Microfinance and Household Poverty Reduction: New evidence from India


The objective of the present study is to examine whether household access to microfinance reduces poverty. Using national household data from India, treatment effects model is employed to estimate the poverty-reducing effects of MFIs loans for productive purposes, such as investment in agriculture or non-farm businesses on household poverty levels. These models take into account the endogenous binary treatment effects and sample selection bias associated with access to MFIs. Despite some limitations, such as those arising from potential unobservable important determinants of access to MFIs, significant positive effect of MFI productive loans on multidimensional welfare indicator has been confirmed. The significance of etreatment effectsf coefficients have been verified by both Tobit and Propensity Score Matching models. In addition, we found that loans for productive purposes were more important for poverty reduction in rural than in urban areas. However in urban areas, simple access to MFIs has larger average poverty-reducing effects than the access to loans from MFIs for productive purposes. This leads to exploring service delivery opportunities that provide an additional avenue to monitor the usage of loans to enhance the outreach.

Keywords: Microfinance, Poverty, Evaluation, India, Propensity Score Matching
JEL Classification: C21, I30, I38, O16, R51

Katsushi S. IMAI
Economics, School of Social Science, University of Manchester, UK

Thankom ARUN
Institute of Development and Policy Management, School of Environment and Development, University of Manchester & Lancashire Business School, University of Central Lancashire, UK

Samuel Kobina ANNIM
Economics, School of Social Science, University of Manchester, UK