SHG Movement- Banking for Poor or Banking on Poor?

Muhamad Yunus has shown a new way to the world. Organizing poor into small groups and providing Micro credit to them. It is perceived to have a dual advantage

·  Poor had access to formal source of credit and thereby it can enable their overall development

·  The lending institutions on other had, found a new source for lending which increased their income

“Together they are Rich” is the quote of Muhamad Yunus regarding poor. And he and his Organization Grameen Bank, were awarded with Noble price for the concept of lending to poor by forming them as a group. No doubt the concept is unique and the system can ensure formal credit to so far unreached population- the rural and urban poor. But how far it is effective in reducing their poverty is a million dollar question. If the partys involved in promoting this concept act without any vested interest and soley in the interest of overall development of poor, then it will produce a miracle. What happens in practise actually? I hereby try to give a view, with my direct grassroot knowledge.

Moved by this concept, Developed countries encouraged Yunus with funding; the hidden agenda being is dumping more credit to developing countries. They also encouraged this concept to be followed in other developing countries.

In India NABARD piloted the SHG program and since then the SHG has gained momentum. Tremendous growth has been achieved in the past two decades with respect to SHGs. The question is whether the purpose has been met?

There are Many SHG organizations in India promoted by NGOs and the Government. The success has attracted considerable attention of development practitioners, funding agencies, policy makers, corporate bodies and politicians. And each of these parties has their own vested interests.

There are two ways by which micro credit is directed to the poor people- through MFIs and through SHGs. Both has gained momentum in India. While MFIs are registered as a Non Banking Financial Institutions, the federated body of the SHGs were registered under societies act or Indian Trust act. For both, women are the easy target.

MFI sources its fund from commercial banks and also uses its own fund for providing micro credit to people. The MFIs do direct lending to groups formed by them. SHGs on the other hands are linked directly with the banks by the promoting institution (NGO/Federated Body/Government)

Many stalwarts like Spandana, Share, Ujjivan, SKS,  L & T etc. are in the business of Microfinance through MFI model. Here their motive is clear. Though they take about inclusive finance, they use poor people to increase their income. The exorbitant rate of interest charged by MFIs, are a proof of it. The MFIs justify that the high rate of transactional cost and the risk involved necessitates such high interest to be charged by them. If so, then what is the difference between borrowing from local money lender or through a formal MFI?

With respect to SHGs, we can console ourselves that it inculcates savings habit among the women members. Also the bank is financing them directly and hence they get loans at a interest rate of around 12 %/annum. In some states, this was again subsidized by the government to 4 % i.e the government will return the extra interest charged by the banks to SHGs. This is a welcome sign. Ever thing seems to be green so far. But the truth is different. With respect to Tamilnadu, the concept is highly politicized. The SHGs were formed by Mahalir Thittam, which has a aim of federating them at Panchayat, Block, District and State level. In a rush to show growth the task was entrusted to NGOs- which again falls into two categories- Mathi NGOs and Non Mathi NGO. Due to internal competition,  NGOs used to lure few or most of members of one SHG formed by a different NGO. Hence a single woman may be a member or two or three SHGs. And there is no system on the part of Government to ensure it. The real problem will crop up, if these SHGs are made a part of Panchayat Level Federation. The number of SHGs, which the Government boasts that they have formed in the shortest period, will reduce drastically. The Ruling party also used the Revolving Fund subsidy concept to lure women to form SHGs. The NGOs which formed the SHGs will also talk only about the subsidy and not about the real benefits of SHG. The life span of such SHGs will definitely, l be short and this puts a question on sustainability of the SHG movement.

As I have worked in grass root, I present here how the SHGs operate in practical sense. The NGO which is entrusted to the task of promoting SHGs will approach the poor women and say that they are from such and such NGO, and if they form SHG, the NGO will mobilize revolving fund assistance from government. The loan amount is Rs60000 and the subsidy portion is Rs10000/. After forming SHG, the NGO will inform the SHG to come for the grading process facilitated by the Mahalir thittam officials. In a day (half a day actually) more than 100 SHGs will be graded by the Mahalir Thittam Officials. There will be no time for the officials to go through complete details. Also it is not necessary for them. Their role is to give revolving fund assistance to maximum groups to meet the target. There are cases were one woman exists as a member in two or more SHGs and  also in groups formed by MFIs. The total credit borrowed by such a member, will definitely beyond the repayment capacity of the member. Once the grading process is over, The RF subsidy will be forwarded to the bank and the bank will lend the SHG.

