self help group bank linkage: through the responsible finance lens a study on state of practice in...
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Self Help Group Bank Linkage: Through the responsible Finance LensA study on state of Practice in SHG Bank Linkage in Madhya Pradesh, Bihar and Karnataka
Amulya K Champatiray
Parul Agarwal
Misha Sharma
IFMR Research, Chennai, India
Agenda
• Background
• Research Questions
• Methodology and sample
• Financial Performance
• Other Performance Indicators
• Overall Recommendations
Background • SHG-BLP status as of March 2013
– 73.18 lakh savings-linked SHGs with savings balance of over INR 8217.25 cr
– 44.51 lakh credit-linked SHGs with bank loan outstanding of INR 39375.30 cr
– Over 95 million households covered as on 31st March 2013
• In March 2012, NABARD introduced ‘SHG-2’ with number of revisions
in the programme including– Introduced the concept of ‘voluntary savings’ and
– Joint Liability Group of entrepreneurial-members with the SHG for income
generation activities
• In June 2011, NRLM was introduced that envisions SHGs as a delivery
mechanism of massive poverty alleviation initiative.
Introduction
• Microfinance India Summit 2013: 10th edition of the annual policy conference, organized by ACCESS Development and ACCESS Assist.
• Amulya Champatiray represented IFMR Research at the panel discussion titled, ‘SHG Schematic: Applying the Responsible Finance Lens’ at the Microfinance India Summit 2013. The panel discussed issues and practices in Self Help Group bank linkage with respect to ‘responsiveness and responsibility’ to clients/members, and proposed a way forward. Amulya presented findings from the recently concluded study that attempted to understand the financial and non-financial interactions of SHGs with external agencies, as well as to review the group dynamics in terms of financial transactions, decision making, cohesiveness, transparency and acceptance towards technology and new policies. The study was conducted in three states; Bihar, Madhya Pradesh and Karnataka, with a total of 200 SHGs selected from each of the three study states. They were administered questions pertaining to their activities at different levels. The session was well received by an audience with diverse backgrounds including banking, government, research and practitioners.
• For further details on the presentation, please visit: http://www.centre-for-microfinance.org/research-projects/financial-inclusion/financing-practices-shg/
Research Objectives
• To understand the financial and non-financial interactions of SHG
with external agencies like banks and SHPIs
• To study the internal group dynamics in terms of financial
transactions, decision making, cohesiveness, transparency and
acceptance towards technology and new policy
Sample and Methodology
• 200 SHGs each spread across 2-3 districts in the states of
Bihar, Madhya Pradesh and Karnataka
• SHGs ranged in the age group of 1-6 years
• Data Collection Instruments:
– Leader module administered with leader
– Transaction module administered with leader and treasurer
– Members module administered with progressive and not so progressive
members
– Interviews with respective SHPIs
Sample Characteristics
State wise distribution of literacy levels among SHG members (%)
Literacy Level Bihar MP Karnataka
Can read and write 16 20 38
Cannot read and write but sign 46 35 39
Can neither read nor write 38 44 22
State wise distribution of occupation among SHG members (%)
Occupation Bihar MP Karnataka
Farm activities 54 81 56
Non-farm activities 41 18 27
Unemployed 5 1 17
Financial Performance
Performance and Policy implications on the following aspects:
• Savings• Lending and Borrowing• Book Keeping
Savings: Performance
Details of Compulsory Savings
Details Bihar MP Karnataka
Average Savings Amount per frequency9
(weekly)3
(weekly)114
(Monthly)
Percentage of groups where all the members do not contribute to compulsory savings
15 65 5
Percentage of groups where all the members' savings are deposited in SHG bank account
2.5 7.25 97.25
Average number of times a member has defaulted in the group 4.5 2 0.4
Average number of times when a penalty is paid for default 0 0.1 0.1
Average member's savings corpus 1394 1179 2875
Savings: Default Management
Penalty and Interest Rate on Savings
Bihar MP Karnataka
Average penalty amount for default 5 2 6
Percentage of groups with no penalty 84 76 60
Average interest rate on savings0 0 2
Percentage of groups that do not offer
interest on members’ savings 100 100 47
Savings: Discipline among Members and Leaders
Leader Member Leader Member Leader MemberBihar MP Karnataka
% of Members Never Defaulted on Savings
7.41
7.21
31.5
8
36.4
9
95.8
3
95.3
6
3.08
3.19
51.4
46.3
8
93.7
5
93.3
4
% of Members and Leaders Never Defaulted on Savings
<=3 Years >3 Years
Risk with SHG savings
Percentage of groups by the risks associated with saving with SHG
Risks Bihar MP Karnataka
Loss in case of SHG defaulting a bank/
SHPI loan4.5 5.5 48
Loss in case of default by a group
member for which she guaranteed1 7 35.5
Loss in case of defaulting own loan 1 7.5 38.5
Utilization of money by SHG for group
activities that are personally not
relevant
3 18 37
Loss of Money due to poor accounting 1.5 3.5 36
Demand for the additional voluntary savings options
• None of the groups across the study SHGs are practicing
the concept of voluntary deposits
• A small fraction of SHGs faced a situation where some
members in the group wanted to save more than
others.
