Microfinance in Rural India


Microfinance is a popular policy intervention in many developing countries where it is particularly targeted at women.  Often the aim is to create self-employment opportunities, thus enhancing women’s confidence and status. The true impact of microfinance on women’s livelihoods and on their ability to participate in local entrepreneurship is a matter of intense debate, and research undertaken by Dr Supriya Garikipati, here in the Management School, is a major contribution to the discussions. Supriya's key research findings are that:

  • microfinance is most likely to have a beneficial impact on women when the loan is used to enhance their own livelihood rather than their husband’s livelihood or the household income.  In fact, where the loan has been absorbed into the household Supriya identified that microfinance may actually have a detrimental effect due to the repayment burden. 
  • women who control their loans are more likely to be involved in high value activities and participate in the local economy. This is likely to result in better social ties which improve their bargaining power within the household. For instance, managing her own livestock to supply milk to the local dairy is likely to benefit a woman more than working on her husband’s farm.
  • the impact of microfinance on women’s livelihoods can be understood better by studying the processes women engage in as a result of the loans (rather than focus on just the outcomes). For instance, it is misleading to say that microfinance has resulted in enhanced livelihoods if the work women do is degrading and detrimental and only done to meet repayments.

Applying the Research

Andhra Pradesh (AP) is one of India’s largest states with around 57 million rural inhabitants. Lack of financial institutions meant that the rural poor, especially women, had few opportunities to enhance their livelihoods. Until around 2009, the administrative culture surrounding microfinance in AP was mainly focused on receiving loan repayments. There was little attention paid to how loans were used and even less to whether loans were used to enhance women’s livelihoods – in fact the loan application did not have a single question on how the loan would be used or the applicant’s livelihood.

Using her research Supriya actively lobbied practitioners and policy makers for changes to the policy and practices surrounding loan disbursement to poor rural women. She attended and presented at several meetings in AP nurturing collaborative relationships with many key stakeholders in the region, most notably with the State Government’s Department for Rural Development – Society for Elimination of Rural Poverty (SERP). These efforts have contributed to a shift in thinking among policy-makers and practitioners in AP and resulted in changes to the loan application procedure in terms of explicitly linking loans to enhancement of livelihoods. In collaboration with SERP, Supriya developed the Livelihood Enhancement Programme (LEP) which is a set of survey instruments used to match individual loan applicant’s capabilities with the needs of the local economy. This matching approach to directly links woman’s loans with enhancement of their  livelihoods.   

Making a Difference

The LEP framework has been in use since 2009; first in three semi-arid districts of AP and completely rolled out across all 22 districts by April 2012.  The LEP framework has given the AP region a structured way in which to work towards enhancing women’s livelihoods.  Across AP the LEP framework, as designed by Supriya, is used to understand how women intend to use their loans with a link to the needs of the local enterprise economy.

Every year 500,000 women who join the microfinance programme do so using the LEP framework as researched and designed by Supriya. Furthermore, Supriya has initiated negotiations with government organisations across India with a view to rolling out a LEP framework across the whole country.