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CHAPTER-1
INTRODUCTION
1 The Concept of Self-Help Group
1.2 The Concept of Micro Credit
1.3 Economic Problems and Interventions ofInstitutions at Micro and Macro Level
1.4 Scope of Micro Credit Institutions
1.5 Self-Help Group Activity Among the Community
1.6 SI-IG Availing Micro-Credit
1.7 Asset Creation through Micro-Credit
1.8 Social Commitments and Credit Availability
1.9 Status of SHGs in India
.10 Status of SHGs in Tamil Nadu
1.11 Status of SI-IGs in Kanyakumari Ditrict
1.12 Problem Formulation
1.13 Objectives
1.14 Hypothesis
I 5 Chapterisation
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CHAPTER I
INTRODUCTION
In India several microfinance institutions have been promoted
for providing microfinance to the poor under various poverty alleviation
programmes. Cooperative institutions, Regional Rural Banks and the rural
branches of commercial banks have been providing credit to the poor through
several schemes under the directives of the Government of India. -
The schemes like Drought Pt-one Areas Programme (DPAP),
National Rural Employment Programme (NREP), Programmes under Small
Farmers Development Agencies (SFDA), Marginal Farmers and Agricultural
Labourer Agencies (MFAL), Food for Work Programme (FWP), Rural
Landless Employment Guarantee Programme (RLEGP), and Jawahar Rozgar
Yojana all were intended to directly target different segments of the poor.
Integrated Rural Development Programme (IRDP) has been the most
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comprehensive programme intended for improving the standard of living of
the poor.
Despite the volumes, it has been ascertained that these
subsidised financial programmes, implemented through banking institutions,
have not provided financial services to the poor in an effective, efficient and
sustainable manner. This is on account of several defective features in the
planning and implementation of these government sponsored programmes,
involving lengthy procedures for loan disbursements, high transaction costs
and lack of supervision and monitoring.
The new experiments in micro finance are able to demonstrate
that it is possible for financial institutions to provide financial services to the
poor in an effective, efficient and sustainable manner through Self-Help
Groups.'
1.1 The Concept of Self-Help Group
Sell-help groups have emerged as a popular method of working
with people in the recent years. This movement stems from the people's
desire to meet their needs and determine their own destinies through the
principle of "by the people, for the people and olthe people"2
Nashi, S.K., "Micro Finance: A Study of Shree Shakti SHG Programmes", Southern Economist,Vol.43, No.8, August 15, 2004, p.9.
2 Sneh Lata Tandon, "Self-l-lelp - New Mantra for Empowerment", Social Welfare, Vol.48, No.7,October 2001, p.25.
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A Self-Help Group (SHG) is a small, economically
homogeneous and cohesive group of rural poor voluntarily coming together:
. To save small amounts regularly
To mutually agree to contribute to a common fund
. To meet their emergency needs on mutual help basis
. To have collective decision making
. To solve conflicts through collective leadership
To provide collateral-free loans with terms and conditions decided by the
group3.
Non Governmental Organisation (NGOs), social workers, health
workers, village level workers, informal associations of local people,
development oriented government departments, banks, bank personnel and
other individuals (in their personal capacities) farmers' clubs under the Vikas
Volunteer Vahini (VVV) programme of National Bank for Agriculture and
Rural Development (NABARD) and other development institutions help in
the formation of SHGs4.
Objectives of Self-Help Groups
The formation of SliGs is based on the objective that the SHGs;
NABARD, Annual Report 1998-1999, p:'25.www.nabard.org/roles/mcid/mfd coniri but ions. litrn
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. Enables the members to learn to cooperate and work in a group
environment
. Act as the forum for the members to provide space and support to each
other
. Provide savings mechanism, which suits the needs of the members
. Provides a cost effective delivery mechanism for small credit to its
members
. Contribute to the empowerment of poor women 5 . I
1.2 The Concept of Micro Credit
Micro-credit programmes extend small loans to poor people for
self employment projects that generate income, allowing them to care for
themselves and their families. In most cases, micro-credit programmes offer
a combination of services and resources to their clients in addition to credit for
self employment. These often include savings, training, networking and peer
support6.
Loans under micro-credit programmes are very small, on an
average less than $ 100 by world standards and in hundreds of rupees by
Indian standards. Micro-credit continues to target the rural and urban
households, with emphasis on women borrowers. The beneficiaries are
identified by micro-credit providers themselves independently or through
Ibid.6 Joshi. S.C., "Micro-credit Not Charity", Social Welfare, Vol.48, No. 11, February 2002, p.12.
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NGOs or SHGs. The repayment period is generally very short. The amount is
increased based on the borrower's repayment history7.
Micro-credit has been defined by the Reserve Bank of India as
the provision of thrift, credit and other financial services to the poor in rural
and semi urban areas to enable them to raise their standards of living8.
Several NGOs had taken up micro-credit as a central strategy.
Fuelled by the world bank-sponsored micro-credit summits, the credibility of
micro-credit has grown to the point where it is being hailed as the ultimate
answer to poverty and underdevelopment. To its proponents, micro-credit has
everything - participation, flexibility, community ownership and, best of all,
women's empowerment. It is a band-aid solution to poverty, an easy way of
side-stepping structural issues and making the poor responsible for finding
solutions to their own problems9.
