Post‐Keynesian Finance Circuit Model and Microfinance Banks in Africa

ABSTRACT The Finance Circuit model proposed by Keynes in 1936 was enhanced in 2017 with the introduction of the Post‐Keynesian Finance Circuit model (PKFC), which similarly neglects the relevance of Microfinance Banks (MFBs). As a consequence, there is a significant deficiency of theoretical and empirical evidence illustrating the potential of these models to propel economic growth in an environment dominated by MFBs. This paper seeks to fill the current gap by providing a unique opportunity to investigate and assess the role of MFBs within the context of the PKFC model. The research methodology involves a Granger noncausality test for heterogeneous panel data models using a sample of 25 African countries for the period 2005–2021. The results support the PKFC and the Modified PKFC models' causal relationships and recommend that to boost investment and economic growth, policymakers ought to implement the PKFC model and encourage the formal banks to facilitate the registration of significant MFBs.