– 4% of groups in Bihar,
– 7% in MP and
– 26% in Karnataka
Savings: Policy Implications
• Needs and implications of flexibility in saving product/s?
– Is it required across states/regions and SHGs? given the scenario
where a substantial number of members are not participating in the
compulsory savings
– What benefit member will gain apart-from creating capital? There
is no interest offered by SHG on member savings apart from few
exceptions (in Karnataka)
– Will it lead to conflict where majority of SHGs have a practice of
not depositing the member savings at bank account (with the
experience of poor bookkeeping)
Lending and Borrowing: Performance
Bihar MP Karnataka
96% 98%91%
20%9%
42%
Borrowing and lending practices of groups
Groups that lend internallyGroups that have borrowed from bank in the last six months
States
Per
cen
tage
of
grou
ps
Internal Lending: Performance
Details of Internal Lending PolicyDetails Bihar MP Karnataka
Average percentage of members/per SHG with loan outstanding as of 30th June 2013
33% 41% 38%
Average loan size (minimum and maximum / in INR)98 -5595
105 – 3210
5118 - 17850
Average loan repayment period (min-Max in month) 1 - 12 1 - 6 9 - 13
% of groups where interest rates differ for different loans1 5 8
% of groups where loan repayment period differs for different loans
52 79 18
% of groups where members are penalized for defaulting on repayment
7 22 17
Average minimum and maximum penalty rate for single term default
6 – 13 4 - 7 15 - 17
Internal landing- performance of leaders and members
Leader Member Leader Member Leader MemberBihar MP Karnataka
97.3
3
97.2
5
91.6
7
90.9
8
52.0
8
52.0
4
96.3
97.4
1
88.3
92.1
2
52 72.7
8
% of Members and Leaders Never Defaulted on Internal Loan Repayment
<=3 >3
Borrowing from bank and SHPI
Details regarding external borrowings
Bihar MP Karnataka
BANK SHPI BANK SHPI BANK SHPI
Percentage of SHGs whose loan application has been rejected at least once
12% 95% 7% 2% 19% 14%
Percentage of SHGs who have taken more than one loan
2% 2% 21%no
data55% 4%
Average number of days taken to process the loan
59 64 40no
data28 22
Average min and max amount borrowed per SHG (in INR)
21705-54536
39171-50374
4342-54210
no data
51231-230270
47875-398880
Average annual interest rate charged
13 13 12 0 14 10
Average repayment period (months)
23 41 - 0 22 18
Percentage of loans linked to SHG corpus
23% 68% 26% 0% 48% 32%
Discipline among Members and Leaders in External Loan Repayment
Leader Member Leader Member Leader MemberBihar MP Karnataka
91.9
4
93.6
6
no obs.10
0
16.6
7
13.8
3
97.7
8
97.3
9
87.5 96
.23
62.5
67.0
2
% of Members and Leaders Never Defaulted on External Loan Repayment
<=3 >3
Loan default management
• Internal Lending – A better system of penalizing the members need to be in place. Current
analysis shows that the penalty amount charged is not sufficient enough
to incentivize members not to default indicating a scope of raising the
penalty fee to control defaults further.
• Lending by Banks– Considering the loan size and default rates, amount disbursed to SHGs
need to be checked which might currently be too high for MP and
Karnataka and a little low for Bihar.
Cost on bank loan
• Interest rate on bank loans is charged at 12% to 14%
• Opportunity cost during the loan process: Rs. 100 - 140 per member per day.
• Average total transportation cost per SHG in processing bank loan – Bihar 111 – MP 518 and – Karnataka 1,803
• Processing fees being charged on their bank loans, – MP 268 – Karnataka 610 and – Bihar - not reported
• Loan account maintenance – MP 500 – Karnataka 313 and – Bihar – not reported
• Insurance contribution i.e. linked to their loan: Karnataka Rs. 8,736
SHG Interaction with Bank
Percentage of groups by the type of assistance provided by the bank in the loan application process
Type of assistance Bihar MP Karnataka
Filling loan application 17 54 78Guidance and information on required documents for loan
15 51 75
Promptly conducting due-diligence (rating) 3 23 75
Providing assistance/guidance in making SHG eligible for loan
4 40 69
The average time taken during interaction with bank to facilitate regular
transaction of deposit and withdrawal:
• about 60 minutes in the case of Bihar and MP,
• 30-45 minutes in the case of Karnataka
Lending and Borrowing: Policy Implications
• Without proper mechanism of default management among substantial
number of SHGs – would the soft loan / revolving fund be beneficial or
will it create conflicts?
• What should be the priority for SHG and SHPI – to offer more credit
products or timely sanction of existing credit product?
