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highest proportion of weak records (over half), and were half as likely as NGO or bank promoted groups to have good or moderate records. This is not surprising, since 77 percent of government promoted groups receive low inputs of any kind, microfinance or development, or field worker supervision, as compared with the average proportion for all groups, of 37 percent. 20 An extremely useful finding is that it costs the equivalent of $115 to launch a group and another $145 to continue training and monitoring it, for a total of $259 per group. This figure is about the modal cost of about Rs 10,000 per group reported across a number of studies, and imparts a sense of realism about the financial magnitude of the task ahead, which however is affordable as discussed below The level of overdues within groups has prudential implications not only for members' own savings, but is likely to be correlated with overdues from the groups to the banks, although this may have been masked so far because the relatively small size of the first couple of loans has enabled most groups to make bullet repayments at the end of the loan period. While this has the advantage of reducing transactions costs and may be more compatible with seasonality of cash flows, it could prove increasingly problematic as loan size increases. Although the norm is regular weekly or monthly payments, at least of interest, and often also of principal, in practice most SHPAs do not consider a loan to be overdue until repayment is 90 days overdue. On this definition 24 percent of current borrowers had overdues (and 5 percent of them were overdue by more than 12 months). Overdues were the highest for very poor borrowers, followed by those for the non-poor. 21 Another measure of portfolio quality is portfolio at risk (PAR), which for the 45 percent of groups that had PARs of 365 days was 17 percent. 22 Overdues do not necessarily lead to default, and largely reflect considerable variance in practice with the stated norm of regular monthly or quarterly repayments, but default was found to be the most important reason for groups breaking up or ceasing to function (small though their number is), and overdues reduce the availability of funds for relending within the group and timely repayments to the banks. They also reduce profitability. 23 The study also found indications of an increasing number of groups reaching the limits of their credit absorption capacity, or the emergence of a sort of Peter's Principle, with groups rising to a level of loan size which they find difficult to absorb or repay, and of older groups being more likely to default. Viewed in this context, the impatience sometimes expressed with the rate and progression in size of repeat loans by the banks may be misplaced. In fact the evidence points to the need for consolidation of quality in its many aspects, and considerably diluting if not abandoning the present focus on targets. Value for Money Another 2005 study "Do Self-Help Groups provide value for money" by LB Prakash and Others (Forthcoming), of 150 SHGs, 30 in each of 5 states, in each of which they were promoted by an SHPA of different institutional type, comes out with a similarly mixed verdict, and remarkably similar findings on (i) equity in loan distribution within groups (ii) dropouts (15 percent of members for the sample groups with had an average age of 5 years, but who were replaced by new members to the extent of 9 percent) (iii) longevity (lower for government promoted groups), and (iv) deteriorating portfolio quality with age (but better than in LSS with the 365 day PAR being 11 percent). It found evidence also of a correlation between PARs within groups and in relation to loans outstanding to the banks. 24 Like many other studies it noted empowerment benefits, and increases in income (but for only 25 percent of the members), and the decline of moneylenders who either "disappeared" or reduced their rates. Interestingly it did not find evidence of the NGOs in its sample having better portfolio quality, deeper outreach or greater profitability. An extremely useful finding 32
Progress under the SHG Bank Linkage Programme is that it costs the equivalent of $115 to launch a group and another $145 to continue training and monitoring it, for a total of $259 per group. This figure is about the modal cost of about Rs 10,000 per group reported across a number of studies, 25 and imparts a sense of realism about the financial magnitude of the task ahead, which however is affordable as discussed below. Using these "promoters" costs as worked out for each institution, and providing for loan loss reserves based on APMAS norms, it estimated that average return on assets (RoA) drops from 13 percent unadjusted (with a range of 18 to 7 percent) to 9 percent after adjusting for losses (range 16 to 1 percent) and to nil after adjusting for promotion costs (range 7 to -9 percent) 26 The APMAS Study Older is not wiser A third study extremely rich in detail and insights, but focusing on a single state, AP, was brought out by APMAS in 2005, summing up the experience of several studies conducted by it from early 2003 onwards. It covers 400 groups in 8 districts, with a weighted average age of 4 years, but with 5 percent of the sample going up to over 9 years. It provides interesting information on the dynamics of aging. Thus the percentage of dropouts increases to 28 percent after 9 years. As the study points out "Membership change is usually the sign of a well developed organization having a life quite apart from its members. In the case of SHGs, however, their small size makes them vulnerable to upheavals in membership. Further, members need continued support from their organization, over lengths of time, if they are to benefit in a sustainable manner." Grading the groups into A, B, and C quality groups based on NABARD's suggested Critical Rating Index tool, 27 the study detected evidence that the overall quality of groups tends to deteriorate after a couple of years, recovering again in years 7- 8, and thereafter perhaps undergoing a second cycle of deterioration, although shallower than the first one. Nevertheless the share of A graded groups ends up at 66 percent in year 9 after starting from 74 percent in years 1-2. 28 The study notices a similar cycle in cumulative savings. 