This study evaluates the impact of SHG based microfinance and business training on the socio-economic outcomes of households in rural Tamil Nadu.
Background
The self-help group (SHG) program, which began as a women’s empowerment initiative in the 1980’s added a significant financial component in 1992, when a NABARD initiative linked a small number of SHGs with banks. SHGs are more than just a conduit for credit – they also act as a delivery mechanism for various other services, ranging from entrepreneurial training to savings deposits. Despite the scale and potential of SHGs to improve the lives of some of India’s poorest citizens, surprisingly little rigorous evidence has been produced on the impact of SHGs. This study investigates the impact of an SHG-based microfinance and entrepreneurship training program. While the objective of the study is to broadly test whether microfinance improves well-being, researchers also analyzed the impact of microfinance and business training on the following outcomes: consumption, savings and borrowing, business creation and profits, access to water and electricity, vulnerability to shocks, education, health and sanitation, domestic violence, and intra-household decision making. This study is unique in two ways: a) it is the first randomized control trial impact evaluation of the self-help group model and b) it measures the combined impact of microfinance and entrepreneurial training on well-being.
Approach
This study used a randomized evaluation to investigate the impact of microfinance and business training on the sample population. 315 panchayats from three districts of southern Tamil Nadu were selected for the study. After researchers conducted a baseline survey, they randomly assigned panchayats to a treatment or control group (researchers randomized at the panchayat level rather than on the household level). Out of the 315 Panchayats, 32% and 68% of the sample formed the control and treatment groups respectively.
The treatment group was further sub-divided into two groups:
Treatment 1: some panchayats received financial access and business training.
Treatment 2: other panchayats received financial access with much more intensive business training. An endline survey was conducted to analyze the impact of the intervention on various social and economic outcomes.
Key Findings
Results from the study indicate that women in SHGs are more likely to save money, as well as households with SHG membership are more likely to borrow from formal sources. The study also found that women associated with an SHG score higher on the empowerment index. Thus, SHGs have the potential to transform lives and empower women – with grassroots level community support, women in self-help groups are found to be changing their financial and social behaviour over time, by actively engaging in the formal financial ecosystem and the local political environment.
Implications
While there have been several empirically rigorous studies on the impact of microfinance on poor and low income households, very little empirical evidence exists on the impact of SHG-based programs on the socio-economic lives of poor. This study bridges a gap in the current literature on the impact of the SHG program and provides policy recommendations to strengthen the program’s outreach and implementation.