Reducing Social Inequality: The Role of Microfinance: Mrinal Ghosh DR Santosh Kumar Mahapatra

INTERCONTINENTAL JOURNAL OF FINANCE RESEARCH REVIEW
ISSN:2321-0354 - ONLINE ISSN:2347-1654 - PRINT - IMPACT FACTOR:0.720

VOLUME 3, ISSUE 12, DECEMBER 2015
REDUCING SOCIAL INEQUALITY: THE ROLE OF
MICROFINANCE
MRINAL GHOSH 1 Dr SANTOSH KUMAR MAHAPATRA 2
1& 2
Department of Commerce, Guwahati University, PO: Guwahati University, State: Assam, Dist:
Kamrup
ABSTRACT
Socio-economic inequalities have always remained as a major concern of the government,

policy formulators, intellectuals, researchers and academicians. Recent developments in microfinance
have given hope to many in reducing these inequalities. Various studies show that microfinance helps
to reduce the poverty and help them in gaining a place in the society as well as improving their
income level and a better living standard. In recent times, microfinance has assumed a greater
significance, in empowering the poor by improving their socio economic status and reducing poverty
in various forms.
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This work evaluates the impact of microfinance on the socio economic aspects of the
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microfinance clients. The study examines whether microfinance had been successful in bridging the
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social inequality and arrives at the conclusion that microfinance is capable of raising the social
participation level and economic condition and thus can be used as an effective tool in reducing the
socio-economic inequalities.
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Key Words: Socio-economic inequality, microfinance, poverty, socio-economic status.
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INTRODUCTION:
I. C
It is generally in consensus among majority of the population that the world or society in
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which we live is full of inequality. In this modern age of rapid industrialization and technological
advancement the government had been striving very hard to neutralize the inequalities by diverting its
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policies and priorities towards minimizing the lacunae that exists within the population. Despite such
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relentless efforts, the differences in the socio economic indicators are still there.
Inequality in brief can be stated as, the difference in access to various socio-economic
resources among different strata of the society. The socio economic measure consists of all those
indicators which define an individual in respect of its social and economic well being.
It had been observed that few section of the privileged society had been enjoying the
disproportionate share of public assets pushing the disadvantaged to the corners. Naidoo and Wills
(2008) have defined social inequality as the differences in income, resources, power and status in
societies. Such inequalities are maintained by those who are in powerful positions via institutions and
social process. However, Litchfield (1999) stated that inequality is a wider concept than poverty but
narrower than the concept of welfare.
Social inequality and divisions among the populations have been studied by the sociologists
in many instances. But attention towards social inequality got momentum in 1980‟s when scale for
measuring or calculating socio economic status first came in vogue. Measuring social inequality is
important because we compare ourselves to others. Wilkinson and Pickett (2009) added that relative
inequality is important for measuring ours own level of happiness.
www.icmrr.org 84 icmrrjournal@gmail.com
According to WHO (2010), Sen & Ostlin (2007), inequality is mainly a social phenomenon
which exists in every socio-economic sphere mainly due to non-availability of resources; it‟s under
control and its uneven distribution. However there are certain pertinent observations made by authors
relating to imbalance in socio economic status. Dorling (2009) stated elitism, social prejudices, human
greed, etc, are the few central attributes which accelerate the differences in the socio economic status.
However, Wade (2007) stands in direct contrast to Dorling. He stated that socio economic differences
should be there as it is a result of the hard work, luck or effort on the part of those who stands higher
in the socio economic parameters. And hence he justified the existence of imbalanced socio economic
statuses.
Inequality is a matter of great concern as it affects the society from individual to community
all together. Imbalanced society affects mankind from various domains be it; political or economical.
There were several attempts to develop different scales for measuring socio economic status. The
psychologists are said to be the pioneer in this regard. The measurement of socio economic status is
important for a variety of reasons. It is important to quantify the socio economic status in order to
know the extent and type of stratification in society. Without knowing the extent and the type of
stratification available, one cannot explore the intergenerational change of social status and the impact
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of certain programs in it. In brief, quantification matters in understanding the changes that are needed
to make the society socially viable for all.
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Social status should also be measured as it is related to many variables over a period of time.
Variables such as the nutrition, health and educational status are related with it. There is a positive
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relation between socio economic position and other variables as well; such as political and economic
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stability, subjective well being etc. Higher the rate of socio economic status higher is the probability
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of better nutrition, better health, good educational standards, etc among the population.
I. C
CURRENT SOCIO ECONOMIC STATUS OF INDIA VIS-À-VIS WORLD: A GLIMPSE
When we talk about GDP/ growth rate, India is the country which comes second in terms of
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these indicators after China. India is the world‟s second largest economy with an impressive growth
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rate from the last two decades. But the growth rate in India has not turned into substantial job
creation. As per the data available, more than 90% of the workers are still working in the informal
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sector. Jobless growth doesn‟t leads to holistic development ultimately leading to difference in socio
economic status among the population. Thus, the widening of differences in the distribution of income
and expenditure doesn‟t benefits the deprived even in the parlance of higher growth.
UNDP‟s Inequality Adjusted Human Development Index, report (2011) stated that India is
much leaner towards inequality in comparison to most of the countries. The inequalities across states
and its comparison with global averages show the strong presence of inequality in this sub- continent.
Their analysis found inequalities in education was highest followed by healthcare and than by income.
The medium and low human developed states registered an average loss of 28% and 33% loss due to
inequalities. In both the indicators viz, education and health, India not only remained distant in terms
of its achievement but the magnitude of inequality was also high. Booth (2013) has highlighted some
of the points which exhibit the global presence of inequalities:
a. Around 2.8 billion people lives on less than $2 per day.

