Reducing Vulnerability through Microfinance: Assessing the Impact of Self Help Groups In India

We investigate if participation in Indian Self Help Group microfinance program (SHG) results in reducing vulnerability. Using theSHG rural household survey data collected in 2003, we examine the poverty and vulnerability profiles of SHG and non-SHG rural, low-income household members. Our construction of the vulnerability is based on a methodology that allows for the estimation of household vulnerability using cross-sectional survey data. We use propensity score matching to eliminate the potential selection bias that may arise due to unobservable attributes. We empirically examine the current poverty and vulnerability status of households in SHG and non-SHG groups. We match the treated and comparison groups on the basis of their propensity scores to correct for selection bias and then estimate the average treatment on treated effect using nearest neighbour matching and local linear regression algorithm. To check the robustness of the results, we perform sensitivity analysis and estimate Rosenbaum‟s bounds. Our empirical results show that despite a disproportionately high percentage of poor in the SHG members, vulnerability is not significantly different between the SHG and non-SHG members. JEL Classifications: D4, G21, I32.