Election Cycles and Microfinance in the Indian States : Political Pressures, Opportunistic Election Cycles and Political Uncertainty Cycles: What Does It Do for the Indian Microfinance Sector?

Abstract: In India, election cycles have repeatedly been reported to sway the microfinance sector. Meanwhile, the sector is recognized as an important poverty fighting tool; both the largely privately funded MFI system and the largely publicly funded SHG system. No previous study has investigated election effects on these microfinance providers systematically over all Indian states. This paper uses both a static fixed effects model as well as a dynamic one, to analyze how the election cycle affects microfinance output. I use panel data covering most Indian states, roughly over the years 2006-2018. There is some evidence that MFIs are affected negatively in the year after an election, while the effects on SHGs are positive in low political contestation elections and less positive or even negative in high political contestations elections.