Skip to main navigation menu Skip to main content Skip to site footer

Vol. 11 No. 3 (2023)
Journal Space and Culture, India—Commemoration of the International Day for the Elimination of Violence against Women

Research

Microfinance and Poverty Reduction in Assam: Uncovering the Nexus between Access to Credit and Household Well-being

https://doi.org/10.20896/saci.v11i3.1372

Published 2023-11-27

  • Tiken Das

Tiken Das
Assistant Professor of Economics, Nowgong College (Autonomous), Old A. T. Road, Nagaon-782001, Assam

Abstract

This study investigates the impact of microcredit access on income and multidimensional poverty in rural Assam, India. Employing a quasi-experimental design and collecting primary data, the study utilises the probit model for empirical analysis. The findings indicate that equivalence factors influence individual welfare levels. Moreover, households receiving microcredit from semiformal and informal sources exhibit a higher incidence of poverty. Informal borrowers experience a more significant poverty gap compared to semiformal borrowers. However, the study does not find statistically significant evidence to confirm a poverty impact from pooled and formal credit sources. The prevalence of income and multidimensional poverty among semiformal and informal borrowers suggests that these individuals rely on borrowing to finance their children’s education and medical expenses. This points to a failure of the government’s universal education and health policies to uplift vulnerable segments of society. The study recommends providing credit facilities exclusively for productive economic activities to rural residents, accompanied by adequate market linkages.

Keywords

Rural Credit, Income Poverty, Multidimensional Poverty Index, Probit Model, Assam, India

