Microfinance in India: The light and dark sides of SHGs
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EDA
Microfinance in India: The light and dark sides of SHGs Study by EDA Rural Systems and APMAS
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SHG-bank linkage, 2005-6
Did you know:•“More than 400 women join the SHG movement every hour. An NGO joins every day” ?
•About 2 million SHGs (cumul.) have taken bank loans, many others only save
•Total membership around 26 million people, 94% women; growth around 30% + per year
• Increasing government involvement
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STUDY THEMES
• Outreach (inclusion, exclusion, drop-outs)
• Social Role (politics, social harmony/justice, community role, group enterprises)
• Sustainability: group dynamics, equity, financial management and performance; group records
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SAMPLE: SHGs
• Mostly formed before March 2000, with bank linkage
• South and North India (include tribal areas)
• Promoted by NGOs, Government, Banks
• 214 SHGs in 108 villages• 4 States: (Andhra Pradesh-60, Karnataka-51, Orissa-50, Rajasthan-53)
• 9 districts: different eco-climatic zones
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SAMPLE – by SHPA
• By promoting agency (SHPA): NGO-137, Govt-49, Bank-28
• SHPA orientation/inputs to SHGs: ‘microfinance +’ = part of wider development prog. (majority NGO and govt); 62% of sample
microfinance (bank, some NGO and govt); 38% of sample
• In practice, variation across and within SHPAs
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SAMPLE – is it representative?
• Broadly, yes though
• We were searching for ‘stories’ – light or dark (not entirely random)
• SHPA/SHG profile has changed since 2000
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METHODOLOGY
• Very important to cross-check: Lengthy discussions with members, non- members, drop-outs,opinion leaders in each village.…SHPA field staff, SHPAs, bank staff
• Wealth ranking (PWR + objective benchmarking against poverty line)
• Detailed examination of group records
• Data + case studies/detailed interviews
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FGD
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Wealth ranking
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OUTREACH
• Who joins?• Who does not?• What about drop-outs?
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OUTREACH: Who are members?
• Key interest: outreach to the poor (the lost, the last, the least; &
contribution to poverty reduction); and those previously by-passed by banking system NOTE:• The ‘by-passed’ (~70%) are not all poor• Not all SHPAs target the poor, though many work in backward/remote villages; some target SC/ST
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Outreach: Findings
[N = 2,968]
• Half the members are poor (51%)
• Very poor are included (~15%)• Scheduled caste 30%; Scheduled tribe 25%• 11% women heads of households (widows/men migrated)
• 38% are landless labourers• 74% have never been to school (37% AP, 92% Raj)
• Leaders/office bearers are better off (44% poor, incl 10% very poor), but 60% are illiterate
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Poverty outreach: reduce over time?
•Long term members have not come out of poverty: 52% poor after 7 years, including 13% very poor
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Significant group features
• Not homogeneous by wealth rank (affects equity issues/loan decisions)
• In half the groups, some members related to each other (can affect group dynamics)
• Only half the groups are ‘functionally literate’: less in AP; in north 44% have no literate members (affects record keeping and accountability)
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WHO DOES NOT JOIN ?
• Moderate coverage (data for all SHGs in study
villages, excl. hamlets): 29% of community population are members, 71% are not
•Socio-economic profile of members matches that of non-members (i.e. not exclusive focus on poor/marginalised)
•Reasons for the poor not joining?
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WHY DO NOT JOIN ?
• Unable to contribute savings regularly• Do not want to borrow• Worried about safety of savings• Cannot attend meetings regularly
• Seasonal livelihoods/migration: variable income flows; typical of a poor household
Conditions of membership are barriers to entry
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SHPA strategies
• Some evidence of group formation with ‘easiest’ potential members; practical strategy – acceptance and demonstration effect; • More ‘difficult’/poorer – may form groups later
• Can be limited by target numbers approach in some Govt programmes (3/village – then move on); though, as in AP, growth leads to more inclusion
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PRAGMATIC ISSUES
•The poorer the women, the more intensive the effort ideally required for SHG promotion - and guidance for effective functioning;
• Is it possible to have some flexible options – savings amount/frequency?
• Is it possible to cater to more isolated SC/ST hamlets (Rajasthan – quarterly meetings)
• Does the caste of the field worker make a difference?
