Projects: Spread of the Self-Help Groups Banking Linkage Programme in India

Spread of the Self-Help Groups Banking Linkage Programme in India

Introduction

This communication presents the preliminary results of a long-term study on the geo-economic analysis of microfinance and, more specifically, of microfinanciarization.

A considerable body of literature has accumulated over the past years documenting and monitoring the development of the microfinance sector [Sidney et. al. 1997, Fisher and Sriram 2002, Littlefield and Rosenberg 2004, Tsai 2004, Dasgupta 2005]. Based on macro as well as household survey data, previous studies on empowerment, income generating or other socio-economic indicators highlight the risk of increasing inequalities in the microfinance sector [Montgomery 1996, Mosley and Hulme 1998, Hulme 2000, Guerin and Palier 2005, Rao 2005]. Neglected to date have been issues of territorial inequalities, despite the major role they play in the process of growing inequality.

India is experiencing a huge expansion in terms of households linked to microfinance, more specifically linked to Self-Help Groups (SHGs). An average annual growth rate of 82 % was observed in the period from March 1993 to March 2006, in relation to a 110 % growth rate in terms of credit amounts. One of the most important programmes conducting this development is the SHG Banking Linkage Programme. Working with 620,109 SHGs during the financial year 2005-2006, it incorporates more than nine million households into the financial sector. Apart from the aggregate numbers, very little is known about the spatial distribution and evolution of this economic phenomenon across India. Our communication will attempt to fill this void by applying the recently released state and district data to empirically explore the spatial evolution and distribution of the development of the microfinance sector in India through the example of SHGs. Mapping analysis is an excellent tool to visualize the spatial distribution and evolution of microfinanciarization in India, and with which to initiate debate.

More specifically, in order to examine the spatial distribution and variation of SHGs, picture maps for selected years are employed and plotted using Arc View GIS, which is linked with the main database for this study.

Following common practice (Nabard various years, Daley-Harris 2005), the number of households linked to one SHG is set at seventeen, corresponding to the average group-size. We use the total number of SHGs linked by formal agencies (commercial banks, regional rural banks and cooperatives) during each financial year. We also calculate the coefficient of variation, a measure of relative variation, to provide a view of the variation relative to the size of the data measurements.

With these data at hand, two yardsticks are employed in the analysis: the relative strength of households in SHGs measured by the ratio of households in SHGs to total state and district households; and, the pace of change in SHGs measured by the percentage change in the total number of SHGs over the given period.

Relative Strength of the SHGs among States

The ratio of the number of SHG members to the total households of the states reveals a different, although continuing, pattern in regional variations as compared to the relative strength of the SHGs. In March 2001, there were less than ninety households participating in SHGs for every 1,000 of Andhra Pradesh’s households. In the states Sikkim, Assam and Punjab, however, there were six, five, and three households participating in SHGs for every 10,000 of the total households respectively. The irregular pattern continued in 2003 and 2005. Nevertheless, the relative strength of the SHGs slightly converged among states, as evidenced in the decline of the coefficient of variation from 1.99 in 2001 to 1.15 in 2006 - a spatial pattern that is confirmed by inspecting the related maps in Figure 1.

Figure 1: State variations in relative share of SHGs (measured by standard deviation)

In Figure 1, the states are grouped using the standard deviation of relative share of SHGs. In March 2001 (Fig. 1a), Andhra Pradesh was ranked first, with more than three units of standard deviation above the mean. Tamil Nadu, Himachal Pradesh, Puducherry and Karnataka formed the second leading group, which had a standard deviation above the mean, i.e., with nineteen, sixteen, twelve and nine households participating in SHGs for every 1,000 households respectively. The rest of the states had one unit of standard deviation below the mean and formed the weakest states in the process of microfinanciarization. Uttar Pradesh’s low percentage of SHG members out of total households might be a result of its large population base. In fact, its absolute size of SHGs was ranked fifth.

