Does the Microfinance Reduce Poverty in India? Propensity Score Matching based on a National-level Household Data

This paper analyzes the effect of microfinance institutions (MFIs) on poverty in India. It employs propensity score matching to estimate the poverty-reducing effects of the access to MFIs and the loans used for productive purposes.The paper finds that:

• MFIs play an important role in poverty reduction;
• Significant results are observed in cases where households take loans for productive purposes;
• Monitoring the use of loans as well as increasing the productivities helps the poor escape from poverty and protects them from various shocks.

The paper concludes that as the large section of poor households is not only poor but also vulnerable, a stronger emphasis should be placed on microfinance schemes as a policy means of poverty reduction in both urban and rural areas in India.