211 CHAPTER V SHG-BANK LINKAGE IN ANDHRA PRADESH-THE STATUS Prologue Micro ...

109 Pages·2014·4.07 MB·English

CHAPTER V
SHG-BANK LINKAGE IN ANDHRA PRADESH-THE STATUS
Prologue
Micro Credit is the as provision of thrift, credit and other financial services
and products of very small amount to the poor in rural, semi-urban and urban areas for
enabling them to raise their income levels and improve living standards. Micro Credit
Institutions are those which provide these facilities.
The microfinance industry in India emerged in the 1970s to provide poor
people with access to credit without resorting to the usurious interest rates fixed by
informal moneylenders. Microfinance refers to the provision of financial services on
a small scale to the rural and urban poor, including the self-employed. Financial
services generally include savings and credit; however some microfinance institutions
also provide additional services like technical assistance. Microfinance activities
usually involve. Microfinance is not simply banking, it is a development tool.
The SHG is the dominant microfinance methodology in India. The operations
of 15-25 member SHGs are based on the principle of revolving the Members` own
savings. External financial assistance-by MFI s or banks-augments the resources
available to the group-operated revolving fund.
NABARD has facilitated and extensively supported a programme which
entails Commercial Banks lending directly to SHGs rather than via bulk loans to
MFIs. NABARD re-finances the loans of the commercial banks to SHGs. The Self-
help Group-Bank Linkage Programme (SBLP) launched by NABARD in 1992, with
the policy thrust of Government of India and Reserve Bank of India, has proved that
the poor are bankable and have high propensity to save if opportunity and motivation
are provided to them. This programme is the largest non-directed micro savings and
micro credit programme in the developing world. The Self-help Groups (SHGs)
consist of members who are poor, have low saving capacity and depend on informal
sources for meeting their consumption and production needs.
Group approach has been found to be a cost-effective, equitable and
sustainable way to channelise developmental efforts. The rural poor, however, may
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not be able to form groups by themselves and would require the services of some
change agent like developmental agencies, Non Government organizations etc. to act
as intermediate link with the formal credit agencies. The institutions promoting such
groups are called Self-Help Promoting Institutions (SHPI). Realising the potential of
the SHGs in implementing community development programmes, the state
government and several development organizations have also started promoting
SHGs.
SGHs are voluntary associations of people formed to attain certain collective
goals, both social and economic. The existence of SHGs, dates prior to any organized
intervention by any external agency as they have originated on their own.
The use of SHGs as conduit for delivering saving and credit services to rural
poor, however, is of relatively recent orgin. Cooperative movement started in the
country at the turn of last century, probably represents one of the earliest examples of
self-help to bring together people for fostering thrift and mutual help for economic
betterment of the members. However, unlike SHGs, cooperatives are larger in size
and members come from heterogeneous economic status.
Need For Micro-Credit
Since the 1950s, various governments in India have experimented with a large
number of grant and subsidy based poverty alleviation programmes. Studies show
that these mandatory and dedicated subsidized financial programmes, implemented
through banking institutions, have not been fully successful in meeting their social
and economic objectives. The formal financial institutions have not been able to
reach the poor households, and particularly woman, in the unorganized sector.
Structural rigidities and overheads lead to high cost of making small loans.
Organizational philosophy has not been oriented towards recognizing the poor as
credit worthy. The problem has been compounded by low level of influence of the
poor, either about their demand for savings services. Microfinance programmes have
often been implemented by large banks at government behest. Low levels of
recovery have been further eroded due to loan waiver programmes leading to
institutional disenchantment with lending to small borrowers. All this gave rise to the
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concept of micro-credit for the poorest segment along with a new set of credit
delivery techniques.
Origin of Micro-Credit
The origin of micro finance could be traced back to the beginning of the
cooperative movement in Germany. The movement was started in 1944 in the field of
cooperative based credit system by the Raiffeisen Societies as well as Rochdale
pioneers in England. Similarly, the enactment of the cooperative credit societies Act,
1904 could be considered as the beginning of micro finance in India.

Experiences of different anti – poverty and other welfare programmes
implemented throughout the world have shown that the key to their success lies in the
evolution and participation of community based organizations at the grass roots level.
