INTRODUCTION:

Microfinance has made tremendous strides in India and has become part and parcel of rural India. As on 31 Mar 2009, there are more than 61 lacs saving-linked SHGs and more than 42 lacs credit-linked SHGs and thus, 8.6 crore poor households are covered under the programme.¹ For the success of SHG concept in India, it is pertinent to say that Microfinance linkage is playing the most important role.

Apart from the commercial banks, regional rural banks lots of private sector microfinance lending Institutions have entered the fray and are doing well. SKS microfinance a Hyderabad based MF company has crossed five million clients, a milestone in its lending history. As per the data available SKS provided unsecured loans and micro-insurance products to poor women and their families across 62,000 villages and urban slums of India. It has a repayment rate of 99 percent on its loans.²

The points to be pondered upon are where to draw a line between microfinance and loan sharking? Transparent pricing initiative and transparency, how do we protect the poor consumers? The paper addresses the issues which need thinking and a debate.

About SHGs: A small group of 10 to 20 poor rural women form a group to solve their issues through regular meetings in villages. These groups are formed generally by the likeminded people having similar living conditions, same caste, and same kind of livelihood, belong to same place and live in the same community. The processes of forming groups take considerable period of time which is normally around four to six months. Once the group is formed it takes at least a year to one and half years to stabilize.

These groups are informal groups and need not be registered. Generally one person per family is enrolled as a member in each group. They save very small amounts and the corpus thus collected through their savings were lending to members of their group who are in need of the amount. Since their savings are very meager amounts a need was felt in 1991 to provide assistance to such groups and NABARD took initiative to provide Microfinance to SHGs.

It is considered as the largest microfinance programme in terms of outreach in the world and many other countries are keen to replicate. This is also recognized as a part of priority sector lending and normal banking business by the Reserve Bank of India. These small unregistered SHGs are permitted to borrow money from various banks, financial institutions and NGO’s to become economically self reliant. However there is a process for the formation of SHGs and their operation. It is very interesting to see how the leader is selected for the group and how they form a team with 3 committee members (President, Secretary and Treasurer) who take the initiative to run their group. It is noticed that whoever is capable of communicating a message clearly and bit vociferous becomes the leader of the group and there is a definite influence the leader wields in selection of other committee members. Having formed a group they start functioning with regular monthly meetings and carryout book keeping and other related activities. Now the stage is set for the entry of microfinance as the monies so collected by the groups are put in the bank and they seek bank assistance in form of loans.RBI has issued instructions to all commercial banks and regional rural banks, permitting them to open SB A/cs of registered or unregistered SHGs.

This way SHG concept links informal groups of women in rural areas to the mainstream banking system. As these women are illiterate and lack confidence to transact with commercial banks, non-government and social welfare agencies step in as intermediaries. Lot of private Microfinance Institutions have emerged and doing well for themselves. Women SHGs in rural areas of India have brought several thousands of uneducated women out of the confines of their homes and enabled them to gain not only considerable economic independence, but also an identity and collective voice³. The linkages for financial support are provided for the first loan amount. Repeat loans from the banks/financial Institutions are subject to the regular repayments and their group’s sustainability.

The sample data through primary collection method by the author from 1000 women members of various SHGs in various districts of state of Andhra Pradesh points that repeat linkages are only 30 %. The amounts so taken are used for personal needs rather than to further the goal of SHG. It is a common practice found among the members of various SHGs in the state of Chhattisgarh too.

The data further points out to need for building capacities. Most of the SHGs are receptive to the idea of capacity building but there seems to be lack of Institutional training mechanism. There are NGO’s who are doing good amount of building capacities among these women and making them entrepreneurs. But, rural women in India seldom get a chance to go out of their households to do business as it is still seen that man is the bread earner and women needs to take care of the family needs at home. As the repeat borrowings are not very many as observed with the available data, it was thought that whether lack of education is behind every multiple borrowing? The answer would be – may not be the exact cause. It was found that repayment is the main issue for further borrowing.

Why is repayment a problem? The analysis of few SHGs in Andhra Pradesh showed that some of the members of the group do have a problem in repayment as the money borrowed by the member is utilized by the head of the family for his needs and was not available for regeneration of income there by defaulting. On questioning by various group members to contribute the interest amounts again and again lead to disqualification of the member and others being in the same boat are not be able to contribute the defaulters share.

There is a good observation by Mr. Malcom Harper” For Microfinance Institutions, getting people indebted and keeping them in debt is always profitable”⁴ his experience further shows that” profit motive, competition and crave for numbers is driving many MFIs to take harsh measures in terms of Interest rates and forceful recollection drives- they are just turning into banks”.

The author has not found so much of aggressiveness from the private MFIs in his study but, data indicates it is certainly there. It was found that at present the MFIs are a bit cautious in their approach in liberally granting loans. Certainly the business of financing the poor has picked up and it is here to stay. SKS microfinance is planning to generate about $250 million through an IPO. This shows the phenomenal growth of SHGs in our country. When Nobel Laureate Dr. Muhammad Yunus was asked to comment on the concerns of such IPOs by various private MFIs he said” The concern is that when you put an IPO, you are promising investors that there is a lot of money to be made and this is a wrong message. Poor people should not be shown as an opportunity to make money out of”⁵ a very profound statement.

The point of where to draw a line between microfinance and loan sharking is concerned to my opinion if the MFIs are meant to woo only the poor then the regulation should be imposed on the amount of funds to be generated and the interest rates, where if the limit is crossed it can be said that it is loan sharking. Transparency in pricing is still a long way to go. The interest rates are slowly climbing north wards. May be a common regulatory body may work out the details and can reign in the necessary things. The point of how to protect the poor consumers is a point that needs some immediate answers. I for one would feel that first and foremost the capacity building should be in place and we need to train our rural women in turning them as entrepreneurs provide necessary skills and information, to be treated fairly and should be provided with easy systems for their functioning.

CONCLUSION:

There is a silent economic revolution that’s taking place in the entire country and many stakeholders are getting benefited by the concept of SHGs and bank linkages. However it is also necessary to have checks and controls put in place for the betterment of poor consumers. It is noted that though the model of SHG is unique and good there are certain pitfalls which we should guard against. For example, the idea of formation of a SHG group meant that one family member joins one group only. But, it was seen through the data that same members form part of different groups in order to raise their share of income. This defeats the very model that is designed. Similarly the awareness of entire concept is not widely driven home. In Andhra Pradesh the interest component payable by the member is split into two. One is their own repayment which comes to 9% and the other part another 3 % interest is being paid by the Govt. in total 12 % interest on the borrowing. What if Govt. stops funding? The sample data reveals lot of other components as well, which when published subsequently provides clear picture.

The model is robust and would go a long way in giving a boost to the country’s economy, if we have some regulations to protect all the stakeholders is in place, operate and build responsible financial markets and create standards and consumer awareness across the country.

REFERENCES:

1. Status of Micro Finance in India 2008-09 publication of NABARD

2. Featured on 09 Sept 2009by Naagesh Naraayana, in Hindu newspaper

3. merinews.com - On 02/07/09

4. Mr. Malcom Harper, Micro Focus, 17 Nov 09

5. Prof. Yunus, Micro Focus, 09 Apr 2010

Received on 17.07.2010 Accepted on 20.07.2010

Asian J. Management 1(1): Jan. – Mar. 2010 page 30-32

The Evaluation of Self Help Groups- Bank Linkage Programme