Gender Inclusion and Microfinance Reforms In India

Acknowledging that credit ought to be a fundamental human right to evade mass poverty through individual economic empowerment, Self Help Groups or SHGs represent a unique approach to financial inclusion as a financial intermediate.

An Economist and Nobel Laureate Mohammad Yunus  globally respected for his prolific knowledge and action for his radical system of micro-credit that has eased millions of small entrepreneurs left out of the banking  credit system to escape relative poverty notes “Here we are talking about economic development, about investing billions of dollars in various programs, and I could see it wasn’t billions of dollars people needed right away”.

Acknowledging that credit ought to be a fundamental human right to evade mass poverty through individual economic empowerment, Self Help Groups or SHGs represent a unique approach to financial inclusion as a financial intermediate.


Microfinance: Reaching out to the Bottom of the Pyramid.RBI.org. Author Provided

SHGs have grown at an increasing rate over since 2000. The SHG bank-linkage programme  – a flagship programme of NABARD has supported the development programmes since the early 1990s and still continues to do so to evolve as a cost-effective method to provide financial services- with the help of Panch Sutras based on internal lendings based on the demand of its active members.

NABARD’s website can proudly claim the cooptation of RRBs, DCCBs, PACS, Farmer’s Clubs with an exceeding percentage of groups (84%) being women groups working in tandem with the globally pushed policy of women empowerment and leadership through financial inclusion to help them with Micro Enterprise Development Programmes via promotion of WomenSHGs, setup by Dept of Financial Services, Ministry of Finance, GOI.

Looking at a more grassroots and granular practical approach on the financial upfront, how efficient and transparent are such formations in managing their financial transactions? Are the groups sustainable? Are they equitable when surveyed cross-sectionally across the regional disparities, rural-urban continuum, and very importantly on the spectrum of caste division among the members of these collectives?

On the social side, what does it take for SHGs to mobilise for social or community action?  How effective are such actions?  On both sides, financial and social, who is really benefiting? Do the poorest benefit, do they not join at all or if they do join, are they more likely to drop out? 

And an ever-pertinent and imposing reality gazing at us: What are some policy interventions that can support a gender-inclusive employment recovery?

Acoording to Swetha Totapally about one in three women considered the government’s support crucial in weathering the crisis, on par with perceived support from family.

During the wretched moths of the pandemic last year  in October and November 2020, Dalberg layed out one of the largest studies around the socio-economic impacts of COVID-19 on women from low-income households, modelling data of greater than 17,000 respondents across 10 Indian states, briefly concluding that although women made up just 24% of those working before the pandemic, they accounted for 28% of those who lost work.

This gender disparity in employment recovery was found to be starkest in rural India.

Among several studies, a continuous and rampant observation has been that there was seen to be a limited impact of SHG membership on economic outcomes. Studies suggest that the percentage of SHG women being employed before the pandemic exceeded by 12% as compared to women with no SHG affiliation, more of them lost paid work, concomitantly saw a greater decline in their incomes, and recovered more slowly.

However, SHGs did seem to serve as a reliable borrowing channel for all participants—its members and the women in the community. Therefore, it would be useful to strengthen their resilience by focusing on economic recovery and market linkages via the existing Deendayal Antyodaya Yojana-National Rural Livelihoods Mission (DAY-NRLM)—the poverty relief programme of the Central government. Supported in partnership by the World Bank, it aims to create institutionalised platform and bank linkages based on targeted demographics that enable the rural poor households to increase their household incomes from an individualized microeconomic perspective. The scheme was started with an agenda to cover seven crore rural poor households via SHGs and federated institutions.

Financial inclusion in India: From self-help groups to global finance  

Financial inclusion is reasoned as “a key enabler to reducing poverty and boosting prosperity” by the World Bank. The prospect of financial inclusion started out with microcredit. The premise that it hinges on relies on ending poverty by empowering the ill-financed to start small businesses. This grew to a broader promise: to offer everyone, regardless of income, a set of banking services and to enable the poor to “make the best use of their money”. Further, it is purported to strengthen their citizenship through the effective delivery of cash transfers.

