Does credit access lead to expansion of income and multidimensional poverty? A study of rural Assam

Abstract

Purpose The purpose of this paper is to evaluate the impact of credit access on income and multidimensional poverty by providing an econometric framework. Design/methodology/approach The study is conducted in Assam, India and uses a quasi-experiment design to gather primary data. Econometric tools like Heckit procedure, Tobit selection equation and probit model are used for empirical purpose. Findings The paper finds that the level of individual welfare is influenced by equivalent factors. In addition, the study observes a larger incidence of poverty among treatment households of semiformal and informal borrowers. The study argues that formal sources are more effective in reducing the number of poor households by lifting those who are closest to the poverty line. Research limitations/implications The study indicates a vicious circle of income and multidimensional poverty among semiformal and informal borrowers. By tradition, as rural Assam gets a dominant role of traditional community-based financial institutions, we should develop the banking structure by involving these institutions. The study excludes other probable explanatory variables while evaluating the impact of credit access on income and multidimensional poverty, and this limitation is left to future research. Originality/value This is probably the first empirical paper in Assam showing the impact of credit access on multidimensional poverty by adjusting for endogeneity and selection bias.

Access to Rural Credit Markets in Developing Countries, the Case of Vietnam: A Literature Review

“…On the other hand, it is off-farm activities that have a close relationship with poverty reduction [83][84][85]. Formal credit access is shown to have positive impact on household income in the study of Das et al [86], expanding their livelihood activities and helping them to improve living standard and raise annual income and welfare conditions [87][88][89][90]. While many studies find the direct and statistically significant impact of rural credit on output and production, some others believe that output and poverty is indirectly affected by credit access.…”

“…Poverty alleviation does not come from the direct provision of credit to the poor [25], even in reality the poorest are likely to be excluded from the formal lenders because of their bigger risk than the other group of population [91,92]. Das et al has studied the impact of credit on poverty reduction in terms of formal, semi-formal, and informal credit access [86]. Poverty in this study is measured by three benchmarks: the Planning Commission of India's poverty line, World Bank poverty line, and multidimensional poverty.…”

Credit sources, access and factors influencing credit demand among rural livestock farmers in Nigeria

“…Education in this study is considered in the model in three stages (primary education 1-6 years, secondary education; 7-12 years and tertiary education as >12 years). The expectation was that acquiring more years of formal education and financial literacy would be associated with an efficient credit application and could increase farmers' probability of accessing credit (Silong, 2017;Shahab et al, 2018). Deposits (X 7 ) are deemed important in accessing credit because people who have deposits as savings with lenders can demonstrate that they can generate income to take care of their household needs and still have a surplus (Samson and Obademi, 2018).…”

“…Extension services provide farmers with the technical know-how to confidently engage in farming activities. As such, it is expected that increasing access to extension/veterinary services by livestock farmers would be associated with increases in access to credit (Silong, 2017). Membership of a social/support groups (X 11 ) was included in the model because of the group lending approach adopted by many financial institutions, especially in the rural areas.…”

“…Membership of a social/support groups (X 11 ) was included in the model because of the group lending approach adopted by many financial institutions, especially in the rural areas. It was measured as a dummy (1 = having a membership of social/support group and 0; otherwise), and expected to be positively associated with increases in credit access (Silong, 2017).…”