SME growth and poverty in Sub-Saharan Africa, the mediating role of education and microcredit

This study investigates the impact of the growth of Small and Medium Enterprises (SMEs) on poverty alleviation in Sub-Saharan Africa (SSA) using education and microcredit as mediating factors. The study covers 20 SSA countries from 2009 to 2019. The study used a three-step econometric methodology, which includes direct-effect, mediation, and full-mediation models. Results from the direct-effect model suggest that the growth of SMEs, in conjunction with macroeconomic drivers like GDP and Foreign Direct Investment (FDI), contributes to poverty alleviation. SME growth directly reduces poverty by -0.634. Further, the full-mediation pathways show that SME growth reduces poverty by a magnitude of -0.215, while income inequality exacerbates poverty by 0.393. The study finds that GDP strongly enhances the provision of microcredit and education. The full-mediation model confirms microcredit’s ability to mediate the impact of SMEs on poverty alleviation, while education is found to play a minimal role in the short term. The results argue for the need to foster SME growth while simultaneously ensuring greater access to financial services. The findings suggest that, in SSA, poverty-reduction strategies will be more effective when complemented by the promotion of financial access and human-capital development for the poor.