Microfinance: a window of opportunities

Prof. (Dr.) Kishore C. Padhy

Abstract

A survey of women SHG in Puri District Orissa, was conducted with questionnaire-cum

interview method. It reveals that

1. SHG has eliminated money lenders in their area of operation.

2. SHG has provided productive employment to hitherto unemployed women.

3. Repeat finance has helped to lift people above poverty line.

4. Synergy effect is evidenced.

5. Development of communication skill is experienced.

6. Some group members show leadership qualities.

7. NGOS play helpful role vis-à-vis SHGs.

8. Supportive role of Government officials is not made available in relation to marketing

of products.

9. Capacity building training needs to be imparted.

The author - Prof. (Dr.) Kishore C. Padhy is Director, Institute of Management

& Information Science (IMIS), Bhubaneswar. He is author of 25 books and 70

research papers. He can be contracted at email: kcpadhy@imis.ac.in.

MICRO FINANCE

A window of opportunities

PPrrooff.. ((DDrr..)) KKiisshhoorree CC.. PPaaddhhyy

1. INTRODUCTION

A self-help group is socially and economically homogenous group of 10-15 people, voluntarily coming

together to achieve common goals. During the five decades after independence, State is the planner

and implementer of anti-poverty programme. The working of the political system and administrative

machinery has been inadequate, and number of people below the poverty line has not appreciably been

reduced. The focus shifts to local participatory micro-development organization known as SHG. In

India, 22 million SHGs are financed by banks up to March 2006. 32.9 million poor families have

access to bank credit, the total number of poor people access linked to credit is 165 million. Over 90%

are woman SHGs. In Orissa 1.8 lac SHGs have credit linkage with the Bank as on the 31st

March’2006. They have been financed to the tune of Rs. 452 crores. SBI has credit linked about 1lac

SHGs, most of those women SHGs, with assistance of Rs. 279 Crores. We, from Institute of

Management & Information Science (IMIS), Bhubaneswar, have undertaken a survey of SHGs,

incidentally, all women SHGs, in Puri District (Orissa).

2. OBJECTIVES

a) To study the change in economic status of SHG members after credit linkage with the bank.

b) To examine the nature of economic activities undertaken by SHGs before and after credit

linkage.

c) To examine the efficiency of credit provided by the Bank.

3. METHODOLOGY

3.1 The study is based on primary data collected by administering a questionnaire. The

questionnaire consists of different aspects.

i) General information about SHG- Initial credit linkage and subsequent repeat finance.

ii) Management aspects – Leadership, maintenance of books and accounts, grading of

the financial group.

iii) Economic Aspects - Income before and after linkage, assets size, economic activities

undertaken, end use of loan.

iv) Socio-political Aspect – Social initiatives taken by SHGs, political

consciousness/awareness of group members.

v) SHG linkage with NGO, village panchayats etc.

vi) Future Plan – Land based activity and ancillary business like small business activity, Misc.

works such as SBI’s Recovery Agent.

vii) Response of other villagers to the SHG.

*Prof. (Dr.) Padhy is Director of IMIS, Bhubaneswar. He can be reached in kcpadhy@imis.ac.in.

The views are his own and not of IMIS.

3.2 The questionnaire is supplemented with door-to-door interview of the members of SHGs.

Random survey method is used to conduct the survey in 52 SHGs spreading over 5 GPS and 1

NAC and having 662 members.

Statistical tools such as percentage, averages etc. are used to analyze the data.

Techniques like frequency distribution, cumulative frequency distribution, and pie charts are

used for analyses.

4. HYPOTHESIS

1) SHG has eliminated moneylenders and reduced the cost of debt which ranges from 60% to

100% per annum in the countryside.

2) SHG has provided productive employment to hitherto unemployed women.

3) Repeat finance has improved the economic conditions of group members – at least lift people

above poverty line.

4) Co-operation – ‘Synergy’ effect is evidenced.

5) Development of communication skills is experienced.

6) Group members develop futuristic vision. Some of them display leadership qualities.

7) NGOs plays helpful role vis-à-vis SHGs.

8) Block and Govt. officials play supportive role with SHGs, particularly in relation to marketing

of products.

9) NABARD and govt. provide adequate trainings support to the group members.

5. ANALYSIS AND OBSERVATIONS

5.1 Moneylenders have been successfully eliminated by all SHGs under report. The members

lend among themselves, the current rate of interest being 36% per annum. Institutions should

not look at askance at this rate as this is basically market-based. One of the SHG member at

Nuasasan village commented: “We are grateful to Bank that the loan enables us to lend and

borrow. The rate is immaterial. We are at least giving the interest to ourselves, not

outsiders”.