Economic Problems and Interventions of Institutions at Micro and
Macro Level
Nature of the Problem
The information, resource, skills and technology base of the
poor in India are very weak and consequently the scales of their operation are
Punithavathy Pandian and Eswaran.R, "Empowerment of Women Through Micro-Credit", Yoiana,Vol .46, No. 11, November 2002, p.47.Priya R. Devi and Kumari Sushama, "Micro Credit Origin and Prospects", Kisan World, Vol.31,
No.2, February 2004, p.12.9Kalyani Menon Sen, Micro-Credit and Empowerment - Not Necessarily Siamese Twins,
www.un.org.in/gender/microcredit.htm
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IT
small, irrespective of the economic activity pursued. It is well known that the
credit needs of poor arise due to expanding family size and social obligations
like marriages, deaths and medical treatment. The poor also endure market
and climatic uncertainties. The family income is in fact just sufficient to meet
the routine production and consumption demands and these demands are
seldom out of proportion. In times of such emergencies, there are no credit
institutions to fall back upon and the poor are forced to rely on credit supplied
by bigger landlords, traders and moneylenders at high rates of interest'0
Among the poor the most affected are the women. Women's
participation is significant in rural employment. They put to use their
entrepreneurial skills in all rural activities such as, agricultural operations,
poultry, sheep rearing, dairy, fire wood cutting and selling and sale of
agricultural produce. Though they put their entire heart and soul into rural
employment activities, their economic status is not improved. Their
livelihood is poor. Though they have enough entrepreneurial potential, due to
poor finanical strength they are not able to convert their entrepreneurial dream
into reality. They need financial assistance"
Formal financial sector is not effectively serving the rural
population. This is mainly attributed to the failure of financial intermediaries
' Surjit Singh, "Micro Finance for Poor in Rajasthan : The Importance of Self-Help Groups",Working Paper 118, Institute of Development Studies, Jaipur, March 2000, p.1.Gurumoorthy T.R, "Economic Empowerment Through Self-Reliance", Social Welfare, October
2002, p.1.
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in fulfilling the basic functions, viz., production credit to finance income
generating activities, consumption credit to maintain and expand human
productive capacity and quality saving schemes for increasing risk-bearing
capacity of the rural households. Moreover, these institutions have failed to
promote any of its social objectives. To reach the poor, institutional
innovations are needed that enable services to be expanded, while
substantially reducing transaction costs for both financial institutions and
clients 12
The institutional agencies not only lacked the required
mechanism to assess their credit needs but often over looked their demand for
credit on the ground that their needs are for non-productive purposes.
Besides, perceived high risks, transaction costs in small-scale rural lending
and absence of collateral securities kept the poor away from the fold of formal
financial intermediaries13.
Institutions in the organised sector have come to realise that
using the group mode could significantly reduce their transaction costs while
at the same time strengthen monitoring of use of credit through peer pressure.
The group mode enhances the rates of recovery and makes lending to poor
substantially less risky as compared to the risk faced in their normal loan
12 Namboodiri NN and Shiyani R.L, "Potential Role of Self-Help Groups in Rural FinancialDeepening", Indian Journal of Agricultural Economics, Vol.56, No.3, July-September 2001, p.401.
' Ibid.
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portfolio. Borrower selection and assessment of feasibility of the activity
chosen are done with more than ordinary efficiency by the groups. With such
advantages accruing to the institutions which extend credit, it is not surprising
that they are increasingly inclined to support groups 14
Emergence of Self-Help Groups
The approach towards poverty alleviation should be self-help.
Others should help the poor to help themselves. It is felf that individual effort
is too inadequate to improve their fate. This brings about the necessity for
organizing them in a group by which they get the benefit of collective
perception, collective decision-making and collective implementation of
programmes for common benefits. Individually, a poor person tends to be
rather tentative, uncertain in his behaviour but group membership smoothens
the rough edges of his behaviour pattern, making him more reliable as a
borrower. Membership in a group gives him a gelling of protection of the
poor in a credit programme. Group savings serve a wider range of objectives
other than immediate investment; it imposes discipline on group members in
developing saving habit; savings enhance the self-confidence of the individual
as it is a sign of group encouragement; savings cover the individuals' risk
against normal business risk, normal variations of income, natural calamities
like floods, drought, cyclones and diseases. Investment of a riskier nature can
4 Srinivasan N., "Why Self-Help Groups - Borrower's Point of View", National Bank NewsReview,, Vol. 12, No. 1, January - March 1996, p.18.
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also be considered because of the savings cushion; group savings of the poor
can demonstrate the strength of unity of members, savings plus credit can then
be a good starting point for group formations called self-help groups15.
Providing micro-credit to rural women through an organised set
up will make them enterprising women. SHG is a viable orgnaised set up to
disburse micro-credit to rural women for the purpose of encouraging them to
enter into entrepreneurial activities.
Interventions of Institutions Providing Micro-Credit
The institutions which are promoting supporting and financing
micro-finance programmes in India are the NABARD, Small Industrial
Development Bank of India (SIDBI) and Rashtriya Mahila Kosh (RMK).
