Chapagain, R. K., & Dhungana, B. R. (2020).

Does microfinance affect the living standard of the

household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

Does Microfinance affect the Living Standard of the Household? Evidence

from Nepal

Abstract

The paper explores the effect of a microfinance program on the living standard of clients taking
reference from Nepalese MFIs. To measure the impact of microfinance, 480 respondents
including 240 MF clients, who have at least five years involvement in microfinance institutions
operated in the rural area of Kaski district, and rest 240 controlled respondents having a similar
background were randomly selected. Data were collected through primary sources by using a
semi-structured questionnaire, observations, and focused group discussions. The data for the
study are both quantitative and qualitative. The method used for the study is the Randomized
control trial method. Parametric tests, non-parametric tests, CFA, and SEM are the statistical
tools used to identify the effectiveness of microfinance intervention on the living standard of the
rural household. The findings show that the microfinance program has an encouraging impact
on income, consumption, capital accumulation, and savings habits. Moreover, microfinance
intervention has a significant effect on the professional profile and micro-enterprise generation.
The structural equation model shows that income, consumption, and capital accumulation of MF
clients are the major factors that undoubtedly impact on the living standard of clients. The study
concludes that microfinance is an effective strategy for financial inclusion, reaching to a rural
area, increasing livelihood status, and ultimately reducing poverty. The policymakers need to
promote the occupational profile and enhance information access in rural areas through
financial literacy and microfinance intervention.

Keywords: Financial literacy, living standard, microfinance intervention, rural households

I. Introduction
Microfinance is an important strategy to enhance financial services to the people who are
vulnerable and have no access to banks or financial institutions. It provides a collateral-free loan
to the poor and marginalized people on the recommendation of the groups. MFIs target the
people who do not have access to financial services and mostly depending on informal financial
Chapagain, R. K., & Dhungana, B. R. (2020). Does microfinance affect the living standard of the
household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

sources such as money lenders. It provides diverse ranges of financial services and products such
as micro-credit to members of self-help groups who are out of mainstream banking, savings
account for self-help group members, and insurance for micro-lending given to members (Naila,
2005). The aims to design micro-credits are to support people from weaker sections of society
with a view of socio-economic transformation.
Microfinance institutions deliver a variety of financial services such as micro-credit, micro-
savings, micro-remittance, and micro-insurance. It also provides non-financial services for
empowering their members, such as group formation, sewing and weaving training, financial
education, and capability enhancing activities (Ledgerwood, 1999). MFIs adopt a unique micro-
credit disbursement system and provide collateral-free loans to the marginalized people through
group-based lending and provide different business ideas, training for the creation of the new
business. MF is one of the crucial tools for building financial inclusion and reducing poverty in
developing nations. MFIs help to address various issues related to poverty, unemployment, and
inequality in terms of the socio-economic perspective of the rural and disadvantaged societies,
especially women (Simanowitz and Walter, 2002). MF is a roadmap of reaching poor and
marginalized people with a view of socio-economic transformation (Nepal Rastra Bank, 2008).

As a least developed country, Nepal is now progressing for the development, large numbers
of people, who lived in a hilly and rural area, are still depending on the informal lending system
in Nepal because of the weak level of financial inclusion. The financial inclusion in the case of
Nepal is poor, and yet more than half of the adult people are unbanked. Among the account
holders, only around 50 percent uses their account properly (World Bank, 2017). The size of the
micro-credit has a positive association with its application. The small size of micro-credit has
been spent on domestic purposes and unproductive areas. Likewise, the greater size micro-credit
has been found to apply in productive sectors. MF intervention has made significant
improvements in micro-business and enterprise generation activities through the productive
application of micro-credit (Dhungana, 2018).
The objective of this paper is to identify the effects of a microfinance program on the living
standard of rural households. Further, it aims (i) to explore the demographic profile of both
micro-finance clients and controlled groups or families; and (ii) to examine the effect of
microfinance involvement on income, consumption and savings habit. Besides that, paper
inspects how the living standard of people is changing in the context of Nepal.
 Chapagain, R. K., & Dhungana, B. R. (2020). Does microfinance affect the living standard of the
household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

II. Literature Review

Hossain and Wadood (2020) found that there is a vital effect on saving habits and
expenditure related to education and transportation, whereas little on income and expenditure
patterns through participation in microfinance. The occupation profile of MF clients is
significantly higher as compared to the non-microfinance borrowers. There is an improvement in
housing, utility usages, water, and sanitation of the clients after involvement in the MF program.

