financial sustainability of shgs through marketing …sit journal of management vol. 2. no. 2....

SIT Journal of Management

Vol. 2. No. 2. December 2012. Pp.204-218

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Financial Sustainability of SHGs through Marketing and Cost Recovery System - An Empirical

Investigation

Soumitra Sarkar* & Arup Kumar Bose**

ABSTRACT:

The buzz word “Microfinance” was introduced by the policymakers and think tankers to use it as a

double edged weapon to fight against poverty through the development of microenterprises.

Traditionally micro finance programmes were aimed at removing the constraints of availability of

finance for operations and asset building of micro entrepreneurs. In the recent time the main concern

is the sustainability of the microenterprises. It is being recognised in many occasions the fact that

without proper marketing innovations and strategies it would not be possible for the micro finance

beneficiaries to sustain their enterprises in the long- run. Micro finance programmes in India have also

stresses upon marketing as a vital tool for sustainability of enterprises operated by the beneficiaries.

The guidelines of the programmes specify that Government and Non-Government Agencies should

render specific services and allot definite amount of funds for piloting marketing programmes for

micro finance beneficiaries. The guidelines also specify the importance of carrying out market

surveys before product specific micro enterprises are set up in rural areas. This study while delving

into the importance of marketing strategies for micro finance beneficiaries takes up the case of micro

entrepreneurs engaged in making pottery and terracotta items in a rural belt in the district of

Darjeeling, West Bengal. Through personal observation, interviews and administration of structured

questionnaires, the production techniques, marketing avenues, problems in marketing and help from

Government agencies like the District Rural Development Centre has been explored. It has been

found that though a variety of items are produced and marketed by the beneficiaries in local markets

out-station fairs and through middlemen, they face a host of problems with regard to marketing. The

paper therefore recommends some policy prescriptions to ameliorate these problems and evolve

proper marketing strategies for micro finance beneficiaries.

Key words: Economic Impact, Sustainable Development, Micro Finance.

* Dr. Soumitra Sarkar, Assistant Professor, Department of Commerce, Alipurduar College, affiliated under

North Bengal University, email:[email protected], M:+91(0)9434181173.

** Mr Arup Kumar Bose, Assistant Professor, Department of Management, Siliguri Institute of Technology,

affiliated, under West Bengal University of Technology email : [email protected], M: +91(0)9733065361.

mailto:[email protected]



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Microfinance & SHG Sustainability: An Introduction

Microfinance was considered as a double edged weapon to fight against poverty. It has multi-fold

objectives with its entire gamut of micro-savings, micro-credit, micro-insurance, micro-remittance

and micro-pension. The policy makers and think tankers have been recognised that with its financial

along with non financial services it would capacitate the vulnerable section of the society so that

beneficiaries can start income generating microenterprises for them. Micro finance programmes are

designed to target the rural and urban poor with emphasis on women borrowers, provision of finance

for asset creation on the principle of borrowers know best. Different programmes have been initiated

all over the globe to alleviate poverty and to achieve the Millennium Development Goal of halving

the world poverty by 2015. Keeping space with this objectives, the last decade in particular it has

generated mounting interest & efforts in microfinance operations, systems, outreach, viability, impact,

institutionalization and regulation, invigorated by the incredible accomplishments of institutions like

the Grameen Bank in Bangladesh and BRI, BancoSol in Indonesia and NABARD in India. Modern

microfinance has brought a sea change in its operation from individual lending to group based multi

dose injection system. This paradigm shift in the microfinance delivery mechanism has created a new

avenue for the improvised section of the society around the globe. Like other countries in the world,

group based microfinance delivery mechanism have been launched by Government of India in a

phased manner. Large number of schemes had been initiated during last few decades but most of them

were unable to reach their objectives and became failure. A comprehensive and holistic microfinance

programme have been started in India named Swarnajayanti Gram Swarojgar Yojana (SGSY) in