National Bank for Agriculture and Rural Development (NABARD)
NABARJ) launched the bank-self-help group linkage
programme on pilot basis in 1992. The linkage programme under the aegis of
NABARD aims to reach the unreached, imporve living standards of poorer
sections of rural society, and achieve high deposit, credit mobilization and
recovery of loans. The loan amount is tied up with the savings of the
members of SI-IGs for lending within the group in an informal manner 16
Surjith Singh, "Institutional Finance in Rajasthan Recent Trends and Concerns", Working Paper,126, Institute of Development Studies, Jaipur, 2002, p.15.
6 Gulati, Ashok and Bathla Seema, "Institutional Credit to Indian Agriculture Defaults and PolicyOptions", Occasional Paper 23, NABARD, Mumbai, p.21.
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Different Models of Linkage
The three models of credit linkages of SHGs with banks are:
Model I: SHGs Formed and Financed by Banks
In this model, banks themselves take up the work of forming and
nurturing the group opening their savings accounts and providing them bank
loans.
Model II: SHGs Formed by NGOs and Formal Agencies, but Directly
Financed by Banks
Here NGOs and formal agencies in the field of micro finance act
only as facilitators in organising, forming and nurturing of groups and train
them in thrift and credit management. Banks give loans directly to these
SHGs.
Model III : SHGs Financed by Banks Using NGOs and Other Agencies as
Financeial Intermediaries
Here the NGOs take on the additional role of financial
intermediation and are given bulk loan assistance which in turn is used for on-
lending to the SHGs17.
A separate department named Micro-Credit Innovations
Department (MCID) was, set up in head office in June 1998 with Micro-
Credit Innovation Cells (MCIC) at all the regional offices of the national bank
NABARD, Rural Credit & NABARD, Corporate Planning Department, NABARD, Mumbai, 2002,
p.95.
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to meet the emerging challenges. The major functions of MCID relate to the
formulation of policies, co-ordination with governments and government
agencies, national level micro-finance practitioners, overseeing the state level
operations, monitoring the progress of SHG-Bank Linkage Programme,
innovating and supporting alternative credit delivery mechanisms, promoting
and facilitating banks to act as Self-Help Promoting Institutions (SHPIs),
documentation and dissemination and co-ordinating with external agencies.
The natioanl bank continued to provide hundred per cent
refinance to banks at an interest rate of 6.5 per cent per annum. Other support
provided include facilitating training of bank officials and field staff of NGOs,
capacity building support on selective basis to NGOs, SHGs, federation of
NGOs or SHGs and other related institutions through financial assistance and
faculty support.'8
The national bank has been supporting select NGOs with
Revolving Fund Assistance (RFA) to finance individuals, SHGs, small NGOs
and credit unions, to help them build their financial intermediation
capacities 19 . Keeping in view the importance of periodic review of the
functioning of NGOs supported with RFA, a set of guidelines has been
prepared in consultation with the department of supervision of the national
18 NABARD, Annual Report 1998-1999, p.121.19 Ibid., p.125.
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bank. The guidelines adopted four broad parameters, viz., (i) character, (ii)
capacity (iii) credit worthiness and (iv) credit-thrift management 20
Small Industrial Development Bank of India (SDBI)
The Small Industrial Development Bank of India (SIDBI) was
established in 1990 to serve as the principal financial institution for promotion
and development of industry in the small scale sector as well as to co-ordinate
the functions of other institutions engaged in these aspects in the sector. The
bank launched the micro-credit scheme (MCS) in 1994 for extending financial
assistance to the rural poor, particularly women, through NGOs for taking up
income generating activities at the micro-level. The scheme envisages
provision of soft loan assistance at 9 per cent per annum to accrediated NGOs
for on-lending to the poor women (SHGs or individuals), an amount not
exceeding Rs.25,000 per borrower for promoting micro-enterprises. Savings
form an integral part of the programme and members of the SHGs are
encouraged to plough back their savings to the group corpus for building up
borrower's equity over a period of time. A salient feature of the scheme is the
grant assistance extended by the bank for developing the capacity of the
NGOs to run credit programme efficiently and to enhance the credit
absorption capacity of the borrowers 21
20 lbid., pp. 127-129.21 Jayaraman. B, "Micro-Finance Retrospect and Prospect", Occasional Paper 20, NABARD,
Mumbai, 2001, p.21.
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i) SIDBI Foundation for Micro-Credit
Considering the satisfactory performance of MCS in the pilot
phase, the bank set up 'SIDBI Foundation for Micro-Credit' (SFMC) in
November 1998 with an initial corpus of Rs.1 billion with a view to upscaling
the activities under MCS. The objective of the foundation is to raise the
standard of living of the poor, with focus on women, by meeting their genuine
credit needs22
ii) Capacity Building of Intermediaries
Towards ensuring that a supplementary channel of credit
delivery is properly developed, SIDBI has been making investments in
improving the credit absorption and usage capacity of the women's groups
and credit delivery skills of the functionaries of Micro Finance Institutions
(MFIs) or NGOs working with savings-cum-credit groups. Financial support
is extended to NGOs for training interventions in the area of maintenance of
accounts, book keeping, credit management, identification and selection of
income generating activities and management of micro-enterprises. The bank
has been supporting orientation programmes for NGOs desirous of
undertaking thrift-cum-credit activities 23
22 Ibid., p.22.21 Jayaraman. B, pcIt, p.23.
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Rashtriya Mahila Kosh
The National Credit Fund for Women or Rashtriya Mahila Kosh
(RMK) was constituted in March 1993 by the Government of India (GOl) and
is registered as a society under the Societies Registration Act, 1860. The
RMK aims to provide funds to NGOs forming SHGs for on-lending, purpose
with the objective of improving the facilities of credit to women, which could
be used as an instrument of socio-economic change and development. The
RMK was established with an initial corpus of Rs.3 10 million, contributed by
the Department of Women and Child Welfare, Ministry of Human Resource
Development, GO!.
