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Survey of Literature Volume I

Index

1. Penetration and shg Bank Linkage Programme: A Critique(Pankaj Kumar and Ramesh Golait,) (p.1)

2. The Indian Microfinance Experience – Accomplishments and Challenges (Rajesh Chakrabarti) (p.5)

3. women’s empowerment: effect of participation in self help group (deepti umashankar) p.7

4. New Zealand Women & Micro-Financeclaire( Massey & Kate Lewis) p.8

5. A Comparative Study Of Self Help Groups(SHGs) Organised And Promoted By Nongovernmental Organisations (NGOs) And Kudumbasree – A Government Organized Nongovernmental Organisation (GONGO) In Kerala, Towards Empowerment Of Poor Women(Submited by Loyola Extension Service, Loyola College, Thiruvananthapuram) p.11

6. Microfinance Challenges: Empowerment or Disempowerment of the Poor? (Edited by Isabelle Guerin and Jane Palier) p.14

6.1 Microfinance, informal finance and empowerment of the poor:Lessons from a case study of the SHG-bank linkage programme in a backward district in India

(R Sunil) p.146.2. Micro enterprises of self-help groups and State policies under a neo-liberal

regime: Evidences from a village in Kerala (S. Mohanakumar and Suja Susan George (pages 97 to 111) p.16

6.3. Historical analysis of empowerment and itspresent understanding in the context of microfinance (Sunita Rabindranathan (pages 89 to95) p.18

6.4. Can microfinance empower women? (Joy Deshmukh-Ranadive (pages 113 to 130) ) p.20

6.5. Self-help groups and the empowerment of Women – a study on Community Development Society in Alleppey, Kerala (Binitha V. Thampi)

6.6. Microfinance and empowerment – concepts and tools: some preliminary insights from the SHGmodel in Andhra Pradesh (P.A. Lakshmi Prasanna (pages 285 to 293)

6.7. Findings from the mid-term impact assessment study of the CASHE programme in Orissa, carriedout by Sampark, Bangalore(pages 277 to 284)Prabhat Labh ( prabhatlabh@yahoo.com .)

6.8. SHGs and their place and role in civil society Prakash Louis (pages 295 to 301)6.9. Social externalities of women’s empowermen through microfinance: a

comparative study of two interventions (M. Indira)6.10. Microcredit programmes, poverty alleviation and empowerment of women –

some empirical evidence from Kerala, K.R. Lakshmy Devi (pages319 to 324)

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7. Empowering Women: A Critique of the Blueprint for Self-help Groups in India (TanyaJakimow Patrick Kilby)

8. The Rationale of Self-help in Development Interventions: A Case Study of a Self-help Group Programme in Tamil Nadu( Tanya Jakimow Australian NationalUniversity Canberra Australia )

9 Self-Help Groups in Empowering Women:Case study of selected SHGs andNHGs (Jaya S. Anand) Discussion Paper No. 38

10. How Do Women in Mature SHGs Save and Invest Their Money? Evidence from Self-Help Groups in India (Lucie Gadenne Veena Vasudevan) p.37

11. Impact and Sustainability of SHG Bank Linkage Programme (Final Report Submitted to GTZ-Nabard), March 2008 Project Leader: Anushree Sinha p.39

12. Can Microfinance Empower Women? Self-Help Groups in India (Ranjula Bali Swain) p.50

13. Self Help Group Linkage Program: A Case-study (Kumar Aniket) November 15 p.5414. Sustainability of Microfinance Self Help Groups in India: Would Federating Help?

(Ajai Nair )Consultant, World BankEmail: anair@worldbank.org (World Bank Policy Research Working Paper 3516, February 2005 p.55

15. Microfinance and Women Empowerment an Empirical Study with special reference to West Bengal (Dr. Jyotish Prakash BasuE-mail: bjyotish@yahoo.com ) p.56

16. Commercial Aspects of SHG Banking in India (Dr. Hans Dieter Seibel Harishkumar R.Dave) p.56

17. . Linking Banks and (Financial) Self Help Groups in India-An Assessment(Dr. Erhard. W. Kropp and Dr. B. S. Suran p.59

18. SHG-Bank Linkage Programme for Rural Poor – An Impact Assessment (V. Puhazhendi K. C. Badatya, NABARD) p.59

19. Microfinance and the Rural Poor:Impact Assessment Based on Fieldwork in Madhya Pradesh, India (Niranjan Sarangi) p.60

20. Doctor of Philosophy DissertationScaling up and mission drift: can microfinance institutions maintain a poverty alleviation mission while scaling up? (Gaamaa Hishigsuren) p.62

21. The impact of microfinance on rural poor households’Income and vulnerability to poverty: case study of makueni District, Kenya, Doktor der Agrarwissenschaften p.63

(http://depot.gdnet.org/cms/conference/papers/P005-M3-Joy%20Kiiru-Paper_2.3.pdf)22. BANCOSOL The Challenge of Growth for Microfinance Organizations (Claudio

GonzalezVega)(http://aede.osu.edu/programs/ruralfinance/PDF%20Docs/Publications/ESO%20Papers/eso2332.pdf) p.73

23. Credit for the poor: micro lending technologies And contract design in Bolivia BySergio Navajas, Lic., M.A. (The Ohio State University 1999) p.74

24. The miracle of microfinance? Evidence from a randomized evaluation(Abhijit Banerjeey Esther Du.oz Rachel Glennersterx Cynthia Kinnan) p.74

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Microfinance for Microenterprises- An Impact Evaluation of Self Help Groups ( K C Badatya, BB Wadavi, Ananthi S)

