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

infrastructural and other constraints operative on the absorption of credit by poorerhouseholds 53 .Bank linkage and SGSY programme: The SHG-bank linkage programme may continue, asinitially envisaged, in the form of a supplementary credit programme in rural areas. However,the situation is further complicated by the introduction, on a nation-wide basis, of the SGSYprogramme that provides comparatively larger loans for identified activities to familiesofficially classified as poor, along with training and infrastructural support. This revampedform of the IRDP is implemented through SHGs and contains a back-ended subsidy element.Despite a shaky start, it is already providing loans several times greater than funds flowingthrough bank linkage. In fact the SGSY is effectively another SHG-bank linkage programmethat is directed towards asset promotion and microenterprise. The subsidy element goesagainst the principles of SHG development that are being promoted by NGOs and the banksand best practice NGOs are generally not keen to get involved in the programme. There ishowever, scope for convergence between bank linkage and the SGSY. The larger loan facilityof the latter, not linked to savings, can be provided for well-functioning SHGs after an initialperiod of savings-linked loans.5.2.2 SHGs/Federations of SHGs Linked to Various Types of MFIsWe consider the sustainability of the SHG-based federations that have emerged for the fourforms of links with financing institutions identified in Chapter 3.(a)SHGs/SHG clusters/secondary federations linked to NGO-MFINGO lending to SHGs/individuals: Among the study NGOs, NBJK (along withOUTREACH) is one that has opted to form an MFI with the legal entity yet to be established.A credit rating for borrowing SIDBI funds at 11% p.a. is to be carried out. Cordaid funding isalso expected. NBJK’s operations of the CREDIT project over three years – the promotionand stabilization phase for the SHGs - have not been financially sustainable. In fact itsoperational self-sufficiency was only 20% in 1999 (Sampark, 2000). In its Strategic BusinessPlan, however, by making individual loans at the equivalent of 18% rate of interest, andassuming a charge on CREDIT programme funds at 6% and other borrowed funds (includingloans from the RMK) 54 at an average of 11%, it expects to be operationally self-sufficientwith a portfolio of Rs. 1.5 crores in 2003 (Sampark, 2001) 55 . In such a model with NGO staffeffectively managing the loan portfolio, the role of the SHG, if it exists, is reduced to afacilitator, like the Grameen center composed of five or six joint liability groups 56 .53 This must be qualified by the fact that most SHGs have been linked to banks only in the latter half of thenineties and it is probably too early to expect SHG members to “graduate” on a large scale.54 The RMK constitutes another source of funds for the NGO operating as a financial intermediary for SHGs, asalso NABARD under its revolving fund assistance programme. In the case of the RMK this is the only channelof funds for SHGs, which are available at as low as 8% with an 18% cap on the rate chargeable to the finalborrower. Capacity building support and other remissions can reduce the effective rate of RMK funds to alsolow as 4.5%.55 In a savings and credit programme implemented with ActionAid support where community funds have beenbuilt up over time, cooperatives are to be registered under the Bihar Self-Supporting Cooperatives Act (an actwith similar provisions to the MACS Act of Andhra Pradesh). Where substantial funds are already availablewith the SHGs, the cooperative form has greater attraction.56 NBJK suggest that the model is suited to the agricultural labour class, which see less merit in coming togetherinto SHGs, the preferred form of business and self-cultivating households.48