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DROP OUTS: How many? Who? Why?
• A useful measure of (lack of) utility of a programme
• Moderate rate of drop-out: 10% of all members; 50% of SHGs no drop-outs
• Slightly more poor (11%) drop out than better off (7%)
• Stated reasons, may overlap; mainly migration, difficulties with saving/loan repayments; disagreements with group
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DROP OUT or THROWN OUT?
• Mix of both – member decision; expelled by group; ‘mutual agreement’; some cases of default (~10%)
• Default can sometimes lead to extreme measures by the SHG; or older group may support a member in difficulties
• Poorer women regret loss of savings option and access to low cost credit
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KEY ISSUE FOR DROPOUTS
• What happens to their savings – and the interest due? What interest is payable?
• Theory: norm of interest due = share of group profit • Practice: lack of clarity, and records not systematic
• Finding – of 220 dropouts, not in default: 65% savings only 22% savings + interest (9% very poor, over 33% non-poor)
13% nothing
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DROPOUTS contd
• SHPA/SHG approach: maybe do not clarify the norms so as to discourage exit (some may distribute after certain period)
• Nevertheless, evidence of group leaders not acting transparently or in interests of their members
• Poorest members most likely to lose out: 9% very poor received savings + interest; over 33% non-poor
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SOCIAL ROLE OF SHGs
• Local politics• Social harmony• Social justice • Community action
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POLITICS: the potential synergies
• Related processes in SHGs: women gain experience of regular meetings, taking decisions, allocating money, leadership
• Visibility within groups – relevant to campaigning, recognition when politicians visit
•NGO SHPAs in sample: limited inputs related to preparation for election; no strategic inputs post-election
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Campaigning in Rajasthan
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Elections to the panchayat
20% of sample SHGs had a member elected 44 women elected: half were SHG leaders, half were
not; mainly ward members, a few sarpanch
Most of the women elected had pre-existing family political interests; some ‘new entrants’ were active community field workers (govt/NGO)
SHGs can contribute to women’s election, but may not be the main factor, and does not appear to influence what they can achieve if elected
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After election?
Half the elected members played an active (engaged) role; half did not (‘proxy’, or ‘low’ – disengaged/ignored by existing system)
• Remember, women representatives are a minority – not more than one-third (the legal reservation)
Factors – not caste/literacy, even wealth rank – though time and connections important
Case studies: a gradual progression towards more engagement is possible - needs men’s (husband’s) support to take up a role in male public space
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What role is it, anyway?
Allocation of funds under government programmes; supervision; selecting ‘beneficiaries’
Active representatives playing this role – including, but not limited to, street lighting, drainage, toilets.
Appreciated by SHG members; disappointed when a member they had campaigned for failed to do much
No link found between women elected representatives and community initiatives by SHGs
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SOCIAL HARMONY
Do SHGs reflect community divisions? Can they help to overcome them?
SHGs are ‘affinity’ groups: two thirds are single caste; reflect neighbourhood proximity, in turn based on caste divisions; also govt targeting
But, one third include different castes (20% across the ‘main’ divisions)
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Overcoming divisions
Mixed membership most likely in NGO promoted SHGs Some NGOs too deliberately organise mixed caste
meetings and training programmes; monthly meetings of cluster associations/federations
Begins to weaken barriers – but clearly, these barriers are deep set; strong traditional prejudices (will ‘upper’ castes purchase from SCs?)
Real change takes time – even a little change can be important; examples of SHGs of different castes working together.
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SOCIAL JUSTICE
SHGs seem uniquely placed to support their members
Not doing so regularly: 12% SHGs reported taking up a social issue (bigamy, dowry, prevention of child marriage, help separated woman to remarry; domestic and sexual violence)
Many such instances usually ‘accepted’; not seen as ‘injustice’, or maybe too difficult to challenge; ‘compromises
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SOCIAL JUSTICE contd.