Survey of Literature

,

1.Penetration and shg Bank Linkage Programme: A Critique,

Pankaj Kumar and Ramesh Golait RBI Occasional Papers vol.29, No.3,2009

This paper examines the outreach of Self Help Group (SHG)-Bank Linkage Programme (SBLP) in the backdrop of growing banking and socio-economic divide between regions in India. The defining event in the build-up of financial architecture in India was the nationalization of major commercial banks. The aftermath of nationalization witnessed a remarkable spread of the banking system to the unbanked and under-banked rural areas. However, the dependence on informal sources of credit has not decreased in rural areas. The problem accentuated as banks veered away from rural to urban India. The relative decline of commercial banking network in the rural areas runs contrary to the objective of financial inclusion and is a formidable challenge in the way of faster and more inclusive growth. SBLP was conceived to fill the existing gap in the formal financial network and extending the outreach of banking to the poor. However, the present distribution of the SBLP is skewed against the poorer regions of the country. While less than one-fifth of total loans to SHGs went into the Eastern and Central Regions taken together, they accounted for more than three-fifth of the total poor in India. Banks need to be encouraged as facilitators in extending the SHG movement in the poorer regions, perhaps by introducing a scheme of performance-linked incentive. Specific funds may be created to address the regional imbalances in the SBLP. SHGs need to be formed around activities of rural infrastructure such as construction and renovation of minor irrigation tanks, feeder channels, rural roads, etc. This will generate significant external economies for agricultural yields and overall rural development. Enhanced efforts should be made towards embedding livelihood activities, micro-insurance and grain banks in the SHG model.Spatial Disparity in the SHG-Bank linkage Programme

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Notwithstanding the remarkable progress, geographically there has been a skewed development of SHG-Bank linkage programme in India. . In March 2008, while the Southern Region accounted for 48.2 per cent of the total SHGs, the share of North- Eastern Region was just 3.4 per cent (Table 8). While the Southern Region accounted for 71.4 per cent of the total loans to SHGs, the share of North-Eastern Region was just about 1.5per cent. For all regions excluding Southern Region, even though the share of total SHGs linked to banks was close to 51.8 per cent, their share in total loans to SHGs was only 28.6 per cent implying that adequate credit is not being routed through SHGs in these regions. As the regions vary in geographical area and population, the number of SHGs is normalized by the population of the region and SHG per lakh population has been taken as a better indicator of SHG spread in the respective regions. The number of SHGs per lakh population for the Southern Region is 703, which are more than double the average at all-India (310) and almost five times of the Central Region (142).In addition to the inter-regional disparity, there is wider intraregional disparity among the constituent States in SHG spread. The progress of SHG-Bank linkage programme has not been homogeneous in any region (Table 9). In the Southern Region, where the programmme has been very successful, SHGs per lakh population varied between 891 in Andhra Pradesh and 435 in Kerala during March 2008. In the North-Eastern region, the major share was accounted for by Assam with 3.1 per cent of the total SHGs while the rest of the six States in the region had a negligible share in the total SHGs. Similarly, Rajasthan and Himachal Pradesh were distinctly ahead in the Northern Region in terms of spread of SHGs. In the Eastern Region, SHG spread in Orissa was comparable with the Southern States. There is clear evidence of the fact that the SHG movement in India has spread to other regions/States, though not to the same extent as in the Southern States. However, a major concern remains the scale of finance in the non-southern regions. The average loan per SHG in these regions continues to be much lower than that in the Southern Region. Further progress in the SHG-Bank linkage programme needs to reckon these regional variations in the spread of the programme.

Banking Indicators and SHG SpreadThough there does not appear to be a one-to-one correspondence between banking outreach and spread of SHG movement, this is captured by the positive correlation of 0.47 found between SHG spread (measured as number of SHGs per lakh population) and banking network (measured as number of branches of scheduled commercial banks per lakh population). A striking feature observed has been that even with similar banking network, SHG spread varies between Regions and States indicating that other local factors are equally important. For instance, at the regional level, similar banking network in the Northern and Southern Regions does not translate into comparable SHG spread (Table 10). Further, among the States where the SHG spread is better, there is a high variability in the banking network. Illustratively, Andhra Pradesh appears to have a less dense banking network as compared with Kerala when the banking network is seen against total population in the States. Yet, Andhra Pradesh has more than double SHG spread than that in Kerala. It is found that a positive correlation (0.59) exists between SHG spread and credit-

