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Microfinance duration and development: The case of three cities in India

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  • Lahiri, Radhika
  • Wei, Honghong

Abstract

This study examines the impact of microcredit duration on both pecuniary dimensions of welfare, such as saving and income, and non-pecuniary dimensions such as social capital among microfinance clients, issues that are underexplored in the literature. Using survey data from three cities in India, we employ a Two-Stage Least-Squares model to estimate financial impacts and an Ordered-Probit model to assess social capital outcomes. The findings reveal that longer microcredit duration significantly improves income and savings, with Pune, relative to Mumbai and Satara, showing the strongest effects. However, evidence for social capital formation is mixed, with negligible impacts in most cases and negative outcomes in some, highlighting limitations of joint-liability loan structures in fostering social networks. These results underscore the need for policies that go beyond financial inclusion, focusing on strengthening social capital through tailored programs that promote trust, cooperation, and community engagement, ultimately enhancing the broader developmental impact of microfinance.

Suggested Citation

  • Lahiri, Radhika & Wei, Honghong, 2025. "Microfinance duration and development: The case of three cities in India," Economic Modelling, Elsevier, vol. 149(C).
    • Handle: RePEc:eee:ecmode:v:149:y:2025:i:c:s0264999325001002
    DOI: 10.1016/j.econmod.2025.107105
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