1

“IMPACT OF SELF HELP GROUP –BANK LINKAGE PROGRAMME AND ITS ROLE ON THE UPLIFTMENT OF THE

POOR “(Special Reference to Raigad District, Maharashtra State)

Thesis Submitted to the Padmashree Dr. D. Y .Patil University, Department of Business Management

in partial fulfillment of the requirements for the award of the Degree of

DOCTOR OF PHILOSOPHYin

BUSINESS MANAGEMENT

Submitted by

M. PRASADA RAO(Enrollment No: DYP- PHD- 066100018)

Research Guide

Dr. R. GOPALDIRECTOR, DEAN & HEAD OF THE DEPARTMENT

PADMASHREE DR. D.Y. PATIL UNIVERSITYDEPARTMENT OF BUSINESS MANAGEMENT

Sector 4, Plot No. 10, C.B.D Belapur, Navi Mumbai – 400 614

June 2010

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“IMPACT OF SELF HELP GROUP – BANK LINKAGE PROGRAMME AND ITS ROLE ON THE UPLIFTMENT OF THE

POOR “(Special Reference to Raigad District, Maharashtra State)

3

DECLARATION

I hereby declare that the thesis entitled IMPACT OF SELF HELP

GROUP –BANK LINKAGE PROGRAMME AND ITS ROLE ON THE

UPLIFTMENTOF THE POOR (Special Reference to Raigad District,

Maharashtra State) submitted for the Award of Doctor of Philosophy in

Business Management at the Padmashree Dr. D.Y. Patil University

Department of Business Management is my original work and the thesis has

not formed the basis for the award of any degree, associate ship, fellowship or

any other similar titles.

Place: Belapur

Date: June 2010

Signature of the Signature of the . Signature of the Guide Head of the Department. Student

4

CERTIFICATE

This is to certify that the thesis entitled “IMPACT OF SELF HELP

GROUP –BANK LINKAGE PROGRAMME AND ITS ROLE ON THE

UPLIFTMENT OF THE POOR (Special Reference to Raigad District,

Maharashtra State) submitted by Mr. M. PRASADARAO is a bonafide

research work for the award of the Doctor of Philosophy in Business

Management at the Padmashree Dr. D. Y. Patil University Department of

Business Management in partial fulfillment of the requirements for the award

of the Degree of Doctor of Philosophy in Business Management and that the

thesis has not formed the basis for the award previously of any degree,

diploma, associate ship, fellowship or any other similar title of any University or

Institution. Also certified that the thesis represents an independent work on the

part of the candidate.

Place:Date:

Signature of the Head of the department Signature of the Guide

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ACKNOWLEDGEMENT

In the first place, I am indebted to the Padmashree Dr. D.Y. Patil

University Department of Business Management, which has accepted me for

Doctorate program and provided me with an excellent opportunity to carry out

the present research project. “IMPACT OF SELF HELP GROUP –BANK

LINKAGE PROGRAMME AND ITS ROLE ON THE UPLIFTMENT OF THE

POOR (Special Reference to Raigad District, Maharashtra State.)

I would like to express my gratitude to my guide Dr. R.Gopal whose

decisive and insightful comments, suggestions and guidance improved the

quality of this study and whose careful mentoring and wisdom has been my

constant source of inspiration, encouragement and support. I would also like

to thank to Dr. Satyasai, NABARD, Zonal Manager & Manager’s of Bank of

India branches, Union Bank of India, Shri. L.S.Upadhyay, Director of the

KJSB Co-operative Bank, Prof. B.N.Lad Sydenham College and Academy

Development Sciences, thanks to my friends Dr. Neetin Desai, Dr.

Sakharam and special thanks to my wife without whose support, the thesis

would not have been completed.

Place:

Date: Signature of the student

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CONTENTS

CHAPTER NO.

TITLE PAGE NO.

List of Tables VII

List of Graphs IX

List of Abbreviations XII

EXECUTIVE SUMMARY XIV

Chapter -1 Introduction

1.1. Microfinance & Self Help Group Bank Linkage

Program

1

1.2 The Concept of Self Help Group 4

1.3 Progress Microfinance in India 25

1.4. SBLP in Andhrapradesh & Maharashtra 27

1.5 Importance of the Study 30

Chapter – 2 Review of the Literature 32

Chapter – 3 Statement of the Problem and objective of the study 68

Chapter – 4 Research Methodology and Limitations of the study 73

Chapter – 5 Microfinance and SHG Linkage

5.1 Origin of Microfinance in India 78

5.2 Progress of Microfinance in India 83

5.3 Microfinance through SHG Bank Linkage 91

5.4 Advantages of Microfinance through SHG 93

5.5 Disadvantages of Microfinance 95

5.6 Rejuvenating Rural Credit 96

Chapter – 6 Self Help Group Bank Linkage in AP

6.1 Genesis of SBLP 103

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6.2 Progress of SBLP 109

6.3 Factors for the SBLP success 112

6.4 Performance of SBLP 121

6.5 Evolution of SHG Federations 123

Chapter- 7 SBLP in Maharashtra

7.1 Microcredit in Maharashtra 129

7.2 SBLP in Maharashtra 132

7.3 Economy of Karjat Taluka 136

7.4 Importance of SBLP in Karjat 140

7.5 Functions of SHGs in Karjat 146

7.6 Impact of SHG on empowerment of the poor in

Karjat

153

Chapter - 8 Paradigm shift of Microfinance 156

Chapter - 9 Data Analysis, Interpretation and Findings 170

Chapter-10 Conclusion 215

Chapter-11 Recommendations 231

Chapter-12 Annexure

I) Cases

II) Bibliography

III) Map (Talukas & Villages of Raigad &

Karjat)

IV) Questionnaire

VI) Government Orders related to SHG credit

VII) SPSS findings

245

252

260

264

265

269

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LIST OF TABLES

Table No. Title Page.No

1.1 Interest rates in SHG-Bank Linkage Program 10

1.2 Comparison of SBLP with other Microfinance models 11

2.2 Pattern of Partnership 41

2.3 Geographical spread of SHG activity 41

4.1 Sample designs of SHGs 75

5.1 SHGs credit linkage(cumulative progress) 83

5.2 Performance Indicators of MFIs 88

5.3 Progress in Credit Linked SHGs 93

6.1 Progress of SBLP of Andhra Bank 116

7.1 SHGs linked status from 2005-08 142

8.1 Comparison of SHGs Vs MFI models

8.1.A. Regulation Design

8.2 Demand

8.3 Supply

8.4 Intermediation

8.5 Regulation

165

165

165

166

166

166

9.1 List of Participants Gender 171

9.2 Age distribution of individual participated in the study 173

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9.16 Income of SHG members before after analysis 196

9.16.1 Rotated Component Matrix according to the change in income capacity; Income before and after joining SHG (Annexure-vii)

269

9.17 Analysis of Active and Inactive SHGs/Members) 197

9.17.1 Factor analysis of Eigen Values (Annexure-vii) 270

9.3. Participant Literacy frequency value and cumulative percentage

175

9.3.1. Gender distribution according to their literacy status 175

9.4 Frequency distribution of no. of family members 177

9.5.3 Frequency distribution of the number of families

supporting their children’s education

179

9.6 List of No. of individuals as per the profession 183

9.7 Distribution according to supporting agency/source of

information

184

9.8 Distribution table according to the availing loan

purpose

185

9.9 Individual status according to position they holding in

SHGs

186

9.10 List of SHGs as per the no. of members 187

9.11 List of SHGs as per their age of existing 187

9.12 Distribution of SHG promoters 188

9.13 Distribution of SHG members (Repayment) 190

9.14 List of SHGs as per the frequency of having the

money economic/entrepreneurial activity

191

9.15 Chi-square analysis of NGO dependency 193

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LIST OF GRAPHS

Figure No.

Title Page No.

4.1A Research Design 73

5.1A Cumulative no. of SHGs linked to Banks 84

9.1 List of Participants Gender 172

9.2 Age distribution of individual participated in the study 174

9.3 Literacy percentage of individual participated in the

study

175

9.3A Gender distribution according to their literacy status 175

9.4 Frequency distribution of no.of family members 177

9.5 Frequency distribution of the number of families

supporting their children’s education

182

9.6 No.of individuals as per the profession 183

9.7 Distribution according to supporting agency/source of

information

184

9.8 Distribution table according to the availing loan

purpose

185

9.9 Individual status according to position they holding in 186

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SHGs

9.10 List of SHGs as per the no. of members 187

9.11 List of SHGs as per their age of existing 188

9.12 List of the supporting agencies of SHGs 189

9.13 Ratio of the individuals as per repayment 191

9.14 List of SHGs as per the frequency of economic

/entrepreneurial activity

192

9.15 Active and Inactive SHG Members 194

9.16 Mean of Before and after participation in SHG 196

11.1 Proposed SHG Operational Model 242

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LIST OF ABBREVIATIONS

AIAMED: India Association for Micro Enterprise Development

ADB: Development Bank

ADS: Academy of Development Sciences

AP: Andhrapradesh

APMAS: Andhrapradesh Mahila Abhivruidhi Sangham

BOI: Bank of India

BPL: Below Poverty Line

CMG: Credit Management Group

DDO: District Development Officer

DLM: District Lead Bank

DRDA: District Rural Development Agency DWDA: District

Women

Development Agency

DWCRA: Development of Women and Children in Rural Areas

DYPDBM: Padmashree Dr.D.Y.Patil University Department of

Business Management

HDI: Human Development Index

KCC: Kisan Credit Card

IFAD: International Fund for Agriculture Development

MAVIM: Maharashtra Arthik Vikas Mahamandal

MFI: Microfinance Institution

MYRDA: Mysore Resettlement and Development Agency

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NABARD: National Bank for Agriculture and Rural Development

NGO: Non Governmental Organization

PACS: Primary Agricultural Credit Societies

PRADAN: Professional Assistance for Development Action

RBI: Reserve Bank of India

RRB: Regional Rural Bank

SBLP: Self Help Group Bank Linkage Program

SHG: Self Help Group

SHPI: SHG promoting Institution

SCBs: State Cooperative Banks

SEWA: Self-Employed Women’s Association

SHARE: Society for Helping Awakening Rural Poor through

Education

SGSY: Swarnajayanti Grameen Swarozgar Yojana

UBI: Union Bank of India

APRACA: Asian and Pacific Regional Agricultural Credit Association

ARDC: Agriculture Refinance Development Corporation

BASIX: A MFI Group

CEO: Chief Executive Officer

CFSF: Credit & Financial Services Fund

CFTS: Casphor Financial & Technical Services

DCCBs: District Central Co-operative Banks

DDM: District Development Manager

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DLM: District Lead Bank Manager

DHAN: Development of Human Action Foundation

FAO: Food & Agriculture Organization

FWWB: Friends of Women’s World Banking

GTZ: German Technical Cooperation

HDFC: Housing Development Finance Corporation

MYRADA: Mysore Resettlement & Development Agency

MFDF: Micro Finance Development Fund

NABARD: National Bank For Agriculture and Rural Development

NGO: Non Governmental Organization

PACS: Primary Agricultural Co-operative Society

PRADAN: Professional Assistance for Development Action

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EXECUTIVE SUMMARY

In the 10th Five Year Plan document, Dimensions and Strategies

(volume I) the need for reaching out to the informal sector through innovative

means has been rightly emphasized. The lack luster performance of the

banking sector in this regard has been criticized as, “The banking system must

be encouraged to reach out to the enterprises in the informal sector through

innovative means. This is effectively what is intended by the various targets

specified for priority sector lending by commercial banks. However, priority

sector lending has created a culture of mechanical lending in public sector

banks, in which there is little effort at credit appraisal of lendings made to

priority sectors”

According to the Census 2001, only 4.16 crore households out of 13.83

crore households in rural India are reported to have availed banking services.

With all efforts made by banks and Self Help Groups (SHGs), only 30 percent

of rural households are linked to the banking sector. Over 9.67 crore of rural

households - inferentially a vast majority of them are dependent on farming –

are yet to be reached by banks. Among them 5.59 crore households are the

deprived lot, who do not own any of the assets listed in the Census

enumerations. They deserve immediate attention of the institutions involved in

purveying microfinance.

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National Bank for Agricultural and Rural Development (NABARD)

initiated the "SHG - Bank Linkage Programme" in 1992 as a pilot project and

mainstreamed in 1996. The objective of the program is to enable formal

banking services to provide financial services to the rural poor through the

process of savings and credit linkage of Self Help Groups. This scheme has

made tremendous progress in the recent years. As on March 2006, banks

have cumulatively linked 22.38 lakh groups and disbursed loans of Rs.

11,397.55 crore. The trend in disbursement of bank loans to SHGs since

inception is presented in Introduction.

Today commercial banks with more than 32,000 rural branches have

the largest share (50%) credit linked SHGs followed by RRBs (38%) through

their 11,900 branches. More than 3,000 NGOs and other development

agencies joined the programme primarily as promoters of SHGs or capacity

building agencies. The Central Govt.'s initiative to employ the concept of Self

Help Groups in their poverty alleviation programmes has gone a long way in

rooting the idea in extremely backward areas.

The financing to SHGs is a unique contribution to methods of

development intervention for social and economic change that relies on

peoples’ own resources and gradually supplements its resources from the

banking system. It builds on the collective decision making, capacity of people

and utilizes such a capacity for all round development of the people and the

area. The evaluation studies conducted show that SHGs have made positive

social and economic impact on the lives of poor men and women. Banks have

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found in SHGs a reliable credit delivery mechanism which is cost– effective.

Concerned, as they are, with the imperative need for avoiding Non Performing

Assets, lending through SHGs is accepted as a safer means of reaching out to

the poor, especially in rural areas. The phenomenal expansion of the

programme in the last 4 to 5 years, has thrown many challenges as follows:

System for monitoring of SHGs

Capacity building of SHG members

Regional Imbalances

SHG lending and agriculture

Livelihood promotion among members of SHGs

The pressure for achieving targets

Poor survival rate of the groups, after the project loan is sanctioned

During the last few years, there has been an increase in the number of

Micro Finance Institutions (MFIs) in India, promoted by banks, NGOs and

individuals. Their exact number is not authenticated by any official publication.

Some of them have played a very positive role in extending micro credit in

certain regions. In some states, a few of them have come under cloud for

using coercive methods to recover their dues, leading to what is termed as

micro-credit deaths.

NABARD had formulated a model Kisan Credit Card scheme in

consultation with major banks and the banks were advised to introduce the

scheme in their area of operation by RBI in August 1998. The KCC scheme

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aims at provision of adequate and timely credit to the farmers for their

cultivation needs in a flexible and cost effective manner.

Self-help groups (SHG), also known as mutual help, mutual aid, or

support groups, are groups of people who provide mutual support for each

other. In a self-help group, the members share a common problem, often a

common disease or addiction. Their mutual goal is to help each other to deal

with, if possible to heal or to recover from, this problem.

NABARD is presently operating three models of linkage of banks with

SHGs and NGOs:

Model – 1: In this model, the bank itself acts as a Self Help Group Promoting

Institution (SHPI).

Model – 2: In this model, groups are formed by NGOs (in most of the cases)

or by government agencies. The groups are nurtured and trained by these

agencies.

Model – 3: Banks only funding agencies and others like NGO and volunteers

are acting like mentoring and monitoring agencies.

Microcredit program initiated in the 1980s is an ‘ideal’ poverty

alleviation program for women. The program is based on the principle of

activating self-help among women and is considered as means of social &

economical empowering. Till the late 70s India was a ‘developmental state’,

which believed in taking up a proactive role in shaping the path of its

development. The decades of the 1980s and 1990s emerged as a period

which defined a minimalist role of the state. The microcredit has not only

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become an important poverty alleviation program worldwide but it is also

considered as a magic bullet for women’s empowerment 47. The genesis of

this program starts with a small experiment started in Bangladesh by

Mohammad Yunus, now famously known as the “Grameen Model”. This

model is now being promoted by International development and financing

agencies such as the Consultative Group against Poverty.

Empowerment alleviates the status of human being in the family and

society. Development alone cannot bring prosperity unless social justice and

gender equality are ensured. The one of the most essential features of

development is the transformation of society, which embraces the movement

from traditional relations, social norms, and traditional ways of health care,

education and traditional methods of production to more modern ones. All

societies present a blend of the old (traditional) and the new (modern).

However, change from old to new is not an end in itself, but only a means to

achieve the end. The changes associated with development provide societies

as well as the individuals more control and influence over their own destiny.

Development enriches the lives of individuals by widening horizons of the

choices and freedoms and at the same time by reducing their sense of

isolation. Hence, the development strategy must be aimed at facilitating the

transformation of society in identifying the potential catalysts and barriers to

change.

This has resulted in the formation of a large number of self help

groups in the country, which mobilize savings and recycle the resources

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generated among the members. SHG’s are necessary to overcome

exploitation, create confidence for the economic self-reliance of the rural poor,

particularly among women who are mostly invisible in the social structure.

The SHG’s became a regular component of the Indian financial system since

1996. The SHG’s are small, informal and homogenous groups.

Strategic Policy Initiatives:

Some of the most recent strategic policy initiatives in the area of

Microfinance taken by the government and regulatory bodies in India are:

Working group on credit to the poor through SHGs, NGOs, NABARD,

1995

The National Microfinance Taskforce, 1999

Working Group on Financial Flows to the Informal Sector (set up by

PMO), 2002

Microfinance Development and Equity Fund, NABARD, 2005

Working group on Financing NBFCs by Banks- RBI

• Currently, there are a large number of organizations promoting SHG in

India; some of them are NABARD, SIDBI, SEWA, MYRADA, ADITHI,

PRADAN, WWF and SKS etc.

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• The SHG’s maintain their account in banks and operate jointly. The

frequency of bank transaction is mainly once a month.

The main Objective of the study was:

i. the socio-economic profile of the SHGs and their members;

ii. the quality of SHGs;

iii. the quality and extent of financial services to members and issues

in and perceptions around SHG bank linkage; and

iv. the impact of bank-linkage on SHGs.

1. Sample: The sample for this study was 400 SHGs, spread over one district

Visakhapatnam from Andhra Pradesh and two districts Thane & Raigad

from Maharashtra. Both these districts were linked to around 20

banks/cooperatives - commercial banks.

Default Rate, Credit Experience and Transaction Cost

The major problem crippling the SHG based rural credit system in other

districts of Maharashtra35 is the default on account of loans received from

various financial institutions. This has become a major matter of concern and

has been adversely affecting the functioning of various lending institutions.

Repayment of loan is an essential condition for the better health of rural credit

delivery system.

The patterns of default rate of credit revealed a decrease in the same

with the increase in size of landholding. The rate of default stood at 80 per

cent for landless households borrowing loans from informal sources and

12.5% for marginal farmers borrowing loans from SHGs. The other categories

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of farmers did not show default on account of loans received by them.

Although the present investigation did not provide much insight into default

rates, this aspect needs to be further investigated with much larger sample

size.

As regards experiences of borrowers with various lending institutions, it

was found to be the association of marginal, small, medium and large

categories with banks stood at an average of 4.5 years, respectively. The

marginal farmers had shortest association not only with informal lenders but

also with SHGs. Even landless, medium and large categories showed shorter

association with informal lenders. One of the plausible reasons for landless

and marginal categories showing higher rate of default could be traced in

shorter association of these categories with informal lenders and SHGs.

Though NABARD is infusing financial resources through banks, the lack

of response from major public sector banks and low awareness of cooperative

banks in Karjat taluka effecting the spread and growth of SHG culture. The

exceptional performance of SHGs in AP is associated with heavy

predominance of the government promoted groups. Whatever the programs

launched are been implemented by local bodies of government agencies like

panchayats, SGSYs, similarly Gadchiroli, Chandrapur districts of Maharashtra

where the close association with AP border played an important effectiveness

of SHG culture, but mainly indirect role through training and advocacy,

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This study assumes that NABARD plans modestly to reduce the rate of

growth, in order to achieve but not to go far beyond the 2012 three million

SHG target. This will require the continued use of all the types of SHPI which

are presently being used, including the newly introduced, which yet to enter

Raigad and Thane districts and big way:

It was found there some prospective steps which helped Andhra Bank

in to achieve the highest success in AP:

i. Individual ‘volunteers’ scheme,

ii. Bank correspondence

iii. Mobile Banking

iv. Entrepreneurship workshop

v. Involving retired bankers, teachers to adopt nearest villages to

educate the rural people to attain self sufficiency (as the microcredit

started it journey Chittagong University, Bangladesh, the academic

institution role cannot be ignored.

vi. Otherwise it is unlikely that NGO SHPIs will maintain the rate of

growth which they have achieved in the past.

The study is an investigation of the implications of scaling up process

on the poverty alleviation mission through SHG Bank Linkage Program. First,

the study establishes the presence of significant scaling up process at the

SHG organization. Then, the study uses a multi-dimensional framework to

explore the implications of this scaling up process on its poverty alleviation

mission. The extent of scaling up is determined in four main domains

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(coverage, activities, strategy and organizational sustainability) and the

implications on poverty alleviation mission in three domains (depth of

outreach, quality of outreach and scope of outreach)16, as suggested by the

literature.

Paradigm Shift in Microfinance: A Perspective from SBLP

The changing phenomena of SBLP was discussed in Chapter 8,

analyzes SBLP's role in the development of sustainable microfinance. The

study is about the history of an idea, that the massive demand for

microfinance in developing countries can be supplied by sustainable

institutions providing financial services commercially, that these services can

have important effects on social and economic and development. This has

now been well demonstrated on a large scale. We discuss here SBLP's role

in the formulation of the initial hypotheses and SBLP's contributions in

planning and coordinating the underlying research, advising on the policies

and implementation strategies that put concept into practice, analyzing the

results, and disseminating the findings. Drawing on work in Visakhapatnam,

Gadchiroli and Thane, the study understand the paradigm shift in SBLP

supported by government schemes and NGO supported to sustainable

financial intermediation. This shift has occurred because of the work of many

forces in many places differently. This study, however, is limited to SBLP's

contribution. The policy implications of the 'new microfinance' for governments,

donors, banks, and NGOs are explored.

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CHAPTER-1

INTRODUCTION

MICROFINANCE AND SELF HELP GROUP – BANK LINKAGE PROGRAM

Microfinance Definition: In India, Microfinance has been defined by “The

National Microfinance Taskforce, 1999” as “provision of thrift, credit and other

financial services and products of very small amounts to the poor in rural,

semi-urban or urban areas for enabling them to raise their income levels and

improve living standards

Strategic Policy Initiatives: Some of the most recent strategic policy in the

area of Microfinance taken by the government and regulatory bodies in India

are:

Working group on credit to the poor through SHGs, NGOs, NABARD,

1995

The National Microfinance Taskforce, 1999

Working Group on Financial Flows to the Informal Sector (set up by

PMO), 2002

Microfinance Development and Equity Fund, NABARD, 2005

Working group on Financing NBFCs by Banks- RBI

26

Activities in Microfinance

Microcredit: It is a small amount of money loaned to a client by a bank or

other institution. Microcredit can be offered, often without collateral, to an

individual or through group lending4.

Micro savings: These are deposit services that allow one to save small

amounts of money for future use. Often without minimum balance

requirements, these savings accounts allow households to save in order to

meet unexpected expenses and plan for future expenses.

Micro insurance: It is a system by which people, businesses and other

organizations make a payment to share risk. Access to insurance enables

entrepreneurs to concentrate more on developing their businesses while

mitigating other risks affecting property, health or the ability to work.

Remittances: Compared with other sources of capital that can fluctuate

depending on the political or economic climate, remittances are a relatively

steady source of funds.

• The major organizations, which promoted SHG’s in the country are

NABARD, SIDBI, SEWA, MYRADA, ADITHI, PRADAN, WWF, CDF, India etc.

There are a number of NGO’s and voluntary organizations, which are actively

27

engaged in promoting SHG’s and micro-finance through it. Swa-Shakti and

Swayam Sidha are the two important projects aimed at socio-economic

empowerment of women through promoting SHG’s, bank linkages and

development of income generating activities.

Self Help Group at Universal context: Self-help groups (SHG), also known

as mutual help, mutual aid, or support groups, are groups of people who

provide mutual support for each other. In a self-help group, the members

share a common problem, often a common disease or addiction. Their mutual

goal is to help each other to deal with, if possible to heal or to recover from,

this problem. While Michael K. Bartalos has pointed out the contradictory

nature of the terms “self-help” and “support,” C. Everett Koop has said that

self-help brings together two central but disparate themes of American culture,

individualism and cooperation103.

In traditional society, family and friends provided social support. In

modern industrial society, however, family and community ties are often

disrupted due to mobility and other social changes. Thus, people often choose

to join with others who share mutual interests and concerns. In 1992, almost

one in three Americans reported involvement in a support group; more than

half of these were Bible study groups. Of those not involved in a self-help

group at the time, more than 10 percent reported past involvement, while

another 10 percent desired future involvement. It has been estimated that

there are at least 500,000 to 750,000 groups with 10 million to 15 million

28

participants in the United States and that more than thirty self-help centers and

information clearinghouses have been established7.

1.2 The concept of self help group:

Experience in many countries demonstrates that poor women make

investments wisely and earn returns (Human Resource Development, 1995).

However, the flow of financial assistance to them was too marginal, if at all, to

enable them to cross the poverty line. The need to create a grassroots

organizational base to enable women to come together, to analyze their issues

and problems themselves, and to fulfill their needs was strongly advocated. In

fact, experience shows that some of the successful ‘group-based participatory

programmers’ have made significant improvement in the conditions of living

poor women. The concept of self-help groups gained significance, especially

after 1976 when Prof. Mohammed Yunus of Bangladesh began experimenting

with micro-credit and women SHGs. The strategy made a quiet revolution in

Bangladesh in poverty eradication ‘by empowering the poor women’108. SHGs

are small informal associations created for the purpose of enabling members

to reap economic benefit out of mutual help, solidarity, and joint responsibility.

The benefits include mobilization of savings and credit facilities and pursuit of

group enterprise activities. The group-based approach not only enables the

poor to accumulate capital by way of small savings but also helps them to get

access to formal credit facilities. These groups by way of joint liability enable

the poor to overcome the problem of collateral security and thus free them

29

from the clutches of moneylenders. The joint liability not only improves group

members’ accessibility to credit, but also creates mechanisms like peer

monitoring leading to better loan recoveries92.

Self-help groups are comprised of people who share the same problem,

life situation or Crisis. Members provide emotional support to one another;

learn new ways to cope, discover strategies for improving their condition, and

help others while helping themselves. People find in self help group’s

individuals much like themselves who are able to share pragmatic, experience

tested insights gained from first-hand experience with the same situation.

Objectives of SHG:

To sensitize women of target area for the need of SHG and its

relevance in their empowerment process.

To create group feeling among women.

To enhance the confidence and capabilities of women.

To develop collective decision making among women.

To encourage habit of saving among women and facilitate the

accumulation of their own capital resource base.

To motivate women taking up social responsibilities particularly related

to women development.

Self Help Group Bank Linkage Program (Indian Context): SBLP is a new

age banking that aims at providing financial services to the poor by linking

30

them to formal financial institutions through the mechanism of Self Help Group

(SHG). An SHG is a purely democratic small informal group of up to twenty

members working on the basis of principles like ‘self help’ and ‘joint liability’ to

obtain access to financial services from formal agencies for economic

activities.

Why Groups: Individually, a poor person feels exposed to all kinds of

hazards. Group membership gives him/her a feeling of protection. Individually

a person tends to be uncertain in his/her behavior. But group membership

helps him/her to collectively work out and follow operational & behavioral

norms in regard to the economic activity creates group support, group

pressure and smoothens out behavior patterns and makes her/him as a more

reliable borrower. Subtle, and at times not so subtle, peer pressure keeps the

group members in line with the broader objectives of the credit program.2 a

sense of inter-group and intra-group competition helps everyone try to be an

achiever. It is difficult for the banker to keep track of individual borrower; but if

he/she is a member of a group, it is much less difficult. Also, shifting the task

of initial supervision to the group itself establishes a culture of collective

monitoring of activities, reduces the work of the banker and increases self-

reliance of the group.

The group dynamics works in SHGs as the group itself approves the

loan request of each member and in the process it feels morally responsible

for the loans. So, if any member of the group ever gets into trouble, the group

usually comes forward to help her/him out.

31

Conditions: The applicants other than family members forming a group of

people, should be like-minded persons and have similar economic and social

status. Loans are of course given to the individuals. Although put a system

of interlocking responsibilities in place, each borrower is individually

responsible for his or her loan. If the borrowing group forms itself through

mutual negotiations rather than being formed by external entities. It increases

the solidarity and the strength of the group. As the loan amount and

repayment installment are so small, the borrower does not feel the pressure of

paying the loan amount at one time or in larger installments. If a member of

the group fails to repay the loan the other members help him/her to repay it by

helping in the business.

SHG Management: Soon after group formation, members decide about

monthly savings installment rate based on their capacity. The savings

installment varies from Rs. 20 to Rs. 100 per member per month. Every group

passes a resolution and elects two leaders to carry out group activities. The

group resolution signed by all members is submitted to the bank along with a

group photograph for opening a savings account. The branch issues a pass-

book in the name of the group. A check book is given to the two leaders who

are authorized to operate the bank account.

A SHG needs to save as per the decided level for about 6 months. A

SHG is expected to take up internal lending based on its own savings to

demonstrate its strength and operational stability. The SHGs are expected to

maintain the following books and records with them: attendance register,

32

membership register, minute’s book, savings register, bank borrowing register

and credit register.

Bank Loan Linkage: Once the SHGs are stabilized in their operations, the

bank tries to provide loan facilities to SHG collectively or to each member. All

eligible SHGs are identified or fresh loan or renewal of loan. A branch

manager approves loan as and when eligible SHGs approach the bank. The

branch manager has to go to the village for sanctioning loan. A common

method is adopted by many branches of banks is organizing SHG to make

them capable to run their respective business and repay the loan amount

regularly to make them eligible to further loans and continue SBLP

operations59.

Loan terms and conditions: The loan is disbursed in bulk to the SHG. The

purpose of loan utilization is left to the discretion of the SHG. The branch

manager can decide an appropriate repayment period in consultation with the

group. The SHG loan is a term loan and can be sanctioned for a period of 3 to

5 years . SHGs are expected to repay the loan in monthly installments.

However, the normal practice observed among SHGs is that they repay their

loans with in the one period (Andhra Bank). The bank will not take any

security for a loan up to Rs. 5,00,000/-. For a loan above Rs. 5,00,000/-

security as per usual banking norms is taken.

How self-help groups work:

NABARD (1997) defines SHGs as "small, economically homogenous

affinity groups of rural poor, voluntarily formed to save and mutually contribute

33

to a common fund to be lent to its members as per the group members'

decision". Most SHGs in India have 10 to 25 members, who can be either only

men, or women, or youth, or a mix of these. As women's SHGs or sangha

have been promoted by a wide range of government and non- governmental

agencies, they now make up 90% of all SHGs.

The rules and regulations of SHGs vary according to the preferences of

the members and those facilitating their formation. A common characteristic of

the groups is that they meet regularly (typically once a week or once in a

fortnight) to collect the savings from members, decide to which member to

give a loan, discuss joint activities (such as training, running of a communal

business, etc.), and to mitigate any conflicts that might arise. Most SHGs have

an elected chairperson, a deputy, a treasurer, and sometimes other office

holders. Most SHGs start without any external financial capital by saving

regular contributions by the members. These contributions can be very small

(e.g. 10 Rs per week). After a period of consistent savings (e.g. 6 months to

one year) the SHGs start to give loans from savings in the form of small

internal loans for micro enterprise activities and consumption. Only those

SHGs that have utilized their own funds well are assisted with external funds

through linkages with banks and other financial intermediaries.

Sources of capital and links between SHGs and Banks

SHGs can only fulfill a role in the rural economy if group members have

access to financial capital and markets for their products and services. While

the groups initially generate their own savings through thrift (whereby thrift

34

implies savings created by postponing almost necessary consumption, while

savings imply the existence of surplus wealth), their aim is often to link up with

financial institutions in order to obtain further loans for investments in rural

enterprises. NGOs and banks are giving loans to SHGs either as "matching

loans" (whereas the loan amount is proportionate to the group's savings) or as

fixed amounts, depending on the group's record of repayment,

recommendations by group facilitators, collaterals provided, etc.

Interest rates: There was a severe criticism on the interest rates being

charged form SHG. The interest rates are not fixed and vary with group to

group and bank to which off course higher than prime lending rate. The

effective interest rates involved in SBLP model are appended in Table:

Table 1.1:SB

LP Progres

s: 2005 NABARDRole of NABARD:

NABARD has developed the Self Help Group [SHG]1 - bank linkage

approach as the core strategy that could be used by the banking system in

India for increasing their outreach to the poor. The strategy involved forming

SHGs1 of the poor, encouraging them to pool their thrift regularly and using

the pooled thrift to make small interest bearing loans to members, and in the

Rate of Interest under SHG - Banks Linkage programme

Particulars Existing rate of Interest p.a Revised rate % p.a

NABARD to Banks Refinance 6.5% 6.5 %

Banks to SHG 12%

Banks to NGOs 10.5%

35

process learning the nuances of financial discipline. Bank credit to such SHGs

followed. NABARD saw the promotion and bank linking of SHGs 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 Vs Financial Institutions:The prime objective of financial inclusion is based on providing the financial resources to the exluded poor people. Various agencies are playing an effective role in this program. Informal lending agencies to MFIs they have their own advantages and dis-advantages as stipulated in Table 1.2.

Table.1.2:Source: R. Arunachalam - Alternative Technologies in the Indian Micro-finance Industry

Fine-tuning Future Strategy:

The corporate mission for Microfinance set by NABARD envisages

reaching banking services to one-third of the very poor of the country, i.e., a

population of about 100 plus million rural poor through one million SHGs by

36

the year 2007-08 and targeting 3million SHG and linkage with banks by

201255. This is the right time to fine-tune the strategies for the future, based

on the experiences of the past.

The Present Study provide multi-perspective evaluation of the SHG-

bank linkage programme from academics, consultants and practitioners of

Microfinance from India and abroad. What is useful to all these studies is the

rapid growth of SHG-bank linkage into the largest Microfinance initiative in the

world in terms of its outreach and the need to closely look at the different

critical issues related to it.

SHG-Banking - the Indian Experience

SHG- Banking through SHGs and the existing decentralized formal

banking network including several organizations in the formal and non-formal

sectors 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.

Programme Initiators: When the Asian and Pacific Regional Agricultural

Credit Association (APRACA) presented a platform for policy dialogues to

target new banking concepts in the early eighties, the basic concern was that

traditional banking cannot any longer ignore the creative human potential of

the poor in Asia. They should not remain wasted, as they are potential motor

for grass root level development. The following thesis became the entry point

of SHG-Banking: Providing them access to saving and credit services may

37

stimulate their self help capacity and can be one essential entry road to

overcome poverty and address some of their crucial social concerns.

Microcredit in Maharashtra:

Microcredit program initiated in the 1980s is an ‘ideal’ poverty

alleviation program for women. The program is based on the principle of

activating self-help among women and is considered as means of social &

economical empowering. Till the late 70s India was a ‘developmental state’,

which believed in taking up a proactive role in shaping the path of its

development. The decades of the 1980s and 1990s emerged as a period

which defined a minimalist role of the state. Termed ‘neo-liberalist’, it allowed

for the free interplay of markets with the belief that it will solve the vexing

problem of poverty. Many scholars have argued that the official microcredit

program has been marked by this philosophy.

Salient Features of MRCP:

The target group of this plan consists of households below the poverty

line (i.e. with annual household income up to Rs. 11000 at 1991-92 prices Rs.

24,000/-p.a current). Priority is given to those with income up to Rs. 8,500.

This subset comprises mostly women from small/marginal farmers, landless

artisans and tribal groups.

In order to make the MRCP truly participatory, a village development

assembly (VDA) comprising all households in a village is formed. This serves

as a forum for a preliminary dialogue on the problems, prospects and process

of development. Out of the VDA, a village development council (VDC)-

38

comprising 10-12 members is constituted. The VDA prepares a people’s

action plan (PAP), focusing broadly on social development of the village, credit

requirements and support systems. The VDC is responsible for its

implementations. Two channels of credit are used; individuals and SHGs.

Using the list of poor households, eligible (individuals) beneficiaries are

identified in a meeting of the VDC, attended by the members of the council

and representatives of the VDC, the CB (commercial or participating banks)

and other implementing agencies. SHGs, on the other hand are formed either

by Mahila Arthik Vikas Mahamandal(MAVIM) directly through its sahyoginis

(SYGs)/field workers or through NGOs contracted by it or by the banks directly

or through NGOs contracted by them.

Both individuals and group borrowers are charged with 12%

interest per annum. Individual borrowers are given loans for specific activities.

SHGs, on the other hand , are required to mobilize savings first. After

achieving their savings deposits from a CB. The loans are distributed among

the members in accordance with their own priorities/rules(about loan use,

amount, interest rate, repayment and penalty). The rate of interest is typically

2-3% per month. Consumption loans are permitted. Eventually, when the

credit worthiness of SHGs is established, it is expected that they will be able to

borrow independently from CBs.

SELF HELP GROUP BANK LINKAGE PROGRAM (SBLP) in Maharashtra:

The microcredit has not only become an important poverty alleviation

39

program worldwide but it is also considered as a magic bullet for women’s

empowerment.

There are important players who initiate SBLP scheme in Maharashtra.

Government: The Indian government started microcredit program in

1992. It has promoted two models the Self Help Group Bank Linkage

Program (SBLP) and the Microfinance Institution model (MFI). The SBLP

program runs under the aegis of National Bank for Agriculture and Rural

Development.

NGO: Chaitanya is the pioneer NGO to promote the SHG Bank Linkage

Program in Maharashtra. Founded in 1993 of Rajgurunagar, Pune district,

Maharashtra, it works in four talukas of Shirur, Sinnar, Khed and Junnar led

by Dr. Sudha Kothare. Chaitanya had associated with NABARD as a part of

the supporting NGO initiatives to promote SHGs by proving funds for credit,

capacity building and innovation.

Microfinance & Self Help Group Bank Linkage Program in India:

Empowerment alleviates the status of human being in the family and

society. Development alone cannot bring prosperity unless social justice and

gender equality are ensured. The one of the most essential features of

development is the transformation of society, which embraces the movement

from traditional relations, social norms, and traditional ways of health care,

education and traditional methods of production to more modern ones. All

societies present a blend of the old (traditional) and the new (modern).

However, change from old to new is not an end in itself, but only a means to

40

achieve the end. The changes associated with development provide societies

as well as the individuals more control and influence over their own destiny.

Development enriches the lives of individuals by widening horizons of the

choices and freedoms and at the same time by reducing their sense of

isolation. Hence, the development strategy must be aimed at facilitating the

transformation of society in identifying the potential catalysts and barriers to

change.

It has been well accepted that various development programs have

bypassed women who constitute about half of the population of the country.