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deposit ratio of Scheduled Commercial Banks. The credit-deposit ratio in the Southern Region was significantly higher at 84.4 per cent during March 2006, while the all-India average was 72.4 per cent. The higher credit-deposit ratio of the Southern Region could, inter alia, be because of the better spread of SHGs in this region, which offers to banks an alternative channel of disbursing loans. SHGs appear to have played the role of conduits for credit disbursed by the banks. This underscores the importance of SHGs in purveying of credit, especially in the rural/semi-urban areas.Socio-Economic Indicators and SHG Spread It would be pertinent to see whether the programme has adequately made inroads into the regions where concentration of poverty is higher. All India poverty ratio stood at about 27.6 per cent during 2004-‘05,. While the Northern (15.7 per cent), North-Eastern (19.2 percent), Southern (19.8 per cent) and Western region (25.8 per cent) had lower than the all-India poverty ratio, Central (35per cent), and Eastern Region (36.2 per cent) had higher poverty ratios than at the all-India level (Table 11).The present distribution of the SHG–Bank linkage programme does not appear to have taken cognizance of the extent of poverty. In the Eastern and Central Region, the proportion of total poor in India is significantly higher than the proportion of SHGs linked to banks in these regions (Table 11 and Table 8). While both the regions taken together accounted for 61.1 per cent of the total poor in India, they accounted for only 31.0per cent of all SHGs linked to banks in India .Further, their share in total loans to SHGs formed only 17.4 per cent. On the other hand, Southern Region which accounted for 15.3 percent of the total poor in India had about 48.2 per cent of all SHGs linked to banks and much higher 71.4 per cent of total loans to SHGs (Chart 5). There is, therefore, a need to intensify the spread of the programme in the States where the poverty is higher. Loans to SHGs linked to banks in India account for only 1.5per cent of the total credit outstanding of the scheduled commercial banks. However, there are regional variations. The size of the SHGs in terms of their share in the total bank credit is highest in the Southern Region (4 per cent), followed by North-Eastern (2.4 per cent), Eastern (2 per cent), Central (1.3 per cent), Northern (0.3 per cent) and Western regions (0.2 per cent). Given the relatively small size of the SHG Bank linkage programme compared to the overall credit disbursed by banks, it cannot be expected to have had any significant impact on poverty reduction at a macro level. Nonetheless, a negative correlation of -0.25 between SHG spread (measured in terms of the number of SHGs per lakh population) and poverty ratio implies that the States where the SHG spread is better are also the States where the poverty ratio is lower. The SHG Bank Linkage has its impact on poverty alleviation through group effort, which emanates from their own savings and timely credit from various institutional agencies. According to a study conducted by NABARD, out of those below poverty line in the pre-SHG situation, 15 per cent moved above poverty line. It is found that a positive correlation (0.31) exists between SHG spread (measured in terms of the number of SHGs per lakh population) and Per Capita Income of States emphasizing the result that SHG spread continues to be lower in the poorer regions of the country. One policy implication that may emerge from the above analysis is that the SHG spread needs to be intensified in the States where the poverty is higher, which is

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lacking at present. A mapping of SHG spread and poverty has been attempted in Table 12 precisely with an objective to select States, where further efforts are needed.

2. The Indian Microfinance Experience – Accomplishments and Challenges*(Rajesh Chakrabarti

Assistant Professor of Finance, Dupree College of Management, Georgia Tech,800 West Peachtree Street, Atlanta, GA 30332, USA .and Chief Economist, Credit watch, Kolkata, India E-mail:

rajesh.chakrabarti@mgt.gatech.edAbstract:

The paper discusses the state of SHG-based microfinance in India. With traditionally loss-making rural banks shifting their portfolio away from the rural poor in the post-reform period, SHG-based microfinance have become an important alternative to traditional lending in terms outreach and monitoring costs. Over half a million SHGs have been linked to banks over the years but a handful of states, mostly in South India, account for over three-fourth of this figure with Andhra Pradesh being an undisputed leader. In spite of the impressive figures, microfinance in India is still presently too small to create a massive impact in poverty alleviation, but if pursued with skill and opportunity development of the poor, it holds the promise to alter the socioeconomic face of the India’s poor.

V. The Road Ahead – Prospects and ChallengesImpact assessment being rather limited so far, it is hard to measure and quantify the effect that this Indian microcredit experience so far has had on the poverty situation in India. Doubtlessly, a lot needs to be accomplished in terms of outreach to make a serious dent on poverty. However, the logic and rationale of SHG based microfinance have been established firmly enough that microcredit has effectively graduated from an “experiment” to a widely-accepted paradigm of rural and developmental financing in India. This is no mean achievement. In fact to the extent that people’s mindsets are the biggest roadblock in the success of an innovation, it may well be one of the most important steps in the saga of microfinance. The path ahead is obviously strewn with challenges. Scaling up of projects and bringing millions of people within the fold of microfinance is no mean task. The most convincing feature of this form of financing, that justifies its admittedly higher costs, is the near-perfect repayment rates. The expansionary zeal of microcredit practitioners should be balanced with the quality of loans – indeed a momentous challenge. Government involvement in SHG-based microfinance is a welcome development but it is not free from its ills. Government aid almost always brings in its wake political favoritism and corruption. It is important to ensure that the government microfinance initiatives do not go the way of their several well-intentioned predecessors. The biggest challenge in development, however, is the simultaneous development of investment potential and improvement of skill levels of the borrowers. A glut of low skilled services is an unwelcome substitute for scarcity of credit. As microcredit alleviates the credit availability problem, the need for micro-consulting, business planning and services like marketing, are being felt with greater acuteness. Microcredit cannot be expected to be a panacea to rural developmental problems. In some sense, its role is similar to that of credit in the general economy. It is a string that can hold back progress, but it is almost impossible to push on a string. There is a very real need of investments that yield higher returns than the sustainable microcredit interest rates for the microcredit initiative to be truly successful. However, so far the evidence – largely anecdotal – points to the several beneficial side-effects of microcredit. In particular, empowerment of women and the

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inculcation of financial training and discipline amongst the poor will undoubtedly have long-term socioeconomic benefits. The principles of self-help and microcredit thus hold the key to economic and socio-cultural freedom for India’s millions of poor, opening the gates of a hitherto untapped reservoir of human enterprise.

1. Bansal, Hema, 2003, “SHG-Bank Linkage Program in Indian: An Overview”, Journal of Microfinance, Vol. 5, Number 1.

2. Bhatt, Nitin and Y.S.P. Thorat, 2001, “India’s Regional Rural Banks: The Institutional Dimension of Reforms”, Journal of Microfinance, Vol. 3, Number 1.

3. Damodaran, Harish, 2003, “Banks more shy of rural lending”, Hindu, July 12, 2003.

4. Fisher, Thomas and M.S. Sriram ed., 2002, Beyond Micro-credit: Putting Development Back into Microfinance, New Delhi: Vistaar Publications; Oxford: Oxfam.

5. Harper, Malcolm, 2002, “Promotion of Self Help Groups under the SHG Bank LinkageProgram in India”, Paper presented at the Seminar on SHG-bank Linkage Programme at New Delhi, November 25-26, 2002.

