The Impact of Micro banking on Macroeconomic Outcomes and Financial Inclusion in Bangladesh: An Empirical Study

This study examines the dynamic interrelationships between micro banking expansion by banking and NGOs, financial inclusion, and macroeconomic outcomes in Bangladesh using advanced time-series econometric techniques. By employing Autoregressive Distributed Lag (ARDL) bounds testing and Vector Error Correction Model (VECM) approaches, we analyze the long-run equilibrium relationships and short-run dynamics among key variables from 1990 to 2023. Our findings reveal that microfinance expansion significantly contributes to financial inclusion indicators, particularly in rural access and female participation. However, the impact on broader macroeconomic outcomes—including poverty reduction, employment generation, and economic growth—exhibits complex patterns influenced by institutional factors and macroeconomic stability. While microfinance initiatives have successfully expanded financial access, their transformative effect on macroeconomic indicators is contingent upon complementary policy measures and enabling economic conditions. This study identifies critical threshold effects and provides evidence-based insights for policymakers aiming to optimize microfinance's contribution to inclusive economic development. Our analysis contributes to the ongoing discourse on financial inclusion strategies in emerging economies by offering robust empirical evidence on the macroeconomic implications of microfinance expansion. JEL Classifications: C32, G21, O16, I32, E31, E44