I got the opportunity to work on this thesis during my short stint in the months of April and May 2008 in Gram Vikas, an NGO headed by Joe Madiath with wide-spread society stimulating activities across Orissa. Through this research, I attempted to explore the inherent characteristics of SHGs and evaluate the reasons why SHGs have recently become the buzzword in the context of responsible distribution infrastructure of scarce rural finances. I attempted to unearth the truth as to the sustainability and economic viability of SHGs as a cornerstone in rural credit distribution infrastructure. Therefore, I thought that I should also share my research findings with others so that the world gets more viewpoints and information to make more informed and judged opinions and decisions that benefit not only the decision makers but also the poor in rural areas.
The Thesis work, in brief, intended to present an account of the functioning, organization, and the effectiveness of SHGs, formed by Gram Vikas in the western district of orissa called Bargarh, in enabling the village poor have easy access to institutional credit and employ the credit towards empowering themselves by improving their economic and social life.
Field surveys were conducted where unstructured group interviews were done with all the SHGs in five villages. Many days were spent living in the villages among the target villagers. In addition to interviews, efforts were undertaken to attend the SHGs’ regular meetings in order to see their normal group dynamics and the capability of the members to run meetings, discuss issues and come to a consensus. SWOT analysis was done to assess their weaknesses and strengths.
I found in my research that the SHG members have high organizational capability to form and run self help groups, financial shrewdness to save and utilize the credit judiciously for consumption and investment needs, and the social solidarity to undertake initiatives meant to improve the entire community life in their neighborhoods. However to sustain their viability in the rural economy and enrage the momentum to spread their outreach, SHGs need some organizational interventions and policy measures.
The thesis that follows would attempt to describe the above work and issues in detail.
LIST OF SYMBOLS & ABBREVIATIONS USED IN THE REPORT
BPL: Below Poverty Line
GoI: Government of India
MFI: Microfinance Institutions
MYRADA: Mysore Resettlement & DevelopmentAgency
NABARD: National Bank for Agricultural and Rural Development
NGO: Non Government Organization
RRB: Regional Rural Bank
RBI: Reserve Bank of India
SHGs: Self Help Groups
SHPIs: Self Help Promoting Institutions
Here comes the research report divided into eight chapters.
CHAPTER 1
Introduction
Credit is a catalyst. It comes and goes but leaves behind some changes….
Access to finance by the poor and vulnerable groups is a prerequisite for poverty reduction and social cohesion. In fact, providing access to finance is a form of empowerment of the vulnerable groups. Financial inclusion necessitates delivery of financial services at an affordable cost to the vast sections of the disadvantaged and low-income groups. Attempts are being made towards financial inclusion to lift the poor from one level to another so that they come out of poverty cycle.
However, only financial credit by itself is not sufficient to ameliorate the conditions of the poor. The experience of various rural development programs has revealed that the involvement of people in the efforts to uplift their condition has at best remained peripheral. Moreover, the political climate in India has also generated the feeling that the loans to the poor under various government programmes are in the nature of grants and need not be repaid.
So, while improvement in the supply side or the delivery systems of the institutional credit can enhance the formal financial services’ outreach, it is also important to note that many areas, segments of the population and sub-sectors of the economy have a limited or weak demand for financial services, because they have actually never experienced or enjoyed the institutional financial services. In order to improve their level of inclusion, demand side efforts also need to be undertaken including improving human as well as physical resource endowments, mitigating risk and strengthening market linkages.
This is where, the concept of self-help groups (SHGs) takes a whole lot of new meaning, which improves both the supply side and the demand side of the provision of the institutional credit for the poor and the rural marginalized.
The SHG-Bank Linkage Programme, spearheaded by NABARD in India since 1992, is a leading institutional credit outreach programme. In 1996, Reserve Bank of India decided to include Linkage Banking as a mainstream activity of the banks under their priority sector lending. The Government of India awarded national priority to the programme through its recognition in the Union Budget 1999. Its strategy is for the effective credit linking of the rural poor, to the formal financial institutions through the mediating platforms called SHGs. NABARD estimates that as of March 2006 over 33 million women have been linked to banks for financial services through 2.2 million SHGs. Growth of the program has been spectacular over the past 5 years with the number of members linked to banks having increased nearly tenfold (the NABARD website claims a growth rate of over ‘400 women per hour’).
The Self Help Group
Self Help Group is about people coming together with others who are affected by a particular issue (experience, disadvantage, discrimination, etc) to support each other and to work together to change the disadvantage affecting them. While many models of joint liability lending could be broadly described as “self-help group lending,” the term “self-help group” (SHG) has come to mean a specific type of joint liability microfinance group in India.
The SHG model was pioneered by MYRADA over the 1980s, which initially conceived of the groups as a means of improving the livelihoods of the Tibetan refugees it was working with. In 1992, NABARD, in close collaboration with MYRADA, established the SHG bank linkage programme in which banks were encouraged to lend directly to SHGs, which had fulfilled certain criteria. Initially, banks were slow to take up the SHG bank linkage program but the growth in the number of SHGs over the past five years, spurred on by centrally mandated targets, has been phenomenal. The bank linkage programme requires that SHGs operate according to certain standard processes in order to have the possibility of being granted a subsidized loan.
NABARD defines SHGs as "small, economically homogenous affinity groups of rural poor, voluntarily formed to save and mutually contribute to a common fund to be lent to its members as per the group members' decision". An SHG is an informal organization of upto 20 people from the poorer section of the village society, organized, owned, operated and controlled by the members, based on solidarity, reciprocity, common interest and resource pooling. They are encouraged to make voluntary thrift on a regular basis (contractual savings). They use this pooled resource (as quasi-equity) to make small interest bearing loans to their members. The process helps them imbibe the essentials of financial intermediation including prioritization of needs, setting terms and conditions and accounts keeping. This gradually builds financial discipline & credit history for themselves, as the money involved in the lending operations is their own hard earned money saved over time with great difficulty. This is ‘warm money.’ They also learn to handle resources of a size that is much beyond their individual capacities. The SHG members begin to appreciate that resources are limited and have a cost. Once the groups show this mature financial behavior, banks are encouraged to make loans to the SHG in certain multiples of the accumulated savings of the SHG.
The bank loans are given without any collateral and at market interest rates. Banks find it easier to lend money to the groups as the members have developed a credit history. ‘Cold (outside) money’ gets added to the own ‘warm money’ in the hands of the groups, which have become structures, which are able to enforce credit discipline among the members. The members have experienced the benefits of credit discipline by being able to save & borrow regularly without many hassles. The groups continue to decide the terms of loans to their own members. The peer pressure ensures timely repayments & replaces the “collateral” for the bank loans.
Design Features of SHG
While the rules and regulations of SHGs vary according to the preferences of the members and those facilitating their formation, they share some common characteristics.
1. Small and fixed savings at frequent intervals: Small and fixed savings made at regular intervals coupled with conditions like compulsory attendance, penal provisions to ensure timely attendance, saving, repayment etc forms a deterrent for the rich to join the SHG system- thereby enables exclusion of the rich.
2. Self-selection: The members select their own members to form groups. The members residing in the same neighborhood ensure better character screening and tend to exclude deviant behaved ones.
3. Focus on women: As regular meetings and savings are compulsory ingredients in the product design, it becomes more suitable for the women clients- as group formation and participatory meetings is a natural ally for the women to follow.
4. Savings first and credit later: The saving first concept enables the poor to gradually understand the importance of saving, appreciate the nuances of credit concept using their own money before seeking external support (credit) for fulfilling future needs. The poor tend to understand and respect the terms of credit better.
5. Intra group appraisal systems and prioritization: Essentials of good credit management like (peer) appraisal for credit needs (checking the antecedents and needs before sanction), (peer) monitoring – end use of credit; (peer sympathy) reschedulement incase of crisis and (peer pressure) collateral incase of willful non-payment etc. all seems to coexist in the system - making its one of the best approaches for providing financial services to the poor.