Five years later, in March 2006 (Fig. 1b), Andhra Pradesh had further consolidated its role as the leading state in the size of the SHG movement, measuring more than three standard deviations above the mean, i.e., 279 households participating in SHGs for every 1,000 households. Orissa, Puducherry, Tamil Nadu and Karnataka formed the second leading group, with more than one standard deviation above the mean. Himachal Pradesh, Kerala, Assam, Rajasthan, West Bengal and Maharashtra formed an intermediate group with ratios within one standard deviation of the mean, with ninety-four, eighty-five, eighty-two, sixty-five, sixty-one and fifty-six households participating in SHGs for every 1,000 households respectively. The other states had one unit of standard deviation below the mean. In Uttaranchal and Jharkhand there were less than thirty-two households participating in SHGs for every 1,000. In Jammu and Kashmir, Haryana, Punjab and Arunachal Pradesh there were less than ten households participating in SHGs for every 1,000 of the total households.

Relative Strength of the SHGs among Districts

The development of the microfinance sector through the SHG model reflects the relative importance of this movement for the population, as depicted in Figure 2. It shows a map indicating the relative strength of the households involved in a SHG provided with a bank loan during the financial year 2005-2006. The inequality pattern in the microfinance sector in India is also verifiable at the district level.

Figure 2: District distribution in relative share of SHGs (measured by natural break – percentage)

During this financial year, the relative share of SHGs was more than 35 % of the total households in Nuaparha district (Orissa). In other words, more than one third of the total households in this district counted a person involved in a SHG provided with a bank loan during the last year.

The level of market penetration of SHGs is no longer incidental and exceeded 20 % of the household population for the districts of Dhenkanal, Deogarh, Kalanhandi and Malkangiri, all in the state of Orissa.

This situation is also verifiable in the others states. For example, still for the financial year 2005-2006, the relative share of SHGs represented more than 20 % of the total households for seven Indian districts, as Dharmapuri (Tamil Nadu) and Hassan (Karnataka). Sixteen districts exceeded 15 %, with districts in Assam (Sonitpur and Marigaon), Maharashtra (Chanrapur), Tamil Nadu (Tirunelveli, Tiruvallur) and, of course, in Andhra Pradesh with Nalgonda. At the Indian level, eighty-three districts had a level market penetration of more than 10 %, and 201 districts exceeded the margin of 5 %.

At the district level, the intra-state inequalities are very significant and call into question the successes showed by some states. For example, while Himachal Pradesh is ranked among the states with a high level of microfinanciarization, an intra-state analysis shows significant district inequalities. While Mandi and Sirmaur districts show a strong proportion of households with a person involved in a SHG provided with a bank loan during the financial year 2005-06 (11.91 and 9.16), the reality is completely different in Shimla and Lahul-Spiti districts, with only 0.98 and 0.79. We come across this situation in practically all of the Indian states, more particularly in Andhra Pradesh and Tamil Nadu. While Nalgonda, Cuddapah, Nizamabad and Medak districts showed a level of market penetration of 19.46, 16.37, 16.02 and 14.82 respectively, this level was 3.25, 3.32 and 4.19 in Rangareddi, Guntur and Srikakulam respectively. In the same financial year, these territorial inequalities were stronger in Tamil Nadu. While Dharmapuri, Titunelveli and Thiruvallur showed a percentage of households counting one person involved in a SHG of 24.19, 18.91, and 17.88, the level of microfinanciarization was very small in Nilgiris, Coimbatore and Karur, with 0.92, 1.80 and 3.47 respectively.

National Bank for Agriculture and Rural Development

Role

NABARD:

1. serves as an apex financing agency for the institutions providing investment and production credit for promoting the various developmental activities in rural areas

2. takes measures towards institution building for improving absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, training of personnel, etc.

3. co-ordinates the rural financing activities of all institutions engaged in developmental work at the field level and maintains liaison with Government of India, State Governments, Reserve Bank of India (RBI) and other national level institutions concerned with policy formulation

4. undertakes monitoring and evaluation of projects refinanced by it.

5. NABARD's refinance is available to State Co-operative Agriculture and Rural Development Banks (SCARDBs), State Co-operative Banks (SCBs), Regional Rural Banks (RRBs), Commercial Banks (CBs) and other financial institutions approved by RBI. While the ultimate beneficiaries of investment credit can be individuals, partnership concerns, companies, State-owned corporations or co-operative societies, production credit is generally given to individuals.