To coalesce the aim of financial inclusion at par with effective gender inclusion as a pre condition we will look at the structuration of SHGs in Bihar to collectivize rural population into self-help groups (SHG) and other culminating federations and help them gain access to markets.

“In line with the emerging priorities and JEEViKA’s already significant experience, the new project will scale up farm and non-farm value chain interventions including setting up of women-owned farmer producer companies.  It will also improve SHG women and SHG households’ nutrition, hygiene, and sanitation practices, and help increase their access to and use of nutrition and sanitation services made available through the Integrated Child Development Services (ICDS) and Swachh Bharat Mission (SBM) programs.”

India’s JEEViKA program in Bihar financed by the World Bank, between 2008 to 2018, has mobilized almost 10 million rural women into self-help groups. The success of JEEViKA contributed to National Rural Livelihoods Mission (NRLM) by the Government of India in 2011. The NRLM is co-financed by the World Bank and has scaled up this model across all 30 states of the country, reaching more than 45 million women who have saved US$1.4 billion and leveraged US$20 billion from commercial banks. More than 30 country delegations have visited NRLM projects so far to learn from the model.

Portfolio Geographical Distribution
Author provided

 In 2006, Bihar, one of India’s poorest and most populous State has historically and politically had limited inclusion of women’s access to economic opportunities, services and finance making the availability of seed capital furthering into dynamic incentives for inclusive rural development, an especially urgent and challenging agenda for the State.

Percolation of financial services was largely in distress with the density and situation of bank branches at less than half of the national average. “Against an estimated rural micro-credit demand of US$2.4 billion, the annual credit delivery in 2006 was US$8.4 million.

Total All Private Sec. Comm. BanksTotal All Public Sec. Comm Banks
TOTAL SHGs NPA 18745.49TOTAL SHGs NPA  341721.41
EXCLUSIVE WOMEN SHGs NPA 17699.99EXCLUSIVE WOMEN SHGs NPA 279642.78
NRLM SHGs NPA 6685.79NRLM SHGs NPA 132160.71 

Data source: NABARD SMFI 2019-20 (designed in Sheets)

A lowering productivity of subsistence agriculture was the dominant source of income for nearly 70 percent of Bihar’s population., which disproportionately included women in the informal sector. The poor quality of producer organizations, lack of capital formation, poorly developed value chains, inadequate research and extension facilities and most crucially, low levels of social capital among the poor hindered their access to factors to support high agriculture productivity and income diversification.

The project targetted to focus on women’s socio-economic empowerment by framing robust localized institutions through regional mapping to enhance livelihoods opportunities in both farm and non-farm and non-corporate sectors, incentivizing women borrowers to join the financial market in local-level institutions and markets, for more accountable delivery of services and better returns to small producers.



        Amount of Total NPAs of All Public Sec. Comm. Banks   
Data source: NABARD SMFI 2019-20 (designed in Sheets)

This led to a randomized roll-out of a government-led SHG program that offered microcredit and credit linkages to formal banks to the poor across 179 panchayats in rural Bihar.

Critical to the identification strategy, the SHG intervention had a strong direct effect on householduse of informal credit. This supportive project has expedited heavily approved increase in the adoption of productivity enhancement practices by developing local capacity for delivery of extension services.

Commodity-based producer organizations were facilitated to undertake collective aggregation and marketing of small-farmers’ produce and integrating technology into various aspects of production, quality control and marketing for higher returns.

In that context, presently a COVID-19 stricken India offers the most ambitious financial inclusion infrastructure in the world, with a rather complex conjunction of self-help groups (SHGs) and small private banks that offer credit to the poor, and a variety of public programmes.