The important schemes under which financial assistance is
available are
a) Main scheme providing loan assistance,
b) Revolving fund scheme,
c) Scheme for providing financial support for development and
stabilisation of SHGs,
d) Nodal agency scheme,
e) Umbrella scheme,
0 Resource NGO scheme
g) Information-education-communication scheme. 24
24 www.rmk.nic.inlchap2.htm.
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1.4 Scope of Micro-Credit Institutions
Micro-credit institutions deliver various credit services to poor
women and other vulnerable sections of the society to enable them to create
self-employment based on their skill and uplift their economic living standard.
These institutions remain most successful ones in terms of (a) outreach and
performance in delivering credit services to the poorest of the poor women
and small artisans in the rural and urban areas; (b) reduction in adverse
selection of borrowers; (c) development of collateral substitutions; (d) offering
cost effective approaches to formal institutions (e) behavioural outcomes such
as non-land asset holdings by women, male and female labour supply,
household expenditure and boys and girls schooling and (1) empowerment of
women
NGO Intervention
Development intervention in the rural areas by Voluntary
Agencies (VAs). Or, as they came to be known later, Non-Governmental
Organisations (NGOs) dates back to the pre-independence days. The role of
VAs/NGOs, which was initially confined to the social aspects of development,
was later on enlarged to help the poor and weaker sections of the rural society
in their economic pursuits.
25 Samar K. Datta and Raman, N., "Can Heterogeneity and Social Cohesion Coexist in Self-HelpGroups?: An Evidence from Group Lending in Andhra Pradesh in India", Indian Journal ofAgricultural Economics, Vol.56, No.3, July-September 2001, p.387.
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The inability of credit institutions to cover a sizeable segment of
the rural poor is generally attributed to the high cost of administering large
number of small loans and the perceived lending risks in the absence of any
collateral. This promoted a number of VAs/NGOs to enter the rural credit
scene for organising the poor into informal groups for mutual help and benefit.
Many of these groups have been provided credit support. These NGOs are
instrumental in promoting informal structures of the poor to help them save
and promote self-reliance in financing their needs through the concept of self-
help groups26
Role of NGOs
The following are some of the crucial roles of NGOs in micro
finance programme.
Play a crutial role in formulation, linkage and stabilisation of SHGs;
. Provide support services in terms of village survey, identification of
members, motivation to form groups;
Render training, guidance for record management and loan disbursement.
Ensure democratic and transparent functioning and
Facilitate development of groups on proper lines27.
26 Jararaman B, pp.cit, p.10.27 Sarkar AN, "Innovations in SI-IG - Led Micro - Finance Development Programmes: Sharing of
Global Experience", Indian Cooperative Review, Vol.4 I, No. I, July 2003, p. 16.
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1.5 Self-Help Group Activity Among the Community
As the first step in the thrift and credit revolution through SHGs
is their formation, only a systematic and scientific approach could ensure the
sustainability of these institutions. It was important that the NGOs or banks,
while promoting the groups, carefully selected the village and identified the
poor who were to be brought together for group formation. The NGO or bank
should also facilitate the emergence of group goals and objectives from within
the group. The groups formed with the genuine purpose of self-help in the
wake of felt needs had much better chances of success28.
Target Population
Before fixing the target groups, there is a need to identify the
groups by carrying out a survey with people's participation, their income,
expenditure and various types of cash drains. Based on the survey, the target
population may broadly comprise the following groups or sub groups.
People who are considred as socially ostracised such as;
1. Scheduled caste people
2. Indigenous people
3. Refugees
4. Displaced people.
People who are considered economically downtrodden such as:
28 Satish.P, "Some Issues in the Formation of Self-Help Groups", Indian Journal of AgriculturalEconomics, Vol.56, No.3, July-September 2001, p.413.
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1. Agricultural labourers
2. Marginal and small farmers
3. Non-farm wage earners
4. Women
5. Unemployed
6. Migrants
7. Any other disadvantageously placed groups like rickshaw pullers,
coolies, poor fishermen, petty traders, porters and craftsmen29.
Group Mobilisation
The field workers of the NGO visit the village where more
number of poor women live and collect the statistics regarding the poorest
among the poor. These women are asked to gather at a particular place and
the advantages of SHG is explained to them. To help in group formation and
management, the person having serving mentality, writing abilities and who is
trust worthy is choosen as an animator (leader / chief functionary) by the
group. The person who is considered as poor on the basis of income,
educational qualification, employment and property is given preference in
membership. If more number of women are there in a village then groups
with 20 members are formed. If there is only 10 members in that village, then
groups with 10 members can be formed. Groups should not be formed with
29 Karmakar K.G, "Rural Credit and SI-IGs" Micro Finance Needs and Concepts in India, SagePublication India Pvt.Ltd., New Delhi, 1999, p. 145.
