Self Help Groups - The Next Stage

Transcription

1 RESERVE BANK OF INDIA COLLEGE OF AGRICULTURAL BANKING UNIVERSITY ROAD, PUNE Self Help Groups - The Next Stage The policy assumptions for reaching the rural poor in developing countries have led to establishment of formal and specialised supply-oriented rural financial institutions, with donor support, on many occasions. It is now well documented that the rural financial institutions have not been effective enough in delivering the policy objective (Adams. Graham and Von Pischke 1982: Von Pischke and Rouse 1983). The inability of the rural financial institutions has led to search for alternative modes of delivering credit. The popular alternative that emerged as part of the searching process was the informal group approach which came to be known as Self-help Groups (SHGs) with emphasis on savings mobilization, followed by credit. 2. A review of the working of SHG's innovative approaches to saving mobilization and lending has, under APRACA auspices, contributed to establishing and developing links between SHGs and the formal rural financial system with a view to supplementing the resource base of SHGs as well as improving the outreach. 3. The experiment launched in India by NABARD in 1992 regarding linking SHGs with the banking system is now more than 14 year old. The pilot stage continued upto In 1996 the RBI issued circular making the SHG-Bank Linkage programme a main-stream activity for expanding outreach and promoting inclusion of the disadvantaged into the formal financial system. During the experimentation stage, i.e. upto March 1995, 2122 SHGs had been covered under the linkage programme. Loans sanctioned by the banks in favour of the SHGs aggregated to Rs lakhs against which NABARD provided refinance amounting to Rs lakhs. 16 commercial banks and 12 RRBs were involved in the linkage project. A major proportion of SHGs linked under the programme has been in the States of Karnataka, Kerala, Orissa, Andhra Pradesh and Tamil Nadu. Some of the important findings from a few quick studies and impressionistic assessments on the linkage programme show that - i) There was variation in the characteristics of SHGs in respect of formation, size of the group, intra-group and inter-group relationships.

2 2 ii) The members of SHGs generally belonged to the poorer sections of the rural society with most groups having been formed exclusively for poor women. iii) The level of savings shows wide variations both across groups within a State as well as across the States. iv) The loaning by group to members was flexible and different norms prevailed amongst different groups such as fixed loan ceilings, differentiated by purpose, resource availability etc. v) Financing has been done by the groups for a wide variety of micro enterprises in addition to meeting consumption needs. vi) In respect of repayment, the consideration was the total income derived by a family of the member from all sources and fixing as shorter a period for repayment as possible which has invariably been than being given by the banks. vii) Some NGOs retained some margin while they onlent to SHGs while a few other NGOs took no margin. viii) Repayment performance has been almost bordering on 100% of demand. ix) The income per member had increased substantially alongwith social cohesiveness in addition to eliminating dependence on moneylenders and crating community assets. 4. A similar study done on the project 'Linking Banks and SHGs in Indonesia' (PHBK) started in 1988 as a pilot project also shows encouraging results (Eckert Koch and Sri Mulyentini Soetijibto. 1993). While the Indian study referred to above does not, surprisingly, indicate the extent of savings mobilised by the 2122 SHGs, the Indonesian Study indicates that more than 700 groups had deposited savings of around 1 billion Indonesian rupee. The pilot phase covered the period One of the significant observations was that more than 2/3rd of the groups have been in existence for more than 5 years with an average size of 79 members. The average repayment rate stood at 92%. Other findings of the study were : (i) approximately 40% of the direct loan recipients were women; (ii) agriculture was the major source of income for 52% of the group members followed by trade (29%) and industry / handicraft (11%) ; (iii) the major common factor for the cohesiveness of group was the same living area (85%); other factors included social activities (43%), economic

