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

3. PATHS OF SHG DEVELOPMENT: NGO STRATEGIES AND STRUCTURESFOR FINANCIAL INTERMEDIATIONThe objectives of SHG promotion in India by NGOs are expressed in a variety of ways withlivelihoods and empowerment at the centre. Barring a few exceptions, these NGOs have beeninvolved with microfinance (MF) along with health, education and natural resourcemanagement often as part of an integrated approach 7 . However, NGOs are under pressure toaddress the question of financial sustainability of their MF programmes, an issue that isincreasingly being raised by international donors and domestic funding sources. It hasbecome necessary for NGOs to demonstrate that their microfinance programmes can becomeoperationally and financially self-sufficient. At the same time NGOs are constrained by thequestion of which legal form (most NGOs have been working as registered not-for-profitsocieties) to adopt for continued operations in this sector. This is further tempered by the NGOobjective of creating community owned and managed financial institutions built upon the SHGconcept. These pressures have brought about a period of transition as NGOs struggle to discoverthe appropriate institutional structure, both for themselves and the community institutionspromoted by them, given the conditions attached to various sources of funds and local andnational legal and regulatory provisions.Table 3.1 gives the vision and organisational details of SHG models promoted by the sevenleading NGOs covered by this study. For the flow of financial resources, the vision invariablyinvolves a linkage between the informal SHGs and formal or mainstream structures offinancial services delivery. With the exception of NBJK all the NGOs have been at theforefront of the SHG- bank linkage programme. However, there is a divergence between thelong-term paths of SHG development envisaged by the different SHG promoters. Therationale for these is discussed below.While SHGs promoted by these NGOs are part of a “microfinance plus” approach, two broadpaths for long-term SHG involvement in financial intermediation can be identified:(i) SHGs linked directly to banks on a permanent basis;(ii) SHGs/federations of SHGs linked to various types of MFIs.3.1 SHGs Linked Directly to BanksThis is the basic model in which an SHG, promoted by an NGO or other institution, canaccess a multiple of its savings in the form of loans or cash credit limits from the rural bankbranch. The SHG then on-lends the funds to its members.The SHG model is a savings-led and savings-linked credit model, with a minimum savingsperiod of 6 months prior to the availability of bank credit 8 . The quantum of credit available to7 Many of these established NGOs have in the past supported SHGs or other community organisations in aprogramme of “poverty lending” (Kilby, et al., 2000) which was characterised by objectives that give higherpriority to social outreach than financial sustainability. Revolving loan fund grants, earmarked for target groups,were managed and held in trust by NGOs until community capacity for self-management was developed. Anunclear vision and weak management of funds led to a failure to develop the necessary community capacity and“ownership” towards NGO phase-out. In many cases this also led to the erosion of community funds. Theopportunity to access loan funds through sources like bank linkage and alternative examples of successfulmicrofinance practice have led to donors generally doing away with the provision of revolving fund grants forcommunity organisations.8 It thus necessarily tends to exclude the extreme poor who are incapable of making regular cash savings.13