Self-Help Groups are informal associations of people who choose to come together to find ways to improve their living conditions. They help to build Social Capital among the poor, especially women. The most important functions of a Self-Help Groups are (a) to encourage and motivate its members to save (b) to persuade them to make a collective plan for generation of additional income, and (c) to act as a conduit for formal banking services to reach them. Such groups work as a collective guarantee system for members who propose to borrow from organised sources. Consequently, Self-Help Groups have emerged as the most effective mechanism for delivery of micro-finance services to the poor. The range of financial services may include products such as deposits, loans, money transfer and insurance.
Financial Inclusion – Current Status in the Country One of the reasons for rural poverty in our country is low access to credit and financial services. As per a survey report of the NSSO (59th round), 45.9 million farmer households in the country (51.4%) out of a total of 89.3 million households do not have access to any form of credit from institutional or non-institutional sources. Overall, 73% of the households do not have credit links with any financial institution. This apart, the overall credit linkage portfolio when taken as a whole for the country, appears to be highly skewed with the North- Eastern, Eastern and Central regions lagging far behind other parts of the country. In 2006, the Reserve Bank of India set up a Committee under the chairmanship of Ms. Usha Thorat, its Deputy Governor, to suggest methods to expand the reach and content of financial sector services in the North-East. Submitted in July 2006; the Report of the Committee emphasized on large scale expansion of financial intermediation in the entire region. This could be done by (a) opening new branches of Commercial Banks in these areas; (b) increasing the number of accounts in the existing units; (c) adopting the business correspondent / facilitator model to increase the reach of Commercial Banks; (d) extensive use of Information Technology ; (e) improving currency management / availability of foreign exchange facility; (f ) providing insurance and capital market products through Banks; (g) introducing Electronic Clearing Services (ECS) and Real Time Gross Settlement System (RTGS); (h) strengthening the Regional Rural Banks; (i) converting well established SHGs into cooperatives; (j) implementing the Vaidyanathan Committee’s recommendations; (k) relaxing insistence on collaterals; and (l) enhancing the recovery capacity of the Registrar cooperative societies in the States to collect cooperative dues. Again, in 2007, a Committee was constituted under the chairmanship of Dr. C. Rangarajan to prepare a comprehensive report on ‘Financial Inclusion in the Country’. The Committee went into a large number of issues connected with (a) banking in remote areas, (b) empowerment of Self-Help Groups and their linkages with financial institutions and (c) revitalization of the RRBs. One of the main findings of this Committee was that the scenario of credit access showed wide inter-region and inter-State variations.
Level of Non-indebtedness: Across Regions Farm households not accessing credit from formal sources as a proportion to total farm households is especially high at 95.91%, 81.26% and 77.59% in the North-Eastern, Eastern and Central Regions respectively. In terms of absolute numbers, these regions taken together account for 64% of farm households not accessing credit from formal sources The southern region, at the other end, exhibits relatively better levels of access to formal/ non-formal sources (72.7%) mainly on account of the spread of banking habits and a more robust infrastructure.
Level of Non-indebtedness: Across States The proportion of non-indebted farmer households was most pronounced in Jammu and Kashmir (68.2%) and Himachal Pradesh (66.6%) in the Northern Region, all States in the North-Eastern Region (61.2% to 95.9%) except Tripura, in Bihar (67%) and Jharkhand (79.1%) in the Eastern Region, and Chhattisgarh (59.8%), Uttar Pradesh (59.7%) and Uttarakhand (92.8%) in the Central Region,. Level of Indebtedness to Institutional Sources Derived data indicate that only 27.3% of the total farm households were indebted to institutional sources. The Rangarajan Committee came to a finding that currently there are 256 districts in the country (out of a total 617) spread across 17 States and 1 Union Territory which suffer from acute credit exclusion with a credit gap of over 95%. The Committee identified four major reasons for lack of financial inclusion: i. Inability to provide collateral security, ii. Poor credit absorption capacity, iii. Inadequate reach of the institutions, and iv. Weak community network. The existence of sound community networks in villages is increasingly, being recognised by development experts as one of the most important elements of credit linkage in the rural areas. Participatory community organisations (Self-Help/Joint Liability Groups) can be extremely effective in reaching credit to the poor and can thus, play a critical role in poverty alleviation
EVOLUTION OF THE SHG MOVEMENT IN INDIA
The first organised initiative in this direction was taken in Gujarat in 1954 when the Textile Labour Association (TLA) of Ahmedabad formed its women’s wing to organise the women belonging to households of mill workers in order to train them in primary skills like sewing, knitting embroidery, typesetting and stenography etc. In 1972, it was given a more systematized structure when Self Employed Women’s Association (SEWA) was formed as a Trade Union under the leadership of Ela Bhatt. She organised women workers such as hawkers, vendors, home based operators like weavers, potters, papad / agarbatti makers, manual labourers, service providers and small producers like cattle rearers, salt workers, gum collectors, cooks and vendors with the primary objective of (a) increasing their income and assets; (b) enhancing their food and nutritional standards; and (c) increasing their organisational and leadership strength. The overall intention was to organise women for full employment. In order to broaden their access to market and technical inputs, these primary associations were encouraged to form federations like the