pdf

References

  1. Alkire, S., Kanagaratnam, U., & Suppa, N. (2020). The global Multidimensional Poverty Index (MPI): 2020 revision. OPHI MPI Methodological Note 49, Oxford Poverty and Human Development Initiative, University of Oxford. https://www.ophi.org.uk/wp-content/uploads/OPHI_MPI_MN_49_2020.pdf
  2. Arestis, P., Luintel, A. D., & Luintel, K. B. (2010). Financial structure and economic growth: Evidence from time-series analyses. Applied Financial Economics, 20(19), 1479-1492. DOI: 10.1080/09603107.2010.508716 DOI: https://doi.org/10.1080/09603107.2010.508716
  3. Baah, S. K. T., Jolliffe, M., Lakner, C., & Mahler, D. G. (2022). Updating the World Bank’s societal poverty line with the 2017 purchasing power parities. World Bank Blogs: Open Data. https://blogs.worldbank.org/opendata/updating-world-banks-societal-poverty-line-2017-purchasing-power-parities
  4. Banerjee, A., Duflo, E., Glennerster, R., & Kinnan, C. (2015). The miracle of microfinance? Evidence from a randomized evaluation. American Economic Journal: Applied Economics, 7(1), 22–53. DOI: 10.1257/app.20130533 DOI: https://doi.org/10.1257/app.20130533
  5. Baruah, P. B. (2012). Impact of micro-finance on poverty: A study of twenty self-help groups in Nalbari district, Assam. Journal of Rural Development, 31(2), 223–234. https://nirdprojms.in/index.php/jrd/article/view/93457/69530
  6. Bateman, M., & Chang, H. J. (2009). The microfinance illusion. University of Juraj Dobrila Pula, Croatia and University of Cambridge, UK. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2385174 DOI: https://doi.org/10.2139/ssrn.2385174
  7. Blaylock, J. (1991). The impact of equivalence scales on the analysis of income and food spending distributions. Western Journal of Agricultural Economics, 16(1), 11-20. DOI: 10.22004/ag.econ.32623
  8. Borah, M., Knabe, A., & Kuhställer, C. (2016). Reference income effects in the determination of equivalence scales using income satisfaction data. Paper prepared for the 34th IARIW General Conference. https://ideas.repec.org/p/ces/ceswps/_6123.html DOI: https://doi.org/10.2139/ssrn.2871170
  9. Bruhn, M., & Love, I. (2014). The real impact of improved access to finance: Evidence from Mexico. The Journal of Finance, 69(3), 1347–1376. DOI: 10.1111/jofi.12091 DOI: https://doi.org/10.1111/jofi.12091
  10. Coleman, B. (1999). The impact of group lending in Northeast Thailand. Journal of Development Economics, 60(1), 105-141. DOI: 10.1016/S0304-3878(99)00038-3 DOI: https://doi.org/10.1016/S0304-3878(99)00038-3
  11. Crepon, B., Florencia, D., Esther D., & William, P. (2015). Estimating the impact of microcredit on those who take it up: Evidence from a randomized experiment in Morocco. American Economic Journal: Applied Economics, 7(1), 123–150. DOI: 10.1257/app.20130535 DOI: https://doi.org/10.1257/app.20130535
  12. Chikwira, C., Vengesai, E., & Mandude, P. (2022). The Impact of microfinance institutions on poverty alleviation. Journal of Risk and Financial Management, 15(9), 393. DOI: 10.3390/jrfm15090393 DOI: https://doi.org/10.3390/jrfm15090393
  13. Das, D. (2011). Informal microfinance in Assam: Empirical evidence from Nalbari and Baksa districts, Centre for Micro Finance, IFMR, Chennai. https://www.ifmrlead.org/files/OWC/Informal%20MF%20in%20Assam.pdf
  14. Das, T. (2015). Informal finance- A case study of North East India. Journal of Rural Development, 34(1), 17-30. https://nirdprojms.in/index.php/jrd/article/view/93231/69084
  15. Das, T., & Choubey, M. (2015). Measurement of financial inclusion – a case study of Assam. Journal of Economic Policy and Research, 10(2), 189-209. https://www.ipeindia.org/wp-content/uploads/2019/11/JEPR_10_2_11.pdf
  16. Das, T., & Guha, A. (2019). Measuring women’s self-help group sustainability: A study of rural Assam. International Journal of Rural Management, 15(1), 116-136. DOI: 10.1177/0973005219836040 DOI: https://doi.org/10.1177/0973005219836040
  17. Demirguc-Kunt, A., & Levine, R. (2009). Finance and inequality: Theory and evidence. Annual Review of Financial Economics, 1(1), 287-318. DOI: 10.3386/w15275. DOI: https://doi.org/10.1146/annurev.financial.050808.114334
  18. Dichter, T. (2005). Hype and hope: The worrisome state of the microcredit movement. South African Institute for International Affairs, Johannesburg. https://www.marketlinks.org/sites/default/files/resource/files/SC10.pdf