6. Credit rationing: The approach of prioritization i.e.: meeting critical needs first serves as a useful tool for intra-group lending. This ensures the potential credit takers/users to meticulously follow up credit already dispensed, as future credit disbursals rely on repayments by the existing credit users.
7. Shorter repayment terms: Smaller and shorter repayment schedule ensures faster recycling of funds, greater fiscal prudence in the poor and drives away the slackness and complacency that tends to set-in, in long duration credit cycles.
8. Market rates of interest: Self-determined interest rates are normally market related. Sub-market interest rates could spell doom; distort the use and direction of credit.
9. Progressive lending: The practice of repeat loans and often-higher doses - is followed by SHGs in their intragroup loaning, thereby enticing prompt repayments.
10. A multiple-eyed operation: The operations of the SHG are transacted in group meetings thus enabling high trust levels and openness in the SHG system. The banking transactions are also generally conducted by SHG members facilitating openness and freedom from unfair practices.
SHGs combine the collective wisdom of the poor, the organizational capabilities of the social intermediary and the financial strength of the Banks.
CHAPTER 2
The Background of SHG-Bank Linkage Program
SHG is a social design in which people participate by making themselves socially and economically accountable to each other……..
Institutional Framework for Microcredit
Microcredit refers to provision of small amounts of credit to the poorest of poor who were not served by the formal financial institutions for many reasons and remained ‘unreached '. The All India Debt and Investment Survey (GoI), 1981, gave indications that the share of non-institutional agencies (informal sector) in the outstanding cash dues of the rural households was quite high at 38%. It was also seen that households in the lower asset groups were more dependent on the non-institutional credit agencies.
The main hurdle faced by banks in financing the very poor seemed to be the comparatively high transaction cost in reaching out to a large number of people who required very small doses of credit at frequent intervals. The same held true of the costs involved in providing savings facilities to the small, scattered savers in the rural areas.
Feelings were mutual among the very small savers and borrowers in the rural areas as well, as they tended to view banking as an institutional set up for the elite; even if they tried to reach the bank branch the long distances and loss of earnings on being away from work while visiting bank branch were hurdles and they were never sure whether they would get any service or not if they did approach the branch. The levels of mutual inconvenience and discomfort made the poor look at banking as an almost inaccessible service, and the banks felt that banking with the very poor was not a ‘bankable’ proposition. Hence, they were dependent on loan sharks who provided timely, easy and adequate credit at doorsteps but at spurious interest rates, up to 120 % p.a.
It was against this background that NABARD developed the SHG-bank linkage approach not merely as a credit programme but as part of an overall arrangement for providing financial services to the poor in a sustainable manner leading to empowerment of the members of these SHGs. SHG-Banking through SHGs and the existing decentralized formal banking network including several organizations in the formal and non-formal sectors (like NGOs) as banking partners allow for large-scale outreach of microfinance services to the poor in India. These banking services (depositing savings, taking loans) are made available at low cost, are easily accessible and flexible enough to meet poor people’s needs.
SHG Bank Linkage Programme
The SHG bank linkage programme has been designed to initiate linkage processes, in two main dimensions:
1. Institutional linkages between SHGs and Banks (either indirectly by involving NGOs and other Self- Help Promoting Institutions as financial intermediaries or direct).
2. Financial linkages between savings and credit (in fixed ratios or in dynamic ratios of savings: credit which increases in repeat credit cycles). NABARD original guidelines on SHG-linkage banking programme recommended that banks start lending with a loan to saving ratio of 1:1 or 1:2 and may gradually increase it to 4:1, keeping in view the resource handling capacities of the poor.
Different Models of Linkage under NABARD
Three different models of promoting credit linkages have been found feasible and are since applied in India by NABARD with special emphasis on forming new SHGs:
Model I: SHGs formed and financed by banks
In this model, banks themselves take up the work of forming and nurturing the groups, opening their savings accounts and providing them bank loans. Upto March 2006, 20% of the total number of SHGs financed were from this category. This reflects an increasing role of banks in promoting and nurturing SHGs.
Model II: SHGs formed by NGOs and formal agencies other than banks but directly financed by banks
In this model, NGOs identify the group and provide adequate SHG capacity building support including support to build-up capital by regular savings. NGOs and formal agencies in the field of microfinance act only as facilitators for social intermediation. They facilitate organizing, forming and nurturing of groups, and train them in thrift and credit management. Moreover, these SHGs merely don’t function like Savings and Credit Group; their main job is to take active role in many community initiatives too. Here, NGOs play the most prominent role in group formation and nurturing, not only prior to establishing linkages with banks, but also after setting the linkage. SHGs formed by Gram Vikas fall under this model. Banks give loans directly to these SHGs. This model continues to have the major share in India, with 74 % of the total number of SHGs financed upto 31 March 2006 falling under this category.
Model III: SHGs financed by banks using NGOs and other agencies as financial intermediaries
This is the model wherein the NGOs take on the additional role of financial intermediation. In areas where the formal banking system faces constraints, the NGOs are encouraged to approach a suitable bank for bulk loan assistance. This, in turn, is used by the NGO for onlending to the SHGs. In areas where a very large number of SHGs have been financed by bank branches, intermediate agencies like Federations of SHGs are coming up as links between bank branch and member SHGs. These Federations are financed by banks, who, in turn, finance their member SHGs. The SHGs formed by specialized microfinance institutions outside the established banking system also fall under this model. The share of cumulative number of SHGs linked under this model upto March 06 continued to be relatively small at 6 per cent.
The scope of this study covers only Model II SHGs in order to compare them with the SHGs falling under other models.
SHGs Supported by Gram Vikas
Gram Vikas is a rural development organization, working with poor and marginalized communities of Orissa towards making sustainable improvements in the quality of life of the rural poor. It runs and spearheads several welfare and capacity building programs for the poor in the villages of Orissa. Gram Vikas' intervention in the rural infrastructure sector focuses on mobilizing communities to pool resources to create basic infrastructure for sustainable disaster-proof habitats. For the programs to succeed, it needs solidarity among the villagers and the capacity to develop consensus among them over different matters pertaining to their own welfare.
Gram Vikas feels that its welfare programs, particularly Rural Health and Environment Program (RHEP) that makes a provision for the sanitation and drinking water facilities in the villages, to be successful need pushing from all the segments of society, particularly women, as it has a policy of not implementing the RHEP in a village, unless 100% of the households in the village give their consent to commit themselves towards the implementation of the program.
Towards this purpose of empowering women (who are the main beneficiaries of the RHEP), so that they become a stronger lobbying force for its programs inside all the households, Gram Vikas felt the need for a platform where all the women can come together and discuss all the common problems that plagues them. This platform would also serve as a communication channel for the Gram Vikas into the villages.
Here came to their rescue the SHGs (helped by Gram Vikas to set up and carry on their functions), whose primary motive was to break the shackles of exploitative moneylenders by inculcating the habit of thrift among the poor people and mobilize their savings so that they have access to some money when they need. To completely wipe out the moneylenders and make progress in their lives by undertaking profitable economic activities, only their savings is not enough; the poor need access to institutional credit at a rate the rich and the urban class enjoys.
Gram Vikas helps the SHGs to link to banks under the SHG-Bank Linkage Programme spearheaded by NABARD, whereby they get access to loans from commercial banks, RRBs or cooperative banks. With this link, the poor gets a loan at a much cheaper rate (ordinarily between 9 to 13 percent per annum) than those offered by local moneylenders (who charge between 36 to 120 percent per annum) and profiteering micro finance companies (who charge between 24 to 36 percent per annum). At some places, like in Ganjam, many SHGs are linked to B-MASS-the block level government sponsored SHG federation that facilitates loans through a government-established revolving fund.