b. The richest 1/5th of the global population consumes 86% of the world‟s goods and services.
c. The wealthiest 61 million individuals who comprises of merely 1% of the global population
has the same amount of income as the poorest 3.5 billion.
d. 20 percent of the world‟s population enjoys more than 70 percent of the global income.
The government of India had been very much concerned with rising inequalities in the
population due to the uneven distribution of resources and to reduce the inequality the government
formulated the policy on inclusive growth in the 11th five year plan. And in this current five year plan
also, government emphasized on balancing the inequalities. Microfinance, being a tool to reduce
poverty and inequality among rich and poor has a great contribution as reported by many studies.
MICROFINANCE:
Microfinance can be defined as the provision of financial services, including credit, savings,
and insurance and remittance transfers etc to the people lying close to the poverty line. Rutherford
stated microfinance as a means by which poor people convert small sums of money into large sums.
The Task Force on Supportive policy and Framework for Microfinance has defined it as a “Provision
of thrift, credit and other financial services and products for very small amounts to the poor in rural,
semi-urban or urban areas for enables them to raise their income levels and improve living standards”.
Microfinance programs extend small loans to the poor for various purposes such as
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consumption, shelter, income generation, self employment etc. It allows the poor people to protect,
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diversify, and increase their sources of income. Microfinance program has been designed to provide a
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helping hand basically to the economically backward people, whose life is in threat due to financial
insecurity. In few cases microfinance program, along with providing financial assistance, also offers a
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combination of few other services such as linkage with insurance and savings, skills development
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training and marketing network etc. Thus microfinance has assumed a greater significance, in
empowering the poor by improving their socio economic status and reducing poverty in various
forms.
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I. C
The success story of Bangladesh Grameen Bank has led to the establishment of microfinance
units in various parts of the globe. In India, microfinance took its root around 24 years ago with the
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Self Help Group- Bank Linkage Program (SHG-BLP) which was started by the NABARD in the year
1989 as an action research project. It is only in the 1992 that the NABARD has piloted a project by
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giving bank linkage to 500 SHGs in the Udaipur district of Rajasthan and thus the SHG-bank linkage
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program, a mechanism of the poor getting very small loans got wider acceptance and popularity at
various levels. The programme emerged as the largest microfinance programme of the globe covering
103 million of Indian families and 73.18 lakh of saving linked SHGs with a savings of Rs 8,217 crore
as on 31st March 2013 (Mahapatra and Malakar (2014). Expanding access to financial services is an
important parameter sat by the financial planners and developers over different periods of time.
OBJECTIVE OF THE PRESENT STUDY:
Studies relating to the assessment of microfinance impact on income, poverty, women

