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SHGs:Issues and Challenges

Presentation by :
Micro Credit Innovations Department (MCID)
National Bank for Agriculture and Rural Development
(NABARD)
Head Office, Mumbai, India

Banking Network and Multi-agency


approach
PSU Banks (26), Pvt. CBs (21), RRBs (82)
75,000 Branches (49,000 Rural/Semi Urban)
State Coop. Banks 31, DCCBs 370, SCARDB
20, PCARDB 692 and PACS 64647
Urban Coop Banks (1674), Foreign Banks (36)
However:
Network of informal credit Money lenders,
landlords, traders still accounted for substantial
portion of rural credit

The Dilemma of the Inverted


Pyramid

Banks
Rural

Population

Large Banking Infrastructure, enhanced outreach in rural


areas, 70 million small loans, pro poor policies, priority sector
lending, subsidy and subventions, programmes and
intensions like directing credit to rural areas, large resource
base of banks, large banking manpower and sound control
systems .

BUT, the Debt and investment surveys revealed skewness in


credit flow, household debt from non-institutional agencies
like moneylenders was still sizeable
The search for reasons and mismatches started .. In

Findings from Studies

..in the eighties

Savings and credit products did not suit the poor

Procedures were complicated and cumbersome

High transaction cost for the poor in availing financial services

System did not provide for anything to fall back on

Even special poverty alleviation programmes did not recognise the


importance of savings

Resource asked to handle often larger than the capacity of poor to


handle

Others decided everything


So, poor wanted
Mechanism to
keep their
Or just
resources safely
hassle
Credit to meet
free
their emergencies
financial
Credit for mEs
services

So need was
for,
Sustainable
approaches,
Products that
match needs &
capacities ,
reduce
transaction
costs

How SHG came into existence

Presence of informal groups with variety of purposes.

Chits or chit funds, nidhis, bishis etc. extending loans to


members.

By mid eighties, MYRADA Credit Management Groups


started weekly savings and loan facility to group members renamed as Self Help Groups in 1987.

ICDS programmes in Maharashtra, IFAD piloted Tamilnadu


Women Development Project in Dharampuri district
launched around same period.

Absence of legal framework for financing unregistered


groups denied credits from banking sector.

Upscaling of lending activity not possible only out of


members own savings.

NABARD Stepped in
In 1992, NABARD pilot project to form and credit link
500 SHGs from 1992-95.
Pilot provided legal framework by RBI and NABARD to
finance informal groups.
Loan
linkage without collaterals and without
ascertaining the purpose.
Banks were to charge interest @12% per annum from
SHGs.
SHGs were given freedom to fix interest rate from
members.
Refinance support to banks by NABARD etc.
During pilot phase, 4750 SHGs credit linked with bank
loan of Rs.60.58 million covering 28 CBs, 60 RRBs and
7 Coop banks.

Mainstreaming of SHGs-BLP
Working

Group by RBI after Pilot phase observed

that
Rural poor could save
Not concerned much with cost of credit
Timely and adequate credit was important
Good users and prompt repayers of credits.
SHG-BLP is a cost effective, transparent and flexible approach to
improve the accessibility of credit from the formal banking system to
resource less poor.

Supplementary credit strategy for banks for reaching the poor.

Financing

to SHGs was mainstreamed in the


operations of the banks by RBI in 1996.

The Self help Group (SHG)

What is it?

A homogeneous group of about 10-20 members

Every member to save a small amount at regular interval.

Pooled savings utilised for internal loaning and surplus


thereafter kept in a saving bank account of group
Rs.6551 crore of 79.6 lakh SHGs as bank deposit and about
Rs.15285 crore as internal loaning ( Total estimated savings Rs. 21836 crore)

Decisions regarding prioritisation of loans, interest rate,


repayments etc managed by group improve their capacity to
handle large resources

Depending on SHGs maturity, bank gives loan to SHG in a


multiple of savings form part of internal corpus of group
-

Result in adequate and sustained access to financial services

Recovery was to be a mechanism of peer pressure

Learning ground before they handle bigger size funds from


banks.