Gram Vikas believes that even micro finance companies are not the solution to lack of access to affordable credit in rural poor, as they are merely supplanting local moneylenders. Poor rural people in India, whose economic activities include selling fried papad, pakoda etc., cannot generate a rate of return to allow her to pay interest at the rate of 24 percent and still make a profit. So, it is necessary to allow the rural poor to access credit at a competitive market rate, so that they are rescued from the profiteering and exploitative people and institutions.
For Gram Vikas, the SHGs play very important social roles in the villages. Members of all the SHGs in a village form a Mahila Samiti (Women’s Committee), whereby they undertake various activities like collaborating with government officials to ensure that all children get immunized, local schools are functioning well etc. There have been instances when the women in SHGs have also staged demonstrations in front of government offices to demand their rightful rights. The SHGs have helped in institutionalizing the role and authority of women in matters affecting the community. These SHGs serve as an entry point in different development sectors like health, family welfare, education and environment and every program for poverty reduction. These SHGs are not merely Rotating Savings and Credit Groups (though some call even them SHGs), which are interested in only getting loans and can be set up even in three days.
Gram Vikas is relentlessly involved in group formation creating the preconditions (homogeneity, solidarity, discipline and absorptive capacity for loans) for SHGs to be sustainable in order to enjoy the benefits from linkage with banks. SHGs have been formed and are being continuously supported by Gram Vikas supervisors in the villages, not only exclusively to enable the SHGs to get access to bank loans but also to achieve other development goals through joint actions: access to running drinking water and sanitation facilities at home, forming a social movement of women, health including immunization of children, educational including girl child education, etc.
Gram Vikas feels that rural Orissa will develop if SHGs take a form of revolution and spread to all the villages across the state. But to take the shape of a revolution, it has to stand a test of being an effective medium for rural credit disbursal in Orissa.
The purpose of the study was to examine the issues related to, (i) financial behavior of the SHGs and the households (ii) gender aspects of credit and (iii) behavior of credit functions (iv) outreach targeting, in order to evaluate whether (a) the Gram Vikas Model of SHGs is worth replicable, (b) it can be replicated fast in other villages.
CHAPTER 3
DESIGN OF THE STUDY
The choice of research method does have an influence on the inferences drawn from the analysis of data. This chapter describes the choice of the study area, selection of respondents, method of data collection and analysis of data and interpretation of results for drawing inferences.
Data
For the study, a field visit to the Bargarh district of Orissa was undertaken during April 2008. The data used for this report comes from the SHGs supported by Gram Vikas in randomly selected four villages (distant from one another) of Bargarh and one village in Ganjam District. The number of SHGs according to villages are: 3 in Talla, 4 in Dumalpalli, 3 in Babhinipalli, 2 in Patrapalli (all in Bargarh) and 3 in Kasei village (Ganjam). These SHGs have been formed and also are currently being supported by Gram Vikas. In addition to the SHGs helped by Gram Vikas in their formation, an SHG set up by a private micro finance institution was also studied.
The Study Area
The Bargarh District
Bargarh is one of the western most districts of the State of Orissa and came in to existence as a district from 1st April 1993. It is bounded on the north by the State of Chhatisgarh and on the east by the district of Sambalpur, on the south lies the district of Balangir and Subarnapur and on the west the district of Nawapara.
Bargarh district has two distinctly different kinds of scenario in the field of economic development. The area fed by Hirakud Dam Project has a fairly developed agricultural sector, which contributes for the development of other sectors also. The rainfed areas like Bhatli & Ambabhona Blocks of Bargarh Sub-Division are backward with traditional agriculture and lack of development of other sectors as well.
Agriculture is the most important economic activity in the district. Allied activities like dairy, poultry and goatery are also popular. Besides, there are potters, blacksmiths, construction workers etc.
Talla
A village in Bargarh district. It’s a village inhabited by Kaushali-speaking Adivasis, who still today take pride in the fact that freedom fighter Birendra Sahay made the hills surrounding the village his secret den in his fight against the colonial rule of British. They are very simple people with utterly simple ways of living, still languishing in abject poverty. For a living, every morning they climb up the hills to collect woods and bamboos so that they make some articles like tokri, brooms etc. to be sold in the nearby market called Shukuda. Whatever money it fetches, they have to survive on it, because they have no land to till.
Dumalpalli
A village, 6 KMs. south of Bhatli, mainly consisting of people belonging to Dumal caste. A few ST households are also there. Agriculture is the main occupation, while some are landless laborers. A few families are below the poverty line.
Babhinipalli
A village mainly consisting of upper-caste people belonging to the Brahmin caste. Agriculture is the main occupation. A few families are below the poverty line.
Patrapalli
A prosperous village with double cropland fed by Hirakud Dam. It is a big village (151 households) with sizable Adivasi population.
Data Collection Methodology
Focus group discussions were conducted at the end of the regular monthly meetings of the Village Women’s Committee, which is ultimately formed by all the women SHGs in a Gram Vikas village, with all the women present at the meeting. During the focus groups all group members were asked to discuss group dynamics (with a specific focus on their loan allocation system), their history of bank linkage, their reason of being in the SHG, and their assessment of the main benefits from being in the group. The groups were also asked a series of general questions on their saving and lending rules, the rules relating to penalty and fines, any emergency they faced and their contributions to community initiatives. Unstructured interviews with open-ended questions were also conducted with the presidents and secretaries of the SHGs, as well as with the Gram Vikas supervisor in the village. Finally, data on loans and savings, and member characteristics were gathered from the passbooks and internal records of each SHG.
Loan Register Data
In addition to the data collected through individual interviews and focus group discussions, information from the SHGs passbooks, member registers, loan registers, minute books and resolution books have been used for the analysis. Admission registers are filled in by members as they join the group and contain basic demographic information like age, caste and socio-economic conditions like if she belongs to a BPL family.
Loan registers record all of the savings and loan transactions for each member in an SHG. Each time a member takes a loan, makes a repayment or contributes to the group savings, the transaction is recorded in the loan register. This includes loans that are taken from the group’s common fund as well as loans received from the bank. The data that was extracted for analysis from the loan registers included loan amount, date of disbursement, rate of interest and the purpose of loan, loan term, date of repayment etc. The loan amount, rate of interest and the repayment dates and style were the critical pieces of data in this analysis.
CHAPTER 4
Socio-Economic Profile Of The Respondent SHG Members
This chapter provides an overview of the salient socio-economic characteristics of the SHG members covered under the study. The sample consisted of the members of 15 SHGs operating in five villages of Bargarh and one village of Ganjam.
1. Distribution pattern of the respondents
NABARD has stipulated that the SHG may have 12-20 members and the size should not cross 20 since that would warrant registration under the Societies Act. Besides, cohesion of the group may also get weakened and may go beyond management when the size is above 20.
The number of members in the SHGs covered under the study was between 12 and 20. The lowest membership of about 12 was observed in the Maa Saraswati SHG (named after an Hindu goddess) of Talla village in Bargarh district and also the highest membership of 20 was noted in the Karuneswar SHG of Patrapalli. Even though the number of members has not crossed 20, the SHGs helped by Gram Vikas are registered under Chapter XXI of the Societies Registration Act, 1860, so as to enable them to enter into financial contracts independently as a group in the future.
2. Age of the respondents
NABARD prescribed that individuals aged above 18 years and below 60 years could form an SHG. In the present study, an overwhelming majority of members belonged to the age group 21 to 50 years, which is the most productive period.
3. Marital status of the respondents
In the study, all were married, except a few widows in each village and a deserted woman in Dumalpalli, who was also the bread- winner of her family.
4. Religions followed by the respondents
Distribution of the members by their religious faith showed that 100% of them were Hindus. No member of the Christian or Muslim faith was found.
5. Community characteristics of the respondents
Members from all social groups were equally represented in the sample. Respondents in the Talla Village belonged to Scheduled tribes. In Dumalpalli and Patrapalli, they belonged to both, Scheduled tribes as well as Other Backward Class. In Brahiminipalli, they belonged to General category. In Kasei, the respondents were from OBC.