In the year 2020 and well translating into 2021 the pandemic has glaringly magnified the flaws of an accumulation regime that was already in existence. Beyond a model based on the circulation of labour, which was brutally exposed with the first lockdown, the pre-pandemic accumulation model was also based on a race for consumer debt, including amongst the poorest.

Many testimonies from the lock-down ill-equipped to barely manage the 92% informal sector as lakhs of urban workers returned to their villages and rural employment plunged spanning the entire country making the livelihoods of two-thirds of the population numb and casteaway, left to their fate.


GROSS LOAN PORTFOLIO OUTSTANDING. Author Provided

These community savings groups largely failed to support their members. Even now, a year since the start of the pandemic in India, they haven’t been able to outstretch themselves back to normality as one would like to believe owing to the information asymmetry parenthetical to the media and the Government. “Vaishali Kamble, the president of Ramabai Mahila Swayamsahayata bachat gat in Shivthar village in Satara block said that several SHGs which have been running for 10 to 15 years and have members from the historically and financially marginalised Dalit communities especially faced a lot of difficulties.”

As a result, a vast section of the poor was dependent on high cost borrowings from informal sources” until the advent of programmes like Rotating Services and Credit associations (ROSCAS). This limited asset and capital formation and development of self-employment opportunities among the poor, reinforced deep rooted and exploitative relationships with additional hardships for women in a State with high out-migration of male heads of households due to mass absence of tapping into non-microenterprise household income flows marring women’s agency to have outside loan opportunities

The economic realities of SHGs, involve many affecting factors. Low income households have low propensity to save thus making the very difficult to manage the regular work of the SHGs resulting in financial systems to remain static and unresponsive to the fundamental requirements of participatory national development. All SHGs basically engage in a primary activity, so in rural areas they have very limited scope to scale up in a competitive market.

“According to Reserve Bank of India data, household consumer debt rose threefold from 2012 to 2020. Microlevel data show that this debt boom was not just an urban middle-class phenomenon. Long before the pandemic, consumer debt of the rural working poor was increasing much faster than income or wealth” as quoted by the National French Research Institute on Sustainable Development. 

But this debt was quantified to afford living costs and to build achieve a relatively better off standard of living in the rural areas where both absolute and relative poverty is rampant, for housing, educating children or debt due to marriage expenses skewed and thrown off balance mainly against gender minorities-women.

Debt is not a necessary evil if it can support investment through systematic evidence. Notwithstanding, here it operates mostly as a substitute both for wages that are far beyond subsistence levels and for largely inadequate social protection which is indivisible and provided as a safety net by the Government.

Thus, the core of the problem is not a model privileging private lenders that it is exploitative by design – and yet publicly subsidized. It also is a regime of accumulation that is incapable of ensuring the social reproduction of households, as a result of both the failure of private capital to provide subsistence wages, and an inefficient state unable to provide real social protection.

Microfinance has several worthy purposes along with the amalgamation of government subsidies, but it would be too superficial to assume that it is the most reliable way in terms of effectiveness for poverty reduction even  before a multivariate analysis of its comparative impacts.

In sum microfinance is a tool for substantial convergence among growth economists and social-policy economists. It needs to push against poverty under microeconomic developmental methods, but it needs to be complemented with other growth, poverty reduction, financial sector development, ensuring bank solvency (eg. in the farm sector), infrastructure building conducing to conventional job creation policies with central focus on macrostability and resource mobilization through policy measures that don’t wholly rely on debt finance.

Microfinance is not latent with ideological preconceptions of neoliberalism- further to humanize the inclusion of the marginalized genders into an non-exploitative and reliable financial and market system as committed by the United Nations Development Agency’s Sustainable Development Growth.


Navya J is a graduate in Economics and Operations Management with specialization in Finance. She has experience in qualitative and quantitative research for organizations and journals, along with experience in field experiments and reporting, and digital content creation. She
is interested in the field of Development Economics, Political Economy, Labor Markets Finance, Digital Markets and Public Policy. 

Views are personal

This article is an abridged version of the author’s research