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

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3.2.3 SHG Federations Linked to MF WholesalersThe federations of SHGs discussed thus far have either been linked to the promoting NGOthat has taken up the role of the MFI or have accessed funds from other intermediaries,sometimes promoted by the NGO. As such they have retained a dependency status vis-à-visthe NGO. Mature secondary federations can, however, directly access funds from MFwholesalers. When registered as societies or trusts, they effectively are converted into MFIsusing the same legal forms adopted by the NGO, but with lower overhead costs. The cost ofoperations of these block- level federations, of about 200-250 SHGs and 10-15 clusters, coverboth financial and non-financial activities and are met through interest margins andmanagement fees and contributions. They represent a culmination in the development ofmulti-tier SHG-based community institutions, designed to function independently of theNGO after its phase out.DHAN Foundation 23 is an NGO that has developed independently functioning financialfederations in Tamil Nadu. DHAN, like its parent PRADAN and MYRADA, has not itselfacted as a financial intermediary for its federations. The multi-level structure of “nested”community institutions designed by DHAN as part of the kalanjiam community banking(KCBP) model allows them to respond to the credit needs of members at the appropriate level- SHG, cluster nidhi or secondary federation. KCBP groups, clusters and federations arepromoted as independent organizations and are managed by members themselves at hamlet,village and block level. These are promoted as nested institutions with interdependency ratherthan a ‘three-tier’ type of organization. Apart from local bank linkage at SHG and clusterlevel, the federations promoted by DHAN Foundation have accessed loans from apex lendingorganisations such as SIDBI, RMK, HDFC and HUDCO having fulfilled theircreditworthiness criteria. The specialised housing finance agencies fill an important gap inthe loan portfolio not available to other SHG federations.3.2.4 Mutually-Aided Cooperative Societies (MACS)MACS as an organisational form have been described in Appendix 4. Andhra Pradeshenacted the Andhra Pradesh Mutually-Aided Cooperative Societies Act in 1995 to cover thenew style cooperatives. This Act had two main features: (i) for the first time members couldfully own and control their cooperatives; and (ii) new cooperatives could be formed in areaswhere existing primary agricultural societies had become defunct. Similar legislation hasbeen since enacted in Bihar (also extended to Jharkhand) 24 , Madhya Pradesh, Orissa andJammu and Kashmir. However, it is only in Andhra Pradesh, where the CooperativeDevelopment Forum (CDF) took the lead in registering its “thrift cooperatives” under thisAct, that this form of cooperative has been used for microfinance. Thus at present this is aform of MFI that is unique to one state.Andhra Pradesh has over 403,000 SHGs, developed by a range of stakeholders, but mainly asDWCRA groups formed under the government scheme. Associations of these SHGs havebeen formed into financial cooperatives and registered as MACS 25 . Over 325 Mutually-Aided23 Not covered by the study visits. Information sourced from Vasimalai, 2000 and AIAMED, 2000.24 The Bihar Self-supporting Cooperative Societies Act.25 Other SHGs have been formed into clusters or unregistered financial federations, known as mahila (women’s)banks.18
Cooperative Thrift Societies (MACTS) 26 with 136,000 members and share capital of Rs.641.84 lakhs have been formed 27 .The “Andhra model” of SHGs being formed in federations which are then registered asMACTS is popular with a variety of projects supporting SHG formation. Appendix 6illustrates the evolutionary path for development of SHGs into federations and associationsadopting the MACTS form as it is emerging from the current practices of NGOs, MFIs andgovernment support programmes in Andhra Pradesh. In this way, over a period of three tofour years after the formation of SHGs, they can be federated and organised into a financialcooperative within the formal financial sector.A creative use of the MACTS form has been undertaken by SHARE. Clients of joint liabilitygroups of this Grameen replicator have been constituted into MACTS. The savings of theseMACTS are loaned to SHARE Microfin for its loan operations on mutually beneficial terms.3.3 Emerging Structures of Financial IntermediationAn amazing variety of possible channels for intermediation are thrown up when we bringtogether the different institutional structures created out of SHGs with the different types ofapex and wholesale organisations and intermediaries that provide funds for their operations.Interestingly this is the outcome of the progressive liberalisation by apex institutions of fundflows to the nonformal sector that permits it to access funds even from apex bodies. When thefinancial intermediation is undertaken by retail MFIs, some regulated and others not,numerous possible channels of finance delivery emerge with funds flowing, sometimesalternately, through various formal and non-formal channels 28 . This is a reflection of the lackof an appropriate regulatory framework for microfinance.Chart 3.1 below illustrates 18 possible paths for the flow of funds to SHGs from the financialsystem. If some of the institutional sources that have been clubbed together are segregated, itwould create even further combinations. Each of these channels constitutes a “model” as itrepresents a regime of interest rates, loan amount durations and other conditions that wouldaffect the products that can be offered 29 . Where additional layers of intermediaries areinvolved it adds to the cost of borrowing at the SHG level.The SHG-bank linkage model provides the cheapest and most direct source of funds from thebanking system. However, this has to be set against the low volume of funds that can bemade available through this channel in view of the linkage of credit with savings. Other morecostly intermediation structures have their merits in terms of the advantages of institutionallayering 30 . In still other structures the mutually reinforcing nature and benefits of financialand social interventions justifies the place of clusters and federations. In many respects themajor issues regarding the appropriate legal form for MF lie at the level of the NGO-MFIs26 A form of MACS organized around thrift and credit activities. Other MACS forms include dairy cooperatives.27 Data from APMAS, October 2001.28 For example, funds from SIDBI, an apex bank, may flow through FWWB, an unregulated not-for-profitsociety, to a regulated MACTS.29 The financial flows indicated exclude donor grants and loans and other commercial borrowings of MFIs.30 The “nested” kalanjiams of DHAN Foundation are case in point.19
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 26 and 27: • In either situation SHGs can co
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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