6. NABARD has its head office at Mumbai, India

7. NABARD operates throughout the country through its 28 Regional Offices and one Sub-office, located in the capitals of all the states/union territories.Each Regional Office[RO] has a Chief General Manager [CGMs] as its head, and the Head office has several Top executives like the Executive Directors[ED], Managing Directors[MD], and the Chairperson.It has 336 District Offices across the country, one Sub-office at Port Blairand one special cell at Srinagar. It also has 6 training establishments.

8. NABARD is also known for its 'SHG Bank Linkage Programme' which encourages India's banks to lend to self-help groups (SHGs). Because SHGs are composed mainly of poor women, this has evolved into an important Indian tool for microfinance. As of March 2006 2.2 million SHGs representing 33 million members had to been linked to credit through this programme

Introduction

In India, Self Help Groups or SHGs represent a unique approach to financial intermediation. The approach combines access to low-cost financial services with a process of self management and development for the women who are SHG members. SHGs are formed and supported usually by NGOs or (increasingly) by Government agencies. Linked not only to banks but also to wider development programmes, SHGs are seen to confer many benefits, both economic and social. SHGs enable women to grow their savings and to access the credit which banks are increasingly willing to lend. SHGs can also be community platforms from

which women become active in village affairs, stand for local election or take action to address social or community issues (the abuse of women, alcohol, the dowry system, schools, water supply).

A self-help group (SHG) is a village-based financial intermediary usually composed of between 10-20 local women. Most self-help groups are located in India, though SHGs can also be found in other countries, especially in South Asia and Southeast Asia.

Members make small regular savings contributions over a few months until there is enough capital in the group to begin lending. Funds may then be lent back to the members or to others in the village for any purpose. In India, many SHGs are 'linked' to banks for the delivery of microcredit.

SHGs are formed by NGOs, Government agencies or Banks – the three types of ‘Self Help Promoting Agencies’ or SHPAs.1 The sample SHGs are mainly NGO promoted (137 groups); 49 are Government promoted, 28 Bank promoted

This communication presents the preliminary results of a long-term study on the geo-economic analysis of microfinance and, more specifically, of microfinanciarization.

What is microfinanciarization? In the broadest sense, microfinanciarization is the process of structural change that involves financial inclusion, bankarization, or the regulation of informal financial practices, and the utilization of voluntary sector and third sector capabilities in the provision of financial services to people who are excluded from financial and banking institutions – i.e., from 60 to 90 % of the entire population. It is one of the most fascinating features of financial economics today. India is experiencing a huge expansion in terms of households linked to microfinance, more specifically linked to Self-Help Groups (SHGs). One of the most important programmes conducting this development is the SHG Banking Linkage Programme.

Microfinance

Microfinance is the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services.

More broadly, it is a movement whose object is "a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers."^[1] Those who promote microfinance generally believe that such access will help poor people out of poverty.

Microfinance is a broad category of services, which includes microcredit. Microcredit is provision of credit services to poor clients. Although microcredit is one of the aspects of microfinance, conflation of the two terms is epidemic in public discourse. Critics often attack microcredit while referring to it indiscriminately as either 'microcredit' or 'microfinance'. Due to the broad range of microfinance services, it is difficult to assess impact, and very few studies have tried to assess its full impact.

At present, institutions providing microfinance services in India include NABARD, Small Industries Development Bank Of India (SIDBI), Rashtriya Mahila Kosh, Commercial banks, Regional Rural Banks, co-operative banks and Non Banking Financial Companies (NBFC).

Currently, microfinance services are provided through two models that have emerged over the years.

