DEPP working paper

This Working Paper is part of the Development Economics and Public Policy series

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

Thankom Arun, Katsushi Imai and Frances Sinha

Abstract

Drawing upon the data in 2001, the present study analyses the effect of Micro Finance Institutions (MFIs) on poverty of households in India . The propensity score matching is employed to estimate the poverty-reducing effects of the access to MFIs and the loans used for productive purposes to take account of the endogeneity problem. Significantly positive effects on the multidimensional poverty indicator suggest the role of MFIs in poverty reduction. We also show that households in rural areas need loans from MFIs for productive purposes to reduce poverty, while simply accessing to MFIs is sufficient for urban households to reduce it.

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