1999 to eliminate the lacuna of the previous microfinance programmes. It aims to provide the multi

dose subsidised credit along with non financial services to the vulnerable section of the society in

order to capacitate them to run micro enterprises. In 1999-2010 it has a total count of more than 4.5

million groups which have been formed in India under SGSY and a significant part of the total SHGs

in India has taken up income generating economic activities to produce products and to render

services. The beneficiaries are mainly involved in chira & muri, soft toy making, poultry, handicraft

& garment making, embroidery work, animal farming, pan stall at the local hut etc. The beneficiaries

are producing their products with materials and other inputs around their locality. They use to sell

their products in their locality i.e. in their village and in very few cases the can sell their products in

the nearby town. The basic purpose for which SHGs are formed is that the members can generate

income from micro enterprises promoted and operated by the groups. The SHG can sustain for long

time if they can only generate sufficient fund by the income generating economic activities. It is

therefore implied that the viability and sustainability of micro enterprises built and operated by the



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beneficiaries will depend on the fact whether they can market their produce and generate a reasonable

turnover.

Problem in Marketing of SHG products

Market mechanism for goods produced by SHGs may appear unintelligible and a complex task, in

reality it means checking out what sells and what does not. Goods and services are traded every day in

all parts of the country. However, the pertinent question is whether the microfinance beneficiaries

mainly hailing from rural and remote areas of the country have the knowledge or the literacy to access

formal marketing channels or decide on market segmentation and promotional strategies. Micro-

finance exponents have realized that marketing is the main problem for the micro enterprises all over

the country. It has been observed that for the micro entrepreneurs, production in lower volumes and

in some cases inferior quality; inferior packaging and absence of advertising support make them

incompetent to compete with the marketing strategies adopted by large companies. Kumaran (2002),

Mandal (2005) and Shylendra (2006) identified that in absence of proper marketing avenues SHGs

were facing hindrances regarding initiating or continuing viable economic activities. Purushotham

(2004) found out that in want of innovative marketing support, savings of many SHGs were either

under-utilised or unutilised, as these could not be canalised into viable economic avenues. He

suggested that SHGs could follow strategies like market penetration and market creation. Mishra ,

Rajput , Mohapatra and Dash (2006) identified that most of the SHG products are sold in local rural

haats to the “middle man”, who pay very less price to the members, resulting in low income for the

group. Ganapathi and Malar(2008) observed that the success of the system of SHGs in China and

Bangladesh has opened up opportunities in India as well the main problem which there SHGs

encounter is the acceptance of their products by the consumers. Moreover, lack of adequate funds

hampers their efforts to take up promotional campaigns and incur expenses on advertising. Hofstede

et al. (1996) argued that working in remote villages far away from market centres limits the scope for

identifying and initiating viable income generating activities. Income Generating Activities do not

automatically bring overall economic development, but they need markets where people with

disposable cash will buy goods and services. Therefore, it is recommended that programmes should

focus more on promoting Income Generating Activities near markets in semi- urban areas, market

centres and larger villages. This phenomenon is a matter of serious concern but very little

investigation has been carried out to find out the route causes of marketing problems of the products

being produced by the SHGs. The paltry literature that is available mainly points out lack of

marketing avenues and identification of proper products produced by SHGs. It is very much important

to see what sells in the local markets, what can be sold through Government agencies and trade fairs,

what type of intermediation is required for selling the goods in other states and foreign countries and

http://findarticles.com/p/search/?qa=S.%20Anbu%20Malar



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what type of promotional and distributional strategies are to be made for farm and non farm products

made by SHGs. On this backdrop the present study was conducted to reach the following objectives.

Objectives of the Study

The study was carried out in the villages under Shikarpur Gram Panchayat in Rajganj Block of

Jalpaiguri District. At the end of December-2011 to June 2012, there were 212 SHGs formed in this

Gram Panchyat. All of them were exclusively women groups and 139 groups had passed the first

grading and had received the revolving fund for the in economic activity. These groups were linked to

Central Bank of India, Belakoba Branch. Few groups are engaged in micro entrepreneurial activities

like making of flat rice (Chira & Muri), poultry, animal husbandry, paddy & other crops production,

retail shops, tea stall, etc. All these groups were chosen for this study. This study delves into the

following main objectives.