empowerment, financial inclusion etc, have been done by different researchers like Phatowali and
Kumar (2013), Hossain (2012), Meganathan etal (2012), Shirazi (2012), Ablorh (2011), Ferka (2011),
Luyirika (2010) and Khandelkar (2005). These studies concluded that access to microfinance had a
significant impact on the lives of the borrowers. But no such remarkable work has been found relating
to impact evaluation of microfinance on the socio-economic status of the respondents. Socio-
economic standards are important indicators which tell about the economical health of an individual
from the societal perspectives. Hence, the present study intends to find out the effect of microfinance
on the socio economic parameters of the study population by using the Udai Pareek (1964) socio-
economic status scale.
MATERIALS AND METHODS:
The study has been conducted in the Udalguri district of Assam which is one of the most
isolated and backward districts of the state as documented in various reports and literatures. This has
been done with the intention of observing the socio-impact of microfinance on the backward people.
For our study purpose, the microfinance clients under the National Rural Livelihoods Mission
(NRLM) scheme has been taken as the base of survey from which sample has been drawn. The
NRLM clients have been selected as they have been identified as one of the most deprived sections of
the society in social and economic front.
In order to examine the impact of microfinance in reducing the gap between the socio-
economic statuses, Udai Pareek Socio-Economic Status (SES) scale has been employed. T-test has
also been used in order to examine the existence of any significant differences after the microfinance
intervention. The data pertaining to the socio economic status of the respondents prior to their
microfinance intervention and post microfinance intervention have been collected from the treatment
groups only at a single point of time. A sample of 120 respondents has been selected randomly for this
purpose. The study is part of a pilot study to explore various dimensions and get an insight into the
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topic so as to carry a meaningful and systematic study in future. However, the study is based on facts
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and observations. Thus, the present study is both exploratory and empirical one. The study period
pertains to July 2015 to December 2015.
RATIONALE BEHIND SELECTING PAREEK‟S SCALE FOR SES DETERMINATION:.O

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Sociologists have developed a number of scales in order to identify the socio-economic
stratification existing within the society. The scales are of multivariate and univariate in nature of
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their measurement. Multivariate index consists of multiple elements which determine the socio
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economic status of an individual or family. Whereas, the univariate measure encompasses only a
single component for determining the same; for example, income, wealth, educational attainment,
poverty, area level measures, etc. In Indian context the BG Prasad socio-economic status (SES) is a
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univariate socio economic status scale which considers only the variable „income‟ for SES
computation.
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Kuppuswamy Scale
Table 1: Features of few Important SES Scales
BG Prasad Scale Udai Pareek Scale
A total of nine items are
Education and included in the scale viz;
Occupation of head of the Monthly per capita income Caste, Occupation, Education,
Items Used
family & monthly family from all family sources Social Participation, Land,
income from all sources House, Farm Power, Material
Possession & family
Monthly family income Monthly per capita income
Income No direct income measure
from all sources from all family sources
Multiplying factor = Current
Original family income
Index Value(=238)/Base
groups of Kuppuswamy
Index value in
Formula for (1976)*Current Summation of the score of all
2001(=100)=2.38.3
Calculation Consumer Price Index items
New Income Value
(AICPI-IW)*0.0735
=2.38*(Old
(Multiplication factor)2
Value*4.63*4.93)
Source: Holyachi S and Santosh, Socio Economic Status Scales: An Update, P: 24-27, Vol 1 (1)
The multivariate scales which are globally available are Duncan SEI and Nam Power OSS,
Household Prestige Scale, CAPSES, Cambridge Scale, NS-SEC, Kuppuswamy Scale, Udai Pareek
Scale, etc. Taking into consideration the nuances of Indian society, viz; restraining to caste based
philosophy, agricultural predominant livelihood, presence of drought animals, nature of house, etc ,
the Udai Pareek Scale has been adopted for measuring the socio economic status of the target
population. Udai Pareek Scale incorporates a total of nine variables viz; Caste, Occupation,
Education, Social Participation, Land, House, Farm Power, Material Possession & family which can
give more precise and holistic picture of socio-economic status one is holding in its society. The
strength and weaknesses of the stated Indian models in pursuance to the nature of the study and its
area have been tabulated below:
Table 2: Strengths and Weaknesses of SES Scales
Socio-
economic Strengths Weaknesses
status Scales
a)Focused On Urban Community b) Excludes
a) Includes additional variable education
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certain vital parameters in comparison to Pareek‟s
Kuppuswamy
SES
and Occupation compared to Prasad
Scale b) Includes income from all the R
scale c) Ambiguity relating to identification of
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Education and Occupation of the client d) Direct
sources of the family
measurement of Income
BG Prasad
a) Focused on Rural Population b)
R a) Univariate Measure includes on the income
SES
all the sources of the family R
Includes monthly per capita income from
variable.
a) Includes maximum number of M

