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Microfinance and Household Poverty Reduction: New evidence from India

  • Katsushi S. Imai

    (Economics, School of Social Sciences, University of Manchester (UK) and RIEB, Kobe University (Japan)
    Institute of Development and Policy Management, School of Environment and Development, University of Manchester (UK) and Lancashire Business School, University of Central Lancashire (UK))

  • Samuel Kobina Annim

    (Economics, School of Social Science, University of Manchester, UK)

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 treatment "effects" 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.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2010-14.pdf
File Function: First version, 2010
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Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2010-14.

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Length: 41 pages
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:kob:dpaper:dp2010-14
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  1. P. Mosley, 2001. "Microfinance and Poverty in Bolivia," Journal of Development Studies, Taylor & Francis Journals, vol. 37(4), pages 101-132.
  2. Amemiya, Takeshi, 1984. "Tobit models: A survey," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 3-61.
  3. Menno Pradhan & Martin Ravallion, 2000. "Measuring Poverty Using Qualitative Perceptions Of Consumption Adequacy," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 462-471, August.
  4. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  5. Khandker, Shahidur R., 2003. "Microfinance and poverty - evidence using panel data from Bangladesh," Policy Research Working Paper Series 2945, The World Bank.
  6. Basu, Priya & Srivastava, Pradeep, 2005. "Scaling-up microfinance for India's rural poor," Policy Research Working Paper Series 3646, The World Bank.
  7. Suresh Sundaresan (ed.), 2008. "Microfinance," Books, Edward Elgar, number 13148, 6.
  8. John Weiss & Heather Montgomery, 2005. "Great Expectations: Microfinance and Poverty Reduction in Asia and Latin America," Oxford Development Studies, Taylor & Francis Journals, vol. 33(3-4), pages 391-416.
  9. Angus Deaton & Valerie Kozel, 2005. "Data and Dogma: The Great Indian Poverty Debate," World Bank Research Observer, World Bank Group, vol. 20(2), pages 177-199.
  10. Adams, Alayne M. & Evans, Timothy G. & Mohammed, Rafi & Farnsworth, Jennifer, 1997. "Socioeconomic stratification by wealth ranking: Is it valid?," World Development, Elsevier, vol. 25(7), pages 1165-1172, July.
  11. Cull, Robert & Demirguc-Kunt, Asli & Morduch, Jonathan, 2008. "Microfinance meets the market," Policy Research Working Paper Series 4630, The World Bank.
  12. Katsushi Imai & Thankom Arun, 2008. "Does Microfinance Reduce Poverty in India?," The School of Economics Discussion Paper Series 0814, Economics, The University of Manchester.
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