6. Educational status of the respondents
Though no specific educational qualification has been prescribed by the NABARD for those who wish to enroll themselves in an SHG, possession of education could help to acquire necessary technical skills and knowledge for empowerment and economic upliftment. The sample for the study consisted of an overwhelming number of illiterate members like in Talla, where no woman is literate. With the help of Gram Vikas supervisors, they have recently learned to write their signatures. In any village, only a few (not more than five) women members have passed their high school.
7. Occupational status of the respondents
Of the women SHGs, majority of them are housewives and engaged in non-wage earning activities like goat rearing, pisciculture in local ponds etc. They also help their husbands with their work in farmland. Some women members are also working as laborers and running dairy firms.
The male SHG has set up a brick Kiln based on Chinese Vertical Shaft Brick Kiln technology with the technological support from Gram Vikas.
8. Income of the respondents
Except in Talla, 97% of the respondents in a village are farmers. Others are landless laborers, or running dairy farm or brick kiln. In Talla, they don’t have any land to do agriculture, so they make bamboo articles like brooms etc.
In each village, a number of members belonged to BPL families. In Talla, the number of BPL members was the highest. However, in any SHG, only one member from a household was allowed.
9. Housing status of the respondents
One of the indicators of progress and development in the living conditions of villagers is the housing status of the population. Only 2% lived in concrete houses while about 70 % dwelled in tiled houses. About 28 % lived in huts.
10. Possession of consumer durables
Improvement in the socio-economic status is reflected by the consumer durables possessed. The study revealed that about 8 % of the sample possessed motorcycle while 95% possessed bi-cycle. A few households had televisions and refrigerators too.
CHAPTER 5
Savings, Loan Products And Microcredit To SHGs
An important dimension of the SHG bank linkage programme is the Financial linkages between savings and credit (in fixed ratios or in dynamic ratios of savings: credit which increases in repeat credit cycles). And, one cardinal rule of SHG bank linkage is savings first and credit later. The SHGs are first encouraged to make voluntary savings on a regular basis. The saving first concept enables the poor to gradually understand the importance of saving, appreciate the nuances of credit concept using their own money before seeking external support (credit) for fulfilling future needs. The poor tend to understand and respect the terms of credit better.
In this study, the supply and demand sides of credit access to credit timeliness and availability of credit as well as credit repayments were examined. The performance of the SHGs in terms of savings, internal lending to members, loan proposal appraisal activities, and economic activities undertaken by the groups was assessed.
Savings of the SHGs
The core strategy of SHG bank linkage lies in creating effective demand for credit by building financial discipline and prudence among the rural poor through giving them a chance to imbibe the essence of financial intermediation including prioritization of needs, setting terms and conditions, accounts keeping and timely repayments. Savings is the first activity taken by an SHG. They start as savers’ groups with regular fortnightly or monthly small savings targets. Each member of the group also continues to save a small and fixed amount after receiving the first bank loan.
The savings collection pattern was the same in all villages. They collected savings regularly in their monthly meetings.
How could the members of women SHG save?
They don’t save excess of their income over expenditure, because these women don’t have any income. These women just assist their husbands in their activities. So, they save their thrift. Every morning and evening, while cooking they would take out one fistful of rice, which when sold at the end of the month would be enough for them to afford the monthly saving amount that they have to deposit with the SHGs, which in turn deposits it at their bank.
All members in an SHG save an identical amount mutually decided by them, where they take into consideration each member’s capacity to save. The savings per member ranges between Rs. 10 to Rs. 20 monthly: the lowest being in Talla and the highest being in Bhabinipalli and Dumalpalli. In Dumalpalli, an amount equal to Rs. 2 was also collected in addition to their monthly savings to meet monthly expenses of the group.
Though the members of the SHGs start with fixed quantum of savings, it is necessary that the SHG members are motivated to increase their monthly savings for their socio-economic betterment and also for the sustainability of their SHGs through the microcredit programme. In the observations, members were not found keen on raising their saving level with time. In Talla, the members of the three SHGs in the village have been saving only ten rupees per month for the last seven years, while members in other villages have marginally raised their saving amount.
SHGs usually discouraged members who wanted to voluntarily contribute or save higher amounts with SHG - this was because of the fear that they may gain more influence in decision-making in the group, as also the added issues of bookkeeping getting more complex. They usually were asked to go to the Bank and to put their additional savings into an individual saving account.
It was also observed that the members, besides the compulsory savings that they have to deposit for the SHG to be eligible for credit from bank, didn’t make much voluntary savings, possibly because SHGs were not able to offer suitable savings product for their members.
Information on the amount of savings by the sample SHGs from the time of inception till the date of survey was collected. The overall savings of the SHGs was Rs 11,423 in Talla and Rs 18,328 in Bhabinipalli.
Interest Rates
The bank charged reportedly an interest rate of 9 % to 12.5 % for microcredit extended to the SHGs. The interest rate charged by the SHGs, except in an SHG in Dumalpalli, for internal circulation of loan amount ranged from 16% to 36 % per annum depending upon the intended use of the loan and it goes to SHG’s savings. In any case, the interest rate charged was found lower than the rate charged by local moneylenders. The interest charged by SHG is intended to be used towards meeting the group’s expenses like traveling to and from the bank etc. The saving, if any, builds the corpus of the group to be used at a later time for a good or common cause on a consensus basis.
In an SHG in Dumalpalli, the members have equally divided the loan amount extended to them by the bank, which they use independently for different kinds of small-scale economic activities like goat rearing, pisciculture etc. On the loan equally divided among members, SHGs charge the same rate as the bank charged. For emergency internal lending, they use their group savings deposited in the bank. Here they charge differential rates for different intended uses, which are generally higher than the banker’s rate of interest.
Penalty for delayed payment
SHGs also levy fines and penalties for delay in payments or not adhering to the rules. The penalty money is included in the SHG corpus. Separate account for the delayed payments is not maintained by the SHGs.
Internal lending
The members take internal loan for different purposes from the pool of group savings and the group loan extended by a bank. The decision on who gets the loan is being taken by the group and not by the Bank staff. Members request loans during the group meetings and issue the loans during the group meeting (or beyond at ad hoc meetings in case of an individual emergency requirement). The SHG, after estimating the individuals loan requirement and the purpose of requirement by the member, passes a resolution, withdraws the amount from the bank and distributes it to the member.
Utilization of the microcredit by the SHGs has completely eradicated usurious transaction from the villages. Even the poorest members in Talla affirmed that they don’t go to any private moneylenders any more. The members are able to take easy loans from their own savings for their usual expenses as well as at time of emergencies at low rate of interest compared to that of moneylenders and loan sharks. The SHG has promoted unity among the members in giving preference to those members who are urgently in need of loans. According to the SHG members, they experience no conflict or problem in deciding upon whose loan proposal should be sanctioned or rejected, because they know internally the urgency and the need of the loan of all the applicants.
It was observed that no SHGs allowed its members to repay in installments thereby allowing them the benefits of reduced interest on subsequent diminishing balances while releasing more money for further lending to other members, because of perceived increased burden on accounts keeping. It was also found that some SHGs also give loans to non-members at a higher interest rate than what they charge their members.
They do credit rationing by applying differential rates for different purposes. For example, interest charged on loans taken for health or education purpose is less than that is charged on the loan taken to meet some expenses on festivals.
The average loan outstanding per SHG was Rs. 4,309 in Talla, and Rs. 6,375 in Kasei village.
Repayment of microcredit
In the study, all the SHGs have reported 100 % repayment. SHGs don’t want to take loan from the bank, if they are not sure of their repayment ability, as it happened in Talla. Each of the three SHGs in the village, who are 7 years’ old, has saved between Rs 8000 and Rs. 9000 with their banks, and the banks are also willing to extend the credit; still the SHGs have decided not to take the loans, as they are not sure if they can repay a bigger sum than they are dealing with now.