6. Kropp, Erhard, W. and B.S. Suran, 2002, “Linking Banks and (Financial) Self Help Groups in India -An Assessment”, Paper presented at the Seminar on SHG-Linkage Programme at New Delhi, November 25-26, 2002.

7. Seibel, Hans D. and H.R. Dave, 2002, “Commercial Aspects of SHG Banking in India”Paper presented at the Seminar on SHG-bank Linkage Programme at New Delhi, November 25-26, 2002

IIM, Bangalore3. Women’s empowerment: Effect of participation inSelf help groups

By Deepti Umashankar

Has been accepted towards partial fulfilment of the requirements for the Post Graduate Programme in Public Policy and Management,Indian

Institute of Management, Bangalore.Prof. R. SrinivasanChairperson(Dissertation Advisory Committee) Prof. Vasanthi Srinivasan

Member(Dissertation Advisory Committee)

Prof. Gopal NaikChairperson

(Post Graduate Programme in Public Policy and Management)

Abstract: This study seeks to explore the impact of participation in Self Help Groups on the empowerment of women. It uses the personal narrative method to give a voice to women’s perspective. The study looks at various dimensions of empowerment – material, cognitive, perceptual and relational. Access to credit can help in expansion of material base of women by enabling them to start and expand small businesses, often accompanied by market access; the women also experienced ‘Power within’: feelings of freedom, strength, self identity and increases in levels

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of confidence and self-esteem. However, gender discrimination is most deeply entrenched in the family, evident in attitudes towards daughters in law, daughters, the gender based division of work, roles and responsibilities as well as the mind-set towards domestic violence and issues of ownership and inheritance of land. At the social level, an encouraging trend is that women have been able to challenge the norm of purdah. Besides, involvement in SHGs has enabled women to have a voice in the community affairs and they have been able to tackle problems such as a lack of drinking water and electricity, access to health services and children’s education. Though women face handicaps to their involvement in politics, their participation in SHGs has altered them, and these women can be prospective leaders in the local political field. Nonetheless various constraints like discriminatory practices in labor, a low level of skills etc. operate to contract a woman’s potential for empowerment. It may be comparatively easier to ensure material change than to cause a change in power structures and the ideologies and attitudes which accompany them. However, no milieu is static, and some of the recommendations for a way forward include providing a convergence of inputs, ensuring a proactive involvement of women in the program, changing social norms and perceptions and anchoring with wider movements of social change.

4. NEW ZEALAND WOMEN & MICRO-FINANCEBy

Claire Massey & Kate Lewis

( New Zealand Centre for Small & Medium Enterprise Research Massey

University, Prepared forMinistry of Womens affairs

Executive summary

. One forum for the discussion on the topic of women and micro finance is APEC, and the 1st

APEC Ministerial Meeting on Women (in Manila in 1998) recommended that APEC leaders and ministers address the barriers to women’s access to finance. Member countries reported on these

issues at the 2nd Ministerial Meeting in September 2002. The meeting recognized the role of micro-finance organizations in enabling women who don’t have access to traditional financial services. Recommendations included encouraging the development of commercially based micro-finance institutions, and facilitating the dissemination of information on best practice in terms of micro-enterprise development and financial services for those businesses. These discussions provided the context for this review, which was commissioned by the Ministry of Women’s Affairs in order to better understand the situation for New Zealand women with regard to their access to micro-finance. The objective of the review was to provide the Ministry with a clear picture of the research already done and the gaps in the knowledge and provide recommendations. This report summarizes information that was collected from a variety of sources during the course of the review and makes a number of recommendations, which were based on the researchers’ conclusions in relation to what they found.

STUDIES OF WOMEN & MICRO-FINANCE

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The dominant perspective of microfinance being viewed as a tool for poverty alleviation in developing countries has changed over time. This era was followed by one in which micro-finance was viewed as a potential tool for economic development. Most recently there has been a growing recognition that micro-finance has a role in both economic and social development. The result of this situation (where the topic of micro-finance has been examined from quite different perspectives) is that it is a field that is lacking a well-defined body of knowledge for practitioners and/or policy-makers. As already noted, much of the early research was done in the context of developing countries, was small-scale and focused on describing what was happening (rather than evaluating its effectiveness). There are now some findings that are reasonably widely accepted:

Women tend to have a lower debt capacity since their businesses are often under-capitalised and/or in activities with low profitability.

Women appear to be more averse to risk and consequently demand fewer, smaller loans.

Low-income women prefer other types of financing over debt for business purposes. Women own less property and consequently are less likely to meet collateral

requirements. Application procedures can require the co-signature of the husband, which increases

transaction costs. In some countries and/or cultures women face socio-cultural constraints

Due to their multiple household and economic responsibilities, women face serious time constraints, therefore, are negatively impacted by transaction costs.

Women use different sources of information.

