Self-Help Group - Bank Linkage Model and Financial Inclusion:Analysis of Indian States

Financial inclusion facilitates efficient allocation of resources through minimisation of informal sources of credit. Adoption of appropriate technologies with effective credit delivery mechanism enables the financial institutions to provide financial services to unbanked poor at an affordable cost. Further, it also enables financial institutions to increase overall competitiveness of the economy and productivity through efficient allocation of resources. Microfinance through Self-Help Group (SHG) bank linkage model can provide an alternative mechanism to extend financial outreach to unbanked rural masses. In India, the Microfinance sector started getting recognition after the launch of the SHG linkage model in the year 1992.

The present paper attempts to examine the role of microfinance through SHGs on financial inclusion across 25 states of India for the period of 2006 to 2010. This paper also tries to look into the role of other socio-economic factors in achieving financial inclusion through empirical analysis. The results obtained from panel data analysis demonstrates a positive impact of SHG-Bank linkage model on financial inclusion. Besides, the results also shed light about the role of other socio-economic factors which act as facilitators for achieving higher level of financial inclusion.