there is no literature review on determinants of microfinance. This study is therefore the first give a bird eye view on the major work carried out on determinants of microfinance. More specifically, it intends to study the major microfinance determinants which are consistent with various theoretical models. The study reexamines the research investigating consequence of microfinance and categorized selected research article as per their approach and methodologies. It further explores research gaps in the related area and recommends potential direction for future microfinance research. The study attempts to synthesize the literature finding on determinates of microfinance. A systematic approach is applied to explain major findings of review and there by highlighting the gaps in the literature. Thus, it provides a pathway for future research in the area of microfinance.

Research is the area of microfinance has revealed that are inconclusive and still a puzzle for the researchers. This study has tried to detangle this puzzle by combining the result of different research papers through Meta-analysis. It was found that the empirical studies conducted on microfinance have mainly focused on the result and summarize the main study conclusion. However, this main study conclusion. However, this study tests the result of empirical studies which have been statistically tested, revealing an overall relationship between criterion and predicator variables. Therefore, the meta-analysis technique is applied to synthesize the findings of the previous studies trough a statistical evolution to clarify the previous in conclusiveness in the microfinance impact on sustainable development.

This paper divided in 6 sections. Section 1 present an overview of the various studies of microfinance developed by eminent researchers. Section 2 offers a brief review of the exiting literature accessed from the data base and select the final set of the papers for this study. Section 3 describe the methodology used in the paper followed by an analysis of research findings and research gaps identified in the existing literature. Section 4 discusses the data analysis techniques used in literature whereas Section 5 portrays the findings from the review. Lastly the section 6 presents the conclusion and suggests the avenues of future research.

A. An overview of Microfinance Research

Major research work on microfinance originates from the well-known articles by eminent scholars way back three decades ago, of which has led to the emergence of various Models of microfinance. Researchers, in general, tend to have different perspective of microfinance. Table I summarizes all the major views of renowned researchers on microfinance.

From Table 1 the following inferences can be drawn regarding the development in the field of microfinance.

1. The financial performance of microfinance has a positive effect on social and economic conditions.
2. Emergence of new theoretical models of microfinance for sustainable growth.

B. Earlier Observations on Microfinance

Although microfinance is considered as on important area, research has sought to produce evidence and new ideas on issue that affect the sustainable development of developed and developing countries only handful of papers have reviewed literature on the topic. One of the major breakthroughs in the literature review of microfinance is providing by Eric et. Al (1994).

One common observation about these reviews is that they are based on theories of microfinance and no other chronological, Methodological and thematic approach incorporated in analyzing literature. Therefore, to the best of the author’s knowledge, the present paper is the first attempt in providing comprehensive and reputed journals. This highlights the major work done in the area. While aiming at providing potential direction for future research.

III. RESEARCH METHODOLOGY

The methodology used for reviewing the literature must be systematic; it must explicitly describe the procedure for conducting the review, comprehensive in scope and include all relevant material related to MF phenomena. In this paper, we have used systematic literature review methodology to analyze the research work on microfinance. A systematic review is a tool used to summarize, appraise and communicate the result and implication of large quantity of research and information. It aims to provide an exhaustive summary of current literature relevant to the research question. The systematic review methodology is designed to reduce any unintended bias, which may occur in the use of other review methodologies.

A.Time Horizon

In this review we have selected journal articles published during 1998 -2018, but the majority of the articles are those published during 2001 decade. Therefore, we felt that a time span of approximately 20 years were enough to review the literature comprehensively.

B. Literature Collection and Boundary Identification

We started our review with a key words /phrase and then delimited the literature, using a combination of deductive approached. As input criteria, we initially used words like microfinance we assumed that determinants of capital structure would be present in the abstract or key words or little of the article. we searched this terms in all type of document including case study, research study, research papers, technical papers, review paper, conceptual paper and working paper document. Our initial search data base includes EBSCO, Springer, Sage, Inderscience, Elsevier. In the preliminary phase of the review ,we have searched papers on microfinance and sustainability.

1. Articles published only in peer reviewed journal were considered;
2. Articles were collected for a period of 21 years (1998-2019)
3. Articles written only in the English language were included.
4. Articles addressing determinants of microfinance.
5. Articles were collected with full text.

Using the above delimiting criteria, we found 52 research papers.

The above Table 3 clearly shows that the requirement of microfinance is mostly prevalent in developing countries in Asia Pacific Region. Then the next is in multiple regions followed by the African Regions. In one of the studies reveals that the relationships between economic activity, income and access to micro?nance for persons with disabilities mirror those in the general Ugandan population (Finscope 2007; Johnson and Nino-Zarazua 2007).

Table 4 gives an idea on the kind of research methods used for the study. It has been observed from the table that the regression and correlation were the major ways to find the quantifiable solutions for the beneficiaries of microfinancing. From the discussion above in Table 1, these recommends towards the worth life with respect to the poverty reduction as a major emphasis on comparatively deprived areas.

Table 5 shows that the most used MFI models by thoroughly used by the theorist in their own style and proposed the theories in Ecological, Modernization and Entrepreneurial context. Importantly, the meta analytic review were limited to research on the major grounds of gender equality.