Another SHG met member’s medical expenses which would have required outside

borrowings. No major social function like marriage or funeral rites was conducted in the

homes of SHG members. That is the reason for their complete independence from

moneylender.

-: 2 :-

5.2 In Orissa, most of the SHGs are women SHGs, above 96%. All SHGs surveyed by us were

women SHGs. Women hitherto unemployed have been employed. They suffered from

liquidity crunch. Now, the liquidity position has improved. 50% of women are able and

willing to take economic decision. 10% of women have been able to influence their family

with economic decisions.

5.3 Of the total members of SHGs covered under the survey, 60.87% of the families are below

poverty line. Majority of the families are marginal farmers, having less than 1 acre of land

and a reasonable size of the members are land-less daily labourers without having any regular

source of income. The landless families are unable to express their income status in monetary

terms as they are not getting employment throughout the year. Those families who depend on

handicraft selling, areas have only seasonal income. Most of the area is irrigated. 10% of the

families are financially sound.

The average loan liability of the groups with a loan of Rs. 80,000 is about Rs. 32480 and the

loan liability of the groups with a more than Rs.1 lac is Rs. 35,000. The smaller size loans

have been repaid with the hope of getting a bigger size loan with subsidy. 12 % of the SHGs

have improved economic condition. Food security has improved in all SHGs. None of the

SHGs have experienced reduced economic position.

5.4 Cooperation is visibly evidenced most the SHG president and secretary interviewed talked in

terms of ‘We’ rather than ’I’. In 2 out 52 SHGs surveyed, there is dissension in the group.

They propose to exclude one member in each group to bring about cohesion.

5.5 Low-income customers have small account and transaction sizes. Computerized service at a

central village for a small fee is a financially viable proposition. This will reduce transaction

cost and help regular maintenance of books and accounts. At present, books of SHGs are

maintained at quarterly/half yearly interval.

5.6 Block and Govt. officials, in spite of prouncements, do not play supportive role with SHGs

fully. All SHGs are not invited to fairs and craft melas organized by them. Block level

committee does not organize such melas regularly. Marketing is the bottleneck in SHG

products. SHG members are lift to their own devices.

Govt. may set up Credit Reference Bureau by collecting a part of the cost from the

SHGs.To reduce the initial cost of establishment, Government may partly subsidize NGOs

operating such agency. A part of the cost may be recovered by offering their services to

companies that sell goods and services for consumers in general who will have a readymade

database. In Europe, Credit Bureaus are owned by a group of lenders. In U.S, ownership of

agencies is independent of users of services. In India, in view of the size, Govt. and NGO can

-: 3 :-

have public- private participation to float such a bureau. This will enable information sharing

and reduce risk of default among SHG.

5.7 Youth SHG: In view of unsatisfactory experience of banks, particularly in respect of SEEUY

and PMRY loans which were literally taken as political grants by the beneficiaries, banks,

encourage women SHG’s. Unemployed youth is a reality in Indian landscape. There is risk in

formation of SHG exclusively among the male youth because of

a) their individualistic predilection.

b) search for a ‘secure’ job, preferably urban-oriented low skilled job or desk-bound

job.

c) easy susceptibility to political designs and needs.

Since the society is sitting on the volcano of unemployed youth, there is need to co-opt youth

in the mainstream of micro finance. This will ensure utilization of youth in productive work

rather than entertainment or unnecessary socio-political conflicts. Youth practices short term

saving and group productive activities. They will experience harmony and cohesion among

diversity. This is harbinger of a better socio-economic future for them.

5.8 Participation in fair/ festivals:

Most of the SHGs surveyed have expressed interest in joining block/district level

fairs/festivals for sale of their products. Very few have got such chances. Favouritism

including illegal gratification are allegations made against some government agencies,

particularly ORMAS. Wider participation will reduce favouritism, if any, on this score.

5.9 Group dynamics:

In the group, we found the leader who plays the following roles:

Interpersonal role:

Liaison with customers, bank and other s outside the organization

Information role:

Monitor: Gathering information

Disseminator of information

Decision making role:

Analyst of issues

Entrepreneur- taking risks

Disturbance handler

Resource allocator for efficient utilization

Negotiator dealing with others which will not disadvantage the group

Arbitrator identifying and settling conflict.

5.10 The following characteristics are delineated in SHG leaders in varying degrees:

Intelligent

Confident

Integrity

Sociable

-: 4 :-

Positive outlook

Good Judgment

Willing to learn

Solves problems

Decisive.

Determined

Communicate

Attentive

Includes not excludes

Courageous.

Realistic

-: 5 :-

5.11 Training:

Capacity building training is organized by NABARD, occasionally by banks like SBI. This

has to be done on an ongoing basis.