People’s participation in credit delivery and recovery and linking of formal credit
institutions to borrowers through intermediaries of SHGs have been recognized as a
supplementary mechanism for providing credit support to the poor. NABARD is
pioneer in the conceptualizing and implementing the concept of SHG through the
SHG-bank linkage since 1992.Grameen Bank of Bangladesh
Muhammad yunus, born 1940, is a Bangladeshi banker and the developer and
founder of the concept of micro credit. In 1976, Yunus founded the Grameen Banks to
make loans to poor Bangladeshis. Since then the Grameen Bank has issued more than
$3 billion in loans to some 2.4 million borrowers. To ensure repayment, the bank uses
a system of “Solidarity groups”. Small informal groups which apply together for loans
and whose members act as co – guarantors of repayment and support one another’s
efforts at economic self – advancement. As it has grown, the Grameena Bank has also
developed other systems of alternate credit that serve the poor. In addition to micro
credit, it offers housing loans and well as financing for fisheries and irrigation
projects, venture capital, textiles, and other activities, along with other banking
services such as savings. The success of the Grameen Model has inspired similar
efforts through out the developing world and even in industrialized nations including
the united states.
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Bias towards large borrowers and large volume loans policy and procedures of
banking system are oriented to serve a small number but huge loan amounts.

Emergence of SHGs as Micro-credit Institutions
SHG is a voluntarily formed group with the member size of 10-20. The group
is basically homogeneous in nature. Members come together for addressing common
problem. The amount of saving is within the range of Rs.20-150 per month. They
rotate this common pooled resource within the members with very small rate of
interest. Each group has a leader called as the president and secretary. He usually
maintains records of transactions on a daily basis in written format. In India
NABARD initiated SHGs in 1986 – 87. But the real effort was made after 1991-92
from the linkage of SHGs with banks. The main aim of the programme is to tap the
potential of the SHG concept so as to bring banking service to the doorsteps of poor,
especially the woman who have been neglected by the formal financial agencies in the
past. SHGs intermediaries in micro credit have positive effects on woman, with some
of these impacts being ripple effects. They have played valuable roles in reducing the
vulnerability of the poor through asset creation, income generation and consumption
smoothing, provision of emergency assistance, and empowering and emboldening
women by giving them control over assets and increased self – esteem and
knowledge.
NABARD’s Initiative
First official interest in informal group lending in India took shape during
1986 – 87 on the initiative of the NABARD. As a part of this broad mandate,
NABARD initiated certain research projects on SHGs as a channel for delivery of
micro finance in the late 1980s. In 1988-89 in collaboration with some of the member
institutions of the Asia pacific Rural and Agricultural credit Association (APRACA),
NABARD under took a survey of 43 NGOs in 11 states in India, to study the
functioning of micro finance SHGs and their collaboration possibilities with the
formal banking system.
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Both these research projects threw up encouraging possibilities and NABARD
initiated with a view to evolving supplementary credit strategies for reaching the
unreached poor in rural areas like landless agricultural laboures, rural poor women,
etc, in a transparent and a cost effective way, NABARD had launched its pilot phase
of the SHG – bank linkage programme in February 1992 which could be considered
as a land mark development in bank with the poor.
The country has witnessed a rapid growth of self-help groups (SHGs) in the
last one decade or so. The SHG growth which has almost assumed the form of a
movement represents a massive grassroots level mobilization of poor rural women
into small informal associations capable of forging links with formal systems to help
access financial and other services needed for their socio-economic advancement.
Basically, SHGs are being promoted as a part of the microfinance interventions aimed
at helping the poor to obtain easily financial services like savings, credit and
insurance.
The promotion of SHGs in India began more formally with the launch of the
SHG-Bank Linkage Programme by National Bank for Agricultural and Rural
Development (NABARD). The programme’s main aim was to improve rural poor’s
access to formal credit system in a cost effective and sustainable manner by making
use of SHGs.
A self-help group has been defined as a small and informal association of poor
having preferably similar social-economic background and who have come together
to realize some common goals based on the principles of self-help and collective
responsibility. SHGs become relevant because of the following reasons. First, a SHG
working on the principle of solidarity helps the poor to come together to pool their
savings and access credit facilities. A SHG by tapping social capital like trust and
reciprocation helps in replacing physical collateral, a major hurdle faced by the poor
in obtaining formal credit. Then, through the principles of joint liability and peer
pressure, a SHG ensures prompt loan recovery from the members. In the process, a
SHG helps the poor, especially women, to establish their creditworthiness.