THE SITUATION IN NEW ZEALAND The researchers gathered information on the situation in New Zealand by identifying relevant printed material (research reports, academic articles and newspaper and magazine articles) as well as by seeking the opinion of individuals involved at a policy or practitioner level with the provision of services related to women and/or micro-finance. This enabled them to ‘map’ the New Zealand situation, using a framework developed by the International Labor Office to explore the relationship between policy and practice and the way in which these relate to the needs of the client group. In the context of women and micro-finance, this framework (depicted below and included as Figure 4 in the body of the report) shows that although New Zealand does have a policy framework for the delivery of micro-finance (and/or micro-credit) to women (at least at the international level), there is very little provision, either from the perspective of programmes or from an institutional perspective. Another gap is in terms of the knowledge base about the ‘inferred needs’ of the women involved: there is very little New Zealand research that is sufficiently recent, robust and comprehensive enough to provide policy guidance

Introduction

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Despite many indicators that suggest women in New Zealand society enjoy a level of equality that surpasses many of our neighbours and trading partners, there is still evidence that points to continuing disparity between men and women at an economic level. A particular area of concern relates to the access of women to finance. A number of suggestions as to how this situation could be addressed were made within this process, and these suggestions point at specific concerns over women being able to access small sums of money and/or obtaining credit at low levels. Discussion on the topic of women and micro-finance and/or micro-credit has also been occurring

within the context of APEC. At the 1st APEC Ministerial Meeting on Women (in Manila in 1998), general concerns about women’s access to finance and economic literacy were raised. The meeting recommended that APEC leaders and ministers address the barriers to women’s access to finance, including micro-finance. Member countries reported on these

issues at the 2nd Ministerial Meeting in September 2002, at which the theme was ‘Advancing Women’s Economic Interests and Opportunities in the New Economy’ and where one of the sub-themes was micro-enterprises. Acknowledgment was made at the meeting of the role of micro-finance organizations in enabling women who don’t have access to traditional financial services. Recommendations that were made included encouraging the development of commercially based micro-finance institutions, and facilitating the dissemination of information on best practice in terms of micro-enterprise development and financial services for those businesses. These discussions provided the context for this review, which was commissioned by the Ministry of Women’s Affairs in order to better understand the situation for New Zealand women with regard to their access to micro-finance. The objective of the review was to provide the Ministry with a “high-level literature review to thoroughly research and document the situation for New Zealand women with regard to their access to micro-finance” (see Appendix A for the project brief).

CONCLUSIONS & RECOMMENDATIONS The field of women and micro-finance is dominated by practice-based literature (as opposed to literature that reports on the effectiveness of practice from an empirical basis). It is also an immature field; there is too little research that is robust and recent from which to draw conclusions about the best way forward for any country concerned about improving access to finance for women. Partly this is because there is little known about ‘access to finance’ in general – despite it being one of the issues that is almost always raised in any discussion over the constraints to economic and/or business growth. One of the reasons for this is that it is a topic where the ‘real issues’ are difficult to tie down; perceptions of barriers, and the barriers themselves are not always the same thing. Another reason for a lack of research that is useful in this context is that women have often been viewed as a minority group in self-employment, or as a group who are disadvantaged. This has led to a focus on micro-finance as a development and/or poverty alleviation strategy, and the majority of literature therefore is set in the context of developing countries.The situation in New Zealand is even more difficult; while there are a number of agencies that provide micro-finance to women, there is an almost total lack of interest in evaluating whether this is necessary, and whether the particular measures that are being undertaken are effective and/or efficien t . While there is little research being undertaken by the delivery agencies themselves, there is also a lack of research being undertaken by the academic community. The result is that ‘what is known’ about women and micro-finance in New Zealand is dated, anecdotal and totally insufficient to provide an adequate foundation for

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any policy development. This gap must be addressed if progress is to be made .There are two reasons why an endeavor like this is necessary. Firstly, there is an urgent need to gather information on the experiences of women in relation to finance in New Zealand. l. A key aspect of this work should be a clear identification of the different groups of women that are potential users of micro-credit and/or micro-finance (e.g. in terms of ethnicity, family context, geographical area) and of their need for the finance (e.g. to support a family and/or to establish a business). Secondly, the project should identify one or more of the groups identified in the research phase, and develop and deliver a programme that meets the needs of this group (or groups).

Within the context of business and/or economic development it is clear that the provision of finance is merely one factor. As noted above, the entire ‘development system’ needs to be viewed as a set of component parts (which offer advice, support, mentoring, training, etc) in order for the intending businessperson to maximise their potential.

5. A COMPARATIVE STUDY OF SELF HELP GROUPS(SHGS) ORGANISED AND PROMOTED BY NONGOVERNMENTAL

ORGANISATIONS (NGOS) ANDKUDUMBASREE – A GOVERNMENT ORGANISED NON GOVERNMENTAL ORGANISATION (GONGO) IN

KERALA, TOWARDS EMPOWERMENT OF POOR WOMENSubmitted to

Ministry of Human Resource DevelopmentDepartment of Women and Child Development

Jeevandeep BuildingSansad Marg

New Delhi – 110 001

Submitted byLoyola Extension Services

Loyola College of Social SciencesSreekariyam, Thiruvananthapuram-695 017

Kerala, India

December 2004

Executive summary

In Kerala, since the middle of 1990s, the State Government also took initiatives in organizing the urban poor women into Neighbourhood Groups (NHGs). These NHGs are recognized as SHGs by NABARD, as far as SHG-Bank linkage and credit facilities are concerned. Kudumbasree is a Programme under the Poverty Eradication Mission (PEM) of Government of Kerala, which came into existence since 1997. The PEM is a Government Organised Non-Governmental Organization (GONGO), directly supervised by the Local Administration Department of the Government of Kerala. The concept of Kudumbasree programme is conceived as a poverty eradication strategy and

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at the same time as a programme – implemented both in rural as well as in urban areas. The present study was aimed at making a comparative study of the enabling processes and efforts by the NGO and Kudumbasree towards social,economic and political empowerment of poor women since last few years inKerala.

Objectives To examine constitution and function of SHGs organized and nurtured

byNGOs and Kudumbasree in Kerala To study the social profile of the SHG members, aspects like time

taken for bonding various activities undertaken by the SHGs etc., role of SHGs in the family, social and community issues

To study the organizational dynamics within SHG, level of empowerment achieved by women SHG members

To verify the role of SHG members in decision making in the family and the SHG

To assess the economic and political enhancement that has been achieved both individual and family levels

To distinguish between SHG formed for economic and non-economic motives and the contrast the nature of the SHGs and their dynamics

To study the role of NGOs and Kudumbasree in empowering the member of SHGs with special reference to capacity building.

