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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. 34
Progress under the SHG Bank Linkage Programme The evidence of our studies is that an issue deserving as much concern perhaps as financial sustainablilty is that of institutional sustainablilty. Fears expressed in the early days of the programme of groups disappearing after a couple of years have proved largely unfounded as discussed above. However as we have seen, overdues and portfolio at risk within groups are more serious problems than is widely appreciated, and may be reaching the critical level at which they could affect group cohesion in a much larger proportion of groups, affecting repayment to the banks. Several studies (including those discussed above) of both groups and federations, indicate that overdues increase with time and loan size, and this could affect the programme as it ages. The situation is particularly serious in respect of groups promoted by field staff of government departments 39 in response to targets. Government promoted groups may already constitute the largest single number and their proportion appears to be increasing under a variety of programmes, many of them state governments’. As LSS notes, government promoted groups contain the highest proportion of "low" input groups in terms of continuing hand-holding, training, and monitoring after the group has been formed. Direct subsidies (matching grants, revolving fund assistance, interest rate subsidies) further distort the programme. 40 Deteriorating portfolio quality over time, as well as exclusion, another challenge facing the programme, are both closely related to the need for greater flexibility and variability in loan repayment schedules, and in savings amounts and frequencies. The former have to be made more compatible to the different cash flows of the various activities being financed, and the second to the income levels of the poor and fluctuations therein. Clearly, greater flexibility will place an even greater burden on loan administration skills within the group, and on limited book-keeping skills. Simplification of book-keeping is another priority. There is an urgent need for action research in both these areas and in organizing the logistical aspects of book-keeping generally. Ekgaon Technologies with the Covenant Center for Development in Tamil Nadu, Ibtada in Rajasthan and Pradan in Jharkhand are doing valuable work in this respect, which is being documented under the GTZ-NABARD collaboration. Box 2.1, based on Kanitkar and Meissner (2006), describes Pradan's "Computer Munshi" project. However there is need for many more similar efforts all over the country. 41 Based on the results of the action research, the critical area in which training and continuing assistance to the groups is needed is book-keeping. As LSS says "Even with social objectives, "Self-Help" has a financial base (depositing and managing savings, lending and borrowing) and the base has to be right, with effective and transparent management and the guidance to do this. Clear guidelines and systematic record-keeping for microfinance transactions are essential, whatever, the SHPA orientation… This has to be part of the initial focus and guidance, over a period of 2-3 years. It is a case of getting the basics right." 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 Recommendations The need to slow down A clear conclusion that emerges is the need to slow down and emphasize quality rather than quantity. Global targets for the programme should be strictly eschewed, and only indicative targets for the underserved states and regions within them, or for the share of particular SHPAs being encouraged, should be used for internal planning purposes. The goal should be 35
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 34 and 35: highest proportion of weak records
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
Page 84 and 85: 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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