To find the products being produced by the SHGs under SGSY, the cost of production of these

products, the training received for production process and the problems in identifying the

economic activities.

To find the marketing and distribution channels of these products and the problems in marketing

these products, the revenue realized from these products and the surplus / deficit generated

through the economic activities.

To explore the role of Government agencies, NGOs and other facilitating bodies in building

infrastructure for SHG products, training and capacity building for marketing and the perception

of the beneficiaries towards the services extended by these agencies and bodies.

Methodology of the study

For the purpose of the study a mix of different methods of conducting field studies were used. In

addition to a small questionnaire that was personally administered to 139 Swarojgaries engaged in

Agriculture, animal Farming, Poultry, Nursery, Small Shop Business, Handicrafts etc. , informal

discussion were made with this respondents, DRDC officials, and purchasers of these products in

the locality. In addition to this, direct observation techniques were used to find out how the items were

manufactured, how raw material are procured and stored, how the finished products were sent to the



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markets, how the sales are made. The facts and data generated are therefore primary in nature. These

are presented in the next section.

Findings of the study

The findings of the study are presented in different sub-section, i.e., products and production

techniques, Market and prices, Role of govt. agencies and perception of Swarojgaries, etc.

Table No:-I

Products produced by the SHGs under Shikarpur GP

Economic

Activities

No of SHGs

Percentage of

Total SHGs

Only Agricultural Products 40

28.78

Agricultural along with other

works 19 13.67

Only Animal Farming 24 17.27

Animal Farming along with

other works 19 13.67

Only Poultry 2 1.44

Poultry along with other

works 4 2.88

Handicraft &Garment Making 3 2.16

Handicraft & Garment

Making along with other

activities

2 1.44

Only Nursery 5 3.60

Nursery along with other

works 1 0.72

Small Shop 3 2.16

Others Salpata 17

12.23

Total 139 100

Source: Field survey

From the above table it is found that most of the SHGs of Shikarpur Gram panchayat are engaged in

agriculture and animal farming. About 42 percent of the total groups are engaged in Agriculture and



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about 40 percent of the total SHGs under Shikarpur GP are engaged in animal Farming. Out of 59

groups who are engaged in agricultural activities, 19 of them are engaged in other works also. On the

other hand out of 43 groups who are involved in animal farming, 19 of them are engaged in other

works also. It implies that the beneficiaries are not able to manage the economy to generate adequate

profit for them and for this reason they have taken up the combination of two or more economic

activities at a time to earn money from other sources also. So it is worthwhile to examine the cost of

the products being produced by the SHGs in this GP.

Beneficiaries are engaged in Handicraft Making



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Beneficiaries has taken up Nursery as income generating activity

Table No:-II

Cost of Products Being Produced by the SHGs under Sikarpur Gram Panchayat

Types of

Activities

Cost

(Rs)

Cycle in

One Year

Total Selling

Price ( Rs)

Profit ( Selling Price –

Cost Price)

Use of Profit

Agricultural

Products 34930 2 52563 17633 Household

Purpose

Animal Farming 120000 183500 63500

Household

Purpose

Poultry 32800 6 71500 38700

Household

Purpose

Handicrafts &

Garment Making) 165000 215000 50000 Household

Purpose

Nursery

21600 43900 22300

Household

Purpose

Small Shops

251000 436000 185000

Household

Purpose

Salpata

229000 317000 88000

Household

Purpose

Source: Field Survey



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It is found from the above table that all the groups are consuming their profit for household purpose.

So it implies that the rural beneficiaries have taken up the economic activities as a principle source of

their livelihood which is a significant impact of microfinance. It is obvious that the volume of average

profit is much low to maintain their daily list of minimum requirements. However, the beneficiaries

who are engaged in small shop business are earning reasonable profit. The groups engaged in Salpata

and other works are able to generate reasonable profits for their livelihood. It is surprising that, the

profits from the agricultural activities is very low. Effective and skilful use of resources can enable

the producers to produce a cost effective product which in turn increase the volume of profit. This is

only possible through the capacity building training in particular trade. The following section will be

dealing with the extent of training programme.