MethodsMulti-stage, simple random sampling method was used for selecting the SHGs and respondents. Thus a total of 80 SHGs and a sample of 400 members representing the sample SHGs were selected for the study. Interview schedule was used for primary data collection. Case Studies and Focus Group Discussions were conducted to supplement the data and information. Neyyattinkara Integral Development Society (NIDS), Mithranikethan, the Kannur Association for Integrated Rural Organization and Support (KAIROS) and the SreeNarayana Trust (SN Trust) are the selected NGOs representing Northern and Southern regions of Kerala. The two Panchayats selected from Kudumbasree for the study were Kottukal Panchayat from Thiruvananthapuram District and Mangattidam from Kannur DistrictConstitution and Functioning of SHGsIn the constitution and functioning of SHGs, there is a wide variation observed among the SHGs of NGOs and between the SHGs of Kudumbasree and NGOs. Regarding membership, attendance and other regulations, SHGs of Kudumbashree have fixed rules and regulations whereas the SHGs of NGOs do not have any hard and fast rule in this regard. The designations of office bearers differ between SHGs of NGOs. The number of Executive Committee Members also varied depending upon the total strength of the group. SHGs of Kudumbasree follow the bye-laws of CDS in selecting its executive members and the office bearers are elected in

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a democratic way of voting. In the selection of beneficiaries for providing loan, the SHGs follow certain criteria. Interest rate to be charged and the number of installments for repayment and dealing with defaulter of repayment in time were left to the SHG. The most common rate of interest charged by the SHGs was Rs. 2per Rs. 100 per month, i.e.0.02 % interest .Neighbors, friends, other members of SHGs, officials of Kudumbasree and animators of NGOs were the agents who motivated the respondents to join in the SHGs. For majority (39 %) of the respondents the motivating factor for joining the SHGs was economic reason, which includes inculcating savings-habit and getting easy loan at a reduced rate of interest. Interaction with other women in their area; cooperation among members, acquiring knowledge, skills and a desire to work for the development of the community etc. are the social motives influenced about 35%of the respondents. There were dropouts reported from both the SHGs of NGOs and Kudumbasree. Usually the dropout starts after 6 to 12 months. Comparatively dropout rate was found less in Kudumbasree SHGs than from the SHGs of NGOs. Regarding the information about thrift saving and loan repayment, there was no significant difference between members of SHGs of NGOs and Kudumbasree. However, different NGOs follow different strategy for thrift savings. Some fix an amount, which is agreed upon by majority of the groups under them, while others leave the matter to the SHGs to fix up the amount. And, the Kudumbasree seem to have advised its SHGs to fix up some norms for thrift savings. In the case of SHG-bank linkage, there was significant difference between Kudumbasree and NGOs. All the SHGs selected from NIDS and Mithranikethan were not linked to recognized banks/financial institutions since these two NGOs had their own systems where the thrift savings were deposited. All the SHGs of Kudumbasree were linked to Banks within two years. Regarding conflict management, only 6 % of the respondents agreed about subgroups in their SHG system and it was found in SHGs of NGOs as well as in Kudumbasree groups. Most of the problems emerged due to financial dealing and autonomy of the leaders

Women’s Empowerment

In the study empowerment of poor women is viewed from three different angles, namely social, economic and political. Social empowerment is further viewed from individual, group and community levels. Empowerment at individual level is assessed by the increase in knowledge, skills and attitude effecting in better self esteem and self-confidence. Decision-making was one of the most important aspects looked into while studying the SHGs and empowerment of women through SHGs. The decision making process was looked into from two angles, namely within the family and in the group. This study looked into the change that has happened in the decision making process within the family after the respondents became the member of SHGs. There was a visible change that has occurred in the level of

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participation of women in the decision making process within the family. As far as health care and decision on menu the change was found more among members of NGOs, while regarding the education of children respondents from Kudumbasree experienced greater change. Together with participation in decision making another important aspect was the freedom of women as far as mobility was concerned. Remarkable change has happened regarding mobility of women -including women going out for attending meeting, classes, seminars, training programme, and various other functions of the SHG - investment and credit utilization were concerned. On an average a great majority (79.88%) of the respondents had awareness on the legal rights relating to women and children. However the source of information was largely from outside the SHG. On an average only 12.5% of the knowledge came through the SHG system. Regarding the knowledge of members on various government programmes and welfare schemes, irrespective of NGO based SHGs as well as Kudumbasree organized SHGs, the respondents stay behind. In this context, the study recommends that all the NGOs as well as the Kudumbasree should take greater interest in organizing awareness classes on government schemes so that all the poor women members of the groups would benefit from these programmes. This was a clear indicator of poor women getting empowered economically. Some of the indicators for the political empowerment looked into were their membership in other organizations, participation in Gram Sabha, contesting elections to Local Self Governments and holding responsible positions in various committees at the three-tier Panchayat system etc. SHGs are found to be effective means for encouraging poor women to participate actively in Gram Sabha. Another area of political empowerment probed into was contesting of elections toGram Panchayat.ConclusionIn comparing the enabling processes and efforts taken by the NGOs and Kudumbasree towards social, economic and political empowerment of poor women in Kerala, the study selected sample SHGs and respondents representing groups from the Northern as well as Southern regions of Kerala. While looking into the enabling processes of the selected SHGs, their constitutional procedures and functioning pattern were compared in which, there is a wide variation observed among the SHGs of NGOs and between the SHGs of Kudumbasree and NGOs. When comparing the socio-economic profiles of the respondents, not many differences could be seen between the SHGs of Kudumbasree and NGOs and a great majority of them are from low economic backgrounds. However the membership exposes them to various activities in SHGs of both NGOs as well as Kudumbasree had enabled the members’ social, economic and political empowerments to a large extent. Based on the study few suggestions are also made for improving the organizational and promotional strategies of both the NGOs and Kudumbasree in the process of empowering poor women in Kerala.

