Academic journal article IUP Journal of Management Research

Impact of Group-Based Microfinance on Rural Households in India

Academic journal article IUP Journal of Management Research

Impact of Group-Based Microfinance on Rural Households in India

Article excerpt

The present study is empirical in nature and was carried out to assess the impact of group-based microfinance on income, assets position, savings, employment, literacy and migration of the household. A quasi-experimental design was made where the target and control groups were randomly sampled from the population. The target group was compared with the control group across various variables and the mean difference was found. The results were validated by statistical test for significance and econometric models. The test of significance between the mean for target and control groups was tested through a paired t-test. Models like Ordinary Least Squares (OLS), logistic regression and probit regression were employed to measure the impact of group-based microfinance intervention. Household was taken as the unit of analysis. The study concluded that the group-based microfinance impacted the client household positively in the increase of income, assets position, savings and literacy, and in the reduction of migration.

(ProQuest: ... denotes formulae omitted.)

Introduction

In recent years, microfinance has become an important intervention as a tool for rural development and poverty alleviation. In India, many microfinance institutions including Non-Governmental Organizations (NGOs), Non-Bank Financial Institutions (NBFIs) and government agencies had intensively intervened. Innovation of groupbased microfinance, especially Self-Help Groups (SHGs), Grameen Joint Liability Groups (JLGs), Mutually Aided Cooperative Societies (MACS) etc., which replaced the physical collateral with moral and social collateral for micro-loans, had probably led to speed up the microfinance programs in India. The giant step of the National Bank for Agriculture and Rural Development (NABARD) on SHG-Bank Linkage Program is really praiseworthy which was later considered as one of the biggest microfinance interventions in the world. Also, the enactment of the MACS Act by the Government of Andhra Pradesh was a revolution in India (Panda, 2009). Microfinance was defined in the International Year of Microcredit, 2005, as loans, savings, insurances, transfer services and other financial products for low-income clients; and Consultative Group to Assist the Poor (CGAP) defined microfinance as the supply of loans, savings and other basic financial services to the poor. Broadly, these definitions explain microfinance as the financial products and services provided to the poor and unbankables. Since the microfinance interventions are carried out involving solidarity groups like SHG, JLG, etc., they are often referred to as group-based microfinance. SHGs are either registered or unregistered groups of people who are economically homogenous; and the members are basically small and marginal farmers, landless agricultural laborers, rural artisans and petty rural traders who voluntarily come together to save small amounts regularly on mutual help basis (Swain and Nayak, 2008). According to Reserve Bank of India, SHGs may be registered or unregistered group of people, mostly micro-entrepreneurs having homogeneity in their socioeconomic background, who join hands together to contribute regular savings to a common fund and meet their emergency needs on mutual help basis. The peer pressure and collective wisdom ensures credit use and timely repayments. The peer pressure and collective wisdom substitutes the collateral for loans. The JLG model was the innovation of Prof. Muhammad Yunus. This model stemmed from the Grameen Bank of Bangladesh (Hussain, 1998). The JLG is a group of five to seven members, broadly developed, organized and nurtured by an intermediary. Most of the JLGs in India have five members. JLGs do not have compulsory savings before availing credits. The main motto of JLGs is to access credits along with other financial products like insurances etc. Like SHGs, the JLGs also work on peer pressure and moral collateral to avail financial products. Since the peer pressure develops collective responsibility and social capital among the members, it reduces the possibility of wilful defaults (Panda, 2009). …

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