Such an evaluation has to deal with a number of practical challenges: First, in many cases the success of SHGs made it attractive for policy makers to quickly expand the program, implying that establishing a control is not always easy. For example, in Andhra Pradesh (AP) a first phase targeted only 6 districts but a follow-up program to expand coverage to the entire state was launched less than 3 years after the launch of the original intervention. As the target group includes the poorest who require considerable training and capacity building before they will be in a position to be able to successfully use and repay loans, this may be too short to expect large economic impacts. Second, with clear benefits and economies of scale from federation, random selection of treated and control groups within sufficiently small administrative units (mandals, equivalent to counties) is difficult and, even if agreed upon at the start, may not be maintained during implementation. Finally, impacts are likely to differ according to participation status but participation is likely to be endogenous and thus needs to be controlled for.

This paper provides an evaluation of the SHG-based micro-credit model using a large-scale World Bank supported intervention in the state of Andhra Pradesh (AP) that included three elements of interest, namely (i) efforts to foster formation of SHGs by the “leftover poor”; (ii) capacity building for existing SHGs and establishment of second tier institutions at the village and mandal (county) levels to use economies of scale in capacity building, credit and insurance, and interaction with the public and the private sectors in larger-scale programs; and (iii) a one-time injection of equity to the second tier institutions aiming to provide them with seed capital to remedy the multiple market and government failures typical of rural India.

The data to do so are from a 2,400 household panel based on two surveys, conducted in 2004 and 2006, in treatment mandals where the program had started in early 2001 and a set of randomly chosen control mandals where the program became available in late 2003. We compare the outcomes between program SHG participates in the treated counties and those in the control area had not yet reached maturity, our results can be interpreted as providing an estimate of 2.5 year program exposure by mature groups, rather than participation per se. Double differences are used to eliminate bias due to time-invariant factors. Also, to address differences in observables that may limit comparability between treatment and control households, propensity score matching methods are used. Moreover, we allow for heterogeneity of impact by letting impact differ by SHG participation status or initial poverty status for SHG members’ counties by relying on the assumption that unobservable attributes of these groups are not significantly different between treatment and control areas.

Our results point to significant economic gains from program participation in the form of better nutrition and higher levels of consumption as well as asset accumulation, for SHG participants but not for those who are merely living in program areas. Differentiating by participants’ poverty status suggests that the 3