Rawls' difference principle, self-help group, financial inclusion and social cohesion—lore or actuality? Experience of Central Assam

Financial literacy and inclusion are crucial for the economic well-being of marginalized communities. Microfinance, particularly through Self-Help Groups (SHGs) and the SHG-Bank Linkage Program (SBLP) in India, aims to address this gap. The SBLP, largely administered under the Deendayal Antyodaya Yojana—National Rural Livelihoods Mission (DAY-NRLM) scheme 'Aajeevika', theoretically rests on Rawls' Difference Principle, aiming for social cohesion. This study investigates the actual impact of SBLP participation on both financial inclusion and social cohesion in three districts of Central Assam: Nagaon, Morigaon, and Hojai. These districts, diverse in socio-economic and cultural composition, provide a rich context to assess SBLP's effectiveness in achieving its stated goals. The study's novelty lies in its investigation into the achievement of social cohesion, a crucial yet under-researched aspect of SBLP's impact.

Existing literature extensively documents the success of microcredit programs in improving livelihoods and self-employment. However, there is no consensus on its effectiveness in poverty alleviation and financial inclusion. Studies highlight the importance of financial literacy, especially for women, who often lack it globally. While SHGs are recognized as a successful model for financial inclusion and women's empowerment, some research points to partial success or limited coverage among the poorest. Most studies agree on the positive role of SHGs in self-employment generation and financial inclusion for participants. However, the literature gap concerning the impact of SBLPs on social cohesion, a cornerstone of the Difference Principle, motivated this study. Two previous studies showed a positive link between financial inclusion and social cohesion, but these might be location or sample-specific, leading to the need for more research.

This study employs a multi-stage stratified random sampling technique to collect primary data from 335 SBLP participants and 490 non-participants across Nagaon, Morigaon, and Hojai districts in Central Assam. Data collection occurred between April 2019 and January 2020. A self-constructed Financial Inclusion Index (FII) and Social Cohesion Index (SCI) were created using multiple indicators. Propensity score matching (PSM), utilizing a Probit model, was employed to analyze the impact of SBLP participation on FII and SCI, controlling for various socioeconomic and demographic factors (age, education, caste, religion, land ownership, distance to bank, and consumption expenditure). Nearest Neighbor Matching (NNM) and Kernel Matching (KM) algorithms were used to ensure robustness. Sensitivity analysis using the Mantel-Haenszel test was conducted to address potential bias in group formation.

The Probit model showed that higher education, being Hindu, and higher consumption expenditure positively influence SBLP participation, while distance to the bank and land ownership negatively affect participation. The propensity score matching analysis revealed a significant positive impact of SBLP participation on financial inclusion (FII). NNM showed a 6.3% higher FII for participants compared to their matched controls, while KM indicated a 6.5% increase. Both results were statistically significant at the 1% level. However, SBLP participation had no statistically significant effect on social cohesion (SCI). NNM showed a 22.5% increase, and KM a 21.5% increase in SCI for participants, but these differences were not statistically significant. Sensitivity analysis confirmed the robustness of these findings, indicating no significant hidden bias.

The findings highlight a critical disconnect between the theoretical underpinnings of SBLP and its actual impact. While SBLP successfully promotes financial inclusion by improving access to formal financial services and fostering banking habits among previously excluded women, it fails to significantly enhance social cohesion. This suggests that merely providing access to finance is not enough to foster broader social integration. The persistence of traditional social hierarchies based on caste, religion, and class appears to hinder the realization of social cohesion, even with increased financial inclusion. The study indicates a need to address these deeper social inequalities to realize the full potential of SBLP in achieving its broader development goals.

This study underscores the importance of examining the multifaceted impacts of microfinance initiatives. While SBLP effectively enhances financial inclusion, it does not lead to a demonstrable increase in social cohesion in the studied context. Future research should investigate group formation strategies that promote cross-caste and religious participation, perhaps with the active involvement of NGOs. Further research should explore dynamic models incorporating group maturity and duration of participation to better understand long-term social impact. Addressing the social determinants of inclusion is crucial for achieving the broader developmental goals of microfinance programs.

The study is location-specific, focusing only on three districts in Central Assam. This limits the generalizability of the findings. The cross-sectional nature of the data limits the ability to infer causality fully. The use of self-constructed indices, while allowing for greater contextualization, may affect the comparability of results with other studies. Future research should address these limitations by expanding the geographical scope, using longitudinal data, and employing standardized measures of financial inclusion and social cohesion.