Nexus Between Microcredit and Poverty Alleviation: Time Series Evidence from Pakistan

Abstract

Little attention has been paid to the econometric analysis of the relationship between poverty and microcredit advanced to private sector by commercial banks of Pakistan. The main purpose of this study is to empirically examine the impact of microcredit on poverty alleviation using time series data for the period 1990-2007. Engle Granger and Johansen approach was used to examine the correlation between microcredit and poverty alleviation. The econometric results show that the impact of microcredit on poverty alleviation is short run. Diagnostic tests were also applied to check the validity of the results. All diagnostic tests results are in the desirable range. This study recommends that the government should introduce programs like NRSP, SRSP and PPAF which can help to alleviate poverty in Pakistan and furthermore government should encourage NGOs and their services to help poor and vulnerable people. Government should try to develop the financial institutions in those sectors where their services are not available.