- Self Help Group-Bank Linkage Programme (SBLP) Model

- Micro-Finance Institutions Model (MFI)

Objectives of Self Help Group

Self Help Group methodology is a novel approach in development economics.self Help Groups must,therefore,envision human development perspective in their scheme of things.The clarity in goals and objectives of Self Help Groups will determine the pace and direction of their development . Hence,the groups among rural poor must be facilitated based on long term goals rather than for short-term pecuniary gains.Some of the critical long term benefits include:
1.Sustainable access to financial services
2. Stronger livelihood support systems
3.Enhancement of collective bargaining power
4.Self reliance and sense of dignity
5.Improvement in overall standard of living and empowerment
6. Basically the SHGs are economic organisation. Small funds are raised for day today needs. The saving groups when transformed to earning groups not only increase the productivity of women but the credibility also.
7. Doors are wide open to women to understand and gain knowledge about Banking, Gram Panchayats, Zilla Parishad, Law and Judiciary etc.
8. As economical solutions are available, the family structure is maintained.
9. SHG is a good way to stop the exploitation of consumers.

11. Broadening of view is a major gain. The ascending order of family, group, village,Tahsil, Zilla, Zone, State, Nation, World, makes the vision global.
12. Development of self-confidence is achieved.
13. A common platform is available for a dialogue and sharing of views.

to provide emotional support to patients, their families and friends;

to provide, when possible, personal visits by former patients to those currently in hospitals and rehabilitation centres and to those recovering;

to supply a comprehensive short guide for patients, relatives and friends, and other literature, so that patients and their families can learn what to expect during the illness;

to educate the public and medical community about the Support Group and maintain their awareness of the illness;

14.To foster research into the cause, treatment and other aspects of the illness;

15.To encourage special interest groups, eg CIDP, GBS in pregnancy, and GBS in children; and

16.To encourage financial support for the Group’s activities

Impact of Self Help Groups

There has been a helpful impact of SHG’s Bank linkage program on poverty reduction.

1. As per a study of NABARD initially 70-80 percent of poor households used credit for consumption purpose but within two years an increasing proportion of them used credit for setting up of micro enterprises.

2. As per study of MYRADA in Karnataka revealed that income levels per SHG member had increased simultaneously over a period of three years. The standard of living of members increased, they had literacy skills as well as socially empowered. The dependence on money lenders was removed & they could depend on banks for financial help.

3.An evaluation study by NABARD revealed that 86% of members of SHGs belonged to rural economy. The value of assets of members increased by 59% & the average annual savings of each member increased three times and borrowings doubled. The communication skills and self-confidence of members also increased.

4.households that access to micro-finance spends more on education than non-client households. A study in Tamil Nadu reveals that drop out rate on school decreased.

5.the SHG moment in India has led to empowerment of rural women & more equitable gender relations. Women now play a bigger role in household decision making. There has been enormous increase in self confidence of women and their ability to articulate in public forum has been a major achievement.

6.in certain areas micro-finance has helped better nutrition, housing, improvement in maternal health & reduction in child mortality.

7.A sample study of 60 SHGs in Eastern India revealed the positive impact of micro finance on expenditure on production purpose decreased the violence against women, a gradual shift in households from below to above the poverty line & inclusion of socially backward classes.

8.The linkage programs has helped in credit delivery to tenant farmers & increased community assets like bullock carts, etc.

9.The linkage program has considerable impact on attitudes of bankers & their business. The meeting of Branch managers with members had a motivation impact on the bank officers.

10.A national level study on ‘Impact and sustainability of SHG Bank Linkage Program’, has recently been conducted by National council of applied economic research in associated with GTZ(German Collaboration)also establish the above facts.

Importance of study of SHG’s

1.SHG’s and communities action

Women in SHGs can work together to address issues that affect not only their own members, but others in the larger community. Again, the number of SHGs in the sample undertaking such action is less than hoped for, particularly given the sampling focus.

These were all actions by SHG women which represented some degree of agency by women, in terms of decision-making, and enhancing women’s contribution to community in a way that goes beyond traditional gender roles.

The most common single type of action taken up by SHGs is the attempt to close down local liquor outlets. Alcoholism – and the accompanying problems of domestic violence from men, the drain on household finances, impaired health – is an aspect which in so many villages we found prompts perhaps the most anger amongst women, but also despair. Dealing with this issue is a major struggle which pits women not only against a behavioural syndrome, but also against institutional and business elements which have a vested interest in continuing to sell alcohol – and make money out of it.

2.Involve in group based enterprise or enterprise contract.