• Are banks prepared to take on more responsibility of managing funds
that will come up with the structural and functional changes
introduced?
Book-Keeping: Performance
Status of Book-Keeping
StatesRecording of
meeting (minutes) regularly
% of SHGs NOT maintaining books
of accounts
Training on bookkeeping
Bihar
99%
(recorded after the meeting)
7% 44% SHGs received training 90% demand for more training
MP
93%
(recorded during the meeting)
3% 20% SHGs received training 90% demand for more training
Karnataka
87%
(10% of SHGs do not maintain
meeting minutes)
2% 32% SHGs received training 78% demand for more training
Book-Keeping: Quality (accuracy, clear and timely update):
Karnataka
Majority of the SHGs were maintaining high standard of business records A smaller fraction of SHGs face difficulty in updating passbooks due to
increase in migration of group members
MP
Most of the groups are depending on the SHPI/s for maintaining their records
Groups in MP are performing second best after Karnataka. A small section of SHGs (5% to 10%) in MP reported of problems with
record keeping
Bihar
Most of the groups are depending on the SHPI/s for maintaining their records
Though books were updated but there are concerns of clarity and accuracy in their records
A large section of SHGs are lagging behind due to lack of timely availability of required stationaries
Overall observation
• Technology: None of the sample SHGs use any form of technology for their record keeping
• A lack of proper quality control mechanism in place
Book Keeping: Policy Implications
• With the current standard of book-keeping – it will be difficult to manage voluntary savings – it might lead to
group conflict – Managing soft-loan and revolving fund will be difficult and
specifically JLG loan management will be a challenge – Groups’ involvement in community development work will be
difficult to check and track
Other Indicators: Transparency
Members’ awareness on group policy:
• For a meagre 1.17% of the groups
across the SHGs under study were the
members not well versed with the
group’s policies.
Sharing of financial status with members
in every meeting
• 98% in Bihar,
• 87% in MP
• 84.21% in Karnataka
– 11.58% SHGs in Karnataka share it
only when a member asks for it
Prog
~Prog
Prog
~Prog
Prog
~Prog
Biha
rM
PKa
rnat
aka
0 10 20 30 40 50 60 70 80 90
25
20
15
16
79
64
61
59
15
15
81
68
Awareness regarding bank's lending policy
Interest rate at which group have bor-rowed from bank
Total amount of bank loan outstanding
Percentage of groups
Stat
es
Information sharing and use of technology
• About 90% of the sample SHGs
believes technology can help in
improving the standards of book-
keeping (regular and accurate
updating of records).
• A significant number of SHGs across
study states (18.95% in Karnataka,
25.63% in MP and 28% in Bihar)
expressed their willingness to adopt
technology.
• SHGs are willing to pay a range of Rs.
3000 to Rs. 10000
Other Indicators: Social Performance
Percentage of groups by the topics and frequency of discussion
Topics
Bihar MP Karnataka
Regular
When
needed
Never
Regular
When
needed
Never
Regular
When
needed
Never
Financial 1 98 1 51 48 1 81 18 1
Social
(Comm.
Based)
1 43 56 23 69 8 52 42 6
Political 3 23 74 8 53 39 12 43 45
Developmen
t of the
village
2 40 58 29 64 7 32 47 21
Other Indicators: Social Performance
020406080
100120
9 15 15 1548
3 323 7 7 6
38
10
58
4727
7560
27
20
29
Group activities performed for the community
KarnatakaMPBihar
SHG Activities performed for the community
Per
cen
tage
of
grou
ps
Other Indicators: Member dropouts
Other Indicators: Perception on SHGs capacity
SHPIs’ perception on social performance of SHGs• Participation of SHGs in community
development activities:– SHPIs in Karnataka and Bihar rated high
on performance of SHGs – SHGs performance in MP is moderate
• Addressing community level issues: – SHPIs believe SHGs have limitations in
addressing the community level issues on their own – they look at the SHPIs for support
• Dealing with External Agencies:– about 60% SHGs looks for assistance
from SHPIs across study states• SHGs’ capacity of adopting SHG 2 and
Livelihoods promotion program:– SHPIs in Karnataka and Bihar believe
that a large section of SHGs are capable of adopting the revisions
Prog
ress
ive
~ P
rogr
essi
ve
Prog
ress
ive
~ P
rogr
essi
ve
Prog
ress
ive
~ P
rogr
essi
ve
Bihar MP Karnataka
0
10
20
30
40
50
60
1712
2218
23
14
32 33
49 47
33
44
5155
2935
44 42
Frequency of participation in SHPI activities (%)
Whenever Scheduled
Whenever Possible
Never
States
Per
cen
tage
of g
rou
ps
Overall Recommendations
• Fund and Default Management• Transparency and Accountability• Engagement of External Institutions• Conflict Resolution• Community Level Sensitization
Thank you
For further questions and discussion please write to the researchers at: