Microfinance: Methods, Models and its Impact on Economic

Development

TETIANA KULINICH

Department of Management of Organizations, Lviv Polytechnic National University, UKRAINE

NATALIIA DOBIZHA

Department of Banking Finance and Insurance, Vinnytsia Educational and Research Institute of

Economics, West Ukrainian National University, UKRAINE

Department of Finance, Banking and Insurance Department of Finance, Banking and Insurance,

Department of Banking Finance and Insurance, Vinnytsia Educational and Research Institute of

Economics, West Ukrainian National University, UKRAINE

ANDRII ZELENSKYI

services on the performance of small and medium-sized enterprises in the form of net profit. The results have

showed that the impact of the cost of microfinance services on the development of financial activities of small

and medium-sized businesses have a positive result, and, when using the proposed regression equation, the

company will receive positive results in 2020-2024. The conducted correlation analysis of the impact of

microfinance services on the level of the average salary of the population of Ukraine has revealed a high level

of dependence of citizens on loans obtained. This is confirmed by the high correlation coefficient.

Key-Words: - Microfinance, Financial Services, Microcredit, Microinsurance, Microdeposits

Received: April 22, 2021. Revised: November 15, 2021. Accepted: December 16, 2021. Published: January 11, 2022.

with low-income, retirees, students, people who

have fallen on hard times, as well as people who

plan to start their own business. However, with the

development of market relations, the need for

financial services arises among farmers,

entrepreneurs of small and medium-sized

businesses. The relative share of 85% among

microfinance services belongs to micro crediting. In

the structure of financial services, the basic ones are

credit, microinsurance and microdeposits. However,

despite the positive aspects of microfinance, the

question remains open whether microfinance

services are really effective in improving the lives of

the population.

The positive impact of microfinance services is

manifested not only in the profits of microfinance

institutions, but also in the establishment of

financial well-being of citizens. For an individual or

small business, access to financial services makes it

possible to receive loans, make timely payments,

condition of citizens and the bankruptcy of small

and medium-sized businesses.

2 Literature Review

Numerous scientific achievements of scientists have

been devoted to determining the impact of

microfinance on the country’s economy. Scientists,

such as: Morduch [1], Milgram and Lynne [2],

Mosley [3], Vergun and Matvienko [4] describe the

popularity of microfinance services and their

significant scientific achievements of scientists, the

issue remains debatable and requires further

research.

Verhun and Matvienko agree with this statement,

arguing in their investigations that “microfinance

means the creation of stable local financial

institutions [4]. Building financial systems for the

poor involves creating strong local financial

intermediaries that can provide financial services to

the poor on a long-term basis”. Volha divides

microfinance (“Hungarian”, “Polish”, “Bolivian”,

etc.), with its inherent features and microcredit

organizations [12]. Tadjibaeva et al. consider it

appropriate to divide microfinance models into the

following types: a “rural model”, an educational

model, a credit model [13].

However, Abrar [14] argues that in order to

determine the state of microfinance services it is

necessary to use a correlation matrix that examines

the degree and direction of the interrelationship

between variables, namely the impact of financial

and social performance of microfinance institutions

on loan interest rates. Return on Equity (ROE),

Return on Assets (ROA) and Success Rate (OSS)

indicators have been used to analyze financial

indicators. This technique has positive consequences

the high-risk factor for non-repayment of loans by

consumers. Therefore, scientists propose an

approach to the formation of reserves of

microfinance institutions. However, they suggest

that it is necessary to divide the microfinance

organizations into two groups in order to improve

of the population of Ukraine.

To study the relationship between microfinance

and wages of the population of Ukraine, as well as

microfinance and financial performance of

Ukrainian enterprises in the study used the method

of correlation and regression analysis. Interpretation

of indicators was carried out using the Chaddock

scale. Information data for the study were obtained

from official websites, namely: official materials of

the National Bank of Ukraine [15; 16], State

statistical analysis. This function is a linear

regression that allows you to estimate the degree of

dependence between variables, offering a

mechanism for calculating the estimated value of a

variable from several already calculated values.

That is, based on a statistical sample of certain

values of the function F (x) and arguments x, you

can predict the behavior of the function by

substituting new values of arguments.

4 Results

Microfinance is a system of financial support for

individuals and businesses in case of adverse

situations or deteriorating living conditions. The

process of microfinance can be implemented

through methods (see Fig. 1), which are divided into

microcredit, microinsurance and microdeposits.

