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

would not be possible while working with individual SHGs. This has been one of the featuresof both the OUTREACH and DHAN Foundation federations.(b) SHGs/SHG clusters/federations linked to not-for-profit companies and NBFCsMYRADA provides the sole case in our study of an NGO promoting a non-profitcompany, Sanghamitra. By lending at 14%, with 8% as the cost of funds, Sanghamitra,expects to break even in the third year and to meet the cost of funds by the fifth year. Over40% of the funds will come from the SHG savings mobilised (AIAMED, 2000). However, itis not viable for a company or NBFC engaged in microfinance to invest in developing acustomer base - which has to be undertaken by an NGO - to enable poor clients to absorbcredit. Thus this form of MFI is dependent on having a ready clientele of SHGs/individualsthrough prior investments and facilitation by an NGO 60 . Interestingly, long-term expansion isnot one of Sanghamitra objectives since it would prefer to remain small and retain the closeborrower-lender relationship. Replication in the form of similar entities elsewhere is not ruledout. Thus the structural form is seen to be as equally important as the legal form (AIAMED,2000).SNF, promoted by ASSEFA, is owned by the SMBTs which are its shareholders on behalf ofthe SHGs. It has begun to access funds at between 8 to 11.5% from a range of wholesalers 61and international sources in addition to mobilizing capital grants. These are lent to theSMBTs at 15%. Since it is at an early stage of operations sustainability analysis is premature.However, given the large corpus and clientele and the multiple sources of funding (includinggrants), supported by a well-established organization, prospects for its self-sufficiency aregood. It has undergone the M-CRIL rating for creditworthiness recently that will enable it toaccess further funding from SIDBI and other wholesalers. It is also planning to increase itscapital base. Under this model, however, SHG profits are not distributed to the members.While the SHG fund can be used to contribute to share capital of the company for increasedavailability of financial services, it is at the expense of returns on the contributions ofindividual members. It is argued, however, that this arrangement leads to lower rates on loansto individual borrowers since in the absence of distribution of profits SHGs do not attempt toincrease their income through setting unreasonably high rates on loans to members.(c)SHG federations linked to wholesalersDHAN Foundation is the leading promoter of multi-tier financial federations that accessloans from wholesalers. Financial performance data of the multi-tier federation is notavailable. However, the more important question relates to the establishing and ensuringinstitutional sustainability of such federations capable of borrowing from apex bodies.Clearly, capacity building requirements are substantial and the achievements of DHANFoundation not likely to be easily replicable without substantial investment in other areas lessfavourably placed in terms of resources, capabilities and economic opportunities. Though theNGO is not directly involved, DHAN Foundation staff continues to participate in themanagement of the federations. Thus while it may be possible for the community MFinstitutions to be built they need to rely on external, paid or unpaid professional services.60 Thus clients of the large NBFC BASIX include participants of integrated programmes after NGO phase out orwhose credit needs exceeded levels facilitated by NGO operations and of members of SHGs promoted undertime-bound projects like UNDP-SAPAP.61 These include SIDBI, HDFC, HUDCO, RMK, UTI Bank and Rabobank.50