The Domino Effects of Microfinance and Chameleon Loan Groups—Loan‐Group Heterogeneity and Adaptability

This study examines why users participating in the same microcredit program experience different development outcomes. Using survey data from 147 farm households in India, we employ generalized structural equation modelling to distinguish the common effects of program participation from loan‐group–specific effects. Participation alone has limited effects and generates no domino effects between household income and women's empowerment. In contrast, heterogeneity in loan‐group characteristics explains why identical microfinance programs produce different outcomes by generating sequential relationships between income and selected dimensions of empowerment. The findings identify loan‐group adaptability as a key organisational mechanism through which microfinance achieves multiple development objectives.