Design features

Enables exclusion of rich

Self selection

Focus on women

Saving first and credit later

Intra group appraisal system

Prioritisation of credit

Credit rationing

Shorter repayment terms

Market rates of interest


Trg for Tablet based
accounting

Credit Linkage with Banks


The group should be in existence for at least 6
months
Group should have promoted savings habits
Savings to loan ratio of 1:4 or 1:6 but liberal
for matured groups
Simple documentation
Bank loans not to be used for financing
defaulters

Group Funds
MEMBERSHIP FEES
THRIFT COLLECTIONS
NGO/GO
CONTRIBUTION
LOAN REPAYMENTS
FINES & PENALTIES
BANK LOANS

The Product Converges


Formal

and Informal Systems


Financial capital and Social capital
Systems & Procedures and Flexibility
Professionalism

and Local Knowledge

An Indian Product researched,


Tested, Piloted, Grown, Expanded,
and now A MOVEMENT

SHG - BLP- Role of NABARD

Conceptualisation and pilot testing of SHG BLP


Contributing to conducive policy framework
Convincing/catalyzing all stakeholders
Grant Assistance to SHPIs
Capacity building support for all players
Refinance to banks
Critical tools/parameters/guidelines for
maintenance of accounts and records, rating, etc.

Book Keeping by SHG members through a Hand


Held Device

SHG BLP - Role of


NABARD .....

Communicating data/information/inputs to RBI,


GoI etc
Review of progress
Innovations, studies, disseminations of best
practices etc.
Micro finance Development and Equity Fund
(MFDEF) and WSHG Fund
Consultative mechanism at various levels
National, State and District

Trg for accounting through


mobile based software

Progress in SHGs Saving and Credit Linked


(No. in lakhs)

SHG-Bank Linkage Highlights


(Rs. Crore)

Two decades of SHG-BLP - Some


Interesting Data

7.96 million SHGs covering 103 million rural households (79% women
groups)

SGSY Groups 27%

Share of Southern States -46% (gradually declining east. zone shot up to


20%)

Savings in banks - Rs.7016 cr to Rs.6551 cr (2010-11 to 2011-12) - decline


6.7%

Decrease in Savings of SGSY group over same period 23.2%

Savings per SHG all India Rs.8230/- Southern states Rs 10080/-

Outstanding bank credit - Rs.36340 crore

4.36 million SHGs have outstanding loan as on 31.03.2012 (54% in South)

1.15 million SHGs disb loan during 2011-12

Per SHG loan disb Rs.1.44 lakh with Rs.1.80 lakh in South

54% share in credit linked SHGs Southern States have 77% share in Loans
O/S

CBs credit share 58%, RRBs-27%, Coops.-15%

Where Have we reached ?


SHG savings
coverage
Mapping- March
2012 Arunachal

Jammu &
Kashmir
Himachal Pradesh
Punjab

Heartland of SHG
focus

Haryana

Delhi

Sikkim
Uttar
Pradesh

Rajasthan

Assam

Bihar
Jharkhand

Madhya
Pradesh

Gujarat

Pradesh
Nagaland
Manipur

Meghalaya

West
Bengal

Tripura

Mizoram

Chhattisgarh
Orissa
Maharashtra
Andhra
Pradesh
Goa

Green

Extent of coverage
>90%!

17 states

Red

< 50 % coverage

6 states

Yellow

> 50 70 %

2 states

Brow
n

>70 - 90%

4 states

Karnataka

Kerala

Tamil
Nadu

Where Have we reached ?


SHG credit
coverage
Mapping- March
2012 Arunachal

Jammu &
Kashmir
Himachal Pradesh
Punjab

Uttarakhand

Haryana

Delhi

Sikkim
Uttar
Pradesh

Rajasthan

Madhya
Pradesh

Gujarat

Assam

Bihar
Jharkhand

Pradesh
Nagaland
Manipur

Meghalaya

West Bengal

Tripura

Mizoram

Chhattisgarh
Orissa
Maharashtra
Andhra
Pradesh
Goa

Green

Extent of coverage
>90%

02 states

Red

< 50 % coverage

18 states

Yellow

> 50 70 %

6 states

Brown

>70 - 90 %

3 states

Karnataka

Kerala

Tamil
Nadu

Strategy for Upscaling SHG-BLP


Saving

linking 10 lakh SHGs every year from


2010-11 for 5 yrs
Mapping of Potential
Priority States for intensification
Credit deepening in Southern and other States
with near saturation level
Reducing imbalances in SHG-BLP among districts
within a state
30% Savings Linked SHGs to be credit linked
every year

