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

On the other hand, there is evidence that, apart from other benefits to members such as therotation of savings for small-scale and emergency borrowings, SHG bank linkage reduces thetransaction cost of both banks and borrowers for loans from the formal sector.There is no disputing the benefits of SHG-bank linkage in enabling access to loan funds ofgroup members who were not being served by the banking system 46 . However, the limitsimposed the group’s savings on SHG borrowings means that, for comparatively new SHGsonly some of the SHG members can expect to receive a modest loan in the range of Rs. 3000to 5000. Thus the majority of group members are either net savers or pure savers 47 . Despitethe critical importance of savings in the SHG model, it is the savings service that is leastdeveloped. There are invariably no savings products other than the compulsory weekly/biweekly/monthlycontribution and open access to savings is not available. Profits of SHGoperations are only shared in some organisations 48 . Exit rules are unclear but usually result inloss of claims over share of separating members in accumulated profits of the SHG.Financial and organisational sustainability: Given their good repayment performance, theviability or sustainability of SHGs in financial terms is currently not an issue. SHG incomethrough interest charges and fines, particularly for absence and late attendance of meetings,though small is matched by an extremely low-cost of operations limited to maintenance ofbooks of accounts and payment of an honorarium to the local accountant. Typically,borrowings are a 12% per annum under the bank linkage scheme and on lending to membersat 2% per month flat rate. 49 Indeed, well-functioning SHGs are able to use part of their profitsfor buying services of accountants, teachers, paravets, etc. from their own funds for othersocial and economic services. PRADAN (but not HCSSC), encourage SHGs to bear all costsof operations right from the outset. Separate contributions are also raised for other one-offactivities.The organisational sustainability of SHGs is more open to question. Little research has beendone on the internal dynamics of SHGs, the access of relatively poor members to loans andthe relative stake of, and costs borne and benefits realised by, different categories ofmembers, e.g., the net borrowers, net savers and pure savers identified earlier. Experiencesuggests that even after a period of 3 to 5 years (the time usually taken for SHGs to achievethe experience and maturity required to function as an independent financial entity), SHGsare not equipped to engage directly with banks and other agencies 50 .46 This needs to be qualified since the much-maligned IRD programme of the 1980s and 1990s, despite its manyshortcomings including improper targeting, did in fact reach substantial sections of the poor. Several membersof most SHGs are former IRD beneficiaries. That a fair proportion of SHG members may be non-poor is anothermatter.47 Though given their saving performance, the access of members of SHGs of the study NGOs is higher, thisphenomenon can be said to be true of them as well.48 Though PRADAN and HCSSC SHGs distribute 100% and 50% respectively of profits out of loan fund andsavings fund operations to members on the basis of their savings lodged with the SHG.49 SHGs usually charge a higher rate (3-5% flat per month) on the mainly consumption and emergency loansprovided by them from their own funds.50 A senior manager of PRADAN reports a vulnerable stage of “group fatigue”, two years or so after theformation of an SHG, when the initial enthusiasm of group functioning wears off and a period of renewedmotivation is necessary. The building of the group cooperation and solidarity in non-financial activities, inapposition to the routine banking activity, can be seen as a must to reinforce the group cohesion. Thus whilesavings and credit may be used as an entry point activity, it may not be sufficient to ensure sustainable longtermfunctioning of the SHG.46