Udai Pareek I. C
parameters in comparison to
Kuppuswamy and BG Prasad Scale b) a) Many vital variables have been left out for
Scale
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Focused on Rural Population c) No
direct measurement of Income and
determining income and total expenditure.
W Expenditure
RESULTS AND DISCUSSION: W

The data collected for the study has been presented below with the help of a diagram. All the
variables which are considered as socio-economic status constituent have been shown along with their
differences. Nine components have been included in the study. The components are: caste,
occupation, education, social participation, land, house, farm power, material possession and family
type. All these components form the part of the socio-economic status scale forwarded by Udai
Pareek. All the components have the tendency to change due to microfinance access except the
variable caste which is an invariable.
Diagram 1: Descriptive statistics depicting the change in the SES variables.
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In the above diagram, the quantum of changes that took place due to microfinance
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intervention has been clearly showed with the help of the green bars that denotes the differences. The
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difference is higher in social participation (68.99%), followed by farm power (65.45%) and than by
material possession (46.72%). Variables such as the occupation (8.6%), education (10.76%), land
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(2.04%), house (20.70%) and family (-17.29%) are least affected. Unlike other variables, variable
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family took negative position. It is mostly due to the fact that, the families which exercised greater
financial autonomy wished to be single/ nuclear than earlier joint family structure type.
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I. C
Social participation refers to the degree of participation in a community or society. It is the
component which recorded the highest effect of microcredit treatment. It has helped its clients in
improving its social participation to a considerable level. People those who were/ weren‟t a member
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of any organizations earlier are now affiliated under more than one organizations such as the post
office, gram sabhas etc, apart from the microfinance organizations. However, negligible populations
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of the total samples are any office holder or any wider public leader.
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Farm power includes variables such as the numbers of drought animals, prestige animal or
tractor. This is the also the variable which was affected due to microcredit access. It was mainly due
to the fact that the people of this region are mostly dependent on agriculture. Farming remains their
main source of their livelihood. Hence they invest majority of the sum or investment proceeds in
purchasing conventional agricultural equipments or domestic animal which serves as an agricultural
assets cum domestic assets and as well as acts as a cushion in times of financial emergencies.
The microfinance had also been helpful to these people in purchasing materials pertaining to
home and as well as for personal use. Through the study it has been observed that majority of the
microfinance clients were able in obtaining possession of the materials such as improved agricultural
equipments and mobile phones. However, they were refraining themselves from the purchase of
material belonging to higher financial involvement such as the refrigerator.
Variables such as the occupation, education, land, house and family are consistent in post
microfinance intervention. There are various reasons attributed to this, such as the wider socio
economic differences, lower time frame assessment, small loan amount, etc. In case of occupation,
reinvestment for its reconstruction and restoration has been observed rather than change in profession.
And the remaining variables are of long term in nature and hence require more financial and as well as
non financial resources for its revival.
Paired t-test, a statistical test has been used to assess whether the microfinance intervention
had bought any significant changes in the socio- economic aspects of the microfinance clients, been
done. The results of the test have been presented below:
Table 3: t-test explaining the microfinance impact on socio economic status.
SES Before MF SES After MF

