Assessing the Effect of Microfinance on Vulnerability and Poverty among Low Income Households

We empirically investigate whether participation in the Indian Self Help Group (SHG) microfinance programme has helped reduced poverty and household vulnerability using cross-sectional SHG rural household survey data. The potential selection bias is eliminated by propensity score matching to estimate the average treatment on treated effect using nearest neighbour matching and a local linear regression algorithm. We find that vulnerability in SHG members is not significantly higher than in non-SHG members, even though the SHG members have a high incidence of poverty. However, vulnerability declines significantly for those that have been SHG members for more than one year. These results are found to be robust using sensitivity analysis and the Rosenbaum bounds method.