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the objective of receiving government grants or bank loans. If so these groups
will not function well. The groups formed with the genuine purpose of self-
help will only succeed. After the formation of the group, the members select a
name by which the group can be identified.
TABLE No. 1.1
STAGES OF SHG DEVELOPMENT AND ROLE OF NGOs/SHPI
Stage of Time Role of NGO/SHPI Focus of activitiesDevelopment Period
Pre-formation 1-2 Initiator! Promoter Identifying the poor through participatorymonths rural appraisal methods in
small/hamlets/villages towns.Formation 3-6 Facilitator Motivation to form groups, select group
months leaders, develop rules and norms, conductmeetings, pooling savings, issue andcollection of small loans, group cohesion,adjustment systems, and maintenance ofaccounts.
Stabilisation 7-12 Advisory/Managerial Leadership stabilization, training of(Phase I) months leaders and members, regularised and
increase savings, handling of groups leveltransactions, informal interactions withother group s!clusters, addressingcommunity interests. Begin the process ofissuing loans, handling/helping defaultersto repay. Sourcing loans for groupsthrough normal credit system, etc.
Stabilisation 13-18 Advisory/Managerial In addition to above activities, initiation of(Phase 2) months income generating programmes, linkages
of banks, support to new groups,demonstrative effect on others to formgroups.
Growth and 19 Advisory/Managerial/ Strengthen linkages with banks, creationexpansion months Consultative/Institution of assets for groups and members,
and Building spreading concept building and promotionabove
of new groups, attempts at clusterdevelopment, and federation of SHGs.
NOTE : SI-WI = Sell-Help 1-'romoting institutionsSOURCE: NABARD30.
30 NABARD, Banking With the Poor: Financing Self-I IeIp Groups, NABARD, Hyderabad, 1994.
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Nature of the Group
a) Members of the group should be from the same economic section
b) The ideal number of members of the groups is 5 to 20
c) Members should contribute regular thrift to form a pool for financing
loan to the members. Repayment of loans should be made within 6
(six) months.
d) Members should frame rules and regulations of the group.
e) There should be regular meeting of the members and all the members
should be associated in decision making.
fl All the records of the group including account books should be up-to-date.
g) The group should issue a pass book to every member regarding credit
and loan.
h) The group should observe all norms of the cooperative form of
organisations 31
31 Mani Singh, C.H., "Self-Help Groups: Some Organisational Aspects", The Co-operator,Vol.XXXVIII, No. 1, May 2001, p.497.
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-
22
The Figure 1.1 reveals the typical SFIG model. The SIIG
depends on household resources such as, human capital and their physical
capital. It develops the habit of thrift among the members. The promoters
give training and technical guidance to the groups so as to function efficiently.
The members are given loans, they participate in community action and make
investments in income generating activities which in turn will result in
increased employment, income, saving and empowerment.
TABLE No. 1.2
SOME BASIC CHARACTERISTICS OF SHGs PROMOTED BY NGOs
Organisation Homogeneity in terms of economic/socio-economic status, common identity of activities etc.
2. Nature of target groups : Generally poor and weaker section of the people inrural areas.
3. Management : Selected/elected leader and duly generally rotated.Holds meeting regularly
4. Financial instruments:-a. Common fund : Created out of savings, interest earned on loan,
bank loans, donations, etc.b. Savings mobilisation : While in certain cases no fixed rate of savings, in
some cases regular and fixed rate of savings, and insome cases as per capacity of the members.
C. Loaning : Decided by the purpose, quantum and theresources available with the SHGs. Purpose ofloans for individuals include consumption, clearingoutside debt, social, medical, education, business,agriculture etc. and loans for common productionactivities.
d. Repayment period : Shorter than those prescribed by banks.-e. Rate of interest : Varies from 12 to 60 per cent. In few cases the
interest rates are determined by the NGOs.5. Linkage with banks : Banks treat SHGs but not their individual members
as borrowers.I .T 1 7 32 -
UtSLI L.CSd1 IV!. DIlupdL, IN1IIIUUUUI1I, IN. V.
32 Bhupat M. Desai, Namboodiri. NV, Organisation and Management of Rural Financial Sector,Oxford and IBII Publishing Co.Pvt.Ltd., New Delhi, 2001, p.373.
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23
1.6 SHG Availing Micro-Credit
Minimum Eligible Requirements to Borrow Loan
Credit Rating - I Stage
Credit rating is done by the womens development organisations,
District Rural Development Agency (DRDA), bank officials and NGOs. The
group should satisfy the following conditions to get the bank loan.
. Number of group members must be between 10-20
Groups in the past six months should have conducted at least one
meeting every month
Savings should be made every month. It is better if weekly savings is
made
. All the members must have participated in group activities and must
know all the activities undertaken by the group
. In every group meeting, at least 75% of group members must be
present
. More or less 50% of the members should have obtained group's
internal loan
. All account books must be well maintained and the income and
expenditure account of the group should be read and made known to
all the members in every group meetings
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24
The by-laws of the group must be well developed, passed as a
resolution and implemented.
The group which are qualified in the first stage pass-on to the
next stage of credit rating.
Grading the Groups to Provide Loan
Credit Rating - II Stage
The strength and weaknesses of a group can be known through
grading the group. The bank before providing the loan, the groups are divided
into different grades and then on the basis of rating the loan is sanctioned.