Gujarat State Mahila SEWA Cooperative Federation, Banaskantha DWCRA, Mahila SEWA Association etc. Currently, SEWA has a membership strength of 9,59,000 which is predominantly urban. In the 1980s, Myrada – a Karnataka based non-governmental organisation, promoted several locally formed groups to enable the members to secure credit collectively and use it along with their own savings for activities which could provide them economically gainful employment. Major experiments in small group formation at the local level were initiated in Tamilnadu and Kerala about two decades ago through the Tamilnadu Women in Agriculture Programme (TANWA) 1986, Participatory Poverty Reduction Programme of Kerala, (Kudumbashree) 1995 and Tamilnadu Women’s Development Project (TNWDP) 1989. These initiatives gave a firm footing to SHG movement in these States. Today, around 44% of the total Bank-linked SHGs of the country are in the four southern States of Andhra Pradesh, Tamil Nadu, Karnataka and Kerala. The positive experience gained from the above programmes has led to the emergence of a very strong consensus that the twin concepts of (a) small group organisation and (b) self-management are potent tools for economic and social empowerment of the rural poor. Efforts have been made almost in all parts of the country to adopt this model as a necessary component of the poverty alleviation programmes.
SHG Development since 1992 and NABARD
Forming small groups and linking them to bank branches for credit delivery has been the most important feature of the growth of the SHG movement in our country. The SHG-Bank linkage programme was started as a test project in 1989 when NABARD, the Apex Rural Development Bank in the country, sanctioned Rs.10.0 lakhs to MYRADA as seed money assistance for forming credit management groups. In the same year, the Ministry of Rural Development
SFMC is implementing the National Micro Finance Support Programme (NMFSP). The overall goal of NMFSP is to bring about substantial poverty elimination and reduced vulnerability in India amongst users of micro-finance services, particularly women. The NMFSP is being implemented in collaboration with the Government of India, the Department for International Development (DFID), UK and the International Fund for Agricultural Development (IFAD), Rome.
Self-Help Groups for Rural Development: the Tamil Nadu Experiment
In Tamil Nadu, the Department of Rural Development has taken initiative to organise the rural poor into Self-Help Groups which collectively work for securing livelihood employment for the members. The members of the group agree to save regularly and convert their savings into a common fund known as the group corpus. This fund is used by the group through a common management strategy. The group keeps in view the following broad guidelines: Generally, a Self-Help Group consists of 10 to 20 persons. However, in difficult areas having scattered and sparse population, the number may even go down to 5. But, the areas need to be identified by the State Level SGSY Committee. Similar relaxation is available to groups consisting of disabled persons as well as to groups which take up schemes of minor irrigation. The essential condition is that the group should belong to families below the poverty line. However, if necessary, a maximum of 20% and in exceptional cases , where essentially required, upto a maximum of 30% of the members in a group may be taken from families marginally above the poverty line living contiguously with BPL families. It has to be with consent of the BPL members of the group. This helps the families of occupational groups like agricultural labourers, marginal farmers and artisans marginally above the poverty line, or who may have been excluded from the BPL list to become members of the Self-Help Group. However, the APL members are not eligible for the subsidy under the scheme. The group does not admit more than one member from the same family. It is also implied that the same person should not be a member of more than one group. The BPL families are actively encouraged to participate in the management and decision making of the group; APL members are not allowed to dominate. Further, APL members of the Self-Help Groups are not encouraged to become office bearers (Group Leader, Assistant Group Leader or Treasurer) of the group. The group has its own code of conduct (group management norms) to bind itself. This is further strengthened by regular meetings (weekly or fortnightly), functioning in a democratic manner, allowing free exchange of views, participation by the members in the decision making process. The group is expected to draw up an agenda for each meeting and take up discussions as per the agenda. The members are required to build their corpus through regular savings. It is expected that a minimum voluntary saving amount from all the members will be collected in the group meetings. The savings so collected will be the group corpus fund. The group corpus fund is used to advance loans to the members. The group tries to develop financial management norms covering the loan sanction procedure, repayment schedule and interest rates. The members in the group meetings are encouraged to take all the loaning decisions through a participatory decision-making process. The group prioritises the loan applications, fixes repayment schedules, determines appropriate rate of interest for the loans advanced and closely monitors the inflow of repayments from the loanees. The group operates a group account in their service area Bank branch, so as to deposit the balance amounts left with the groups after disbursing loans to its members. The group is encouraged to maintain simple basic records such as Minutes book, Attendance register, Loan ledger, General ledger, Cash book, Bank Passbook and Individual Passbooks. These could be used with changes/modifications wherever required. As per government notification, 50% of the groups formed in each block should be for women. In the case of disabled persons, the groups formed should ideally be disability-specific wherever possible, however, in case sufficient number of people for formation of disability-specific groups are not available, a group may comprise of persons with diverse disabilities or a group may comprise of both disabled and non-disabled persons belonging to the BPL category.