Difference Significance
Intervention Intervention „t‟ Statistics
(2-1) Level
(mean) (1) (mean) (2)
19.27 23.03 3.76 24.50 0.01
The mean value of the socio economic status of the microfinance participants in post
microfinance intervention are higher than the mean value of the socio economic status prior to
microfinance intervention as shown in the above table. Before getting access to microcredit the mean
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value of the socio economic status was 19.27, which increased by 3.76 units post intervention to 23.03
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units. The overall increase in percentage of the variable is 19.51%. Our application of t-test shows that
the differences are significant at one percent level. The higher level of socio economic status post
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microfinance intervention implies that microfinance leads to improvement in the socio economic
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status of the respondents. In other words, the microcredit clients after getting access to credit were
able to enjoy their socio economic lives more comfortably than prior to their microcredit access. The
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findings of our study commensurate with the findings of many researchers like Shirazi Ablorh Ferka,
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Hossain , Luyirika, Meganathan et al. and Khandelkar who also asserted that microfinance access
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leads to socio economic upliftment of the users. The present study shows that access to microfinance
had a significant positive impact on the lives of the borrowers both in social and economic
dimensions.
CONCLUSION W
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Socio-economic inequalities have always remained as a major concern of the government,
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policy formulators, intellectuals, researchers and academicians. Recent developments in microfinance
have given hope to many in reducing the gap between rich and poor. Various studies show that
microfinance helps to reduce the poverty and help them in accessing financial services. The rural poor
were not regarded as bankable earlier, because they lack collateral. Microfinance program has been
recognized as one of the most powerful bottom-up approaches to development. The objectives of
these programs are to design and carry out the various credit policies especially meant for the poor
and the unbanked. The present study observes that microfinance is capable of raising the social
participation level and economic condition. Socio-economic improvements have been witnessed in
the sample study by adopting Udai Pareek‟s model of socio economic status scale. This clearly gives a
signal that microfinance is quite capable of reducing the socio-economic inequality and this vehicle
can be used extensively in a regulated manner to the benefits of the poor. In brief, microfinance can be
used as an effective tool in reducing the socio-economic inequalities.
REFERENCES
1. Ablorh, William., (2011) Microfinance and Socio-economic empowerment of women: A case