Chapagain, Sapkota, and Gautam (2018) explored that microfinance is a tool that helps to
reduce poverty, develop human capital, and increase the living standard of rural households. The
study showed that most of the rural women who are members of microfinance create a new
modern business, have better occupational status, better consumption, capital expenditure, and
have a higher income than non -intervened women.

Muogbo and Tomola (2018) identified that microfinance is a competent strategy for
entrepreneur development. Microfinance bank significantly helps to promote entrepreneurship,
but microfinance bank does not have a significant impact on the development of
entrepreneurship in Nigeria.

Addai (2017) stated microfinance did not directly empower women, but microfinance
institutions helped them to empower through training and development. By involving in the
microfinance program, women can challenge existing norms, cultures, and values.
Microfinance organizations empower women by providing more significant securities and
power. Microfinance organizations not only provide the platform for linking with society but
also offer an opportunity to enhance leadership roles. Overall, microfinance institutions help
them to empower economically, socially, legally, psychologically, among which economic
and social empowerment is most.

Julius and Charles (2017) explored that microfinance is a tool that helps to reduce poverty
through the empowerment of women. Involvement in microfinance increases social network and
potentiality to get a loan that helps to enhance entrepreneurial skills, thereby increasing
productivity, ultimately leading to improvement in the social standards of rural women.
Dhungana et al. (2016) explored the positive effect of microfinance activities on health
information and practices in the various caste of Nepal, showing the upper caste are more aware
Chapagain, R. K., & Dhungana, B. R. (2020). Does microfinance affect the living standard of the
household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

of health issues. The study explores that after the intervention of microfinance, health awareness
has a significant improvement. After involvement in the microfinance program, clients are
empowered and started to report about the environment, hygiene, sanitation, tools, and technique
of family planning which resulted in significant improvement of health services at a local level.
Furthermore, the study suggested microfinance services should be made equally available to all
caste and disadvantaged groups to improve the health and economic status of all people.

Ogechi and Olaniyi (2017) explored that microfinance has an insignificant positive impact on
financial inclusion because financial inclusion is unable to reap the benefits of micro-financing.
They also concluded that since the rise in interest rate distorts the mechanism for financial
inclusion, regulatory authority appropriately monitor the interest rate. In conclusion, the
government should focus on establishing more microfinance institutions and controlling lending
rates to promote financial inclusion.

Upadhyay (2015) explored that microfinance is a tool for empowerment and the political and
economic development of rural women. Involving in the microfinance activities designed to
support women, women get an equal opportunity to generate income that directly helps to uplift
the livelihood status of women and helps to balance gender relations.

III. Research Methodology

This research has followed a quasi-experimental research design. Before collecting the data,
the researcher divided the respondent into two groups: one of the groups is respondent taking
membership of microfinance at least from last five years, and another group is people not having
an association with microfinance but located on the same territory with same background and
characteristics. The aim of diving into two groups is to find out the intervention effect on the
living standard of households living in the Kaski district of Nepal. Depend upon a randomized
control trial (RCT) technique, the study used observation, focus group discussion, and structured
questionnaire method to collect data from the study area. Before using the questionnaire to
collect the data pre-testing of the questionnaire was done. The study mainly focused on the
primary source to collect data on which 240 microfinance clients and 240 non-microfinance
members were surveyed from each group. The purpose of dividing the respondents into two
groups is to compare the interventional impact on the living standard of women households. To
Chapagain, R. K., & Dhungana, B. R. (2020). Does microfinance affect the living standard of the
household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

identify the sample of microfinance involved respondents, we visited in different groups and
centers of Nepal Grameen Bikas Bank, Chhimek Laghubitta Bittiya Sanstha Limited, and
National Education and Development Organization (NESDO) Nepal.

We used descriptive statistical tools such as minimum, maximum, mean, standard deviation,
and a bar graph for data analysis. Furthermore, we applied inferential statistics such as an
independent sample t-test, a parametric test, and a Chi-square test, a non-parametric test, to
examine the interventional impact on livelihood betterment. Furthermore, we used the
confirmatory factor analysis, and structural equation modeling to identify the effect of
professional status, consumption expenditure, capital expenditure, income level, and information
access on the living standard of households. The software used for data analysis is Microsoft
excel, statistical package for social science (SPSS), and analysis of moment structure (AMOS).

IV. Results and Discussion

In this heading, we analyzed collected data by using statistical tools and presented results
both in a descriptive and inferential way. We compared and discussed the results with previous
papers also.