International conventions and conferences, legal enactments, constitutional

provisions etc. highlighted the imperative need for gender equality and women

empowerment. The rural poor, with the intermediation of voluntary

organizations join together for self help to secure better economic growth.

This has resulted in the formation of a large number of self help

groups in the country, which mobilize savings and recycle the resources

generated among the members. SHG’s are necessary to overcome

exploitation, create confidence for the economic self-reliance of the rural poor,

particularly among women who are mostly invisible in the social structure.

These groups enable them to come together for a common objective and gain

strength from each other to deal with exploitation, which they are facing, in

several forms. A group becomes the basis for action and change. Significantly,

credit is a major factor in boosting economic development if it is effectively

utilized. The government’s recent initiatives to streamline credit operations and

41

delivery system through micro-finance movement and strengthening and

expansion of credit institutions (SHG’s) can definitely help in the revival of rural

economy and empowerment of the rural poor.

Micro-credit intervention programme has been well-recognized world

over as an effective tool for poverty alleviation and improving socio-economic

conditions of rural poor. In India too, micro-credit is making a strong headway

in its efforts to reduce poverty and empower the rural poor. Micro-finance

through the network of cooperatives, commercial banks, regional rural banks,

NABARD and NGO’s has been largely supply-driven and a recent approach.

Micro-finance institutions are, other than banks, are engaged in the provision

of financial services to the poor. There are three types of lending technologies:

i) The document based and asset based conventional technology, being

followed by all banks.

ii) The group lending, which is of various shapes and forms with advantages

drawbacks106.

iii) Individual based lending is one where the Micro-finance institutions have

to be very careful in assessing the repayments capacity of the borrowers. The

above technologies are focused on micro-finance through SHG’s, however,

credit accessibility to poor through SHG’s has enhanced tremendously and

recovery is comparatively higher. Rural women play a significant role in the

domestic and socioeconomic life of the society and therefore, national

development is not possible without developing this segment of the society.

The review of studies related to credit accessibility to women simply

42

demonstrates that the direct access to institutional credit to rural women is

very limited and there is sex bias in extending the credit to them. However,

women from the non-farm sector have better access to banks than the

women working in the farm sector. Even, male members of women

borrowers have greater influence on accessibility to credit utilization and its

repayment.

The SHG’s became a regular component of the Indian financial system

since 1996. The SHG’s are small, informal and homogenous groups. These

groups have proved as cyclic agents of development in both the rural and

urban areas8. The SHG’s after being formed start collecting a fixed amount of

thrift from each member regularly. After accumulating a reasonable amount of

resource, the group starts lending to its members for petty consumption

needs. If the bank is satisfied with the group in terms of (i) genuineness of

demand for credit; (ii) credit handling capacity of the members; (iii) repayment

behaviour within the groups; and (iv) the accounting system and maintenance

of the records, it extends a term loan of smaller amount to the group. Thus,

financing through SHG’s effects quite a few benefits like; (i) savings mobilized

by the poor; (ii) access to the required amount of appropriate credit by the

poor; (iii) meeting the demand and supply of credit structure and opening of

new market for financing institutions; (iv) reduction in transaction cost for both

lenders and borrowers; (v) tremendous improvement in recovery; (vi) heralding

a new realization of subsidy less and corruption-less credit; and (vii)

remarkable empowerment of poor women.

43

The strengths of SHG’s may be categorized in the following manner:

• Groups members usually create a common funds by contributing their small

savings on a regular basis; groups manage pooled resources in a democratic

way; considers loan requests; and loans are disbursed by purposes. The rates

of interest vary from group to group and the purpose of loan, interest rates are

higher than that of banks but lower than moneylenders.

• The average deposit and loan size of SHG account is larger than individual

accounts under the priority sector, bank transaction cost of dealing with SHG’s

is obviously lower than that of individual borrowers; the rate of growth of credit

absorption of SHG’s is much higher than individual borrowers under the

priority sector.

• Banks can reduce the operating costs of forming and financing of SHG’s,

involving NGO’s or youths for forming and nurturing SHG’s.

• The innovative forms of financing is imperative to supplement credit

strategies for meeting the needs of the poor by combining the flexibility,

sensitivity and responsiveness of the informal credit system with the technical

and administrative capabilities and financial resources of formal financial

institutions and also to build material trust and confidence between bankers

and the rural poor and to encourage banking in a segment of population that

formal financial institutions usually find difficult to reach.

• The entire process of internal savings and credit is backed by financial and

management counseling, promotion of new avenues of employment and

motivation for enhancement of earnings from the ongoing activities.

44

• The groups develop their own management system and accountability for

handling the resources generated. The interaction among the members is

based on participatory mechanism in terms of decision-making.

• Small savings of rural women can generate the required resources, which

can wean the people away from the exploitation of moneylenders. Thus, the

voluntary savings constitute the key for economic progress. Promotion of

SHG’s can bring women into the mainstream of economic development.

• Credit through SHG’s is being regarded more suitable by banks and NGO’s

since creditability of SHG’s regarding utilization and recovery is praise worthy.

• Credit accessibility through SHG’s is cost effective and group approach can

ensure wider coverage of poor families through bank credit, even the

members of the group learn interdisciplinary approach the banks for advances

lead to direct interaction and guidance from the bank officials.

• SHG’s can create a unique, alternative need based credit-delivery-

mechanism by pooling their meager resources for catering to their

consumption and production requirements.

Self Help Bank Linkage Program its effects on rural empowerment:

• There is need to accept that women’s needs are not confined to self-

employment. The Programmes should be designed on the basis of the needs

of women at the micro level. Planning self-employment for women needs a

multipronged strategy.

45

• The various categories for financial institutions in rural market have exhibited

different potentials in serving rural women. There is need to synchronize their

efforts so that their work becomes supplementary and complementary to them.

• Branch managers of financial institutions should in any case be close to the

communities they serve, and should be affiliate for any distribution channel

through which they can profitably reach new customers. They should ensure

the existing level and types of group activity and informal intermediation, and

be ready to offer services and selling products, which are appropriate for local

communities62.

• There is urgent need to streamline the procedure for applying, seeking and

releasing of credit from the banks. The procedural difficulties are one of the

major implements, which have deterred women from financial benefits from

the banks. Therefore, the procedure for credit access to should be made more

easy and simple.

• In order to ensure proper utilization of the credit, there is an urgent need to

introduce availability of consumption credit through the formal channel. There

need is to sensitize bank staff towards the necessities, constraints and

inhibitions of women.

• There is also the need to evolve new products by the banks commensurate

with the requirement of rural women. The customer contact programmes,

especially for women, should be organized to disseminate information of

various schemes and financial requirements of women.

46

• Marketing of new distribution may involve training or community development

skills. Training packages must be evolved for entrepreneurship development

to enable rural women as successful business managers and sustaining

micro-enterprises. In this task, role of NGO’s, Panchayats, Women’s

organizations etc. may be enhanced to impart training, skill development and

technical knowledge.

• Considerable scope exists for development of micro-finance in India since

there is enormous unmet demand for financial services in this sector.

However, enacting fresh legislation or appropriate amendments in the existing

legislation related to Micro-financial institutions is the need of the hour.

• Micro-finance as a permitted activity for societies, NGO’s, and voluntary

organizations may be ensured through amending the existing Indian Income

Tax Act, 1956 [Section 2(5), Section 11(5)], Societies Registration Act, 1860,

FCRA and RBI Act.

• The micro-financing institutions need proper regulation and operation of

business transactions. Therefore, RBI, SIDBI, NABARD and other

organizations should evolve proper mechanism for monitoring, supervision,

direction, appraisal and evaluation of such institution including self help

promotion institutions.

47

• A proper mechanism should be evolved to prepare database on SHG’s,

SHP’s, MFI’s etc. Moreover, MIS with good management backing needs to be

developed to achieve sustainability of micro-financing institutions.

• The factors responsible for poor performance of Microfinance and functioning

of SHG’s should be investigated, examined and analyzed scientifically and

systematically to resolve the emerging problems, difficulties and challenges

being faced by NGO’s, SHPI’s, SHG’s dealing with Microfinance.

• More research should be carried out to assess the impact of micro-credit

through SHG’s. The impact assessment should be more focused on socio-

economic empowerment of members, social change, dynamics of groups,

business, leadership, promotion of viable micro enterprises etc.

• Social capability building programs should be organized from time to time to

train the NGO’s activists, volunteers, Panchayats representatives, members of

youth clubs etc. to promote small savings and women’s active and positive

role in development process, ensuring their rights, entitlements and due share

in developmental benefits.

• Transformation of the repayment culture is required. Any expansion of micro-

financial services will need not only appropriate and efficient micro products on

a very large scale, but also customers who care willingly to pay the full costs of

those services. Bankers must change their attitude towards small loans to

48

poor, including women and start seeing them as a social obligation in treating

them as potential business.

• Policy makers need to recognize the potential of microfinancial services to

support investment and growth in key economic sectors and hence to

contribute significantly to national economic growth.

• Regulation of micro-financial services is necessary. It helps in long-term

sustainability. The interests of small savers, ensuring proper terms of credit,

instilling financial discipline and having a proper reporting and supervision

system must be put in place. Regulation and supervision ensures that micro-

financing organizations are run prudently and cases of poor people losing their

money due to fund or incompetence are minimized.

• The key elements in the survival and sustainability of the SHG’s should

naturally be built on those elements that have brought the group together.

They have to evolve as sustainable village level institutions for taking active

role in development and governance.

• A fully mature group is one that achieves competence to independently

handle issues of its internal practices both financial and non-financial. The

group should be able to handle its leadership, problem solving and conflict

resolution successfully with minimal help. It should also be in a position to

maintain its records and other books of accounts independently.

• In addition to the institutional sustainability, the group should also become

financially viable. It is achieved when the group is able to cover its operational

costs from its own income.

49

• A-stand-alone-group of poor rural women, has the lesser chance of being

effective than a confederacy of such groups. A confederacy would offer the

strength of numbers and solidarity to each of its constitutes. A single stand-

alone group has limited visibility and importance for both the general

community as well as development agency. There are certain areas where

SHG’s need wider support like crisis resolution, marketing, networking,

mobilization for effective action or social issue etc. Thus, networking of SHG’s

into a federation is called for.

• Strong marketing network is mandatory required for effective and proper

marketing of products and services of micro enterprises linked SHG’s. SHG’s

need marketing support and institutional capacity to handle marketing

activities independently.

1.3 Progress of Microfinance Program in India: India Financial

Development: A Brief history. The organized financial system9 in India

consists of commercial and co-operative banks, capital market institutions,

non-banks and a number of indigenous banking and financial institutions. The

organized sector consists of commercial banks and co-operative banks which

are organized on the ‘unit’ banking principle are mainly rural based. Besides,

government-owned post offices mobilize deposits but they do not undertake

any lending activity. The unorganized sector consists of indigenous bankers,

moneylenders, chit funds. At the financial services side, institutions like Unit

Trust of India (UTI), Life Insurance Corporation of India (LIC), General

50

Insurance Corporation (GIC) were also created under public ownership

Scheduled commercial banks constitute about 97 per cent of the total deposits

of the banking system in March 1951. At the time of independence, nearly 93

per cent of debt of rural household’s (which constitute of two-third of the

population in India) was provided by the informal sector including money

lenders. During the post-independence period, banks were primarily located in

metropolitan and urban areas and catered to the needs of industrial sector.

For example, agricultural sector which contributed nearly 56 per cent of

national income received only 2 per cent of bank credit in 1951. Such

asymmetries and increasing political climate for interventionist policies

resulting in nationalization of major banks in 1969. During the post-1969

period, the banking system experienced a phenomenal expansion of branches

in semi-urban and rural areas of the country. The post-bank nationalization

saw the emergence of ‘social banking’ and was essentially ‘supply oriented’ (

Shetty, 1978). Through the branch licensing regulation, the Reserve Bank of

India (RBI) put pressure on banks through branch licensing policy to open

bank branches in semi-urban and rural areas. Thus the population per bank

office which was around 64 thousand in 1969 showed a dramatic decline and

was around 14,000 by 1991. The dramatic expansion of bank branches in

rural and semi-urban areas was made possible by this substantially boosted

savings in the form of financial assets (especially currency and bank deposits

as proportion of savings) from 5 per cent in 1969 to 15 per cent in 1991.

During the social phase of bank interest rates on deposits and loans were

51

administered with priority sector including informal sector getting a lower

interest rate prescription. Banks were required to lend 40 per cent of their

credit to ‘priority sectors’ (agriculture, small-scale industry, retail trade etc)5.

The lending to private corporate sector were greatly restricted using the

inventory and receivable norms prescribed under the Credit Authorization

Scheme administered by the Reserve Bank of India (the central bank as well

as its financial regulator). Banks were compensated for the below the market

lending rates on priority loans through a cob-web of compensatory finances

including refinances and payments of interest on bank’s cash reserve holdings

with the central bank. During the social phase of banking, monetary policy was

increasingly conducted

1.4 SBLP in Andhrapradesh & Maharashtra: Andhra Pradesh has been in

the forefront of the Self Help Movement in India. Alongside women’s own

savings, a major initiative in providing SHG members with bank credit was

introduced some years ago. APMAS believes that this initiative must not go

the way other rural credit has gone. Even though SHG-bank linkages are, as

yet, in a comparatively early phase, it appeared important to learn from the

field and share those learnings with all concerned, in order to ensure that bank

linkages added value to the lives of SHG members, their families, and to

institutional credit, in general.

Objective: The study was initiated to ascertain

i. the socio-economic profile of the SHGs and their members;

52

ii. the quality of SHGs;

iii. the quality and extent of financial services to members and issues in

and perceptions around SHG bank linkage; and

iv. the impact of bank-linkage on SHGs.

A summary of the findings of the study and the contents of this report

follow.

1. Sample: The sample for this study was 400 SHGs, spread over 1 district

(Visakhapatnam) from Andhra Pradesh and 2 districts(Thane & Raigad) from

Maharashtra that had been linked to 20 banks/cooperatives - commercial

banks, regional rural banks and primary agricultural credit cooperatives.

2. Profile of SHG members: SHGs financed by banks had members

belonging mainly to socially and economically disadvantaged sections. Nearly

53% of the members were from Backward Castes, 19% from Scheduled

Castes, 4.5% from each of Scheduled Tribes and Minority groups, and as

many as 19% from other castes. Only 25% of the members were able to read

and write, whereas 57% of the leaders fell in this category. Members

belonging to Scheduled Tribes were in lesser numbers in the SHGs studied

than warranted by their numbers in the larger community. Where 89% of the

members were from landless or small farm families, 11% of the members were

from large farm holding families. More than 70% of members were from the

reproductively and economically active age group. SHGs were promoted for

disadvantaged women and the significant percentage of women from

advantaged caste and wealth backgrounds was a matter of concern.

53

3. Profile of SHGs: Two-thirds of the SHGs had 11-15 members, while a

little over a fourth had 10 members or less. More than 50% of the SHGs were

homogeneous with members from only one or other section of society. On

average, an SHG was situated 8.5 kms away from Mandal headquarters. More

than three-fourths of the SHGs had access to bus services from within their

habitation. Along with other reasons for not changing leaders, one reason

was that some bank branches did not permit changes in signatories to bank

accounts. Leaders were expected to fulfill several responsibilities, but loan

recovery was not seen as one.

5. Financial Enhancement: The 400 SHGs together had around Rs. 96

lakhs of on savings. Interest earned was not determined during the study. The

total revolving fund received by them was Rs. 34.8 lakhs. Cumulative savings

appeared to grow for some years, and then to reduce in several cases. In 20%

of SHGs that were over 9 years of age, cumulative savings were less than

Rs. 10,000. This might be the result of members dropping out of the SHG and

taking back their savings. Average idle funds kept in banks in the savings

accounts or fixed deposits amounted to nearly Rs. 5,800 per SHG, or around

Rs. 23 lakhs in all, indicating that members were drawing on their thrift for

lending to themselves. Loans were more expensive to access than was

generally recognised. This was because individuals, perhaps in rotation, met

many of the costs incurred in visiting banks to access loans for their groups.

Default had not yet manifested itself as a serious problem, although the

perception of bankers and of groups was that it needed to be dealt with firmly.

54

The concern might have arisen because loan sizes are continuing to increase.

It was not common to have a group defaulting for more than 4 continuous

months. However, overlapping loans, adjustment of a new loan against an

older outstanding loan, adjustment of amounts lying in group savings accounts

against loans outstanding by the group to the bank, were common practice.

Real default is probably a much bigger problem than is acknowledged.

5. Impact of bank linkage: Members appeared to value their association

with their SHGs and to value the SHG’s association with its bank. In particular,

they felt that they now had access to formal financial institutions, to credit, that

their income levels had improved, that their savings habit had improved. They

felt, however, that employment opportunities had not significantly increased.

1.5 IMPORTANCE OF THE STUDY: SBLP in the areas of Karjat Taluka:

Like Andhrapradesh, the rural lending institutions in Maharashtra not

only encompass traditional formal sector credit but also new generation credit

organizations. Andhrapradesh and Maharashtra having similarities in culture,

geography, economy positively it should have similar position in SBLP

success theoretically, but practically the SBLP model of microfinance is not so

successful compare with other states. Especially the people live in Karjat

Taluka Although the study is focused upon rural poor including farmers,

artisans, casual labours various other professionals or jobless fall in poverty

line i.e earning 60 Rs.per day. .

Default Rate, Credit Experience and Transaction Cost

55

The major problem crippling the SHG based rural credit system in

districts of Maharashtra is the default on account of loans received from

various financial institutions. This has become a major matter of concern and

has been adversely affecting the functioning of various lending institutions.

Repayment of loan is an essential condition for the better health of rural credit

delivery system.

The patterns of default rate of credit revealed a decrease in the same

with the increase in size of landholding. The rate of default stood at 80 per

cent for landless households borrowing loans from informal sources and

12.5% for marginal farmers borrowing loans from SHGs. The other categories

of farmers did not show default on account of loans received by them.

Although the present investigation did not provide much insight into default

rates, this aspect needs to be further investigated with much larger sample

size.

As regards experiences of borrowers with various lending institutions, it

was found to be the association of marginal, small, medium and large

categories with banks stood at an average of 4.5 years, respectively. The

marginal farmers had shortest association not only with informal lenders but

also with SHGs. Even landless, medium and large categories showed shorter

association with informal lenders. One of the plausible reasons for landless

and marginal categories showing higher rate of default could be traced in

shorter association of these categories with informal lenders and SHGs.

56

The study there by concentrated to find out the reasons of de-linkage of

poor from the formal banking/financial system and found that due to various

reasons like un-availability of regular income, entrepreneurial activities, valid

support from government agencies affecting the strength of the poor in Karjat

and other villages.

57

CHAPTER- 2

REVIEW OF LITERATURE

1. Introduction: Since Independence, the Government of India and the

Reserve Bank of India (RBI) have made concerted efforts to provide the poor

with access to credit. Despite the phenomenal increase in the physical

outreach of formal credit institution and unwieldy procedures and risk

perceptions of the banks left a gap in serving the credit needs of the rural

poor.19 It is in this context that micro credit has emerged as the most suitable

and practical alternative to the conventional banking in reaching the hitherto

unreached poor population. Related to this at worldwide stage also, since the

late 1970, development policy has increasingly taken recourse to Micro

finance to improve the access to financial services for poor households to

deny the consumer credit companies (most of which are out the market today)

which have forced the mircroentrepreneurs towards increasing high debt

levels and repayment obligations which they frequently could not fulfill.98

At India level in the 1990s a new nationwide microfinance initiative

linking banks, NGOs and informal local groups (self-help groups or SHGs)76

(was started in India. Better known as ‘SHG- Bank Linkage’, it is expected to

become a dominant form of financial access for the rural poor. A major

challenge therefore is to widen access to finance of the rural poor-especially

women, a highly disadvantaged and deprived group to meet their diverse

58

needs (savings, credit, insurance services) through flexible products at

competitive prices.

2. Historical background

2.1. Micro-finance institutes of Bangladesh: Bangladesh has been

acknowledged as a pioneer in the field of micro-finance. Dr. Mahmud Yunus,

Professor of Economics in Chittagong University of Bangladesh, was an

initiator of an action research project ‘Grameen Bank’.107

2.2 Indian Scenario: India has adopted the Bangladesh’s model in a

modified form. To alleviate the poverty and to empower the women, the micro-

finance has emerged as a powerful instrument in the new economy. With

availability of micro-finance, self-help groups (SHGs) and credit management

groups have also started in India. And thus the movement of SHG has spread

out in India.20

Banks are the predominant agency for delivery of micro-credit. In

1970, Ilaben Bhat, founder member of ‘SEWA’ (Self Employed Women’s

Association) in Ahmadabad, had developed a concept of ‘women and micro-

finance’. The Annapurna Mahila Mandal’ in Maharashtra and ‘Working

Women’s Forum’ in Tamilnadu and National Bank for Agriculture and Rural

Development (NABARD)-sponsored groups have followed the path laid down

by ‘SEWA’ a trade union of poor, self-employed women workers.67

In 1987 ‘Mysore Resettlement and Development Agency’ (MYRADA)

has promoted Credit Management Groups (CMGs). CMGs are similar to self-

help groups. The basic features of this concept promoted by MYRADA are:

59

1] Affinity, 2] Voluntarism, 3] Homogeneity and 4] Membership should be

limited to15-20 persons. Aim of the CMG is to bestow social empowerment to

women.

In 1991-92 NABARD started promoting self-help groups on a large

scale. And it was the real take-off point for the ‘SHG movement’. In 1993, the

Reserve Bank of India also allowed SHGs to open saving accounts in banks.

The banks have externalized what would otherwise have been high

transaction costs for mobilizing savings of the poor, appraisal and sanction of

loans and improved loan recovery through the financial intermediary’s role

played by SHGs.53

3. SHG Development in India: An Overview

3.1 While the term ‘self-help group’ or SHG can be used to describe a wide

range of financial and non-financial associations, in India it has come to refer

to a form of Accumulating Saving and Credit Association (ASCA) promoted by

government agencies, NGOs or banks. These groups manage and lend their

accumulated savings and externally leveraged funds to their members.70

4. SHG Model in India: In India three different models of linkage of

SHGs to the financial institutions have emerged86. They are:

a. Banks, themselves, form and finance the SHGs.

b. SHGs are formed by NGOs and other agencies but financed by banks.

c. Banks finance SHGs with NGOs and other agencies as financial

intermediaries.

60

5. The SHG Movement in Maharashtra77: The concept of SHG was not

new to Maharashtra. Beginning with a tiny amount of only 25 paisa, the

women of Maharashtra from Amravati District had established one SHG long

back in 1947.1 Further in 1988, ‘Chaitanya’ Gramin Mahila Bal Yuvak Sanstha

started promoting SHGs in Pune District. The NGOs not only have catered to

the economic needs of the participants, but also involved in the process of

social development. Presently, numerous NGOs and governmental institutions

promote SHGs on a large scale.

6. SHGs and NGO support: The expert agencies shown that the success

of SHG linkage program has linkage with other auxiliary services of NGOs or

Govt., agencies and development programs. The Service Area branches, in

turn, were to fix their own program for lending to the SHGs with a view to

enabling them to get the benefit of catalytic services of NGOs 81.

7. Paths of SHG Development: NGO Strategies and Structures for

Intermediation: 82 Linking SHG directly to banks is the basic model in

which an SHG, promoted by an NGO or other institution, can access a multiple

of its savings in the form of loan funds or a cash credit limit from the local rural

bank. The SHG on lends the funds it accesses from banks to its members.

7.2 The SHG –Bank Linkage model provides the cheapest and most direct

source of funds.

7.3 SHGs are formed with the assistance of self-help promotion institutions

(SHPIs), which include nongovernmental organizations (NGOs), government

61

agencies, banks, cooperatives, and microfinance institutions. In addition to

helping with group formation, SHPIs provide training, monitoring, and other

support services. SHGs Financial Achievements: In contrary the report of

NABARD “Progress of SHG – Bank linkage in India”89 of – 2003 –2004 shows

a decrease 4% (76%(2001) to 72%(2004) in the loans(finance support) to

SHGs formed by formal agencies and NGOs, but directly finance by banks

and SHGs financed by banks through NGOs 11% 2001 to 8% (2004).

8. Impact of SHG in the process of empowerment of women43:

The year 2001 was declared as a ‘year of women empowerment’. Efforts were

being made in the direction that women should have a role in all walks of life;

and special provisions should be made in the budget for activities related to

the development of women. Many schemes were planned and started to be

executed, at government level, in respect of women education, laws regarding

prevention of atrocities on women, their participation in economic and political

spheres etc. At this juncture, SHG movement also started and in a way

journey towards women empowerment began.

9. Concept of SHG58 Generally a Self-Help Group consists of 10 to

20 women. The women save some amount that they can afford. It is small

amount ranging from Rs 10 to 200 per month. A monthly meeting is organised,

where apart from disbursal & repayment of loan, formal and informal

discussions are held on many social issues also.

62

10. Objectives of SHGs. 59

a) Basically the SHGs are economic organisation. Small funds are

raised for day today needs. The saving groups when transformed to earning

groups not only increase the productivity of women but the credibility also. b)

As economical solutions are available, the family structure is maintained. c)

SHG is a good way to stop the exploitation of consumers. d) Development of

self-confidence is achieved. e) A common platform is available for a dialogue

and sharing of views.

11. Special features of SHG.

SHG is an organization with fundamental principles like democratic

approach and common decision-making, transparency, self-helping,

repayment of loans and group development. The credibility of the group is

dependent on these principles. Not only economical progress but also an

‘entire development’ is the aim and mutual trust among the members is the

credo of SHG. 88

11.1 Empowerment of rural women through self helps groups – An Indian

experience 85 The reference year of the study was 1999-2000. To study the

factors of economic and social aspects such as asset structures, income,

social empowerment, behavioural changes etc. were collected and analyzed

to assess the impact.

11.2. Another Ex-post evaluation of study of self help groups that was

conducted in Karnal, Gurgaon & Bhiwani districts of Haryana 68. It was found

63

in this study that the improvement in the communication was due to increase

in awareness and frequent interaction with NGO and bankers.

11.3 Aspects of Women Empowerment: 100

a ) Self-confidence, b) Development of decision-making capacity, c) Position in

the family d) Position in the society, e) Thinking about Views regarding female

education and employment, f) Views regarding Thinking about caste system,

g) Attitude regarding towards assisting own family, village and society in

solving, their problems, h) Participation in social movements and politics, i)

Awareness about health issues etc.

The negative Impacts of microfinance cited by International Labor

Organization are:

i) Increased work loads, ii) Higher social pressure to ensure loan repayment,

iii) Women employ daughters and daughters-in-law as unpaid employees

thereby increasing their, iv) Participation in credit schemes can lead to

indebtedness that is, simply because there are sufficiently profitable income-

earning activities in which to invest. In this situation, women up being even

more dependent that they were before. Some argue that micro-finance

programmes divert the attention of women from other more effective strategies

for empowerment (Ebdon, 1995). Evidence suggests that, even in financially

successful microfinance programmes, actual contribution to empowerment is

often limited (Mayoux, 2001): 46

64

12. SHG Based Microfinance impact on Rural Economy:

Equitable gains from development on a sustainable basis and ensuring

viability of financial services are key elements in a strategy of poverty

reduction by means of credit support to the poor. As micro-finance is seen to

be an approach addressing these concerns effectively,36

The micro-finance scene in India is dominated by Self Help Groups

(SHGs) - Banks linkage program for over a decade now.

15. SHG Development in India: An Overview

15.1 While the term ‘self-help group’ or SHG can be used to describe a wide

range of financial and non-financial associations, in India it has come to refer

to a form of Accumulating Saving and Credit Association (ASCA) promoted by

government agencies, NGOs or banks. These groups manage and lend their

accumulated savings and externally leveraged funds to their members.

15.2 SHGs have varied origins, mostly as part of integrated development

programmes run by NGOs with donor support. The major programme

involving financial intermediation by SHGs is the SHG-bank Linkage

Programme46. This Programme was launched in 1992 by National Bank for

Agriculture and Rural Development (NABARD), the apex bank for rural

development in India.

16. SHG Model in India

65

In India three different models of linkage of SHGs to the financial

institutions have emerged. They are:

1.Banks, themselves, form and finance the SHGs.

2.SHGs are formed by NGOs and other agencies but financed by banks.

3.Banks finance SHGs with NGOs and other agencies as financial

intermediaries.

17. The SHG Movement in Maharashtra: The concept of SHG was not

new to Maharashtra. Beginning with a tiny amount of only 25 paise, the

women of Maharashtra from Amaravati District had established one SHG long

back in 1947. Further in 1988, ‘Chaitanya’ Gramin Mahila Bal Yuvak Sanstha

started promoting SHGs in Pune District, informally. In Maharashtra, the

NGOs not only have catered to the economic needs of the participants, but

also involved in the process of social development. Aim of ‘Chaitanya’ is also

the same to empower the women in both ways, economically and socially.

Presently, numerous NGOs and governmental institutions promote SHGs on a

large scale. The statistics is given in the following tables:

Table : 2.1

Number of SHGs formed by various agencies Physical Achievements

1. Number of new SHGs formed by formal agencies during 2003-04

92774

2. Number of new SHGs formed by NGOs during 2003-04

106228

3. SHGs are comprised only of women members. 90%

66

Table : 2.2 Pattern of Partnership

1. Number of participating banks 560

2. Number of branches of banks lending to SHGs 35,024

3. Commercial banks 48

4. Regional rural banks (RRBs) 196

5. Co-operatives 316

6. Number of participating NGO and other agencies 3,024

Table : 2.3

Geographical Spread of SHG Activity

1. Number of States & Union Territories 31

2. Number of districts 563

18. Impact of SHG in the process of empowerment of women: The

year 1975 was declared as a ‘year for women’. Also, the decade from 1975 to

1985 was declared as a ‘decade for women’. During this period, the movement

for empowerment of women received a fillip. The importance of role of women,

which consist 50% of the society, was highlighted in this span of period. It was

emphasised that woman should get the same opportunities as that to men.

67

The year 2001 was declared as a ‘year of women empowerment’.

Efforts were being made in the direction that women should have a role in all

walks of life; and special provisions should be made in the budget for activities

related to the development of women. Many schemes were planned and

started to be executed, at government level, in respect of women education,

laws regarding prevention of atrocities on women, their participation in

economic and political spheres etc. At this juncture, SHG movement also

started and in a way journey towards women empowerment began.

a. What is empowerment?

Empowerment is a process of change by which individuals or groups

gain power and ability to take control over their lives.

b. Economic empowerment

For economic empowerment it is necessary for a woman to have

access to and control over productive resources and to ensure some degree

of financial autonomy..

c. Social empowerment45

Constitutionally and legally, man and woman are equal. In real practice,

however, woman still finds a secondary place. As the woman has now

increased presence in banks, Gram Panchayats, various Government

committees etc., her social status is seen somewhat elevated.

d. Political empowerment

The political element entails that women have the capability to analyse,

organise and mobilise the surrounding situation for social transformation.

68

Leadership qualities are also developing in women. Due to advent of SHGs,

women were able to see the outside world. They understood the processes

involved in solving the local problems through political participation.

19. Concept of SHG

Generally a SHG consists of 10 to 20 women. The women save some

amount that they can afford. It is small amount ranging from Rs. 10 to 200 per

month. A monthly meeting is organized, where apart from disbursal &

repayment of loan, formal and informal discussions are held. On many social

issues also, Women share their experiences in these groups. The minutes of

these meetings are documented and the accounts are written. The President,

Secretary and Treasurer are three official posts in any SHG. If the SHGs are

connected with some NGOs, they take part in other social activities of those

NGOs. Of late, the organizational structure of various micro-financial groups is

undergoing significant changes. There are Thrift groups; Credit management

groups, Income generating groups, Self-help groups and Mutual help groups.

20. Objectives of SHGs.

a.. Basically the SHGs are economic organisation. Small funds are raised for

day today needs. The saving groups when transformed to earning groups not

only increase the productivity of women but the credibility also.

b. Doors are wide open to women to understand and gain knowledge about

Banking, Gram Panchayats, Zilla Parishad, Law and Judiciary etc.

21. Special features of SHG.

69

SHG is an organisation with fundamental principles like democratic

approach12 and common decision-making, transparency, self-helping,

repayment of loans and group development. The credibility of the group is

dependent on these principles. Not only economical progress but also an

‘entire development’ is the aim and mutual trust among the members is the

credit of SHG.

22. Purposes behind promoting SHGs.49

The fundamental aim of promoting SHGs is poverty alleviation and to

achieve empowerment of women. The recent trends show significant changes

in the promotional strategies for the SHGs. Financial needs like banking,

saving, insurance etc, getting subsidies, building organizations to gain political

power also, are the purposes behind some of the SHGs. The State

Government of Maharashtra has also announced to promote 5 lakh SHGs in .

2005 to 2007.

23. Social Banking Experiment and Rural Poor: After bank

nationalisation in 1969, the Indian government launched an ambitious

programme to improve the access of the rural poor to formal credit and saving

opportunities. A key feature of this programme was bank branch expansion

into unbanked rural locations. Between 1969 and 1990, 30000 bank branches

were opened in unbanked locations (Burgess and Pande, 2005).

24. Empowerment of rural women through self helps groups: – An Indian

experience – by V. Puhazhendhi & K.L.S. Satyasai (National Bank News

70

Review. April –June 2002) For the study the data were collected with the help

of a structured questionnaire.

25.. Another Ex-post evaluation of study of self help groups in that was

conducted in Karnal, Gurgaon & Bhiwani districts of Haryana. (The study was

conducted by (National Bank for Agriculture & Rural Development –September

2002), was found in this study that in the pre-SHG situation 55.6 percent of the

members talked freely without any inhibition, and in the post SHG period 77.8

percent of the members talked freely.

26.. Another study conducted by Impact of self help groups (Group processes)

on the social /empowerment status of women in southern India (MYRADA).

This study shows that the level of confidence of respondents on several tasks

specified, the members of older groups expressed a higher level of sense of

ease. The older group had substantially larger percentage of respondents

reporting increase awareness about health and hygiene.

27. The women are coming together and this is helping them to fight the evils

in the society. e.g. In the Savitri self help group from Tandulwadi (District

Akola, Maharashtra)38, women came together and stopped the practice of

gambling, also asked questions to Health officers about the unhygienic

conditions in their village, started goat-rearing business, also looked into the

matters of Gram Panchayat.

28.. In another case a man raped a 23-yr. old girl. Her mother was frightened

and was reluctant to register the crime in the Police Station. But the members

of the SHG from that particular ‘basti’ supported her mother and advised to

71

register the crime. The police refused to register the crime. The SHG acted as

a pressure group and compelled the police to register the crime. (Ref: Daily

Newspaper Lokmat 23/09/04-An article by Sangeeta Puranik).

29. It seems that SHG activity is helping to change the status of women in the

family positively, e.g. one person was always reluctant to take his wife along

with him on his two-wheeler. Even in times of pressing need, he would avoid

her as a pillion rider. He did not pay much attention to what she was doing in

her SHG. His wife always managed to attend the group meetings and other

related activities on her own. One day the husband was passing through a

small town where a meeting was going on.

He stopped for a while. To his surprise, he saw his wife sitting on the

dais where the district collector was also present. He couldn’t believe that his

wife was such an important person. Her husband waited outside till the

meeting got over and took her on his two-wheeler proudly. Since then, he

takes his wife on his two-wheeler wherever she wants to go and also ready to

help her for group activities. (Ref: Daily Newspaper Pioneer 27/10/04-An

article by T. S. Kumar)

(The above study shows that SHGs are proving helpful in the process

of the empowerment of women. In all these studies, social empowerment is

one of the issues under study. In some of the articles, social empowerment

has been considered only as a part of the process of individual development of

the woman.)

1) Self-confidence

72

2) Development of decision-making capacity

3) Position in the family

4) Position in the society

5) Thinking about Views regarding female education and employment

6) Views regarding Thinking about caste system

7) Attitude regarding towards assisting own family, village and society in

solving their problems

8) Participation in social movements and politics

9) Awareness about health issues etc.

In the issues selected by ‘Drushti’, in addition to these issues, of

woman’s self confidence, her changing position in the society, the points, like

whether she has started to thinking about society and social problems,

whether she merely thinks of the problems or search for solutions also,

whether she also thinks on the evils such as discrimination between men and

women, social customs like dowry, casteism which have badly affected our

society for long, are also taken into consideration.

The SHG-Banking pioneered and promoted by NABARD has emerged

as a primary microfinance service mechanism for the unbanked poor in India.

The multiple initiatives led by capacity building have made tremendous inroads

into the conventional bankers mindset. They now view SHG-Banking as a new

dimension of quality portfolio with very low risks and with marginal increase in

operating costs. The dimension and flexibility in SHG-banking now practiced in

India is unmatched in world’s banking system. Being predominantly women

73

focused, SHG-Banking is the first step towards feminization of the micro

banking portfolio of Indian banks. Stimulating self-help capacity of the poor

does spark off the entrepreneurial enthusiasm, risk mitigation mechanisms in

low-income households, it also serves as an entry-road to overcome poverty

and addressing other crucial social concerns.

30.1. Role of SHPIs in promotion of SHGs:

The objective of this study was to examine and compare the different ways in

which Self Help Promotion Institutions (SHPIs) promote Self Help Groups

(SHGs), in order to enhance the efficiency and quality of the SHG promotion

process. (Malcolm Harper, Former Professor, Cranfield School of

Management)

The following are the major findings in brief:

o The banks, particularly co-operatives, are likely in the medium term to

be the main SHPIs. They should support, and eventually be replaced

by, SHG members’ own initiatives.

o The SHPI roles of SHG federations and of non-volunteer individuals

should be examined.

o Incentive schemes for NGOs and individuals should be redesigned

and tested in order to cover the full costs of the SHPI.

o Training should include hands-on SHG record keeping, SHG

promotion for lower grade bank staff and improved understanding of

the importance of access vs. the cost of finance.

74

o The management of the schemes to encourage SHG promotion

should be experimentally delegated to banks, in order to avoid the

problems caused by NABARD’s thin district representation, and to

take full advantage of the banks’ greater field coverage.

30.2 Commercial Aspects of SHG Banking in India :

There are two outstanding aspects to NABARD’s Linking Banks

and Self-Help Groups: with an outreach to 500,000 SHGs and a

population of 40m rural poor, it is the largest non-directed microsavings &

microcredit programme in the developing world; and its bank lending rates

– fluctuating at market rates around 7% in real terms – are among the

lowest. Is it a commercial proposition for the 17,000 participating bank

branches, and perhaps for another 20,000 who might join the program to

reach a population of 100m by 2008( Prof. Dr. Hans Dieter Seibel,

University of Cologne, Germany & Harishkumar R. )

The Study applied average cost analysis, attributing all costs duly to

each product; and marginal cost analysis, in response to the advice of

bank managers to ignore personnel costs of SHG banking because of

existing idle capacities. Main performance indicators are non-performing

loans, return on average assets, and operational self-sufficiency. This

methodology was applied to seven units of three banks in October 2002.

