Effect of Microfinance on Vulnerability, Poverty and Risk in Low Income Households
AbstractUncertainty and unpredictability faced by low-income households increase their vulnerability making poverty even more unbearable. India’s National Bank for Agriculture and Rural Development (NABARD)-initiated Self-Help Group (SHG) program, which is currently the largest and fastest growing microfinance program in the developing world, has been aggressively promoted as a way of combating poverty. This paper investigates whether or not SHG participation results in reducing poverty and vulnerability. A theoretical framework is developed to examine the mechanisms through which the pecuniary and non-pecuniary effects of the SHG program on the beneficiaries’ earnings and empowerment, influence their households’ ability to manage risk. Going beyond the traditional poverty estimates, we use a vulnerability measure which quantifies the welfare loss associated with poverty as well as different types of risks like aggregate and idiosyncratic risks. Applying this measure to an Indian panel survey data for 2000 and 2003, we find that SHG members have lower vulnerability as compared to a group of non-SHG (control) members. Furthermore, we find that the poverty contributes to about 80 percent of the vulnerability faced by the household followed by aggregate risk.
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Bibliographic InfoPaper provided by American University, Department of Economics in its series Working Papers with number 2008-02.
Length: 36 pages
Date of creation: Feb 2008
Date of revision:
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Web page: http://www.american.edu/cas/economics/
Microfinance; Vulnerability; Poverty; Risk Coping;
Other versions of this item:
- Bali Swain, Ranjula & Floro, Maria, 2007. "Effect of Microfinance on Vulnerability, Poverty and Risk in Low Income Households," Working Paper Series 2007:31, Uppsala University, Department of Economics.
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-11-04 (All new papers)
- NEP-CWA-2008-11-04 (Central & Western Asia)
- NEP-DEV-2008-11-04 (Development)
- NEP-MFD-2008-11-04 (Microfinance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- B, Ranjula & Wallentin, Fan Yang, 2008. "Economic or Non-Economic Factors – What Empowers Women?," Working Paper Series 2008:11, Uppsala University, Department of Economics.
- Bali Swain, Ranjula & Floro, Maria, 2010. "Reducing Vulnerability through Microfinance: Evidence from Indian Self Help Group Program," Working Paper Series 2010:23, Uppsala University, Department of Economics.
- Evans Jadotte, 2010. "Vulnerability to Poverty: A Microeconometric Approach and Application to the Republic of Haiti," Working Papers wpdea1004, Department of Applied Economics at Universitat Autonoma of Barcelona.
- Amit Kundu, 2011.
"Effectiveness of Microfinance Under SGSY Scheme to Reduce Poverty and Vulnerability of Rural Households: A Natural Experiment,"
The IUP Journal of Financial Economics,
IUP Publications, vol. 0(3), pages 40-55, September.
- Kundu, Amit, 2010. "Effectiveness of Microfinance under SGSY scheme to reduce Poverty and Vulnerability of Rural Households: A Natural Experiment," MPRA Paper 35193, University Library of Munich, Germany, revised 07 Aug 2011.
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