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Does Microfinance empower women? Evidence from Self-Help groups in Kerala and Andhra Pradesh, India

Microfinance institutions (MFI) provide financial services such as savings; credit, insurance, and money transfer to low-income clients who lack access to traditional banking services (Irshad 2015). It was pioneered by Nobel Laureate Muhammad Yunus who laid out the foundations of MFIs with the establishment of Grameen Bank in 1976 in Bangladesh (Irshad 2015). Self-Help Groups (SHG) is the most popular method used to deliver micro-loans to the clients (Kaur 2015). It is a group of 15-20 members that are linked to an existing bank network, which serves as a credit channel (Kaur 2015). Size of loans are usually increased once a SHG establishes its credit-worthiness which requires maintaining records of saving and lending for a time period of 6 months (Kaur 2015). Groups meet on a regularly basis and loans are distributed weekly. Majority of microfinance institutions target women because 70% of the world’s poor are women and therefore women are amongst the poorest and the most vulnerable (Swain 2007).

Micro financing schemes in Kerala and Andhra Pradesh have the longest running microfinance projects with maximum outreach (Malhotra 2002). Kudumbashee is a microfinance movement that was launched in Kerala in 1998 (Bhaskar 2015). It has been providing micro-loans to the women of Kerala for 18 years. As of March 2015, there are eight microfinance institutions in Kerala with 280 branches that serve 46% of the households and approximately 16% of the female population of Kerala (State Sector Report 2009). Similarly, in Andhra Pradsh, microfinance project called Development of Women and Children in Rural Areas was launched in 1999 by the Andhra government and has been serving women of Andhra Pradesh for 17 years (State Sector Report 2009). Microfinance initiatives are operative in all 22 districts of Andhra Pradesh (State Sector Report 2009). As of 2015, 90% of rural households and 42% of the female population have a microfinance loan outstanding (State Sector Report 2009).

A case study from Kerala and Andhra Pradesh is evaluated in order to assess whether microfinance is an effective tool for economic empowerment of women.

The Kerala case study indicated that all women had access to credit, which was the biggest benefit of being a Kudumbashee SHG member. Members expressed that they made savings since 2002, earned higher income and found themselves in a ‘new economic position’. Approximately USD 9964 was distributed in total between 2002 and 2008 (Irshad 2015). Majority of the women indicated that they were dependent on agriculture as a source for income. All members indicated that they are going through skills development training such as umbrella-making, bamboo crafts, catering services, poultry businesses which may lead to future income sources/income generation (Irshad 2015). Kudumbashree reveals that most women who are involved with Kudumbashree supported business are able to make over $16 per day which is a significant amount (Irshad 2015). It is important to note that the SHG members haven’t been involved in any asset accumulation strategies, which is crucial because it secures members from falling into debt trap, the most common criticism against microfinance. Many micro-loan borrowers find it hard to repay loans because of high interest rates charged by the microfinance institutions (The Economist 2015). This causes them to borrow more money from other microfinance services as well. This triggers the debt trap.

Likewise, the AP case study also illustrates economic upgrade in the life of Andhra women; however, the results were not as optimistic as indicated in Kerala case study. The AP case study had two groups, treatment group that had access to micro-loans and control group that didn’t have access to micro-loans (World Bank 2003). The treatment benefitted in terms of having access to credit, asset accumulation and savings. Findings show that all SHG members in the treatment group had access to credit and made savings 2001 onwards which encouraged entrepreneurial activity and helped in reducing vulnerability against disasters and external shocks (World Bank 2003).  The treatment group was able to invest 16% more than the control group on non-financial assets (consumer durables, livestock assets). Additionally, treatment group members owned more non-financial assets than those in control group, which led to increase in consumption levels (World Bank 2003). The per capita consumption increased by 11% from 2004 to 2006 contrary to the control group whose per capita consumption only increased by 4% (World Bank 2003). Consumption per capita for the control group was US$8 per week whereas the consumption per capita for the treatment group was US$16.8 (World Bank 2003). Lastly, the size of loans increased by 12% for the treatment group between 2004 and 2006, compared to the control group (0% increase in loan size since they didn’t receive micro-loans), thereby highlighting that as the SHG membership matures, the members attain certain level of capital accumulation (World bank 2003). There is no evidence that treatment group members underwent vocational training, experienced increase in income and hunted for better employment or self-employment opportunities.

These case studies indicate that microfinance is an effective tool for improving economic status of women in India.

Miha Alam

Byrn Mawr College


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