The second major role of SHGs is seen in terms of their potential to empower
the women members. The participation in SHG and the access obtained to savings and
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credit can play a transformational role for women, socially and economically. The
access to savings and credit helps a women member to take care of her family’s
financial needs for consumption and production purposes. The ability to meet such
needs of the family would enhance the standing of the woman in the family would
enhance the standing of the woman in the family leading to better gender relations.
The continued participation in SHG is further likely to enhance the awareness, skills
and other abilities of the women resulting in building of individual self-esteem and in
getting due social recognition.
The SHG programme is now more than a decade old. There is a need to
explore (i) to what extent SHGs have helped poor women to get access to savings and
credit? (ii) to what extent the improved access to financial capital has contributed
towards attaining goals like poverty alleviation and women’s empowerment? and (iii)
what are the challenges and constraints faced by SHGs in playing their expected role?
The primary role expected of SHGs is one of improving for the poor the
access to savings and credit. Studies available indicate that as a result of the
participation in SHGs. Members have been able to accumulate significant savings. In
states like Andhra Pradesh, on an average, SHG members have accumulated
individual savings worth upto Rs 1800. In mature SHGs the average individual
savings had been as high as Rs 10,000. Though in absolute amount the savings is
small, it becomes significant when seen from the angle that bulk of the SHG members
hail from poorer communities unable to save conveniently and safely earlier. Own
savings can be handy and useful in many ways. Many SHGs members even consider
development of the habit of savings as the major impact of their participation in
SHGs. There are evidence to indicate that using the opportunity of savings provided
by the SHGs, women are able to meet various life cycle needs like housing, education
and marriage
SHGs are also found helping women to leverage the savings for accessing
credit. SHGs are utilizing the savings mobilized to lend small loans internally among
their members. A significant number of SHGs have now taken up internal lending
helpful for meeting urgent consumption and social credit needs. Based on the savings
accumulated, SHGs are borrowing from banks and SHG federations to meet bigger
credit needs of the members for production purposes. More and more SHGs are
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getting credit linked to banks which is increasing the members’ access to formal
sources of credit.

SHGs-the instruments for improving economic conditions
A foremost impact discernible is the reduced dependence of SHG households
on informal sources of credit. The members of the SHGs have been able to reduce
their dependence on moneylender very significantly. A study on SHGs reported a
decline in the share of moneylender’s loan from 66to 15 per cent for the members. In
another study, nearly 51 per cent of the members closed their old debt with the
moneylenders using SHG loans. The members at the same time have been able to
generate a substantial surplus for themselves due to cheaper interest paid on loans.
Through credit obtained from SHGs, the members have made efforts both to
protect their families from various vulnerabilities as well as build their economic base
to escape from poverty. This is evident from the fact that members are making use of
SHG loans for diverse purposes. While use of loans for consumption purpose still
remains a major item of utilization, members are increasingly using the SHG loans for
social and productive needs. Health education and housing are some of the areas
members have begun to increasingly channelise their loans. SHG members are also
using quite significantly SHG loans for regular economic activities like animal
husbandry, agriculture and petty business.
Microfinance seems to have played a more critical role in facilitating clients to
cope with life cycle events in a stainable manner. The economic impact of SHGs has
been more protectional rather than promotional in nature. This is attributed to
exclusion of very poor and the general constraints faced by poor in making use of
loan for productive investments. There are also some evidence to suggest that the
participation in SHG has even led to change for worse on many counts.
Though SHGs have begun to contribute in improving the economic conditions
of the poor households, the impact does not seem to be a uniform phenomenon. At the
same time, there is no evidence to establish the fact that the positive impact noticed in
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some instances are attributable to women’s involvement. However, going by the
evidence available from Bangladesh, it could be inferred that the involvement of
women might have made a significant difference even in India wherever positive
changes have been noticed.
Women’s Empowerment
Given the widespread gender bias against women in various fields, there are
arguments that interventions like microfinance have the potential to enhance women’s
capabilities which can make a significant difference to overall development of
women. Those who hold the above view argue for supporting microfinance
interventions and tuning them to meet the needs of women specifically. On the other
are arguments that microfinance interventions can at best have only a very limited
impact in empowering women. Interventions like microfinance are constrained by the
existing socio-cultural structures like patriarchy in order for them to make a very a
significant impact on women. Under such circumstances women hardly have any
control in deciding or directing loan use for purposes, which can enhance their
individual economic position over those dictated by familial requirements. Access to
savings and credit can take care of mainly the practical needs of women instead of
meeting their strategic needs.
