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Financial Inclusion and Household Welfare: An Entropy-Based Consumption Diversification Approach

Year: 2021

Type: article

Abstract: State-led financial inclusion programmes have been implemented in many developing countries, but their effectiveness in raising welfare remains widely debated. In this article, we report evidence on this issue, against the backdrop of recent policy initiatives on financial inclusion in India. We employ Theil’s entropy-based index to estimate diversification in consumption expenditure, and use this as a measure of welfare. Using household-level panel data across all regions of the country, we find evidence that greater financial inclusion increases diversity in non-food items. Further, we also notice that there is a shift in consumption basket from food items to non-food items. These findings suggest an improvement in welfare for both rural as well as urban households.

Source: European Journal of Development Research

DOI: 10.1057/s41287-021-00431-y

Authors: Manisha Chakrabarty, Subhankar Mukherjee

Institutions: Indian Institute of Management Calcutta, Indian Institute of Technology Kanpur

Language: English

Topic: Microfinance and Financial Inclusion

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDGs: No poverty, Reduced inequalities, Decent work and economic growth, Zero hunger

Open Access status: hybrid

Estimated APC paid: $2,780