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Effects of Micro finance on the income and expenditure pattern of rural households An empirical study in Vellore District. (Tamil Nadu, India)

By K.Rajendran, Research Scholar, Department of Management Studies, Pondicherry University.(Additional Director of Sugar, Department of Sugar,690 Anna Salai, Nandanam, Chennai 600035.Phone 044-24311960, 9500086766) kraj1962@gmail.com Dr.R.Venkatesakumar, Prof, JSN School of Management,Kancheepuram631501,TamilNadu. & Dr.R.P.Raya, Prof & Head, Department of Management Studies, Pondicherry University.

Effects of Micro finance on the income and expenditure pattern of rural households An empirical study in Vellore District. (Tamil Nadu, India)
By K.Rajendran, Research Scholar, Department of Management Studies, Pondicherry University.(Additional Director of Sugar, Department of Sugar,690 Anna Salai, Nandanam, Chennai 600035.) kraj1962@gmail.com Dr.R.Venkatesakumar, Prof, JSN School of Management, Kancheepuram631501,TamilNadu. Dr.R.P.Raya, Prof & Head, Department of Management Studies, Pondicherry University.

Effects to analyse the collected data and conclusions were drawn based tistical tools were used of Micro finance on the income and expenditure pattern of rural on the results householdsAn empirical study in Vellore District. (Tamil Nadu, India)

1 Introduction When Micro finance is extended to people, especially women, coupled with supporting activities like training, raw materials supply, marketing of products leads to establishing of micro enterprises in rural areas, and these micro enterprise generates income to the family that leads to poverty reduction and sets the path for development. Women gain self confidence to venture on enterprising activities leading to social, economic and political empowerment and with their increased knowledge and awareness, they become partners for developmental activities. When people join together as a group and receive required financial assistance, a mass development takes place with considerable reduction in poverty and the empowerment leads to socio economic development in a holistic and sustainable manner. NABARD has became the pioneer of organizing SHGs since 1992.NABARD with the help of Reserve Bank of India commenced the pilot project in 1992 in promoting and financing 500 SHGs across the country. The strategy involved was forming small and cohesive groups of the poor

below poverty line and encouraging them to pool their saving and the pooled thrift was made available to the group members as internal loan with small interest. With a small beginning in 1992 by the efforts of NABARD, growth of SHG movement has liberated lakhs of families in villages from the clutches of money lenders and SHGs have been accepted as an alternate pathway to rural development in the globalized era. In our country 29,24,973 Self Help Groups were financially assisted by banks up to March

4 2007 and 40.95 million poor households were assisted to the tune of Rs.180 billion. (Yeswanth 2009) Self Help Group movement covers 587 districts in 31 states and Union Territories in India. 2 Review of literature The advocates of micro finance argue that it helped to overcome indebtedness (Tamizoli and MSSRF team 2004), economic empowerment (Veena2005), access to financial services (Sashi Rajagopalan (2005),increased asset base (Simanowitz and Walter 2005),improved food situation and increased savings (Kabeer and Noponen 2005),poverty alleviation and empowerment of rural women (Lakshmi 2006),positive impact on social and economic aspects (Satyasai 2007).In Bangladesh, micro finance empowered women (Hashemi, Schuler, Riley 1996, Kabeer1998), positive impact on household expenditure (Pitt and Khandker (1998), poor no longer remained as poor ( Goldberg 2005). Pitt and Khandker (1998) observed non land asset increase in Bangladesh and Coleman (1999), Kaboski and Townsend (2002) observed same findings in Thailand. Malhotra and Schuler (2006) reported that conflicting results, some studies conclude that micro credit participation is empowering women in Bangladesh (Hashemi, Schuler, Riley 1996 Kabeer 1998) while others conclude that it is not (Goetz and Gupta 1996) and the empirical research also indicated contextual differences in the impact of micro credit programmes. Studies in certain settings find a substantial positive impact on outcomes such as household expenditure and contraceptive use (Pitt and Khandker 1998, Schuler and Hashemi, Schuler, Hashemi and Riley 1997). But those on some other settings do not find such effects (Schuler, Hashemi, and Pandit for India, Mayoux for Cameroon, Schuler, Jenkins and Townsend 1995 for Bolivia).Other Indian studies which have reported the positive impact of microfinance are Puhazhendi and Satyasai (2000) Nedumaran (2001) Singh (2001) Mishra and Hossain (2001) Rajesh Chakraborthi (2004) Ajai Nair (2005) Hannover (2005) Jayaraman (2001) Rajat Wanchoo (2007)