4.1 Descriptive Results

In this section, results are generated by using collected data through charts, figures, and
descriptive statistical tools such as mean, standard deviation, minimum, and maximum. The
overall results of the descriptive section are shown in this section.

Table I
Marital Status
Microfinance Microfinance
Categories member non- member Total Percentage
Married 224 227 451 94
Single 0 2 2 0.4
Widow 16 11 27 5.6
Total 240 240 480 100
χ 2 value at 2 degrees of freedom is 0.229

Source: Field survey, 2017

Chapagain, R. K., & Dhungana, B. R. (2020). Does microfinance affect the living standard of the
household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

Table I depicts that most of the respondents (around 94 percent) were married followed by
5.6 percent were the widow, and 0.4 percent were unmarried. From this, it is evident that,
engaged married respondents were more involved in microfinance programs. The Chi-square
result shows that there is no association between intervened and non-intervened respondents in
terms of marital status.

Table II
Demographic Structure of Microfinance Involved Clients
Structures Number Minimum Maximum Mean S.D
Age (in years) 240 20 70 39.87 11.46
Family size 240 1 13 4.95 1.71
No of children 240 0 4 1.97 0.88
Source: Field survey, 2017

Table III
Demographic Features of Non-Interventional Respondent
Features Number Minimum Maximum Mean S. D
Age (in years) 240 17 73 37.93 12.58
Family size (numbers) 240 1 12 4.94 1.66
No of children 240 0 7 1.99 1.01
Source: Field survey, 2017

From table II, it is clear that microfinance intervened (microfinance involved members)
group's average age, family's size in number, and children's numbers were 39.87 years, 4.95, and
1.97 respectively. The age of interventional respondents varied by 11.46 years from its mean age.
Similarly, family member's numbers and average children's numbers were fluctuated by 1.71 and
0.88 respectively. Among microfinance non- interventional groups, average age, family
members' number, and children's number of respondents were 37.93 years, 4.94 people, and 1.99
children respectively. The respondents' age, family members' number, and children's number
were deviated on average by 12.58 years, 1.66, and 1.01 respectively. There is no difference in
age, family size, and no. of children between microfinance intervention and non- interventional
group.
Chapagain, R. K., & Dhungana, B. R. (2020). Does microfinance affect the living standard of the
household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

Figure 1 depicts that majorities of respondents were literate but not get a chance to gain a
formal education. Among the microfinance interventional group, 5.8 percent of respondents were
illiterate, 45.0 percent were literate from the informal education system, 37.1 percent qualify
below SLC, 9.2 percent have SLC level qualification, and 2.9 percent of respondents gained
intermediate and above education. Similarly, 10.8 percent non-interventional women were
illiterate, 48.8 percent were informally literate, 24.6 percent have an education of below SLC, 9.6
percent have SLC level qualification, and 6.2 percent of respondents gained above SLC
education.

Educational Status

Above SLC

SLC

Below SLC Non-intervented

Intervented
Informaly educated

Uneducated

0 10 20 30 40 50 60

Note: SLC denotes School Leaving Certificate.

Source: Field Survey, 2017
Figure 1
Educational Level of Respondents (in Percentage)

Figure 1 reflects that literacy level is indifferent between microfinance involving respondents
and not involving in it. This shows that there is no significant effect of educational level on
microfinance involvement. A significant number of rural women were a school dropout and the
majority of this group was involved in microfinance. This analysis reveals that women having
lower-level education were more participative in microfinance and they ultimately created the
micro business and enhanced living standards.
Chapagain, R. K., & Dhungana, B. R. (2020). Does microfinance affect the living standard of the
household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

Table IV
Professional-status of Respondents
Intervention Non-Intervention
Job Status Frequency Percent Frequency Percent
Modern 193 80.42 98 40.83
Conventional 47 19.58 142 59.17
Total 240 100 240 100
Source: Field Survey, 2017

Table IV depicts clearly that among respondents of the interventional group, 80.42 percent
of respondents involved in the modern profession, which includes modern agro farming, modern
cattle raring, poultry business, micro-enterprise creation, and family member employing on the
job in the country and the foreign country, and 19.58 percent of respondents involved in the
conventional profession, which includes conventional crop farming, ancient cattle rearing
livestock, and working on the wage-based system. Among the respondents of non-interventional
groups, only 40.83 percent of women involved in a modern job, and 59.17 percent of women
involved in the traditional job. This shows that microfinance intervention has an impact on
creating a modern profession.