Table No:-III

Training taken up by the SHGs from DRDC and other Agencies


The above table depicts that, less than 40% of the total SHGs under the area of the study got the

opportunity to develop their skill trough Skill Development Training (SKDT). It is surprising to state

that, a significant portion of groups engaged in Agricultural activities and Animal Farming, but they

did not get training from any agency on these trades. Astonishingly it can be pointed out through the

survey that a large number of groups in this GP have attended the training in different trade but they

have taken up economic activities in other trade. It implies that DRDC, the nodal agency, could not

arrange the training programme for the beneficiaries in a befitting manner to cater to the actual needs

of the beneficiaries. In most of the cases it was target driven.

Economic Activities No of

SHGs(1)

No of groups

Trained(2)

% of groups trained on

particular trade(1/2)

Agricultural products

59

25 42.37

Animal farming ( Cow,

Goat, Lamb)

43

15 34.88

Poultry

6

5 83.33

Handicraft and Garment

making

5

5 100

Nursery

6

5 83.33

Small shop

3 NIL NIL

Others, (Salpata etc.)

17 NIL NIL

Total 139 55 NIL



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Kabita SHG Engaged in Animal Farming

Table: – IV

Marketing channels for the SHG products under Shikarpur Gram Panchayat

Nature of Work

Marketing Channels Total No of SHGs

Local

Hats

Whole Sellers Fair Govt.

Department

Door to

door

Agricultural

products

55

4 - - - 59

Animal farming (

Cow, Goat, Lamb)

38

5 - - - 43

Poultry

4

2 - - - 6

Handicraft and

Garment making

3

1

1 - - 5

Nursery

1 - -

5 - 6

Small shop

3 - - - - 3

Others, (Salpata

etc.)

3

14 - - - 17

Total 107 26 1 5 - 139


The above table is self explanatory, it depicts that most of the products of SHGS in this area are sold

in the local Hatts/ Markets. A few products are sold through wholesalers. These local markets are

controlled by the middle men who generally control the market price of the products. As a result the

beneficiaries are not able to generate high profit by the sale of their products at high price. Only one



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SHG engaged in handicrafts and Garment Making could sale their product in fair. Almost all the

groups engaged in nursery business could sale their products in Government sponsored sales counter

and forest department of Govt. of West Bengal for social forestry. It implies that most of the groups

are not getting help from Govt. to sale their product in outside markets. The beneficiaries claimed that

if they get proper help from DRDC and other agencies for selling their product in outside market,

then they could earn more profit.

In order to find out the perceptions of the Swarojgaries objectively, variety of statements based on a

Five-point Liker scale was administered to the respondent. The scale was: strongly agree, agree,

no opinion or do not know, disagree, strongly disagree. Each category was assigned score in the

following manner: 2 points for strongly agree, 1 point for agree, 0 for no opinion, (-1) for

disagree, and (-2) for strongly disagree. The results are given in the following table.

Table No:-V

Perception of SHG producers regarding Marketing Avenues and support system.

(N=139)

Statements

Strongly

agree (2)

Agree

(1)

No

opinion

(0)

Disagree

(-1)

Strongly

disagree

(-2)

Mean

score

Sales amount is sufficient for your

livelihood. 28 11 88 12 -0.60

Sales volume should increase. 23 96 20 1.02

Quality of product needs to be

improved. 37 77 19 6 1.04

Training is necessary for quality

improvement. 12 90 28 9 0.76

Training facilities are somewhat

inadequate. 19 74 19 18 9 0.55

DRDC should give more

sponsorship for attending trade fair. 14 81 35 9 0.72

Facilities should be made for the

transportation of goods to local

melas.