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TABLE No. 1.3
ASSESSING OF SELF-HELP GROUPS UNDER SHG BANK LINKAGE
PROGRAMME
Category Indicator Ratings Scored
1. No. of members Less than 10 2Between 10-15 3From 16 and upto 20 5
2. Composition Target group only 5Having I to 5 target group 3memberHaving more than 5 non target 1group member
3. Age of the SHG More than 2 years 101-2 years 76 months to 1 year 5
4. Monthly meetings Four and above 5during last six months Two to three 3
5. Attendance of members More than 90% 10in the group meetings 70% to 90% 5
Less than 70% 2
6. Participation of high 5members at group Medium 3meeting (through Low 2interview)
7. Savings If default is up to 10% 10a. Regularity Up to 25% .7,
Up to 50% but default is met 5during succeeding month
b.Quantum of savings More than Rs. 5000 10(through members only) Between Rs. 2000 and Rs. 5000 7
Below Rs. 2000 5
8. Group's internal loaninga. Utilisation of Above 90% 10
savings by granting 5 1% to 90% 7internal loans 30% to 50% 5
b. Interest rate on Depending upon purpose 5group's internal 18%to30% 3loans Less than 18% 2
c. Groups internal 100% 10loan recovery rate Between 80% to 95% 7
Between 70% to 80% 5
d. Members benefited More than 50% out of group's Between 25% to 50% 3internal loaning Less than 25% 2
__u11Lu...
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26
LCategory Indicator Ratings Scored
9. Awareness among Known to all members - 5members knowledge ofSHG rules, functions, Known to 50% or more 3procedures of meeting,maintenance of books Known to less than 50% 2and records etc.
10. If 25% or more members read, 5
Educational levelwrite, speak and signRead and sign 3Sign only 2
11. Rotation of group Once in two years 3leaders Between 1-2 years 4
Every year 512. Maintenance of books With outside assistance Without outside
and records assistanceAttendance register I Minute book 2 4Loan ledger 2 4Savings ledger 2 4Internal pass book 1 2
Total Marks Scored
Considering the above indicators, based on the marks scored by
the group out of 100, the bank manager takes the following decisions.
TABLE No. 1.4
SELECTION CRITERIA OF SHGS FOR LINKAGE
Scoring Status for SelectionI SHG scoring more than 90 points Selection without
reservation
II SHG scoring 60-90 points Selection with caution
III SI-IG scoring less than 60 points Not suitable for linkage
SOURCE: Records of Lead sank unman overseas rian NanyaKuIlidilDistrict, Nagercoil.
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27
Loan Amount
Once the group gets qualified to borrow loan, in doing so the
amount has to be decided based on their needs. Savings-Credit ratio may be
1:1 or 1:2 initially which can be raised to 1:4 depending on the confidence
gained by the bank. A resolution has to be passed in the group after having
discussion with the members regarding the loan instalment, interest rate and
mode of repayment.
Interest Rate Structure of SHG-Bank Linked Microfinance
The present interest rate structure stipulated by NABARD at
different levels under the SlIG-Bank Linkage Programme is as under:
NABARD TO Banks (Refinance) - 6.5%
Banks to SHG - 12.0%
Banks to NGOs/VAs - 10.5%
NGOs/VAs to SHGs - 12.0%
SHG to members - As decided by SHG33
1.7 Asset Creation Through Micro-Credit
After availing loan, the next stage is to concentrate on income
generation activities which is an important tool for improving the economic
condition of the poor. The success of an income generating activity can be
measured by the profit gained from the activity and there-by improvement in
NABARD, Micro Finance Innovations, NABARD, Chcnnai, 1999, p.28.
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28
the economic condition of the members who are involved in. Before starting
income generating activity, the members must be given training in income
generation activity and entrepreneur development and, for the maintanence of
income and expenditure account.
FIGURE 1.2
IMPACT OF MICRO-CREDIT
Micro Creditsed Income
Investment
ed Status
ial I Political I Economic
ustained IGAs
SOURCE: Jaya S. Anand34
The income generation activity undertaken by the SHG
members through the microcredit borrowed improve their economic condition
as follows;
14 Jaya S. Anand, "Self-Help Groups in Empowering Women: Case Study of Selected SHGs andNHGs", Discussion Paper 38, Centre for Development Studies, Thiruvananthapuram, 2002, p.52.
-
. It enables the poor to take advantage of existing opportunities
It builds up their assets
It generates self-employment
. It developes micro enterprises
. It raises their income
It builds up thier self-confidence and self-esteem
It improves their purchasing power and thereby consumption
In empowers them (especially women) economically and socially
In enhances overall economic growth
In enhances domestic savings and improves financial market
It provides escape route from poverty 35
1.8 Social Commitments and Credit Availability
Micro-finance programmes enable the poor to save, and thereby,
improve their confidence and household security.
The poor can borrow for consumption and working capital; and this
will, in turn, lead to their decreased dependence on, and liberation from
the clutches of money lenders. Consumption credit will also enable the
poor to have food security and enhanced access to health and education
services, thus serving to achieve social goals.
29
Sarkar, AX, Qp ciS . , p.17.
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30
. Credit for production purposes would enable the poor to improve their
agricultural production and/or enable them to undertake income
generation activities through which poverty could be gradually reduced.