SHG Bank Linkage – The Genesis and Growth
Based on the positive and encouraging findings of various research projects,
NABARD, in consultation with Reserve Bank of India, initiated the pilot project in
1992 for linking of 500 SHGs with banks with the following objectives:
• Evolving supplementary credit strategies for meeting credit needs of the poor
by combining flexibility, sensitivity and responsiveness of the informal credit
system with the strengths of technical, administrative capabilities and financial
resources of the formal credit institutions.
• Building Mutual Trust and confidence between bankers and rural poor.
• Encouraging banking activity, viz. thrift as well as credit, in a segment of the
population that the formal financial institutions usually find difficult to cover.
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Reserve Bank of India allowed the banks to open savings bank account in the
name of SHGs, registered or unregistered. From a modest beginning of financing of
255 SHGs during 1992-93, the programme reached the level of financing 620 SHGs
in 1993-94 and 2122 SHGs during 1994-95.The SHG-Bank linkage programme made
a cautious progress during the period 1992-1999 with credit linking of 32,995 SHGs.
The progress has been rapid from 1999-2000 onwards with number of SHGs financed
increasing from 81,780 in 1999-2000 to 16, 90,671 groups in 2008-09. The
cumulative number of SHGs credit linked with the banks as at the end of 31 March
2009 stood at 41,88,029 groups with loan outstanding of Rs.24368.51 crore.
The programme has made significant contribution to social and economic
improvement of the member households of SHGs. The micro credit has reduced the
incidence of poverty through increase in income, enabled the poor to build assets and
thereby reduce their vulnerability.
Rationale of SHG Bank Linkage programme
Saving which is as crucial as loans for the economically active rural poor,
remain completely untapped as organized retail Banking does not reach them. The
same happened for social security measures like insurance. This means that there is an
urgent need for micro-finance to grow out of being only a credit delivery system to
full rounded financial services system. SHGs overcome several problems faced by
traditional Banks.
Firstly, pooling itself reduces lending risks. If an unlucky borrower cannot
repay, fellow members will typically bear the burden. This may impose high cost as
Rescuers, but reduces costs for the lender and also for the SHGs overall.
Secondly, Bankers have little knowledge about the different types of
borrowers in a village about their worthiness there are some risky borrowers and also
some safe borrowers. Due to the ignorance when the loan is sanctioned to the
borrowers Bank generally charges an uniform rate to all the borrowers. So, risky
borrowers gain while safe borrowers loose. The villagers know better who is a risky
borrower and who is a safe one. The safe borrowers grouped together to form SHGs
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that keep out the risky one. Risky borrowers are forced to form their own associations
and for their default in payment generally they pay penalties.
Thirdly, safe borrowers after repaying the amount which they have borrowed
are entitled to borrow again at a large scale, while defaulters are cut off. This
increases the proportion of credit flowing to safe borrowers without any extra
supervisory costs in the process of loan cycling.
Fourthly, easy credit is available with the Banks some times for hoarding more
cash due to temptation can take high risk ventures with the intention that in future, he
may default the amount by exercising political power of some times the collateral
security retained by Banks in the form of agricultural and when seized by the Banker
the villagers resist by force or sometimes with the help of local police force. Under
such a situation if loan will be granted under SHG all the members will put pressure
on individuals to avoid risky ventures, since the whole group suffers if the venture
fails.
Fifthly, the group approach also reduces moral hazard. Group members will at
their own cost will monitor the project for which they have given group guarantees,
and press the borrower to handle his assets diligently and prudently this efficiency
gains allow the lender to reduce interest rates further. Issues of concern
Self-help groups have been instrumental in initiating micro entrepreneurial
activities among those poor people who have been neglected so far and far away from
the process of social as well economic development. Self-help groups-bank linkage
programme is responsible for developing banking habits among the poorest of the
poor people. The most significant contribution of SHGs is that they build up enough
confidence among the poor and now they are ready to participate in the process of
development. Many of these have been running fair price shops very successfully. A
sizable number of the groups are working as caterers for the state government
sponsored mid-day meal scheme. It is noteworthy that a good number of the SHGs
have been marketing successfully the products of domestic as well as multi national
corporations in remote rural areas. SHGs-bank linkage programme in India is the
largest poverty alleviation programme in the world. Self-help group movement is a
revolutionary movement as it attacks on poverty and unemployment and the most
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