Microfinance and Sustainable Development: Analysis of Socio-Economic Performance and Development Outcomes

Abstract

Abstract

This study examines the relationship between microfinance services and sustainable development practices by assessing the mediating role of socio-economic performance among microfinance beneficiaries in an emerging economy. Grounded in a positivist epistemology and a hypothetico-deductive approach, the research adopts a quantitative cross-sectional design and proposes a conceptual model comprising five latent constructs, 24 measurement items, and five hypotheses. Primary data were collected through a structured questionnaire administered to a sample of 342 microfinance beneficiaries selected using a stratified random sampling procedure. The data were analyzed in two stages: an exploratory analysis using SPSS v.26, including reliability and factor analyses, followed by Partial Least Squares Structural Equation Modeling using SmartPLS 4.0 with 5,000 bootstrap resamples. The results support all five hypotheses and show that microfinance service quality has the strongest direct effect on socio-economic performance (β = 0.334; p < 0.001), followed by microfinance access (β = 0.298; p < 0.001) and training and support (β = 0.287; p < 0.001). Socio-economic performance significantly influences sustainable development practices (β = 0.456; p < 0.001) and mediates the relationship between microfinance services and sustainable development outcomes. The study concludes that access to finance alone is insufficient to generate sustainable development outcomes unless it is accompanied by high-quality services, training, and improvements in beneficiaries’ socio-economic capabilities. These findings provide theoretical contributions to the microfinance–development literature and practical implications for microfinance institutions and policymakers.

Keywords: Microfinance, Sustainable development, PLS-SEM, SmartPLS, Socio-economic performance, Financial inclusion, Conceptual framework, Emerging economies