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Effect of employment guarantee on access to credit: Evidence from rural India

  • Saraswat, Deepak

Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is the largest and most ambitious public works program for poverty alleviation, adopted by Government of India since independence. It was implemented in year 2006, starting with the first phase of 200 most backward districts in India. Two more consecutive phases were implemented to cover all rural regions in India but, even after almost 6 years of its implementation, it has not been adequately analyzed for its effect on various development indicators. This paper aims to study, whether participating in a typical employment guarantee program like MGNREGA, increases access to financial services and in particular, credit. Results provide evidence that, MGNREGA has been successful in self-selecting rural poor into participation and households participating longer in the program have been able to borrow more from formal sources. This paper also provides evidence that, increase in productivity of economic activities for participants, due to work in MGNREGA acts as a link between longer participation and increased access to formal credit.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34671.

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Date of creation: 14 Sep 2011
Date of revision: 13 Nov 2011
Handle: RePEc:pra:mprapa:34671
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  1. Milo Bianchi, 2010. "Credit Constraints, Entrepreneurial Talent, and Economic Development," Post-Print halshs-00636002, HAL.
  2. Barrett , Christopher B & Carter , Michael R & Ikegami , Munenobu, 2008. "Poverty traps and social protection," Social Protection Discussion Papers 42752, The World Bank.
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  5. Datt, Gaurav & Ravallion, Martin, 1994. "Transfer Benefits from Public-Works Employment: Evidence for Rural India," Economic Journal, Royal Economic Society, vol. 104(427), pages 1346-69, November.
  6. Carlo del Ninno & Kalanidhi Subbarao & Annamaria Milazzo, 2009. "How to Make Public Works Work : A Review of the Experiences," World Bank Other Operational Studies 11718, The World Bank.
  7. Conning, Jonathan & Udry, Christopher, 2007. "Rural Financial Markets in Developing Countries," Handbook of Agricultural Economics, Elsevier.
  8. Jonathan Morduch, 1995. "Income Smoothing and Consumption Smoothing," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 103-114, Summer.
  9. Stefan Dercon, 1996. "Wealth, risk and activity choices: cattle in Western Tanzania," Economics Series Working Papers WPS/1996-08, University of Oxford, Department of Economics.
  10. Eswaran, Mukesh & Kotwal, Ashok, 1986. "Access to Capital and Agrarian Production Organisation," Economic Journal, Royal Economic Society, vol. 96(382), pages 482-98, June.
  11. Eswaran, Mukesh & Kotwal, Ashok, 1989. "Credit as insurance in agrarian economies," Journal of Development Economics, Elsevier, vol. 31(1), pages 37-53, July.
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