The results are indicative only.

75

* Non-performing loans to SHGs were 0%, testifying to the effectiveness of

group lending to the very poor. In contrast, consolidated NPL ratios ranged

from 2.6% to 18%; and of Cash Credit (CC) and Agricultural Term Loans

(ATL) up to 55% and 62%, respectively.

* Returns on average assets of SHG Banking ranged from 1.4% to 7.5%

by average and 4.6% to 11.8% by marginal cost analysis, compared to –

1.7% to 2.3% consolidated. The operational self-sufficiency of SHG

banking ranged from 110% to 165% by average and 142% to 286% by

marginal cost analysis, compared to 86% to 145% consolidated65. In

contrast, ROA of Cash Credit varied from –10.2% to –0.5% and of ATL

from –6.3% to 0.2%; OSS ratios from 54% to 102%. SHG Banking was

found to be a robust financial product, performing well in healthy and

distressed financial institutions.

* Self-reliance of SHGs based on internal savings and retained earnings

was found to be rapidly growing, exceeding in older groups the volume of

bank refinance by an increasing margin. In addition SHGs deposit

substantial amounts of savings voluntarily in banks as a reserve for bad

debts.

* In addition to direct effects on bank profits, SHG Banking has indirect

commercial effects on banks in terms of improved overall vibrancy in

banking activities. Indirect benefits at village level include the spreading of

thrift and financial self-reliance and of a credit culture among villagers,

micro entrepreneurial experience, growth of assets and incomes, the

76

spreading of financial management skills, and the decline of private money

lending. Intangible social benefits are reportedly many: self-confidence and

empowerment of women in civic affairs and local politics, improved school

enrolment and women’s literacy, better family planning and health,

improved sanitation, reduction of drinking and smoking among men, and a

decline in adherence to local extremism.

* The future sustainability of SHG Banking hinges on five factors: (a) A

sound self-supporting institutional framework is in place. (b) Despite

exceptionally low interest rates, linkage banking was found to be viable and

profit-making for all financial institutions and SHGs; however, many rural

banks require restructuring. (c) SHGs have substantially increased their

level of self-reliance and deposited reserves, while banks are constrained

by high statutory liquidity requirements. (d) Given the low inflation rate,

preservation of the value of resources is no major issue, except in

distressed banks. (e) With continually increasing internal funds, effective

supervision of SHGs through a delegated system, together with the

enforcement of prudential norms in banks and cooperatives, emerges as a

major challenge to the long-term sustainability of SHG banking and rural

finance in India93.

30.3. SHG Bank Linkage Programme for Rural Poor :

The study was based on primary details collected from 115 members in

77

60 SHGs. The socio-economic conditions of the members were compared

between pre and post SHG situations to quantify the impact. The study

findings concluded that SHG Bank Linkage Programme has made significant

contribution to social and economic improvement of the member households

of SHGs.

There was a significant increase in the asset structure, Mean annual

savings, average loan per member, overall repayment percentage, average

annual net income, Employment per sample households. Availing loans from

moneylenders and other informal sources with higher interest rate was

significantly reduced due to SHG intervention. There was remarkable

improvement in social empowerment of SHG members in terms of self-

confidence, involvement in decision-making, better communication, etc.

The present study attempts to assess the performance of micro finance

channelised through SHG Bank Linkage programme implemented by

NABARD since 1992 in Eastern areas (Orissa, Jharkhand and Chhattisgarh

states) of the country. The study is based on primary details collected from

115 members in 60 SHGs. The socio-economic conditions of the members

were compared between pre and post SHG situations to quantify the impact.

The reference period of the study was 2001-02. The study findings concluded

that SHG Bank Linkage Programme has made significant contribution to social

and economic improvement of the member households of SHGs.

Major Findings

78

Structure and conduct of SHGs especially with reference to size,

homogeneity, conduct and attendance of meetings, record keeping, etc.,

was broadly in conformity with the guideline of the programme.

The SC/ST and backward class constituted 83 per cent of the total

sample and coverage of this social group has shown increasing trend

during the recent years.

While there was no change in asset structure in 52 per cent of the

sample households, about 45 per cent of them registered increase in

assets between pre and post SHG situations. The increase in value of

assets that included livestock and consumer durable was from Rs. 4,498

to Rs. 5,827 registering an increase of 30 per cent after joining the

group.

Varied saving products that are suitable for the rural poor were made

available for the SHG members that facilitated increased rate of saving

among them. Mean annual savings were increased from Rs. 952 to Rs.

1,863 registering two fold increase.

Institutional credit deepening and widening among the rural poor were

achieved to a greater extent. The average loan per member during post

SHG situation was Rs. 5,122, which was about 123 per cent more than

the pre SHG situation. Availing loans from moneylenders and other

informal sources with higher interest rate was significantly reduced due

to SHG intervention. The average annual interest paid by the members

from different sources was reduced from 81 per cent to 31 per cent.

79

There was perceptible change in the loaning pattern between pre and

post SHG situations. Consumption oriented loans were replaced by

production oriented loans during post SHG situations which was mainly

due to SHGs and training provided under the programme.

Recovery performance of loans from members to SHGs worked out to 95

per cent where as it was 86.6 per cent from SHGs to banks. The overall

repayment percentage improved from 86 per cent to 95 per cent

between pre and post SHG situations with an perceptible increase in

repayment of loans from banks by 22 percentage points.

The average annual net income per sample households was increased

to Rs. 15184, which was about 23 per cent more than the pre SHG

situations. The incremental income was contributed mainly from farm

activities (54%) followed by non-farm activities (36%).

Employment per sample households increased by 34 per cent from 303

to 405 person days between pre and post-SHG situations.

There was remarkable improvement in social empowerment of

SHG members in terms of self-confidence, involvement in decision-making,

better communication, etc. NGO promoted groups edge over BANK

promoted groups on coverage of more weaker sections, spreading

programme more in inaccessible areas, improvement in assets, savings,

income and employment generations99, capacity building and human

resource development, etc. BANK promoted groups performed relatively

more in institutional loan repayment. There is greater scope for BANK

80

promoted groups for improving the conduct of SHGs and capacity building

of its members.

Sustainability of SHGs was well established through the better

performance of older groups than the recently formed groups in terms of

increased value of assets and saving rate, better access of institutional

loans, higher rate of repayment of loans, elimination of informal sources

and impressive social empowerment.

For greater acceleration of rate of economic empowerment, future

strategy must focus more and more on training and capacity building of

members besides ensuring adequate linkage supports.

SHGs role may further be enhanced through its involvement in

developmental programmes implemented in the areas.

While expanding the programme for wider coverage, efforts also need to

be focused on strengthening the existing groups and institutional building

such as federal structures.

31. Impact Of Self Help Groups (Group Processes) On the Social/

Empowerment Status Of Women:

It was found from the Study that members in three year old groups

perceive themselves as stronger on almost all the studied parameters, with the

exception of a few parameters where the difference between the one year old

81

and three year old groups is not very significant (except in the case of

moderating group level conflicts, where the newer members express higher

confidence levels). (MYRADA report on women empowerment)

Roles played by SHG Promoting NGOs:

Regarding the processes adopted by the SHG Promoting NGOs to enhance

the empowerment of women, there were individual variations in approach.

Despite such variations, certain general trends could be observed, as detailed

below :

32. Problems faced by NGOs at the motivational stage :

o Extreme poverty and continuous engagement in livelihood activities,

putting a premium on the resources and time available to engage in group

activities.

o Low levels of literacy; lack of experience in handling funds; uncertainty

about the workability of SHGs.

o Resistance from male members of the family.

o Lack of awareness of Bank Officials about the SHG concept (regarding

opening bank accounts in the names of un-registered groups, lending to

groups, etc.).

Motivational inputs to form groups :

o Presenting the SHG as a vehicle to enable the economic development of

the poor.

82

o Presenting the idea of savings as a means of building capital over which

members have control.

o Sharing in local problems and helping to find solutions.

o Identifying and supporting certain entry point programmes that not only

meet some local need but also serve to bring people together, besides

building confidence in the NGO.

o Conducting exposure visits to other groups, technology demonstration

camps, etc.

o Using issues of health, children’s education, etc., as rallying points of

people’s interest.

o Through gaining the confidence of the local communities by approaching

them via key opinion leaders.

o Through organising dissemination workshops to illustrate the idea of SHGs

and how they have served to meet the credit needs as well as a variety of

other developmental needs of the poor (including workshops for bankers).

33. Processes adopted for empowerment :

Each of the four NGOs had its own processes to strengthen groups and

members. Variations were noticed both in the contents of communication with

groups and in the sequencing of specific interventions. A Generalisation of

the approach has been attempted below, that was noticed to underlie the work

of all the NGOs, though the specific forms of expression and manifestations

varied :

83

o Linking the concept of SHGs with savings, and using the pooled savings as

the primary means of building group capital over which members had full

control and which they could use to take loans amongst themselves.

o Orienting the groups on a regular basis on group dynamics, group

management, book-keeping, building networks and linkages, etc. that could

strengthen them as institutions.

o Augmenting the financial resources of the group through bank linkages.

o Enabling the groups to mobilise various other developmental programmes

in favour of their members.

o Introducing discussions on health and hygiene, good dietary practices,

legal awareness, and other such topics that could increase their knowledge

and enable them to take appropriate actions as required in their own lives.

o Enabling the members to acquire literacy and numeracy skills.

o Enabling members to acquire livelihood-related technical skills, and

providing need-based counselling in enterprise development.

o Supporting them to take up need-based community action programmes to

strengthen solidarity as well as to enhance their profile in the eyes of the

community.

34.. The Role of SHGs 33 in preventing Rural Emergencies:

Throughout India floods, cyclones, droughts, earthquakes, and landslides

threaten the survival of rural households. Natural disasters quickly turn into

emergencies for poor families because of their extreme physical and socio-

economic vulnerability. Traditionally, conventional response by the relief

84

services providers - government institutions, donors & local NGOs - focus on

responding to an emergency as it happens. Shortcomings of this approach are

a disaster becomes an emergency, responses often exclude women’s

priorities, local markets become depressed, logistics are uncoordinated, and,

responses do not leverage local resources110

35. Microfinance For Rural People :

Has the SHG bank linkage programme lightened the burden of life for the

average member of an SHG in any way? Is the rural household any better, by

gaining access to microfinance? A recent study by NABARD which covered

560 SHG member households from 223 SHGs spread over 11 states showed

positive results. There have been perceptible and wholesome changes in the

living standards of the SHG members, in terms of ownership of assets,

increase in savings and borrowing capacity, income generating activities and

in income levels. Some of the major findings of the study are presented here83.

Member households: landless agricultural labourers (31%); marginal

farmers (23%); small farmers (29%); and others (17%).

Average value of assets (land, house, livestock and consumer durables

etc.) per household increased by 13 % from Rs. 63,000 in pre-SHG

stage to Rs. 71,000 in post-SHG stage. Land was the major asset with a

share of 44% of the value of assets.

85

About 62 per cent of the households reported increase by about 24.5%

in assets from pre- to post-SHG situation.

Housing conditions generally improved with a shift in the ownership from

kuchha (mud walls, thatched roofs) to pucca (brick walls, tiled roofs)

housing.

Almost all of the members developed saving habit in the post-SHG

situation as against only 23% of households who had this habit.

Average annual savings per household registered over threefold

increase from Rs. 460 to Rs. 1,444.

The average borrowings/year/household increased from Rs. 4,282 to Rs.

8,341.

The share of consumption loans declined from 50% to 25%. About 70%

of loans taken in post-SHG situation were for income generating

purposes.

Annualised interest rates on loans from SHGs to members were in the

12% to 24 % range.

Overall loan repayments improved from 84% to 94% between the two

periods with an impressive improvement of 29 percentage points in the

repayment of loans to banks.

Average net income/household increased from Rs. 20,177 to Rs. 26,889,

or by about 33%.

86

About 43 per cent of the incremental income generated was from Non

Farm Sector (NFS) activities followed by farm (28%) and off-farm (21%)

activities.

About 74 per cent of the sample members had income below Rs. 22,500

in pre-SHG situation. During the post-SHG period, the proportion came

down to 57 per cent reflecting improvement in the incomes of about 17

per cent of the households.

Employment increased by 18% from 318 man-day’s to 375 man-day’s

per household between pre- and post-SHG situations.

The involvement in the group significantly contributed in improving the

self-confidence of the members. The feeling of self-worth and

communication with others improved after association with the SHGs.

The members were relatively more assertive in confronting social evils

and problem situations. As a result, there was a fall in the incidence of

family violence

36. SHG contribution to agriculture and on-farm credit:

The largest number of loans given by SHGs to members is for

agriculture and on-farm related activities. An overview of IFAD projects in

which the SHG strategy has been adopted indicates that these loans for

agriculture do not find a place in the project reports that IFAD management

and evaluators produce. The reports provide data only on the amount

budgeted for agriculture in the annual plans and budgets and on the amount

87

spent. Loans by SHGs for agriculture are not a budget line expenditure. In

fact, an analysis of the purposes of loans by SHGs in several IFAD-supported

projects indicates that both the number and the amount of loans for agriculture

are several times higher than those budgeted for agriculture under the line

item in annual plans104.

It may be useful to compare the SHG contribution in this sector with the

overall performance of government programmes promoting agricultural credit

through the formal sector (banks and cooperatives), other than through SHGs.

The 59th round of the National Sample Survey (Government of India, 2005)

revealed that only 27 per cent of the total number of farming households

received credit from the formal sector (banks and cooperatives) – this does not

include the SHG route. The NABARD report (Figure 2) indicates that bank

loans to SHGs increased from Rs 2 879 million to 29 942 million from 2000 to

2005. The figure indicates an increase of some 90 per cent year-on-year for

the first three years, 82 per cent in 2003/04 over the previous year and 61 per

cent in 2004/05. This compares very favourably with the annual increase in

credit from the formal sector to the agriculture sector, which is about 15 per

cent year-on-year (with the exception of 2004/05, when it jumped to 32 per

cent due to government pressure). The macro picture is also cause for

concern. For example, surveys (NABARD, 2003) have shown that the capital

formation in agriculture as a proportion of total growth in capital formation has

fallen from 9.4 per cent in 2003/04 to 8 per cent in 2004/05. Both the public

sector (which contributes about 30 per cent) and the private sector (which

88

contributes about 70 per cent) seem reluctant to invest in agriculture. An

analysis of the purposes of the loans given by SHGs to members in

MYRADA’s projects (MYRADA, 2003) shows that 42 per cent of the total

number of loans are invested in agriculture-related activities (including

purchase of inputs, land development, repayment of high-cost loans to money

lenders and redemption of mortgaged assets, mainly land and trees) and 20

per cent in non-farm activities such as trading, cottage industries and small

businesses. The remaining loans are for essential needs, for which members

would otherwise have borrowed from private moneylenders at exorbitant

interest rates; these essential needs include food, education, housing, health

and sanitation (mainly toilets). Unfortunately, a breakdown of the purposes of

the loans given by SHGs linked to Indian banks is not available.

A Self-Help Group (SHG) is a socially and economically homogenous

group of 10 to 15 people who voluntarily come together to achieve common

goals. For the past five decades offer independence, the State is the planner

and the implementer of anti-poverty programs. Working of the political system

and administrative machinery has been inadequate and the number of people

below the poverty line has not been appreciably reduced. The focus has

shifted to local participatory micro-development organizations known as SHG.

89

37. Major findings / recommendations of the studies on SHG Bank

Linkage Programme:

The SHG-Banking pioneered and promoted by NABARD has emerged

as a primary microfinance service mechanism for the unbanked poor in India.

The multiple initiatives led by capacity building have made tremendous inroads

into the conventional bankers mindset. They now view SHG-Banking as a new

dimension of quality portfolio with very low risks and with marginal increase in

operating costs. The dimension and flexibility in SHG-banking now practiced in

India is unmatched in world’s banking system105. Being predominantly women

focused, SHG-Banking is the first step towards feminisation of the (micro)

banking portfolio of Indian banks. Stimulating self-help capacity of the poor

does spark off the entrepreneurial enthusiasm, risk mitigation mechanisms in

low-income households, it also serves as an entry-road to overcome poverty

and addressing other crucial social concerns.

38. SHPIs as a supporting role for SHGs:

The objective of this study was to examine and compare the different ways in

which Self Help Promotion Institutions (SHPIs) promote Self Help Groups

(SHGs), in order to enhance the efficiency and quality of the SHG promotion

process.

The following are the major findings in brief:

90

o The banks, particularly co-operatives, are likely in the medium term to

be the main SHPIs. They should support, and eventually be replaced

by, SHG members’ own initiatives.

o The SHPI roles of SHG federations and of non-volunteer individuals

should be examined.

o Incentive schemes for NGOs and individuals should be redesigned

and tested in order to cover the full costs of the SHPI.

o Training should include hands-on SHG record keeping, SHG

promotion for lower grade bank staff and improved understanding of

the importance of access vs. the cost of finance.

o The management of the schemes to encourage SHG promotion

should be experimentally delegated to banks, in order to avoid the

problems caused by NABARD’s thin district representation, and to

take full advantage of the banks’ greater field coverage.

There are two outstanding aspects to NABARD’s Linking Banks and

Self-Help Groups: with an outreach to 500,000 SHGs and a population of 40m

rural poor, it is the largest non-directed microsavings & microcredit programme

in the developing world; and its bank lending rates – fluctuating at market rates

around 7% in real terms – are among the lowest. Is it a commercial proposition

for the 17,000 participating bank branches, and perhaps for another 20,000

who might join the program to reach a population of 100m by 2008( Prof. Dr.

Hans Dieter Seibel, University of Cologne, Germany & Harishkumar R. Dave)

91

The Study applied average cost analysis, attributing all costs duly to

each product; and marginal cost analysis, in response to the advice of bank

managers to ignore personnel costs of SHG banking because of existing idle

capacities. Main performance indicators are non-performing loans, return on

average assets, and operational self-sufficiency. This methodology was

applied to seven units of three banks in October 2002. The results are

indicative only.

* The future sustainability of SHG Banking 82hinges on five factors: (a) A

sound self-supporting institutional framework is in place. (b) Despite

exceptionally low interest rates, linkage banking was found to be viable and

profit-making for all financial institutions and SHGs; however, many rural

banks require restructuring. (c) SHGs have substantially increased their level

of self-reliance and deposited reserves, while banks are constrained by high

statutory liquidity requirements. (d) Given the low inflation rate, preservation of

the value of resources is no major issue, except in distressed banks. (e) With

continually increasing internal funds, effective supervision of SHGs through a

delegated system87, together with the enforcement of prudential norms in

banks and cooperatives, emerges as a major challenge to the long-term

sustainability of SHG banking and rural finance in India.

39. Impact of SHG Bank Linkage Programme on Rural Poor

Empowerment

92

The study is based on primary details collected from 115 members in

60 SHGs. The socio-economic conditions of the members were compared

between pre and post SHG situations to quantify the impact. The study

findings concluded that SHG Bank Linkage Programme has made significant

contribution to social and economic improvement of the member households

of SHGs.84

There was a significant increase in the asset structure, Mean annual

savings, average loan per member, overall repayment percentage, average

annual net income, Employment per sample households. Availing loans from

moneylenders and other informal sources with higher interest rate was

significantly reduced due to SHG intervention. There was remarkable

improvement in social empowerment90 of SHG members in terms of self-

confidence, involvement in decision-making, better communication, etc.

The present study attempts to assess the performance of micro finance

channelised through SHG Bank Linkage programme implemented by

NABARD since 1992 in Eastern areas (Orissa, Jharkhand and Chhattisgarh

states) of the country. The study is based on primary details collected from

115 members in 60 SHGs. The socio-economic conditions of the members

were compared between pre and post SHG situations to quantify the impact.

The reference period of the study was 2001-02. The study findings concluded

93

that SHG Bank Linkage Programme has made significant contribution to social

and economic improvement of the member households of SHGs94.

41. Impact of Self Help Groups on Women Social Status:

It was found from the Study that members in three year old groups

perceive themselves as stronger on almost all the studied parameters21, with

the exception of a few parameters where the difference between the one year

old and three year old groups is not very significant (except in the case of

moderating group level conflicts, where the newer members express higher

confidence levels.38

a) Roles played by SHG Promoting NGOs

b) Problems faced by NGOs at the motivational stage

c) Motivational inputs to form groups :

94

CHAPTER- 3

STATEMENT OF PROBLEM & OBJECTIVES OF THE STUDY

Research Problem: Since independence many Banking reforms have been

undertaken with aim to alleviate poverty and uplift the poor. Post nationalization of

the Banking sector, 1969, we have witnessed a substantial amount of resources

being earmarked towards meeting the credit needs of the poor. Bank

nationalization aimed at expanding the outreach of financial services to neglected

sectors. There spawned several pro-poor financial services, supported by both

the state and central governments, which included credit packages and programs

customized to meet the perceived needs of the poor.

The ‘defining event’ in the build-up of financial architecture in India was the

nationalization of major commercial banks. It essentially reflected the national

aspiration for rapid and equitable economic and social development. The

aftermath of nationalization witnessed a remarkable spread of the banking system

to the hitherto neglected sectors and regions. Significant progress was made in

terms of coverage of the rural population by formal credit institutions,

While the objectives were laudable and substantial progress was

achieved, credit flow to the poor, and especially to poor women, remained

inadequate. This led to initiatives, that were institution driven that attempted to

converge the existing strengths of rural banking infrastructure and leverage this to

better serve the poor. The pioneering efforts at this were made by National Bank

for Agriculture and Rural Development (NABARD).

95

Even with the presence of public sector & cooperative banks and local

associations, majority of people are depending on small and middle level of

money lenders. The men & women of most of villages are practicing seasonal

business, daily wage workers in industries and construction works. Very few are

active in small time businesses like selling vegetable, fish, flowers and road side

make shift groceries. However they require a stable income and pride place in the

society. To meet that requirement, they definitely require a financial support from

banks and other sources in the form of loans without collateral and procedural

hassle.

In India, among all other models the SHG-Bank Linkage Program

model is believed to be a popular one as reflected by its record of good rate of

loan repayment along with regular banking accessibility. SBLP was conceived to

fill the existing gap in the formal financial network and extending the outreach of

banking to the poor. However, the present distribution of the SBLP is skewed

against the poorer regions of the district. Banks may need to be encouraged as

facilitators in extending the SHG movement in the poorer regions, perhaps by

introducing a scheme of performance-linked incentive. Specific funds may be

created to address the regional imbalances in the SBLP. SHGs need to be formed

around activities of rural infrastructure such as construction and renovation of

minor irrigation tanks, feeder channels, rural roads, etc.,

One way the NABARD and RBI statistics shows regions spread and fiscal

strength of the program, Raigad district shows the irony picture of the under-

96

performance either by Bankers, the policies or the people who could’ exploit the

available easy accessible financial resources to empower their lives.

There may be hurdles 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 SHG –Bank Linkage program has been introduced in Maharashtra

1996. But the SBLP could tough the success path from 2002 only. Moreover the

report from District Lead bank (Bank of India for Raigad) shows a severe drop of

92% in SHG linkage from 2004 to 2007. The linkage of new SHGs even

decreasing or not been initiated. Except Gadab, Karjat Talukas other part of

Raigad has witnessed much more (95%) drop-outs and some talukas like Panvel

and other of 100% drop-outs of existing SHGs.

. This will generate significant external economies for agricultural yields and

97

overall rural development. Enhanced efforts should be made towards embedding

livelihood activities, micro-insurance and grain banks in the SHG model.

The core objective of this study to understand the challenges faced by the people

of the region and bankers.

The research study focuses on the reason on spread of Self help Bank

Linkage Program in the areas of Villages of Karjat Taluka. The study would

investigate the conditions which are discouraging the otherwise successful model

of microfinance elsewhere that has the capability to uplift their poor economic

conditions and can give a sustainable development. The study would focus

primarily on practice & challenges of this model in Raigad district of Maharashtra

state with under mentioned focus areas.

The Research Objective of this study is to determine whether and to

what extent participation in Self Help Groups has an impact on the

empowerment of members. Given the great importance being given to the

group approach while conceptualizing and implementing any programme for

the rural poor, especially women, this study becomes both essential and

relevant. More specifically, this research study has been held to explore if

the SHG approach has been successful in the empowerment of rural women

living in Raigad District with the following objectives.

98

Objectives of the Study:

* To study the impact of Self Help Group- Bank Linkage Program and its

performance limitations. in villages under Karjat (Taluka) Raigad (District).

* To study the impact of SBLP activities and any other linkage models are

existing in the area.

* To study the role of NGOs in the success of SHG linkage model of group

activities existing, if any.

* To study and analyse the reasons for the low success rate of the SBLP

model in the areas.

HYPOTHESIS:

Null Hypothesis: The SHG active or inactive is independent of which

organization supports the SHG

Alternative Hypothesis: The NGO plays important role in making SHG

successful by doing some activity.

99

CHAPTER- 4

RESEARCH METHODOLOGY & LIMITATIONS OF THE STUDY

1. Methodology: 4.1A

During the process a detailed study was conducted to understand the

genesis Self Help Group-Bank Linkage model of Microfinance and the factors

impacting the empowerment of the rural poor. The factors effecting the

functions of SHGs, NGOs and Banks in Raigad District.

a) The Secondary Data Collection: The survey involved with review of

literature and publications reports of government bodies like RBI, NABARD,

Planning Commission, DRDA, Public Sector Banks, Local Panchayats and the

research reports and case studies from various Microfinance Institutions and

NGOs.

b) The Primary Data Collection: Involves required discussions with experts

from Bankers, SHGs, NGOs who has been involved with SHG-Bank Linkage

Program, related activities and with personnel related/non related with SHG-

Bank Linkage using direct interview methodology, email and questionnaires.

100

c) The Field Survey: A Pilot study was conducted with a sample 100

respondents covering all the classes from SHG-non SHG. A good rapport was

first established with the respondents with the help of senior bankers and

academicians already associated with NGOs and SHG activities, especially

from those have deep understanding of the tribal habitability and their

livelihood practices. The questionnaire is designed in such a way to obtain

information of socio, economic, and cultural activities from individuals and

no.of accounts and NPAs Bankers. The analysis on data collected for pilot

study was analysed to find out the suitability of the questionnaire and the

information collected. Consequently the questionnaires were modified with

consultancy with the experts from NABARD, Guide and other subject related

experts.

i) Type of Questionnaires: To achieve the purpose three different

questionnaires for the study of 1) Individual those not involved in SHG

activities or not aware, 2) Those involved in SHG and Bank Linked and 3)

Banks were prepared.

ii) Questionnaire Design; where questions are pointers and open ended so

as to facilitate a discussion, to understand the issues involved in SHG

formation criteria, members socio-economic background, bankers role in the

SBLP operations and its impact on their development. These tools are

targeted to obtain in-depth understanding of the concept of “SHG-Bank

Linkage Program” its operational conditions at sample/targeted area.

101

d) The Data Acquisition stage: This stage is a combination of collecting data

from the contact points such as NGOs, Local Panchayats, District Collector,

Welfare Officers, Lead Bank Officer of the respective Banks (Bank of India).

e) The Data Analysis: This would involve analyzing the data collected and

would also include ensuing the quality of data also

2. Sample Design: The structured questionnaires were administered to

the following samples: 4.1

3. The criteria used for sample selection: Though the SHG activity

help economic empowerment of women, the change in their familial and social

status and sense of organizational bonding, the awakening of self confidence

and self-respect, social and political awareness; is a slow process and to

achieve it, a member should have sufficient experience of well established and

well run SHG.

Hence the following criteria were used for sample selection(as per

NABARD guidelines for suitable SHGs):

S.No Organisation Total Sample

Targeted sample

Actual Collected

01. SHGs a) Visakhapatnam, Raigad, & Thane, 2500 400 400

02 Individuals 7000 4200 3072

03. Bankers, Chairman of the SHGs

450 124 123

Total 13900 4724 3595

102

1) The SHG should be 2 to 3 years old.

2) The sample should be representative of the entire district. Hence the study

tried to cover more Talukas & Tahsils from the district.

4. Interviews for case studies

i. Interviews for the case studies were held i.e., 1) Academy of

Development Sciences, Kasheligaon, and individual cases of the members

from Ambernath taluka and Karjat taluka. Because they are most perfect

examples for success and failure of the SHG Bank Linkage Program. The

interviews were conducted at the native place of the members of SHGs. As

the women from SHGs were illiterate and those were literate, could not write

answers; so all the members were interviewed, with the help of the

questionnaires.

ii. The sample for this study was 400 SHGs, spread over 3 districts

Maharashtra namely Raigad, Thane and Visakhapatnam from

Andhrapradesh that had been linked to Commercial & Cooperative banks.

The sample would be a random selection of individual borrowers or members

of any group from nearly 14 clusters (villages). The data from Bank of India

as it is the lead bank of Raigad, Union Bank of India, Pen Urban Cooperative

bank and Kalyan Janata Sahakari Bank. Participants’ Background

Information :

iii. A questionnaire was distributed to the selected NGOs to collect data

related to their inception, bank link, age of SHG, saving , bank loan

103

refunds and re-loans. This Information provided context for the

researcher to understand and describe study patterns.

iv. Detailed discussions were held with officials of National Bank for

Agriculture and Rural Development (NABARD), Bank of India (BOI),

Union Bank of India (UBI) etc.,

Secondary Research: The secondary data were collected from the Annual

Reports and administrative guidelines of the Ministry of Rural Development,

Government of India as well as from the classified data available with the

Offices of the states and SGSY coordinating departments of the districts of

Visakhapatnam, Thane and Raigad.

LIMITATIONS OF THE STUDY:

1) The study is based on the information provided by the SHGs, in Raigad and

Visakhapatnam, the result would vary of other districts.

2) The diversity of commerce activities of Raigad district and other areas may

produce non- homogeneous opinion.

3) The influence of near vicinity of urban exposure and casual earning

opportunities in Raigad and Thane districts may vary with the result from

other districts. The report has been prepared based on the data collected from

the field and published secondary data

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CHAPTER- 5 MICROFINANCE THROUGH SELF HELP GROUP BANK LINKAGE

5.1 Origin of Microfinance in India: The origin of micro finance is quite

absorbing. Micro finance combines the strengths of both formal and informal

systems of purveying credit10. Availability of hassle free credit in a systematic

manner is the unique feature of micro finance system. Micro finance in

informal system was in vogue in India in the form of chit funds, etc., since time

immemorial. It came into existence under formal system with the advent of co-

operative movement in India in the beginning of the last century.

The micro finance is primarily based on the principles of co-operation

namely, mutual help, democratic functioning, etc. Though, the co-operative

movement was initially envisaged with unlimited liability and small size of

societies consisting of homogenous groups, over the years in the quest for

improving the viability of co-operatives, large societies with limited liabilities

were organized. This apart, the evolution of State partnership in co-operatives

with entrenched bureaucracy, etc., distanced co-operative movement from the

spirit of micro finance movement.

5.1.1 Policy Framework: In the Indian context, the interventions of

voluntary agencies in the socio-economic development of masses can be

traced back to pre-independence days39. Owing to the inability of formal

financial system to reach the poor due to lack of collaterals, asymmetric

information and high transaction costs, a number of voluntary agencies/NGOs

entered the domain of rural credit for organizing the poor into informal groups

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for mutual economic and social empowerment. However, the origin of micro

finance movement in its present shape dates back to 1986, when the Sixth

General Assembly of APRACA at Kathmandu in Nepal considered a proposal

for promotion of linkages between formal institutions and Self-Help Groups. As

a sequel to it, in India, the National Bank for Agriculture and Rural

Development (NABARD) in consultation with Reserve Bank of India organized

workshops and national consultations and ultimately launched a pilot project in

1992 for linking 500 Self Help Groups with commercial banks i. e., the formal

sector. The pilot project was further extended to Regional Rural Banks and

Co-operative Banks in 199378.

It is in this context that there is a growing interest in alternative credit

delivery mechanisms like microfinance programs. In the delivery of small loans

to the poor (micro-credit) there are five distinct approaches: In India the

National Bank for Rural Development (NABARD) and the Reserve Bank of

India (RBI) has actively promoted it by providing increasing funding to micro-

finance institutions (MFIs). Under the NABARD’s Self-Help Group (SHG) –

Bank linkage model (which is different from the Grameen Bank model3), SHGs

bring together about 10- 20 women who pool their savings for a few months,

allocate them to members who need small amounts temporarily, thus making

them eligible for a bank loan. In India, micro-credit is provided through (a)

Bank-led model (Bank-SHG linkage model) of delivery as well as through (b)

Commercial model97. The commercial model is based on funding of micro-

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finance institutions (MFIs) which comprise of non-governmental organizations

(NGOs), non-banking financial institutions (NBFCs), charities and co-

operatives (like SEWA in Gujarat). In the commercial model, there are two

variants: (1) Bank-MFI model and (2) Partnership Model pioneered by ICICI

bank. The SHG-Bank linkage model was introduced in 1991-92 with a pilot

project of linking 500 SHGs with banks which increased to more than 16 lakh

by the end of March 2005. Cumulatively, these SHGs have accessed credit of

Rs. 6,898 crore from banks during the period. About 2.4 crore poor

households have gained access to the formal banking system through the

programme. During the last six years the number of SHGs linked to banks has

gone up from 32,995 during 1998-99 to 16,18,476 during 2004-05.

In India, increasing credit access to the poor through financial inclusion

is a crucial component of the Indian economic planning and fight against

poverty. The nationalization of major banks in 1969 and mandated directed

credit programme to the priority sector since the early 1970s was part of the

push for financial deepening and inclusion. But the economic reforms since

1992 with emphasis on deregulation and efficiency had a profound impact on

the financial landscape especially the access of credit to the poor. Studies

have shown that access of rural households to institutional sources of finance

has declined since 1992 and the share of debt of rural households especially

from non-institutional sources has increased. In India, the promotion of the

microfinance delivery through Bank-Self Help Group (SHG) model by the

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Reserve Bank of India and National Bank for Agriculture and Rural

Development (NABARD) since 1992 is to replace the state activism of the

1970s and 1980s by private sector (microfinance) entities to promote financial

inclusion. After a series of farmers' suicides in the country which are linked

to rising indebtedness, all banks are being urged to adopt ‘financial inclusion’

as an operational policy.

Although the outreach of microfinance in India has increased from a

modest 33 thousand SHGs 1992 to 2.9 million SHGs by 2007, the biggest

driver of this expansion – the commercial model (based on profits) received

some setbacks in March 2006 with borrowers in the state of Andhra Pradesh

(with the highest microfinance density in India) showing considerable hostility

to these entities on the ground that they behave like loan sharks 30. It is in this

background there is a search for alternative delivery models of microfinance.

5.1.2 Theoretical Framework & Background: According to Mahajan

and Ramola57 “the formal financial sector may achieve financial sustainability

but has little outreach to poor clients. Traditional efforts by non-governmental

organizations (NGOs) may reach poor clients, but are often unsustainable.

Micro finance on the other hand, combines both outreach and sustainability.

Such practice is perhaps most clearly embodied in the micro finance, which

marries the best of the formal financial sector in terms of sustainability with

outreach to poor clients of the development NGO.

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Since independence, the Government of India in general and Reserve

Bank of India in particular have made concerted efforts to provide the poor

access to credit. However, the limited success of co-operatives forged the

need for nationalization of commercial banks and later on establishment of

Regional Rural Banks, which have mandated credit programmes for the low

income households. Despite the phenomenal physical outreach of the formal

credit institutions achieved in the past several decades, the rural poor continue

to depend on informal sources of credit on account of the cumbersome

procedures associated with formal credit. The credit needs are small,

frequent, usually emergent and they arise at unpredictable times. For the poor,

the consumptive credit needs often precede and also determine their

productivity.

For various reasons, the credit flow to the poor for meeting all their

requirements did not get institutionalized. Some of the major causes lie in the

difficulties in dealing effectively with a large number of small borrowers, who

require credit as said earlier, frequently and in small sums, and also the banks’

perceptions of the risk and creditworthiness of these borrowers. To address

these problems effectively the micro finance has been tried as a viable

alternative in reaching the hitherto unreached and fill up the gap in the

demand and supply. Micro finance is not financial intervention alone. It is a

holistic approach covering social intermediation along with a provision of

financial services needed by the poor such as thrift, credit and insurance.

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Credit under micro finance programme is extended on the basis of social

collaterals in the form of joint liability with or without Self-Help Group. Credit

intervention is based on the past performance of the borrower with gradual

increase in subsequent doses of credit. In short, micro finance is the cutting

edge of the development of the poor.

5.2 Progress of Micro Finance in India: The linkage programme of

SHGs with commercial banks is gaining momentum. Both National Bank for

Agriculture and Rural Development (NABARD) and Small Industries

Development Bank of India (SIDBI) have succeeded in linking SHGs, which is

progressing satisfactorily to benefit more number of people. As on September

9, 2002, about 0.505 million SHGs engaged in micro enterprises were

financed under the scheme of which 90 per cent were women SHGs.

Table-5.1: SHG Credit Linkage Cumulative Progress as on 31 March 2002

(Amount in US $ million)Year No. of SHGs Bank Loan Refinance

Linked1992-93 255 0.10 0.091993-94 620 0.20 0.151994-95 2,122 0.78 0.681995-96 4,757 1.81 1.691996-97 8,598 3.33 3.001997-98 14,317 6.40 5.751998-99 32,995 13.57 12.371999-00 1,14,775 44.53 34.642000-01 2,63,825 105.26 87.72

2001-02

4,61,478 215.20 166.90

2002-03

5,05,106 244.11 NA

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Source: National Bank for Agriculture and Rural Development.2003

Graph-5.1A Cummulative Number of SHGs Linked to Banks

The banks participating in the linkage programme were provided cent

percent refinance at the concessional interest rate of 6.5 per cent per annum.

This was further facilitated by the RBI circular issued to banks in February

2000 for mainstreaming the micro credit and reckoning it as priority sector

lending.

The credit-linking programme covered 412 Districts in 27 States and

Union Territories. A notable feature is that 90 per cent of the groups formed

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were exclusively of women members. The repayment of bank loans issued to

the SHGs was above 95 per cent.

5.2.1 Strengths and issues of concern of Indian Micro Finance Sector:

(A) Strengths of Indian Micro Finance Sector: India is the largest

democracy in the world. Unity in diversity is the greatest strength of India.

Despite vast differences in terms of language, caste, religion, etc., driven by

the co-operative spirit, people are interwoven with common affiliations and

social obligations. The factors like personal rapport and proximity and like-

mindedness have added to the spread of the programme.

Many SHGs have come into existence in India spontaneously and have

exhibited tremendous democratic functioning and group dynamism. Their

adroitness in assessing and appraising the credit needs of members, their

business like functioning and efficiency in recycling the funds often with

repayment rates nearing cent percent are additional positive features. Some of

the best practices followed under micro finance sector in India include inter

alia: 1) broad based definition of micro finance 2) adoption of multi model

approach 3) greater freedom to micro finance institutions 4) creation of Micro

Finance Development Fund 5) the use of computers in micro finance and 6)

certain other important best practices. These aspects have been discussed in

greater details in the following paragraphs.