3 3 activity (42%); (iv) 86% of all SHGs mobilised internal savings before they received PHBK loans; (v) average effective rate of interest was 48% p.a.; (vi) average repayment period was 10 month; (vii) cases of arrears in loan repayment from member to SHG were existing in almost two-thirds of SHGs; (viii) 33% of SHGs had collection rate of 100%; (ix) joint liability in various forms was practised by 46% of the groups. The post-experimentation stage achieved substantial growth in the programme as revealed in the following table: SHG-BANK LINKAGE PROGRAMME PERFORMANCE AS ON 31 MARCH 2006 Sl.No. Particulars Cumulative as on 31 MARCH No. of SHGs linked 2,238, % of women groups No. of participating banks 545 i. Commercial Banks 47 ii. Regional Rural Banks 158 iii. Co-operative Banks Bank Branches participating 44, No. of States/UTs No. of districts covered No. of Partners Bank Loan Rs. in billion Refinance Rs. in billion No. of poor households assisted (in million) Average Loan/SHG Rs. 50, Model Wise Linkage (Cumulative)(%) i. SHGs formed and financed by Banks 20 ii. SHGs formed by other agencies but directly 74 financed by banks iii. SHGs financed by banks using financial intermediaries 6 The pilot programme has developed into an comprecedented movement. It has evolved as the most promising tool for social and financial inclusion. Subsequent studies also confirm the conclusions of earlier studies. Some of the findings of the recent studies are given below :

4 4 5. The findings of NABARD as well as the Indonesia study indicate that access to the rural poor through the SHG route is very encouraging. The SHG mode of delivery has also been successful in terms of financial self sustainability (Jacob Yaron, 1994) on the parameters of (a) positive on lending interest rates (b) high rate of loan collection (c) high effective savings (deposit) rates containing administrative costs through efficient procedures. However, in respect of the other equally important measure viz. outreach, in terms of value and number of loans extended, savings accounts, type of financial services offered; percentage of total rural population served and participation of women, the performance of SHGs has been noteworthy in respect of serving the rural women only. Amidst the euphoria of success, same criticisms and issues have also surfaced. The per capita loan outstanding has remained low (below Rs.4000) in most cases. Though the linkage programme is showing signs of growth in hitherto deficit northern and north eastern states, the predominance continues in the southern states. There are no visible signs of major improvement in economic activities, being taken up by every 5 to 7 year old groups. Some studies have also suggested that the groups tend to become single caste groups in the name of homogeneity and expulsion of defaulting members are noticed so as to maintain the image of high repayments. There are also criticisms that some bankers, under pressure to achieve linkage targets, promise the availability of credit at the time of formation of groups. It is important to closely look at these criticisms, as the quality of the groups and adherence to basic concepts are fundamental to the success of the largest microfinance led social and financial inclusion initiative in the world. The Next Stage 6. The question that arises at this point relates to the next stage of the development of SHG viz. sustainability of the existing groups in addition to expanding the outreach in terms of area as well as members. While considering these issues, the limits to informal financial intermediation should also be kept in mind. The limitations include increasing default risks, the limited number of people capable of making large contributions and the preference of these people for wider and more

5 5 flexible range of services offered by the formal banking system (Garry Christensen, 1993). 7. In the States where SHGs have established their presence (AP, Karnataka, Orissa, Tamil Nadu, Kerala) several measures as outlined below can be considered for expanding and sustaining them : (a) Improving resource base As the SHGs mature and become competent lenders, mobilisation of resources on a larger scale than before becomes necessary. For the purpose, they may have to go beyond loan resources being made available at present. At this stage, for mature SHGs, keeping in view the track record, it can be considered whether market oriented savings instruments can be offered by SHGs to the public i.e. non-members. The entity that can accept deposits can be SHG itself or federation of SHGs or the NGO itself. A case in point is the example of Prodem, a voluntary organisation in Bolivia, which has been taking initiatives in setting up a micro enterprises bank, Banco Sol, while enabling the SHG system to accept deposits. With the savings mobilisation from public added to SHGs, it would be noted that SHG would be graduating towards full financial intermediation and infusing real competition within rural credit system. The existing regulatory framework in such an event needs to be suitably restructured for creating a favourable policy environment for further development of SHGs. Study in Malawi (Chipeta and Mkandwire, 1989) reports that savings and deposits mobilised by an urban SHG at high real rates of interest are profitably re-lent to members. (b) Operational "takeover" Enhance the ability of existing SHGs to "takeover" the Primary Agricultural Credit Societies (PACS) operating in their vicinity. This is particularly so against the fact that majority of the PACS are dormant. Given the fact that SHG is the informal face of co-operatives, albeit on a lesser scale, this proposition needs to be experimented. The rebuilding of the credit cooperative structure has been witness to many experiments that have not yielded results. The raison d'etre of SHGs is co-operative thrift. A model has been suggested towards redesigning the credit co-operative structure (Tushaar Shah, 1995) in which the concepts of member centrality of goals, patronage cohesiveness, governance effectiveness and operative credit structure are