Each of the methods outlined has a list of

financial services in its structure, which is

constantly updated and expanded. Thus, taking into

account the volume of microfinance level in

Ukraine, the structure of microfinance services is

2020. The full range of microfinance services can be

obtained through: informal financial organizations

(creditors, pawnshops, savings and credit unions);

member organizations (credit and savings

association); non-governmental organizations

are used, the process of microfinance is carried out

through the creation of a credit system in order to

increase the level of profitability and sustainability

of small and medium-sized enterprises, which in

turn will increase the number of jobs, improve

productivity. The creation of microfinance models

aims to provide financial support to the

economically active population in the form of loans

for entrepreneurial activities, which in turn will

contribute to the creation of local markets and

increase incomes. These models are developed for

the long-term perspective in the expectation of a

improve legislation and regulations in this financial

microfinance institutions.

000-15 000 UAH for regular borrowers for up to 1

year; the interest rate depends on the conditions of

the microcredit institution that provides this service;

2) for microinsurance – the sum insured ranges from

0,1 to 3%; the term of the contract is 1 year; 3)

microdeposits – the amount that can be deposited

into the account is from 500 UAH for up to 18

months.

Ukrainian companies providing microfinance

services are popular not only with the population,

but also with entrepreneurs. In the “Ukrainian”

model, the following organizations are entitled to

agricultural cooperatives. They deal mainly with

production, processing and marketing of

production facilities, etc.; funds of supporting small

businesses. Such associations provide services

without a bank license.

dependence of net profit (loss) on microfinance

services of Ukrainian enterprises has confirmed the

sufficient regularity of variables. In particular, F

significance is 0,079829, and the variance and F-

statistics, which are characterized by a high value,

reflect the variation of the dependent and

independent variables, which is evidence of the

significance of the regression equation. In order to

confirm the validity of the model, Table 4 reflects

the calculation of net profit (loss) from microfinance

services of Ukrainian enterprises according to the

regression equation data.

and arguments x, one can predict the behavior of the

function by substituting new values of arguments

Correlation analysis of the dependence on

microfinance services has shown that the closest

interrelationship is established between the average

wage and microcredit (0,832067).

Obtaining microcredit for the population is a way

out of a difficult situation. The regression analysis

has shown that when using the regression equation,

small and medium-sized businesses are able to

Microfinance instruments, in particular microcredit,

play a key role in the implementation of the

European strategies to support entrepreneurship,

employment, social and financial inclusion [19; 20].

mission and organizational characteristics remained

largely unchanged. Authors observe some

differences between Western and Eastern Europe,

but there are more similarities than differences in

general.

Volha [12] argues that the use of microfinance

models involves the implementation of services

through a list of microfinance organizations, the

purpose of which is to improve the living standards

of the population and obtain income. In our

research, a correlation and regression analysis has

been carried out in order to identify the

interrelationship of dependence between

services has shown the demand only for

microcredits. The required development will aspire

to strengthening of the formal segment into the

micro financial industry. That means to minimize

the groups ‘destination’ and ‘extreme poor’ and so

to strengthen the functioning of the ‘Business

are charged by microfinance institutions. Tadjibaeva

et al. propose to use the “MIX” model in order to

assess microfinance, which includes a comparative

and trend analysis of indicators of microfinance

institutions. This model evaluates long-term

prospects, sustainability, quality of management,

corporate governance. The aggregate estimate is an

assessment of the long-term stability and solvency

of a microfinance organization through a

comprehensive assessment of risks, activities,

COVID-19, credit-taking is likely to escalate further

in terms of the number of borrowers and loan

amounts. Furthermore, to reverse the reliance of so

many households on the microfinance industry for

survival, inclusive socio-economic policies and

public welfare services must be prioritized [24].

6 Conclusions

The results of the research have showed a positive

impact on improving the financial situation of both

enterprises and population. It has been proven that

for small and medium-sized businesses, the

involvement of microfinance services in financial

activities has a positive result in the form of an

increase in net profit. This is confirmed by the

correlation-regression analysis, which has showed

the density of the interrelationship between the

variables, which is evidence of the dependence of

average wage has showed a close connection only

with microcredit services. This is evidence that

microloans are most in demand among the

population. This is confirmed by the illustrated

structure of microfinance services in Ukraine.

However, the question remains debatable

living standards of the population through the use of

microfinance services needs further research.

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