(i) collective organisation of marketing for the produce of individual enterprises

established using micro-credit, particularly milk collection centres/dairy cooperatives at village level (ii) collective activities by SHGs using group credit to access larger natural assets for production, e.g., leasing land and ponds for cultivation and pisciculture

(iii) other collective economic activities based on group credit that combined labour and management: stone-cutting, processing rice, managing a tent house (iv) management of government contracts, such as running ration shops (as part of the Public Distribution System or PDS), cooking the mid-day meal (MDM) for school children, or managing a subsidised fodder depot

3.Social and economic justice

SHGs seem uniquely placed to support their members on issues of social justice affecting women. Nevertheless, we did not find that SHGs are dealing regularly with issues of social justice. Nor did many groups report such actions: 12% of sample SHGs (with some groups mobilising together on single issues) had taken up issues such as domestic and sexual violence, bigamy, and a few cases of dowry death, prevention of child marriage, support for separated women to remarry.

Issues that can be dealt with through a specific action (preventing bigamy, obtaining compensation, marriage of an orphan girl or a separated woman) appear more successful with the action having an immediate result. Private behavioural problems (domestic violence or sexual abuse) are far more difficult to address successfully. The very fact that such issues are brought out in public appears to be a significant action, but an effective result - ending such violence – is more difficult to achieve, and requires more sustained action and follow up.

4.Social harmony

Indian society is split by a hierarchical caste system that has traditionally discriminated against those at the bottom – the Scheduled Castes – as well as those outside it, for example the Scheduled Tribes. Within broad caste categories too there are divisions. The fact that the majority of SHGs (two-thirds in the sample) are single-caste groups is based on the principle of ‘affinity groups’ and neighbourhood proximity (members living nearby can more easily get together, and village neighbourhoods are usually caste based). It also stems from government policies. Government benefits for SCs/STs, BCs and SGSY subsidies

are easier to channel to the target population, if all members of a group belong to the same caste category. Otherwise, some benefits will go only to some members.

National Bank for Agriculture and Rural Development

Role

NABARD:

serves as an apex financing agency for the institutions providing investment and production credit for promoting the various developmental activities in rural areas

4. undertakes monitoring and evaluation of projects refinanced by it.

6. NABARD has its head office at Mumbai, India

NABARD operates throughout the country through its 28 Regional Offices and one Sub-office, located in the capitals of all the states/union

Self-Help Groups Banking Linkage Programme in India

Relative Strength of the SHGs among States

Figure 1: State variations in relative share of SHGs (measured by standard deviation)

Relative Strength of the SHGs among Districts

A case study by:

Kim Wilson

The Fletcher School, Tufts University

Formerly, Catholic Relief Services, South Asia

I recall a time in Jharkhand, India in the forest town of Chandwa, sitting with a self-help group under a mahua tree. We ate the mahua’s large raisin-like berries, soon to be turned into country alcohol, while a few of the women recounted their story. A well-meaning organization (WMO) had come to empower this self-help group, which had formed on its own about a year earlier. The WMO advised the group that its members would have more money if they were to pickle and pack their garden harvests to sell to customers in Calcutta. The organization helped the group with recipes, with bottling and labeling. For several weeks the WMO and the women applied themselves day and night to the task. Somewhere along the

way, the WMO lost the group’s savings and never did find a market for the chutney. The women pointed to a houseful of jars as evidence. Invincible, the group forged ahead, without the benefit of the WMO. Group members met

each week, deposited cash savings into a box, then lent the cash to one another for emergency needs. The group fund began to accumulate once again. Some members had helped other new groups form in the village and they too began to increase their savings. A few groups had linked to a local bank for more credit. Women members were checking into benefits they might receive by connecting to a government program. I asked the women what activity might have been more lucrative than chutney production. Several said they preferred to work on their own, not in a group business. Working alone, except for harvesting activities, was less risky than putting all their eggs – their hours – into one basket. Yet they did cite one exception, an enterprise which they found to be most promising if undertaken as a collective. On occasion, together in the night after the children

