Does Microfinance Impact Sectoral Growth?: A Case Study of Bangladesh

Abstract

Purpose: This research examined the impact of microfinance loans on sector-specific outputs—agriculture, services, and industry—and their contribution to Bangladesh's economic growth from 2008 to 2022. Methodology: The unit root test result gave mixed-order of stationarity—three variables followed I(0), and three followed I(1). Therefore the study employed the Autoregressive Distributed Lag (ARDL) model to analyze the effects of microfinance loans on the selected sectors. Data had been taken from the Bangladesh National Portal, the Bangladesh Bureau of Statistics, the Bangladesh Economic Review, and the World Bank database. Findings: The results showed that microfinance loans positively affected the agriculture and service sectors, promoting growth and productivity. However, a negative impact was found in the industrial sector, suggesting inefficiencies in utilizing financial support. Regarding sector contributions to overall economic growth, the service and industrial sectors showed positive and statistically significant impacts, aligning with Bangladesh's economic objectives. Surprisingly, the agricultural sector did not significantly contribute to economic growth, indicating potential structural challenges. Originality: This study provided a comprehensive sector-wise analysis of microfinance's influence on Bangladesh's economic growth, offering new insights into how different sectors responded to microfinance interventions. The findings contributed to understanding the disparities in the utilization and effectiveness of microfinance across sectors.