35 81 12 11 1.01

Govt. should take steps for the 33 79 19 8 0.98



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The information presented in the table discloses many interesting facts. Though most of it is self-

explanatory, some points need to be highlighted. The highest mean score for any statement can be 2

showing that all the respondents are very positive about the statement, on the other hand a mean score

of (-) 2 shows that all respondents have a negative attitude about the statement. The mean scores lies

between these two extremes. The first two statements show that on an average the respondents agree

that an increase in sales is necessary for them. Respondents are quite positive about the fact that in

order to create more market demand, there is a need to improve quality and get more training for

quality improvement. They also emphasize that, a considerable amount of insurance coverage is

required to recover the inter-process loss and loss in transit. This aspect needs attention because; the

motivation to capture more market through quality improvement needs to be continuously nourished

in the minds of the Swarozgaris. Many of them agree that DRDC should arrange for more training

programmes for them. The respondents are quite keen on Government support regarding procurement

of raw materials for them and transportation of finished goods for them to the local trade fairs. This

shows that the members of the group feel that their marketing efforts can definitely improve if the

support mechanisms of the Government agencies improve. This is also corroborated by the response

that they want the Government agencies to advertise for them and the media to disseminate more

information for the products.

advertising of products.

Media should give more coverage

to their art and problems. 29 70 40 0.92

Insurance for wastage of finished

goods in the production process

should make to recoup the loss.

35 80 19 5 1.04

Transport insurance should be

made to recoup the loss 28 83 23 5 0.96



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Beneficiaries are in their small shop at the local Hatt

Members of Ma Durga SHG are showing garments made themselves

Conclusions and Policy Prescriptions

The preceding section has identified the genesis of the serious problems of marketing that is being

percolated in the rural areas for which the beneficiaries are getting difficulty to marketise their

products. The members of the SHGs can produce large volume of products but they are facing

problems when they are in search for markets of their products. On the basis of the findings of the

study certain suggestions for improving the marketing strategies of Self Help Groups should be

undertaken. Some of these are:



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A comprehensive study should be conducted by the Government agencies and NGOs on their own

or through joint collaboration to detailed out the micro entrepreneurial problems of different types

of activities and products and understand the specific problems related to these. It has been

recognised in Government policy through SGSY Guidelines which provides that “It must be

noted that identification of activities is critical for the success of the SGSY. It is therefore

necessary that it should be done in careful manner.” (Para 1.13, SGSY guidelines). The new

programme (NRLM) which came into exist after SGSY, would also provide support for

marketing to the institutions of the poor. The range of activities in marketing support includes

market research, market intelligence, technology extension, developing backward and forward

linkages, building livelihoods collectives and supporting their business plans. NRLM would

encourage and support partnerships with public and private organizations and their

networks/associations for these activities, particularly for market linkages. Rural Haats would

also be encouraged to directly link producer groups (SHGs) and individual producers with urban

and semi-urban markets through a well developed system of continuous identification and

rotation of beneficiaries. 20% of the state’s programme outlay (25% in case of North-Eastern

States and Sikkim) is reserved for this purpose.

DRDC and Government agencies should arrange adequate training programmes for the

beneficiaries and the trainee should be selected according to their proposed trade of economic

activities and not on the basis of target of the DRDC.

As revealed by the beneficiaries that they are not getting subsidized seeds and fertilizer from

Government. For that reason their costs are very high and profits are low. Therefore, the

Government agencies should develop strategies for assuring supply of good quality raw materials

at cheap prices to the SHGs and arrange for transportation of their finished goods.

DRDC should disseminate information about melas and trade fairs much more frequently and

well in advance to the SHGs and sponsor their full travelling expenses including cost of carriage

of their products.

DRDC has proposed to build a separate market for the SHG products this locality. Though it is

under red tape and there is no progress. So prompt action should be taken to execute this type of

plans as soon as possible and issue adequate funds from the infrastructure development fund of

DRDC.

The producers are producing and selling their products in rural hatts , markets and as a

result the area of market is very limited. Adequate advertisement should be given to expose the



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quality of the goods in the local news papers and TV channels at a subsidised rate. The Government

agencies should take positive steps to arrange the advertisement at a subsidised rate or at free of cost.