4.2 Inferential Analysis

In this section, results are further analyzed using statistical tools such as chi-square tests and
indifferent sample t-test to identify the impact of microfinance impact on living standards. The
results have been shown below.

Table V illustrates that the average income per month and the average consumption
expenditure per month of microfinance intervention households were higher and statistically
significant. Similarly, there is a statistically significant difference in annual capital expenditure
and saving between intervened and non-intervened categories. There is a remarkable difference
in average food, cloth, education, communication, electricity, and water expenses. The
entertainment expenses of the intervention group were higher than the non-intervention group.
Based on this finding researcher can say that the intervention group was better than the non-
Chapagain, R. K., & Dhungana, B. R. (2020). Does microfinance affect the living standard of the
household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

intervention group. The result supports to conclude that microfinance involvement increases the
living standard of respondents (Hoosin (2012), Adjei, Arun, and Hossain (2009) and Chapagain
and Aryal (2018)).

Table V
Analysis of Livelihood Parameters
Significance
Livelihood Parameters Non-intervened Intervened (p-value)
Mean
Mean (NRs) S.D. (NRs) S. D
Monthly Income 24510 15290 36710 20348 0.00
Monthly Consumption Expenditure 14776 6190 18408 8656 0.00
Annual Capital Expenditure 60660 61162 97571 83138 0.00
Monthly Savings 6388 9523 13651 13076 0.00
Expense on Information 1119 715 1666 1539 0.00
Amt of Consumption on Food 7834 3546 8641 4085 0.021
Amt of Consumption on Clothing 1685 1030 2094 1467 0.002
Amt of Consumption on Education 2057 1709 3415 4025 0.00
Amt of Consumption on Health 1245 1208 1483 1429 0.049
Amt of Consumption on
Communication 809 490 1105 958 0.00
Amt of Consumption on Electricity 484 287 638 694 0.002
Amt of Consumption on Drinking
Water 190 190 228 227 0.047
Amt of Consumption on
Entertainment 452 547 623 704 0.003
Source: Field Survey, 2017

Table VI shows that association is not statistically significant between literacy level and
involvement in microfinance. But the association is significant among job status, micro-business
establishment, purpose and size of borrowing, and job status change, and microfinance
involvement. It means microfinance intervention enhanced the power of availing and utilizing
Chapagain, R. K., & Dhungana, B. R. (2020). Does microfinance affect the living standard of the
household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

large size loans with the purpose of the productive application, involving in an innovative job,
creating a micro-business (Ray (2008) and Getu (2006)). Among all, Cramer's V of the purpose
of taking loans is the greatest, showing the greatest association between the purpose of taking
loans and microfinance involvement.

Table VI
Chi-Square Tests of Livelihood Parameter
Parameters χ 2 value Significance Cramer's V
Literacy level 12.972 0.011 0.011
Job position 78.765 0.00 0.405
Purpose of the loan taken 176.82 0.00 0.608
Microbusinesses creation 92.174 0.00 0.438
Involve in Wage based 58.346 0.00 0.349
Loan taken 108.42 0.00 0.475
Source: Field Survey, 2017

4.3 Living Standard Improvement Measurement through Measurement model and Structural
model

The study used confirmatory factor analysis (CFA) and structural structure modeling
approach to identify the change in the living standard of the rural household. Since the item to be
loaded in CFA is already checked and determined by using explanatory factor analysis, we
directly run the confirmatory factor analysis and structural equation model that help to test the
purposed hypothesis (Flora, LaBrish, and Chalmers, 2012).

4.3.1 The Measurement Model

The measurement model is used to establish the construct validity of the five constructs used
in the study. The latent constructs are income level, occupational status, consumption,
investment, and social awareness. For the analysis, there were a total of 21 aggregate items,
which were combined into five constructs, was used and parameter estimates were made under
the maximum likelihood method. After that, each of these 21 factors was allowed only on
associated factors, and latent constructs were allowed to correlate.
Chapagain, R. K., & Dhungana, B. R. (2020). Does microfinance affect the living standard of the
household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

