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The Microfinance Promise in Financial Inclusion and Welfare of the Poor: Evidence from Karnataka, India

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  • Naveen K Shetty

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    (Institute for Social and Economic Change)

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    Abstract

    Microcredit is a recent addition to India’s poverty-alleviation strategy. Of late, there has been a paradigm shift from microcredit to microfinance. This study examines the promise of microfinance in the inclusion of poor, who have been left outside the gamut of formal financial markets for a long period of time. The study also examines the impact of microfinance-plus services on the household economy of the members. This paper uses primary data on household participants of microfinance programme in the state of Karnataka. We find that a majority of the sample households in the pre-microfinance programme were vulnerable to both access the financial and non-financial services. In the post-microfinance intervention, a large number of the member households are able to access the microfinance-plus services and it has enhanced the income, employment, assets, household expenditure, housing condition and empowerment of the poor. Policy recommendation includes delivery of microfinance-plus services to the marginalized and vulnerable poor at a minimum cost will have wider impact on the socio-economic well-being of the poor.

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    Bibliographic Info

    Paper provided by Institute for Social and Economic Change, Bangalore in its series Working Papers with number 205 Keyword : Banking, Microfinance, Financial Inclusion, Poverty Reduction, Karnataka.

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    Length: 35 pages
    Date of creation: 2008
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    Handle: RePEc:sch:wpaper:205

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    1. Navajas, Sergio & Schreiner, Mark & Meyer, Richard L. & Gonzalez-Vega, Claudio & Rodriguez-Meza, Jorge, 1998. "Microcredit And The Poorest Of The Poor: Theory And Evidence From Bolivia," Economics and Sociology Occasional Papers 28334, Ohio State University, Department of Agricultural, Environmental and Development Economics.
    2. Mark M. Pitt & Shahidur R. Khandker, 1998. "The Impact of Group-Based Credit Programs on Poor Households in Bangladesh: Does the Gender of Participants Matter?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 958-996, October.
    3. Diagne, Aliou & Zeller, Manfred, 2001. "Access to credit and its impact on welfare in Malawi:," Research reports 116, International Food Policy Research Institute (IFPRI).
    4. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
    5. Zeller, Manfred & Sharma, Manohar, 1998. "Rural finance and poverty alleviation," Food policy reports 8, International Food Policy Research Institute (IFPRI).
    6. Priya Basu, 2006. "Improving Access to Finance for India's Rural Poor," World Bank Publications, The World Bank, number 6927, October.
    7. Hossain, Mahabub, 1988. "Credit for alleviation of rural poverty: the Grameen Bank in Bangladesh," Research reports 65, International Food Policy Research Institute (IFPRI).
    8. Hulme, David, 2000. "Impact Assessment Methodologies for Microfinance: Theory, Experience and Better Practice," World Development, Elsevier, vol. 28(1), pages 79-98, January.
    9. Signe-Mary McKernan, 2002. "The Impact Of Microcredit Programs On Self-Employment Profits: Do Noncredit Program Aspects Matter?," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 93-115, February.
    10. Hashemi, Syed M. & Schuler, Sidney Ruth & Riley, Ann P., 1996. "Rural credit programs and women's empowerment in Bangladesh," World Development, Elsevier, vol. 24(4), pages 635-653, April.
    11. Naveen K Shetty, 2008. "Microfinance for Micro Enterprise Development: An Inquiry for a New Paradigm," The IUP Journal of Financial Economics, IUP Publications, vol. 0(1), pages 88-98, March.
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