Micro Finance And

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MICRO FINANCE ANDSELF HELP GROUP

Muhammad Aslam A

Rahul RSRenju RV

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Microfinance

Robinson (2001) defines microfinance as small-scalefinancial servicesprimarily credit and savingsprovided to people who farm, fish or herd and addsthat it refers to all types of financial servicesprovided to low-income households and enterprises.

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Type of MFIs

Community based savings and loans cooperativesalso known as self-help groups or SHGs

Charitable non-governmental organization providingrevolving loans to the poor.

MFIs established by commercial banks or governmentowned development banks.

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SHG

The Self Help Group is a village basedintermediary usually composed of

between 10-20 local women.

They pooled financial resources toprovide loans with small interest to the

members.

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Goals

To establish a forum wherein women can critically analyze theirsocio-economic situation and act as catalyst to bring aboutsocial change.

To build up self-confidence and spirit of cooperation amongwomen.

Economic empowerment of women in society aimed at self-reliance and self sufficiency.

To eliminate the role of moneylender.

To establish a linkage with the Banks, Governmentinfrastructures and other institutions for socio-economicdevelopment through SHGs.

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Formation of a SHG

Formation of a SHG takes about 2 months.

Deciding on an appropriate name for the SHG

Electing a President and Secretary and formulating,understanding and accepting by-laws.

Formulating by-laws requires at least two meetings of allmembers in a period of one month.

Opening the SHG Bank Account, and initiating the groupsinto maintaining records and registers (savings and

contribution register, attendance register, minutes book, etc)and books of accounts (cash book, bank book and ledgers)takes another one month.

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Basic Principles of SHG

The members of the groups should be residents ofthe same area and must have an affinity.

Savings first, credit thereafterSHGs should hold regular meetings

SHGs should maintain record of financial and othertransactions

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Basic Principles of SHG (Contd)

They should have norms regarding membership,meetings etc.

Group leaders should be elected by members androtated periodically

Transparency in operations of the group andparticipatory decision making

Rates of interest on loans should be decided by thegroup

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SHG Bank Linkage

In Feb 1992, NABARD launched the SHG BankLinkage Program.

Win-Win strategy The banks were able to tap a large market(low income

households)

Transactions cost were low and repayment rates were high

SHG were able to scale up their operations.

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Important aspects used by banks forassessing a Self Help Group

1.Norms for functioning

The SHG should have developed some kind of norms for itsfunctioning

The norms should be covering major areas of its functioningas well as the decision making processes, leadership etc.Norms generally relate to Membership, Meetings, Savings, Credit, Fines, Leadership,

Personal/social improvement.

How norms evolved, whether by the consensus of

the whole group.Whether the members are aware of the norms (evenif they are oral) and understand them

Whether the norms are implemented.

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3.Maintenance of books

Whether group is maintaining the basic books that will givedetails of its functioning and accounts of the group is an

important criterion to be judged.

A financer should verify Whether details of meetings, proceedings, and attendance

are maintained

Whether member-wise record of saving and credit aremaintained

Whether the records are up to date

Whether all members are kept informed of their savings andcredit balances from time to time

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4.Leadership

Two or three group members are elected as

leaders/ book-writers. The group leaders are expected to

a) regularly convene and conduct the meetings

b) help the group members in taking decisions

c) resolve conflicts

d) maintain books of account

e) approach bank branch for operation of accounts.

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The aspects that are to be seen are :

Whether the leaders have been elected and rotated

Whether they help in democratic functioning of the group

Whether there is a conscious attempt to groom othermembers to take up leadership

Are they marginalizing the benefits (especially loans)

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5.Participation and awareness of group members

Are the members aware of the purpose of group

formation, the operations and activities of thegroup

Things to be observed Do they participate in group discussions and decision

making

Do they help solve the problem that are raised in themeetings

Do they work cohesively and have transparent dealings

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6.Savings

The group decides on the amount of savings and also itsperiodicity.

7.CreditThe following aspects to be looked into while assessing the creditfunction of the group

The decision making process of selecting loanees.

The system followed in assessing credit requirement of individual

members and the amount to be sanctioned. The system of monitoring the credit.

The repayment performance of members and incidence of defaultsbesides the effectiveness to deal with such defaults.

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8.Self Reliance of the Group

The functioning of the group without the support

of the NGO is an important criterion forassessment.

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Ratings of SHGs

Composition, age of the group, weekly groupmeetings, attendance, minutes books, savings,savings loan recovery etc.

A total of 150 marks SHG scoring more than 120 marks out of maximum of 150

marks could be chosen for credit linkage

SHG scoring less than 120 marks will have to be further

developed before linkage.

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Thank You

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Micro Finance And

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