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

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

2

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.

3

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

ri

. 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.

5

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

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.

7

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.

8

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.

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.

E

10

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.

I

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.

12

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.

13

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.

14

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.

15

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.

16

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.

17

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.

18

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.

19

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.

20

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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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.

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

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.

25

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...

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.

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.

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.

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

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.

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.

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.

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

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

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.