Financial Inclusion and Rural Economic Empowerment: Evidence from Self-Help Groups in Maharashtra, India

The importance of financial inclusion for economic development is well acknowledged in literature. Despite this, a large percentage of the rural population still remains outside the formal financial system. This study examines factors associated with financial inclusion and their relationship with rural economic well-being. The study is based on a primary survey of 426 Self-Help Group (SHG)-participating rural women from three districts in rural Maharashtra, India. Using Structural Equation Modeling (SEM), the study finds that physical banking services (PBS) are positively associated with household economic well-being through greater access to and use of credit facilities. PBS is also positively associated with access to and use of insurance services in rural areas, but no positive association is found between insurance services and economic well-being. The National Rural Livelihood Mission (NRLM) emerges as an important policy channel. NRLM complements access to PBS and mediates the association between PBS, credit usage, and rural economic well-being. The study highlights that policies focusing on the effective implementation of NRLM programs, improved awareness and delivery of insurance schemes, and targeted efforts to address both supply-side and demand-side barriers to financial access are important for improving economic well-being.