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B). Multi Agency approach: It has been decided to involve various

agencies in mainstreaming and up scaling of micro-finance. All the major

credit institutions viz., commercial banks, co-operative banks, regional rural

banks have been involved in micro finance programme. In all, three distinct

linkage models are being followed. Under Model-I, banks themselves take up

the work of forming and nurturing the groups, opening their saving accounts

and providing them bank loans. Up to March 2002, 16 per cent of the total

number of SHGs financed were from this category. Under Model-II, SHGs are

formed by NGOs and formal agencies but are directly financed by banks.

C). Greater Freedom to the Micro Finance Institutions:

i) RBI has allowed banks to formulate their own models or choose any

conduit/ intermediary for extending micro credit. Banks are allowed to choose

suitable branch/pocket/ area where micro credit programmes can be

implemented.

ii) Banks are permitted to prescribe their own lending norms keeping in

view the ground realities.

iii) Banks are also allowed to devise appropriate loan and saving

products and related terms and conditions including the size of loan, unit cost,

unit size, maturity period, grace period, margins and purpose of borrowing

including for housing and shelter needs.

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iv) Interest rates on bank's loans given to micro finance institutions are

completely deregulated.

v) Bank lending under micro finance is treated as part of priority sector

targets as well as under sub-target of lending to the weaker sections.

vi) The micro finance institutions registered as not for profit NBFCs

have been exempted from registration and prudential requirements. RBI has

permitted such NBFCs to provide credit not exceeding US $ 0.001 million for

business activity and US $ 0.003 million for meeting the cost of a dwelling unit

to the poor.

vii) Unsecured advances given by banks to SHGs against group

guarantees be excluded for the purpose of computation of the prudential

norms on unsecured guarantees and advances until further notice. This

apart, the Government of India has also allowed foreign direct investment in

micro credit to encourage foreign participation in various micro finance

projects.

E). Computerization of Micro finance Operations: Generally, the

facilitator tracks member accounts at the village level with hand written sheets

and passbooks. A good measure of time is devoted to manually updating the

records and little time is spent on interface and discussions on economic and

social aspects. Elsewhere in southern part of the country a micro credit

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institution known as Swayam Krishi Sangam (SKS) has introduced Smart Card

into its micro credit programme95.

5.2.2 Some Issues of Concern:

Fragile Sustainability: By and large micro finance institutions in India are

still in nascent stage. A closer examination of the profiles of these institutions

reveals that most of these institutions are depending heavily on the

grants/donations from outside sources, higher interests on the loans given to

SHGs pose a serious concern over the viability of these institutions in the long

term (Table5.1 ). In this context, the selection of appropriate areas having

efficient infrastructure will also help to reduce the transaction costs.

Table- 5.2 : Performance Indicators of Micro Finance Institutions (Amount in US $ million)

Indicators 2000-01 2001-02SKS SEWA SRFS OBGP SKS SEWA SRFS OBGP

Total Income0.012 0.853 0.030 0.0400.039 1.267 0.092 0.055

Total Expenditure 0.014 0.857 0.060 0.0350.052 1.192 0.082 0.044Percentage of expenditureon salaries and allowances 43.0 19.0 27.0 57.5 59.0 15.0 29.0 19.0Excess of expenditure

over income 0.002 0.004 0.030(-)

0.0050.012(-)

0.075(-)

0.011(-)

0.011InterestIncome 0.011 0.760 0.012 0.0400.040 0.990 0.013 0.055Interest earning perUS $ 100 of loan * 17.88 38.72 5.69 9.5713.14 44.47 2.38 10.15Total expenses perUS $ 100 of loan * 20.94 43.65 27.74 8.5117.27 53.27 14.78 8.2

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Source: SKS, SEWA, SRFS Balance sheets (US$ valued @ Rs.48.77 as on Septermber 2003)

Micro finance market in India has made rapid strides both in terms of

SHGs linked with the banks and the number of beneficiaries covered. The

freedom given by the Reserve Bank of India has paved the way for its fast

upscaling. Multi-model approach involving banks, NBFCs, Trusts, Foundations

and NGOs has paid rich dividends. Establishment of Micro Finance

Development Fund has also helped the various entities for orderly

development of micro-finance sector by providing required infrastructure and

training system. Some of the impact assessment studies conducted by RBI,

NABARD and select micro finance institutions reveal that micro finance has a

very positive impact on the lives of the poor. It has emerged as a cost-

effective, operationally simple and low-risk strategy for expanding client base

and business. It has afforded a positive institutional alternative and has cut

into the informal sector hold on rural market. Infact micro finance is making the

informal sector accept benchmarking of formal credit. Micro finance is not

simply a banking activity; it is emerging as a developmental tool. Micro finance

has ushered in the economic independence of women and change in inter &

intra-household dynamics.

Computerization of micro finance operations will go a long way in the

sustainable development of micro finance sector. This apart, selection of

appropriate areas having efficient infrastructure and network of intermediaries

will also help to reduce the transaction costs. Last but not the least, in an

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anxiety to have faster up scaling and mainstreaming of micro finance sector,

we should not dilute the basic principles of micro finance and load it with

bureaucratic pressures as has been experienced in the past in the other

segments of formal sector. Micro finance in India is still to reach the potential

it has. There is therefore an urgent need to explore and deploy new delivery

mechanisms. Using different types of approaches and methodologies, may

help us to reach poorer clients, particularly those living in remote areas and

greater number of urban clients. Methodology diversity is also likely to allow us

to serve clients whose growing enterprises require larger funding than that

traditionally been provided by Micro Finance Institutions.

Government, Banks or any other agency support under micro finance

is not for any specific methodology. MFIs may on lend directly to SHGs/

individuals or root their assistance through their partner NGOs & MFIs. They

may also adopt any other lending channel so as to effectively reach financial

assistance to the poor clients. This approach has been decided in view of the

fact that MFIs not only offer a varied combination of products and adopt

different pricing techniques, they also differ in their credit delivery technology /

channel/ mechanism. The credit delivery technology of MFIs in India is

basically dependent on factors such as nature and demographic profile of the

clientele, product mix, pricing technique, legal and institutional form used and

above all, the long term micro-finance objectives (social vs. commercial micro

finance).

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5.2.3 Microfinance models/approaches in India: The following

generic approaches to micro finance are commonly prevalent in India :

i. The basic SHG model with Commercial Bank linkage programme.

ii. The Federated SHG approach.

iii. The Rural Industries Promotion (SHG) Framework.

iv. The GRAMEEN Replicator Approach

v. The Urban Co-operative Banking Model

vi. The Multi-State Co-operative Solidarity Group Model

vii. The Enabling Co-operative Networking Framework

viii. The Co-operative - Grameen Hybrid Model

ix. The NBFC Approach

5.3 Microfinance through SHG: Phase I: From 1987 to 1992:

During this phase – largely omitted in recent studies – NABARD

focused on supporting NGO initiatives to promote SHGs and on analysing

their potential and performance. In 1987 NABARD first put funds into the

SHG/SAG movement (in response to a proposal from MYRADA submitted in

1986). In 1987 it provided MYRADA with a grant of 1 million Indian rupees to

enable it to invest resources to identify affinity groups, build their capacity and

match their savings after a period of 3-6 months. The grant was based on

MYRADA’s experience in promoting SHGs since 1985 and the initiative of the

NABARD chairperson at that time.

As a result of the feedback from this initiative, in 1989 NABARD

launched an action research project in which similar grants were provided to

other NGOs. After an analysis of this action research, and owing to the efforts

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of successive NABARD chairpersons and senior management, in 1990 RBI

accepted the SHG strategy as an alternative credit model. NABARD (1992)

issued guidelines to provide the framework for a strategy that would allow

banks to lend directly to SHGs. Based on these initial experiences, the SHG-

Bank Linkage Programme was launched in 1992 (this second phase is

described in Section III). Since then – and on the basis of its extensive

network of officers – NABARD has promoted and monitored the SHG

programme, provided funds for capacity building and innovation, and helped

change policy to create an enabling environment63.

5.3.1 Progress Under the SHG Bank Linkage Programme: A 686,408

SHGs were linked during the year 2006, bringing the cumulative number of

SHGs that had ever been linked (provided with bank loans) to 2.92 million by

March 2007 (Table ---). Assuming an average group size of 14 members1 this

translates into coverage during the year of another 9.6 million persons, over

90 percent of them women, and the total number of SHG members who have

ever benefited from the programme to about 41 million. Since some

households have more than one member in the programme, the number of

families benefited is slightly smaller than these numbers imply. About half of

them are below the poverty line. In addition to first loans to new SHGs,

457,410 SHGs received repeat loans.

The number of new SHGs linked this year represents an increase of

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about 11 percent over those linked last year. This represents only a slight

deceleration of the rate of growth of loans to new SHGs from 15 percent last

year. The increase in the number of repeat loans however, was exactly the

same, at 33 percent. Lending under the programme grew by Rs 6643 crores,

or an increase of 48 percent over last year's new lending, which had grown by

50 percent over the previous year. The average size of first loans made to new

SHGs went up by 18 percent to about Rs 44,300 per group, or to an average

of about Rs 3200 per member.

5.3.2 SHG Linkage: Under this programme Microfinance has until now

been carried out entirely in terms of disbursements, both annual and

cumulative, rather than loans outstanding at the end of year. The latter is a

stock measure of size, as compared to a flow, and provides a better basis for

comparison with the size of lending under the MFI model, or with bank lending

to other categories of borrowers such as marginal farmers, since it

standardizes for loan tenor. In an important study based on a survey of

participating banks under the programme conducted by GTZ/NABARD in

2005. These ratios had been the subject of conjecture until now.

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5.3 Progress in credit linked SHGs .

Year New SHGs financed by banks

Bank Loan (Rs. in crore)

During the year

Cumula-tive

During the year Cumula-tive

No. Growth %

No. Amt. Growth %

Amt.

1992-99 32,995 32,995 57.07 57.071999-00 81,780 148 114,775 135.91 138 192.982000-01 149,050 82 263,825 287.89 112 480.872001-02 197,653 33 461,478 545.47 89 1,026.342002-03 255,882 29 717,360 1,022.34 87 2,048.682003-04 361,731 41 1,079,091 1,855.53 81 3,904.212004-05 539,365 49 1,618,456 2,994.25 62 6,898.462005-06 6,20,109 15 22,38,565 4,499.09 50 11397.55

In addition to this, 1,71,669 existing SHGs in 2003-04, 2,58,092 in 2004-05 & 3,44,502 existing SHGs in 2005-06, were given repeat finance by banks

5.4 Advantages of Microfinance:

Microfinance is argued to have economic, social and humanitarian

advantages. This paper tends to focus on the economic implications of

microfinance, but also outlines social and humanitarian aspects of

microfinance in order to better understand the topic.

Many researchers argue that microfinance creates access to three

types of capital. First, it gives access to productive capital through microcredit.

Second, it gives access to human capital through vocational training and

education. And third, social capital built through creating local organization

building, promoting democratic systems and fortifying human rights. These

endowments together are argued to enable people to move out of poverty.

Although it is nearly impossible to measure, increasing material capital

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strengthens the sense of dignity of poor people and contributes to motivating

poor people to participate in the society. With a loan and a source of income

people are argued to be able to improve the socioeconomic position of their

family and to make plans beyond only the survival of the day. The existence of

these conditions stimulates people to be actively involved in society.

Participation in microfinance programs leads to a greater diversification

of labour supply across seasons. On the contrary, access to these programs

goes along with a reduction in the variability of consumption across seasons.

Apparently, although the programs might not increase consumption on

average, they might offer households opportunities to smooth consumption

through smoothing income. For this reason, poor households are argued to

become less vulnerable due to microfinance.

In many cultures and countries the subordination of women still exists.

In many cases men take care of income and money and women take care of

basic needs such as health care of their children, education and nutrition and

in addition also try to improve the development of those basic needs.

Microfinance creates the opportunity for women to get access to capital. Pitt

and Khandker66 argued that money spent by women leads to an increase of

children’s participation in education, better nutrition and health care.

Microfinance for women thus is argued to lead to positive external effects on

the one hand and to the reduction of gender inequality and dependency on the

other hand 66

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5.5 Disadvantages of microfinance: Microfinance is a much

criticized strategy. Many intellectuals doubt that microfinance has any

influence on poverty alleviation, disagree with the proposition that

microfinance reaches the poorest and don’t think that microfinance will sort

any effect on the long term economic impact on SHG24.

Reaching the very poorest people is of crucial importance in order to

reduce severe poverty. An important point of criticism on microfinance is that

the very poorest can’t be reached with this method, researchers argue that

microfinance can be successful for individuals with a low consumption level

who can realize a degree of savings. Vulnerable people are not able to level

their consumption and are quite sensitive to income shocks, and thus have

little advantage with the aid of microfinance. The effect of microfinance on the

very poorest and vulnerable people is argued to be very low.

In practice a substantial share of a loan will be invested directly by men,

while at the same time women maintain responsible for the repayment of the

loan. Because women do not invest the money, positive external effects

disappear. Microfinance does then not contribute to the reduction of gender

inequality and the dependency position of women. Goetz and Gupta conclude

that the chance of daughters going to school diminishes when women become

independent entrepreneurs.

Prominent fact is that the debate about the impact of female

empowerment is controversial in the literature. One camp believes that

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microfinance programs positively contribute to female empowerment. A

second, more skeptical, viewpoint believes that microfinance programs do little

to alter gender relations in favor of females but in fact may contribute to

reinforcing existing gender imbalances110. Clearly, the international

development community and intellectuals haven’t reached an agreement yet

on the influence of microfinance on poverty alleviation.

5.6 Rejuvenating Rural Credit: Farmers, in India, often lack capital

for investment in agriculture that is so very vital for improving their agricultural

production. This paucity of capital flow perforce makes them seek loans from

money lending sharks at exorbitant rates of interest and often this debt-trap

reduces them to penury. It becomes difficult for the farmers to come out of this

debt-trap even when faced with a favourable season and a good harvest96.

The problem stands compounded and further exacerbated when farmers look

forward to taking advantage of modern high yielding seed technology and

absorbing newer methods of scientific farming which require both working

capital and investment capital.

Technological innovations and commercialization of agriculture have

not only increased capital requirements of farmers but they are also seen as

responsible for necessitating and increasing the demand for superior inputs.

In this scenario, a large segment of cultivators, particularly small and marginal

farmers, are not able to make additional capital investments in agriculture to

reap the benefits of the green revolution due to low surplus income accruing to

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them. The adequacy and timely availability of credit have always played a

crucial role in enabling the farmers to shift over to a technologically superior

production frontier and, consequently in realizing higher productivity.

The statistics reveal that 45% share of cooperatives in total rural

credit. The remaining share in total rural credit delivery is reported to be

accounted for by commercial banks with the role of RRBs and LDBs being

only marginal. Although the role of RFIs in credit delivery has become crucial

in more recent times, particularly in the changed market conditions, the point

that merits attention is how far these credit institutions will be effective in

sustaining the reforms sweeping the financial sector and in coming up trumps

against competition from other players as they may not have level playing

reserved areas for their operations any more. In fact, the entire decade of

1990s was full of discussion on the positive and negative impacts of financial

sector reforms and their implications for the agricultural sector. In the era of

financial sector reforms, sustainability, viability and operational efficiency of

RFIs are the major issues that need to be taken cognizance of in ensuring

effective rural credit delivery system. However, the major problems plaguing

the efficiency of rural credit delivery system are the mounting overdue and

Non Performing Assets (NPAs) of RFIs. The overdue problem of different

entities of rural credit delivery structure is reported to be an all pervasive

phenomenon that cuts across these different agencies79. As per the estimates

reported by Gulati and Bathla (2002), not only the outstanding loans of various

RFIs operating in India grew significantly but the overdue of these financial

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institutions had increased considerably during the period between 1980 and

1998 (Table 1). The RRBs, in particular, showed maximum increase in their

outstanding loans, followed by CBs. The primary agricultural credit societies

(PACS) and LDBs in comparison showed the lowest increase in their

outstanding loans. Notably, the deposit mobilization of these credit institutions

also grew significantly over the course of time. Further, while the nineties’

period (1990-1998) was marked with higher growth in outstanding loans for

the cooperatives as compared to eighties’ period (1980-1989), the outstanding

loans of RRBs were found to decline substantially in latter period as compared

to the former. Among various states of India, the RFIs of Maharashtra are

reported to show the highest amount of overdues and outstanding loans over

the past one decade. Even the proportion of overdues to outstanding loan of

RFIs are substantially high in this state. The proportion of overdue to

outstanding loans of RFIs was more than 30 per cent in Maharashtra during

1997. The other states that fall in the category of above 30 per cent overdue42

as proportion of loans outstanding of their RFIs are Assam, Bihar, Jammu and

Kashmir, Madhya Pradesh, Orissa and Tripura. One can observe several

weaknesses insofar as the working of RFIs in Maharashtra is concerned. One

of the earlier studies conducted in cooperative sector of Maharashtra has

clearly shown better financial health for the institutions at the district level as

compared to the primary or grass root level. It is not the cooperatives alone

but there are several rural financial institutions that are beset with similar

plethora of deficiencies that impede their efficient functioning. This

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necessitates a relook at the performance of various agricultural financial

institutions operating in Maharashtra with a view to recommending, designing

and framing appropriate policies to rejuvenate the existing rural credit delivery

in this state

The major issue of attention of this study are on not only to review the

rural credit scenario of Maharashtra but also to provide a brief overview

strength of microfinance. The rural banking sector reforms in general and on

the reform initiatives in cooperative sector in particular.

The development of rural credit delivery system had three distinct

phases. While the first phase (1904-1969) encompassed the monopoly of the

credit cooperatives, the second phase (1969-1991) was marked with the

induction of the commercial banks into the rural credit delivery system through

their nationalisation in 1969 and the setting up of the RRBs all over the country

in 1975 with a view to provide low cost banking facilities to the weaker

sections of the society13. The third phase, concomitant with the introduction of

financial sector reforms, is characterized by the transformation of credit

institutions into organizationally strong, financially viable and operationally

efficient units. The emphasis of the financial sector reforms is on ensuring

financial health of the rural credit delivery system. It is being conceded by

Puhazhendi and Jayaraman (1999) that the innovations in rural credit delivery

have a favourable impact on agricultural production and in reduction of poverty

mainly due to increased flow of credit to farming community. They also assert

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that with the acceleration in the pace of capital formation, rural infrastructure

development will see a new pace and much of this effort will be directed and

focused on establishing cool chains and in networking transportation and

marketing channels which in turn will allow more productive and increasing

amount of credit absorption from financial institutions.

5.6.1 Reforms in Cooperative sector

From 1991 the reforms in the banking sector have been initiated in

commercial banks, the reform process in cooperatives have taken much

longer time in initiation on account of certain limitations, viz., the need for

generating a consensus among the various State Governments which govern

and control cooperative credit institutions and the need to balance the

interests of very many diversified groups which control, operate and guide the

cooperatives. However, despite these limitations, a few major reforms have

been introduced in the cooperative credit sector. While examining reforms in

the cooperative credit sector, he not only delves into the positive and negative

effects of the policy reforms but also suggests some new steps that need to be

initiated to truly restructure and bolster the cooperative credit sector in the

country. The economic viability and successful and efficient functioning of

cooperatives have been the foundation of a generation of economists,

especially in the aftermath of the dawn of liberalization era and consequent

changes in the economic scenario.

Of late, the withdrawal of the Government regulations from many

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spheres of economic and business activities has enabled the use of

cooperatives as an institutional set up for implementing the programmes

relating to socio-economic development. The new economic policies are

expected to usher in a host of such those favourable conditions as autonomy,

freedom with greater accountability and changes in cooperative laws, that will

eventually lead to a gradual freeing of the cooperatives. The cooperative

sector in the changed economic scenario has better opportunities for

expanding and diversifying its business operations relating to farm and non-

farm activities in agriculture40. However, some quarters fear that unhindered

unleashing of market forces will subject the cooperatives to unequal

competition from the private sector with no patronizing support forthcoming

from the Government for their growth and development. Nonetheless, experts

also concede greater growth opportunities for the non-credit cooperative

organizations, especially those which are as large in their size and market

reach as any of the private or multinational firms.

Microfinance institutions pursue a different vision in the fight against

poverty. Their objective is to reduce poverty with the aid of loans. Rather than

making transfers to poor households, microfinance programs offer small loans

to foster entrepreneurial activities.

Divided opinions mark the discussion around the reaching of the very

poorest. Khandker 52 argues that the impact of microfinance is stronger on the

poorest than on the poor. However, the very poorest have little to gain from

microfinance3. To reduce the risk of repayment difficulties they exclude the

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very poorest62. Managers of microfinance institutions are inclined to exclude

the very poorest from participating. For this reasons it therefore seems

plausible to assume that the very poorest can’t be reached through

microfinance.

The present scenario of Maharashtra rural economy34 and habitability,

the microfinance through SHG-Bank Linkage model could provide the requisite

credit facility to the poor, it may seek the support of other government bodies,

NGOs and financial institutions14.

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CHAPTER- 6

SELF HELP GROUP BANK LINKAGE PROGRAM IN ANDHRAPRADESH6.1 Genesis of SBLP :

The formal financial institutions in India have ventured into microfinance

in a massive way by adopting the SHG-Bank Linkage Program model. The

present paper makes an attempt to review the performance of the program in

different states of India and across three major institutions-—commercial

banks, cooperatives, and the regional rural banks. The study also presents

vital information about the leading NGOs with major credit linkages in Indian

states.

6.1.2 The Background :

Out of around one billion people in India, 26% are poor (National

Statistical Sample Organization, 2000). At the bottom the poor need credit for

small productive assets, working capital, housing, illness, and emergencies.

The demand for credit here is not only large but heterogeneous as well 44.

Liberalization had an important bearing on the financial sector; banks, which

had turned weak, were confronted with the challenge of making themselves

profitable while maintaining their prudential requirements and competing with

private and foreign banks. At this time, the rural credit system needed a fresh

approach that could induce rationalization of the processes, policy, and

regulations and consequently increase returns.

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6.1.3. Role of NABARD: In India, the adaptation of the new microfinance

approach by rural financial institutions assumed the form of the “Self-Help

Group Bank Linkage Program.” After an initial pilot study the RBI set up a

working group on non-governmental organizations (NGOs) and SHGs. The

working group made recommendations for internalization of the SHG concept

as a potential intervention tool in the area of banking with the poor. The RBI

was quick to accept the recommendations and advised the banks to consider

mainstreaming lending to SHGs as part of their rural credit operations. The

SHG-bank linkage program is gaining increasing acceptance amongst NGO

community and bankers. The NABARD envisions covering one third of the

rural population in India by establishing one million SHGs

Through the SHG-bank linkage program the RBI and NABARD have tried

to promote relationship banking, i.e., improving the existing relationship

between the poor and bankers with the social intermediation of NGOs. The

Indian model is predominantly a “Linkage Model,”69 which draws upon the

strengths of various partners: NGOs, who are best in mobilizing the poor and

building their capacities, and bankers, whose financial strength is financing. As

compared to other countries where parallel model of lending to the poor is pre

dominant, the Indian linkage model tries to use the existing formal financial

network to increase the outreach to the poor, while ensuring the necessary

flexibility of operations for both bankers and the poor. Various credit delivery

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innovations such as Grameen Bank Replications80, NGO networking, credit

unions, and SHG federations have been encouraged by NABARD for

increasing the outreach. It has also instituted a Micro Credit Innovations

Department for planning, propagating, and facilitating the microfinance

movement. Given the network of institutional structures supporting the

microfinance movement, the SHG-bank linkage program has been increasing

its outreach substantially. Together the commercial banks, cooperatives, and

regional rural banks had succeeded in linking 114,775 SHGs by March 2000.

With an average size of 20 members per group, the program had reached

over 2.2 million households. A large majority (85%) of the SHGs linked to

banks were essentially women’s groups. The new microfinance approach has

benefited women largely and has emerged prominently as a women’s program

in rural India.

6.1.4 Banks and Microfinance:

The NABARD, Small Industrial Development Bank of India, Housing

Urban Development Corporation, and Rastriya Mahila Kosh are some of the

institutions that operate as the wholesale financers of microfinance. As “bulk

financiers,” they leverage funds from the government, market, donors, and

lenders for lending to its partners and NGOs. Reserve Bank of India and the

government lend support to the SHG-bank linkage program through policy

formulation and regulation while the NABARD acts as a facilitator and a

refinancing agency. The program at the grass root level is executed through a

network of commercial banks11, regional rural bank (RRBs), district central

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cooperative banks (DCCBs), and primary agricultural credit societies (PACS).

The program has been gradually gathering momentum. A review of the SHG

credit linkages by these institutions indicated that commercial banks had

established the maximum linkages. The RRBs had a sizable coverage but the

performance of cooperatives in the program was minimal. The average loan

per SHG also followed a similar pattern.

Commercial Banks: From the 1950s through 1970s, the financial system in

many developing countries was pre dominantly composed of state-owned

banks and branches of foreign owned commercial banks that provided short

term commercial and trade credit. The Commercial banks have been found

to be more suitable for microfinance because they are regulated and fulfill the

conditions of ownership, financial disclosure, and capital adequacy and they

have the necessary physical and financial infrastructure, including a large

network of branches, and well established internal control and accounting

systems.

Regional Rural Banks: The regional rural banks (RRBs) were established

in 1975 to support the rural lending operations of commercial banks. In their

quest to increase their out reach through subsidized lending the RRBs were

bestowed with the title of “White Elephants” because of their severe non-

performing assets and viability problem. The RRBs were supported with a

fresh infusion of capital from NABARD and RBI. As a result, RRBs gradually

started showing signs of improvement in their performance. The creditable

turnaround was possible due to a series of measures including increased

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employee participation, systematic customer contact, and the introduction of

new products suited to the rural markets, like Farmers Credit Card and

occupational loans. The RRBs also responded well to NABARD’s initiative for

extending their outreach to SHGs. Manjira Grameen Bank in Andhra Pradesh

had maximum linkages with 2713 SHGs.

Cooperative Banks: The cooperative credit system is an umbrella network

consisting of state cooperative banks (SCBs) at the apex level, district central

cooperative banks (DCCBs) at the intermediate level, and primary agricultural

societies (PACS) at the grassroot level. Every fourth cooperative in India is a

primary credit society. PACS are grassroot level organizations that raise

capital, collect deposits, grant loans, and encourage various income

augmenting activities such as horticulture, animal husbandry, bee keeping,

and cottage industry. DCCBs, on the other hand, organize credit to PACS,

carry out banking business, and sanction, monitor, and control the

implementation of policies26.

NGOs and SHG Credit Linkages: State-by-State Non-governmental

organizations were pioneer innovators of the microfinance approach in

Andhrapradesh. Subtly, involuntarily, a shift began to occur and credit started

to become something to be offered to people rather than to enterprises.

Emphasis on business enterprises began to slip as less and less sophisticated

entities became substitutes for viable enterprises. NGOs began lending for

consumption purposes and, as further evidence gathered suggesting poor

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women’s creditworthiness in terms of their better repayment capacities, NGOs

also started lending to these women. With time they underwent transformation

and a variant typology of institutions emerged. With coverage of two-

thirds of SHG credit linkages, the linkage program was predominant in the

Andhra Pradesh, which was heavily concentrated in Andhra Pradesh, where

40% of credit linkages were established. The acceptability of the program was

relatively higher in southern India, because the savings and the credit

movement was launched here. Some of the other contributory factors were

large coverage of DWACRA groups and the operation of Swarna Jayanti

Swarojgar Yojna Program and the presence of leading MFIs.

6.1.5 Review of SHG-Bank Linkage Program in India Review of Models:

In India, three types of SHG models have emerged:

1. Bank-SHG-Members: The bank itself acts as a self-help group

promoting institution (SHPI).

2. Bank-Facilitating Agency-SHG-Members: Facilitating agencies like

NGOs, government agencies, or other community-based organizations

form groups.

3. Bank-NGO-MFI-SHG-Members: NGOs act both as facilitators and

microfinance intermediaries. First they promote groups, nurture them,

and train them, and then they approach banks for bulk loans for lending

to the SHGs.

The third model, where SHGs were formed and nurtured by the NGOs,

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was more popular among the bankers. Banks opened saving accounts and

then provided credit directly to the SHGs, while NGOs acted as facilitators.

This approach has been widely accepted by the practitioners partly because of

the large scale participation of state government through development

agencies like the District Rural Development Agency (DRDA), District Women

Development Agency (DWDA), and some of the centrally sponsored social

sector missions, and also because of special initiatives of NABARD.

Sixteen percent of the SHGs were credit linked under the third model

where NGOs acted as facilitators as well as microfinance intermediaries.

Under this model, NGOs formed SHG federations and then facilitated them to

assume the role of MFIs. This model is expected to gain wider recognition with

smaller banks venturing into large scale financing of SHGs.

6.2 Progress of SBLP in Andhra Pradesh: With microfinance getting due policy attention and support,

commercial banks accounting for the major share in the total deposits

and network of branches in the country are expected to play a prominent

role in the implementation of the Self-help Group-bank Linkage Programme

(SBLP). The SBLP being implemented since 1992 has emerged as the

flagship microfinance intervention in India. The National Bank for Agricultural

and Rural Development (NABARD), the apex bank for rural finance in the

country is the key promoter of the SBLP in India. The SBLP aims at providing

financial services to the poor by linking them to formal financial institutions

through the mechanism of self-help group (SHG). A SHG is a small informal

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group of up to twenty members working on the basis of principles of like self

help and joint liability to obtain access to financial services from formal

agencies. By March 2005, more than 1.62 million SHGs have been linked,

directly or indirectly, to financial institutions like commercial banks, regional

rural banks and co-operatives with an estimated outreach of about 24 million

households. SBLP has even come to be considered as the biggest

microfinance programme in the world. Commercial banks accounted for

about 52 percent of the total SHGs linked to all financial institutions in

India61.

SHG-Bank Linkage Programme with the objective of eradicating

poverty through improving access to formal institutional finance for SHGs. As

on March 2003 NABARD has linked 7,17,360 groups disbursed an amount of

Rs. 20,487 millions. Of these nearly 40% of the linkages with 48% of amount

disbursement happened in Andhra Pradesh. These services and goods have

been delivered through 30,942 branches of commercial, regional rural banks

and cooperatives.

The total no. of SHG linkages in AP during the year 2002-2003 were

79,037 and the amount disbursed is Rs. 4,541.3 millions. The targets fixed

for the year 2003-2004 are 2,03,977 linkages, with a credit of Rs. 1,00,000

lakhs. But the question is to what extent are the various key players such as

banks, NGOs, SHGs, will maintain quality and follow prescribed norms in

achieving their targets? And the strategies adopted by the key players in the

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SHGS linkage process may have much influence on repayment and

sustainability of SHGs.

In the recent past non-governmental organizations/voluntary

organizations, who are the major SHG promoting institutions, have started

micro-credit /finance activities. Earlier, these organizations (no. of participating

NGOs and other Agencies are 2,800) , used to act as intermediaries or

facilitators between banks and SHGs. Now-a-days these NGO-MFIs with their

rich experience have been regularizing their activities in a close monitoring

system on one hand and influencing the SHG-Bank Linkage on the other,

directly or indirectly. It might be one of the factors for high or increasing

defaulting of SHGs to banks under SHG-Bank linkage programme.

Both District Rural Development Agencies and Velugu Project are

promoting SHGs and SHG Federations at habitation, village, and Mandal

levels seriously for the past 4 / 5 years. They are providing financial assistance

in the form of revolving fund or matching grant to these groups so that they

could cater the financial needs of their group members. The groups which

formed for getting revolving fund/ matching grant/ govt. inputs, and the

ineligible groups after reaching the objective might be defunct or become

dormant or even get reorganized because of other reasons also. As a

facilitator and promoter DRDA/Velugu linked the SHGs to banks for financial

assistance in the form of loans. DRDA/Velugu is extending the financial

assistance in the form of Community Investment Fund (CIF) along with the

bank loan amount to promote livelihood activities. In the linkage process

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targets set at different levels have played a critical role than SHG- Bank

Linkage norms, which has several consequences of which defaulting is one.

Andhra Bank has received an award from Govt. of Andhra Pradesh for

its best performance in SHG-Bank linkage programme during the year 2001-

02.

At district and national level workshops organized by DRDA/Velugu,

Banks, NABARD, organized by APMAS participants raised many issues

related to default, rate of default in SHGs promoted by various agencies,

period of defaulting, nature of defaulting (willful), reasons for it, etc., loan size,

attitude of banks and groups on SHG-Bank linkage, performance variation in

the three models of SHGS Bank Linkage, influence of MFIs, multiple loans,

dual membership in the SHGs and so on.

6.3. Factors for the SBLP success in AP:

6.3.1 Government/Bank as Promoter:

Commercial banks were accused of not doing much to adopt and scale-

up SBLP even after it had been successfully pilot tested by NABARD. As a

result, the SBLP had achieved only limited outreach in the first six years of its

implementation. NABARD took efforts to bring more impetus in the

implementation of SBLP especially by commercial banks. The Reserve Bank

of India (RBI) called upon all commercial banks to give due priority to SBLP

by making it a part of their corporate strategy. All the public sector commercial

banks including AB duly followed the RBI’s suggestion. SBLP has been

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included as a part of bank’s corporate planning strategy. The top management

of the bank is taking all steps to implement SBLP on a priority basis.

The state of Andhra Pradesh is considered to be the leader in the SHG

movement in the country. The AP state government has taken many

proactive steps in promoting SHGs in the state. By 2005, more than 4.92

lakh SHGs had been formed and linked to financial institutions, the highest for

any state in the country. These SHGs have been formed and supported mainly

by government agencies under various poverty alleviation schemes. Initially,

groups were formed under a national poverty alleviation programme called

Development of Women and Children in Rural Areas (DWACRA). Under

DWACRA, women below poverty line were mobilized to form small groups to

take up various income generating activities (IGAs). The groups were provided

with training and matching grant of up to Rs. 25,000 to take up IGAs. Banks

were required to provide loan support to these DWACRA groups. The Andhra

Bank was quite impressed by the performance of DWACRA groups both

interms of savings and lending.

Subsequently, the AP state government launched the World Bank

supported District Poverty Initiative Project (DPIP) called Velugu from 2000-

01. Velugu, currently renamed as Indira Kranti Patham, is a community based

poverty reduction programme being implemented by a specialised agency

called Society for Eliminating Rural Poverty (SERP) constituted by the state

government. SERP implements the programme mainly through community

based organisations like SHGs. SERP makes use of the existing District Rural

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Development Agencies (DRDAs) to form and support SHGs. Specialised

village based workers have been appointed by SERP for the purpose. These

staff have also been given training by SERP on SHG formation and

management. SHGs have been formed on a massive scale by DRDAs in all

the districts of AP. The state government also has played a proactive role in

linking these SHGs with financial institutions. Targets were given to banks at

state and district levels to link SHGs to banks. A massive drive for SHG

formation and linkage, thus, was launched by the state government all over

Andhra Pradesh.

The role of state government came as a blessing in disguise to

NABARD which was making efforts to sensitise banks and government

agencies at all levels about the need for promoting SBLP. NABARD

organised a large number of training programmes on SBLP for the

purpose. At the same time, the state government has shown keen interest in

monitoring the progress of SBLP. The SBLP has been placed under the

purview of the State Level Bankers’ Committee (SLBC), the highest body for

monitoring the progress of banking developments in the state. The SLBC

besides giving annual targets to different banks has been regularly monitoring

the progress of SBLP at state and regional levels. Incidentally, the Andhra

Bank is the convenor of the SLBC.

6.3.2 The Strategy of Andhra Bank:

Andhrabank expansion has been helped both by the presence of the

bank’s large network of branches and the government promoted SHGs all

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over the state. The Bank, without taking support of NGOs directly linking the

DRDA promoted SHGs. AB is implementing SBLP as its own programme. It

gives annual targets to every branch under SBLP and molding SBLP as both a

social and a commercial proposition to them6.

NABARD visualized implementing SBLP under three models. Under

model I, banks directly form and finance SHGs. Under model II, NGOs and

GOs form SHGs and link them to banks for finance. Under model III, banks

finance NGOs which in turn on lend to SHGs formed by them. The AB is

largely following the model II in AP where government agencies form SHGs

and link them to banks. In few cases, the branches of AB are following model

I wherein branch staff directly form and finance SHGs.

As a part of the corporate strategy, AB has set up a Microfinance

(MF) Cell in 2004 under Priority Sector Policy Department. A senior manager

looks after the cell. The main objective of the Cell is to help the bank in

carrying forward the SHG movement focusing on women’s empowerment102.

The head office gives targets to zonal offices about the number of

SHGs to be linked. The zonal offices in turn give minimum targets to branches

coming under their jurisdiction. AB had set a target of 58,000 SHGs to be

linked during 2004-05 against which 47,848 SHGs were linked (Table 6.1).

The idea of target setting is also well received by the branches. The zonal

offices may provide support to branches like additional staff and vehicle for

linkage purpose. The branch staff are also trained by AB and NABARD. For

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SBLP, the service area is relaxed for the branches. Branches can even go to

villages outside the original service area or jurisdiction for linkage purpose.

Table:6.1. Progress of SHG-Bank Linkage Programme of Andhra Bank

Year No. of SHGs linked

Loan Disbursed

(Rs. in million)

Average Loan

disbursed per SHG (in

Rs.)

Year end Total Loan

Outstanding (Rs. in million)

1998-99 1,862 36 19,229 NA1999-00 7,438 1,33 17,935 NA2000-01 17,353 3,62 20,878 842001-02 26,363 6,02 22,820 5712002-03 34,100 9,50 27,859 9042003-04 39,695 1235 31,100 1,2352004-05 47,848 1795 37,517 2,210

Source: Andhra Bank

6.3.3. Operational Strategy

A) SHG Formation: The linkage is done at the branch level by following

either model I or II. If it is model I, branch managers identify villages for group

formation during their visits. They try to target those villages where there is

concentration of poverty. The branch staff conducts village meetings to

explain the benefits of group formation to the prospective members. The

branch staff help those who come forward in forming the group, passing

group resolution, electing leaders and opening savings account with the

branch. Based on the experience of successful SHGs, many new SHGs get

formed on their own in the villages.

In the case of model II, SHGs are formed by the DRDA community

activists. The DRDAs also give training to the SHGs on group formation and

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management. The DRDA activists introduce these SHGs to bank branches for

linkage. In many places DRDAs have preferred to link their SHGs with AB

because of its good branch network as well as the proactive approach

adopted under SBLP. In few cases, SHGs are also formed and linked by

NGOs.

