Socially Disadvantaged Groups and Microfinance in India

This Working Paper presents findings from a study of 1,679 Self help-groups (SHGs) in selected regions of rural Northern India. It examines whether traditionally disadvantaged villagers, such as members of lower castes or landless farmers, are less likely to have access to groups. It also analyzes their performance in terms of access to bank loans, which is an important benefit of SHGs. The study reveals that scheduled tribes are less likely to have access, but this is mainly due to a bias in the placement of the program. Findings include:

• Groups composed of individuals from scheduled tribes and scheduled castes are less likely to survive and obtain bank loans unless they also include members of higher castes;
• Socially mixed groups display larger departure rates by memebrs of lower castes;
• People from lower castes have a lower probability of becoming a permanent member of a group;
• Net effects in terms of their expected access to a bank loan remain relatively limited;
• Landless farmers are more likely to benefit disproportionately, even though they tend to fail or leave SHGs.