Big bets on small money
Rajesh Chakrabarti

Financial Express 22 October 2009

Microfinance participants, banks, NGOs, policymakers and researchers will converge next week in Delhi at the annual Microfinance India Summit. In many ways, this is the best of times to be in the sector. “Financial inclusion” has been a buzzword for years now and the enthusiasm for microfinance as its ideal vehicle has been palpable. Growth has been impressive and private equity funds, mostly foreign, are jostling to get a slice of major players. During 2007-08, close to 3.5 million self-help groups (SHGs) were linked to banks covering over 45 million households. The outstanding portfolio of loans soared by almost Rs 25 billion. Apart from SHGs, microlending to individuals and smaller joint liability groups has also emerged as an important avenue of microfinance.

And yet doubts remain. Is this quantity coming at the cost of quality? This motivated a survey-based study commissioned by the National Bank for Rural and Agricultural Development (NABARD) and executed by the Kolkata-based microcredit research and training outfit, Creditwatch, the preliminary results for which are now available. The attempt is to go beyond the mind-boggling national statistics to find out the grassroots-level reality of the SHG model and the bank linkage programme in West Bengal.

The study covered 300 SHGs and 300 non-members spread over five districts and on the whole painted a positive picture of the SHG movement, at least in that state. The 300 SHGs together had 2,858 members on March 31, 2009—bringing the average to just below ten members per group, with the typical size ranging between 6-10 members. About a quarter of the SHG members are below poverty line (BPL) women. This is not too bad given that it is an acknowledged fact that microfinance does not work too well at the absolute bottom of the pyramid. About 63% of the members reported loan balances. Some members have remained consistently credit-shy over time. There did not seem to be much demonstration effect of borrowers on the rest of the group. The average outstanding per borrower was Rs 6,269. Past due over 60 days, a measure of default, was about 8.5%. Repeat loans were estimated at less than a quarter of all loans disbursed during 2007-08, the rest being first-time loans.

Average savings stood at Rs 1,763 on March 31, while the most accepted band of monthly savings across the five districts was Rs 20-50 per member. SHGs typically parked these funds with banks rather than use them for supplementary lending. Only about two-thirds of the savings portfolio was lent out. About a fifth of the SHGs generated more savings than loans disbursed.

Only 7% of SHG members borrowed from an alternative source as opposed to a quarter for non-members. About one third of the members saved in non-SHG avenues as well. When it comes to insurance, the data reveals something interesting. Insurance cover is actually less for SHG members, as they feel more protected by their higher savings.

SHG members typically come from smaller families than non-members. Members are also typically older residents of the area than non-members. The typical SHG leader is young—between 21-40 years of age—and in most cases has education at least up to class IV. Leadership was spread between housewives and those engaged in farming and household enterprise, with some inter-district variations. They were either elected by consensus or the leadership rotated among members. Loan decisions—the biggest decisions made by SHGs—are typically made by all members together, rather than by the leader or by a committee. The groups were overwhelmingly formed among people who knew one another well, and in some cases included relatives as well. Most SHGs had members living within a kilometre of one another. SHGs often planned to meet every month but ended up meeting less often. Members maintained passbooks for both savings and loans. Dropout rates from SHGs on average were at a low 6%, but for some SHGs they could be as high as 44%. Quarrels and out migration were the chief reasons. SHGs were typically guided and advised by bank staff more in their individual capacity rather than as an institutional arrangement. Poor accounting remained the Achilles’ heel for SHGs, with almost none surveyed following proper accounting systems.

SHGs certainly led to women empowerment. A larger fraction of members participated in household decisions like house repair and purchase of household consumption items singly or with their husbands. They were more politically informed and voted. Their husbands’ attitude towards participation in SHGs had changed from negative to positive over time, for a vast majority.

If this is representative of the country, then the movement seems to be working. It’s OK to celebrate at the summit.

The author teaches finance, Indian School of Business, Hyderabad



Subpages (1): SHG Study west Bengal