6 6 emphasised for the success of the cooperative credit structures. The SHG scores very high on all the 4 parameters. A concrete starting point, for example, can be identification of PACS under which one or two villages are being covered. The members of SHGs functioning in these villages can join the PACS as its members and effectively try to take over the management. Here the question of numerical weightage may come up in terms of the existing members of PACS who may out-number the members of SHGs. In such an event, the only impact SHG members could have on the management of PACS is to create an effective pressure group within the PACS. In another scenario, where the SHG members out-number the existing members of PACS, the management can effectively be taken over by the SHGs. The third scenario which may be representative in the overall Indian context may be PACS having become dormant by virtue of large scale defaulting members, the members of SHGs can act as social pressure groups for the purpose of ensuring repayment of the outstandings by the defaulting members and try to revive the PACS. The experimentation that has been done over the decades in rural financial intermediation has been limited to creating new institutions with lending in focus which have turned out to be failures. While considering the next stage in SHG development, such pitfalls of earlier experimentations have to be avoided. The objective is infusing the spirit of normal rural financial intermediation being done by SHGs into the PACS by adopting synergy approach i.e. grouping the SHGs within the operational area of the PACS for the purpose of its operational takeover. The reforms in cooperative law as indicated in the Brahma Prakash Model Cooperative Law and also the efforts of some of the State governments going even beyond the model bill in granting autonomy to the cooperative credit movement (for example, Andhra Pradesh) would auger well for such integration of SHG with the formal grassroot organisations. While doing so, the original spirit of SHGs viz. homogeneity, limited number of members, democratic spirit, etc. have to remain undisturbed. (C) Reverse the linkage At present SHGs are linked to banks for supplementing resources while the banks have externalised some of their functions onto SHG. This can be formalised and

7 7 improved upon by SHGs performing "agency activities" on behalf of the branch in clearly specified geographical area, say one or two villages within the Service Area of a branch. Deposit mobilisation and lending could be done by SHG on behalf of the branch; with only monitoring responsibility remaining with the bank. The role of Commercial Banks and RRBs in this respect, assisted by NABARD and RBI, may include surrendering gradually the functions being performed at the branch to the SHG or Federation of SHGs with monitoring being done from the branch/ head office of the RRB/ Regional Office of the Commercial Bank. 8. In areas where NGOs have not been able to create SHGs or where SHGs on their own have not been in existence or NGOs are not in existence, branches of commercial banks, RRBs and cooperatives have to take initiative under the "direct linkage model". Another alternative is to deformalise co-operative credit system at the grassroot level. Not withstanding the present winds of change sweeping, the economic scenario whereunder the role of the State is expected to be reduced substantially, there is need at this stage for developmental intervention by the formal governance systems at the State level to take initiative towards propagating the concept of SHGs through various media that are available to it. For the purpose, there is need on the part of NABARD to energise the State Governments by way of exposure to top level political and nonpolitical decision makers about the impact of SHGs in areas where the development is at an advanced stage. Thus, NABARD has to play the role of an extension agent for the purpose of ensuring crystallization and expansion of impulses generated by the SHGs movement. A caveat would be in order here. It is to be clearly understood by the State Governments and all other stake holders that the basic conceptual foundation viz. volunteerism, homogeneity, spontaneity, size, first priority to savings and democratic spirit of the SHGs cannot be violated under any circumstances. Originally prepared by K Kaladhar, Member of Faculty, Updated by C P Mohan, Member of Faculty, CAB