Dividends\Interest on Savings to members
No SHG reported paying interest on the savings or dividends from the interests earned. They retain their earnings as equity capital leading to enhancement of the capital stock for lending continuously.
Microcredit supply
In the villages of Bargarh, microcredit activities are carried out largely by the Utkal Gramya Bank and the Sambalpur District Co-operative Central Bank Ltd. The microcredit provided to the sample SHGs were to the tune of Rs. 120,000 per SHG. Some SHGs also have got subsidies from the bank, like in Bhabinipalli. The average loan outstanding of the sample SHGs was Rs 50,335 in Dumalpalli and Rs. 177,000 in Patrapalli.
Microcredit utilization pattern
The internal loan amount as well as bank loan credit are used for various purposes by the members. Utilization pattern of loan amount by the SHGs in Dumalpalli and Talla shows that majority of the loan is used to meet household expenses towards health needs or social events like marriages etc. In Bhabinipalli and Patrapalli, majority of the loans were found being invested in the improvement of their occupation, for buying goats or investing in pisciculture. In both villages, SHGs have set up dairy firms, where they collect milk from the villagers every morning and evening to be sold to OMFED, thereby fetching them better money. The pattern of loan utilization showed that poor villages start with investments in unproductive purposes, while a slightly well off villages can afford to invest in income generation activities.
CHAPTER 6
Impacts Of The Microcredit Programme
The good beginning in microcredit through SHGs made way back in 1994 with MYRDA has come a long way and now appears to be poised for not only rural development but also socio-economic upliftment of the unreached poor through SHGs. The microcredit program launched in the early nineties ushered in a silent revolution for the empowerment of women. It has helped the women to organize themselves in collective endeavor and generate income. The benefits received in terms of rescue from indebtedness to moneylenders, and employment and income, inter alia, generated in the SHG-Saving credit linkage programme led to the following changes in the lives of the beneficiary village women.
Change in social ‘Status’ and ‘Role’
A. Increase in participation in outdoor activities: SHG members are actively managing their SHG activities. Membership attendance in their regular meeting is phenomenally high. About 97 % of the SHG members participated in the regular meetings where family problems regarding finance, health and hygiene, children education, economic activities and women empowerment and so on are discussed. The SHGs has created space and opportunity for the marginalized and disempowered women to share a platform with men in equal terms. Before joining SHG, the women confessed they had never ventured out and ever talked to stranger men.
B. Increase in participation in decision-making: With money at their disposal, they have more say in domestic decisions as well as community decisions. Their opinions are now sought by their family and the community. The SHGs have emerged as the origin of demand factors mobilizing community action and assisting the community towards action. In all the sample villages, each household has 24*7 running water in their kitchens, and concrete bathrooms and toilets, in a surrounding where open defecation is still an accepted practice. Through SHG, women have got visibility, communication channel, training, expertise and ethnic solidarity empowering them to push their families to have sanitation facilities so that their privacy and dignity is restored.
C. Increase in right on income: Since the women members of the SHGs and the SHGs itself have taken to many economic activities like running dairy firms, goat rearing, pisciculture, tailoring, masonry etc, they have more disposable income in their hands making their households recognize their increasing right on income. There are increasing numbers of instances when the women SHGs spend upto Rs. 1000 to hire trucks etc. to assemble at a centrally located place in order to observe together Women’s day on March 8 every year.
D. Positive change in the general attitude and behavior of the husbands and other family members towards the women: The women SHGs have taken on themselves many community responsibilities like ensuring inoculations of all children in the village in coordination with government health workers, sustaining hygiene awareness and proper upkeep of the water supply and sanitation systems, ensuring that all kids go to school and the schools are functioning et al. In many instances, they stopped liquor merchants from selling liquor to the villagers. They have also staged demonstrations in front of government authorities to demand for roads and other public utilities. This has resulted in positive perception of their husbands and families towards the capability of women SHGs and members. This is also reflected in better behavior of husbands towards wives.
E. Improved personality: It has been observed that the SHG members have gained self confidence and certain changes have occurred in the personality of the women members and they have developed new attributes which were higher to latent (or) curtailed under social orthodoxy and prevailing practices. Interpersonal communication skills among the fisherwomen have been brought out quite clearly during the course of study. Improved communication skills amongst SHG members have been observed throughout the villages selected for the study. The members of the SHG are able to communicate effectively adapting to the requirements of the situation, time and place. For instance, almost all the members of the group take turns in visiting the bank to conduct banking transactions in respect of their group activities.
Social awareness among respondents
A. Participation in Development Programmes: In the various development programmes run by government and NGOs in the field of health care, family welfare, eradication of child labor and publicity for development programmes like Swajaldhara, the SHG members are increasingly being relied upon for the purposes of information, education and communication (IEC). They are assisting the development administrators in the better implementation of various interventions designed for their improvement and up-keep, like they are creating awareness among people to stop open defecation etc.
B. Awareness regarding rights among respondents (social, legal, political): With the help of SHGs, an increasing number of village-to-village, women-to-women and community-to-community contacts and exchanges has been made possible. The women have become more aware about their rights through the SHGs, which is also the communication channel for different NGOs at the grassroots level. This is reflected in the women’s decision to protest against lack of proper roads and frequent electricity outages et al.
Moreover, as a result of the participation of women in the SHGs, they have come to know about the various schemes being implemented by the Government, especially for the welfare of poor such as NREGS, various subsidies and loans etc. Their awareness has improved remarkably and they are able to advise and guide eligible neighbors in availing the government assistance programs.
The SHG movement has also created awareness about the importance of women in the family as well as in the society, and their role in eradicating the obnoxious and inhumane practice of female foeticide and infanticide is remarkable.
Impact on Educational Status
Education plays an important role in moulding an individual’s life and its main aim is to provide better, richer, peaceful and purposeful life. Educational status of the fisherwomen in terms of their attitudinal change to various issues is considerably positive. SHG activities have brought about positive changes in the attitudes and behavior of the women, who are now sending all their girl kids to schools, which is a remarkable paradigm shift for the villagers. The literacy level of the individual member has shown improvement in as much as they are signing documents instead of fixing thumb impression, as was the case in the past. The women are themselves maintaining the entire mandatory registers like resolutions book, minutes register etc. They now don’t make mistakes in calculating interest and maintaining accounts of cash, savings and loans.
Impact on social control of the villages
One of the important achievements of the SHGs is their emergence as a new and alternate model of dispute settlement and conflict resolution. This development has emerged as an effective instrument for social control in society. Due to presence of SHGs in the villages, it emerged that there appears to have been considerable degree of reduction in the incidences of conflict among the villagers as well as in the domestic violence in the households. The SHG movement has fostered unity among the villagers. The tool of SHG has provided bargaining power to the women in protecting their interests as a collective mechanism both at the family and community levels.
Economic Impact
1. Enables increased propensity to save: Poor people can save. Deposits provide a highly valued service to these poor women who seldom have reliable places to store their money or the possibility to earn returns on savings. SHG-Bank Linkage programme stipulates that SHG members must start a fixed regular saving before they become eligible for loan from bank. The compulsory savings are useful to demonstrate the value of savings practices to borrowers. Now, the women, who previously didn’t save anything, have been saving since last five or seven years when they formed their SHGs.
2. Permits enhanced net incremental incomes: With gradual delivery of increasing credit in the successive steps, the women have been able to gradually scale up their operations, thereby enabling them to reap the benefits of synergy and economies of scale. For example, it takes the same time for the members to take the animals to fields to graze, whether the number of the animals is two or five.
3. Smoothens income inequalities: SHGs do help in smoothening the income inequality by enabling the women from the poor households to engage in small economic activities like tailoring, masonry, animal rearing etc. SHG-Banking has allowed the poor households to stabilize their irregular income flow and consumption pattern.
