Coping with shocks: How Self-Help Groups impact food security and seasonal migration

Combining seven years of household data from an original field experiment in villages of Jharkand, East India, with meteorological data, this paper investigates how Indian Self-Help Groups (SHGs) enable households to withstand rainfall shocks. I show that SHGs operate remarkably well under large covariate shocks. While credit access dries up in control villages one year after a bad monsoon, reflecting strong credit rationing from informal lenders, credit flows are counter-cyclical in treated villages. Treated households experience substantially higher food security during the lean season following a drought and increase their seasonal migration to mitigate expected income shocks. Credit access plays an important role, together with other SHG aspects such as peer networks. These findings indicate that local self-help and financial associations can help poor farmers to cope with climatic shocks and to implement risk management strategies.