Conclusions and Recommendations

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In the constitution and functioning of SHGs, there is a wide variation observed among the SHGs of NGOs and between the SHGs of Kudumbasree and NGOs.

6. MICROFINANCE CHALLENGES:EMPOWERMENT OR

DIS EMPOWERMENT OF THE POOR?Edited by

Isabelle Guérin and Jane Palier

6.1 Microfinance, informal finance and empowerment of the poor:Lessons from a case study of the SHG-bank linkage programme in a backward

district in India

(R Sunil)

This paper discusses the process of access to finance, primarily credit, and the resultant empowerment of the rural poor, especially women, facilitated by the self-help group (SHG)-Bank linkage programme in India. Based on a case study, it argues that in backward economies credit demands and usage patterns of the poor could differ from general theoretical/programmatic assumptions. In such a socio-economic context, the perceived positive link between credit empowerment of women and the wider empowerment of the poor becomes weak and unpredictable. On the contrary, in the long run, the strategy of targeting poor women to provide credit could result in women ending up with more financial responsibilities (credit contracts) and having to deal with credit related issues (its management, use and repayment) than men, even while they continue to spend more time and energy for the welfare of their household.

Objective of the studyThe objectives of the present study are to identify (a) the process of credit empowerment of women (b) the intra-household debt patterns of the household and (c) whether the emerging debt patterns correspond with the declared and documented pathways of empowerment of the poor through microfinance, especially microcredit.Locale of the study and methodologyThe present discussion is based on a case study undertaken as part of a larger research study by the author in Wayanad district in Kerala, from October- December, 2002. The study sought to: (a) examine the aspects/quality of financial outreach achieved under the SHG programme and (b) empirically analyze and compare the credit functions, that is, the SHGs and the non-SHG sources. The present discussion focuses on the

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gender aspects of credit empowerment of the SHG member-households in the district and their macro implications.Selection of Households and data collectionThe selection of households for the study was by the multi-stage sampling process. First, the taluk-wise distribution of SHGs with three years of continuous credit linkage in the district was computed. The number of SHGs from each taluk was arrived at based on its respective share in the total number of SHGs in the district, and the selection of SHGs was by the random sample method. From each SHG thus selected, two SHG member households were randomly selected for administration of the questionnaire.Thus, the study covered 358 SHG households, equally drawn from 179 SHGs, which were proportionately distributed in the three taluks (Mananthavadi, Sulthan Batheri and Vythiri) of the district. Information was also gathered through focus group discussions with the SHG members and interviews with local moneylenders and bank officials.

Summary of findings Local moneylenders prefer to lend money to women rather than men.

Further, among the women, SHG women are increasingly preferred over other women for credit.

Men took fewer loans than women. However, men could avail larger amounts per loan than women borrowers, at relatively lower interest rates. Institutional credit, which is cheaper than other sources, showed a bias towards men (because they have larger assets).

Women maintain a wider, more diversified loan portfolio than men

Women contracted more high interest, low maturity (short-term) loans than male members in the family.

There has been a clear shift in credit liability towards women. The average amount borrowed by men decreased from Rs.22,900 to Rs.16,500, whereas the corresponding figures for women showed a significant increase from Rs.12,000 to Rs.16,000

Conclusions and implications

Further, participation in the SHG has enhanced their financial Credibility in the local money market and they are, therefore, able to contract more credit from sources other than the SHGs. When credit is focused on women, they are empowered to access/control other resources and services that should contribute to their increased welfare through better incomes. However, each credit is a debt and under conditions of severe livelihood uncertainties and dwindling State participation in social security services, the poor are inclined to borrow more and more to meet sustenance and social security/lifecycle needs. The borrowings help them meet their immediate sustenance needs, while their development needs are

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hardly addressed. The absolute powerlessness of the households could continue or even worsen in the long-term, while in the short- run, the relative intra-household inequities in credit access could be addressed by focusing credit specifically at women. Empowerment of women and the poor through providing credit is a weak assumption and does not result in an interactive process that would eventually result in the transformation of the poor. On the contrary, focusing on women to expand credit outreach could result in their ending up with more unfriendly credit/debts and repayment liabilities, which is not in their welfare interests. The empowerment of women through credit, and the empowerment of the poor are, therefore, not synonymous, at least in the socio-economic contexts as discussed above. This is notwithstanding the fact that women constitute the majority of the poor (there is a gender bias in rural poverty). In stagnant and declining economies, providing more credit to women need not result in empowerment of the household in general, unless it results in additional income generation, employment and welfare at the household level.

My observations

In stagnant and declining economies empowerment of women through credit accessibility need not necessarily follow general empowerment of the poor. On the contrary it may result in more unfriendly credit /debts and repayment liabilities which are not in their welfare.