5 3 Objectives of the study The main objective of the study was to find out the changes in income, expenditure and consumption pattern of the respondents who participated in micro finance through the SHGs in Vellore district. 4 Hypotheses Following specific objectives were formulated for the study H1: There is no significant increase in income as a result of participating in microfinance. H2: There is no significant increase in expenditure as a result of participating in microfinance. H3: There is no significant change in the consumption pattern as a result of microfinance. H4: There is no significant relationship between the change in income and years of membership in SHG. H5: There is no significant relationship between the change in expenditure and years of membership in SHG. 5 Research Methodology 5.1 Sampling Design: A three stage sampling procedure was adopted. Vellore district in Tamil Nadu was selected based on the number of SHGs in the state. In the second stage two blocks in Vellore district were selected which are having the average number of SHGs in the district, out of the 20 blocks in the district. Accordingly Natrampalli and Nemili blocks which are located extreme opposite end of the district were selected. List of SHGs in

6 these two blocks were obtained from the Project Officer of Mahalir Thittam, Vellore. The SHGs were selected randomly in the two blocks. 225 respondents were selected from each block representing 90 SHGs i.e. 5 respondents were selected from each SHG and the study was carried out with 450 respondents. 5.2 Analysis of data: Descriptive statistical analysis such as mean, percentage etc. was carried out and t test, ANOVA tests were also carried out wherever necessary. 5.3 Data collection: To test the above hypotheses, respondents were interviewed and data were collected during 2008-09 with the pre tested and well structured questionnaire schedule. The study attempted to find out the changes brought by micro finance in their monthly income, expenditure and consumption pattern which includes food and non food items in order to find out the changes or increase than the base level. 6 Profile of the respondents Natrampalli and Nemili blocks in Vellore district (Tamil Nadu ) have similarities in number of SHGs and population below poverty line Table: 1 Salient features of the study area Block of Percentage to Percentage of total SHGs in families below the district poverty line Natrampalli 559 4.99 36 Nemili 580 4.81 35 (Total No. of SHGs in Vellore district as on 31.3.2007 is 11625) No SHG Percentage population poverty line 31 30 of below

Groups formed in the last ten years were studied. Majority of the respondents are below 40 years of age (343 respondents out of 450) and 107 respondents were above 40 years. Most of the respondents (59.1 percent) have studied up to 10th standard (S.S.L.C)

7 while nine respondents (2 percent) are graduates and there is a significant difference between the respondents regarding their education level in the two blocks. One third of the respondents joined in Self Help Groups for the purpose of savings and 22 percent of respondents joined to supplement their family income and 11 percent of respondents joined in groups to save as well as to avail loans. It is worth to mention that only 43

respondents joined Self Help Groups exclusively to start income generating activities. Some of the respondents have multiple reasons to join the groups and very few joined to gain special status and to get subsidy from banks. 7 Results and Discussions Increase in household income and positive changes in consumption are an important indicator of economic growth and development of the family. Out of the 450 respondents selected for the study two respondents declined to give the details regarding income and expenditure. The mean monthly income of the respondents increased by 16 per cent after getting micro finance through SHG the mean monthly expenditure recorded an increase of 13.58 per cent than the pre-micro finance situation. Hence it is concluded that there is a significant difference between pre and post microfinance income and expenditure of the respondents respectively t -22.177 and t-20.995 respectively ( df=477) at 1 per cent level. The study reported that there is a significant difference of consumption pattern of the respondents. The expenditure on health of the respondents increased by 27.59 per cent than the pre microfinance situation and the reason are improved knowledge and awareness on health, sanitation and personal hygiene, in addition due to increased income they were able to consult private doctors. Consumption expenses of the immediate family

8 needs recorded an increase of 27.01 per cent than the pre microfinance situation. The SHGs improved the awareness and importance of the education of the children and the educational expenditure increased by 21.01percent.The mean monthly expenses relating to festival and social ceremonies raised by 19.98 per cent. Expenses on dress and clothes increased by 17.64 per cent and the increased mobility of women to banks, Govt. offices and other places are attributed as a reason for the increase. There is an increase of 16.83 per cent of expenses relating to entertainment and food expenses increased by 10.48 per cent. It is concluded that there is a significant increase of change in income, expenses and consumption pattern of the respondents as a result of participating in micro finance. Table 2 Statistical parameters
Sl.No. 1 2 3 4 5 6 7 8 9 Variable Income Expenditure Food expenses Dress/Clothes Health expenses Family urgent expenses Festival related expenses Educational expenses Entertainment expenses MeanMeanPer cent t.value* before(SD) After(SD) Increase change (sig.) 2313.12 2683.33 370.21 16.00 -22.177 (1157.09) (1240.40) (.000) 2010.26 2283.35 273.09 13.58 -20.995 (1119.40) (1191.84) (.000) 1171.31 1294.16 122.85 10.48 -17.979 (665.88) (722.31) (.000) 176.22 207.32 31.09 17.64 -8.842 (135.28) (147.36) (.000) 132.62 169.21 36.59 27.59 -12.551 (81.06) (99.11) (.000) 129.86 165.70 35.83 27.01 -14.357 (94.97) (112.77) (.000) 136.36 (119.12) 194.30 (150.60) 65.47 (81.17) 163.61 (153.17) 235.15 (200.40) 76.50 (84.79) 27.25 40.85 11.03 19.98 21.01 16.83 -8.463 (.000) -10.492 (.000) -5.727 (.000)