So far, from the available literature, a total of adopted 16 models and 3 theories were found to get significantly used.

IV. DISCUSSION AND FINDINGS

In this section we discuss the ?ndings and address our research question: What kinds of research issues baskets the sustainable development?

Based on the analysis of the retrieved publications, we identi?ed gaps and limitations in empirical researches, study backgrounds, and theoretical frameworks, and then revisited the literature to re?ect these issues from that outlook. We identi?ed the following two major conceptual issues and three major methodological issues as the most relevant to current era on sustainability ground.

The conceptual issues are:

Firstly, the lack of systematic theory development; and secondly, the devolution of microfinance concepts.

The methodological issues are thoroughly combining the dominance of quantitative exploration, the lack of longitudinal research and the focus on lesser units of microfinance institutions considered for research under researches.

The issues are discussed in detail below.

A. Conceptual Issues

1. Lack of Systematic Theory Development: A variety of theoretical perspectives was used to examine sustainable drivers and aspects, and in fact, many of the retrieved articles made references to several theories. If clearly presented, we identi?ed the fundamental theory that guided each study; otherwise we de?ned it as problem-based (as opposed to theory-based) research (see Modi et al, 2014, Ghalid et al 2014 & Janda 2014). Problem-based research aims to solve a speci?c problem by using different. Also, a relatively large amount of MFI research is oriented towards just for the sake of problem solving (instead of theoretical building), invoking a wide range of theories, of which several are not directly commanding the sustainable development. This often provides a limited contribution to set a systematic development of an overarching sustainability dimensions.
2. Devolution of Microfinance Concepts: On the flip side, he devolution of microfinance concepts, largely drawn on microfinance issuance of financing facilities and investigation tenets (Eric et al, 1998; Jonanthan 1999; Aminur, 1999; Baquikhalily, 2004 and Basu 2004). Grounding research on MFI and its practices investigated in terms of few largely used variables viz., poverty reduction and Bank linkages but still the critical success factors unaccounted for.

B. Methodological issues

The dominance of quantitative exploration-

Dominance of quantitative exploration shows the range of research methods have been applied to examine MFI performances on socio- economic welfare in the society. Most of them have been quantitative in nature.

However, an extensive use of quantitative methods in a ?eld which has not gained maturity on performance of microfinance institutions (Hilind, 2014; Karel, 2014). Most of the quantitative studies have adapted their constructs and scales directly from availing financing facilities as per the bank linkage models without preliminary qualitative analyses, resulting in empirical research which lacks an holistic model to quantity MFI performances for sustainable development.

Consistent with Adams (2017), our review suggests that the current state of theory and research for MFI is still largely emerging, thus reviewing upon more exploratory qualitative building would enable statistical analyses and extensive hypothesis testing. Matthieu (2008) offers a contradictory view that microfinance is not good at targeting the poorest in participating.

V. LIMITATIONS

While we confer the properties and limitations of the existing literature, we want to recognize the wider domain on sustainable development. Our data include published and peer-reviewed journal articles, retrieved from ?ve different databases. Thus, we propose that we have a good coverage of the existing rapport publications of microfinance from varied sources. Table I, tends to index slightly different publications whereas rest of the tables shows the study regions and methods. The optimal inclusion of published journal articles has certain inherent limitations, such as omitting the newest research due to time-consuming peer-review practices. Hence, we might have neglected some additional data in this study. Therefore, the identi?ed review and future research avenues might not exhaustive. Rather, they should be treated as suggestions to provide research base.

Conclusion

This study integrates findings of previous studies regarding the impact of microfinance on sustainable development. While showing the meta analytic review based on the year wise researches and gradual development scenarios, this study provides systematic review across several regions. While portraying review of the microfinance literature, and identi?es 52 relevant journal publications, containing conceptual issues and major methodological issues present in the literature provides the direct and indirect contribution towards sustainable development. To summarize the ?ndings of the review, it seems that conceptually research on MFI is still ongoing but lacking a solid theoretical foundation and drawing largely on theories developed in context of financial leverages and bank linkage programmes for poverty eradication. In compendium, creating knowledge requires a critical review of studies employing a common theoretical framework (Zimmerman, 2001). Though, instead of building on prior studies and providing cumulative research insights, many of the selected publications considered under study have focused on attempts to further knowledge in the adjacent literature. Also, making little effort to place their studies within a broader conceptual context in order to relate MFI impact on Sustainability is the core. Microfinance and sustainable development relevance literature is nascent, and more remains to be done. As a response to the concern, we have made an attempt to assemble and interpret the extant MFI efforts for socio- economic development. So that subsequent research efforts can be directed to areas for long run where they will have the most impact. By portraying the research issues discussed above, we anticipate future research to contest these issues with their implications, and avoid making the same missteps in the future, thus potentially abetting towards sustainability concern. By introducing systematic meta review of microfinance and sustainability literature, we attempt to provide scholars with a comprehensive understanding of the current state and the directions for further avenues.

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Copyright

Copyright © 2022 Dr. Chandan Medatwal, Dr. Namita Gupta, Ms. Manisha Nama. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.