PRIVATE INITIATIVE IN SHG DEVELOPMENT
Though, government efforts have played a major role in advancing the SHG movement in the country, there have been a large number of voluntary organisations (NGOs) which too have facilitated and assisted SHGs in organizing savings and credit in different parts of India. SEWA in Ahmedabad, MYRADA in Karnataka, Nav Bharat Jagriti Kendra and Ramakrishna Mission in Jharkhand, and ADITHI in Bihar are some of the names which took the lead in promoting Self-Help Groups (mostly of women) around income generation activities using local skills. From organizing villagers into groups which could work on viable activities, to making a project and securing funds (own contribution or through a tie-up with the financial institution), these VOs have worked with involvement and dedication. PRADAN (Professional Assistance for Development Action), DHAN Foundation, ASSEFA (Association of Sarva Seva Farms, MALAR (Mahalir Association for Literacy, Awareness and Rights), SKS, Janodaya, Cohesion Foundation and Jan Chetna Sansthan are some of the other major non-governmental institutions which are promoting and nurturing a large number of SHGs of poor people, mostly women into effective organisations which could leverage credit from formal sources, and develop local resources and skills to increase productivity and income. It is thus, due to the combined efforts of the government and these private voluntary agencies that the SHGs have come to occupy a place of prominence in the socio-economic fabric of rural India.
- contrary to the vision for SHG development, members of a group do not come necessarily from the poorest families;
- the SHG model has led to definite social empowerment of the poor but whether the economic gains are adequate to bring a qualitative change in their life is a matter of debate;
- many of the activities undertaken by the SHGs are still based on primitive skills related mostly to primary sector enterprises. With poor value addition per worker and prevalence of subsistence level wages, such activities often do not lead to any substantial increase in the income of group members.
- there is lack of qualified resource personnel in the rural areas who could help in skill upgradation / acquisition of new skills by group members.
Problems of Self Help Groups
Though, during a short span of fifteen years the SHG movement has recorded remarkable progress (29.24 lakhs SHGs in operation on 31.03.2007 with a cumulative loan of 180,407,42 millions), much still remains to be done. Even if we consider only the BPL population of the country (24.2% – 26 crores), the above achievement seems to be minuscule. The movement shows steep territorial variations. Many areas of the country lack adequate banking structure. Urban and semi-urban areas, to a large extent, stand excluded from this mode of credit delivery. Further growth of this movement faces threat from inadequacy of skills in the rural areas. And finally the pace of the movement needs to be accelerated. The Commission has comprehensively considered the strength and weaknesses of this movement and it feels that the following eight issues of this sector deserve priority attention:
- Maintaining the participatory character
- Need to expand the SHG movement to States such as Bihar, Uttar Pradesh, Madhya Pradesh, Orissa, Rajasthan and in the North-East (where the SHG movement and micro-finance entreprenuership is weak)
- Need to extend small group organisations (SHGs) to peri-urban and urban areas
- Mode of SHG development and financial intermediation
- Self-Help Groups and Regional Rural Banks
- Issues of sustainability
- Financial assistance to SHPIs and other support institutions
- Role of Micro-Finance Institutions
Maintaining the Participatory Character of SHGs
The strength of a Self-Help Group lies primarily in its solidarity-based participatory character, and in its ability to survive without any significant external support or involvement. In the early phases of its existence, the intent behind the cooperative movement too focused on stakeholders’ participation. The government and banking institutions were thought of as some sort of catalyst which would provide support to the sector. But gradually these primary institutions became subordinate to Cooperative Banks, Apex Unions, and Marketing Federations. Election of the office bearers of these large organisations became big ticket events. Very soon, the cooperative sector became a springboard for political aspirants. Though the SHG movement is relatively new, government interventions and subsidies have already started showing negative results. The patronage and subsidies provided to the SHGs by government and the Panchayats often lead to their politicization. Therefore, due care must be taken to ensure that government initiatives do not erode the fundamental principles of self-help and empowerment of the poor. There is need to learn from the experience of the cooperative sector. The mutually participatory, solidarity-based character of SHG movement needs to be retained and protected. SHG movement should be recognized as a people’s movement and the role of government should be only to facilitate and create a supportive environment, rather than ‘manage’ the movement directly.
