What determines enterprise borrowing from Self Help Groups? A Predictive Assessment using Supervised Machine Learning Algorithms

39 Pages Posted: 16 Jun 2021 Last revised: 17 Sep 2021

See all articles by Madhura Dasgupta

Madhura Dasgupta

National Council of Applied Economic Research (NCAER)

Samarth Gupta

National Council of Applied Economic Research

Date Written: September 1, 2021

Abstract

Despite several advantages of borrowing from Self Help Groups (SHGs), why do many enterprises in India, still rely on informal lenders (MoSPI, 2020)? To answer this question, we develop a novel enterprise-village matched dataset and use a variety of Machine Learning methods to predict the choice of an enterprise between SHG and informal lenders as the major source of finance. Among them, XGBoost with an AUC of 94% has the highest predictive power. We conduct several interpretable machine learning techniques to understand village-specific determinants of enterprise borrowing from SHG. Access to urban centers including district headquarter, and socio-demographic factors such as high literacy rates and improved sex ratios in a village, play important roles in credit uptake from SHGs. Absence of financial access points, such as commercial or cooperative bank branches, does not appear to be prohibitive. We also apply XGBoost model to estimate potential demand for SHG loans among self-financed firms. Potential for SHG inclusion among these firms, remains low and skewed toward southern districts.

Keywords: Micro-Finance, Joint Liability Lending, Informal Credit

JEL Classification: G21, G23, G28, O16, O17

Suggested Citation

Dasgupta, Madhura and Gupta, Samarth, What determines enterprise borrowing from Self Help Groups? A Predictive Assessment using Supervised Machine Learning Algorithms (September 1, 2021). Available at SSRN: https://ssrn.com/abstract=3861441 or http://dx.doi.org/10.2139/ssrn.3861441

Madhura Dasgupta

National Council of Applied Economic Research (NCAER) ( email )

Parisila Bhawan
11 - Indraprastha Estate
New Delhi, 110002
India

Samarth Gupta (Contact Author)

National Council of Applied Economic Research ( email )

Parisila Bhawan
11 - Indraprastha Estate
New Delhi, 110002
India

HOME PAGE: http://blogs.bu.edu/samarth/

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