Self-help Groups as Financial Intermediaries in India ... - Sa-Dhan

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2. DEVELOPMENT OF SELF-HELP GROUPS IN INDIA – AN OVERVIEW2.1 Features of SHGsA variety of group-based approaches that rely on social collateral and its many enablingand cost-reducing effects are a feature of modern microfinance (MF). It is possible todistinguish between: (a) groups that are primarily geared to deliver financial servicesprovided by microfinance institutions (MFIs) to individual borrowers (such as the jointliability groups of Grameen and the NGO-banks of Bangladesh); and (b) groups thatmanage and lend their accumulated savings and externally leveraged funds to theirmembers.While the term ‘self-help group’ or SHG can be used to describe a wide range offinancial and non-financial associations, in India it has come to refer to a form ofAccumulating Saving and Credit Association (ASCA) (after Bouman, 1995) promoted bygovernment agencies, NGOs or banks. Thus, SHGs fall within the latter category ofgroups described above.A distinction can be made between different types of SHGs according to their origin andsources of funds (Appendix 2). Several SHGs have been carved out of larger groups,formed under pre-existing NGO programmes for thrift and credit or more broad-basedactivities. Some have been promoted by NGOs within the parameters of the bank linkagescheme but as part of an integrated development programme. Others have been promotedby banks and the district rural development agencies (DRDAs). Still others have beenformed as a component of various physical and social infrastructure projects. Some of thecharacteristic features of SHGs currently engaged in MF are given below:• An SHG is generally an economically homogeneous group formed through a processof self-selection based upon the affinity 1 of its members.• Most SHGs are women’s groups with membership ranging between 10 and 20.• SHGs have well-defined rules and by-laws, hold regular meetings and maintainrecords and savings and credit discipline.• SHGs are self-managed institutions characterised by participatory and collectivedecision making.NGO-promoted SHGs were often nested in sanghas or village development groupsundertaking integrated development activities. As they have developed, SHGs or sanghashave been grouped into larger clusters and multi-village federations for financial and nonfinancialactivities.1 The question of affinity is, however, a contentious one. Several practitioners ascribe the “poor” quality ofnew SHGs being formed (particularly by banks and state agencies as part of a target-driven approach) tothe lack of affinity among their members. In fact, a leading NGO calls groups it promotes self-help affinitygroups (SAGs) rather than SHGs. On the other hand, the concern with affinity can translate into formationof caste-based SHGs (rather than formation of groups based upon shared poverty conditions), with thepotential negative ramifications of caste politics.4
2.2 SHG-Bank Linkage2.2.1 Bank Linkage Scheme – The ModelThe SHG-bank Linkage Programme has its origins in a GTZ-sponsored project inIndonesia. Launched in 1992 in India, early results achieved by SHGs promoted byNGOs such as MYRADA, prompted NABARD to offer refinance to banks for collateralfreeloans to groups, progressively up to four times the level of the group's savingsdeposits. SHGs thus "linked" became micro-banks able to access funds from the formalbanking system. The linkage permitted the reduction of transaction costs of banksthrough the externalisation of costs of servicing individual loans and also ensuring theirrepayment through the peer pressure mechanism.The programme encompasses three broad models of linkage:Model I: Bank - SHG - MembersIn this model the bank itself promotes and nurtures the self-help groups until they reachmaturity. It accounted for 16% of cumulative bank loan provided till the end of March2002.Model II: Bank - Facilitating Agency - SHG - MembersHere groups are formed and supported by NGOs or government agencies. Thedominant model, it accounted for 75% of cumulative loans of banks by March2002.Model III: Bank - NGO-MFI - SHG - MembersIn this model NGOs act as both facilitators and MF intermediaries, and often federateSHGs into apex organisations to facilitate inter-group lending and larger access to funds.Cumulative bank loans through this channel were 9% of total by March 2002.Another model has been piloted recently by NABARD for facilitating theformation of SHGs for bank linkage in areas where there are no NGOs. Thisinvolves using the services of committed individual volunteers identified by bankbranches.2.2.2 Outreach of SHG-bank linkageDetails of outreach of the SHG-bank linkage programme are given in Table 2.1. While theSHG-bank linkage programme was slow to take off, in recent years it has expandedexponentially. By the end of March 2001, its coverage had more than doubled over theprevious year to 4.5 million families in nearly 2.64 lakh 2 SHGs, with 90% womenmembers. These SHGs had availed of Rs. 480.87 crores in cumulative bank loans. The2 1 lakh = 100,000; 10 lakhs = 1 million; 100 lakhs or 10 million = 1crore5
Page 4 and 5: List of AcronymsAIAMEDAIMSAPMASASAA
Page 6 and 7: EXECUTIVE SUMMARY1. Introduction1.1
Page 8 and 9: self-management by members and scal
Page 10 and 11: 6.4 On the other hand field reports
Page 12 and 13: sustainable self-help groups. An in
Page 16 and 17: average loan per SHG was Rs. 18,227
Page 18 and 19: • training and sensitising bank o
Page 20 and 21: organizational structure and the na
Page 22 and 23: Table 2.1 (contd.)S.No.ParticularsN
Page 24 and 25: the SHG from banks starts from pari
Page 26 and 27: • In either situation SHGs can co
Page 28 and 29: 3.2.3 SHG Federations Linked to MF
Page 32 and 33: 3.4 ConclusionThis section served t
Page 34 and 35: MYRADA,Karnatakaa.o.OUTREACH,Karnat
Page 36 and 37: Name ofNGO/StateDHANFoundation,Tami
Page 38 and 39: However, for a comparative analysis
Page 40 and 41: linkages with credit and savings 34
Page 42 and 43: out of 5,153 SHGs covered under the
Page 44 and 45: eceived revolving fund grants, cost
Page 46 and 47: the high level of educated unemploy
Page 48 and 49: CARE-CASHE Project(A.P.)(implemente
Page 50 and 51: Holy CrossSocial ServiceCentre(HCSS
Page 52 and 53: Agency/Programme5. Rashtriya Mahila
Page 54 and 55: microfinance intermediary 41 . Unde
Page 56 and 57: On the other hand, there is evidenc
Page 58 and 59: infrastructural and other constrain
Page 60 and 61: would not be possible while working
Page 62 and 63: through the SHG as a basis to sourc
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the programme is particularly probl
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It is possible to query the methodo
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world. Other partners from India ar
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RECOMMENDATIONSIt is not clear what
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REFERENCESAIAMED (2000), Good Pract
Page 75:
Mahajan, Vijay and G. Nagasri (1999
Page 79 and 80:
Appendix 2: Types of SHGsTypes of S
Page 81 and 82:
Appendix 3 (contd.)OrganisationSIDB
Page 83 and 84:
4. Trade based Group model: The est
Page 85 and 86:
Appendix 5S.No.1. JOTHI 92,077.00
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Appendix 6: Stages of Evolution of
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Self-help Groups as Financial Intermediaries in India ... - Sa-Dhan

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