B) SHG Management: Soon after the group formation, members decide

about monthly savings installment rate based on their capacity. The savings

installment varies from Rs. 20 to Rs. 100 per member per month. Every group

passes a group resolution and elects two leaders to carry out group activities.

The group resolution with the signature of all members is submitted along with

a group photograph for opening a savings account. The branch issues a pass-

book in the name of the group. A check book is given to the two leaders who

are authorised to operate the bank account.

C) Loan Linkage: Once the SHGs are stabilised in their operations, AB tries

to provide loan facilities to SHGs. All eligible SHGs are identified for fresh loan

or renewal of loan. A branch manager approves loan as and when eligible

SHGs approach the bank. The branch manager has to go to the village for

sanctioning loan. A common method adopted by many branches of AB is

organising SHG melas or fairs. As narrated by Mr. D Mohapatra of Sangam

village branch: “We have been organizing SHG melas for the last three years

on November 22 which is AB’s foundation day. This year our branch has been

given a target of linking 500 SHGs. Every month we link about 5-6 SHGs. But

melas help us in linking large number of SHGs in one go. We inform zonal

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office in advance about the mela. The branch staff start identifying SHGs and

scrutinise all papers much in advance.

D) Loan Procedures and Papers: For sanctioning loans to SHGs, AB has

adopted the procedure broadly suggested by NABARD to all financial

institutions. The aim is to make the procedures both simple and prudent

given the informal nature of SHGs. The following papers are to be prepared for

sanctioning loan to a SHG: application form, inter-se agreement, Critical

Rating Index(CRI), SHG appraisal form and loan agreement. The application

form is submitted in the name of the SHG taking loan. Inter-se agreement and

CRI are instruments developed by NABARD for facilitating SHG linkage with

banks. Inter-se agreement is a document executed as a general power of

attorney by all the members of SHGs. The agreement besides specifying the

internal terms and conditions including liability for debt contracted, authorizes

the identified representatives of SHGs to take all necessary decisions and

execute agreements on behalf of the members. The CRI is an instrument to

grade the SHGs based on their managerial and financial performance. The

SHGs are given scores for their performance on 14 different parameters. The

SHGs are categorised as A, B, and C based on their scores out of a total 100

marks. All SHGs scoring over 70 marks are categorised under Rs.A’ and are

to be considered for sanctioning loan. Those scoring between 50 and 70

marks are categorised under ‘B’ and are recommended for capacity building.

SHGs scoring less than 50 are categorised under ‘C’ and are suggested

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intensive capacity building. The CRI has now been made mandatory by AB

for sanctioning loans to SHGs.

The appraisal format is used to estimate the loan demand of the SHG

based on members’ loan needs and the debt capacity of the SHG. The debt

capacity is appraised based on CRI of the SHG and its corpus fund

consisting of members’ savings and other funds. The bank manger

sanctions loan to a SHG based on such on appraisal. The quantum of loan

depends basically on the corpus of the SHG. A branch manager can sanction

loan to the tune of 1: 4 of the SHG’s corpus. The managers can consider

even a higher loan ratio depending upon the health of the SHG. AB is

proposing to raise the ratio up to 1:8. A branch manager of AB is given power

to sanction loans up to Rs. 1,50,000 on their own. For amount above Rs.

1,50,000 the branch needs to take the approval of the zonal office. Mature

SHGs interested in taking up economic activities can seek even higher loan.

However, they need to prepare a microcredit plan highlighting the feasibility of

the activity.

E) Loan Terms and Conditions: The loan is disbursed in bulk to the SHG.

The purpose of loan utilisation is left to the discretion of the SHG. The branch

manager can decide an appropriate repayment period in consultation with the

group. The SHG loan is a term loan and can be sanctioned for 3 to 5 years

period. SHGs are expected to repay the loan in monthly installments.

However, the normal practice observed among SHGs is that they repay their

loans within one year period. The bank will not take any security for loan up to

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Rs. 5,00,000. For a loan above Rs. 5,00,000, security as per usual banking

norms is to be taken. AB charges 8 per cent per annum minimum interest on

loans to SHGs. The rate is decided by the norm of prime lending rate (PLR)

minus 2.50 percent.

Andhra Bank has introduced credit card facility for mature SHGs

which requiring higher level of finance. With a credit card, a SHG will get cash

credit limit up to Rs. 2,00,000 The period of the card is for 3 years during

which the SHG can draw and repay loan as per its convenience. The limit

could be enhanced based on the performance of the SHG. The main aim of

the credit card is to supplement the funds of SHGs for taking up

microenterprise and other economic activities which need higher financial

support. More or less all other conditions of SHG loan applies to credit card

also. The members of SHG with credit card facility will get an additional benefit

of life insurance coverage to be arranged by AB in association with Life

Insurance Corporation (LIC) of India. As per the feed back of branch

managers, the credit card facility was picking up only slowly with the SHGs.

F) Monitoring of SHGs: Loans extended to SHGs are to be classified under

direct finance to agriculture coming under priority sector category. The

branches are supposed to file monthly and half yearly reports about the

progress of SHG linkage. The bank staff make monthly visits to villages to

monitor the performance of SHGs. “Our branch has fully computerised the

SHG accounts. This helps us in handling SHG transactions easily. Moreover,

unlike the initial period, the monitoring of SHGs has been facilitated by

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mandal level co-ordinators appointed by DRDAs. The co-ordinators have

been making efforts to sufficiently strengthen the SHGs,” said Mr. R.P.

Behra, the deputy manager of Narasampet branch of AB which has 782 SHG

accounts.

6.4. Performance of SBLP:

Overall, at all levels of AB, the SBLP scheme under Andhra Bank is

performing fairly well. The members of few SHGs interviewed (at

Yelamanchili) expressed the view that their SHGs are functioning well since

inception. They also felt that their participation has helped them in

overcoming many of the social obstacles they faced as women. Because of

the bank linkage, the members are getting encouraged to take up various

income generating activities.

The mangers of AB feel that the quality of SHGs overall has been

satisfactory. Though initially there were problems but with the effective

monitoring and support mechanism put in place by DRDAs and AB, SHGs are

functioning well. The AB officials expressed the view that under SBLP the

loan recovery has been very high. Only about 2 or 3 per cent of SHGs are in

default. Most SHGs have their own mechanisms for recovering loans.

However, there are few problems encountered by AB under SBLP.

Widespread illiteracy among SHG members creates problems in SHG

management. The literate members tend to misutilise the SHG for their gains.

It is also difficult for branch staff to deal with large number of illiterate

members. At the same time, the branch staff feel that the presence of large

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number of SHG members causes disturbance to the transactions of non-SHG

members. As a result, branches have been forced to curtail their SHG

transactions to 2 or 3 days in a week.

Another main concern for AB is about the credit absorption capacity of

the SHGs. AB would like to increase the scale of finance to SHGs. However,

SHGs have been found to be slow in utilising the enhanced credit limit. SHG

members are finding it difficult to take up viable income generating activities.

Even when they take up such activities, marketing of their products and

services is a major problem. To some extent, the government of AP has been

trying to help the SHGs by organising fairs and exhibitions to market their

products. Moreover, it is found that many SHGs tend to default after first or

second loan assistance. With the fast and large scale growth of SHGs, the

quality of SHG management is also a concern. Another concern of AB is to

keep SBLP aloof from any kind of political interference. The SBLP has been

supported by the successive state governments in A.P. AB hopes that the

SBLP do not suffer negatively due to excessive political interference.

6.5 Evolution of SHG Federations in AP:

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6.5.1 Requirement of SHG Federations: While the NGO promoted SHGs

are relatively of better quality, considerable work is still needed to be done to

achieve self-management and sustainability of SHGs25. Capacity building of

SHPIs and the innumerable SHGs is a mammoth task requiring huge

revenues SHG Federations are promoted for strengthening existing SHGs, to

promote new SHGs of the poor and to access various services to the member

SHGs. Federations play an important part in SHG capacity building. It is highly

impractical for any promoter to engage in Capacity Building of all the SHGs

promoted, without incurring high costs, which probably are not justifiable.

Conflict resolution – both internal and external, is another important function

performed by the Federation. Federations provide a sense of solidarity among

members of different SHGs in an area. It is important to create a sense of

ownership since SHGs are generally not self- promoted organizations.

Formation of federations ensure that economies of scale exist,

transaction costs and default rates are reduced, value-added services like

micro-insurance, input supply are provided, while increasing the outreach and

simultaneously reducing the promotional costs. Federations increase the

empowerment beyond that achieved by the SHGs, produce leaders and

provide opportunities to deal with power and bureaucratic structures at a

higher level, where mainstream organisations and government offices exist.

The Federation helps in ensuring that the SHGs survive and function as

vibrant entities, bringing about social and economic empowerment of women.

6.5.2. Emerging SHG Federation Model:

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In AP, a three-tier structure is emerging as the SHG Federation model.

In AP, various SHG Federation promoters like DHAN, UNDP, Velugu project

and some NGOs have chosen a three-tier model of SHG – Cluster/Village

Organization – Federation. The SHG is the primary unit and the building block

of the SHG Federation model. The SHGs, 15-25 in number, are federated at

the village/cluster level as a Village Organisation (VO). These VOs then

federate at the mandal level as a Mandal Samakya (MS).

In addition to being channels for accessing credit and participate in

development programs of the government, the SHGs provide opportunities for

women to actively participate in activities, which are micro in size, while

leading to socio-economic and political empowerment. SHGs have the

potential to provide space and support so that each of its members can

identify and use opportunities for her empowerment both in private and public

life.

6.5.3 Village Organization

Village Organisation, the federation of SHGs is formed at the

village/habitation/cluster level depending on the number of SHGs. In some

cases where there are a large number of SHGs in a single village, more than

one VO may be formed. With the lessons learnt in UNDP and Velugu, the

financial intermediation is to be vested with the VO. The VO will have the

following responsibilities, to complement and support the initiatives of its

members.

Capacity building of SHGs

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M&E of SHGs including SHG grading

Audit of SHG accounts

Prepares household investment plans to identify the services required

Access bulk loans from Banks and development projects for on-lending to

member SHGs

Establish linkages with line departments and NGOs for services

The members of SHGs constitute the general body and SHG

representatives will be on the Board/Executive Committee (EC) of the VO. The

EC will elect its President and Secretary. The VO may be registered under the

APMACS Act.

6.5.4. Mandal Samakya : Mandal Samakya (MS), the federation of VOs at

mandal level, is currently registered under the APMACS Act. MS is expected

to be a social intermediary, and take up the responsibility for advocacy and

capacity building of VOs. MS is also expected to facilitate linkages for SHGs

and VOs with Banks and other financial institutions without getting involved in

financial intermediation. The objectives of the MS being primarily social, a

more appropriate legal form would be a Public Society.

The other activities of MS may include:

Work on various social issues which are context specific

Provide Social Risk Management services

Take up advocacy on macro issues of development at mandal/district level

Monitor the performance of member VOs and grading of VOs

Manage the Human Resources

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Networking and Promotion of VOs

Market linkages and Business Development Services (BDS) for livelihood

promotion

Promotion & Development of Commodity Cooperatives

Linkages with Government Programs

6.5.5 Impact of Federations on SHGs Growth:

a) Promoter philosophy has a major influence on the range of products and

services offered by the Federation. Where the promoter is more of a facilitator

and not a manager, the quality and range of services seem to improve at a

speed with mutual understanding of all SHGs.

b) Coverage: Where the Federation is located at the Mandal head quarters,

due to coverage of a large geographical area, the Federation Board can have

awareness about the status and performance of the SHGs with the help of

simple user friendly MIS.

c) Lending: As the Federations start seeing themselves more as Financial

Institutions, Lending through SHGs ensures that SHG continues to be the

building block of the Federation.

d) Fund mobilization: The funds mobilization in Federations is high and credit

is the primary service, which may limit the focus on SHGs. Federations

function more as Financial Institutions interested in giving loans and

recovering them rather than focus on the SHG performance.

e) Capital Adequacy at the Mandal Samakya level is high as compared to the

low capital adequacy at the VO level, emphasises the fact that donated equity

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is at the Mandal Samakya level, and this probably explains the sense of

“security” in the Federation and the resulting less focus on SHGs.

f) Recovery rates being high at the Mandal Samakya level compared to the

VO reinforces to the fact that the Mandal Samakyas are more focused on loan

recovery, as is the case with any Financial Institution.

g) Systems and Operating Processes: Though the records maintained at

the SHG level are adequate, accuracy and timeliness in recording information

is low. With Federations handling multiple activities, and geared to play a

major role in the social and economic empowerment of women, having strong

systems would help in building institutions with long term sustainability.

j) Better book keeping, coupled with a regular review of plan vs. progress

and budget vs. expenditure would help achieve the goals and objectives of the

Federation. Improved fund management and a system of tracking loan

overdue would help in the VOs and Federation for sustainability

k) SHG member awareness about and control of the Federation seem to be

dependent on the distance/proximity of the Federation from the member and

the number of tiers in the structure. The SHG members are more aware of the

VO functioning and are almost unaware of the Federation functioning, in a

three-tier structure. Also, where the Federation is located at the Mandal

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Headquarters, which is normally not frequented by the members, member

awareness about the Federation functioning and activities seem to be low.

There are several limitations observed of mandal samakhya in the

earlier experiences such as SHGs and Village organizations being neglected,

over dependency on NGO/Promoters, financial non-viability and subservience

of SHGs to federations. However, with clarity of roles and responsibilities, it is

expected that the concerns of the women in SHGs be addressed

comprehensively.

To conclude, in Andhrapradesh the success of SHG based

empowerment and SBLP sustainability is based on important areas for a

sustainable member-owned, member-managed micro finance institution and

the role definition of the Village Organisation and the Mandal Samakhya

(Federation). Leadership and Governance, coupled with robust and user-

friendly systems, also help in creation, operation and growth of SHGs.

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CHAPTER -7

SHG BANK LINKAGE PROGRAM IN MAHARASHTRA

7.1 Microcredit in Maharashtra:

Microcredit program initiated in the 1980s is an ‘ideal’ poverty

alleviation program for women. The program is based on the principle of

activating self-help among women and is considered as means of social &

economical empowering. Till the late 70s India was a ‘developmental state’,

which believed in taking up a proactive role in shaping the path of its

development. The decades of the 1980s and 1990s emerged as a period

which defined a minimalist role of the state. Termed ‘neo-liberalist’, it allowed

for the free interplay of markets with the belief that it will solve the vexing

problem of poverty.

Arguably the microcredit does not always have a positive impact on14

poverty alleviation because the official program does not have the capacity to

displace patriarchal structures that constrain the poor especially women. By

focusing only on ‘economic’ issues, it fails to address the issues of deprivation

of nutrition and health, increasing domestic & social violence and insecurity

affecting women as economic actors. Without addressing these problems, it is

not possible for women to get empowered. Women, hardly have any control

or even influence on the economic or family resource. Even the activities

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undertaken under Microfinance, are mostly an extension of their family roles.

Many studies have highlighted socio economic21 freedom that perpetuate

women in such a plight.

The Maharashtra Rural Credit Project (MRCP), funded by International

Fund for Agricultural Development (IFAD) , among others, was launched in

1994. Since its inception, it has made substantial progress in targeting for the

poor women’s control over the assets acquired, and trade-offs between

coverage of the poorest and sustainability of this project. According to a recent

estimate, barely 20% of the rural poor and 10% of the poor women had access

to institutional credit (IFAD, 1999). Unavoidably, they continue to depend

largely on the informal sector (e.g., money lenders, traders, friends and

relatives) mainly for consumption needs. Apart from high interest rates-

ranging from 5-10% per month charged on such loans- usually informal credit

sources do not focus on productive activities leading to economic

empowerment. There is thus a large unmet even - demand for credit among

the rural poor. Also, there is need for credit among the rural poor especially

the women. Also, there is demand for savings and insurance services.

Savings are valued as they enhance family security-provide buffer insurance

during periods of stress, serve a source of consumption smoothing and margin

money for asset purchase

7.1.1 Salient Features of MRCP:

The target group of this plan consists of households below the poverty

line(i.e with annual household income up to Rs. 11000 at 1991-92 prices Rs.

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24,000/-p.a current). Priority is given to those with income upto Rs. 8,500.

This subset comprises mostly women from small/marginal farmers, landless

artisans and tribal groups.

In order to make the MRCP truly participatory, a village development

assembly (VDA) comprising all households in a village is formed. This serves

as a forum for a preliminary dialogue on the problems, prospects and process

of development. Out of the VDA, a village development council (VDC)-

comprising 10-12 members is constituted. The VDA prepares a people’s

action plan (PAP), focusing broadly on social development of the village, credit

requirements and support systems. The VDC is responsible for its

implementations. Two channels of credit are used; individuals and SHGs.

Using the list of poor households, eligible (individuals) beneficiaries are

identified in a meeting of the VDC, attended by the members of the council

and representatives of the VDC, the CB (commercial or participating banks)

and other implementing agencies. SHGs, on the other hand are formed either

by Mahila Arthik Vikas Mahamandal(MAVIM) directly through its sahyoginis

(SYGs)/field workers or through NGOs contracted by it or by the banks directly

or through NGOs contracted by them.

Both individuals and group borrowers are charged with 12%

interest per annum. Individual borrowers are given loans for specific activities.

SHGs, on the other hand , are required to mobilize savings first. After

achieving their savings deposits from a CB. The loans are distributed among

the members in accordance with their own priorities/rules(about loan use,

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amount, interest rate, repayment and penalty). The rate of interest is typically

2-3% per month. Consumption loans are permitted. Eventually, when the

credit worthiness of SHGs is established, it is expected that they will be able to

borrow independently from CBs.

7.2 Self Help Group Bank Linkage Program in Maharashtra:

The microcredit has not only become an important poverty alleviation

program worldwide but it is also considered as a magic bullet for women’s

empowerment.22

The genesis of this program starts with a small experiment started in

Bangladesh by Mohammad Yunus, now famously known as the “Grameen

Model”. This model is now being promoted by International development and

financing agencies such as the Consultative Group Against Poverty109.

The state and international organizations argue that providing credit

generates self-employment opportunities for the poor. It is able to pool

collective risks of the poor and provide credit at affordable cost to help them &

become productively self-employed. Microcredit program targets poor,

especially women, help them with financial services to become self-employed

in rural non-farm activities of their choice.

There are important players in the effectiveness of the SBLP/SHG

schemes in Maharashtra.

Government: The Indian government started microcredit program in

1992. It has promoted two models the Self Help Group Bank Linkage

Program and the Microfinance Institution model (MFI). The SBLP program

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runs under the aegis of National Bank for Agriculture and Rural Development.

As on 2006-07, 2.2 million SHGs covering 32.98 million households and

having a total credit disbursement of Rs. 1,13,980 million were started. Even

after it’s good success rate and motive it has always elicit criticism of feminists

stating that it has not changed the ‘woman’s’ role as a financial controller of

her home and the patriarchal social structure does not allow women to control

their incomes. Unless one finds new and economically productive roles for

women so that they can use their loans for themselves, the emphasis on

disbursing loans to women is likely to encourage tokenism and reinforcement

of gender roles.

Despite such criticism this program remains significant because it

allows for new ways to develop and linking it with development where this

model has been redrafted, as it emphasizes the critical importance of group

formation among women through Self-Help Groups. NABARD is an apex

development bank of the government of India that extends formal banking

services to rural women by promoting Self Help Groups.

NGO: Chaitanya is the pioneer NGO to promote the SHG Bank Linkage

Program in Maharashtra. Founded in 1993 of Rajgurunagar, Pune district,

Maharashtra, it works in four talukas of Shirur, Sinnar, Khed and Junnar led

by Dr. Sudha Kothare. Chaitanya had associated with NABARD as a part of

the supporting NGO initiatives to promote SHGs by proving funds for credit,

capacity building and innovation. By March 2005, the SBLP has provided

credit to 1,618,456 SHGs with a membership of over 24 million poor families

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or about 120 million poor people, making it the largest Microfinance initiative in

the world.

SGSY and SBLP: Swarnajayanti Gram Swarojgar Yojana (SGSY) has been

launched with the objective of bringing every assisted family above the poverty

line within three years, through the provision of micro enterprise. SGSY aims

at establishing a large number of micro-enterprises in the rural areas, building

upon the potential of the rural poor. It is rooted in the belief that the rural poor

in India have competencies and, given the right support can be successful

producers of valuable goods/services. SGSY is conceived as a holistic

programme of micro-enterprises covering all aspects of self-employment viz.

organisation of the rural poor into self-help groups (SHGs) and their capacity

building, planning of activity clusters, infrastructure build up, technology, credit

and marketing. The SGSY is designed to incorporate the following three

important approaches:

Need for SHG type activities: Alleviation of poverty remains a major

challenge before the Government. While there has been a steady decline in

rural poverty over the last two decades, there were 244 million rural poor (37

per cent of the rural population) in the country, as per the latest available

estimates. Acceleration of economic growth, with a focus on sectors, which

are employment-intensive, facilitates the removal of poverty in the long run.

However, this strategy needs to be complemented with a focus laid on

provision of basic services for improving the quality of life of the people and

direct state intervention in the form of targeted anti-poverty programmes.

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While growth will continue to be the prime mover, antipoverty programmes

supplement the growth effort and protect the poor from destitution, sharp

fluctuations in employment and incomes and social insecurity. The specifically

designed anti-poverty programmes for generation of both self-employments in

rural areas have been redesigned and restructured in order to propel the

SBLP scheme much more effective.

In recent years, in Raigad the SBLP movement has been shown an

skewed downtrend in Raigad district. Though the Table: 7.1 showing good

numbers but when compared with previous years and other districts and

states the performance is below par.

Most of the states across the nation are in a sweeping mood to

promote micro finance institutions not only as a positive rural development

intervention but also as a rural development panacea. Allured by the success

of micro credit institutions in other states, In India the increasingly become

enthusiastic in the promotion of micro credit through SHG Linkage model as a

rural development intervention by tying it neatly with post-liberal development

ideology.

Although the basic philosophy behind the micro credit through SHG

Linkage model movement is to eradicate poverty as it stimulates the growth of

micro enterprises by developing new markets and by promoting a culture of

entrepreneurship, it involves minimal state intervention, thereby shifting the

focus of attention away from the society towards individuals. Especially the

experience of SHG Linkage Program/model schemes in Raigad, Thane of

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Maharashtra describes altogether a different story by negating this particular

aspect of development intervention.

7.3 Economy status of Karjat Taluka: Maharashtra is among the richest

states in India in terms of per capita income, yet incidence of poverty in the

state remains close to the national average. The state’s economy grew at a

faster rate than the all-India average during 1980-1 to 1992-3, but it slowed

down a bit during 1993-4 to 2003-4 due to poorer performance of agriculture

and industry. Agriculture’s contribution to GSDP has come down to 12 per

cent in 2002-3, but more than 50 per cent of total workers are still engaged in

this. Cropping pattern has been shifting to greater value addition non-cereal

crops like fruits, vegetables, oilseeds and sugarcane. Composition of

manufacturing has shifted towards more capital-intensive sectors.

Communication, transport and public administration have accounted for large

part of service growth.

The benefits of this growth process have, however, not spread equally

across social groups or regions, which partly explains prevalence of high

poverty compared to other states at similar mean income, especially tribal

dominant areas like Karjat it’s surrounding villages. The much talked about

Maharashtra Employment Guarantee Scheme (MEGS) has had limited

success and its coverage across districts/divisions is not proportionate to the

share of poor. Given current investment flows, the overall growth potential of

Maharashtra does look bright for the medium run. But, distributional

implications of the emerging growth pattern across sectors suggest that the

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poor might not benefit proportionately from the growth process. The lessons

that Maharashtra provides is that growth has to be more broad-based and

inclusive, and that intervention through social welfare programmes like MEGS

should be designed to suit the local resource base of poorer regions for faster

poverty reduction48.

The State is first to implement woman’s policy and engendering the budget by

establishing separate Woman and Child Development Department. It is

pioneer in implementing its ‘Employment Guarantee Scheme’ and is replicated

by the Government of India. Maharashtra is not just a geographical expression

but an entity built on collective efforts of its people. Self Help Group (SHG)

bank linkage programme was initiated to improve credit delivery mechanism to

the underserved and unserved rural poor, who had been so far bypassed by

the banking system. The amount deposited by 3.80 lakh SHGs was Rs. 267

crore as on 31st March,2008, whereas during 2007-08, the credit disbursed to

0.75 lakh SHGs was Rs. 325 crore. The outstanding credit with 4.10 lakh

SHGs was Rs. 1,021 crore as on 31st March, 2008. 80% of the funds were

utilized by the SHGs and other agencies in Gadchiroli, and Chandrapur

districts. Only 2% of the funds only utilized by the Banks for the purpose of

SHG empowerment in Karjat Taluka.

Policy Initiatives: Several policy initiatives have been taken during the year

2005-06 by Government of India, Government of Maharashtra, Reserve Bank

of India and National Bank for Agriculture and Rural Development, for

accelerating the growth in agriculture and related areas. The State

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Government has initiated plans for the growth of the rural sector ranging from

promotion of micro irrigation projects, development of hydro electric projects,

horticulture development programmes to promotion of SHGs41. In tune with

the policies of the Central Government, Reserve Bank of India and NABARD

have also taken series of measures for ensuring smooth flow of credit to the

agriculture and rural sector through the credit institutions.

7.3.1 Rural Maharashtra-SHG Growth: In Maharashtra financing of

SHGs has been increasingly accepted as a cost-effective mechanism for

banks expanding their outreach to the poor and adding quality to the loan

portfolio of their branches. The strategy in adopting SHG mode is intended to

create a suitable delivery mechanism for the under-served and un-served

rural poor, on a sustained basis, who had been so far by-passed by the

banking system, in securing various financial and non-financial services, on a

regular basis. The process of SHG helps the poor to understand their strength

that they can also keep their small savings in a safe manner. The Government

of India has accorded national priority for SHG Bank Linkage Programme

since 1999 for covering rural poor through SHGs. The Hon’ble Union Finance

Minister, in his Budget speech for 2004-05 indicated that 5.85 lakh additional

SHGs may be linked during the next three years in order to provide financial

services to the rural poor. For promotion, credit linking or for recovery of loans

from SHGs in the rural areas, banks can avail the services of NGOs, religious

organizations, farmer's clubs, Individual Rural Volunteers [IRVs] etc.,

which could facilitate externalization cost effectively. In the long run, it is

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expected that SHGs would develop in to a micro enterprise. For facilitating the

process, a Micro Finance & Entrepreneurship Development Fund (MFEDF)

has been set up in NABARD with contributions from NABARD, RBI and a

select commercial banks. The fund is being utilized for providing promotional

and technical support for encouraging orderly growth of micro Finance sector

in the country, encouraging those engaged in mF to graduate to micro-

enterprise stage, development of Micro-Finance Institutions etc.

It is observed that there are wide variations across the regions/districts

in SHG promotion and credit linkage in the State. SHG promotion and linkage

is poor in Konkan region and Marathwada region. Focused attention is

required to be provided by all the banks/NGOs/Govt. agencies working in

these regions/districts. A large number of SHGs promoted by NGOs,

Government agencies, Farmers’ Clubs, and Banks themselves have not been

credit linked. The banks are required to consider financing all eligible SHGs,

on priority basis. A project on providing support to SHGs to take up livelihood

activities for generating adequate income is envisaged in Chandrapur district

by NABARD. Government departments and banks may support this initiative,

so that a replicable model can be designed for its application in other districts,

at a later stage.

7.4 Importance of SBLP in Karjat : For the year 2005-06 a target of

Rs.8535 crore has been fixed for rural credit and development programs.

Despite these measures, large number of unbanked rural poor have not been

able to get the banking services due to varied reasons.

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Specifically in Raigad district due to lack of awareness of the

government development programs and available credit schemes, they

continue to be in the hold of money lenders. For addressing the issues of

these poor people NABARD has been pursuing the concept of SHG. During

2004-05, over 35000 SHGs have been credit linked and for the current year,

NABARD has a goal to credit link 45000 SHGs. Further, large number of

tenant farmers, lessee farmers and share croppers who do not have a title to

land are resorting to borrowing from money lenders. As NABARD started

SBLP scheme in Chandrapur, Buldana, Jalna and other districts. Already

financial excluded rural people from Karjat become prey to the money lenders.

In Aurangabad The Jalna Gramina Bank has introduced the concept of

Joint Liability Groups to meet their credit needs. The initial results of the

experiments are very encouraging and it is expected to provide another

alternate credit delivery mechanism in the near future. The cooperative credit

structure in the state has been suffering from several weaknesses. In order to

strengthen the cooperative credit structure, the State Government has shown

its interest for implementation of the co-operative reforms. This is expected to

strengthen short term cooperative structure and result in enhanced credit flow

to agriculture. The Long term cooperative credit structure in the state has

become weak due to several reasons and is undergoing the process of

liquidation. There is a need to take up corrective measures to bridge the void

created on account of failure of the Cooperative Structure. The process of

consolidation of Regional Rural Banks has also been taken up. Accordingly

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three RRBs viz., Akola Gramina Bank, Buldhana Gramina Bank and Yavatmal

Gramina Bank sponsored by Central Bank of India have been merged to form

a single bank viz., Vidarbha Kshetriya Gramina Bank with headquarters at

Akola. Consolidation of other RRBs in the state is under process. The

mockery of the policy which completely excluded Raigad district especially

Karjat Taluka.

7.4.1 Status of Bank Linkage in Karjat Taluka: Since invention of SHG

Linkage model by NABARD, as a tool of rural development through the

development of micro enterprises was introduced to the economy because

formal credit institutions and informal lending system either failed to deliver the

goods or not very much conducive to the growth of micro enterprises.

Till 2006 even after having strong NGOs in specially in Karjat the SHG

movement was good at numbers at least, but presently in Karjat after the

failure of Academy of Development Sciences, only Sadbhav only one active

NGO working with 50 SHGs and Rastraseva, NGO dealing with 4 SHGs out of

that two SHGs stopped functioning as a group, which is proving very in-

sufficient. The absence of strong NGOs Raigad and Thane districts absence

of any strong MFIs associated with active support from government bodies

and strong NGO network has hampering the spread and sustainability of

SBLP.

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Table: 7.1 SHGs Linked status from 2005-2008

Area Year Bank

2005-06 2006-07 2007-08

Alibag 50 20 0

Apta 65 32 15 BOI

Bense 30 20 12 UBI

Bhal 29 12 6 BOI

Chondhi 40 25 10 BOI

Gadab 750 291 173 BOI

J.Murud 24 20 7 BOI

Kalamboli 47 23 1 BOI

Karjat 800 200 87BOI,CB,UBI

,PUCB

Kharghar 80 54 14 BOI

Khopoli 150 75 10 BOI

New-Panvel 15 0 0

Nhava-Sheva 4 0 0

Pangloli 15 11 8 BOI,CB

Panvel 4 3 1 BOI,

Rewasgaon 5 2 1 BOI

Taloja 70 42 20 BOI

Uran 50 25 10 BOI

Wasambe(M) 75 20 18 BOI

Total 2303 875 426

Nevertheless to the global recession impact global ad Indian economy

at certain level19. The Microfinance industry has not affected by any such

events. The failure of Microfinance and SHG Bank Linkage in Raigad district

having diversified reasons. The districts like Gadchiroli and Chandrapur

showing growth in establishing new SHG and increased rate of linkage, the

same has shown a downtrend of SHG linkage with banks during 2005 to 2008

(Table:7.1).

Micro credit through SHG Linkage model scheme in this regard for the

development of rural areas through micro enterprises either in agricultural or

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non-agricultural sector is no exception. The literature reveals that provision of

micro credit through SHG Linkage model is a necessity but not a sufficient

condition to ensure the success of rural micro enterprises. It depends upon a

large number of factors. It requires an enabling environment for being

successful. Even where it does succeed in stimulating the growth of micro

enterprises, the developmental impact of this on the poorest members of the

target communities varies. The wealthier segments of the target group seem

to benefit most. The non-poor also take the advantage of the scheme when

they are politically and socially in advantageous position. The impact of the

scheme is also limited by the political framework in which it is implemented.

Over and above of all these factors, the additional limiting factors in the case

of the villages in Karjat Taluka are the lack of political will, static mindset of

the people, societal value system, and lack of entrepreneurship, limited market

and absence of a sound infrastructural footing. Thus, it can be concluded that

micro credit through SHG Linkage model scheme as such is not a failure by

itself. What matters most is how best micro credit through SHG Linkage

models are being utilized and in what conditions. Therefore, institutions of

micro credit through SHG Linkage model should address itself to its

implantation and limiting conditions for its revival and make it economically

viable if they have to play a greater role for developing rural areas in a region

or in a country.

7.4.2 Problems Associated with SHG Linkage models in Karjat:

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Credit is one of the many infrastructural needs of a micro

entrepreneur72. To respond to a potential demand for a good or service, a rural

micro entrepreneur requires one or more of the following: transport,

communications, power, irrigation, storage facilities etc. Infrastructural needs

may be less important for some non-agricultural rural entrepreneurial activities

such as cycle repairing, tailoring, etc but they are very important for agriculture

which being one of the most significant rural micro enterprises in developing

economies73. No amount of accessible credit could induce a farmer to cultivate

land for cash crops, if for instance, there is no place to store crops or there is

no marketing authority to market the crops or there is no way of getting the

crops to the market place. Small farmers may not want to change from

subsistence crop to cash crop and become entrepreneurs, even if cash crops

could provide a significantly higher income in the absence a good

transportation system and potential consumers.

Literacy, numeracy and formal education levels in most of the villages

are extremely low. Non-numerate people find difficulties to start enterprises by

themselves as it is extremely difficult for them to keep track of the flow of

income in their enterprises. Those entrepreneurs who are numerate but not

literate can often go some way in developing their enterprises, but their

enterprises are severely limited. For example, they do not have access to

information from the print media and cannot enter into written contracts.

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7.4.3 Political influence: Power Relations and the Limits of Micro credit

through SHG Linkage

The poor people of Raigad and Thane districts are often remain poor not

because of lack of access to credit but for their relative powerlessness74. In

attributing the cause of poverty to insufficient access to credit, micro finance

evangelists obscure the generative mechanism behind much poverty an

unequal distribution of powers at the local, national and international level.

The success of a micro finance scheme hinges critically on the social

context and the particular set of power relations that prevail. But excessive

political interest with out development view is also curse for the empowerment

of the poor60.

The survey of literature and research oriented study in the villages of

Karjat shown some light on micro credit through SHG Linkage models for

rural development through various schemes both in Raigad and Thane

districts. Micro credit through SHG Linkage model scheme in this regard for

the development of rural areas through micro enterprises either in agricultural

or non-agricultural sector is no exception. The literature reveals that provision

of micro credit through SHG Linkage model is a necessity but not a sufficient

condition to ensure the success of rural micro enterprises. It depends upon a

large number of factors. It requires an enabling environment for being

successful. Even where it does succeed in stimulating the growth of micro

enterprises, the developmental impact of this on the poorest members of the

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target communities varies. The wealthier segments of the target group seem

to benefit most83.

7.5. Functions of the SHGs in Karjat:

7.5.1 Books maintained by SHGs and their Usage: Experience has

shown that the few SHG those are in operation realized the importance of

maintaining records and documents they are willing to hire and pay for these

services of a literate person form the village to help them with record

maintenance. As the SHG progresses it is recommended that annual audit of

SHGs accounts be done by Chartered accountants.

Book Keeping: As SHG Transactions may be small today but will not

remain small tomorrow. Book Keeping System must be able to accommodate

the needs of the future, so ensure that there is adequate space in all record

Books and that proper systems are maintained from the beginning.

a) Admission Register:

The admission Register provides a status record of members at the

time of joining the SHG. It is an important book since it gives base socio-

economic status of the members at the time of joining the group and forms the

data base on which periodic assessment can be made of the impact of SHG

Membership on the lives of its members. It goes without saying then, that this

register has to be carefully filled to ensure that it reflects as closely as possible

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the actual socio-economic status of members. The data is compiles using

various participatory methods.

Format of Admission Register: The First page of the Admission Register

should contain an index listing member’s names in order of membership and

indicating the page number allotted to each person. Each Person must be

given Membership numbers at the time of joining. The serial number in which

a person joins an SHG also becomes his/her membership number.

Membership numbers are important because in rural area many men and

women have the same names.

Membership numbers also make it easy for responsibilities to be

regularly rotated among the members in serial order (E.g. If members No 5

chaired this weeks meeting member No 6 will automatically chair the next

meeting. · Each member must be allotted a separate set of pages in the

admission register. · When a member leaves the SHGs her/His number must

be kept vacant and not allotted to anybody else

(for example, a new person joining the group), as it will cause confusion.

Her/his page in the admission register must record that she/he is no longer a

member. Her/his reasons for leaving must also be recorded The Admission

register is not something to be filled as a matter of routine. If it is correctly

filled and regularly updates as new facts come to light or changes occur in the

family can become a valuable database.

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7.5.3 Attendance Register: There is no ambiguity about this Book: it is a

record of the member’s attendance at the SG meetings. One of the critical

indicators of a performing SHG is the level of attendance of the members at

meetings. A record of attendance is therefore of crucial importance. SHGs with

over 80% attendance of members at meetings on average tend to be

functioning well. Attendance however is not enough members must also come

on time to meeting without having to be reminded. For this, it is important that

the SHGs have a fixed day of the week a fixed time and a fixed place for

meetings, many SHGs levy fine on members who are late or who fail to show

up for meetings without prior intimation.

Attendance is taken at the start of the meeting whereas the Minutes

Book is signed at the end of the meeting. · From the Minutes Book it may be

possible to find out who was absent but it is not possible to find out who was

late, such latecomers are usually fined. · If the average attendance for the year

has to be calculated, it will involve going back to the minutes of all the

meetings held in the year, to count the signatures and tally them with the

member’s name. This is a tedious job ·

a) Possible Reasons and Possible lines of Action: SHG meeting time is

not suitable for all members Discuss with members. They can change the

meeting days and timings to suit their convenience SHG meeting place is not

convenient for all the members Discuss with members. They can fix an

alternate place that is convenient to all Some members keep away because

they cannot get along well with some other members Discuss with members

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and find out if such interpersonal problems can be solved. If not it is better to

divide and form separate groups of members with shared common interest or

affinities. Some members are not interested Discuss with them and other

members and find out why. Maybe they have different expectations from the

group. Maybe they want quick benefits but are unwilling to share in their

responsibilities. Maybe their interest conflict with the interest of the other

members of the group. Can their interests and expectations be accommodated

without compromising the SHG concept. If not, it maybe better to motivate

such members to leave the group. Often such members drop out on their own.

Any other reasons Discuss with members and help them find appropriate

solutions on their own.

b) Minutes Book (Meeting): The Minutes Register is also called the

MOTHERS BOOK. This book is of primary importance to the SHG especially

to establish that it is functioning SHG.A well kept Minutes Book can provide

information that distinguishes a performing SHG from an indifferent or a poor

one. Those minutes are recorded in a proper bound register and not on loose

sheets of paper clipped together in the file. Loose sheets of paper are easily

lost. Further they lower the credibility of an SHG · That the Register used for

writing minutes has pre marked pages number in serial order. This will serve

as a precaution against inserting pages in between Subsequently · That the

register is serially numbered. The number should be written on the very day

that a new register is brought into use. This will make tracking easy and

indicate the loss of books if any.