Table VII
CFA of Livelihood Parameters

Constructing Measuring Factors

Factor Scales loading
Occupation
Level of Emotional Attachment 0.787***
Satisfaction towards occupational Status 0.681***
Assure about Job Security 0.811***
Consumption (Priority on)
Electricity 0.71***
Entertainment 0.688***
Health Services 0.673***
Education 0.626***
Clothing 0.689***
Drinking-Water 0.66***
Investment (Priority on)
Accessories 0.76***
Electronic Appliances 0.826***
Furniture 0.927***
House 0.752***
Land 0.686***
Social awareness (Usages tendency of)
Social Sites 0.586***
Television 0.701***
Newspaper 0.313***
Phone 0.389***
Income (Satisfaction towards)
Business Income 0.611***
Pension Payment 0.247***
Chapagain, R. K., & Dhungana, B. R. (2020). Does microfinance affect the living standard of the
household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

Service Income 0.38***

Source: Field Survey, 2017

Table VII shows that all of the latent variables under study are significant, which shows the
proposed 5–factor model fits with data. Since the measurement model fit is necessary to run the
purposed causal model and measurement model under this study was perfectly fit, we were able
to use the causal model in this study. If the measurement model does not fit, a causal model
cannot improve the quality of fit measure.
The study conducts a confirmatory factor analysis (CFA) by creating using AMOS. The
CFA shows an acceptable model fit based on absolute fit indices (GFI, AGFI, χ2, and RMSEA)
(Brown 2015). The goodness of fit indices (GFI and AGFI) values are 0.936 and 0.893
respectively which are a cut-off value of 0.9 indicating reasonable fit of a hypothesized model
with sampled data. However, GFI and AGFI values are affected by sample size and can be more
significant for models that are poorly specified, and as such their use as fit indices are somewhat
limited. Hence, the model fit is examined, employing additional fit indices.

Source: Field Survey, 2017.

Figure 2
Chapagain, R. K., & Dhungana, B. R. (2020). Does microfinance affect the living standard of the
household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

CFA of Livelihood Parameters

The normal chi-square (χ2) - (χ2to degrees of freedom, χ2=212.843, d.f.=100) is 2.456, which
is below the acceptable cut-off value of 3.0. However, chi-square value increases with sample
size and several observed variables, introducing bias in the model. Hence, alternative model fit
indices have been examined. Root mean square error of approximation (RMSEA) is 0.054,
which is lower than 0.08, indicating a good fit. The values of incremental fit indices CFI
(comparative fit index) and TLI (Tucker Lewis Index) are 0.936 and 0.927 respectively. The
values of more than 0.9 are an indicator of an adequate model fit. To summarize, the results
recommending a good fit of the measurement model.

4.3.2 The Structural Model

After measurement models become significant as shown above, we have to run a structural
model to explain the nature and magnitude of the relationship between construct as shown in
figure three. The structural model is specified based on the existing theories of economics and
social science. It is hypothesized that professional status, income level, consumption
expenditure, information awareness, and capital expenditure are propositioned to affect the living
standard of the household. The results of the SEM path analysis are shown in table seven. By
using structural or path analysis, the study evaluates the hypothesized causal relationship
proposed in the theoretical model. The latent construct livelihood is endogenous as the variable
is being explained in the model by exogenous variables. The latent constructs, professional
status, income level, capital expenditure, social awareness, and consumption expenditure, are
exogenous as they are not explained by other variables in the model. The structural model
examines the following hypotheses:
H1: Better professional status positively enhances the living standard of the household.
H2: Higher-income level positively raises the living standard of the household.
H3: Increase in consumption positively enhances the living standard of the household.
H4: Increase in capital expenditure positively affects the living standard of the household.
H5: Greater information access positively enhances the living standard of the household.
The path analysis results show the overall fit measures as discussed in the preceding section
that provides judgment for how the structural model fits the data. Results of the path model
Chapagain, R. K., & Dhungana, B. R. (2020). Does microfinance affect the living standard of the
household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

outputs reveal chi-square value [(χ2 (280) = 676, p<0.001), CMIN/DF =2.41, GFI=0.895,
AGFI=0.869, CFI=0.932, TLI=0.922, RMSEA=0.054] yielded to some extent a reasonable fit to
data. The χ2 is significant (p<0.001), indicative of a poor fit. However, the normal chi-square (χ2
/df) is 2.41, which is lower than the cutoff value of 3, implying a satisfactory model fit.
Additionally, the RMSEA value of 0.054 is close to an acceptable limit of 0.08. Similarly, the
values of the incremental fit indices CFI and TLI have generally cited the cut-off value of 0.9,
hence; the results indicate a mediocre fit of the model. Therefore, the model has an acceptable fit
to go for further analysis.
Table VIII
SEM Path Analysis
Structural Path Estimate SRWa
-0.216
Living standardOccupation -0.136
(0.325)
0.334***
Living standardconsumption 0.245
(0.104)
0.454***
Living standardInvestment 0.364
(0.094)
Living standardSocial -0.209**
-0.207
Awareness (0.097)
0.908***
Living standard Income 0.516
(0.068)
Squared Multiple Correlation = 50.4
Model Fit Measures
Chi-square = 222.432 (df=103, prob. = 0.000), CMIN/DF =2.41
GFI=0.811, AGFI= 0.804, CFI=0.845, TLI=0.832, RMSEA=0.072
SRWa = Standardized regression weights
***
p<0.001
Source: Field Survey, 2017