As corruption has become inevitable in India in every field, NGO will do direct negotiation with the SHG members i.e., A charge of Rs 1000 to Rs3000/ have to be given, which is divided into three shares – The NGO, the local BDO office and the Mahalir thittam. Sometimes Bank Managers too, fall in this line. As soon the loan is sanctioned, the amount Rs3000/ has to be given. But the truth is, the SHG can get the revolving fund subsidy of Rs10000/ only after it functions for three years. When it is a SGSY subsidy for a  mature group, naturally the bribe amount is higher ( Rs20000 for Rs100000 lakh subsidy)

And whenever, there is a Minister visit to a district to show gathering and also to boast of achievements, the passbook of Loan will be given to the SHG members by his hands. The greatest comedy is sometimes they may be dummy loan cards or loan cards of loans issued even before an year i.e., If 1000 SHGs are given loan in a function more than 50 % of them will be fake. The Mahlir Thittam officials and the BDOs will be pressed to bring SHG members, who in turn will force the NGOs. The to and fro charges and transport and food arrangements of course will be taken care off.


Luckily I work in a organization which concentrates in setting systems for a sustainable SHG federation. Even with vast experience in the sector, the organization finds difficult to control problems in some federations 

I furnish another incident, where the ward counselor had their share in the subsidy. This was routed through town panchayat. The counselor directly spoke with the SHG members that Rs1000 subsidy/member exists with the panchayat and he said the amount will be given to SHGs which are willing to part with 50 %. For e.g  If the SHG has 14 members, Rs14000/ subsidy was given and the SHG has to give Rs7000/ to the ward counselor. They also spoke about this to the Bank Manager. The amount got deposited in the S/B account of the SHG and in the same day it was withdrawn from the bank without any proper resolution at SHG. Worse it happened without the knowledge of promoting NGOs. If it is Rs7000/ for one group, then estimate the income a ward counselor would have got.

And assume that, there is no such problem and the credit is fully utilized by the SHGs.  Even then do they serve the purpose? Each and every organization boasts about its SHG program and its objectives using Jargons and words of a learned person. But when we look deep, all seem to work with the same purpose and objective or at least they so. Universal lie?

Empowerment of women economically, socially and politically and hence their family and locality is the broader objective of any SHG program. SHGs are seen as a vehicle to load all the developmental programs.  There are basic fundamental questions regarding this

·  To what extent the SHG members are aware of these developmental agenda/objectives?

·  Does the literacy level of poor women at large support this?

·  Even if they are aware, how many of them are broad minded for a social cause?

·  Is there appropriate system in place to ensure it?

·  The dilution of the program is happening due to the vested interest of all the partys involved. The dilution is getting increased day by day, since everybody sees with shortsightedness aiming for their short term benefits. Is there a solution for it?

·  How long a SHG will operate?

·  How long a member of SHG will be satisfied with the services of SHG or the SHG federation?

·  Is the governance and the management structure well established?

·  Do we have a clear assessment about their need?

·  Do all the promoters have baseline particulars regarding the developmental parameters, they boast to achieve in future?     

·  Only credit is focused by all the parties interested in practical sense. The developmental objective takes a back foot. How to project the developmental objectives in front?

·  What action can, the promoting agency, federation or bank can take if the credit given to a SHG becomes default?

·  Banks lend to SHGs at 12 % rate of interest or low? At what rate the money is given to the members? Is there any interest given for savings deposited by SHGs?

·  How the credit given to members is utilized? Whether it is used for productive purpose or at least to satisfy the developmental needs like toilet construction, getting a electricity connection etc? Whether there are systems to ensure it?

·  How the profit or loss of a SHG activity is monitored? Do the poor and illiterates can prepare profit and loss statement for the SHG?

·  In what perspective we have to view the credit given to SHGs? On financial parameters or through a development eye?