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That each meeting is serially numbered along with the date of

occurrence. A two year old groups that is on meeting no.50 inspires more

confidence than a two year old group that is on meeting No 20 · That in

between written matters there are no blank spaces in the Minutes. Blank

spaces in each page has to be scored out before the Minutes are signed by

the members otherwise they present a potential danger that matter maybe

subsequently inserted and appear as if it the consent of all members.

*Regularity Of meetings of the SHG

*Attendance of members at meetings

*Transparency in Financial matters

*Participatory decision-making

All these features can be ascertained through a well-kept Minutes·

That at the end of each meeting the minutes are read to the group before

obtaining the signatures of members and thereafter signed by all the members

present. This is to make sure that members who cannot read are in agreement

with what is recorded. Another member or book writer must countersign

Thumb impressions.

· That if a new register for Minutes must not be introduces while the

old one still has a page or two left. If for some reasons then that the blank

pages must be cancelled. The Minutes Book is an indication of how seriously

the SHG concept is being understood and promoted all the other major books

record financial transaction after they have occurred. The Minutes Books

records transactions both financial and non -Financial-That demonstrate

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thoughts processes, creativity, range of vision, and sometimes the dreams and

aspirations of the group. The more the number of issues discussed, the

greater the thoroughness with which they are discussed, the more the

attention that is given to cover these details on record, the more vibrant the

groups can be believed to be sustainable healthy SHGs.

C) Individual Members Pass Book: In strengthening the habits of savings

rights from the beginning we have found that individual Pas Books play

several important roles:

* It gave the SHG itself an identity because the Pass Book carried its name

and seal

* It gave the individual members a ‘badge ‘ of membership

* It inspires confidence in the SHG as an Institution with responsible financial

systems even though it may have no legal status

Note: Only authorized persons must sign the Individual Pass Book the choice

of this person must be recorded in the Minutes Book to confirm that it is a

decision taken by the SHG as a whole. The authorized person must sign in the

Passbook to confirm savings and withdrawals of the members the members

must also be encouraged to sign so that he/she is aware of the entries being

made.

Staff of the Block must not sign in the Passbook in place of the authorized

representative It must be borne in mind that a pass book is not a full and final

proof of a transaction having taken place, it must be supported with other

documents e.g. Minutes Book entries, cash book and Bank book entries

savings and Loan Ledgers, Receipts and Payment Vouchers.

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The Individual members Pass Book must always be kept in the control

of the concerned members themselves. Many SHGs tend to collect them and

keep the all in one place maybe in the house of the Secretary. They state that

(a) They are safer with the Secretary

(b) The chances of the passbooks being forgotten during a meeting are

eliminated

(c) The Secretary or book writer can update the pas boo even after the

meeting is over

Of course these arguments may sound reasonable. Nevertheless this

practice should not be encourages, as it does not build a responsible attitude

towards the passbook

f) Receipts & Payment Vouchers:

· A Receipt Voucher acknowledges that money has come in to the SHG

account from the members or from any other source.

· A payment Voucher acknowledges that money has gone out of the SHG

account to the members and or to other parties.

· It is on the basis of these receipts and Payment vouchers that the entire

Cash/bank Book is built up

7.6 Impact of SHG on empowerment of the poor in Karjat:: The

successful application of the SBLP by banks, government and the SHGs

themselves had shown tremendous elevation in the personal, social and

economic life. Two decades prior to SHG movement was initiated, Similar to

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Andhra Bank in Andhra Pradesh, in Maharashtra Bank of India started

identifying and financing under such schemes. Bank of India started in a big

way financing tribals from deep forests in the districts of Chandrapur and

Gadchiroli in Maharashtra. The efforts in financing the SHGs by the Bank

have been responded with development of the poor and appreciated by the

experts, researchers and the groups themselves. The program has

empowered the rural people from the social, economical and political aspects.

Economic: The Scheme for cultivation of Tussar silk worms was so unique

that the small assistance ranging between Rs.250/- to Rs.500/- for buying

tussar silk cocoons as seed and for livelihood of the family of the rearer who

were required to camp in jungles throughout the growth period of the worms

on trees of ‘Arjun' and ‘Ain' that it was lapped up by the tribals. The financing

was undertaken directly going into deep forests camping at forest guest

houses, getting executed the documents in jungles and disbursing loans in

cash to these tribals. Starting with financing

for 10 such rearers in the year 1973, the

Bank had covered all the 3000 silk worm

rearing families in Vidarbha by 1977. Group

concept has taken roots in the Bank since

then, in various other activities particularly of

women. Same movement has now picked

up in the form of micro finance or SHGs. Providing finance to the poor after

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organising them into homogenous groups, commonly known as Self Help

Groups (SHGs). The Bank/branches were actively involved in Maharashtra

Rural Credit Project, Pilot Project through International Fund for Agricultural

Development (IFAD).

In Raigad district presently, the Bank is catering to the need of 760

active Self Help Groups involving finance of Rs.1.7 crore and plans to link

another 25000 groups to Bank finance which are in nurturing stage.

Apart from individual SHGs, Bank also extends credit to the Self Help

Groups promoting institutes and NGOs in this field. As a matter of Corporate

policy, the Bank has decided to actively associate itself in this movement in

financing the SHGs in tribal and backward areas covered through the network

of branches as a main thrust area of financing by the rural and semi-urban

branches mostly in these backward areas.

The SHGs from Gadchiroli and Chandrapur are been benefited with

the credit support through their respective SHG and set up their own business

i.e., Milk, Vegetable, Masala Preparation, Confectionaries and various micro

entrepreneurial activities. Presently they are entering into purchase of sheep,

goat, buffalos, even availing loans for agriculture also. Raigad district would

desperately need the tremendous growth factors of SBLP for the

empowerment of the poor people from Raigad and Thane districts.

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CHAPTER -8

PARADIGM SHIFT OF MICROFINANCE

8.1 THE SHIFT IN DEVELOPMENT PARADIGMS:

Since the second half of the twentieth century, third world countries

have constantly changed their path of development with the hope of

registering economic growth. With the passage of time, however, the expected

results became hard to come by. Instead, the programs and projects that were

envisaged became rather a frightening dream. As a result, countries changed

their path of development and subscribed to the Integrated Rural Development

Program, which was practiced in the 1970s27. Before a decade was out, this

approach was also proved to be a failure. Then the World Bank blamed

governments of developing countries for their inefficiency in achieving

economic growth, and advised them to follow another development path91.

8.2 The Paradigm Shift in Microfinance: A Perspective from SBLP

The paradigm shift in microfinance presently underway in the

developing world is marked by the change from government and donor funded

subsidized credit to sustainable financial intermediation37. This has occurred

because of the work of many people in many countries. Institutional

microfinance is characterized worldwide by what has been called the 'absurd

gap' between demand and institutional supply. Thus, despite the widespread

demand for financial services - for both credit and savings facilities - it is

estimated that institutional finance is unavailable to about 90 percent of all

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households in developing countries. This includes most of the poor people in

the developing world.

8.2.1 The primary reasons for the low institutional supply of

microfinance demand are:

(a) The pervasive misunderstandings about local financial markets that are

widespread on the part of many governments, financial institutions, and donor

agencies.

(b) The low level of influence in their respective societies of those who

constitute the demand. Credit services enable the use of anticipated income

for present investment or consumption. Commercial institutions supplying

microfinance increase the options of the working poor by helping them to

decrease risks, to obtain higher returns on investment, to improve

management and productivity, and to improve the quality of their lives and

those of their dependents.

8.2.2 The Old Paradigm: Subsidized Credit Programs:

1. Lower-income people need credit for productive inputs.

2. Because their incomes are low, they cannot save enough for the inputs they need.

3. They also cannot afford to pay the costs of the credit they need.

4. Therefore subsidized credit programs are required.

5. Lower-income people are generally uneducated and do not trust banks;

they either do not save, or prefer to save in nonfinancial forms.

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6. If such people are to save in banks, they need to be taught financial

discipline.

Therefore, compulsory savings are required as a condition of obtaining an

institutional loan.

8.2.3. The New Paradigm: Sustainable Financial Intermediation

a. Subsidized credit programs of many financial institutions serving the local

areas of developing countries have consistently resulted in high arrears and

heavy losses.

b. Subsidized loans are provided to the borrower at below market rates, and

are therefore desirable. These loans encourage corruption, and in the process

often reach the local elites rather than the target population of lower-income

borrowers.

c. Credit subsidies provided to borrowers at the local level frequently

discourage institutional savings mobilization. This occurs because regulations

often require that the interest rates charged for subsidized loans are lower

than the interest rates paid on deposits, thus providing a negative spread and

a disincentive for the institution to capture savings.

d. There is extensive demand for microcredit at commercial interest rates on

the part of many lower-income people in developing countries. Where

microcredit has been provided by institutions at commercial interest rates, and

where local savings have been mobilized, loans tend to be widely available

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and repayment rates high. Repayment is high primarily because borrowers

want to keep open the option to borrow again – at what are highly attractive

rates in comparison with the interest rates charged on the informal commercial

market.

e. When credit subsidies are replaced by commercial microfinance, there can

be substantial savings to governments and donors. These accrue both from

the subsidies not provided and from the losses not incurred. Where needed,

these savings can be made available for poverty alleviation programs.

f. Lower-income people generally do not need to be taught to save; they

already save. In case of emergencies, they have fewer options than wealthier

people and therefore many save regularly in cash kept in the house and in a

variety of nonfinancial forms such as gold, agricultural commodities, and

durable goods.

g. There is massive demand at the local level in developing countries for

institutional savings services that offer a combination of security, convenience,

liquidity, and returns. Outside Indonesia, however, this demand is usually

unrecognized and very few institutions provide such services.

h. Voluntary savings contrast sharply with compulsory savings required as a

condition for credit; these reflect two different underlying philosophies. The

latter assumes that the clients must be taught financial discipline and 'the

savings habit'. The former, a basic component of the 'new microfinance',

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assumes that most of the working poor already save, and that what is required

for effective savings mobilization is for the institution to learn how to provide

instruments and services that are appropriate for local demand.

i. Given enabling macro-economic, political, regulatory, and demographic

conditions, commercial institutions can be developed to provide financial

intermediation, delivering services at the local level profitably, sustainably, and

without subsidy.

j. In contrast, institutions that on-lend donor funds at subsidized interest rates,

that combine social and financial services, and that do not mobilize voluntary

savings effectively cannot become self-sufficient. However, institutions of this

type are dependent on continuing donor or government injections of low-cost

funds. Unless they raise interest rates on loans, mobilize voluntary savings,

and separate social and financial activities, these institutions cannot become

sustainable.

k. The demand for institutional microfinance can be met only by sustainable

financial institutions. There are not enough donor and government funds to

meet a significant proportion of the worldwide demand for microfinance.

n. When one or more institutions has demonstrated in a particular country that

microfinance can be profitable, the formal banking sector will begin to enter

the market. This has already occurred in Indonesia where large private banks

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have become aware of BRI's profits and have entered the microfinance market

for the first time.

p. Sustainable microfinance can be achieved in a country without great

expenditures on the part of government or donors. Only the institutions that

provide the initial examples may need assistance; later the country's own

banking sector will learn that microfinance represents a large, unsupplied, and

profitable market.

8.4 Credit Mechanisms Adopted by HDFC (India) for Funding the Low Income Group Beneficiaries

HDFC has been making continuous and sustained efforts to reach the

lower income groups of society, especially the economically weaker sections,

thus enabling them to realise their dreams of possessing a house of their own.

HDFCs' approach to low-income lending has been extremely professional and

developmental in nature. Negating the concept of dependence, HDFCs' low

cost housing schemes are marked by the emphasis on peoples participation

and usage of self-help approach wherein the beneficiaries contribute both in

terms of cash and labour for construction of their houses. HDFC also ensures

that the newly constructed houses are within the affordability of the

beneficiaries, and thus promotes the usage of innovative low cost technologies

and locally available materials for construction of the houses. The loans from

HDFC are disbursed depending upon the stages of construction. To date,

HDFC has experienced 100% recovery for the loans disbursed to various

projects.

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8.5. Strengths of Informal Sector: A synthesis that can be evolved out

of the success of NGOs engaged in microfinance is based on certain

preconditions, institutional and facilitating factors.

8.5.1 Preconditions to Success:: Those NGOs have been successful that

have instilled financial value/ discipline through savings and have

demonstrated a matching value themselves before lending. A recovery system

based on social intermediation and various options including non-financial

mechanisms has proved to be effective. Another important feature has been

the community governance. The communities in which households are direct

stake holders have successfully demonstrated the success of programs. A

precondition for success is to involve community directly in the program.

Experience indicates that savings and credit are both critical for success and

savings should precede credit. Chances of success more with women:

Programs designed with women are more successful.

8.5.2 Operating Indicators :

The operating indicators show that programs which are designed taking

into account the localized and geographical differences have been successful.

Effective and responsive accounting and monitoring mechanisms have been

an important and critical ingredient for the success of programs101. The

operational success has been more when interest rates are at or near market

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rates: The experience of NGOs indicates that low income households are

willing to pay market rates. The crucial problem is not the interest rates but

access to finance. Eventually in absence of such programs households end up

paying much higher rates when borrowing from informal markets. A flexible

rate of interest scheme would indicate a wider spread for NGOs. Selected

non-financial services, viz. business, marketing support services enhance

success. Appropriate incentives for borrowing and proper graduation of credit

has been essential component of success. A successful program can not be

generalized for all needs and geographical spread. The programs which are

simple and replicable in similar contexts have contributed to success.

8.5.3 . Facilitating Factor: Another factor that has contributed to the

success is the broad environment. A facilitative environment and enabling

regulatory regime contributes to the success. The NGOs which have been

able to leverage funds from formal programs have been successful. An

essential factor for success is that all development programs should converge

across sectors.

8.6. Weaknesses of Existing Microfinance Models: Even the most

successful model Grameen31 type also some weakness. It involves too much

of external subsidy which is not replicable Grameen bank has not oriented

itself towards mobilizing peoples' resources. The repayment system of 50

weekly equal installments is not practical because poor do not have a stable

job and have to migrate to other places for jobs. If the communities are

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agrarian during lean seasons it becomes impossible for them to repay the

loan. Pressure for high repayment drives members to money lenders. Credit

alone cannot alleviate poverty and the Grameen model is based only on credit.

Micro-finance is time taking process. Haste can lead to wrong selection of

activities and beneficiaries. Another model is Kerala model (Shreyas). The

rules make it difficult to give adequate credit {only 40-50 percent of amount

available for lending). In Nari Nidhi/Pradan system perhaps not reaching the

very poor.

All the models lack in appropriate legal and financial structure. There is

a need to have a sub-group to brainstorm on statutory structure/ ownership

control/ management/ taxation aspects/ financial sector prudential norms. A

forum/ network of micro-financier (self regulating organization) is desired.

8.7 A New Paradigm: A new paradigm that emerges is that it is very

critical to link poor to formal financial system, whatever the mechanism may

be, if the goal of poverty alleviation has to be achieved. NGOs and Banks

have been involved in community development for long and the experience

shows that they have been able to improve the quality of life of poor, if this is

an indicator of development. The strengths and weaknesses of existing NGOs

and microfinance institutions in India indicate that despite their best of efforts

they have not been able to link themselves with formal systems.

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8.1 Comparison of SHG Vs MFIs

SHG/SBLP Model MFI/Micro Credit/Grameen Bank Model

Community based Investor Owned

Community Managed (SHG) Professionally Managed (SKS)

Community (Self) Accepting outside funds for on lending

Integrated (Social & finance) Minimalist (finance only)

Non Profit/Mutual benefit For profit

Only for poor For all under served clients

Self Regulated Externally regulated

The four pillars of microfinance credit system (Fig.8.1 ) are supply,

demand for finance, intermediation and regulation. Whatever may the model of

the intermediary institution, the end situation is accessibility of finance to poor.

The following tables indicate the existing and desired situation for each

component.

8.2A

8.2 DEMAND

Existing Situation Desired Situation

Fragmented Organized

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Undifferentiated Differentiated (for Consumption, housing)

Addicted, corrupted by capital & subsidies

De-addicted from capital & subsidies

Communities not aware of rights and responsibilities

Aware of rights and responsibilities

8.3 SUPPLY

Existing Situation Desired Situation

Grand Based (NABARD, SGSY, DRDA, Banks)

Regular fund sources (borrowing/savings/deposits)self,

Maximum Revolving Funds

Directed credit- unwilling and corrupt

Demand responsive

Not linked with mainstream of financial institutions

Part of mainstream (Core banking and Financial Institutions

Mainly focused for credit Add Savings and Insurance

Dominated by political interferences Reduce dominance of informal, unregulated suppliers

8.4 INTERMEDIATION

Existing Situation Desired Situation

Non Specialised Specialised in Financial Services

Non oriented to financial analysis Thorough in financial analysis

Non profit capital For profit

Non linked to mainstream financial institutions

Link up to FIs

Not organized Self regulating

8.5 REGULATION

Existing Situation Desired Situation

Focused on formal service providers (informal not regulated)

Include/Informal recognisation e.g DWACRA, SHGs in AP

Regulating the wrong things e.g Regulate rules of game

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volatility in interest rates

Multiple and conflicting Coherence and coordination across regulators

Negatively Oriented Enabling Environment

8.7.1. Possible Alternatives/Options :

The three options that emerge out of above discussion regarding structure of

intermediary institution is discussed below.

Option-I: Increase the flow of funds to informal lenders to supplement their

own funds. The formal sector will take advantage of the lower transaction

costs and risk premium of the informal sector so as to reach the low income

group borrowers beyond the profitable reach of the formal sector. As for the

beneficiaries, inspite of the transaction cost of the formal and the informal

sector being transferred on to them, the cost of borrowing will remain low as

compared to what exists through money lenders. In addition, access to the

formal sector funds could promote competition within the informal sector and

check the exorbitant profits being made in this sector.

Option-II: Since it is now being felt that the existing structures are inadequate

to meet the housing and economic credit needs of the participating

community, an Institution that would combine the strengths of an NGO and the

expertise of a financial institution, with participation from the community will be

appropriate.

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Option-III: As mentioned before, a review of the cooperatives and NGOs

illustrates a wide variety of arrangements as well as different stages of

development of community-based financial institutions. In all cases, the

strength of the community based systems is their close rapport and linkages

with the community and its members. The broad arrangement involves a bulk

loan from the Formal Financial Institution to the Community Based Financial

Institution (CBFI) with specified terms and conditions for lending to

households. The CBFI will have the responsibility for loan origination and

servicing and therefore would also bear the credit risk.

8.8. Conclusion

Some valuable lessons can be drawn from the experience of successful

Microfinance operation. First of all, the poor repay their loans and are willing to

pay for higher interest rates than commercial banks11 provided that access to

credit is provided. The solidarity group pressure and sequential lending

provide strong repayment motivation and produce extremely low default rates.

Secondly, the poor save and hence microfinance should provide both savings

and loan facilities. The findings imply that banking on the poor can be a

profitable business. However, attaining financial viability and sustainability is

the major institutional challenge. In order to be sustainable, microfinance

lending should be grounded on market principles because large scale lending

cannot be accomplished through subsidies.

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A main conclusion of that microfinance can contribute to solving the

problem of inadequate housing and urban services as an integral part of

poverty alleviation programmes. The challenge lies in finding the level of

flexibility in the credit instrument that could make it match the multiple credit

requirements of the low income borrowers without imposing unbearably high

cost of monitoring its end-use upon the lenders. A promising solution is to

provide multi-purpose loans or composite credit for income generation,

housing improvement and consumption support. Consumption loan is found to

be especially important during the gestation period between commencing a

new economic activity and deriving positive income. Careful research on

demand for financing and savings behaviour of the potential borrowers and

their participation in determining the mix of multi-purpose loans are essential in

making the concept work (tall 1996).

Eventually it would be ideal to enhance the creditworthiness of the poor

and to make them more "bankable" to financial institutions and enable them to

qualify for long-term credit from the formal sector. Microfinance institutions

have a lot to contribute to this by building financial discipline and educating

borrowers about repayment requirements.

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CHAPTER- 9

DATA ANALYSIS AND FINDINGS

Introduction: This chapter is divided into three parts the first part of the

chapter deals with analysis of individual participating in the SHG/SBLP

program and second part of the chapter deals with the statistical analysis of

SHG participating in the study. Each part is then sub divided into two parts the

first part deals with the basic and descriptive statistics while as in the second

part deals with statistical test which provides sufficient evidences to prove or

disprove the hypothesis and objectives discussed in the earlier chapter three.

Part 1: The table below lists the variable used in data with their measurement

levels. The ‘SHG Entrepreneur activities’ is the Nominal dependent variable.

The rest of the variables are all of the independent variables.

Name of the variables Type of the variable

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Gender, Literacy status of the individual, Whether Taking

education, Profession of the Individual, In immediate neeed

where from the need is satisfied, Who inform about SHG,

Reason FOR taking loan from SHG, Saving Account Yes or

No,Name of bank, Amount saved in account, Do you know

SBLP, Any loan from SBLP, Loan Sufficient, Do you have

information for SBLP work, Are you on any position of your

Group, Major reason of taking loan from SBLP, How many times

the loan is taken, Supported by any organization, Any Repay of

Loan, Entrepreneur Activity

Nominal

Age of the individual, Age of SHG, No of members, Income

Before,Amount saved in account,Year since in SHG, CURRENT

FAMILY Income,Total no of members in family,No of Children,No

of son in family, No of Daughter in family.

Scale

Table. 9.1. Interpretation: The total 3072 individuals who are any way

associated with the some or other self help groups. Table 9.1 and chart 1

shows the surprising and promising results. Out of 3072 participants 99.3%

are Female and 0.7% are male. This result seems to be very interesting and

supports governments’ policies of strengthening houses in villages by

strengthening housewives. This ascertains that the government should really

focus on the program if they are wishing to improve the economic and social

patterns underdeveloped regions. As secondary research derives that only

women SHGs could sustained sofar. Even One educated women can

motivate the family and the whole villages will be educated.

Table -9.1:

198

Showing the male Female distribution of Individuals participated in the

study.

Gender Frequency Percent

Female 3052 99.3

Male 20 .7

Total 3072 100.0

Chart -9.1:

Showing the male Female distribution of Individuals participated in the

study.

Table 9.2. Interpretation: While taking the survey the care is taken to

include maximum variations. The Table 9.2 and chart9.2 shows the age

distribution of the individual participating in the SHGs. It is observed that

199

88.5% of the individuals, participating in SHGs, are of the age 30-45. Out of

that maximum of the percentage is 23 and is for the age 35. There some

cases which are of the age 50 which in terms of percentage is very small and

is only 1 percent. Thus we can say that the individuals who are participating in

the SHGs are much mature and responsible. This is a positive sign and may

contribute towards success of the programme, as they are very much in need

of money the compulsion would definitely keep them in to group and

entrepreneurial activities. The review of secondary data from APMAS,

Andhrapradesh and NABARD shows that average age of 85% groups of

DWACRA or SHGs in Andhra is 35yrs. As they are middle aged members

can be flexible to handle the responsibilities and deal with all age group

people.

Table9.2: Showing the Age distribution of Individuals participated in the study.

Age Frequency PercentCumulative

Percent

25 29 .9 .9

26 29 .9 1.9

28 68 2.2 4.1

29 198 6.4 10.5

30 197 6.4 17.0

31 30 1.0 17.9

32 503 16.4 34.3

33 467 15.2 49.5

34 197 6.4 55.9

35 708 23.0 79.0

200

36 29 .9 79.9

38 239 7.8 87.7

39 30 1.0 88.7

40 289 9.4 98.1

45 29 .9 99.0

50 30 1.0 100.0

Total 3072 100.0

Chart 9.-2: Showing the Age distribution of Individuals participated in the

study

201

Table.9.3: Interpretation The another most important factor which was

considered for success of SHGs and SBLP program is the literacy of the

individual participating in the program. It is observed that out of 3072 individual

41.3% of the individuals are found to be literate i.e., they are capable to read

and write which helps them look after the accounts, negotiate with

government and financial institutions. There would be least chance to get

cheated as it used to happen in 60s, & 70s. This literacy would enrich the

group activities for financial and social empowerment

Table:9.3: Participants literacy frequency value and cumulative percentage

Literacy Frequency PercentCumulative

Percent

202

Table- 9.3.A : Showing the gender

distribution according to their Literacy status with Chi Square p value.

Gender

Female MaleTotal

Illiterate 1791 13 1804Literacy

Literate 1261 7 1268

Total 3052 20 3072

Table.9.3: Interpretation: The above cross tabulation gives number of male

literate, male Illiterate Female Literate and Female literate. The table shows

that 1791 females out of 3052 female are Illiterate and 1261 to be literate in

the sense that they can sign at least. Out of 20 surveyed male it is found that

13 male are literate and 7 male to be illiterate. The references from the

Illiterate 1804 58.7 58.7

Literate 1268 41.3 100.0

Total 3072 100.0

203

successful SHGs from Gadchiroli, Chandrapur, Thane and Visakhapatnam

shows that initial stage of while joining the group majority of the members are

illiterate, but after two three years they have become versed the official

proceedings with minimum acquired literacy. This would be the major reason

NABARD certifying as good SHG, which has completed at least 2-3 yrs of

operations offcourse associated with loan re-cycle.

Table.9.4: Interpretation The number of members in the family (Sharing one

kitchen) is one of the most important characteristic to be studied. The number

of members in family increases economic dependency and is supposed to be

the forcing character for increasing the earning of the family. The Table 9.4

followed by chart shows the frequency distribution for the family members. In

this study we can observe that the family size varies from 2 to 9. The family

size with 2 members includes husband and wife and the family size 9

members include all dependent in the family. There are very few those have 2

members and 9 members in the family. In terms of percentage only 0.1

percent of the families are observed to have 2 or 9 members in family. It is

observed that 38 percent of the families are with family size of 6 and 33.5

percent the families are of size of 5 members. The maximum family members

is directly proportional to the financial requirements which increases the

probability of bread winners per family. This proportion also encourages

maximum members to be in the SHG and avail the flexible credit to support

their family by participating in any entrepreneurial activity as a individual or as

a group.

204

Table-9.4. Showing the Frequency distribution of the number of

members in family.

Chart-9.4 : showing the distribution of family size.

Number of member in

familyFrequency Percent Cumulative Percent

2 4 .1 .1

3 196 6.4 6.5

4 456 14.8 21.4

5 1030 33.5 54.9

6 1166 38.0 92.8

7 188 6.1 99.0

8 30 1.0 99.9

9 2 .1 100.0

Total 3072 100.0

205

.Table .9.5 Interpretation Another important factor important factor is number

of children in the family. It is observed that there are 0.2 percent families with 0

children and the maximum 7 children percentage is 0.8 percent. The maximum

families are having 4 children in family. The percentage of such families is

38.5 percent (Table-9.5). Table 9.5 and the chart followed show the

distribution of Son. There are 53.5 percent families who have 2 sons and 5.4

percent families which have 0 sons while as Table - 5.3 that there are at least

61 percent families which has more than two daughters.

206

9.5.: Showing the Frequency distribution of the number of members in

family.

Table-9.5.1: showing the Frequency distribution number of son in family.

Number of son Frequency Percent Cumulative Percent

0 167 5.4 5.4

1 849 27.6 33.1

2 1645 53.5 86.6

3 350 11.4 98.0

4 60 2.0 100.0

6 1 .0 100.0

Total 3072 100.0

Number of children in

familyFrequency Percent

Cumulative Percent

0 7 0.2 0.2

1 106 3.5 3.7

2 467 15.2 18.9

3 959 31.2 50.1

4 1184 38.5 88.6

5 270 8.8 97.4

6 53 1.7 99.2

7 26 0.8 100.0

Total 3072 100.0

207

Chart-9.5.1: showing the distribution of son in family.

Table-9.5.2: Showing the Frequency distribution of the number of

daughters in family.

Number of daughter Frequency Percent

Cumulative Percent

0 336 10.9 10.9

1 869 28.3 39.2

2 1471 47.9 87.1

3 367 11.9 99.1

4 2 .1 99.1

6 27 .9 100.0

Total 3072 100.0

208

Chart-9.5.2 : Showing the distribution of daughters in family.

Table 9.5 to 9.5.3 shows a high level dependency for the members on the

group as 60% of the members having children of 3 to 4. Out of that 50%

members sending their children to school which shows the maturity level and

commitment towards family. This significantly raises the chances of the

members to continue with the group and continue with economic activities.

Table-9.5.3: Showing the Frequency distribution of the number of

families supporting their child education.

Whether taking education Frequency Percent

Yes 1569 51.1

No 1503 48.9

Total 3072 100.0

209

Chart-9.5.3: Showing the Frequency distribution of the number of

families supporting their child education.

9.6. The profession is also the influencing characteristic to the individual for

participating in SHG/SBLP.Table-9.6 and Chart-9.6 shows the frequency

distribution of individual according to profession categories. Out of surveyed

3072 individual it is observed that maximum individuals are seasonal labor, the

percentage of such individuals is 30.6 percent. There are 26 percent

individuals who are involved in some or other micro business. The percentage

of individuals who are daily wage labor is 20.8. There are 11.8 and 10.8

percent of individuals who are Milk product seller and Vegetable Vendors.

The 51.5% members are highly below poverty line i.e., earning Rs. 50/- per

day as on 2008-09 which makes them as highly suitable for the SBLP scheme

(NABARD regulation). Other 48.5% members own micro level business

210

activity which is the core strength of the group through entrepreneurial

activities.

Table-9.6 Showing the Frequency distribution of the individuals as per

profession.

Profession Frequency PercentCumulative

Percent

Seasonal Labor 941 30.6 30.6

Vegetable vendor 331 10.8 41.4

Micro Business 799 26.0 67.4

Daily Wage Labor 639 20.8 88.2

Milk Product Selling 362 11.8 100.0

Total 3072 100.0

Chart-9.6: Showing the Frequency distribution of the individuals as per

profession.

9.7 The awareness of SHG and SBLP is also one of the most important

factor. To check the awareness source we categorized it into three parts that

211

is Government, NGOs and Animator. We raised the question that where from

the information regarding SHG/SBLP is obtained? Some of the individuals that

is nearly 5.5 percent of the individual did not responded for the question. But

out of responded individuals 91.5% said that the information is obtained from

Government agencies, 4.9% said that they got information from NGOs and

3.6% said that they got information from Animators. This may lead to the

conclusion that Government Organization should take lead for spread of

awareness and they are one of the best sources for providing the information

Chart-9.7: showing the Frequency distribution of the individuals for the

source of information.

The table 9.7 and chart 9.7 shows that there are only 24% people who has

taken loan for Business purpose and remaining almost 76% people says that

they have taken loan for other purposes like repaying old loan, house repair,

Family Function etc. It may be allowed to take loan for repaying old loans

lower % for business purpose is alarming for entrepreneurial activity.

212

Table-9.8: Showing the Frequency distribution of the individuals’

purpose for Loan.

Purpose Frequency PercentCumulative

Percent

Health Purpose 289 9.4 9.4

Children Education Expenses 649 21.1 30.5

Business purpose 736 24.0 54.5

House Repair 376 12.2 66.7

Family Function 344 11.2 77.9

Repay Old Loan 678 22.1 100.0

Total 3072 100.0

Chart-9.8: Showing the Frequency distribution of the individuals’

purpose for Loan.

213

It is observed from Table-9.9 that 75% of the individuals are only

members of SHGs while as 8.2% president, 9.2% secretary and 0.6% are

involved in Bank operations.

Table – 9.9 Showing frequency distribution of individuals according to

positions they are holding in SHGs

Position of the Individual

Frequency Percent

Candidate only 2288 74.5

Khajindar/Treasurer 232 7.6

Secretary 284 9.2

President 251 8.2

Bank Operations 17 .6

Total 3072 100.0

Chart –9.9 Showing frequency distribution of individuals according to

positions they are holding in SHGs

214

9.9. Though the literacy rate is 51%, 74.5% member have not taken any

responsible position which has to be corrected and each member should bear

the responsibility on rotation basis. Accounts can be with specific and

experienced people. Other responsibilities should be rotated amongst all the

members equally to make them most suitable and sustainable group.

Table – 9.10 showing distribution of SHGs on the basis of no of

members.

No of members in SHG Frequency Percent

10 383 12.5

12 603 19.6

13 302 9.8

14 638 20.8

15 408 13.3

16 454 14.8

18 284 9.2

215

No of members in SHG Frequency Percent

10 383 12.5

12 603 19.6

13 302 9.8

14 638 20.8

15 408 13.3

16 454 14.8

18 284 9.2

Total 3072 100.0

Chart – 9.10: Showing distribution of SHGs on the basis of no of

members.

Table – 9.11 showing distribution of Age of SHG.

Age of SHG Frequency Percent

2 541 17.6

3 850 27.7

4 937 30.5

5 744 24.2

Total 3072 100.0

216

Chart – 9.11 showing distribution of Age of SHG.

Table – 9.12 showing distribution of SHG’s promoter.

Table.9.12: Interpretation: The groups, from where data collected are 30.5%

promoted by SGSY which are formed on the basis to avail the subsidy by the

government. Where they have been encouraged by the authorities to

complete the government targets given to them, The group progress was not

been followed up by the respective promoter after the subsidy was disbursed

Supported by Frequency Percent

NGO 192 6.2

DRDA 716 23.3

SGSY 938 30.5

Others 1226 39.9

Total 3072 100.0

217

or the group itself discontinued further to avoid the repayment of the remaining

loan amount. During the study and data collection this has outlined by the

respective individuals by blaming each other. The groups of 23.3%, promoted

by DRDA authorities already become obsolete as the respective scheme met

with failure allover India. The remaining 6.2% and 39.9% promoted by NGOs

and Volunteers are managing to survive on basis of periodic surveillance.

Chart – 9.12 showing distribution of SHG’s promoter .

Table. 9.13. Interpretation: Distribution of individual who has repaid the

loan.

Loan obtaining and repayment are two crucial stages to determine a

SHG’s success or failure. The study and analysis shown that only 168 SHGs

218

out of 3072 were obtained loan and repaid also amounting 5.5% which is

worrisome. The core banking functionary is to provide the loans and collect

the deposits. If core purpose is not deal with, then the objective of formation

of SHG and bank linkage would not sustain. Active steps have to be taken to

encourage the members to avail the loans after becoming eligible and utilize it

for meet their requirements and invest on business, where they can repay the

loan. The valid reasons have to enquired with the remaining 94.5% members

for not availing the loans and motivate and educate them to understand the

prime objective to form SHG and becoming members.

Loan repay Frequency Percent

Yes 168 5.5

No 2904 94.5

Total 3072 100.0

Chart – 9.13 showing distribution of individual who has repaid the loan.

219

Table.9.14; Interpretation: showing distribution of individual who are

doing some or other entrepreneur activities.:

The outcomes of Table 9.14 and 9.13 are proportional to each other.

As the 94.4% of the members are not involved in any entrepreneurial activity

where they feel need of money rotation. What ever money they are earning

from labour and daily wages been expended on domestic chores or depending

on the bread winner of the family. Here the desperate requirement of an

animator or mentor to motivate them to take up entrepreneurial activities. If

any difficulty is existing, which has to be resolved for the purpose of the

sustainability of the group linkage.

Entrepreneur Activity

Frequency

Percent

Yes 173 5.6Valid

No 2899 94.4

Total 3072 100.0

220

Chart –9.14: Showing distribution of individual who are doing some or

other entrepreneur activities.

The objective of the study is to study the role of NGOs in the success of

SHG linkage model of group’s entrepreneur activities existing, if any. We also

tried to find out whether there exist any relationship between Repay and

entrepreneur activity. Since it is determined that to any SHG to be active it

must have a loan re-cycle with Bank linkage, it is determined by the question

of any loan from bank and the individual has repaid the loan, and any

entrepreneur activity exist.

The hypothesis that NGO plays very important role in the survivals of

the SHGs is tested using the chi Square test.

Null Hypothesis: The SHG active or inactive is independent of which

organization supports the SHG

221

Alternative Hypothesis: The NGO plays important role in making SHG

successful by doing some activity.

Table – 9.15: Interpretation:

The chi square test is used to test the attribute independency and

contingency coefficient to give the degree of association if any. The results in

the Table 9.15 shows that the null hypothesis is rejected and alternative

hypothesis is accepted since significant value is less than that of 0.05. So the

study and analysis conclude that if the participation of NGOs increases in the

SHG programme the program will be more successful. The other factors like

repayment and entrepreneurial activities are affecting the sustainability of

SHGs with the presence of NGOs. This conclusion arise from the matter of

fact presented in the contingency coefficient value is significantly and

approaching towards . This also can be observed from the chart following the

interpretations.

Entrepreneur Activity

Row Attribute

Attribute Values

Yes No Chi Square value

Sig Contingency coefficient

Sig

No 21 0Refund

Yes 1 378380.8 0.00* 0.698 0.000

No 21 11NGO ACTIVE Yes 1 367

241.9 0.00* .614 0.000

222

Chart-9.16

We independently tried to analysis that is there any relationship

between the other parameters and entrepreneur activity since we say that if

there exist entrepreneur activity SHG is active that means ultimately we tried

to evaluate the association of different important parameters like gender,

Literacy, no of members in family, no of members in SHG, profession, childes

education and position in the group with the entrepreneur activity. The results

are presented below in the table. The Chi square sig values for Literacy status

of individual, No of members in family, repay, Supporting organization and

profession of the individual is less than 0.05 that means the value is significant

and thus we can conclude that there is association between these parameter

and SHG active or inactiveness. The contingency coefficient for repay,

223

profession, literacy, and no of members in family is showing significant

association.

Factor Analysis: the factor analysis is used to identify the important factors

which influence the entrepreneur activities of the SHG. The factors are

extracted to represent the set of variables in the data set in such a way that

they contribute maximum variance. The factor analysis is done by considering

entrepreneur activity. The factor analysis shows that there are 8 factors

whose Eigen values are greater than one (Annexure-vii). The Eigen values

greater than one implies that these factors contributing maximum in terms of

variance. The table below shows that the extracted factor in all explains 70%

variance. this means that if we consider these eight variables for analysis

there will be only 30% loss of information.

The extracted factors are to be identified from following rotated

component matrix: Rotated Component Matrixab: The table shows that the

eight extracted factors are Repay of Loan, NGO supported, No of children,

Age of SHG, Gender, Income of the person, No of members, Age of the

individual. These are the most important factors which really contribute for

SHGs entrepreneur activity and finally SHG to be active (Annexure-vii ).