of opportunity International Savings and Loan Clients. Pp 1-50.
2. Annals of Community Health, Volume 1, Issue 1, December 2013, Pp 24-27.
3. Booth., Louise Warwick., (2013) Social Inequality.
4. Dorling, D. (2010) Injustice: Why social inequality persists? Bristol: Policy Press
5. Ferka Alexander (2011) The Impact of Microfinance on the Livelihoods of Women in Rural
Communities: A case study of Jaman South District, Ghana.
6. Hossain, Mohammad Kamal., (2012) Assessment of Social Impact of Microfinance
Operations: A Study on BRAC, Interdisciplinary Journal of Research in Business, Vol. 2,
Issue. 3,
7. Holyachi S and Santosh, Socio Economic Status Scales: An Update, P: 24-27, Vol 1 (1)
8. Khandekar, S.R (2005) Microfinance and Poverty: Evidence Using Panel Data From
Bangladesh, The World Bank Economic Review.
9. Litchfield, Julie A., (1999). Inequality: Methods and Tools.
10. Luyirika, Martha Nakakuta., (2010) The Role of Microfinance in the Socio-economic
Development of Women in a Community: A case study of Mpigi Town Council in Uganda.
11. Mahapatra, S K & Malakar, D (2014), Microfinance Through SHG-Bank Linkage Programme
and its Sustainability, IFRSA Business Review, Vol. 4, Issue 1, pp. 95-99.
12. Meganathan, A & Arumugam M., (2012) Socio-Economic Impact of Microfinance on Rural
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Development of Puducherry. Arth Prabhand: A Journal of Economics and Management,
Vol.1 Issue 3.
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13. Naidoo, J & Wills J., (2005), Health Promotion Foundations for Practice, Bailliere Tindall,
UK.
14.
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Pareek, U & Trivedi, G. (1964), Manual of socio-economic status scale (Rural), Mansayan,
15.
Delhi.
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Shirazi, Nasim Shah., (2012) Targeting and Socio-Economic Impact of Microfinance: A
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Case Study of Pakistan, Islamic Economic Studies Vol. 20, No. 2, December 2012 (1-28)
16.
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Sen, G., & Ostlin, P. (September 2007). Unequal, Unfair, Ineffective and Inefficient Gender
Inequity in Health: Why it exists and how we can change it. Karolinska Institutet, WHO
Commission.
17. W
Services, W D (2010), A Conceptual Framework for Action on Social Determinants of
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Health,World Health Organization, Geneva.
India. W
18. UNDP (2011), Inequality Adjusted Human Development Index for Indian States, New Delhi,
19. Wade, Robert H. (2014), The Piketty phenomenon and the future of Inequality.
20. Wilkinson, Richard. & Pickett, Kate. (2010). Inequalities: Research and Reflections from both
sides of the Atlantic.
ANNEXURE: UDAI PAREEK SOCIO-ECONOMIC STATUS SCALE:
Serial No: Categories Status Score
1. Caste SC/ST 0
OBC 1
General 2.
2. Occupation Labor 1
Caste Occupation 2
Business 3
Independent Profession 4
Cultivation 5
Service 6
3. Education Illiterate 0
Can read only 1
Can read and write 2
Primary 3
Middle 4
High School 5
Graduate 6
4. Social Member of one organization
G 1
Participation:
Office Holder R
Member of more than one organization 2
3
5. Land:
Wider Public Leader
No land .O 6
0
<1acre
R 1
1acre-5acres
5-10acres R 2
3
10-15acres
M 4
I. C
15-20acres 5
>20acres 6
6. House: No home 0
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Hut
Katcha house
1
2
W Mixed house
Pucca house
3
4
7.
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Farm Power:
Mansion
No drought animal
6
1
1-2 Drought animals 2
3-4 Drought animals or=1 Prestige animal 4
5-6 Drought animals or tractor
6
8. Material Bullock Cart/Cycle/Radio/ Chairs 1
Possession: Improved Agricultural Implements 2
Television 3
Mobile Phone 4
Refrigerators 8
9. Family Type: Single 1
Joint/ Size Up to 5/ Distinctive features 2
Extended 3
RATINGS:
Symbol Category Scores on the Scale
A Upper Class Above 43
B Upper Middle Class 33-42
C Middle Class 24-32
D Lower Middle Class 13-23
E Lower Class 05-12
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INTERCONTINENTAL JOURNAL OF FINANCE RESEARCH REVIEW

ISSN:2321-0354 - ONLINE ISSN:2347-1654 - PRINT - IMPACT FACTOR:0.720

Socio-economic inequalities have always remained as a major concern of the government,

a. Around 2.8 billion people lives on less than $2 per day.

OBJECTIVE OF THE PRESENT STUDY:

Studies relating to the assessment of microfinance impact on income, poverty, women

RATIONALE BEHIND SELECTING PAREEK‟S SCALE FOR SES DETERMINATION:.O

Table 2: Strengths and Weaknesses of SES Scales

a) Includes maximum number of M

RESULTS AND DISCUSSION: W

Table 3: t-test explaining the microfinance impact on socio economic status.

SES Before MF SES After MF

1. Ablorh, William., (2011) Microfinance and Socio-economic empowerment of women: A case

Symbol Category Scores on the Scale

A Upper Class Above 43

B Upper Middle Class 33-42

C Middle Class 24-32

D Lower Middle Class 13-23

E Lower Class 05-12

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