. Credit for women to undertake income-generating activities would
enable them to have access to resources and income. This may lead to
enhanced decision-making within the household and thereby enable
them to spend income on health, education and consumption. Women
undertaking income-generating activities would interact with outside
markets and the community. Such mobility would gradually enable
them to play an active role in social, political and economic issues
affecting self, household and community. In this, people's institutions
promoted by NGOs would give them a helping hand. Thus, micro-
finance leading to income generating activities would also contribute to
non-economic benefits for women.
The self-help groups promoted for the poor, especially women, would
enable them to develop leadership qualities, enhance self-management
and facilitate them to be self-reliant. These also strengthen individual
and collective decision-making and bargaining power.
El
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31
Savings and credit activities will introduce the poor to local banks and
improve their credit worthiness. This would lead to an improved
interface between banks and SHGs36.
1.9 Status of SHGs in Indiaj4
The growth of self-help movement amongst the rural people in
different parts of the country is emerging as a very reliable and efficient mode
of micro-credit delivery. Members of SHGs in backward areas have
discovered for themselves that SHGs offer them organisational base, larger
resources and access to modern technology leading to employment and
income generation. Several state governments in their own development
programmes have included SHG as an important element.
A number of NGOs/VAs in the country play an important role,
either independently or in collaboration with apex institutions like NABARD,
SIDI3I, RMK or with banks, in promoting micro finance through SHG as a
viable system for helping the poor in crossing the poverty line.37
36 Rajasekhar. D and Shobana.P, "Economic Programmes and Poverty Reduction - NGO ExperiencesFrom Tamil Nadu", Workin g Paper 76, Institute for Social and Economic Change, Bangalore, 2001,
p.3.37 Jayaraman, B., op.cit, p.25.
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32
TABLE No. 1.5
SHG-BANK LINKAGE PROGRAMME - CUMULATIVE PROGRESS
SHGs Bank Loan SHG RefinanceYear Financed Disbursed Refinanced Disbursed
(No.) (Rs.Crore) (No.) (Rs. Crore)
1992-93 255 0.29 N.A 0.27
1993-94 620 0.65 N.A 0.46
1994-95 2,122 2.44 N.A 2.30
1995-96 4,757 6.06 N.A 5.66
1996-97 8,598 11.84 N.A 10.65
1997-98 14,317 23.76 N.A 21.39
1998-99 32,995 57.07 32,995 52.09
1999-2000 1,14,775 192.98 94,645 150.13
2000-2001 2,63,825 480.87 2,13,213 400.74
2001-2002 4,61,478 1,026.34 3,40,131 796.47
2002-2003 7,17,360 2,048.67 4,93,634 1,418.80
2003-2004 10,79,091 3,904.20 N.A 2,124.70
NOTE : N.A - Not AvailableSOURCE: NABARI) Annual Report Various Issues.
It is observed from Table 1.5 that in the year 2003-2004 the
cumulative number of SliGs credit linked with banks were 10,79,09 1 and
bank loan of Rs.3,904.20 crores and refinance of Rs.2,124.70 crores was
disbursed.
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33
SHG - Bank Linkage in India - An Overview
The microfinance initiatives of NABARD yielded remarkable
success and the SHG - bank linkage programme has emerged as the largest
microfinance programme in the world. The pilot project started in 1992 has
turned into a national movement, linking more than one million SHGS with
bank credit and leading to the socio-economic empowerment of women. 38
38 NABARD Annual Report 2003-2004, p.39.
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34
TABLE No. 1.6
SHG-BANK LINKAGE - HIGHLIGHTS
(Rs. in Million)
Sl _______ Cumulative Upto
No Items March March March March March2000 2001 2002 2003 2004
1 No. of new SHGs 81,780 149,050 197,653 255,882 361,731provided with bank loanduring the year
2 No. of SHGs provided 114,775 263,825 461,478 717,360 1,079,091with bank loan(cumulative)
3 % of women groups 85 90 90 90 904 No. of participating banks 266 314 444 504 560
i Commercial banks 40 43 44 48 48ii RRBs 165 177 191 192 196iii Co-operative banks 61 94 209 264 316
5 No. of states/union 24 27 30 30 31territories
6 No. of districts covered 362 412 -488 523 5637 No. of partner agencies 718 1,030 2,155 2,800 3,0248 Bank loan (cumulative) 1,930 4,809 10,263 20,487 39,0429 Refinance (cumulative) 1,501 4,007 7,965 14,188 21,24710 No. of families assisted 1.9 4.5 7.8 11.6 16.7
(in million)11 Average loanISHG (Rs) 16,814 18,227 22,240 28,559 36,17912 Average loanlfamily(Rs) 1016 1072 1,316 1,766 2,41213 Model-wise linkage
(cumulative)i SHGs formed and 14% 13% 16% 20% 20%
financed by banksii
SHGs formed by 70% 76% 75% 72% 72%formal agencies andNGOs but directlyfinanced by banks
iii SHGs financed by 16% 11%banks through NGOs
SOURCE: Compiled Irom NAA1W & Micro 1-inance zuui-zuuz, ien iears 01SHG-Bank Linkage 39 and NABARD Website40.
NABARD, NABARD & Micro Finance 2001-2002, Ten Years of SHG-Bank Linkage (1992-2002),Micro-Credit Innovations Department, NABARD, Mumbai, 2002, p.10.
