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Threshold Effects of Bank Lending and Financial Development on Poverty Reduction in Selected Islamic Countries: Emphasizing Governance Implications
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Sepideh Ahmadi1   , Morteza Ezzati *2 , Aliakbar Khosravinejhad3 |
1- PhD Candidate in Economics, Science and Research Branch, Islamic Azad University, Tehran, Iran
2- Associate Professor, Department of Economics, Tarbiat Modares University, Tehran, Iran , mezzati@modares.ac.ir
3- Assistant Professor, Department of Economics, Central Tehran Branch, Islamic Azad University, Tehran, Iran |
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Abstract: (2 Views) |
Poverty reduction is one of the fundamental objectives of development policies worldwide and has consistently attracted the attention of governments, international institutions, and researchers. Improving the economic conditions of vulnerable groups requires effective policy instruments, among which financial development and access to bank credit play a crucial role. By facilitating access to financial resources, supporting business activities, and providing credit to low-income households, financial development can enhance economic welfare and contribute to poverty reduction. However, empirical evidence suggests that the impact of financial development and bank lending on poverty reduction is neither linear nor uniform, but rather exhibits threshold effects. Specifically, before financial development reaches a certain level, its impact on poverty reduction remains insignificant, while beyond this threshold, positive and persistent effects emerge. This study investigates the threshold effects of bank credit and financial development on poverty reduction in 12 selected Islamic countries over the period 1996–2023, with particular emphasis on the role of governance. Employing an applied and empirical approach, the analysis utilizes the Panel Smooth Transition Regression (PSTR) model to capture nonlinear relationships among the variables. The results indicate that the poverty-reducing effects of bank credit and financial development depend on the level of financial development and become stronger at higher levels. Moreover, governance indicators—particularly control of corruption and regulatory quality—play a significant facilitating role in enhancing these effects. In addition, factors such as education, technological advancement, and economic stability act as complementary mechanisms in reducing poverty. |
Article number: 5 |
| Keywords: Payment facilities - Financial development - Poverty index - Government governance - Islamic countries |
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Full-Text [PDF 704 kb]
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Article type: Research |
Subject:
Special
Received: 2026/04/19 | Accepted: 2026/07/8 | Published: 2026/08/23
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