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their profitability after accounting for both loan losses and the promoting SHPA's costs (iii)
the sustainability of SHPAs in being able to recover their costs on group promotion, (iv) the
sustainability of federations in providing continuing support, and (v) the sustainabiliity
(profitability) of the banks in undertaking SHG lending. We have already considered the
evidence of our studies on (i) and (ii). Regarding (v), the jury is still out on the profitabilility
of the banks at the current level of interest rates being charged. 35 The evidence on sustainability
of federations has been discussed by Nair (2005). For the programme as a whole, the
sustainability of relevance is not financial but social and economic (in the cost-benefit
sense). There is little doubt in the mind of well-informed observers who have field experience
that the programme is vastly profitable in a social sense, even after including the cost of
promotion that will have to be met by subsidies. Proving this is another matter given the
unquantifiable nature of many of the benefits such as empowerment, and equity in access to
finance. A third benefit, the reduction of income poverty is measurable, but much more
rigorous studies than have been done so far will be necessary before it can be measured. 36
One of the
criticisms of
the programme
is that the level
of support it
provides to
SHPAs is well
below this, and
insufficient in
amount and
time to build
the capacity,
primarily
bookkeeping
systems and
skills, required
Regarding (iii), the modal estimate of SHG formation, training, and hand-holding costs over
a period of time is about Rs 10,000, as noted earlier. One of the criticisms of the programme
is that the level of support it provides to SHPAs is well below this, and insufficient in amount
and time to build the capacity, primarily book-keeping systems and skills, required to (i)
achieve the flexibility that would allow greater inclusion and depth of outreach, apart from
(ii) greater transparency and accountability, both of which contribute to the social and
financial objectives of equity, longevity, and portfolio quality (and therefore profitability).
However NABARD takes the view that grant assistance to NGOs for SHG promotion is not
intended to meet the full costs of successful group promotion, but is only an add-on, which
the NGO is expected to supplement from other sources including donors, and cross-subsidization
from funding available for the other activities they often promote. In April 2005, NABARD
increased the amount of grant assistance it pays an NGO for successful group promotion from
Rs 2,000 to Rs 3,000 per group, and by 50 percent for all other SHPAs, including Regional
Rural Banks (RRBs) which now receive Rs 1,000. The higher amount to NGOs is now released
over 3 instead of 2 years, with a higher proportion of the amount "back-ended", and made
conditional on maintenance of books of accounts, which have been audited by the NGO. 37
Had the problem been entirely one of funding it would have been relatively tractable. It
should be possible for the government to come up with the funds to pay for the full costs of
SHG promotion. Assuming the programme expands organically at half a million new groups a
year at a promotional cost of Rs 10,000 over the life of the groups, this translates to Rs 500
crore, which is not very much more than the average of about Rs 400 crore a year as subsidies
that were spent by the central government alone on the SGSY programme during the 10th
Plan, on a small sub-set of the total number of groups that were included in the SGSY programme,
largely ineffectively and wastefully. Since the states are expected to match the central
government contribution with a matching 25 percent, the actual expenditure on credit linked
subsidies was higher than Rs 500 crores. 38 The corpus of NABARD's Micro Finance Development
and Equity Fund (MFDEF) was doubled to Rs 200 crores in 2005, and amounts spent out of
this on a pilot programme to find out what (and how long) it takes to create high quality
groups that fulfill the criteria of an "ideal SHG" should be high priority. For the problem is as
much one of the lack of a model or models, of the best way to go about equipping groups with
the relevant skills and capacity, as discussed below.
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