To recover the loss of crops and the amount of interposes loss, adequate amount of micro

insurance policy with simple procedures is needed.

Standing Committee on Urban and Rural Development had conducted a study in 2004 on marketing

of products manufactured by SHGs. This study observed that the quality of the products produced by

the SHGs has to be improved. The Committee feels that State Governments should provide protection

to locally produced items and a survey should be done in this regard to find out, to what extent SHG

products are being sold in the local market and the State Governments may be asked to provide

protection to the SHG produced items and to find out the success in sale of SHG products in local

markets, The SHGs can generate adequate amount of profits from the sales proceeds of their products

through the effective marketing strategies which help them to sustain in the long run. If they unable

sold out their entire products which they produced, there will be a large volume of unsold stock which

magnifies the amount of huge loss for the SHGs, the investment will gradually drain off and the loan

and subsidy pumped in from the SGSY scheme will be misutilised. . It is therefore suggested that the

Government agencies, NGOs and above all the SHGs, clusters of SHGs and Federations of SHGs lay

utmost importance to develop an effective marketing strategies for the products made by SHGs to

ensure their long term sustainability.

References

Barbara, A (2003): “The Role of Selp Help Groups in Rural non firm Employment. Discussion

paper for the project” Rural Non firm Economy: Access Factors. DFID National Resources

Institute working paper

Baland,J.M. R.Somanathan and L. Vandewalle (2007): “Micro-finance Life spans: A Study of

Attrition and Exclusion in Self-Help Groups in India” Presentation at the Brookings-NCAER

India Policy Forum July 17-18, 2007,New Delhi

Bhatia.N (2007): “Revisiting bank-linked Self Help Groups (SHGs) - A study of Rajasthan State”

Reserve Bank of India Occasional Papers Vol. 28, No. 2, Monsoon 2007.

Dhar, S.N. and S. Sarkar (2009): “Interest Incomes and Financial Sustainability- Case of

Microfinance Beneficiary Units in India”, Indian Accounting Review, Vol 13, No 1, pp 67-84

Ganapathi. R and S. Anbu Malar.(2008): “Consumers Attitude and Preferences towards Self Help

Group Products” Asia Pacific Business Review Vo IV, No. 2 April - June

Hofstede, G., Molenaar, K., Reddy, U. et al. (1996): “Programme Evaluation of Income Generating

Activities. Madurai: FACET,1996



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Kumaran, K.P., 2002: “ Role of SHGs in promoting microenterprises through micro-credit- an

empirical study”, Journal of Rural Development, Vol 21, No 2, pp231-50

Mandal,A., (2005): “Swarnajayanti Gram Swarajgar Yojana and SHGs : An assessment”,

Kurukshetra, Vol 53, No3, pp4-9 Mayox Linda (1999): “The Magic Ingredient- Micro finance and Women’s Empowerment”

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Mishra Sanjeeb Kumar, Rajput N.B.S, Mohapatra P.K, Dash R.K (2006): “E-Grama: The Rural Information Gateway of Ganjam District (Orissa), In Promise of e-Governance operational

challenges, M.P.Gupta (eds.), TMH, 2006, pp. 540-546.

Purushotham, P. (2004):“ Marketing support for SHGs’, Kurukshetra, Volume-525, No.4,pp 23-28.

SGSY Guidelines, (2004): Chapter VII, Ministry of Rural Development, Government of India

Shylendra, H.S. (2006):“Microfinance Institutions in Andhra Pradesh: Crisis and Diagnosis”,

Economic and political Weekly, Vol XLI, No20, May

Standing Committee on Urban and Rural Development, (2004): Fifty fourth report (Thirteenth lok

Sabha) Ministry of Rural Development (Department of Rural Development)

Vajpayee, A.V., (2003): “Promoting Poverty eradication Potential of Women”, Text of Prime

Minister of India’s Speech who while inaugurating the Gender Poverty Summit at New Delhi on November 2003, published by Ministry of Information and Broadcasting, Govt. of India.

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