  19. Enisan, A. A., & Oni, I. O. (2012). Impact of microfinance on poverty alleviation in Ondo State, Nigeria. Australian Journal of Business and Management Research, 2, 31. https://www.ajbmr.com/articlepdf/aus-29-12i9n2a4.pdf DOI: https://doi.org/10.52283/NSWRCA.AJBMR.20120209A04
  20. Garner, T. I., Ruiz-Castillo, J., & Sastre, M. (2002). The influence of demographics and household specific price indices on consumption-based inequality and welfare: a comparison of Spain and the United States. BLS Working Paper No. 357, U.S. Department of Labor. https://www.bls.gov/osmr/research-papers/2002/pdf/ec020060.pdf
  21. Gravesteijn, R., Hoepner, A., & Jain, M. (2015). Effects of microcredit on the poverty of borrowers using the progress out of poverty index: Evidence from Asian MFIs. Discussion paper, RG6 6BA, U.K. https://www.oikocredit.coop/l/library/download/urn:uuid:927c5e16-dbae-4fee-840a-b14a6617b817/ppi+research+paper+2-12-2015.pdf
  22. Hartarska, V., Nadolnyak, D., & Shen, X. (2015). Agricultural credit and economic growth in rural areas. Agricultural Finance Review, 75(3), 302-312. DOI: 10.1108/AFR-04-2015-0018 DOI: https://doi.org/10.1108/AFR-04-2015-0018
  23. Hickson, R. (2001). Reaching extreme poverty: Financial services for the very poor. Prepared for Office of Development Studies, United Nations Development Program (UNDP). Goondiwindi: Microfiance Services. https://practicalactionpublishing.com/article/1755/financial-services-for-the-very-poor-thinking-outside-the-box DOI: https://doi.org/10.3362/0957-1329.2001.021
  24. Imai, K., & Arun, T. (2008). Does microfinance reduce poverty in India? Economics Discussion Paper Series 0814, The University of Manchester. https://ideas.repec.org/p/man/sespap/0814.html
  25. Karlan, D., & Zinman, J. (2009). Expanding credit access: Using randomized supply decisions to estimate the impacts. The Review of Financial Studies, 23(1), 433-464. DOI: 10.1093/rfs/hhp092 DOI: https://doi.org/10.1093/rfs/hhp092
  26. Kendall, J. (2012). Local financial development and growth. Journal of Banking and Finance, 36(5), 1548-1562. DOI: 10.1016/j.jbankfin.2012.01.001 DOI: https://doi.org/10.1016/j.jbankfin.2012.01.001
  27. Khaki, A. R., & Sangmi, M. D. (2017). Does access to finance alleviate poverty? A case study of SGSY beneficiaries in Kashmir Valley. International Journal of Social Economics, 44(8), 1032-1045. DOI: 10.1108/IJSE-10-2015-0277 DOI: https://doi.org/10.1108/IJSE-10-2015-0277
  28. Khandker, S. R. (1998). Fighting poverty with microcredit: Experience from Bangladesh. Oxford University Press for the World Bank, New York. https://documents1.worldbank.org/curated/en/549951468768619206/pdf/multi-page.pdf
  29. Khandker, S. R. (2003). Microfinance and poverty: Evidence using panel data from Bangladesh. World Bank Policy Research Paper 2945, The World Bank, Washington. https://documents1.worldbank.org/curated/en/284801468013215718/pdf/774910JRN020050ofinance0and0Poverty.pdf
  30. Khandker, S. R. (2005). Microfinance and poverty: Evidence using panel data from Bangladesh. The World Bank Economic Review, 19(22), 263-286. DOI:10.1093/wber/lhi008 DOI: https://doi.org/10.1093/wber/lhi008
  31. Khandker, S. R., & Samad, H. A. (2013). Are microcredit participants in Bangladesh trapped in poverty and debt? World Bank Policy Research Paper 6404. The World Bank, Washington. http://hdl.handle.net/10986/13125 DOI: https://doi.org/10.1596/1813-9450-6404
  32. Lacalle-Calderon, M., Larru, J. M., Garrido, S. R., & Perez-Trujillo, M. (2019). Microfinance and income inequality: New macro-level evidence. Review of Development Economics, 23(2), 860–876. DOI: 10.1111/rode.12573 DOI: https://doi.org/10.1111/rode.12573
  33. Maity, S., & Sahu, T. N. (2022). Financial inclusion in north-eastern region: An investigation in the state of Assam. Vilakshan - XIMB Journal of Management, 19(2), 206-221. https://doi.org/10.1108/XJM-09-2020-0118 DOI: https://doi.org/10.1108/XJM-09-2020-0118
  34. Maity, S., & Sarania, R. (2017). Does microfinance alleviate poverty and inequality? Studying self-help groups in Bodoland, Assam. Development in Practice, 27(7), 1006-1019. https://doi.org/10.1080/09614524.2017.1355353 DOI: https://doi.org/10.1080/09614524.2017.1355353