29 In contrast with the inverse relationship of group quality with age, group quality tends to improve with successive repeat loans. 30 The study contains interesting descriptive information on the costs of securing a "linkage", time taken for loan sanction and release, 31 procedures, and the problems faced by groups 32 and by bankers 33 , with each other, and with other players, greatly enhancing our understanding of the whole linkage process. While default had not yet manifested itself as a serious problem, 34 the study points out that practices such as deducting overdues from new loans, or from amounts lying in group savings accounts were common practices hiding the true picture, and that "real default is probably a much bigger problem than is acknowledged." Implications for policy An issue often raised is the financial sustainability of the programme as a whole, and of its various components, i.e. (i) the profitability of groups after accounting for loan losses, (ii) 33
Page 3: Microfinance in India A State of th
Page 6 and 7: List of Tables Page No Table 2.1 Gr
Page 8 and 9: Preface and Acknowledgements This r
Page 10 and 11: Abbreviations ABC ADB BC BF CAR CAG
Page 13 and 14: CHAPTER 1 Overview and Summary of M
Page 15 and 16: Overview and Summary of Main Recomm
Page 27: Overview and Summary of Main Recomm
Page 30 and 31: 1 1a 1b 2 2a 2b 2c 3 3a 3b 3c 4 4a
Page 32 and 33: The Light and Shades Study A major
Page 36 and 37: their profitability after accountin
Page 38 and 39: allow the programme to grow organic
Page 40 and 41: 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8
Page 42 and 43: Endnotes 1 It is very hard to compa
Page 44 and 45: as cash with the groups, the true r
Page 46 and 47: linkages", 11 percent 3rd, and 5 pe
Page 48 and 49: References APMAS (AP Mahila Abhivru
Page 51 and 52: CHAPTER 3 Progress Under the MFI Mo
Page 53 and 54: Progress Under the MFI Model is fun
Page 55 and 56: Table 3.4 Comparative performance i
Page 57 and 58: Progress Under the MFI Model on lit
Page 59 and 60: Progress Under the MFI Model 4 Howe
Page 61: Progress Under the MFI Model Refere
Page 64 and 65: MFIs, and the need for MFIs to plou
Page 66 and 67: size had actually come down during
Page 68 and 69: The point at which peer group press
Page 70 and 71: The lack of contact and communicati
Page 72 and 73: Box 4.1 Continued 4. MFIs will coll
Page 74 and 75: Endnotes 1 There will be many disag
Page 76 and 77: 19 The base suicide rate in AP is 1
Page 78 and 79: References APMAS, 2005, "A Report o
Page 80 and 81: (such as cattle and houses), and co
Page 82 and 83: The advantage of the provider model
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Some lessons learnt from experience
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Box 5.2 VimoSEWA: Synergies between
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86 Table 5.1 Main Feature of Health
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Endnotes 1 While the microinsurance
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16 A little less than a fifth of th
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29 The rationale for transfer progr
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Roth, James and Vijay Athreye, 2005
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Issues and priorities for action re
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Endnotes 1 See for instance CGAP (2
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100
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such as Chaitanya who soon became s
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money to support operational expens
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finance, and the microfinancial ski
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Box 6.1 Continued in experts and to
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Endnotes 1 In a sense it always was
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16 Examples are Margdarshak in Luck
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114
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Table 7:1 Commercial bank exposure
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The main constraints to the expansi
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further review, RBI has modified th
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9 Thus ICICI has sold some of its b
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B. Equity Investments by the Ventur
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Figure : The Bellwether triangle Lo
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Despite the weaknesses the public s
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Box 7.1 Continued foreign sources o
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Endnotes 1 At this point they will
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References ACCION, 2003, "The Servi
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SIDBI Foundation for Micro Credit (
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categories, depending on the amount
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The distribution of total disbursem
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Endnotes 1 It should be noted that
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B. Donor Participation in Indian Mi
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this has dropped to 8% on the curre
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and poor populations. More directly
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and expansion of available retailer
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11 SDC through various programs for
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154
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1.1 Impact evaluation of Spandana's
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in the loan tenure of 24 months. Th
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There are two main motivations of a
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compensation structures used by Ind
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Endnotes 1 By Annie Duflo, Anvesha
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29 The main components of direct tr
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