Expanding SHG Movement to Credit Deficient Areas of the Country
As already discussed overall 73% of the farmer household (in rural areas) have no access to any formal source of credit. In March, 2001, 71% of the total linked SHGs of the country were in just four States of the southern region viz. Andhra Pradesh, Karnataka, Kerala and Tamil Nadu. The figure went down to 58% in 2005, 54% in 2006 and to 44% in 2007 and around 34% in 2012. But even the current figure is a cause of concern when one talks of financial inclusion for the whole country. The States which are particularly deficient in this respect are Bihar, Uttar Pradesh, Madhya Pradesh, Orissa, Rajasthan and those in the North-East. NABARD itself has identified 13 States which have large rural population but are performing unsatisfactorily in utilization of Micro Finance Development and Equity Fund (MFDEF). Currently, the Bank has 28 regional offices which are located at the State headquarters, but its presence at the district level is skewed with only 391 branches in the whole country. The density of such offices in Madhya Pradesh, Rajasthan, Bihar, Jharkhand, West Bengal and Assam is inadequate. Availability of financial services is one of the critical determinants of employment, economic well being and social empowerment in rural areas especially for the marginalized poor. Their access to credit delivery and related services broadly depends on two factors – (a) the reach and expansion of the financial infrastructure; and (b) the presence of social organisations and cultural attitudes which are in readiness to receive the benefits offered by the infrastructure. Building financial infrastructure is an important step towards expansion of economic opportunities in a backward area. But, it needs to be firmly supported by cooperative action and social mobilization on the part of local stakeholders. India has a rich history of economic systems and traditions based on cooperative action, exchange labour, village irrigation network and participatory management of village commons. The Commission is of the view that expansion of social cooperation should be regarded as a central feature of the development process and hence, people’s organisations like Self-Help / other Joint-Liability Groups need to be encouraged. The pace of SHG movement needs to be accelerated in the credit deficient areas of the country such as – Madhya Pradesh, Rajasthan, Bihar, Jharkhand, Orissa, West Bengal and States of the North-East. This is possible only by rapid expansion of financial infrastructure (including that of NABARD) and by adopting extensive IEC and capacity building measures in these States.
Extension of Self-Help Groups to Urban / Peri-Urban Areas
This migration can be divided into two broad categories: (i) movement from villages to the neighbouring middle-grade towns; and (ii) movement to metropolitan cities. The first category, often called transient migration is in the nature of temporary movement where the worker stays in the new location intermittently for shorter periods and maintains close links with his home village through his colleagues, relatives or through his own frequent visits. But when he moves to a metropolitan city, his stay in the new location is for longer durations. This class of workers mostly stays in tenements and slums. Since issue of any form of identity card is invariably linked with the possession of an immovable property, such migrant workers do not have any formal document to prove their domicile in the city. But the overall economic and social well being of the city is closely linked with the condition of this section of the city dwellers.
Issues of Sustainability, Capacity Building and use of Technology
The institutional sustainability and the quality of operations of the SHGs are matters of considerable debate. It is generally held that only a minority of the Self-Help Groups are able to raise themselves from a level of micro-finance to that of micro-entrepreneurship. Neither do such Bank linkages lead to sanction of larger individual loans under the Bank’s normal lending programmes. The ultimate objective of such a tie-up is to impart financial strength to the SHGs so that they can enter into a stable relationship with the local financial institutions – without any external support. Even after many years of existence, by and large, SHGs are heavily dependent on their promoter NGOs or government agencies. The withdrawal of NGOs / government agencies even from areas where SHGs have been federated, has often led to their collapse. The leadership and management of most SHG federations continue to be in the hands of NGOs. Capacity building of small groups / members is an important component of organisational effectiveness. It consists of participatory training methods covering issues such as SHG formation, its strengthening, book keeping and some elementary techniques of financial management. Capacity building of government functionaries and Bank personnel is a necessary element of an equitable triangular relationship involving the SHGs, government functionaries and the local Banks and there is a positive correlation between the training received by government functionaries/Bank personnel and their overall attitude towards local organisations. The Commission is of the view that for success of such cooperative / social capital ventures, there is need to provide extensive training to all the three pillars of the self-help movement.