The estimates of path coefficients income, consumption expenses, and capital expenditure
are significant and positive. Hence, the path analysis results allow for testing the hypothesized
Chapagain, R. K., & Dhungana, B. R. (2020). Does microfinance affect the living standard of the
household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

relationship of the constructs as outlined in figure 3. In H1, it was hypothesized that better
professional status enhances the living standard of a household. As indicated in table eight, the
effect of professional status on living standards is negative but not significant. So, we can
conclude that the professional status of rural people was not well. People were still not satisfied
with their occupational status.

Source: Field Survey, 2017.

Figure 3
SEM Path Analysis
 Chapagain, R. K., & Dhungana, B. R. (2020). Does microfinance affect the living standard of the
household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

In H2, it was hypothesized that income level enhances the living standard of people that is
supported by the results. As stated by H3, an increase in consumption expenditure also improves
the living standard of the household is in a hypothesized direction, and it is statistically
significant. Thus, it is accepted that consumption expenditure has a positive and significant
impact on the living standard of the household.

Similarly, H4 predicted an increase in capital expenditure has a positive effect on the living
standard of the household that is supported by the model. At last, H5 predicted that an increase in
information awareness has a positive impact on the living standard of the family that is
significant but in a negative way. It may be the cause of limited information awareness in rural
areas. They had limited access to the internet, newspaper, and other social sites. Due to limited
time and financial resources, they were not able to use accessed tools too, and have less
satisfaction towards informational access.
Among the relationship between the latent constructs, the relationship between livelihood
and income is the highest that is revealed by the associated standardized regression weight,
followed by a tie between capital expenditure and living standard. The results show that the
livelihood of a household increases by their income level. People spent most of their earning on
house and land purposes. People also spent a significant amount of their funds for consumption.
People of rural areas spent less on information and social awareness. People were still not
satisfied with their occupational status at present in a rural area of Kaski district. The values of
squared multiple correlations reveal that around 50.4 percent of the variation in living standards
is explained by professional status, consumption expenditure, capital expenditure, information
awareness, and income level.

V. Summary and Conclusion

Microfinance institutions have assumed much significance in view of their wider reach, easy
accessibility, liberalized terms and conditions of financing and multi-purpose financial support at
the grass root kevel to larger segment of people particularly down trodden. The study reveals a
Chapagain, R. K., & Dhungana, B. R. (2020). Does microfinance affect the living standard of the
household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

very prominent and crucial role of microfinance institutions in changing the living standards of
households in rural areas through the self-help group approach and also by assisting for different
kinds of employment opportunities. The descriptive results and investigations bring out that good
number of households involved in availing microfinance assistance and utilized it for productive
purposes such as, undertaking occupations with modern inputs, creating new business
opportunities utilizing local resources, increased awareness and education etc. There is also a
significant improvement being experienced by the beneficiaries in terms of consumption
expenditure, income level, savings, investments and capital expenditure. The study also finds
significant variation when analyzing an intervened household as compared to non-intervened
household. The results and analysis clearly show improved living standard of households
benefitted under microfinance in comparison to those who did not avail microfinance activities.

Similarly, if we compare the results of living standard of rural households prior to five years
of availing the micro finance support, it shows significant improvements under all parameters.
During field level investigations, it is also observed that lot of improvements in business
activities and occupations could be brought in through efficiency and effective support and
guidance to the beneficiaries by different stakeholders in terms of training, skill development,
marketing information and support, new technology to help this segment to rise further. There
are definitely many challenges associated to take this mission further but the enthusiasm and
spirit of involvement among the beneficiaries could bring much better results, the study
concludes.
Chapagain, R. K., & Dhungana, B. R. (2020). Does microfinance affect the living standard of the
household? Evidence from Nepal. Finance India, 34(2): 693-704, Indian Institute of Finance.

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