4. Assists reduction of indebtedness to moneylenders and freedom from bondages: In the entire sample SHGs, no member reported taking any loan from local moneylenders. They have been rescued from the exploitative clutches of the local moneylenders.
5. Enables additional employment (person days) generation: Women’s collective effort in SHGs prevents loss of any person days’ employment, as not everyone is required to go to banks to deposit savings and loan repayment amounts. Moreover, the economic initiatives undertaken by the SHG, like the dairy firm run by them, generates further employment for many people. Moreover, in some villages, the SHGs have won the contract to provide the government sponsored mid-day meals in nearby schools adding to their income.
Reasons for the success of SHGs in Gram Vikas villages
The study covered 10 women SHGs in the district of Bargarh. In all the villages, moneylenders have been driven out and the members are engaged in various economic activities. In the study, I found the following reasons for the success of women SHGs:
• Members from the same neighborhood
• Members with the same socio-economic background
• Small groups (not more than 20 members)
• Close interaction and bonhomie among the members
• Unity and collective efforts in their aims (or) goals.
• Focus first on savings, not the credit (as reflected in Talla SHGs’ decision not to go for credit so far)
• Participation in outdoor activities, social and cultural functions, etc.
• Eradication of ‘usurious’ transaction in their villages
• Greater awareness about useful skills and various government programmes
• Awareness about family health, nutrition, etc.
• Information sharing and motivation
• Changed attitude for better living as reflected in their demand for sanitation facilities
• Emphasis on psychological empowerment and awareness generation
• Ability to solve community problems
• Improved leadership skills
• Financial independence
• Personality development
• Greater participation in family decision making
• Better access to education
Constraints:
The SHGs have constraints too.
Lack of entrepreneurship
In many instances, the banks are willing to extend the loan, but SHGs are not ready to take it, just because they don’t know where to use it safely and profitable. Unless it is sorted out, fisherwomen would not be able to enlarge their economic activities, which does not augur well in the long run as it would adversely affect the very sustainability of the SHGs. Moreover, if all the members of SHGs continue to invest in the same type of activity, like tailoring etc., they will have diminishing rates of return.
CHAPTER 7
Conclusion
The formal Banking System in India has accepted the challenge of incorporating microfinance into their business policy. The linkage banking approach of providing financial services to unbanked poor now touches 1/6th of rural poor in India. Gram Vikas so far has set up 1445 SHGs in Orissa covering 393 habitations with cumulative savings of Rs.17,114,862 and outstanding external loan of Rs.30,867,791.
Banking by the people
The SHGs are not “used” by banks to channel a bulk loan to several poor people in a “singlesize- fits-all” kind of methodology with all members benefiting equally: same loan product, same duration, same repayment installments, designed to be operated mechanically and easily by the Bank. This was the predominant retail delivery system at the start up phase of rural credit delivery.
As credit needs of the poor are determined in a complex socio-economic milieu, where the dividing line between credit for 'consumption' and 'productive' purposes is rather blurred, it is difficult to adopt the traditional banking approach to lending and to insist that loans are not used for consumption. Therefore, full autonomy is given to them by the Bank to decide, to which member a loan is given and how to make it best fit for them (“tailor made”) in terms of purpose, amount, duration, size of installments, interest rates etc. The decision on who gets the loan is being taken by the group and not by the Bank staff. It also appears that the vast majority of rural SHGs invest the loan amounts in a mix of consumption and productive purposes.
In SHG-Banking, the central assumption underlying this banking by the people is: the firm belief that the SHGs of the poor are reliable partners in handling bank funds, they are much more creative in allocating the loan fund among their members than any outside agency because they know the character and capacity of every person very intimately and they will always pay back their loans.
What seems to be ensuring repayment in SHGs?
The default rate in case of SHGs is very low in comparison to other forms of rural lending, as, for instance, India has had problems with credit co-operatives. There are some unique features, which distinguish small, homogenous and informal SHGs from large, heterogeneous and formal co-operatives although both are founded on the principles of cooperation. It has been observed that the repayment rate tends to be lower in large groups as the magnitude of the free rider problem and the propensity to default are high in heterogeneous groups. In the study, different factors were observed contributing to high repayment rate of SHGs.
A. Since the groups’ own accumulated savings were also part and parcel of the aggregate loans on lent by the groups to their members, there was a peer pressure ensuring timely repayments.
B. The lending through SHG functions on the principle of joint liability lending, whereby the whole group is responsible for the loan repayment. If one individual doesn’t repay her loan, the financial institution stops lending to all the members. So, the bank loans are given against group dynamics, which ensures timely repayments. SHG is a social design in which people participate by making themselves socially and economically accountable to each other.
C. It is important to note that peer sympathy co-exists with peer pressure. Both are integral parts of group dynamics in SHGs. Besides pecuniary and earning effect through SHGs credit and saving provisions, non-pecuniary effect through mutual support and institutional arrangement in group and outside, as reflected in their ability to cope with unexpected shocks, leads to a reduction in their perceived risk and an enhancement in their perceived future earnings, making them more confident and willing to timely repay the loans.
D. The success of the SHG lies in its potential to overcome the information asymmetries, which have traditionally made lending to the poor difficult. Because members belong to the same community and socio-economic background, they can observe each other’s types (i.e. their tendency to be either reckless or cautious in their investment behavior) and safe debtors can group together, thereby overcoming the adverse selection problem, which typically leads to only risky types being provided credit.
E. The group responsibility for loan repayments also mitigates the ex ante moral hazard which exists when members with limited liability (no collateral) have an incentive to choose too risky projects because they won’t bear the full cost of the failure – other members knowing their access to credit is at stake will scrutinize the feasibility of projects undertaken.
F. Also, the strategic default on debts by hiding the real returns to investment (ex post moral hazard) is made difficult by the geographical and social proximity of members who can observe each other’s financial situation and threaten both economic and social sanctions on would be free-riders.
G. The striking feature is that, in the overwhelming majority of cases, SHGs are composed entirely of women. There is widespread evidence that female customers have higher repayment rates, though the reasons for this could not be completely understood (women may have fewer alternate credit options for example, and they may be more vulnerable to the shame of noncompliance).
SHGs as Clients--Not Beneficiaries
The poor are now considered bankable as they do save and hence are treated as clients and not merely as beneficiaries as the business has become viable and seems to hold enormous potential. In the study, corruption was not reported and transparency of transactions with SHG is assured. SHGs as clients facilitate wider outreach at lower transaction costs and much lower risk costs. According to NABARD, the participating Banks experienced so far low additional operational cost and marginal loan losses. When banks extend credit to SHGs, (1) the transaction cost for the bank is minimized because the group takes decision to borrow on behalf of the members with the responsibility to repay; (2) the transaction cost of the individual member is reduced because the member transacts at the group level; (3) the mismatch between the demand and supply is reduced as the banks lend to SHGs because they provide credit in lump sum and the group uses the amount according to its own needs; also, repayment pattern of members of the groups and of the group to the bank need not be the same.
Savings Mobilization
A financial system is more than a set of channels for disbursing loans. Banks should not only be seen as a credit disbursement mechanism but also as financial intermediators, which attract more savings and stimulate internal banking by SHGs from internal and external bank sources to meet short term financial requirements of their members.
NABARD deserves credit and appreciation for having chosen “savings ” linked microcredit strategy, which is one of the important reasons for the sustainability of the programme. The concept of saving first has a much more decisive impact than anything else for the sustainability of SHGs. Saving is the initial source of loanable fund. By transforming their savings plus the loan from the bank into interest bearing loans, the SHGs have augmented their resources with retained earnings.