Training facility provided by the Government is inadequate. Even, central village

level or block level fair is not organized regularly. Of late, SBI has organized training camps

for a few SHGs. Basically, this being a government extension programme, BLCC should

organize several training programmes for SHGs, by adopting cluster approach. Such economic

activities as Dairy, Fishery, Duck Rearing, can be explained from the stage of planning to

implementation for SHGs to adopt as per their needs and convenience. In that event, the group

as a whole can make worthwhile contribution by doing such activities and saying what support

they require. In this context, we recommend participatory rural appraisal method. It may be

guide led whereby the facilitator asks a series of questions to stimulate conversation among

participants. The technique is flexible, exploratory, and interactive and responsive to issues

raised during the process. Both the facilitator and group members learn from, with and through

local people.

Govt. or NABARD sponsored NGO trainers should adopt action-learning method in

training SHGS. SHG group members are not quite literate, but they are intelligent and

experienced enough not to be taught in the classroom method. One group described how they

coped up with a medical case of a group member by self-help and cooperation. This is quite a

lesson on disaster management: a false step or non-cooperation would have resulted in

breakdown of the group or economic/social ruin of that member. Marketing/ leadership training

can be imparted through Reg. Revan’s fundamental equation:

L = P + Q + A + R

Where L = Learning

P = Programme learning

Q = Questioning

A = Action

R = Reflection

The members would learn with and from are another, so also the NGO trainer. The inner

experiential cycle would be as given below : -

Desire to changerisk-taking, (Courage and responsibility) insight Transformation.

This is the essence of much talked about women empowerment. The method helps

When we are in a new situation, we have never been before

When human resources around are untapped.

When we are working with new group of people we have never met/dealt with before.

6. Process Model :

6.1 The process model of SHG is given below :

1. Members of SHG.

-: 6 :-

2. SHG as group

3. Village community

4. The Panchayat

5. Higher bodies- Dist, State

6. NGO

7. SBI

The intersections on the concentric circles represent the environments that get influenced by

the SHGs.

6.2 At village community level, the women SHGs in general have not interacted with such social

issues as

a) Alcoholism

b) Dowry problem

c) Financial indiscipline of man folk

They have by-passed the issues as

a) they are the beginners.

b) they have to develop economic roots.

c) they require community approval, if not support, to start with.

6.3 A few group members participated in Gram Sabha. They also could not recall any benefits,

tangible or intangible, accruing in the process. Pipili is politically surcharged block, with two

dominant politicians dividing the society vertically. Hence, lower political involvement of

women groups is not a weakness in the formative stage. The villagers support women SHGs,

they feel no animosity even if they do not get loan and SHGs get it.

6.4 NGO, namely, Sujog is active in the area. It has explained to a large numbers of surveyed

groups the nuances of bank finance. Its representative is found in Bank to extend helping hand

to SHG and Bank in respect of filling up forms, maintenance of accounts quarterly (for a small

fee), counselling SHGs in bank finance and repayment. In fact, the leader of NGO, a woman is

popular in the area and is a failed candidate for Panchayat election in the past. She does not

belong to traditional major parties. But her political ambition and its effect on SHG in future

needs to be analyzed with caution.

6.5 SBI is a major link in the process. All credit linked SHGs acknowledged helpful role of Bank.

While discussing with them; one point emerged that MFI’S charge higher interest but they

receive and deliver funds at the doorstep. A suggestion for Bank is to collect repayment of dues

in a central village once in a week, preferably Tuesday, which is declared as SHG day by the

Bank. This would make Bank popular.

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6.6 What is in Bank’s response to SHG? A top executive of SBI thinks micro financing not only as

Government programme, but also as a desirable strategy for long-term growth. A senior

executive, feels that it is Bank’s policy and that the scope is vast, Local Branch Manager, says

that this is the only way to serve poor people around. Gain for the Bank: there is no defaulting

Women SHG and repayment of loan is about cent percent, occasionally with a time-lag. The

problem, if only, we visualize for the future is less of personal relationship between Credit

Officer and SHG and lack of continuity in relationship because of staff transfer/placement/well

paid banks staff being at psychological distance from the not-so-well off clients.

-: 8 :-

References

Churchilli C. (1999), Client-focused lending: the art of individual micro lending, Toronto,

PACT Publication

Mayoux L. (2003), Sustainable learning for women’s empowerment, Sanskriti

NABARD (1999) Summary and recommendations of Task force on supportive policy

and regulatory frame work for micro finance, Mumbai.

Robinson M.S (2001), The micro finance revolution: Sustainable banking for the poor,

World Bank.

Srivastav A, (2005) Self-help groups and civil society, ISI, New Delhi.

World Bank Report (2001)-The micro finance revolution: sustainable finance for the

poor.

World Bank (CGAP), (2003), Micro Finance: Poverty Assessment Tool

-(2006), Key principles of micro finance.