Choice Between Microfinance System Operating on the Basis of Individual Liability Loan Contract or Through Joint Liability Loan Contract

This paper examines household choices in choosing a particular microfinance system. It examines two MFIs in West Bengal, India, namely Vivekananda Sevekendra –O-Sishu Uddyan (VSSU), an MFI operating on the basis of individual liability loan contract and Swarnajayanti Grameen Swarojgari Yojana (SGSY) a central government-operated scheme that uses joint liability loan contract. The paper establishes that rural households with higher dependency ratio as well as households with some technical skill or entrepreneurial ability are prone to joining any microfinance system, but demonstrate a higher probability of joining SGSY. Findings include:

• Wealthier among the not-so-affluent rural households prefer to join a microfinance system operating on an individual liability basis;
• Comparatively less wealthy households prefer to join a microfinance system operating on a joint liability basis;
• Ultra poor households are not likely to join any type of microfinance system;
• Households with high intra-household decision making power of women opt for the joint liability system. 

The paper also establishes that the microfinance system fails to solve the aging problem in rural areas because old people are less likely to join any type of microfinance system.