Though the propensity to save has increased with bank access, unfortunately the uniform contractual saving product with the same amount saved by everybody does not fully mobilize the existing saving potential of the SHG members with the possibility of some having the ability and latent willingness to contribute much more. Saving mobilization is so far only an instrument for making the group bankable as soon as possible. There is actually no incentive for the members to save and deposit more with their SHGs. It has been observed, members of some SHGs have been saving the same amount for the last seven years.
Village Economy Stimulants
The SHG-system is evolving as an effective people’s banking nucleus, which allocates money into the economy of the poor with the purpose of stimulating a self-reliant, indigenous developments tapping the manifold skills that poor already possess. They are in fact a small collective organization guarding against individual economic and societal risks for promoting economic ventures individually or jointly. Income generating activities undertaken by the SHGs studied are mostly in agriculture and horticulture, livestock rearing (poultry, goats, cows), leaf plate making, broom binding and others.
Presence and Participation are Not the Same Things
The SHG is an organizational framework, where the members participate willingly--but some not always very regular or maybe only adhoc. In the study, it was observed that not all the members, even though present there, were equally involved in the group meeting discussions, not all of them exactly understood the SHGs relation with the bank, not everyone knows the nuances of interest calculations and repayments. In the study, it was found that most SHGs were highly dependent on a few particular members who were more educated and better placed socially. The possibility of the SHG defaulting, poor fund management and accounting, poor self evaluation leading to SHGs breaking apart etc. can only be countered by intensive supervision of the SHGs and by a monitoring and evaluation system that gives early warning signals. Monitoring/evaluation of SHGs still leaves room for improvements. Internal checks and control of the SHG-loan portfolio and a dual control by an outside agency (NGO, Government or SHG-Apex body) may become necessary.
Possibility of leakage in Poverty-Focused Programs to The Non-Poor
Normally being a BPL household is not a condition for entry into SHGs, and SHG-promoting NGOs do not normally take the trouble (and cost) of identifying on the ground in the villages, who is BPL and who is not. In the study, it was found that subsidies were given to SHGs, where BPL members are less than half of the total SHG members. If so, a huge amount of effort and funds, made and allocated in the name of the poor, are not reaching them. The SHG-Bank Linkage programme is open to considerable leakage of funds and subsidies meant for the poor, to the non-poor.
Feminization of Microfinance
SHG-Banking is predominantly women oriented. Of the total number of SHGs financed by banks so far 90% are exclusive women groups. It would be befitting to say that the linkage banking has contributed to the feminization of microfinance banking in India. However, at the same time, performance of male SHGs and the problems in their formation and running remain matters of concern.
Banks’ Microfinance Services at Lower Cost Than MFIs
When established formal banking institution can extend loans to SHGs at 9% to 12.5% p.a., MFIs are charging at 24% to 36% p.a. It is debatable that the poor will ever have a rate of earning of 24% to afford to pay such interest on loans taken. There is a danger of loans being taken from one MFI for repayment of old loans to another MFI and loan cascading with constant increase of amount of indebtedness per family and SHG.
Formal banking institutions are better placed to provide microcredit to the poor at a lower cost. Most MFIs established by private initiatives have high institution building costs in the beginning. When microfinance through SHG-Banking is taken up as an additional new business proposition in the existing Banking System, there is a substantial institutional cost advantage as compared to the establishment of highly specialized new MFIs as:
A. No additional basic institutional build-up cost until break-even are required;
B. Excellent human capital already existing in banks and professional banking know how available can be additionally used. Only marginal additional training is required to handle a MF-portfolio and to work with SHG clients. On the other hand, new mFIs have to spend a big amount of money to recruit, to train and to put new bank staff in a bank position. Most of them are very young and inexperienced; there is a high drop out rate among these youngsters.
C. Clients and SHGs prefer to put their savings into a formal bank;
Therefore, the existing banking system and NABARD can always offer the services for introduction of Linkage Banking at cheaper rates.
SHG Formation, Sustainability & Outreach
SHG-lending is organization-based. To increase the number of SHGs who start to make voluntary thrift on a regular basis is the most essential strategic variable in the Linkage Banking system.
SHGs are initially formed on the foundation of the accumulated endowment of bonding social capital already existing in the community. Self-help groups acquire strength and power not merely through plans or programs but through a process of continued functioning, close interaction, concerted unity and collective efforts in accomplishing certain tasks and by achieving goals. The practice of savings, distribution of short credits, their utilization for emergency / consumption or productive purposes alone do not generate the required solidarity and strength for an empowered status. The core strengths of an SHG are:
A. Sensitization of the groups to social realities
B. Determination of the groups to take up social issues
C. Courage to defy discriminating gender biased social order
D. Ability to overcome conflicts
E. Ability to engage in collective economic and social pursuits
The success of microcredit lies primarily with the social intermediation carried out by the NGOs. Without this social intermediation, it would have been very difficult to ensure the sustainability of SHGs and phenomenal repayment rates recorded for microcredit in the country. This had been made possible by specialized social capacity building initiatives by NGOs, which led to the identification and use of peer guarantee mechanisms for the prompt repayment of microcredit availed by the SHGs.
SHG design allows for flexibility and focuses on internal capability development, so it may take SHPI a long time for penetration. While commercial banks today are interested in microfinance they do not have the expertise to enter the business directly. The core competency of a banker is finance and not SHG formation. Organizing them and ensuring financial discipline from these people is a lot of hard work. Even if the SHG formed is for the limited purpose of fund rotation, substantial effort has to be made to form SHGs. Considerable work goes into teaching them how to keep accounts, process transactions and design systems to make the intervention last. Further, SHGs formed only for receiving external funds may not be sustainable.
The first noticeable point about SHGs organized with bank or MFI support is that they may represent a different quality as compared to NGO backed SHGs. SHG-Bankers--besides assisting in group formation—do not undertake many more interacting functions besides offering saving and credit services to carefully selected SHGs, may be because of extreme time constraints, cost considerations and lack of personal interest.
SHG-Linkage models involving NGOs as facilitator may perform better as compared to SHG-Banking as a result of direct linkages between banks and SHGs, because of better and more integrated quality services rendered to groups. In comparison with NGO-SHGs, the Bank-SHG relationship does not carry additional social development oriented tasks to be implemented by the SHG (introducing house-toilets, family planning, eradication of drinking habits, scholarships for orphans or young girls etc., for which the “group approach” is in vogue today in India). Some of these additional activities are done in NGO supported SHGs with a broader development agenda.
The bank staff tend to implement a simpler SHG-formation concept and are not so much concerned, if the established linkages are self-sustaining or not. It is even worse in case of MFIs, where they can set up SHGs even in just three days provided the members have a few copies of their photo and ration cards. They mobilized SHG-members and assisted in forming groups that do not necessarily represent the poorest of the poor in the villages.
The process of formation of SHG by NGOs is very slow. Take the case of Gram Vikas. Though it has done a commendable job and the SHGs formed are highly active and sustainable, it has been able to cover so far only 393 habitations in Orissa. It was observed during the study that majority of the villages have still not taken to the concept of forming SHGs. There is a lack of a sufficient number of appropriate social intermediaries to promote SHGs. For the SHG movement to take momentum in Bargarh, many NGOs have to be enlisted with a focus to develop self-help groups. NGOs are also required to establish village-to-village, SHG-to-SHG, and member-to-member contacts and exchange mechanism to spread the SHG revolution.
CHAPTER 8
Recommendations
With the introduction of “SHG-Banking” a highly flexible financial service structure has been made available to poor households, which allowed them to stabilize their irregular income flow and to increase their income in most cases. The SHG-System allows members to maintain a more regular financial flow in support of the family and of the microenterprise operated by the family.
SHG-Banking looks as an escape from well established banking practices, which required written contracts with individuals, a clearly defined activity for loan use, which has been exclusively one-purpose oriented, required legal character of the borrower, collateral, etc. When it comes to banking with the poor, the most rigid requirements of the formal banking system have been overthrown; SHG-Banking cannot be described in the usual frame of credit policies and bank management.