Utilization of Technology: Currently, many public sector banks and micro-finance institutions are unwilling to provide financial services to the poor as the cost of servicing remains high. Use of appropriate technology can reduce it. The Commission is of the view that high penetration of telecom connectivity in India, together with the latest mobile technology could be used to enhance financial inclusion in the country.
Financial Assistance to SHPIs and other Support Institutions Forty-five per cent of the total number of women’s SHGs of the country are located in Andhra Pradesh. This enviable position of the State is primarily due to the initiative shown by promoter NGOs often known as Self-Help Promoting Institutions (SHPIs) / mentor organisations. The Commission is of the view that if the SHG movement is to spread across the entire country, there is need to provide major incentives to SHPIs / promoter NGOs. Currently, the financial support to SHPIs comes from the Micro Finance Development and Equity Fund (MFDEF) of NABARD. It is limited to an amount of Rs.1500 per SHG (formed and activated). To attract more and more SHPIs to the rural areas, this quantum of support needs to be revised.
ROLE OF MICRO FINANCE INSTITUTIONS (MFIS)
As mentioned earlier, (a) organizing thrift and savings and (b) leveraging it to obtain funds without formal collaterals are the two most important activities of the SHGs. Since large commercial Banks, due to their complex operational structure and other management constraints, are usually not able to meet the needs of this sector, a large number of private micro-finance institutions have been set up in recent years in various parts of the country to fill this void. Certain important issues relating to the activities of the MFIs in the country have been examined in the succeeding paragraphs. Micro-credit is defined as provision of thrift, credit, and other financial services (such as deposits, loans, payment services, money transfer, insurance and related products) of very small amounts to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve living standards. Micro-finance institutions are those which provide such micro-credit facilities. Leaving aside the commercial Banks, the needs of this sector are currently being handled by the following four major players: (i) Rural Banks (ii) Cooperatives (iii) Institutions which have been registered as Societies, Public Trusts, and Section 25 Companies or as NBFCs to take up the work of micro-finance on operational/financial sustainability (iv) Individual money-lenders. Micro-credit is an instrument of both social as well as economic policy. It opens up integral development processes such as use of financial and technical resources, basic services and training opportunities to the unprivileged. Access to savings, credit, money transfer, payment, and insurance can help poor people take control of their financial life. It also empowers them to make critical choices about investing in business, sending children to school, improving health care of the family, covering the cost of key social obligations and unforeseen situations. But the most important of all, an access to finance generates self esteem among them. In the Indian context, the concept of micro-credit has an ancient origin, prevalent in the form of credit to the poor by the traders and money-lenders at exorbitant interest rates. This resulted in hardship to the borrowers often leading to illegal practices like bonded labour. However, in modern times, microcredit implies lending to the poor at reasonable but sustainable interest rates. The Raghuram Rajan Committee which was set up in August 2007 to outline a comprehensive agenda for the evolution of the financial sector in the country has deeply analysed the issue “Broadening of Access to Finance”. In this context, one of its suggestions is to ‘alter the emphasis somewhat from the large Bank led, public sector dominated, mandate ridden and branch-expansion-focused strategy (to Micro Banks). The poor need efficiency, innovation and value for money which can come from motivated financiers who have a low cost structure and who can see the poor as profitable. They also have the capacity of making decisions quickly and with minimum paper work. The Committee recommended “(a) allowing more entry to private well-governed deposit-taking small finance banks offsetting their higher risk from being geographically focused by requiring higher capital adequacy norms, a strict prohibition on related party transactions, and lower allowable concentration norms (loans as a share of capital that can be made to one party), and (b) making significant efforts to create the supervisory capacity to deliver the greater monitoring these banks will need initially, and (c) putting in place a tough prompt corrective action regime that ensures that these banks do not become public charges.”
Micro-Finance Institutions in the Formal Sector Currently, a major share of the micro-financial services such as handling thrift and providing credit to the economically active low-income segments of society, especially women, poor households and their micro enterprises is being collectively handled by public sector institutions like NABARD, Small Industries Development Bank of India (SIDBI), Rashtriya Mahila Kosh, rural branches of Commercial Banks and Regional Rural Banks (RRBs).