Patterns of loan use for women’s self-help groups in rural Rajasthan

In spite of numerous impact evaluation studies of microcredit, there is no consensus about its poverty reduction capacity. In part, this confusion is the result of a futile quest to construct a singular narrative of impact, whereas the focus should be on understanding the range of experiences in particular geographies and contexts. In this paper, we study the ways in which participants used their loans by drawing upon semi-structured interviews with self-help group members to examine the poverty reduction potential of a microcredit program in two villages of Rajasthan, India. We unpack the impact of duration of program participation on loan use, and examine pathways to productive loan use, an indicator which signifies poverty alleviation. Although we did not find significant evidence of poverty alleviation, program participation had a positive impact on respondent households: a) an increase in the capacity of respondents to use loans for second-order consumption with increasing lengths of time in the program, and b) an increase in the amount and frequency of available credit for consumption smoothing and crises. We contribute to the extant literature on the impact of microcredit by presenting a granular analysis of loan use by differentiating between three kinds of consumption uses. We also discuss obstacles and enabling factors for productive loan use at the household and individual level, and problematize the application of the binary yardstick of consumption and production to assess the use of microcredit loans by the rural poor in the developing world.