SHG-Banking in India is constructive in the sense that the bank partner or SHPI, even after loans being issued, participates in the formation of a new social and economic environment by the SHG members by paying visits to SHGs or by participating at their group meetings from time to time, though not regularly. The success of SHG-Bank linkage has been made possible by drawing on a wide array of institutional resources as India’s social capital as well as its human capital.
Sustainability and Outreach of the Microcredit Programme in India
In order to sustain the sustainability and improve the outreach of the SHG-bank linkage programme, the following policy interventions are suggested:
A. Promote In-kind Savings
Most of the savings of the rural poor are not in the form of cash. They save in the form of grains, woods etc. It is very necessary to also explore the possibilities of monetising the savings-in-kind on the line of grain banks set up in Kalahandi, orissa, with the help of NABARD. In the grain bank, members of SHGs can save both in cash and kind depending on the convenience. Loans also can be provided either in cash or in the form of grains. Participating bank (in this case an RRB) consider the grain stock also to arrive at the loan eligibility of the SHGs. It enables the poor to save in kind, raise resources against such savings and provide access to self-managed, participative food security systems.
B. Micro-insurance
NABARD has long been implementing only microcredit programme which lays predominant, if not the entire emphasis, on credit delivery in small doses to the SHGs. Instead the microcredit should be an integrated programme and credit provision should be one of the pillars of the overall development strategy. At present, there is no single comprehensive micro-insurance policy for the SHGs. In the case of insurance, however, demand is usually weak; but objectively the need is strong.
The unexpected death of a wife and mother, leaving a debt to a bank that may not be repayable if she was the income-earner, usually pushes an uninsured household deeper into poverty. The death of a large farm animal purchased with loan funds not only deprives an uninsured household of the expected means of repayment of the loan, but also can deprive it of access to credit in future, if it is unable to repay the loan. Provision of insurance cover would help to make the microcredit programme viable and sustainable in the long run. Life and large livestock insurance are needed so as not to burden survivors with debt, and to be able to cope with the death of a large farm animal purchased with loan funds.
Insurance products also promote the attainment of institutional financial break-even and sustainability; but indirectly through promoting loan portfolio quality. Insurance on the life of borrowers and large farm animals makes loan recovery possible at times when it could be quite difficult or impossible otherwise. Other things being equal this would tend to maximize loan repayment rates and to reduce any gap between expected and actual yield on portfolio.
NABARD needs to take initiative not only in making available such a comprehensive microinsurance to the SHGs but also in making it mandatory for availing the microcredit. The annual premium for the policy announced by the Finance Minister is Rs.100. When the SHGs are linked with MFIs and avail the first loan, then, they should also be provided with microinsurance.
While the practical attitude of most poor women toward insurance (that they don’t benefit from it even if they die) is understandable, given their chronic shortage of surplus income to pay for it, continuing education by banks/NGO/SHPIs is necessary to open their minds.
C. SHGs Among the Poor Exclusively
The SHG-Bank linkage is performing a social development function by providing financial services to SHGs of poorest families exclusively and preparing them to undertake their own neighborhood development initiatives.
It is generally found that not all the members of an SHG are necessarily poor. NABARD leaves the identification of the poor to its cooperating local partners and the people themselves. As the manifestation of poverty is too variegated in India, agencies involved in social mobilization of the poor do face problems in targeting the real poor.
If we are to ensure that the SHG-Bank Linkage programme provides access to microfinance services to significant numbers of the poor, the poorest households must be cost-effectively identified on the ground in their villages, and SHGs should be formed among them alone. Some standardized approaches such as the housing index could be developed for identifying the poor.
D. SHG Evaluation
Monitoring/evaluation of SHGs still leaves room for improvements. NABARD and NGOs should developed instruments for proper rating of SHGs - for self-evaluation of the organisational strength and the participative discipline of the members, which the groups or the bank partner could use for evaluation. More use should be made of the instrument for credit appraisal, assessing capacity building needs etc and to ensure that corrective actions are undertaken in case the rating instrument shows increasing tensions in the group.
E. Avoiding diminishing Returns from Microenterprise Investments
In rural areas with already existing and good performing SHG groups, one can observe a constant addition of new SHGs. But with limited know-how and alternatives available for investment within the village economy, diminishing returns from consecutive disbursements of loans for additional investments in existing micro-enterprises for income generating may become unavoidable.
In this respect, strategies to maintain and establish new innovative business opportunities for SHG-members may become essential in the near future and banks may have to play a more active role in it (organizing up-and downstream contractual arrangements with established enterprises, supporting the organization for on the job skill training of SHG members etc).
F. Bank Staff
New staff could be added to those branches, which have high SHG-Banking portfolio. More female loan officers and group organizers should be included and a regular quality control or regular reporting of SHGs to the bank can be considered.
G. Let SHGs Not Become Instruments of Government Agencies
Self Help instead of government spoon feeding, autonomy instead of constant bureaucratic intervention, flexibility and spontaneity are the determining factors for success of SHG-bank linkage. Therefore the SHG system should not be utilized as instruments of government agencies to implement development schemes of the Government.
H. Don’t Encourage Federation Of SHGs
In some blocks, SHGs form their federations, who get the bulk loan from the bank to be ultimately distributed among the SHGs. In this case, there is no direct link between the SHGs and the bank. It might have the same fate as the cooperatives had in India.
The success of SHG is in the homogeneity of its members. While, because of the heterogeneity and bureaucracy, the federations may be hijacked by the less poor, the landowners and by allied political interests.
I. A Watchdog for the SHGs
Among the factors that may impair the sustainability of the SHG movement, the most threatening is the political factor. In case a government chooses to use SHGs for its own political gain, then all the progress achieved so far would be lost for ever. Now what has made the programme a grand success is the right attitude and mind set that the credit to the SHG is a loan and should be repaid anyway, the earlier the better in the very own interest of the SHG and its members. However, if the SHGs become vehicles of publicity for a government, more so during election time, then, no one could prevent the SHG members being swayed by the incorrect yet emotional assurances that, microcredit availed will be written off by even grassroot level politicians.
NABARD has to work for the establishment of an independent watchdog with legal status for this purpose. Such a move will send right signals to all those who may envisage exploiting SHGs to serve their vested interests.
J. Let SHG-Bank Linkage Be Demand-Driven
NABARD has been aggressively promoting the SHG-Bank linkage concept and has set ambitious targets linking SHGs with banks. However, in the Indian context, the target-oriented approach has its own pitfalls as the quality aspects often get ignored in the race to achieve targets.
The process of group building is extremely important in this entire exercise of linkage. Hence, it is important that it should evolve as a natural and logical outcome of the felt need of the people. Groups should, therefore, evolve as a felt need and not be thrust upon the people to achieve targets. The facilitators, whether NGOs or governmental agencies, should keep this in mind while mobilizing the people in this direction.
The success of SHG-Banking lies in the fact that the deficiencies of the previous Government directed credit programmes, which were mostly supply driven as reflected in Loan Melas etc, have not been transferred into the SHG Bank Linkage Programme approach. SHG-Banking is purely demand driven; it is not supply driven. It first creates the effective demand (willingness and ability to pay) for credit by inculcating the financial discipline in SHG members.
K. Social Intermediation
The success of microcredit lies primarily with the social intermediation carried out by the NGOs. The NGOs can play a leading role in this regard as they are directly in touch with the people at the grassroots. But, they also incur high cost in forming the groups, starting with awareness creation before the group starts to enter into a bank relationship to the follow-up cost of serving the group regularly at their meetings in the villages.
Recognizing the core competence of the non-governmental agencies in formation and nurturing of good quality SHGs, banks with help from NABARD has to involve an increasing number of NGO partners to take up the function of Self Help Promoting Institutions (SHPIs). More NGOs should be sanctioned promotional grant assistance for promotion and linkage of SHGs.
Posts