had fallen asleep, they would gather at the railway tracks to remove coal from the parked cars of the local freight train. Several women would stand guard while the others skimmed the goods. The next day they would sell the coal to nearby shops. There was no cash-outlay, just their time as a cost. They laughed as they confided their secrets goods. The next day they would sell the coal to nearby shops. There was no cash-outlay, just their time as a cost. They laughed as they confided their secrets. Empowerment seemed less like a quaint watercolor of women pickling fruits and vegetables in the countryside, thanks to the benevolence of an empowering NGO, and more like guerrilla survival in a setting where self-help meant fending off assistance whenever possible. This group was pure inspiration – entrepreneurial, full of humor, immune to whatever good intentions might come its way. Without intending to, these women had become a symbol in my mind of a paradox that lay at the heart of development - an outsider promoting the selfhelp of others. Does it ever work? It seems like real self-help, well, comes from the self. If it was ushered along from the outside, by NGOs and well-meaning organizations, what should it look like?

Many CRS partners – local NGOs - were arriving at questions concerning the self-help movement in India. The rural landscape was studded with SHGs. Groups had emerged as the link between individuals and local banks and cooperatives. They were seen by NGOs as the entry point for many other social activities – from watershed councils to school committees. They had become voting blocks and able to help neighbours stand for office and win elections.

But, despite these remarkable accomplishments, a few of us had nagging questions at the back of our minds. Did these groups really include the poorest women or most marginalized? Did they share benefits and decisions equitably? Were they dependent on others for self help?

What was our role, if any, in forming these groups? Would these groups stay intact once we departed? Should they? But before we could get at these questions, we had to understand better how the groups themselves functioned. In 2002, my friend and colleague, Girija Srinivasan had come to help CRS with some of our own good intentions, setting us straight here and there, ultimately leaving a permanent mark of tough love in the form of much stronger groups and outreach. In the same year, I had the luck to meet several colleagues and I trust permanent friends from NABARD – Prakash Bakshi, N. Srinivasan, and KR Nair – who also asked similar questions. What groups worked and what works with groups? And how can we most effectively help these groups tap mainstream resources like banks and other formal financial institutions? Malcolm Harper whom I would meet at Nabard’s 2002 SHG-Bank Linkage Seminar, had similar observations and questions. In 2004, Vipin Sharma of CARE approached CRS and said we should combine resources to tackle shared problems and questions. Also in that year, Lynn Carter of USAID, said she too was interested in what made good groups tick and how might they best move forward to empower themselves in league with other forms of local governance and social justice. We decided that CRS, CARE, NABARD via GTZ, and USAID would pool resources to learn more about self-help groups so that we could understand how best to support them. A steering committee was formed, chaired by Malcolm Harper and Girija

Srinivasan. Representatives of the sponsors also served on the committee. The committee members shared the same vision. We did not want a study that would glorify self-help groups or whitewash their problems. We wanted the truth and that meant we wanted a tough, responsible organization to help us find the answers. Together we developed a process for inviting proposals and after reviewing many, we selected EDA. EDA, under the guidance of Frances Sinha, spent the next year designing and implementing ‘SHGs – The Lights and Shades’ a study of 214 self-help groups in 108 villages in four states and nine districts. The mission of the study was better to understand the promotion and operation of self-help groups, how members related to one another, how groups interacted with their communities, as well as the effect groups had on their social, political, and economic environments and vice versa. The study was thorough, delved into many questions with a variety of techniques, and took great pains to respect the privacy of villagers as they confided their experiences. The result is a rich profile, both quantitative and qualitative, of rural self-help in India. Within these pages are many answers, and much is left to the reader to draw his or her conclusions. The inevitable has surfaced: the more we know the more we do not and those of us reading this study will have a growing list of brand new questions. Let us begin to ask them.

INDEX

1.INTRODUCTION

2.MICROFINANCE

3.OBJECTIVES OF SHG

4.IMPACT OF SHG

5.IMPORTANCE OF STUDY OF SHG

6.NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT

7.SHGs BANKING LINKAGE PROGRAM IN INDIA

8.CASE STUDY.

Projects

Pages

VIBRATION ANALYSIS OF CYLINDRICAL THIN SHELL

Wednesday 10 August 2011

Spread of the Self-Help Groups Banking Linkage Programme in India

Role

Role

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