  35. Moulick, M. (2008). Understanding and responding to the savings behaviour of low-income people in the northeast region of India. http://www.microfinancegateway.org/gm/document-1.9.30446/33.pdf
  36. OPHI. (2018). Global Multidimensional Poverty Index 2018: The most detailed picture to date of the world’s poorest people. Report. University of Oxford. https://ophi.org.uk/multidimensional-poverty-index/
  37. Pati, A. P. (2017). Contribution of microfinance in achieving Millennium Development Goals: Evidences from global pool data. International Journal of Rural Management, 13(2), 182–198. DOI: 10.1177/0973005217725412 DOI: https://doi.org/10.1177/0973005217725412
  38. Patrick, H. T. (1966). Financial development and economic growth in underdeveloped countries. Economic Development and Cultural Change, 14(2), 174-189. DOI: 10.1086/450153 DOI: https://doi.org/10.1086/450153
  39. Press Information Bureau. (2014). Rangarajan Report on Poverty. https://pib.gov.in/newsite/printrelease.aspx?relid=108291
  40. Robinson, M. S. (2001). The microfinance revolution: Sustainable finance for the poor. Open Society Institute, The World Bank, Washington, D.C. http://hdl.handle.net/10986/28956 DOI: https://doi.org/10.1596/0-8213-4524-9
  41. Rothbarth, E. (1943). Note on a method of determining equivalent income for families of different composition. In C. Madge (Ed.). War-time pattern of saving and spending (pp. 1255–1289). Cambridge: Cambridge University Press.
  42. Roy, A. (2011). Inclusive growth through MFIs’ Outreach in Assam. Asia Pacific Business Review, 7(3), 47-62. https://doi.org/10.1177/097324701100700305 DOI: https://doi.org/10.1177/097324701100700305
  43. Samer, S., Majid, I., Rizal, S., Muhamad, M. R., & Rashid, N. (2015). The impact of microfinance on poverty reduction: Empirical evidence from Malaysian perspective. Procedia-Social and Behavioral Sciences, 195, 721–728. DOI: 10.1016/j.sbspro.2015.06.343 DOI: https://doi.org/10.1016/j.sbspro.2015.06.343
  44. Sehrawat, M., & Giri, A. K. (2016). The impact of financial development on economic growth: Evidence from SAARC countries. International Journal of Emerging Markets, 11(4), 569-583. DOI: 10.1108/IJoEM-11-2014-0172 DOI: https://doi.org/10.1108/IJoEM-11-2014-0172
  45. Sharma, A. (2011). An exploratory study on traditional financial institutions of Lower Assam. Centre for Microfinance Research, Bankers’ Institute of Rural Development and Indian Institute of Bank Management, Guwahati. https://birdlucknow.nabard.org/sdm_downloads/an-exploratory-study-on-traditional-financial-institutions-of-lower-assam/
  46. Sharma, A., & Matthews, B. H. (2009). Village financial systems in north east India. MicroSave India Focus Note 21, Lucknow. https://www.microsave.net/wp-content/uploads/2018/10/IFN_21_Village_Financial_Systems_in_NorthEast_India.pdf
  47. Singh, E. N. (2011). Rural savings and its investment in Manipur: a case study of formal finance vis-à-vis Marups. Management Convergence, 2(2), 10-30. https://mzu.edu.in/wp-content/uploads/2019/09/Vol_2_Issue_2.pdf
  48. Singh, W. C. (2009). Informal financial sector: the case of the state of Manipur. International Review of Business Research Papers, 5(5), 160-168. https://zantworldpress.com/journals/?j=international-review-of-business-research-papers
  49. Tembo, F. (2003). Participation, negotiation, and poverty: Encountering the power of images: designing Pro-poor Development Programmes (Illustrated ed.). Ashgate Publishing.
  50. Von Pischke, J. D. (1991). Finance at the frontier: Debt capacity and the role of credit in the private economy. The World Bank, Washington, D.C. https://digitallibrary.un.org/record/84975?ln=en DOI: https://doi.org/10.1596/0-8213-1818-7
  51. Wagstaff, A., & Doorslaer, E. V. (2003). Catastrophe and impoverishment in paying for health care: With applications to Vietnam 1993–1998. Health Economics, 12(11), 921–933. DOI: 10.1002/hec.776 DOI: https://doi.org/10.1002/hec.776
  52. Zarazua, M. N. (2007). The impact of credit on income poverty in urban Mexico: An endogeneity-corrected estimation. MPRA Paper No. 2367. https://mpra.ub.uni-muenchen.de/id/eprint/2367

Downloads

Download data is not yet available.