Microcredit in the context of political and fiscal decentralization

A growing number of developing countries are decentralizing, but is decentralization capable of creating a more enabling environment for pro-poor programs? This paper uses microcredit as an example of such a service and employs OLS regressions to examine the effect of political and fiscal decentralization on the operational and social efficiency of MFIs. The results suggest that political decentralization is linked with higher efficiency but it is outweighed by the negative effect of relying on intergovernmental transfers. In less developed countries, political decentralization’s positive correlation with MFI efficiency decreases and fiscal decentralization has a less negative effect.