SD=Standard deviation,*df =447 Those who joined in groups up to 2005 and those who joined in SHGs after 2005 were classified in two groups in order to identify whether there is change in income,

9 expenditure and consumption pattern is associated with the age of membership in SHGs.
Table 3 ANOVA table: Period of membership in SHG & change in Consumption after F (Sig.) Mean Std. Deviation 178 2392.6966 1027.54907 16.788 (.000 270 2874.9444 1330.12413 448 2683.3371 1240.40680 178 1989.8876 977.35865 18.613 (.000 270 2476.8333 1279.58828 448 2283.3594 1191.84296 178 1121.2360 626.37748 17.556 (.000) 270 1408.1778 758.94078 448 1294.1696 722.31921 178 183.0056 145.66169 8.170 (.000) 270 223.3519 146.54562 448 207.3214 147.36337

micro finance N Income Groups formed before 2005 Groups formed after 2005 Total Expenditure Groups formed before 2005 Groups formed after 2005 Total Food Groups formed before 2005 Groups formed after 2005 Total Dress Groups formed before 2005 Groups formed after 2005 Total

The study provides that there

exists a significant difference among those who

joined in SHGs prior to 2005 and afterwards i.e. older members and recently joined members. The older group members have advantages in increase in income, expenditure and increased spending in dress and food items than their counter parts who joined recently. Table 4 Period of membership in SHG and increase in income prior and after micro finance
Variables Income Before 2005 After 2005 Expenditure Before 2005 After 2005 Food Before 2005 After 2005 Dress Before 2005 After 2005 152.24 192.03 183.00 223.35 30.76 31.32 16.93 20.20 1002.52 1282.59 1121.23 1408.17 118.71 125.58 9.79 11.84 1700.16 2214.70 1989.88 2476.83 289.72 262.13 11.83 17.04 2000.56 2519.18 2392.13 2874.94 392.13 355.76 14.12 19.60 Joining SHG in Mean-Before mf Mean After Change mf % change

10 8 Findings of the study 1. It is revealed by the study that there is a significant positive change in income, expenditure and consumption pattern of the households of the members of SHGs in Vellore district as a result of participating in microfinance programme. 2. The study reported that there is a significant difference between the period of membership in the SHGs and increase in income, expenditure and increase in consumption relating to food and dress in the households of the members of SHGs in Vellore district as a result of participating in microfinance programme. 9 Conclusions Micro finance through SHG has contributed for the increased income as well as increased expenditure. It significantly contributed the improvements in the economic growth of the respondents by increasing income, expenditure and consumption pattern. It is also concluded that there is increase income along with expenditure corresponding to the years of membership in SHGs. REFERENCES 1. Yeswanth. D. (2009) Role of Microfinance Intervention in Households access to Insurance Services-Findings from Tamil Nadu. The microFINANCE REVIEW, 1(1):4052. 2. Tamizoli., P and MSSRF team(2004). Mainstreaming Gender concerns in Mangrove Conservation and Management: The Pichavaram coast, Tamil Nadu, in Sumi. Krishna (ed), Livelihoods & Gender, pp 92-108. Sage Publications: New Delhi. 3. Padia,Veena.(2005). Social mobilization and micro credit for womens empowerment: A study of the Dhan foundation, in Neera Burra.Joy DeshmukhRanadive, and Ranjani K.Murthy (eds), Micro credit, poverty and Empowerment,pp161-199. Sage Publications: New Delhi.

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4. Rajagopalan,Sashi. (2005). Micro credit and womens empowerment:The Lokadrusti case,in Neera Burra.Joy Deshmukh Ranadive and Ranjani K.Murthy(eds) Micro credit, poverty and Empowerment ,pp 245-285. Sage Publications: New Delhi. 5. Simanowitz, Anton and Alice Walter (2002).Ensuring impact. www.Imp Act .org. 6. Kabeer, Naila and Helzi Noponen (2005).Social and Economic impacts of PRADANs Self Help Group micro finance and livelihoods Promotion Programme: Analysis from Jharkhand, India. http//www.lmp.act.org 7. Devi,Lakshmi.K.R.(2006).Micro credit Programmes: income, Gender and Empowerment of Women,in M.Meera Bai(ed) Women and Economic Reforms, pp 2337. Serials Publications:New Delhi: 8. Satyasai,K.J.S.(2008) Rural Credit Delivery in India: Structural Constraints and SomeCorrective Measures, Agricultural Economics Research Review, . 21 (Conference
Number): 387-394.

9. Malhottra,Anju and Sidney Ruth Schuler.(2006) Women Empowerment as a viable in the International Development, in Deepa Narayanan(ed) Measuring Empowerment. pp71- 88.Oxford University Press: Delhi. 10. Nirmala .K.A. and Geetha Mohan(2009). Socio-economic impact of microcredit:A Study of Measurement, in Anil Kumar Thakur and Praveen Sharma(ed). Micro credit and Rural Development, pp207-224. Deep&Deep Publications: New Delhi.