Investing in Boys and Girls: Schooling Decisions and Credit Constraints for Microfinance Participants in India

Investigating the impact of microfinance participation in India on educational outcomes, this study focuses on the changes that participation in SHGs brings about in the education of boys and girls of member households in Jharkhand.

Introduction

T he impact of financial services such as savings and credit on the economic and human development of users remains far from being identified to date. In particular, understanding whether and how microfinance can improve children’s education is of crucial importance, given the widely-accepted links between human capital formation and development outcomes such as poverty reduction and growth.

Evidence has repeatedly shown that microloans are probably not enough on their own to directly foster business creation and economic development. People often lack the relevant infrastructure, market outlets and, especially, training or education. Yet, if microfinance impacts the education of children, it could bring about important changes in the long term. There are good reasons to expect microfinance to impact schooling decisions among member households.

Access to credit can help afford education-related expenses by relaxing the budget or liquidity constraints. It can modify the preferences of households’ by empowering women and generating important peer effects. It can modify occupational choices and influence the opportunity cost of educating children. It can better ensure households against income variation, thus decreasing the need to pull children out of school whenever shocks happen.