Income analysis: This part of the analysis the study is divided into two parts

the firs we checked the significant difference in the income levels of the

income before and income after the SHG participation. in the second part of

the income analysis the test is carried out to check the significance of the

224

difference between the groups one belonging to the active SHGs and other

belonging to the inactive SHGs.

Case 1 :

Null Hypothesis 1: There is no significant difference income of the individuals

before and after participation in the SHGs.

Alternative Hypothesis: The hypothesis that the economic status of the

individual improves as they participate in the SHG program. The analysis is

done by using paired t test. the results are presented below in the table.

Table.9.16

Table.9.16; Interpretation: The sig value is less than 0.05 implies that there

is significant difference between the before and after income of the individual.

Thus we conclude that participation in SHG improves the income of the

individual.

Chart showing the means of Income before and after the participation in SHG

T Df Sig. Income Before -

Income after-2.231 3071 .026

225

Case 2:

Null Hypothesis 2: there is no significant difference between the income

levels of the individual belonging to Active and inactive SHGs.

Table. 9.17:

Table 9.17; Interpretation:

The sig value is less than 0.05 implies that there is significant difference

between the income of individuals belonging to active SHG and inactive

SHGs. Thus we conclude that participation in active SHG improves the income

of the individual significantly.

Alternative Hypothesis: There is income of the individual belonging to Active

SHGs is more than that of inactive SHGs.

Income T Sig. Active against

inactive2.304 .022

226

MAJOR FINDINGS OF THE RESEARCH:

The research findings of the study are structured to two individual sub-

chapters:

9.1 The findings from Secondary data analysis and understanding:

The numbers of SHGs linked each year in the rest of India has grown

from 12,100 in 1998-1999 to 1,22,000 in 2001- 2002, an average growth rate

of well over 100% per year. If this rate of growth is maintained, or even if the

pace slackens considerably, there should be no difficulty in attaining the target

of 3 million linked SHGs by the year 2012.

Microfinance and Bank of India:

Two decades prior to SHG movement was initiated, Bank of India

started in a big way financing tribals from deep forests in the districts of

Chandrapur and Gadchiroli in Maharashtra. The financing was undertaken

directly going into deep forests camping at forest guest houses, getting

executed the documents in jungles and disbursing loans in cash to these

tribals. Starting with financing for 10 such areas in the year 1973, the Bank

had covered all the 3000 silk worm rearing families in Vidarbha by 1977.

Group concept has taken roots in the Bank since then, in various other

activities particularly of women. Same movement has now picked up in the

form of micro finance or SHGs. Providing finance to the poor after organising

them into homogenous groups, commonly known as Self Help Groups

227

(SHGs). The Bank/branches were actively involved in Maharashtra Rural

Credit Project, Pilot Project through International Fund for Agricultural

Development (IFAD). In Raigad district presently, the Bank is catering to the

need of 760 active Self Help Groups involving finance of Rs.1.7 crore and

plans to link another 25000 groups to Bank finance which are in nurturing

stage. (BOI Annual Report 2008)

9.2 Trends & Challenges: Millions of rural population have been provided

access to formal financial institutions through SHG-Bank Linkage Program.

However, consumption requirements of members of SHG s still are not fully

met64, resulting in SHG members borrowing from informal sources at

exorbitant interest to meet such requirements, consequently many of them

are reeling under a debt trap.

“Union-Sahay”100 is a new SBLP scheme introduced by Union Bank

of India to assist the members of SHGs for freeing them from the clutches of

money lenders, it provides them financial assistance to meet SHG members

consumption needs. The scheme was launched on pilot basis in 75 villages

during last year. Based on the feedback received from branches, the scheme

has been revised and made applicable to all its branches. Under the scheme,

term loan sanctioned be utilized for any purpose especially for the repayment

of existing debts of SHG members with private moneylenders or other non-

institutional sources.

228

Self- help groups (SHGs) play today a major role in poverty alleviation

in rural India. A growing number of poor people (mostly women) in various

parts of India are members of SHGs and actively engage in savings and credit

(S/C), as well as in other activities (income generation, natural resources

management, literacy, child care and nutrition, etc.). The S/C focus in the SHG

is the most prominent element and offers a chance to create some control

over capital, albeit in very small amounts. The SHG system has proven to be

very relevant and effective in offering women the possibility to break gradually

away from exploitation and isolation.

9.3 The findings from primary data analysis output: During the

process, the various answers have come from the respondents. There are

quite interesting answers have come which would expose the gap between the

secondary data available, promises and assurances from the statutory bodies

and real picture. Moreover there is no study was conducted on SHGs

stationed at Raigad and Thane districts, perhaps it could be the reason for the

non-availability of literature on these districts.

9.3.1 Gender Disparity: The women in interior villages of Karjat Taluka are

primarily belongs to Adivasi sect. Both and male and female are bread

winners of the family as per the situation. Due to bad habits of male head of

the family leading to domestic violence, illiteracy to children which are keeping

the women stick to home only.

229

9.3.2 NGO influence: The NGOs like Academy of Development Sciences,

Sadbhav, Rashtra Seva are involved in rural empowerment and

entrepreneurial activities. Uptol 2005 ADS was active and formed no.of SHG

in Bhivpuri, Neral, Damat, Dabothe, Kasheligaon and various villages. Not

only that it had played a pivotal role in tribal education, fight against land

encroachments, campaigned infavour of the tribals to fight with forest and

revenue departments to get allotments of the agriculture lands to the adivasi

poor. It has conducted lot of entrepreneurial workshops to teach the tribal poor

people to know about the business technique. From 2002 to 2004 it has

formed nearly 600 SHGs in villages of Karjat Taluka. In 2005 ADS has

become non-functional due to their internal crisis and all the SHGs formed by

them have become non-active,

9.3.3 Financial Discipline: The women in Kasheli village of Karjat Taluka

found highly discipline when it is matter of money. During data collection

under experimental basis Rs. 5,000/- was donated to encourage them to

participate in entrepreneurial activities. The male group on the next day it self

expended the total money on alcohol in contrary the female group purchased

some news papers and leaves to prepare paper envelopes and meal plates for

road side hotels. These two assets has put them ahead of male SHGs. It

was found that women SHGs are in better position of managing the group

activities, attendance , economic activities and even loan repayments.

230

9.4. Positive factors for the success of SBLP:

a. Availability of poor and poorest (BPL); income < 58 Rs./per day.

b. Un-employment: 65% of population are casual labors and

seasonal farmers.

c) Availability of opportunities if; they were educated as Karjat falls

on main rail link from Mumbai to Pune.

d) Readiness of the Bank to provide loans to the eligible and

disciplined groups

9.5 Negative Factors: During the study for last three years it was found

that even after having so many opportunities SGH Bank Linkage movement is

not getting ignited. The out come of the primary data collected duly verified

and narrated as follows:

9.5.1 Non availability of Mentor: Presently two NGOs Sadbhav and

Rashtraseva mentoring 87 and 4 SHGs in total Karjat Taluka, which is the 5%

of the previously existed SHGs. All the 600 SHGs formed by ADS become

disoriented and only 10SHGs could found during the pilot study, those still

ready to participate in SBLP activities. When final data collected and studied

from Raigad and Thane districts the same picture has come in a different way.

The final out come is that 98% of the SHGs are non-active now due absence

of mentor either NGO or any other.

231

9.5.2. Increasing No. of NPA (Non Performing Assets): The study found

that the NPAs in Banks are steeply increasing; the reasons primarily 40 out

of 44 SBLP accounts with Union Bank of India 110 out of 114 SBLP accounts

with Bank of India either preferred not to repay the loan which was granted to

them through SGSY subsidy scheme. i.e., Out of Rs..2.5 lakhs loan,

Rs..1.25lakhs reimbursed to the bank by SGSY scheme. The availed load

after distributed equally amongst the members nearly Rs..10450/- which they

exepended on lavish of kinds and when it has come to repayment, they simply

denied to pay it.

The reason is straight forward; the money has expensed on desired

means now does;t have money to repay. Related to this bankers are not

willing to issue new loans and form new SHGs. Significantly in 2009 Bank of

India Katemanivali branch has witnessed 95 % decline in new SBLP accounts

comparatively 2007-08

i) No Strong Recovery Mechanism: Banker are missing the plot being

unable to recover the loan amounts given SHGs in Karjat and Thane districts

as the loans are given with out any collateral.

ii) No Entrepreneurial Activity: The sustainability of a SHG depends on its

economic and entrepreneurial activity. During the field visit to various villages

in Karjat and Thane which are situated at industrial belt and there lot scope for

the micro level business opportunities. Major Pharmaceutical companies,

232

manufacturing and chemical industries, hotel tourist spots and various

adventure sports facilities. In Karjat villages it was found that some villages

opting causal labour rather doing business. In some villages even though they

want do some business, they lack skills and knowledge to establish business.

Some one like active NGO , Animator appointed by NABARD or any MFIs can

be an answer for this problem, to being there to motivate, educate and mentor

the rural poor to make them able to identify their strengths and opportunities to

raise their economic status.

iii) Excessive Political Interference: Now a days the political activities have

increased in these areas. When ever and where ever mob is required, the un-

employed people were hired on daily wage basis includes food, alcohol and

Rs. 300/- and even women also getting into such events and converting them

completely against doing any risky and hard work to earn. A classic example

for the activities is this event in Kalyan, local politicians was very much

infavour with the women SHGs and all the women groups were campaigned

for him in the recently concluded 2009 elections, immediately after election

those SHGs not completely disoriented but not functioning effectively.

iv) Lack of Basic Amenities: The 10 villages of Karjat taluka from where the

data been

collected are

living in kuchha

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houses and open for all natural calamities. Away from potable water facility at

near bay, not to ask about public transport system. Schools and other

amienites they have come all the way either to Neral or to Karjat, even for

general purchases also. Theoritically these are suitable for microfinance and

SBLP activities, ungortunately due to above said reasons they were

completely excluded.

vi) If government or banks would like strengthen the economic activities in

these village, have to motivate the housewives. This ascertains that the

government should really focus on the program if they are wishing to improve

the economic and social pattern of the underdeveloped region. As this

research found that only women SHGs could sustained so far. Even One

educated women can motivate the family and the whole villages will be

educated.

Impact Factors:

i) Age : When the study been conducted it was observed and found that the

women SHGs in AP, Tamilnadu, Karnataka and other states the average age

of the each group near to 35-40. At Karjat also the groups average ages is

nearly 38, and average children in a group is and family members are 4.5;

these factors are bonding women to the group to earn money for the family

even though the male head of the home is earning. The wish for growth,

social status and good education, life to children are luring the women to be

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honest and discipline with the group. The average age group of 25 and 50

are the usually dropouts from the group..

ii) Literacy:. The references from the successful SHGs from Gadchiroli,

Chandrapur, Thane and Visakhapatnam shows that initial stage of while

joining the group majority of the members are illiterate, but after two three

years they have become versed the official proceedings with minimum

acquired literacy. This would be the major reason NABARD certifying as

good SHG, which has completed at least 2-3 yrs of operations off course

associated with loan re-cycle.

iii) Awareness of SHG and Bank Linkage: The awareness of SHG and

SBLP is also one of the most important factor. To check the awareness source

we categorized it into three parts that is Government, NGOs and Animator. We

raised the question that where from the information regarding SHG/SBLP is

obtained? Some of the individuals that is nearly 5.5 percent of the individual

did not responded for the question. But out of responded individuals 91.5%

said that the information is obtained from Government agencies, 4.9% said

that they got information from NGOs and 3.6% said that they got information

from Animators. This may lead to the conclusion that Government

Organization should take lead for spread of awareness and they are one of

the best sources for providing the information.

iv) Purpose of Loan: There are only 24% people who has taken loan for

Business purpose and remaining almost 76% people says that they have

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taken loan for other purposes like repaying old loan, house repair, Family

Function etc. It may be allowed to take loan for repaying old loans lower % for

business purpose is alarming for entrepreneurial activity.

v) Participation: Table 9.3. Though the literacy rate is 51%, 74.5% member

have not taken any responsible position which has to be corrected and each

member should bear the responsibility on rotation basis. Accounts can be with

specific and experienced people. Other responsibilities should be rotated

amongst all the members equally to make them most suitable and sustainable

group.

Progress of SHG( Bachat Ghats) and SBLPs : One SHG in Ullahasnagar/

Ambernath and 12 SHGs in Kalyan (Rural and Urban combined) strongly

working towards the self sustainability. Out of those “Veermata Jeejabai

bachat ghat” kalyan has purchased mini buses with the bank loan to ply the

long distance residents to rly stn., and two more SHGs planning to do the

same with the help of Mrs. Umne, Welfare officer and animator for

Bachatghats in Kalyan and surrounding areas. With out surprinsingly local

political party has embossed their name on the buses to exhibit that they only

helped the groups to obtain the facility.

Similarities in Raigad with Visakhapatnam: The areas of study are Raigad

compare with Thane in Maharashtra , Visakhapatnam form AP are mutually

related as the majority of population of the study belong to Tribal group and

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dominantly falling in the criteria of BPL. The coastal boundary, tourism,

availability of rural poor and trial villages makes it very much similar to Raigad.

The said districts are technically suitable for the SHG and Bank Linked

activities ( as per NABARD).

During the study it was found that Raigad and Thane districts having

similarities in no/classification of population , socio, geographical, political

conditions and no.of of SHG the success rate of the Bank Linkage program is

minimal in compare with Visakhapatnam, Chandrapur and Gadchiroli. The

SHPIs and SHGs which have been promoted by them, were very less

influential at Raigad and Thane districts than other districts.

9.6. The factors which are affecting the SBLP proceedings:

a. In AP the growth of SBLP is supported by the government promoted

groups in whose development NABARD played an important but mainly

indirect role through training and advocacy, the marketing of the SHG concept

has been remarkable and worthy of the most successful international

consumer goods manufacturers.

b. The formation of SHGs in Raigad and Thane districts are not supported

by the entrepreneurial activities as a result even after benefitted with bank

loans and government subsidies maximum no.of SHGs in Raigad and Thane

districts are not binding to the bank linkage norms of repayment, subsequently

237

majority loans are converting in to NPAs, which discouraging the banks to help

the SHGs further.

i) No programs similar to DWACRA, Indira Kranti Padakam and

NREGS to SHGs

ii) No entrepreneurial activities supported by government or

corporate

iii) Excessive influence from gram panchayat to Loksabha elections

and day to day regional unrest .

c. Even though the economic activities/entrepreneurial activities were

undertaken by some of the SHGs in Raigad & Thane districts due to lack of

support from NGOs for the marketing the products, technical support, regular

monitoring the continuation had negatively affected. In compare with other two

districts and AP where either NGOs, government agencies or volunteers are

continuously monitoring the operations of the SHGs as a animator and

motivator.

d. The banks, particularly co-operatives, are playing very cautious role in

the establishing likely in the medium term to be the main SHPIs with the fear

of increased no.of NPAs and low support from local authorities. They should

support, and eventually be replaced by, SHG members’ own initiatives.

e. The absence of strong formation of SHG Federations if crucial finding this

research Raigad district; as when and where ever the individual SHGs are

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unable to function and perform for the sustainability the other SHGs in the

federation are helping (mentoring and monitoring the performance of the under

performed SHG)

Though NABARD is infusing financial resources through banks, the lack

of response from major public sector banks and low awareness of of

cooperative banks in Karjat Taluka effecting the spread and growth of SHG

culture. The exceptional performance of SHGs in AP is associated with heavy

predominance of the government promoted groups. What ever the programs

launched are been implemented by local bodies of government agencies like

panchayats, SGSYs, similarly Gadchiroli, Chandrapur districts of Maharashtra

where the close association with AP border played an important effectiveness

of SHG culture, but mainly indirect role through training and advocacy,

This study assumes that NABARD plans modestly to reduce the rate of

growth, in order to achieve but not to go far beyond the 2012 three million

SHG target. This will require the continued use of all the types of SHPI which

are presently being used, including the newly introduced, which yet to enter

Raigad and Thane districts and big way:

It was found there some prospective steps which helped Andhra Bank

in to achieve the highest success in AP:

i. Individual ‘volunteers’ scheme,

ii. Bank correspondence

iii. Mobile Banking71

iv. Entrepreneurship workshop

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v. Provision for ready available market for the products produced by

the SHGs

Lack of Strong SHPI: The study found that decline growth has fled the

absence of the SHPI culture which has become a strong support to SBLP

activities in AP. Lack of strong SHG Federation culture would be one more

reason of the low an slow growth of SBLP in Raigad.

Incentives to NGOs:

According to existing NABARD incventive policty the NGOs will get the

incentives/commission while forming SHGs and Bank Linkage up to three

months effecting from the date of SHG formation. In Kalyan, Panvel Talukas

the NGOs who have been pioneer while forming the SHGs and Bank Linkage

are not continuously following up with old SHGs as there is no incentive

scheme for the old SHGs.

There is some evidence that some NGOs which are benefitting from

the NABARD incentive scheme provide no further follow up support to SHGs

three months after disbursement of the first loan, because they will receive no

further incentives after this date. NABARD should consider extending this

period to perhaps six or twelve months.

Banks as SHPIs

In Andhrapradesh the Andhra Bank acting as SHG Promoting

Institution, has achieved the high end returns with SBLP scheme and

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establishing many more SHGs in various talukas in Visakhapatnam . But in

Raigad and Thane none of the public sector Bank or cooperative banks are

not acting as SHPI. In the medium term banks should and will emerge as the

main promoters of SHGs. In the longer term, the banks’ role will gradually be

reduced, as SHG members themselves start their own groups. Bankers will

have to respond to these initiatives, as they should for any new customer, by

providing advice and assistance. The SHG promotion role as such, however,

will in time cease to be necessary except in particularly deprived areas. It will

be increasingly necessary to monitor the social aspects of SHGs, and this

task will necessarily devolve on NABARD. One approach to this is suggested

in the following section. Within the banking sector, Co-operative Banks, such

as the Kalyan Janata Sahakari Bank, The Jan Kalyan Sahakari Bank in

Thane, Kalya, Ambernath, Pen Urban Cooperative Bank and Saraswat

Cooperative Bank in Raigad shown interest toward SHG Linkage Program.

But after observing the plight of Bank of India and Union Bank of India

increasing rate of NPAs and bad debts, they dropped from the scheme for the

F.Y. year 2009-10.

Subsidies: It was found that many SHGs are formed into to avail the subsidy

under SGSY scheme especially in some places( Kalyan, Ambernath,

Badlapur, Neral, Mamdapur, and Bhivpuri) and become non-existent with one

year, subsequently the Bank of India Katemaniali Branch and Union Bank of

India Neral branch have suffered with 90% of SBLP account converted into

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bad-debts subsequently as NPAs) exacerbate this problem. In other areas,

however, the coverage is found very low.

Low Marketing :This study found little evidence that some of the existent

SHGs members are unable to sell the goods manufactured by them due to

various reasons of quality marketing, lack of buyers proper branding and

selling skills. Which directly effecting their repaying capacity of the loan

which they obtained from bank, the fear of this is probably banks mangers’

main reason for reluctance to finance SHGs. The rapidly growing numbers of

SHGs, however, make it very likely that some markets will become saturated

in a few years and managers’ fears will be justified. It is much easier to sell

financial services to SHGs than it is to help their members to sell their

products, but NABARD should investigate and when appropriate support

potentially successful private sector approaches to improving quality and

market access for rural products, at the District, State and national levels.

Increased Income: The study also reported an increase in household savings

and assets for the SHG members after they formed the group. Out of the total

sample, 45 per cent reported an increase in assets after joining a SHG. The

mean annual savings of households increased two - fold after joining SHGs.

About 23 per cent of SHGs reported an increase in savings over a period of

time. Higher savings were reported for bank linked groups (36 per cent) than

for NGO supported groups (16 per cent). The proportion of savings to total

resources was relatively higher for bank linked groups (35.7 per cent) than

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NGO supported groups (30.5 per cent). The average loan per member

increased significantly by 123 per cent during the post-SHG situation. Out of

total loans received by SHG members, 72 per cent were used for income

generating purposes and 28 per cent for consumption. The size of loan was

reported to be generally higher in the case of NGO -promoted SHGs than

those promoted by banks.

Repayment of Loans: On loan repayment, the study reported that 5.4 per

cent of the groups had promptly repaid the loans and only 16.7 per cent repaid

late. The ‘in time’ loan repayment performance was reportedly lower for bank

linked groups (90.8 per cent) than for NGO-facilitated groups (82.1 per cent).

On issues related to sustainability and financial aspects of SHGs, the

study found that the quality of records/note books was good only in 15 per

cent of groups, moderate in 39 per cent and weak in 40 per cent8. The

government-promoted groups were weakest in record keeping and were half

as likely as NGO or bank-promoted groups to have well or moderately

maintained records. Overall, the data reflect relatively low standard deviation

around the mean for the number of loans and amount borrowed by members.

Group leaders generally have better access to loans.

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CHAPTER- 10

CONCLUSION AND FUTURE CONSIDERATIONS

The subject of this research study is “Impact of Self help Group –Bank

Linkage Program and It’s Role on the Upliftment of the Poor”. An in-depth

look at Self Help Group their linkage with Bank as an effective tool to provide

the easy credit to poor who otherwise elude the benefits of the financial

inclusion.

Specifically through this study of the SHGs from Raigad , Thane

districts from Maharashtra and Visakhapatnam from Andhrapradesh gives a

picture of SHGs as only one piece of a larger puzzle. Independent SHGs

supported by NGOs or SGSY, Federations, Volunteers, MFIs or any other

government agency are one part of a much larger effort in Maharashtra to

provide the poor with access to financial services. When compared to the

wider SHG bank linkage movement in India, private MFIs have had limited

outreach. However, during this study we have observed change in economic

strength and status change of the poor before and after joining in SHG. There

was a significant change in their exposure towards society, education and

purpose of empowerment..

The data on each factor was drawn from the structured

questionnaires issued to group 3027 members including 400 group leaders,

analysis of qualitative data is discussed to elaborate and give more texture to

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the key findings. These analyses are based on qualitative data drawn from

individual and group interviews conducted during July 2007 – January 2010.

Factor: The following factors were analysed to assess the impact.

1. Age of the SGH 2. Repayment

3. No.of Members in SHG 4. Gender

5. No.of Childred 6. Years in SHG

7. Promoted by NGO,, SHPI, Banks 8. Age of the Individual

Though SHG linked credit increased about fourfold during last

three years, it did not translate into higher incomes for members and

higher asset creation in the name of members. While the inter-divisional

and inter-social categories declined in SHG linked loans, such variation

increased significantly in asset creation.

Impact of SHG-Bank Linkage Programme: Micro financing i.e.

provisioning of small financial services and products to poor people is

contributing to the process of development by creating conditions that are

conducive to human development. It has a strong gender orientation. About

90% SHGs that are linked to banks are reported to be of women as mentioned

earlier. Through these groups, women empowerment is taking place. Their

participation in economic activities and decision making at household and at

society level is increasing. It is making the process of development

participatory, democratic, independent of subsidy and sustainable. Therefore,

microfinance through SHGs is contributing to poverty reduction in a

sustainable manner.

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Studies have shown overall positive impact of SHG bank linkage

programme on the socio-economic conditions of rural poor. It is reported that

significant changes in the living standards of SHG members have taken place

in terms of increase in income level, assets, savings, borrowing capacity and

income generating activities. There are signs of empowerment taking place

among women members 32of SHGs.

CONSTRAINS IN SHG LENDING: Like any other poverty alleviation

programs, SHG financing is also suffering from certain constraints in

implementation. Therefore, appropriate attention need to be focused, on the

following operational issues, confronting these SHGs, both institutional and

non-institutional, in the initial stages of implementation itself.

A) Institutional Issues:

1. Institutional mission: Commercial banks during last two decades

aimed at target oriented approach to attain the statutory stipulations of

Reserve bank of India and Govt. of India for alleviation of poverty56. Hence,

institutional mission is required for banking with the poor i.e., by linking,

financing and capacity building of SHGs rather than targeted approach of

financing through government sponsored self employment programs.

2. Organizational structure: Due to reforms in banking industry and

restructuring of banks, commercial banks are to integrate MF within a larger

bank culture and structure to gear towards high volume, small loan size

business.

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3. Human resources: The financial methodologies to reach poor and

retain low-income clients who require small amounts of capital are

need to be understood by most mid-level bank managers and not

to consider as second class activity. Further, micro finance and

SHG operations are labor intensive and require special training.

4. Meeting the costs: The banks are required to compete in open

markets and cover operating-costs, risks and opportunity costs of capital in

view of interest rate ceilings for small loans, targeted credit schemes.

5. Monitoring: Collaboration among banks, NGOs, government

agencies should be effective and efficient, because the role of Government

Agencies is waning away and there are inherent failures in the mechanism to

direct, monitor and lead the groups towards common goal.

6. Collateral: Insistence of collateral securities for loans by banks and

insistence of minimum balance for opening of Savings Bank Account are to be

resolved in linking of SHGs.

7. Small and marginal farmers: As a consequence of directed or

supervised credit programs and the declining volume of agricultural credit

there is a ‘shift’. This ‘shift’ may be explained as a changing scenario from

‘farm credit’ to ‘micro finance’ and from ‘public sector banks’ to

promotion of ‘non-governmental finance institutions’. And this ‘shift’

should not lead to negligence of the specific financial demand and

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requirements of small farmers for farm credit.

B) Non Institutional Issues:

1. SHGs rating norms are not followed. Groups are to be rated as per the

laid down procedures and efforts are required to rectify their weak areas.

Haste can lead to wrong selection of activities of beneficiaries

2. Large number of heterogeneous women groups with regard to age and

literacy. On the other hand, increasing number of caste based homogenous

groups need to be discouraged.

3. Linking of revolving fund assistance – there is no uniformity of revolving

fund assistance among groups by the sponsoring agency.

4. The peer pressure that is lacking in majority of the groups is to be ensured

by discouraging equal sharing of both savings through internal lending among

group members. The internal lending and bank finance should be for few

members only either for consumption (for small amount) or for capacity

building. The credit limits are to be assessed based on credit absorption by the

group and proposed activity should be linked to the skills of the group

members.

5.. Due to illiteracy among group members they have to depend on

writing the accounts by the literate person of the village, this is resulting in

incomplete updating and factual projection of group activities.

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6. Counseling sessions or training on procedures to be followed on

savings, internal lending, capacity building and record maintenance is

conspicuously lacking in most of the groups. Such activity is to be made

mandatory at the linking stage.

Considerations in interpreting the findings: There is a strong need to

promote a sustainable credit dispensing system to suit the poverty struck

target groups in India by focusing attention on the institutional and non-

institutional issues in implementation of SHG Bank linkage model, which are

signaling the threats ahead. The constraints affecting the positive impact of

SHG Bank linkage model are need to be identified on an ongoing basis and

appropriate remedial measures are to be initiated both at institutional and non

institutional level, then the SHG approach surely proves as a realistic

alternative among poor to borrow money instead from informal market at an

interest much higher than market rates.

Moreover, the spirit of co-operation should be instilled in SHGs; instead,

inducement will end up in failure, as the case with the co-operative

societies in the country. Banking with the poor through SHG

approach has to succeed in view of previous failures or partly success of

several anti-poverty and self-employment programs. Further, it is also

apparent that Indian economy can’t wait, without improving the economic

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conditions of poor. Vis-a-vis banking with the poor is a profitable business

opportunity for both the poor and the financial institutions in India.

Some time perhaps, there would’t be economic change, but virtual

changes like social status, awareness of the business, self satisfaction,

children education, having roof on head, medical facilities, proper sanitation,

drinking water facility like enumerable changes happening in the life of poor

form the villages of Karjat Taluka. It indicates that SHG loans remain small

fraction in total household level financial transactions. However, members

‘other income’ as percentage of family ‘other income’ increased significantly

during last three years. It reflects success of project in providing

remunerative supplementary livelihoods to the members. Though

household level access to food increased significantly, the inequalities in

intra-household food distribution remain unchanged during last three

years. It indicates the importance the non-financial factors in determining

intra-household relations. Members’ access to health care is an area of

concern. Project has to invest a lot on members’ education. The project may

ponder over to utilize the vast network of electronic media for awareness

generation and strengthening of SHGs and their federations.

Broadly speaking, the important factors that are responsible for non-

achievement of the objectives of poverty alleviation programs include ill-

defined target groups, expansion of credit through subsidized lending

programs, loan melas, loan write-offs, risk of defaults, high costs for

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monitoring the loan accounts etc. In the present scenario of deregulated

interest rates to farm and non-farm sector through institutional sources, a

client looks for timely provision of credit instead of subsidized credit. Also,

there is need for a sustainable credit dispensing system to suit the poverty

struck target groups in different socio-economic settings across the country.

Summary of finding:

The investigation of the implications of scaling up process on the

poverty alleviation mission through SHG Bank Linkage Program. First, the

study established the presence of significant scaling up process at the SHG

organization. Then, the study used a multi-dimensional framework to explore

the implications of this scaling up process on its poverty alleviation mission.

The extent of scaling up is determined in four main domains (coverage,

activities, strategy and organizational sustainability) and the implications on

poverty alleviation mission in three domains (depth of outreach, quality of

outreach and scope of outreach), as suggested by the literature.

Paradigm Shift in Microfinance: A Perspective from SBLP

The changing phenomena of SBLP was discussed in Chapter -8. The

SBLP History Conference held in Bermuda in March 1995, analyzes SBLP's

role in the development of sustainable microfinance. The paper is about the

history of an idea - that the massive demand for microfinance in developing

countries can be supplied by sustainable institutions providing financial

services commercially, that these services can have important effects on

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social and economic & development23. This has now been well demonstrated

on a large scale. We discuss here SBLP's role in the formulation of the initial

hypotheses and SBLP's contributions in planning and coordinating the

underlying research, advising on the policies and implementation strategies

that put concept into practice, analyzing the results, and disseminating the

findings. Drawing on work in Asia, Africa15, and Latin America, the paper

analyzes the paradigm shift in microfinance from government and donor-

funded subsidized credit to sustainable financial intermediation. This shift has

occurred because of the work of many people in many countries. This paper,

however, is limited to SBLP's contribution. The policy implications of the 'new

microfinance' for governments, donors, banks, and NGOs are explored.

IMPACT OF SHG ON GROUPS/INDIVIDUALS: (BENEFITS OF SHG):

1. Improvement in income levels 2. Credit is easily available

3. Access to formal institutions 4.Free from money-lenders

5. Access to Pro-poor programs 6. Employment Generation

7. Independent life 8. Education levels improved

9. Habit of savings 10. Health Status improved

11.More expenditure on food 12. Indebted

13.Self-confidence 14. Decision Making power

15.Representation in other groups 16. Leadership qualities

17.Group solidarity

One just can’t ignore the role the banks are playing in building a strong

financial infrastructure by maintaining monetary and financial stability leading

252

to economic management. However, being a developing and emerging

economy India expects her banks to shoulder the additional responsibility of

promoting growth and development through a proactive role. Despite making

significant improvements in all the areas in relation to financial viability,

profitability and competitiveness, there are concerns that the banks have failed

to include the vast segment of population, especially the underprivileged

section of society, into the fold of basic banking services.

The strategies to ensure financial inclusion through SBLP can truly lift

the living standards of the deprived class and provide them an opportunity to

make their life worthwhile. Financial Inclusion basically means delivery of

banking services at an affordable cost to the vast sections of disadvantaged

and low income groups. An unrestrained access to goods and services is a

prerequisite of an open and efficient society.

The Self-Help Groups movement launched a new era in bringing

women into the mainstream of village planning and development. Through

economic upliftment and increased awareness, the self-help groups enable

the participation of women in practically every fora. They have also emerged

as the conduits of various new programmes. For example, the Deepam

scheme which aims at provision of LPG gas connections to families living

below the poverty line could succeed within a short span of time primarily

because the scheme was implemented through the Self-Help Groups.

A number of women are undergoing training and capacity building

programmes, which has increased their mobility and participation. As one

253

official put it, “women who are afraid of traveling alone to the next village are

effectively visiting the district headquarters to participate in various activities

associated with the self-help groups”. The women’s groups are observed to be

more proactive and less politicised and as a result the district official

machinery finds it more effective to work with these groups. It is also easy for

responsible officials to mobilise the women through self-help groups and it is

no wonder that majority of public meetings witness high level of participation.

As one official put it, “before the emergence of self-help groups there was

absolutely no women’s participation in public meetings but after the advent of

these groups only women seem to be participating in them.”

Relevance of findings and future directions: Through this study, some

lacunas/gaps found which speak about the impact factors for the current

failure of the scheme in Karjat and suggestions to rectify them and steps to

make SBLP a effective rural credit system to empower the poor.

By practicing the following new age models Andhrabank in AP, made

SBLP as a successful. It stood 2nd in all over India too provide number of

loans to SBLP.

Lack of Strong SHPI: The absence of strong SHPI system was felt during

the study as the 140 SHGs on withly left out of actual 1250 SHGs in Karjat

and surrounding areas. The SHPI and SHG Federations system were met.

The absence of Federation culture would be one more reason of the low an

slow growth of SBLP in Raigad:

Issues for future Consideration:

254

Suggestions: The following suggestions were drawn in the interest of

SBLP success in the villages of Karjat Taluka.

a) .Financial Education to interior rural and tribal areas (RBI & NABARD

Initiative)

b) Infused government agencies involvement in SHG operations

c) Less interference of political organizations

d) Active participation of NGOS and Gram Sevikas (Volunteers)

e) Involvement of Management Students75 can be a option

f) Prospective management education for the SHG members

i) Financial Management (Accounts, Loans, Interest and

Collection)

ii) Project Management

iii) Marketing

iv) Sales

v) Investment

g) Formation of Suitable SHGs

h) Mentoring and Monitoring

i) Implementation of Aggressive model of SBLP

j) Subsidies when actually required and can be converted into investment

support for the poor only by selecting the correct person and group.

k) Increase in involvement of VDOs (Village Development Officers from

Panchayats, District Development Managers from NABARD, Lead Bank

of respective district

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l) The findings of the study suggests that NABARD should invite bids from

commercial market research firms to design and manage a national

SHG sample survey programme, such as Hindustan Lever already

operate for their consumer goods, which monitors the health of SHGs

nationwide, on a regular basis.

m) This would be a major undertaking, but it could make a major

contribution to Governments’ knowledge and policy making related to

rural livelihoods and other developments. The results would be in the

public domain, nd could also include indicators of welfare, or even

company sponsored questions about consumer behavior which could

defray some part of the costs. If properly managed, and regularly

carried out, this could become a nationally important indicator of the

opinions and welfare of a segment of society whose views are generally

ignored outside election times, which would be regularly reported on in

the media, and would reflect favourably on NABARD.

n) Such a survey would also make it easier for NABARD to delegate the

management of the SHG promotion process to the banks, since it

would monitor the social aspects which the banks might otherwise

neglect. had made a significant contribution to social and economic

improvement of SHG members. Actually, NGO - supported SHGs were

more particular about holding monthly meetings (68 per cent) than the

bank linked groups (59 per cent). Older SHGs (formed 3 years or

earlier) observed monthly meetings more regularly than the new SHGs.

256

However, 24 per cent of new SHGs had irregular meetings and 50 per

cent of SHGs had a fixed date and timing for meetings. About 88 per

cent of SHGs had meetings at the residence of members and 12 per

cent had in a common place like Panchayat office, Anganwadi office,

village community halls, etc.

This study assumes that NABARD plans modestly to reduce the rate of

growth, in order to achieve but not to go far beyond the 2012 three million

SHG target. This will require the continued use of all the types of SHPI which

are presently being used, including the newly introduced

Suggestions:

i. Absorption of Micro-entrepreneurship by MNC and other Indian

companies: As the entrepreneurship program only one hindrance is reducing

effectiveness of SBLP in Karjat, if any MNC and major Indian company could

adopt one Federation(a cumulative group of number of SHGs) to make them

active in entrepreneurial activities. So as they depend on their own strength.

This project can be brought under their CSR policy.

ii. Adoption of the SHGs and their products by the FMCG: The SHGs

in rural villages of Karjat facing big discouraging when their products were not

sold in the market as against big brands . If any FMCG company like HUL, P

& G can adopt their products or out source their packaging works or any other

related, thereby companies are reducing the expenditure and helping the

SHGs to empower themselves.

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iii. Provision for ready available consumers for the FMCG products:

Government or any other agency can purchase their products and sell them

on mobile vans or at Big Malls.

Banking:

iv. Lack of initiative procedures from Bankers to mentor/monitor directly

post/pre SHG formation (one of the model MF SHG): Give full freedom to the

local branch manager to get formation of more SHGs, sufficient manpower

(appointed animator) at branch level to look after the SBLP activities and

surveillance of the groups. Practice of different type of recovery mechanism;

with out putting them in fear and insult. The group pressure from the federation

would help in this point

v. Formation of SHGs with the purpose of only to avail the subsidy.

Periodical works shops at schools villages by NABARD local

panchayats/Talati /officials to encourage the people to form themselves as

SHG and be responsible for their deeds. Either continue the commission to

NGO till SHG exists (as in present situation the NGO would be availing the

commission for the purpose of forming the SHG up to three months only, due

to this after formation and bank linkage the NGOs not overseeing the

operations of the SHG.

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Technology:

vi. Non-availability of contemporary technology in rural areas related to

financial inclusion :Provision for Mobile Banking, ATM on wheels and financial

education and banking at door steps would encourage them to participate in

economic activities in a big way.

vii. No successful practices of business correspondence model: Revival of

Business Correspondent model would help them to avail the best banking

facilities.

The SHG Bank Linkage Program in Karjat, by NABARD or Government

of Maharashtra, if applied properly by administering the suggestions and

recommendations mentioned in this study by gaining the confidence of

academicians, banking experts, volunteers, NGOs, MFIs and especially the

rural poor who according to the reports, excluding themselves from regular

financial systems would get the best strength of the life to empower

themselves.

If regular banking and government not so positive towards this beautiful

financial product, it is the turn of academicians and volunteers to take the

chance to invent new product in similar to SBLP or same product in different

way can be introduced to the rural poor of RAIGAD and THANE districts.

Finally that is the duty of a teacher to serve the society and show the way

when it becomes disorient.

…………………That could be the best gift to Prof. Mohammad

Yunus.

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CHAPTER- 11

RECOMMENDATIONS AND SUGGESTION

Recommendations: After the preliminary and secondary data analysis adjoin

with own experiences the following recommendation were drawn:

11.1. Immediate Change:

Any Recommendations must depend on NABARD’s policy for the future

growth of the SHG movement. Even if the exceptional performance of AP is

excluded, where the heavy predominance there of government promoted

groups in whose development NABARD and Gadchiroli, Chandrapur districts

of Maharashtra where the close association with AP border districts and

played an important but mainly indirect role through training and advocacy,

The major share of new SHGs will have to be promoted by banks

themselves, by existing SHGs and federations, by the new members

themselves without assistance from SHPI, and, possibly by individual

‘volunteers’. Our immediate recommendations, based on the above

assumptions and the findings from our study, are presented below, as they

relate to the different types of SHPI, to capacity building, to regulation and to

NABARD’s own management and policy.