40 nabard.org/roles/microfinance/files/publications/statem cntications/statement I . pdf
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35
From the Table 1.6 we can infer that the SHG - bank linkage
programme has brought 16.7 million poor families within the fold of formal
banking services. More than 90 per cent of the groups linked with banks are
exclusive women groups and the scheme has more than 95 per cent on-time
repayment record. As on March 31, 2004, the average loan received per SHG
was Rs.36,174 and per family was Rs.2,412. This programme presently
covers 523 districts across the country with the total number of participating
NGOs and other agencies currently involved in this linkage being 3,024.
/Regional Spread of SHGs
Many State Governments, banks and other agencies accorded
high priority to the programme in their states and areas of operation, thereby
increasing the absolute number of SI1Gs receiving bank credit in those States
and Regions. Specific strategies were formulated by NABARD to meet the
requirement for widening the network and deepening the penetration of the
programme in states which required special attention. Promotional efforts
were launched by NABARD through its regional offices in these States,
participating agencies and other institutions including the government and
non-governmental agencies.41
NABARD, NABARD and Microfinance 2001-2002 - Ten Years of SI-IG - Bank Linkage (1992-2002), Qpct., p.3.
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48
In the year 2003-2004 6,978 SHGs with membership of
1,05,037 were linked with banks. The savings mobilised through these SHGs
was Rs. 1,73 1.97 lakhs and loan amount of Rs.2,586.87 lakhs was disbursed.
1.12 Problem Formulation
Poverty is one of the important factors which hinders the overall
development of the economy. Several micro-credit programmes were initiated
by the government under poverty alleviation and self-employment
programmes to eradicate poverty and for the development of rural areas.
Despite the wide network of rural bank branches and specific poverty
alleviation programmes, a very large proportion of the poor, especially the
women, remained outside the fold of the formal banking systems. The
existing banking policies, systems and procedures, and deposit and loan
products, were not well suited to meet the most immediate needs of the poor.
The system needed some motivaiton. Thus began a search for alternative
policies, systems and procedures, saving and loan products, other
complementary services and new delivery mechanisms, which would fulfill
the requirements of the poorest households.
Provision of small financial services and products to the poor
people through bank linkage of SHGs has contributed to the process of rural
development by creating conditions that are conducive to human development.
Micro financing through SF-IGs is contributing to the development of rural
-
we
people in a meaningful manner. It is reported that significant changes in the
living standards of SHG members have taken place in terms of increase in
income levels, assets, savings, borrowing capacity and income generating
activities46 . SHGs have also served the cause of women empowerment and
awareness creation.
The investigator therefore thinks that it is worth to study the
activities of SI-IGs. The present study aims to assess the social and economic
transition brought-out by the SliGs in the lives of the members.
1.13 Objectives
The present study is based on the following objectives:
1. To study the operational mechanism of self-help groups.
2. To analyse the socio-economic conditions of the members of SHGs
before and after the formation of groups.
3. To examine the nature of income generating activity undertaken by the
members.
4. To find out the difference if any in the self confidence, health
consciousness, awareness creation, empowerment and house
management of women before and after participation in the SI-IGs.
5. To evaluate the SHG programme by measuring its impact on the
participants.
"c' Sharma K.C., "Micro Financing through Self-Help Groups", Indian Journal of AgriculturalEconomics, Vol.56, No.3, July-September 2001, p.461.
-
50
6. To offer suggestions for effective performance of SHGs.
1.14 Hypotheses
1. The performance of the SHGs in terms of income generation activities
and related economic indicators like income generation and increase in
household savings will be influenced by localized nature of SHGs and
hence there will be block-wise factors and statistically significant
trends will be seen in terms of block-wise clusters.
2. The change in borrowing will be visible and will be from the dominant
non-formal borrowing source to the SHG. In this change in borrowing
source the trend will be generalized for the SHGs and will not be
influenced much by local factors. So the transformation ill show
uniform patterns for all SHGs irrespective of blocks.
3. The external borrowing and returning of loans will depend on the
quantum of borrowing and will not be affected by SHGs' local
conditions and hence block-wise patterns cannot be disceine 'thand the
socio-economic factors will be responsible for the functioning of this
aspect of SIIG which will result in no clearly defined patterns
emerging.
1.15 Chapterisation
The first chapter deals with introduction. It includes the
concept of SHG and micro credit, interventions of micro credit institutions and
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51
scope of the micro-credit institutions. It also includes the problem
formulation, objectives and hypothesis of the study.
The second chapter persents the meaning of important concepts
used in this study and covers a comprehensive review of all available literature
related to the present study.
The third chapter deals with methodology; which includes, the
significance of the study, research design, choice of study area, selection of
samples, collection of data, statistical tools and techniques used for analysing
the data and the limitations of the study.
The fourth chapter evaluates the performance of SHGs.
The fifth chapter is divided in to four sections. Section one
analyses the socio-economic profile of the members. Section two analyses the
participation of beneficiaries in SHG activities. Section three analyses the
respondent's opinion/attitude towards the SHG activities and section four
analyses the transition brought-out by SHGs in the lives of the respondents.
A brief summary of the findings of the study together with
suggestions and recommendations is furnished in the sixth chapter.