Financial Inclusion And The Resilience Of Poor Households

Financial inclusion through microfinance is found to promote resilience strategies of the poor as it has become more demand sensitive. Extant literature suggests that there have been perceptible changes in the living conditions of the rural poor mainly on the economic side and relatively on the social side owing to the role of self-help groups (SHGs). Further, it is widely believed that SHGs have had a positive impact on the poverty levels and standards of living of the poor and more particularly on the economic empowerment of women. Given this context, this study reviews the financial diaries of the poor and provides evidence of the impact of financial inclusion program on the poor beneficiary households in India. More specifically, this study answers the specific question: what is the impact of SHGs on the annual income of the participating poor households. Based on stratified random sampling this study uses the nearest-neighbor matching method to construct the control groups to estimate the program impact. Keeping in view the stabilization of the financial inclusion program, this study covers the financial inclusion beneficiaries in the Shimoga district of Karnataka state in India for the period 2010 – 2015. Using the Paired-Sample t-test and the difference-in-difference approach, the study notices a significant positive change in the income levels of the beneficiaries resulting in the resilience of the poor households. This study notices perceptible changes in the living conditions of the rural poor mainly on the economic side and relatively on the social side owing to the role of SHGs. Financial inclusion has a positive impact on the poverty levels and standards of living of the poor and more particularly on the economic empowerment of women. This approach has enhanced the resilience of the poor households as there has been an increase in the mean annual income to the extent of 72% from the pre-SHG situation to the after-SHG impact. The results suggest that the financial inclusion is more beneficial in strengthening the resilience of the poor households particularly that of the downtrodden classes in India. Further, these findings provide direction for policymakers and practitioners involved in building and measuring changes in household resilience. This study implies that effective implementation of financial inclusion program has greater benefits and a win-win situation for all the stakeholders.