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

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• 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
This perception of some of the leading NGOs has led them to link up SHGs to the fewNBFCs, such as BASIX, operating in microfinance 19 . Though borrowing from such NBFCscarries a higher interest rate (18% to SHG federations and 21% to groups), the advantages liein timely disbursal of loans according to credit needs.Entertaining similar doubts about the ability of bank linkage to meet the credit demand,MYRADA which was in the lead in promoting SHG bank linkage, decided also to have anin-house not-for-profit company, Sanghamitra, to provide financial services to its SHGs.According to MYRADA, the purpose was also to induce an element of competition in thefield of rural financial services.ASSEFA is a leading NGO that, among others, promotes SHGs linked directly to banks.However, the organisations of ASSEFA (Association of Sarva Seva Farms) group representspecial instances of community owned NBFCs. The Sarva Jana Seva Kosh (SJSK) was set upin 1989 as a for-profit non-banking finance company to retain the flexibility for commercialoperations not available for mutual benefit organizations under cooperative laws in TamilNadu. It manages the funds of Nidhi Foundations which have been set up as trusts at villagelevel for onlending to individual members. Nidhi Foundations pay a 2% to SJSK formanaging their funds. A federation of Nidhi Foundations provides technical and supportservices. The origins of SJSK funds are donor grants for revolving loan funds ofcommunities. Since substantial funds were available from this source, SJSK has rarelyborrowed except from the Rashtriya Mahila Kosh (RMK). SJSK is able to declare profits andpays tax but it is effectively acting as a fund manager rather than financier - a role it couldhave performed even as a not-for-profit society, the institutional form adopted by most NGOs(AIAMED, 2000). SJSK is seeking to adopt other legal forms in response to the changinglegal environment and the need to transfer funds for management by the communitiesthemselves 20 .Sarvodaya Nanofinance (SNF) is another ASSEFA initiative which is a unique institutionof its type having been acquired from BASIX. The latter had set up SNF through an NBFClicence acquired before new regulations for NBFCs in 1997 increased the minimum netowned fund requirement from Rs. 25 lakhs to Rs. 2 crores. The authorised capital presently isRs. 3.98 crores and is proposed to be increased to 10 crores in the next two years. SNF isowned by and lends to Sarvodaya mutual benefit trusts (SMBTs) 21 formed by federatingSHGs at the development block level. The MBTs are shareholders in SNF and receive loansup to six times their shareholding. ASSEFA works within a longer perspective of about 15years for developing an area and at present leadership of the MBTs and SNF continues to bein the hands of ASSEFA. The MBTs undertake a range of other non-financial responsibilitiesincluding group promotion and management of health and crop insurance schemes 22 . OtherASSEFA companies take care of requirements of loans for dairying and housing.19 The leading Grameen replicators, SHARE Microfin, Hyderabad and CASHPOR Financial and TechnicalServices (CFTS), Mirzapur (Uttar Pradesh) are also NBFCs.20 Strictly speaking SJSK, unlike SNF below, is not an SHG-based institution, being owned by the NidhiFoundations associated with the village-level organisation set up under an earlier style of donor-supportedintervention.21 The federation is registered as a trust in view of the fact that registration as a society, under the presentregulations in Tamil Nadu, would leave it open to greater government interference.22 As a point of departure from other NGOs, ASSEFA- promoted institutions are activity-based rather thanmerely affinity-based. Thus different institutions have been promoted for different categories of communitymembers according to their occupation or credit needs.17
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 14 and 15: 2. DEVELOPMENT OF SELF-HELP GROUPS
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 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
Page 64 and 65: the programme is particularly probl
Page 66 and 67: It is possible to query the methodo
Page 68 and 69: world. Other partners from India ar
Page 70 and 71: RECOMMENDATIONSIt is not clear what
Page 72 and 73: 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
Page 87:
Appendix 6: Stages of Evolution of
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Self-help Groups as Financial Intermediaries in India ... - Sa-Dhan

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