Research on Microfinance in India: Combining Impact Assessment with a Broader Development Perspective

Abstract

Microfinance can be researched narrowly as an instrument for promoting development or more broadly as an endogenous component of development. This paper sets out a simple well-being regime model incorporating both views and uses it to review the dynamics of rural microfinance in India. Four potential drivers of change in the role of microfinance in India are reviewed: evidence-based policy, rising political aspirations, new technology and agro-climatic change. The paper argues for combining more narrowly focused microfinance impact assessment with broader research into microfinance as one component of wider well-being regimes.

Notes

This paper was first presented at a workshop in January 2010 organized by the Centre for Research into Microfinance in Brussels on microfinance and development studies. The author is grateful to participants for comments, particularly Cyril Fouillet, and to Julie Humberstone for assistance in searching the literature.

¹ Some degree of order was introduced through a systematic search for abstracts that referred to: India or regions thereof; poverty or related concepts; microfinance or related instruments; and impact or related concepts. This covered four databases (EconLit, IBSS, ISI Web of Knowledge and Business Source Premier) going back to 1991. Obvious flaws in this search strategy include omission of the rich literature on microfinance in India in languages other than English, and failure to pick up anthropological research that touches on microfinance indirectly as one element of agrarian social relations. The paper also pre-dates the 2010 “crisis” of microfinance in Andhra Pradesh, which further illustrates the central argument in favour of broadening the framework of analysis of how microfinance relates to development.

² Drawing on Powelson (1997) as well as North (1990), the term institution is taken to refer to rules and norms governing resource allocation that are protected by culture, in the sense that non-compliance with them provokes widespread outrage and a political reaction in their defence. The framework can be elaborated further by incorporating Williamson's (2000) distinction between four levels of institutions.

³ This echoes the Wellbeing in Developing Countries (WeD) network definition of well-being as “a state of being in society where people's basic needs are met, where they can act effectively and meaningfully in pursuit of their goals and where they feel satisfied with their life” (Copestake, 2008, p. 3).

⁴ For other examples, see Bevan in Gough & Wood (2004) on in/security regimes in Africa and Copestake & Wood in Copestake (2008) on Peru as an unequal security regime.

⁵ Despite chronic weaknesses, the short-term cooperative credit system still had 127 million members in 2005, including 45 million who received loans (Government of India, 2008, p. 73). IRDP was rebranded as SGSY in 1999 and subsequently became a major source of funding for self-help groups. Rajasekhar (2006) reviews its coverage and operational weaknesses for the five years to 2003–04. On RRBs, see Kaushik (1996).

⁶ In addition to the SBLP programme, discussed later, Thorat (2008, p. 5) identifies the establishment of NABARD's Rural Infrastructure Development Fund and the Small Industries Development Bank of India (SIDBI) as important initiatives taken in the 1990s to maintain the flow of development finance to agriculture and other priority sectors.

⁷ A separate line of research focuses on linkages between microfinance and business training. For example, Ghosh (2002) found the impact of the government Training for Rural Youth for Self-EMployment (TRYSEM) programme in West Bengal to be low, whereas Creevey & Edgerton (1997) reported a positive impact of a World Bank-funded pilot in three states. Integrated packages of support to promote dairying, especially for women, highlight the importance of quality of intervention to outcomes (Sharma & Vanjani, 1993; Copestake, 1996; Ramakrishnappa & Jagannatha Rao, 2006).

⁸ See also Tesoriero (2006) and Copestake et al. (2005, pp. 94–125) for further discussion of the links between SHG membership, social identity and active citizenship.

⁹ Quantitative studies of well-being outcomes as diverse as contraceptive use, child labour use (Sawada et al., 2006), crop and livelihood diversification (Sidhu, 2006; Sarkar, 2007; Sharma, 2007) and rural non-farm income (Toor & Sidhu, 2006; Micevska & Rahut, 2008) can produce evidence of possible wider effects of credit constraints.