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

• In either situation SHGs can continue to rotate their own savings in a limited financialintermediation role.• Where loaning is to or through SHGs the NGO does not have access to the group’ssavings for its operations, since these are managed by the SHG itself.• Due to ambiguities in the regulatory framework, it is still possible, though notrecommended practice, for NGOs registered as non-profit societies, trusts orcompanies to provide savings services to their “members”, along the lines of majorBangladesh NGO-MFIs. However, the leading Grameen replicators (SHARE andCFTS) in India are registered as for-profit NBFCs, which cannot mobilize savings.(b) NGOs lending to SHG clusters/federationsAnother variant of the SHG model is where the SHGs are constituted into financialfederations and access supplementary funds from the promoting NGO. OUTREACH hasadopted this model through the formation of primary or cluster-level associations (CLAs).The argument in favour of the CLAs is that the SHG is too small a unit to carry out a widerange of financial and non-financial intermediation. 16 With 10-15 SHGs formed into a cluster,a variety of initiatives can be undertaken to organisationally and financially sustain thiscommunity-based organisation. OUTREACH CLAs undertake bulk purchase of inputs, storegrain, manage group enterprises, run a crop insurance scheme through a risk fund, act asagents for insurance companies, directly market outputs of member SHGs, promote newSHGs and provide training, apart from borrowing funds from the NGO for providing credit tothe SHGs. Appendix 5 illustrates the transactions of an OUTREACH CLA and the linkbetween the SHGs, CLA and the parent NGO. The CLA also is effective as the unit tointerface with the local bank. Thus, the link with the bank is shifted from the SHG to theCLA level. The bank’s transaction costs too are much reduced. For example, it is able tomake advances to 200-250 clients through one loan document 17 . CLAs are further federatedinto project and block level federations.3.2.2 SHGs/SHG Clusters/Federations Linked to Not-for-Profit Companies andNBFCsThe limitation on the quantum of loans available through SHG bank linkage was a majorconcern of various practitioners regarding the model. This has been particularly so in thesouthern states where SHG demand for loans is generally higher. Further, the availability offunds from local banks is often determined by the degree of interest shown by the bankmanager in the bank linkage programme. In the past there have been many instances of newmanagers failing to provide loans to SHGs supported earlier by their predecessors. Thiscreates uncertainty about availability of the bank linkage facility over time 18 .16 A point of difference between OUTREACH CLAs and those of PRADAN and MYRADA discussed above isthat the latter do not have any financial powers. The former, however, shares many of the features of the DHANFoundation cluster association discussed in section 3.2.3.17 NABARD has piloted a project with OUTREACH in which linkage is undertaken by the bank branch with theCLA instead of the SHG.18 The situation, however, is rapidly changing. Following the impressive results over the years and the supportfor it in the highest banking circles – the Reserve Bank of India has directed banks to make it their corporatestrategy – SHG-bank linkage is now a showpiece programme. Bank managers generally are coming forward tofacilitate linkage.16