11.1.1. NGOs as SHPIs

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There is some evidence that some NGOs which are benefitting from

the NABARD incentive scheme provide no further follow up support to SHGs

three months after disbursement of the first loan, because they will receive no

further incentives after this date. NABARD should consider extending this

period to perhaps six or twelve months. NABARD’s present SHPI incentive

schemes are deliberately designed as ‘add-ons’, and not to cover the full costs

of the SHG promotion process. If it is considered that there is a need for more

NGOs in particular to promote more SHGs, NABARD should design and

locally test an experimental scheme which covers the full costs of efficiently

and effectively promoting equitable SHGs which include the poor.

11.1.2. Banks as SHPIs

In the medium term banks should and will emerge as the main

promoters of SHGs. In the longer term, the banks’ role will gradually be

reduced, as SHG members themselves start their own groups. Bankers will

have to respond to these initiatives, as they should for any new customer, by

providing advice and assistance. The SHG promotion role as such, however,

will in time cease to be necessary except in particularly deprived areas. It will

be increasingly necessary to monitor the social aspects of SHGs, and this

task will necessarily devolve on NABARD.

NABARD should identify and support co-operative banks which are

taking initiatives in this, and should disseminate their experience to others

which are not. About half the bankers to whom we spoke believed that SHG

business was not profitable, because of the cost of promotion but also

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because of the higher transaction costs involved. It is should be unnecessary

to repeat the now familiar arguments in favour of charging higher interest rates

in order to improve sustainable outreach to the poor. NABARD should first

ensure that all its own staff understand that access to credit is more important

than its cost for poor people, and should then vigorously recommend interest

rate increases, or associated charges, to any banks which claim that SHG

business in unprofitable.

11.1.3. Government agencies as SHPIs

This study suggests that they are of good quality, but that the drought in

some parts of the State is likely seriously to reduce recoveries from SHGs,

and is already imposing severe hardships on many members as they attempts

to maintain their savings and repayments. This only confirms the fact that

SHGs, like other systems of micro-finance, are not in themselves a solution for

poverty. The rural poor need effective economic safety nets, such as crop

insurance and effective income supplementation. NABARD should strictly

maintain its present stance that SHGs are not a panacea for poverty, and

should sedulously avoid giving any impression to the contrary. It may be

unrealistic to suggest improved co-ordination between the NABARD-supported

SHG promotion work and government programmes. The present for NGOs

promoting SGSY linked SHGs, for instance, is clearly inconsistent with the

much more modest NABARD incentives. Nevertheless, This study showed

that collaboration at the field level is possible, and this should be facilitated

whenever possible.

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NABARD have already limited the damage potential of the SGSY and

other subsidised government schemes. This study found majority of the

cases where the availability subsidy had affected the formation and quality of

SHGs, but our study suggests that the fear of this is an important reason for

bankers’ hesitation to increase their SHG loan portfolios. NABARD should

continue its efforts to minimise this problem, both at central and state

government level and in the field.

11.1.4. Individuals as SHPIs

It is unlikely that many more real volunteer individuals will be identified,

since most competent people need to earn a living. NABARD should therefore

examine the experience of Basix and any other agencies which work with

individual SHG promoters, and should design and test an experimental

scheme which enables unemployed young men and women to earn a modest

but sufficient living as SHG promoters.

11.1.5. Federations and self-promoted SHGs

In similar model to Andhrapradesh the potential of SHG federations as

SHPI should be examined as soon as possible, as they are proved to playing

an important role and this is likely to increase rapidly in the future. There are

likely to be increasing numbers of ‘no SHPI’ SHGs. NABARD should

investigate this phenomenon in order both to ensure that SHPIs do not claim

credit for SHGs in whose promotion they have played no part, and to assess

the quality of such groups and devise ways of correcting any weaknesses they

may have.

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11.3. Capacity Building and Training

NABARD should improve and modify its extensive SHG related training

programmes in the following respects: RRB and co-operative bank board

members, management and branch staff must understand that access to

finance matters much more than its price. If they believe SHG business is

unprofitable, they should increase the interest rates charged to SHGs in order

to cover the full costs, including that of SHG promotion. Frequent trainings

bankers NGOs and volunteers to demonstrate that this benefits both SHG

members and the banks, and NABARD should ensure that this issue is

included in all SHG related training for its own staff, for government officials

and for bankers. The concept of SHGs is now widely known.

One somewhat neglected training need is the actual mechanics of

book-keeping at the SHG level. All training programmes for anyone who is

personally involved in SHG promotion should include practical hands-on

exercises in this. SHG promotion is not difficult, and it does not need a bank

branch manager to promote an SHG. Bank management must realise this,

and lower level branch staff should be trained and encouraged to perform this

task.

NABARD’s own staff, government officials and bankers must learn to

treat SHG members with respect, as valued customers and not as suppliants

for grants or handouts. Training material to achieve this vital change of

attitude, such as role play exercises and video clips, should be produced and

used in all SHG related training, as a matter of urgency.

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11.1.6. Regulations

Although SHGs are specifically excluded from the service area

requirements, the SGSY is tied to service areas unless special permission is

requested. Some bankers are thus naturally reluctant to finance SHGs outside

their service areas, even if the bank in whose service area the SHG falls is

unwilling to finance them, since this would make it difficult for such SHGs to

take advantage of the SGSY subsidies. NABARD should try to persuade the

authorities to allow any eligible SHGs to access the SGSY, regardless of the

location of the bank which financed them.

Some banks require SHGs to complete a ‘power of attorney and inter

se agreement’ before taking a loan. The stamp duty costs around fifty rupees,

and the ‘transaction costs’ associated with obtaining this form can be

substantial. NABARD should investigate this problem and if necessary

suggest ways by which this requirement can be simplified or eliminated.

11.1.7. NABARD day-to-day management

The unevenness of SHG coverage at the regional and state level is

mirrored within states and within districts. The SHG movement is expanding

so rapidly in some areas that there is a danger of oversaturation, such as has

already occurred in Bangladesh and some other countries, where people

become members of more than one group and competition becomes counter-

productive. The ready availability of the SGSY subsidy in some places

exacerbates this problem. In other areas, however, the coverage is very low.

NABARD should assess the market potential for SHGs in each district, using a

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rough rule of thumb such as one SHG per 20 or 30 rural households, and

should target its promotional resources, including DDM postings, at districts

with low SHG market penetration. DDMs should do the same within their

districts.

We found little evidence that SHG members are unable to sell the extra

goods which their loans have enabled them to make, but the fear of this is

probably banks mangers’ main reason for reluctance to finance SHGs. The

rapidly growing numbers of SHGs, however, make it very likely that some

markets will become saturated in a few years and managers’ fears will be

justified. It is much easier to sell financial services to SHGs than it is to help

their members to sell their products, but NABARD should investigate and

when appropriate support potentially successful private sector approaches to

improving quality and market access for rural products, at the District, State

and national levels.

11.2. NABARD’s longer term management and monitoring strategy

Delegation of management of SHG promotion

More generally, we feel that NABARD’s present approach to the

management and organisation of the SHG promotion process might usefully

be reconsidered. SHG promotion can usefully be viewed as a case of retail

marketing channel development or merchandising. NABARD can be taken to

be the ‘manufacturer’, both through the provision of refinance and the

dissemination of a new approach to financial services for the poor, and the

banks are the wholesale and retail channels through which the ‘product,

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financial services, must reach its final customers, the rural poor. Refinance is

becoming less attractive as interest rates fall, but the marketing task still has to

be carried out, regardless of the banks’ sources of funds. SHGs have been

identified as a new type of subretailer, through which it is less expensive and

more effective to reach the final customer. In the commercial world of fast

moving consumer goods, where cost-effectiveness and efficiency are all-

important, manufacturers have to chose between carrying out the task of

channel promotion and development themselves, through independent or

company-employed and locally based teams of merchandisers, or persuading

their wholesalers and retailers to do it for them, through a combination of

training, financial incentives and other forms of assistance. NABARD has thus

far chosen to use a combination of these strategies. It has a limited field force

of District Development Managers (DDMs), who have many other tasks in

addition to the development of SHGs, and it works through both the banks

themselves and other types of SHPIs, through the provision of training and

incentives.

The supervision and management of the SHG promotion, function and

the various schemes to encourage it, however, lie with the DDMs and

NABARD itself. The banks reap the fruits, in terms of SHGs which are good

customers, but the schemes to promote the merchandising task are designed,

supervised and in part at least paid for by NABARD itself, even when the task

is undertaken by the banks.

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This may seem a radical suggestion, which pre-supposes a far greater

degree of trust between NABARD and the banks than actually exists. We

suggest, nevertheless, that NABARD should design and initiate an

experimental initiative of this sort.

12.2.2 Monitoring

The above suggestion requires the development of a routine system to

enable NABARD to monitor and audit the quality and equity of SHGs

promoted with its assistance. This should focus on the ‘social’ aspects of

SHGs, since bankers should only be responsible for monitoring the financial

performance of their SHGs like that of any other customer. Any additional

monitoring must not involve extra work for SHG members or bank staff. SHGs

are bank customers, like any others, and they are not a particularly important

group in financial terms. Any ‘special’ reporting requirements may be

counterproductive in that they may discourage bankers from doing business

with SHGs. It should be increasingly un-necessary to demand any more of

SHGs than of other customers. he ‘social’ aspects of SHGs are not the banks’

direct concern, but they must be regularly monitored in order to avoid ‘client

drift’ away from the poor. NABARD should urgently design and field test an

objective system for appraising SHGs and their membership, which can

routinely, rapidly, economically and consistently be used to measure the

financial and social health of SHGs. Such a system could be the basis of a

routine national sample survey of SHGs, which would continually monitor the

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health of SHGs throughout India. Indicators such as the poverty levels of

members, rates of drop out, equity of borrowing among members, and the

socio-economic impact of membership should be included in such a survey.

“The findings of the study suggests that NABARD should invite bids

from commercial market research firms to design and manage a national SHG

sample survey programme, such as Hindustan Lever already operate for their

consumer goods, which monitors the health of SHGs nationwide, on a regular

basis.”

The study also reported an increase in household savings and assets

for the SHG members after they formed the group. Out of the total sample, 45

per cent reported an increase in assets after joining a SHG. The mean annual

savings of households increased two - fold after joining SHGs. About 23 per

cent of SHGs reported an increase in savings over a period of time. In

Andhrapradesh higher savings were reported for bank linked groups (36 per

cent) than for NGO supported groups (16 per cent). The proportion of savings

to total resources was relatively higher for bank linked groups (35.7 per cent)

than NGO supported groups (30.5 per cent). The average loan per member

increased significantly by 123 per cent during the post-SHG situation. Out of

total loans received by SHG members, 72 per cent were used for income

generating purposes and 28 per cent for consumption. The size of loan was

reported to be generally higher in the case of NGO -promoted SHGs than

those promoted by banks.

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Suggestions: The following suggestions were drawn in the interest of SBLP

success in the villages of Karjat Taluka.

1. Banks:

More liberty and sanctioning powers to branch managers to support mature

SHGs requiring higher loan assistance.

Branch managers are encouraged to introduce other products like

insurance, education loan and housing loan to SHG members.

To provide marketing support to SHGs. The plan is to create new

channels for marketing the products of SHGs financed by the Bank. The

new marketing channels are to be explored at local, state and national

levels.

For better monitoring of SHGs, Bank would like to support the idea of

federating SHGs at village and higher levels. The federations would not

only take up responsibilities for closely monitoring the quality of SHGs but

also help reduce the burden of its branches in dealing with large number

of SHGs.

Financial Literacy:

a. Financial Education to interior rural and tribal areas (RBI & NABARD

Initiative)

b. Prospective management education for the SHG members

i. Financial Management (Accounts, Loans, Interest and Collection)

ii. Project Management

iii. Marketing

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iv. Sales

v. Investment

Involve of Students and Teachers :.

a. Encouraging the surrounding colleges especially management students to

b. Providing NABARD apprenticeship to students

c. Microfinance jobs to encourage the students

d. Providing sponsorship to students to research on Microfinance and SHG

Linkage

Adopting the nearby SHGs to helping them in day to day operations; in

mentor and monitor

Conducting certificate program at different campuses to encourage the

students to take up rural development as a passion or profession.

Less interference of political organizations:

a. Special training and incentives to volunteers NGOS and Gram Sevikas,

retired government employees and teachers to reduce the influence of

political forces, so far exploited for their own interests. Suitable

animators out of volunteers for regular involvement with SHGs

11.1 Proposed SHG Operational Model:

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The existing SBLP scheme in Karjat Taluka are supported by volunteer

organizations or non regular NGOs. Even where NGOs are active, the

revolving funds and economic activities are absent. The recommended

SBLP model would enhance the performance of the SHGs.

Stage 1: Forming suitable SHGs, with out any support of subsidies,

only for savings, and internal credit with 15peoples. After speaking to

Bank and with proven credibility the SHG linked with Banks.

Stage 2: NGO acting as animator, will continuously monitor the

operations of the SHG. Every year of their development, their

repayment will fetch a share to NGOs also, to encourage them to keep

interest on the SHG.

Stage 3: The SHG members were trained for entrepreneur skills

through workshops, and technical support from agencies like MCED

(Maharashtra Center for Entrepreneur Development) and liaised with

school and college students for the continuous support in business

activities such, branding, marketing, sales, project finance and various

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techniques where the SHG members can earn profits through their

product sales.

Stage 4: The revolving funds raised from internal thrift, and revenue

accumulated through interest earned through internal lending. The

majority of investment on entrepreneurial activities would be shared

through the internal funds and remaining funds from Banks. Through

even banks would put much more money on the SHG basket to

circulate and for further growth of the both group and bank.

The narratives of SHG members & non member, Bankers, NGO

activists and teachers reveal speak of the stresses and strains of daily life in

conditions of poverty, beauty and importance of the Bachatghat

movement/SBLP. SHG Bank linkage Program has the capability to remove

the significant qualitative dimensions of poverty, such as stress, poor self-

esteem, and dependency, circumscribe their lives and participation in SHGs

has changed this The women spoke of “feeling of freedom”, increases in

levels of confidence and self-esteem, a change in perceptions, a feeling of

strength and a movement away from restriction and constraints.

During the field visits it was

found that the poor women from

interior tribal villages of Karjat Taluka

have shown positive inclination

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towards Bachatghats and its benefits.

The ideas and intentions are various and impetus, will definitely enhance the

anticipated growth of the rural poor, which not only theoretically but practically

also possible, if the plans and methodologies are supported with honest

support from government, non-government agencies, volunteers and

especially the group members themselves for which these endeavor done.

Once other countries and states can get benefit from indigenous financial

supporting plan of” SHG Bank Linkage Program”, The people from Raigad

district will also get benefited.

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CHAPTER -12

ANNEXURES

SELF HELP GROUP –BANK LINKAGE AND RURAL EMPOWRMENT *CASES*

The following cases are the outcome of the discussions, during pilot

study and data collection from Karjat and surrounding villages, some of

the cases from Kalyan (Rural) are drawn which are exemplary and

sustained SHGs.

1. “Earlier no one used to care for us, If I said I want to borrow ten

thousand rupees, people would say she is a widow, how will she return this

money. They would ask a hundred questions. When our Bachatghat was

active, there is no such hassle. We conduct a group meeting and withdraw the

money. If the bankers delay it even for one hour, we ask them why you are

taking so long. They withdraw the money at once.” (Respondent-1, Laxmi Bai

Savitri Phule Bachat Ghat, Neral, lost husband due to disease, mother of two

age 46, status: non-active). SHG is a viable organized set-up to disburse

micro credit to rural women for the purpose of encouraging them to enter into

entrepreneurial activities. Credit can counter both the lack of access women

to formal banks and the very high rates demanded by local moneylenders.

The membership of SHGs lessens monetary pressure occurring out of

sickness, expenditure on wedding ceremonies, death of the bread winner and

loss or seasonality of employment. Expenditures which are an integral part of

daily life: expenses on food, clothing, health, even children education also.

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Microcredit through Bachatghat Empowers:

2. “We were used helpless when any urgent requirement of money

raised, all are like savior to use who offers money and we used to accept for

all the conditions, Once we formed Bachatghat , we are so much dependent

on any one. We do not feel helpless. We can withdraw money. Earlier we

used to take money from the money lender. The interest rate used to be high:

four to five rupees per hundred/per month. Here the interest rate is cheaper,

two rupees per hundred. We can return this money in monthly installments.

The money we took from the moneylender had to be returned in one go.”

(Respondent- 2, Vrinda Bhusara, Siddhivinak Mahila Bachatghat, Kasheli,

status: non- active)

3. “Earlier if I needed money we went to the bania. He would ask us to

come tomorrow or the day after, I have to consult other members of my family.

Then after a number of rounds he would agree or refuse to give us money.

Now there is no such problem. We give all repayments in time. Even if we are

late for fifteen days the group accommodates us.” (Sunil Ghare, Husband of

respondent 3 Member of Siddhivinayak Mahila Bachatghat, Kasheli)

4. “Once I had taken a loan of five thousand rupees from a bank for

setting up a fruit shop. Every time the Secretary would come, I had to offer him

his chai- pani. Eventually the loan outstanding against me increased to ten

thousand, then twenty thousand. Till today this loan is outstanding against

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me. But I paid five hundred rupees to the Secretary and he had shown it as a

new loan. Every time he shows the earlier loan as having been paid and

makes a new loan against my name.” (Husband of Respondent 5, recounting

a pre SHG scenario, Name doesn’t want disclose)

Sharp contrast to the present situation:

4. “Nobody could get bank loan without a middleman ealrlier. The prime

reason is that the poor people from interior villages of Karjat were not aware

about their eligibility and where and whom to meet. After completing all the

formalities for the loan purpose from the bank, half the loan would be eaten

up because of the corruption. Today the bankers treat the women with respect

and give them loans. Now no one can even dare to ask for a cup of tea or

even a beedi.” ( Shri.Matpati, Program Officer, Academy of Development

Sciences, NGO, Kasheligaon)

Dynamic of the poor:

5. “ The formation of SHG takes lot of explanation, self time sacrifice and

energy, though these are official commitments, initially it was very had to

encourage the poor women to form group and save in single account. There

are lot of social, political and group dynamics are involved. People are very

much contempt to think for doing hardwork apart from what they are doing.

They may be safaiwala, aya in municipal school on contractual basis, even

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ready to dependant on some one else as they are un-employed (Prajna, NGO

activist from Swayam Vikroli)

6. “I am selling chai and other confectionaries carrying on shoulder tray, to

the tourists coming to visit Matheran, This small money raised from this

business is not enough to feed my family, where I will send my children to

school. I had been to Union Bank and Pen Urban Cooperative bank for loan of

Rs. 15,000/- to set up at a small road side pan shop. The items to sell will get

it for credit, but install and shop and other things will require that much money.

But the banker asking me the permanent residence proof and house or land

on my name. I don’t have house on my name, Land also I sold to meet the

expenses for the father’s illness. I don’t what is Bacahtghat, if joing such a

group is going to help me to develop I will definitely do for me and my family

development (Mohan Tadge, 38yrs, Jummapatti).

7. “The people required flexible loans to develop themselves. There are lot

of artisans and seasonal farmers are migrating to metropolitan cities to be

casual and dailwage labours. Even people from interior villages are been

used as mob for political campaigns by all the political leaders. For show-off

their strength the poor men and women are hired for Rs. 50-100 plus food per

day. Party flags are changing in their hands, even these poor people are

happy to get money by doing nothing. None of the political party leaders are

trying to help these people’s economic and social empowerment.(Prof.B.N.Lad

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Ex-Director of Sydenham College of Management and Entrepreneurship

Development, currently associated with ADS to revamp it)

8. Political interference:

“We formed Shri Shramik Savitribai Phule Mahila Bachatghat in rural

Kalyan, after struggle of 3yrs sustainability, this group as a different business

model purchased a 30seater mini bus to ply the residents from various places,

especially Athurwadi (Kalyan(W) where transportation is not frequent and

public transport is available after every 1hr. None of the political leaders were

involved in the loan and other processes. But when this group purchased the

bus local political party embossed their name as the pioneer of the scheme.

Poor women have to accept the demands as they are powerless. None of the

welfare officers from KDMC or myself were given due credit. This type of

activity kills the initiative to put more hardwork towards the scheme. (Mrs.

Umne, Welfare Officer, SYSY(KDMC Office) Kalyan). Apart from the group is

now independent and free from financial crisis. The bachatghat has sown

them a new way of life.

9. “We make incsence stics, kopar masala and small eatables.

Previously at schools and main marker our products were used sold at good

quantitiy and business was good. For last two years our products are getting

sold, and the wholesalers and retailers are not ready to take our goods by

telling people are purchasing the branded goods and not ready to purchase

the locally manufactured eatables. When we enquired and check the quality

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of the product our eatables no less than the branded one except excessive

chemicals, colours and preservatives. For out side their products look very

attractive. Wanted go for the attractive packing and other measures but the

cost is not viable.(Hema Patil, Chairperson, Jai Laxmi Mahila Bachatghat,

Nevaligaon, Kalyan (Rural)

10. “As we have to other activities also we can’t travel from Vikroli to Karjat

on regular basis. Some one has to be with them to monitor and mentor them.

Being women we can’t travel so much distances. If the students and teachers

can take the responsibilities to liaise up with them regularly. We can train the

students and staff in regarding entrepreneurship skills and personality

development skills. Problems is that none of the colleges are ready to share

the social cause (Sunita, Program officer, Swayam, NGO, Vikhroli supported

by Godrej group)

11. “We already burdened with the targets of new accounts and business

development with HNI(High Net-worth Individuals) extend more loans from

housing, vehicles and many other type of loans. We already stressing

ourselves in matters related to legal problems in mortgage, political forces,

non-payment of interest on time raising bad debts and NPA(Non Perform

Assets). Some time these things becoming threat to our career also. Where

we have time and manpower to deal with such petty business? Even

personally we are interested also, but we don’t have that much man power.

(Bank Managers from UBI, BOI from Neral, Karjat and Katemanivali

branches). If you want us to help the new groups to form and provide loan,

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please try and encourage them to repay the existing loans as majority of the

groups are not accessible. All the groups have formed under SGSY and once

they avail the loan from us they are turning away their faces from us. Off-

course we are getting 50% of the loan amount reimbursed by the government

as it is the subsidy, but remaining 50% loan amount is getting converted into

bad debts and finally NPA from majority of the accounts. For last two years

2008-09, 2009-10, we have nil new accounts.

:

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BIBLIOGRAPHAY

1. Ajay Tankha, (2002) “Self Help Groups as a Financial Intermediaries in India: Cost of Promotions , Sustainability and Impact Paths of SHG Development” ICCO and Cordaid, Ne*therlands2. Alan Jolis (2007) –“Banker to the Poor”; autobiography of Dr. Muhammad Yunus, Penguin Pub. 3. Amin, Rai and Topa (2003), Does microcredit reach the poor and vulnerable? Evidence from northern Bangladesh, Journal of Development Economics, p. 1-49. 4. Andersen, L. E., & Nina, O. (1998). Micro-credit and group lending: The collateral effect. Working Paper Series. Department of Economics, University of Aarhus, Denmark.

5. Arya, Ved. (1999, July). Towards a relationship of significance: Lessons from a decade of collaboration between government and NGOs in Rajasthan. Agricultural Research and Extension Network. Network Paper No. 97. Asian Development Bank. (2000). Finance for the poor: Microfinance development strategy.

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MAP-MAHARASHTRA AND RAIGAD

RAIGAD District Statistics(Maharashtra. Gazetteers Dept,)

291

Sr. No

Name of Sub-Division

Name of Tahasils

No. of Villages

No. of Circles

No. of Sazzas

1. Alibag 214 5 43

2. Pen 171 4 30Alibag

3. Murud 74 3 14

1.

Total Talukas in Subdivision

3 459 12 87

1. Panvel 177 5 35

2. Uran 62 2 17

3. Karjat 184 3 28

Panvel

4. Khalapur 141 3 20

2 .

Total Talukas in Subdivision

4 564 14 100

1. Mangaon 186 3 31

2. Sudhagad 98 3 16

3. Roha 162 4 26

Mangaon

4. Tala 60 1 8

3 .

Total Talukas in Subdivision

4 506 11 81

1. Mahad 183 4 36

2. Poladpur 87 2 14

3. Mhasla 83 2 14

Mahad

4. Shrivardhan 78 3 18

4 .

Total Talukas in Subdivision

4 431 11 82

Total 15 1960 48 351

SELF HELP GROUP BANK LINKAGE PROGRAMME

292

QUESTIONNAIRE

Bank Name & Branch (location): Date:

Branch Manager/Reporter Name:

1. For how many years you are attached with this bank branch:

2. Total accounts with your bank and available staff:

3. Any Micro credit services are active in your branch

4. Your staff is versed with SHG and SBLP operations

5. How many total SHGs are existing in your service area

6. How many SHGs you have formed & attached to your bank

7. How many NGOs active in your service area concern to SHG/SBLP

8. What is the minimum and maximum duration the SHG are attached with your branch

9. What is the average no. of members in each SHG

10. How many SBLP accounts with your branch

11. What is amount your are obtaining from NABARD or any other agencies for the SBLP credit/micro credit

12. Apart from SBLP credit, are you offering any other micro credit schemes

13. All the members of SHG are regularly saving in the SBLP/SHG group account

14. What is the minimum and maximum deposit in a particular SHG.

15. Are you helping the SHG in their funds operations

16. After how many days/from the date of SHG attachment, the bank is contributing to the group savings(if yes) at what rate?

293

17. What is the interest rate you paying back to NABARD/any other for the funds obtained for the MC/SBLP accounts

18. What is the active interest rate your charging from the SBLP/MC account holders

19. What is the nature of repayment cycle of SBLP loans

20. Any SBLP has been identified as defaulter

21. You have any difficulty in maintaining the SBLP/SHGs accounts (if yes) what are they

a) Manpower c) operational costb) Any Other

22. How many SHGs/SBLP accounts have completed one or more loan cycles & eligible for next term loan

23. How frequently you are visiting the areas of SHGs for monitoring/assessment

24. Any SHGs are converted in to NPAs(if yes how many?)

25. Any SHGs are converted in to bad debts(if yes how many?)

26. Performance of the SHGs is good or bad

27. How many further SBLP accounts are in process/planned

28. Can SBLP/Microcredit can be a good business opportunity according to you?

29. Any separate person in your branch is assigned to deal with SHGs/SBLP operations.

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GOVERNMENT OF ANDHRA PRADESH ABSTRACT

Self Help Group Lending by Commercial Cooperative and Regional Rural Banks Pavala Vaddi Scheme – Payment of Interest incentive twice in a year -Comprehensive Guidelines – Revised -Orders –Issued.=====================================================

PANCHAYAT RAJ AND RURAL DEVELOPMENT (RD.II)DEPARTMENT

G.O.Ms.No.136 Dated: 9-4-2007

Read:- G.O. Ms. No. 152, PR & RD (RD.III) Department, Dated 02.05.2005.

ORDER:

Government in the G.O. read above, issued orders for payment of interest incentive to the Self Help Groups on the interest charged by the banks over and above 3% per annum once in a year based on the performance of the loan account obtaining as on March, 31st of the previous financial year.

2. Government have reviewed the policy from time to time and felt it expedient to mitigate hardship and to give more respite to the Self Help Groups.Accordingly, Government hereby decide to allow payment of interest incentive to the Self Help Groups once in six months i.e. twice in a year based on the performance of the loan account obtaining as on September, 30th and March, 31st

instead of once in a year.

3. For effective implementation of the revised decision, Government after careful examination, hereby issue the following revised comprehensive guidelines for operationalizing the scheme in modification of the guidelines already issued at para no.3 in the G.O. read above.

3.1 The scheme shall be applicable to all loans extended to Self Help Groups by banks on or after 01.07.2004.

3.2 Interest incentive in respect of active loans shall be released to the groups once in six months i.e. twice in a year based on the performance of the loan account obtaining as on September, 30th and March, 31st. The SHGs which have completed six months of regular repayment of bank loan shall become eligible for interest incentive.

3.3. The SHGs which have got bank loan in the month of July or January and which have repaid the loan for at least one month prior to the cut-off

295

date, i.e. September 30th and March 31st shall also be eligible for getting the interest incentive benefit.

3.4 The loan accounts that are classified as overdue in the books of the bank at the time of half-yearly closing and that which are classified as Non-performing Assets at year-end closing are ineligible.

3.5 However, if they resume on-time repayments and regularize the arrears, they are eligible for the incentive in the next half-yearly period.

3.6 The DRDA shall collect from the bank branches the certified statement of list of eligible groups which have repaid regularly. This should be signed by the Bank Manager.

3.7 The DRDAs shall obtain from the bank branches the following lists immediately after close of September, 30th and March, 31st.

3.7 a. List of active loan accounts as at close of September, 30th and March, 31st for which claim is being made indicating the actual interest applied.

3.7.b. List of Groups that have closed / foreclosed their accounts during the year indicating the actual interest applied.

3.8 . DRDA shall determine the eligible interest incentive and issue proceedings, suo-motu, for release of incentive based on the certified statement of bank branch. This should be completed with in 30 days of every half year i.e. by October,31st and April,30th. The Pavala Vaddi amount shall reach the member of SHG by November, 15th and May 15th.

3.9 The DRDAs shall obtain the details of SHG repayment for the purpose of interest subsidy twice a year.

3.10. The Mandal Samakhya and their staff will approach the banks twice a year and obtain the details of SHG repayment along with a certified bank statement for all the eligible SHGs.

3.11 The Mandal Samakhya will forward the proposal to DRDA and DRDA will calculate the Pavala Vaddi to be given to each SHG basing on the bank statement.

3.12 The DRDA shall issue proceedings for the SHGs eligible for Pavala Vaddi, indicating the exact amount of Pavala Vaddi incentive to be given to the SHG. Accordingly, the DRDA shall prepare the cheques Village

296

Organization wise and give them to the Mandal Samakhya along with the statement of particulars accruing to each SHG.

3.13 The Mandal Samakhya in turn shall distribute the cheques to the SHGs through the Village Organizations.

3.14 The SHGs shall give the Pavala Vaddi to the Members directly.

3.15 The amount of incentive given to the members should be recorded in the SHGs minutes book and individual pass book.

3.16 The Pavala Vaddi incentive should reach the members of the eligible SHGs. It should not be retained as the corpus fund of the Self Help Groups.

3.17 DRDA shall put in place appropriate MIS for SHG-Bank Linkage Programme and update the same at quarterly intervals to monitor the repayment performance of the scheme.

4. All the District Collectors and Chairmen of the DRDAs shall take action accordingly.

5. This G.O. is available on the Internet and can be accessed at the address http://www.rd.ap.gov.in.

(BY ORDER AND IN THE NAME OF THE GOVERNOR OF ANDHRA PRADESH)

K.RAJU

PRINCIPAL SECRETARY TO GOVERNMENT(RD)ToThe Chief Executive Officer, SERP, AP., Hyderabad.The Commissioner, Rural Development, AP., HyderabadAll District Collectors and Chairmen of DRDAs in the StateAll Project Directors of DRDAs in the StateThe Convener, State Level Bankers, Committee, Andhra Bank, HyderabadThe Principal Secretary to Govt. Finance & Planning (Expr.PR&RD) Department All Heads of the Banks through the Commissioner, Rural Development, Hyderabad Copy to:The Principal Secretary to Chief Minister.The PS to Chief Secretary to Government.The PS to Minister (RD)The PS to Principal Secretary (RD)SF/SC.

297

//FORWARDED::BY:ORDER\\SECTION OFFICER

GOVERNMENT OF ANDHRA PRADESH

ABSTRACT:Plan scheme-1st & 2nd Quarter Interest subsidy on loans taken by DWCRA Groups (Intrest on Loans at 3% per anum)- Released an amount of Rs400.00 Lakhs towards Interest subsidy to DWCRA Groups - Administrative Sanction - Accorded- orders- Issued.

*****************************************************************************************

PANCHAYAT RAJ & RURAL DEVELOPMENT (RD.I) DEPARTMENT

G.O.Ms.No.146 Dated: 29.04.2005

Read the Following: G.O.Rt.No. 1778, Dated: 27.04.2005 , Fin(Expr. P.R & RD) Dept.

ORDER:

1. A provision of Rs.800.00 Lakhs has been made in the Budget Estimates of 2005-2006 towards Interest Subsidy on Loans taken by DWCRA Groups.

2. In the reference read above , Finanace (Expr. P.R & RD) Department have issued Budget Release Order for 50% of the total amount i.e Rs.400 Lakhs towards the Interest Subsidy on Loans taken by the DWCRA Groups (Interest on Loans at 3% per annum) to The Commissioner, Rural Development, Hyderabad.

3. Government after careful examination hereby accord administrative sanction to The Commissioner, Rural Development, Hyderabad for an amount of Rs.400.00 Lakhs (Rupees Four Crores Only) towards Interest Subsidy on loans taken by DWCRA Groups (Interest On Loans at 3% per annum).

4. The amount sanctioned at para 3 above shall be debited to the following Head of Account:

2501 - Special Programmes for Rural Development 01-Integrated Rural Development Programme MH 101-Subsidy to District Rural Development Agencies GH(11)-Normal State Plan

298

SH(13)-Intrest subsidy on loans taken by DWCRA Groups (intrest on loans at 3% per annum)

310- Grants in aid 312-Other grants in aid

5. The Commissioner, Rural Development, Hyderabad shall adjust the above sanctioned amount to the P.D Account of the District Rural Development Agencies after obtaining the authorization from the Director of Treasuries and Accounts after obtaining the authorization from the Director of Treasuries and Accounts, Hyderabad to meet the expenditure of Intrest Subsidy (Intrest on Loans at 3% per annum) on Loans taken by the DWCRA Groups.

6. The Commissioner, Rural Development, Hyderabad should Intimate the allotment of funds to the Government and ensure the proper utilization of the funds and the implementation of the above scheme.

7. The Director of Treasuries and Accounts, Hyderabad is requested to adjustment the amount on the adjustment Bill preferred byThe Commissioner, Rural Development, Hyderabad based on the Budget Release Oreder issued by the Finanace (Expr. PR & RD) department in the reference read above duly following the quartely regulation orders issued in the reference 1st of the Budget Release Order in the reference read above.

8. This order does not require the concurence of the finance department in view of the Budget Releases Order issued in the reference read above.

(BY ORDER AND IN THE NAME OF THE GOVERNMENT OF ANDHRAPRADESH)

K.RAJUPRINCIPAL SECRETARY TO GOVERNMENT(RD)

To

The Commissioner, Rural Deveopment, Hyderabad.The Director of Treasuries & Accounts,A.P., Hyderabad All The District Collectors & Chairmen,DRDAsAll the Project Directors, DRDAs.All the District Treasury Officers. The Accountant General, A.P., Hyderabad.

Copy to :-

The Finance (Expr. PR & RD) Dept.,The Planning Dept.,The PR & RD (RD.I, II, III & IV) Dept.,The Chief Accounts Officer/ Accounts Officer, PR & RD Dept.,

299

P.S to principal Secretary (RD) Department.P.A to Additional Secretary (RD).SF/SC.

// FORWARDED :: BY ORDER // SECTION OFFICER.

300

SPSS- Findings

The above table shows that the eight extracted factors are Repay of Loan,

NGO supported, No of children, Age of SHG, Gender, Income of the person, No of

members, Age of the individual. These are the most important factors which really

contribute for SHGs entrepreneur activity and finally SHG to be active.

9.16.1 Rotated Component Matrixa,b

Component

1 2 3 4 5 6 7 8

Repay .158 -.084 .703* -.113 -.027 .327 -.133 -.047

Incom Before -.021 -.114 .139 -.148 .732* -.089 -.164 .064

No of members -.092 .055 .038 .015 .175 .778* -.022 .178

Age of SHG -.032 .986* -.046 -.037 -.010 .038 .030 -.039

Major reason of -.007 -.084 .679 .317 -.027 -.145 .043 .161

Are you on any -.083 -.105 -.123 .452 -.384 .420 -.115 -.320

Gender -.084 -.174 .097 .468* -.029 -.076 .406 -.129

Age of the -.015 .057 .073 -.119 -.158 -.047 .827* -.014

Literacy status of .127 .086 -.188 .124 .609 .084 .079 -.335

Total no of .909 .007 .105 .026 .058 -.059 -.019 .065

No of Children .961* -.042 .038 .031 .018 -.033 -.022 .030

No of son in family .607 .031 .137 .612 .069 -.162 -.120 .186

No of Daughter in .710 -.062 -.087 -.536 -.003 .108 .113 -.133

Whether Taking .043 .098 -.043 .222 .395 .049 .498 .111

Profession of the .008 .038 -.072 -.072 -.112 .494 -.001 -.060

Year since in SHG -.023 .983 -.060 -.040 -.006 .054 .036 -.040

Reason FOR .029 .025 .692 -.030 .074 -.241 .196 -.206

NGO Supported .075 -.066 -.088 .014 -.054 .060 .008 .857*

301

* The highest value in the column representing the variables as extracted

factors.

Income analysis: This part of the analysis the study is divided into two parts the firs

we checked the significant difference in the income levels of the income before and

income after the SHG participation. in the second part of the income analysis the test

is carried out to check the significance of the difference between the groups one

belonging to the active SHGs and other belonging to the inactive SHGs.

The factor analysis shows that there are 8 factors whose Eigen values are

greater than one. The eigen values greater than one implies that these factors

contributing maximum in terms of variance. The table below shows that the extracted

factor in all explains 70% variance. this means that if we consider these eight

variables for analysis there will be only 30% loss of information.

9.17.1 The factor extraction method is principle component analysis method.

Initial EigenvaluesExtraction Sums of Squared

LoadingsRotation Sums of Squared

LoadingsComponent Total

% of Variance

Cumulative % Total

% of Variance

Cumulative % Total

% of Variance

Cumulative %

1 2.850 15.836 15.836 2.85015.83

615.836 2.697 14.983 14.983

2 2.161 12.005 27.841 2.16112.00

527.841 2.043 11.348 26.331

3 1.699 9.442 37.282 1.699 9.442 37.282 1.619 8.992 35.323

4 1.347 7.486 44.768 1.347 7.486 44.768 1.311 7.281 42.604

5 1.243 6.906 51.673 1.243 6.906 51.673 1.297 7.206 49.811

6 1.184 6.579 58.252 1.184 6.579 58.252 1.288 7.154 56.965

7 1.122 6.233 64.485 1.122 6.233 64.485 1.232 6.844 63.809

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8 1.027 5.705 70.189 1.027 5.705 70.189 1.149 6.381 70.189

9 .999 5.548 75.737

10 .875 4.861 80.598

11 .843 4.683 85.281

12 .738 4.098 89.379

13 .646 3.592 92.970

14 .603 3.352 96.322

15 .426 2.364 98.686

16 .203 1.130 99.816

17 .024 .131 99.947

18 .010 .053 100.000