Strategy for Upscaling SHG-BLP


Sanction

of large SHPI projects like RGMVP,


Priyadarshni, Jharkraft etc.
Roping in new partners as SHPIs like Federations,
PACS etc.
Continue with multi stakeholders meet to thrash
out operational issues
Implementation of WSHG Scheme in backward
districts
Sanction of SHPI projects in saturation mode in
non- backward dists.
ICT solution for accounting etc.
Promotion of livelihood.

SHG Meeting in Progress

Impact of the programme

Extensive coverage of financially excluded


poor
Empowered the disempowered Specially
women
Economic impact
Increase in net household income
Changes in expenditure pattern, saving habits
Improvement in asset holdings, financial
status, health, hygiene and education

Social empowerment Increased social


role, social harmony, collective action
against social injustice

Some of the Innovative Initiatives of


NABARD
Grain

bank and SHGs


Computer munshi
Nabyukti Software through Myrada
ICT Solution for SHG Accounting
- Mobile Based, Tablet Based & Hand Held Device Based

Web

based MIS
Rural volunteer as book writer
Post Office as SHPI and Financial Intermediary
Joint Liability Groups
Action Research for Voluntary Savings
Health Package for SHG members

Issues and challenges


Concentration

in southern states

- 46% of total saving linked SHGs and 54% of total credit linked groups

Quality

of Groups lack of regular meetings, poor


book writing, lack of audit of accounts, rating and
grading of groups

Whereas

overall credit flow increasing (from Rs. 14548 Cr


in 2010-11 to Rs.16535 Cr during 2011-12) number of SHGs
getting credit from banks decreasing (from 11.96 lakh
SHGs to 11.48 lakh SHGs)

Apathy

of banks to lend. Only 14.4% SHGs getting


loans from banks during 2011-12

Issues and Challenges

Individual SB A/C by only small percentage of


individual members

NPA in SHGs

(2.94%, 4.72% and 6.09% as at the end of March


2010, 2011 and 2012 resp) Led by Central Region with 13.2% and
Western Region with 8.2%

Subsidised and Cheap credit jeopardizing group


dynamics quality of groups declining

Importance of savings/thrift in group not recognised

Excessive infusion of credit, multiple membership,


multiple borrowings

Issues and Challenges...


Inadequate

graduation from consumption


credit to credit for livelihood

National

Rural Livelihood Mission

Building of structures with outside support


Federations (CBOs) working as financial intermediary
Interest Subsidy and Subventions

Income

stabilisation to be first priority before


enhancing income

WSHG Scheme

150 backward districts in 28 states


Implementation in saturation mode
Nodal NGO Identification by LDM & DDM in
consultation with DLCC
Participation by bank branches with CBS
MoU between bank and NGO
NGO to promote and facilitate credit linkage, provide
handholding support, enable livelihoods and bear
default risk
Creation of WSHG Fund in NABARD
Grant support @Rs.10,000/- per SHG and training etc
Service charge from banks @ 5% p.a. on o/s loan
against SHGs. Defaults, if any, to be netted out.

Two Decades of SHG-BLP


Need for Revistitng : SHG -2
Inadequate outreach in many regions
Delays in opening of SHG accounts and
disbursement of loans
Impounding of savings by banks as collateral,
Non-approval of repeat loans even when the
first loans were repaid promptly
Multiple membership and borrowings by SHG
members within and outside SHGs and
Limited banker interface and monitoring

Product level changes in SHG2


Allowing voluntary savings:
Cash Credit / overdraft for SHGs
Enabling Joint Liability Groups (JLGs) within
SHGs
Improving Risk Mitigation Systems
Building second tier institutions
Strengthening monitoring mechanism rating
& auditing
Addressing Training requirements

Thank you
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