Higher incidence in AP (25%) – awareness campaigns (both Govt and NGO)
Relative success in specific actions Domestic violence – very difficult SHPA support (5 in sample – NGO/govt): raising
awareness, guiding on strategies and options, incl contacting police; mobilising - strength in numbers, confidence
No strategy at panchayat/community level – where maybe influence is needed
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COMMUNITY ACTIONS
30% SHGs have taken community actions (excluding ‘taking part in polio drives’ and several examples of ‘cleaning the village before visitors come’)
Village services, infrastructure, anti-alcohol
Usually ‘one-off’ initiatives; often successful – getting the system to deliver
Except anti-alcohol (short-lived successes, liquor dealers return)
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SIGNIFICANT FEATURES
Mobilisation of women through village or cluster networks/federations
SHPA guidance: advice on the options
A new boldness/confidence for women; sometimes too new skills in negotiation by SHG leaders
A few examples, though, of ‘perceptions of unfair access’ to community resources (village ponds/grazing land)
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What about GROUP BUSINESSES?
Seen as desirable, if not essential for absorbing credit and generating income; collective access and management
21% had been involved in group businesses
Group credit for marketing, land/pond-lease, labour contracts (stone
cutting, processing rice, a tent house) – often the idea of an NGO
and government contracts: PDS, mid-day meals
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Viable?
Half of the group enterprises: usually small scale, catering to local market – relatively low returns, a small supplementary income (important for poor women)
None of the PDS – risks in the supply system, margins fixed unrealistically low; a few of the mid-day meals – but similar risks here too: delays in payment
Double risk: ‘new women entrepreneurs’ and group management and accounting; do SHPAs have the necessary skills to guide?
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OVERALL – SOCIAL ROLE
A start – maybe not as much as expected/hoped for
Strength in numbers (clusters/federations of SHGs)
SHPA inputs appear essential: requires strategic guidance; focusing not only on SHG members
Balance – intervention and building autonomy; latter is the aim, but takes time; needs realistic assessment of the constraints, traditional patriarchal (male-dominated) systems
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RECORD KEEPING
15% have good quality records (complete, correct and up-do-date)
39% have adequate records – some errors and omissions
40% have weak records – incomplete, many errors, out-of-date
6% records ‘unavailable’; not exist, being up-dated, with NGO…..
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WHO KEEPS THE RECORDS ?
SHG office bearers NGO staff A local educated person (teacher, youth…) for a fee
paid by SHG Volunteers
Office bearers and volunteers are the weakest Record systems are too cumbersome – not easy to
explain or to understand Most SHG promotion agencies verify and audit, but
quality is low
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HOW EQUITABLE ARE SHGs ?
90% + of members get loans
Better-off borrow more, as they should (they can absorb more credit: groups not entirely homogeneous in economic terms)
SHG office bearers borrow more, but transparently
18% on-lend to non-members, often because of pressure for SHGs to borrow (more funds available than members can absorb)
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DEFAULTS AND RECOVERIES –WITHIN THE SHG
Repayment schedules decided by SHGsPoor records conceal reality50%-80% of SHGs with available
records/information have some internal defaults over 1 year
9% of poorest members have >12 month default, 4% of better off
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DEFAULTS AND RECOVERIES –FROM SHG TO BANK
Terms of repayment vary Initially 12 months, repay monthly Later (larger amounts) 3-5 years, quarterly or monthly Sometimes more flexible, allow for seasons Northern sample: one-third SHGs with outstanding
bank loans behind on repayments
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HOW DO SHGs DEAL WITH DEFAULTS WITHIN THE GROUP ?
Formal joint liabilityStart with discussions Warnings and then finesSeize assetsLock out of houseAdjust overdues against savings
Isolated tragic cases
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HOW CAN THE ‘DARK SIDES’ BE DEALT WITH ?
Break link between SHG ‘linkage’ (i.e. loans) and politics (‘hype’, targets)
Recognise that SHG promotion is not a one-shot deal
Identify problems that arise as SHGs matureTrain SHG promoters to advise on problemsDesign and FUND continuing long-term supportDesign finance (incl. credit) to respond to SHG
needs/capacity (rather than top-down targets)
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HAVE YOU ANY SUGGESTIONS ?
Is it realistic to expect busy often illiterate people to run a micro-bank ?
Could YOU run an SHG, with your neighbours in your community?
What records and communication are necessary/useful if you cannot read?
How can empowerment be preserved and financial sustainability assured: are both important? if so, how facilitate?