Financial Inclusion Without Enterprise Scale-Up: Evidence from India's Self-Help Group Enterprises

Abstract

India's Self-Help Group (SHG) movement is widely regarded as the world's largest community-based microfinance system. Yet, little establishment-level evidence exists on how SHG enterprises, the productive face of the SHG movement – compare with other informal, unincorporated enterprises in credit access and economic scale. Using unit-level microdata from India's Annual Survey of Unincorporated Sector Enterprises, we identify 23,137 SHG enterprises within a national sample of 712,651 establishments, and compare them using descriptive statistics, logistic regression, and OLS models with state and industry fixed effects. SHG enterprises are disproportionately rural and are far more likely to hold an institutional loan – 70.2 per cent of SHG enterprises hold one, against 8.4 per cent of non-SHG enterprises. This is consistent with the SHG-Bank Linkage Programme achieving its core financial-inclusion mandate. However, SHG enterprises report substantially lower fixed assets and value added than their non-SHG counterparts, a gap that persists even after controlling for loan access itself. This asymmetry suggests that credit access and productive scale are distinct outcomes, and that broadened finance has not yet translated into commensurate enterprise growth. This study also documents a pronounced digital divide and limited employment reporting among SHG enterprises, reflecting their predominantly financial-intermediation character. The findings caution against treating credit expansion as a sufficient condition for enterprise development, and point to complementary asset-building, skills, and market-linkage support as necessary companions to India's SHG-led financial inclusion strategy.