·  There are cases where the SHG members lost even their savings, since the credit got into the hands of wrong members. Do the promoting institutions have a system, at least to safeguard the savings of the poor who believed them?

·  Is the developmental need derived from the grass root? It is the million dollar question?

·  Ultimately Banks money is used for lending. What will happen if the program takes a U turn and the repayment rate goes down?

·  Livelihood enhancement of the rural poor is the objective of almost every SHG program. Any such program should capitalize on existing resources. Do the implementing agencies have enough experience in such interventions? Any wrong steps will, result is reducing the already earned income. So far nothing remarkable is achieved in this direction, except a few cases.

·  Above all the developmental agenda of country like India seems to be fixed by developed countries and by funding agencies like World Bank. Is our Indian economic and developmental policy is in right direction?

·  Can MFIs and SHG program co- exist? Will they not lead to dumping of credit to poor and hence reduce their standard of living?

·  Is the repayment rate of SHGs boasted by Government and the development practitioners are true?

Some NGOs who were pioneer in this SHG concept and who have promoted such SHG federations, finds it as a hectic task to make them sustainable. Actually SHG Federations are said to be democratic institutions. But the promoting agencies are exercising full control over such SHG federations. These SHG federations were used as a bait to lure funds from funding agencies. For sustainability of SHG federations, the federations have no other go except to raise funds from SHG itself by way of Service charge. Alternatively, the SHG federations can lend to SHGs like MFIs and again here there is the chance of operating cost of SHG federations to escalate.

Though the above questions are there, it cannot be denied that SHGs have helped at least 20 % women to improve their standard of living.

I will give a hypothetical example of a SHG operation in Tamilnadu. The members of the SHG (12 members) save Rs100/month continuously for 10 months. They get a first loan of Rs60000/ from bank. They lend it to members at 12 % interest. In few cased it was lend to 24 %, interest of which the SHG has to pay service charge to the federation and the remaining (after other incidental expenditures) will remain as the profit of the group. For what purpose the loan is given is being documented in the minutes of the SHG. But the purpose is not true in most of the cases. What again happens in the SHG is just lending. This is the scenario in 90 % of SHGs. Only the financial needs of the members get satisfied. They pay least importance to other needs or their mind is not committed to work for a common cause. Human mentality has become so selfish in recent years. There are incidences, where SHG members refuse to pay insurance under the subsidized group insurance scheme of LIC (Rs100/year is the premium for Rs30000 claim), since the premium will not get returned to them.  Even though they were trained to understand the concept of insurance, their heart does not allow to part with Rs100 for a common cause.

The SHG concept by itself is a wonderful one. But what to do with the concept when there are various implementation hurdles. A social revolution has to take place if this program has to become a success. Until then, the persons who are involved in this business have to satisfy themselves with the short term results and with the personal benefits they derive out of it.

While writing this blog I happened to stump upon another blog written by Mr.David Booman on Micro finance crisis in Andra Pradesh (When the Indian elephants dance). The Andra Pradesh Government has passed the Microfinance ordinance bill Yesterday, much against the wishes of the MFIs operating In A.P, as well as in India. As usual, this bill said to be passed with vested interest by the Andra Pradesh government since the Government owned program Society For Elimination of Rural Poverty (Velugu groups) sees MFIs as competition. While the statement of the Government and the Media that MFIs are functioning with profit motive only and that they charge exorbitant rate of interest cannot be ruled out, whether the Government has passed the ordinance only for the benefit or poor is a question. The war between the Velugu and MFIs has taken another dimension and that’s behind the every hiss and fuss created.

As David Booman says, the ordinance is unconstitutional in the sense that it interferes in the basic right of the people (the ordinance says that a SHG member should not borrow from other sources, say another SHG promoted by MFI, then it is a crime)

http://blogs.cgdev.org/open_book/2010/11/when-indian-elephants-fight.php

Go through this blog by David Booman for additonal information
It will be clear for the readers now that Micro-finance is not banking for poor, but it is just banking on Poor. There may success here and there. But will it make poor rich or make them poorer?

The confession of an economic hit man – a book by John Perkins, while give a insight about the hidden agenda behind international funding. With respect to Micro finance also, the same agenda seems to work.