6.2 Micro enterprises of self-help groups and State policies under a neo-liberal regime: Evidences from a village in Kerala

S. Mohanakumar and Suja Susan George (pages 97 to 111)

Since the Grameen Bank experiment in Bangladesh microcredit has been the universally accepted panacea for resolving unemployment and poverty. Theoretical postulates underline the fact that microcredit can be a potential source of mobilising savings for investment, for self-employment and for income generation, which would in turn have a strong bearing on poverty reduction Such theoretical postulates evolve from the generalized proposition that the non-accessibility of the poor to credit, in the absence of possession of creditworthy assets, is one of the major bottlenecks to development. It draws its ideological roots from the neo-liberal paradigm vouchsafed by international donor agencies such as the World Bank and the International Monetary Fund. Neo-liberalism advocates a minimal role for the state and has been extremely selective in the choice of roles prescribed. Accord to this paradigm, the state should withdraw from its commitment to providing basic services, while at the same time preparing an environment conducive to investment and production. Having realised the impending danger of global immiseration, the World Bank, on behalf of global finance capital, sponsored a Microcredit Summit in Washington D.C. in February 1997, in which international

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NGOs and transnational corporations participated. Microcredit programmes thus targeted mainly women, and the recommitment of mobilised savings into productive investment became the catchword from the 1980s. Such a shift within the neo-liberal paradigm is based on the premise that gender discrimination is an economic phenomenon and, therefore, the generation of employment and income through micro-enterprises would empower women. This idea has been incorporated in the anti-poverty programmes of developing countries to draw women closer to the neo-liberal agenda. The strategy of poverty reduction with microcredit, microfinance and women’s empowerment, is expected to defuse the impending danger posed to global capital and thereby ensure that the existing structure and distribution of wealth remains unaffected. It has also been argued that the promotion of microcredit, SHGs and micro-enterprises, besides linking microcredit with international finance capital, are powerful tools designed to deregulate the labour market. It enables global finance capital to return to the 19th century form of labour exploitation by both lengthening the working day and reducing the wage rate. As the cheap labour force get released into the “free labor market” existing reservation wages could be drive down.

Yet another point of disagreement with the World Bank proposition is that the promotion of microcredit-linked micro-enterprises of SHGs by women has not contributed to additional employment opportunities. For Kerala, this hypothesis can be tested empirically with the data available from various rounds of the National Sample Survey in the 1990s. Microcredit and micro-enterprises spread widely during the 9th Five year plan period and therefore, it is justifiable that the rate of growth in employment in the rural sector, particularly for women, should have scaled up during this period. The results of employment data showed that employment in the informal sector (agriculture) registered a negative rate of growth to the tune of (-) 1.63%during the period 1990-91 to 1999-2000 (Sen 2002).

Seen against this backdrop, the present study is an attempt to examine the impact of policy changes on the formation and activities of SHGs. The policy changes under question are those of the regimes of the Left Democratic Front (LDF) during 1996-2001 and the United Democratic Front since 2001. The study also examines the changes in employment, income and hours of work of those involved in the activities of SHGs. In Section 1 is discussed the political and economic environment existing at the time of the formation and functioning of SHGs under two different regimes in Kerala. Section 2 discusses the socio-political background during the formation of SHGs and micro-enterprise in the study village. The experiences of SHGs functioning at Kunnathukal Grama Panchayat are discussed in Section 3, followed by a conclusion.Conclusion.Microcredit was promoted primarily by the international donor agencies to link it with international finance capital. Moreover, microcredit has been depicted as a panacea for poverty and unemployment in developing economies. The spread of microcredit and the mobilization of women serve the twin purposes of enabling the state to withdraw from economic activities and diffusing any form of resistance against the state in the context of globalization. The use of cheap women’s labor in micro-enterprises is glorified as women’s empowerment by the neo-liberal regime. Kerala, too, has not been an exception to the popularization and practice of

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the agenda of neo-liberal regime. The much acclaimed experiments at Alapuzha District in Kerala under the UNICEF-assisted Urban Basic Service for Poor (UBSP) and Community Based Nutrition Programme (CBNP) made NHGs and SHGs popular in Kerala. However, the introduction of the Kerala Panchayat Raj Act in 1994 and the launching of the People’s Planning from 1996-97 opened up ample space for women to get involved in the social and political arena in the state. The earmarking of 10 per cent of the plan fund for the formulation of projects exclusively for the development of women for the first time in the history of planning in India has proved to be a source of funding for SHGs to initiate microenterprises. The State government then in power shared an ideological platform with respect to women’s empowerment, microcredit and SHGs, in variance with the one propagated by the World Bank. Under the People’s Plan in Kerala, SHGs and women involved in micro-enterprises did significantly increase registered progress and gradually released women from the trap of low wages and exploitation In May 2001, the new government, subscribing totally to neo-liberalism, reshaped their policies to fall in line with the agenda of global capital. The changes in policy helped to disintegrate micro-enterprises already formed in the State by 2002. The new micro-enterprises started under the initiative of the new government, overburden women in the name of women’s empowerment. It has been found that SHGs are an innovative device at the hands of global capital to bring back century-old production relations, enabling global capital to exploit the members by lengthening the working day and cutting down wages. In fact, SHGs do not empower women and speed up development, but work in the reverse direction.Notes

The above paper argues that micro credit when implemented in accordance with the policies of the global capital agencies like the World Bank and The IMF becomes a tool for perpetuating the social as well as the economic structure prevalent in the 19th century. This, the authors try to prove with the example of conditions prevalent in Kerala.The logic behind their argument is that the global financial agencies are in favour of the global finance and they are interested in keeping the flow of finance unhampered, which will take place in an economy of least interference by the government in providing the basic amenities as a prescription of the neo liberal policies of globalization. However, the global immiseration prompted the World Bank to sponsor a micro credit summit and spread the philosophy that gender discrimination is an economic phenomenon and to overcome it micro credit and micro enterprises can be used as a panacea. This philosophy was incorporated to the anti poverty drive of the developing nations and women were drawn close to neo liberal agenda. This is expected to diffuse the danger to global finance and the existing structure of wealth distribution remains unchanged.The study finally led to the conclusion that if implemented by a government which is a proxy of the pro global financial agencies the micro finance programme through SHGs will only help to bring back the century old production relations, which will enable the global capital to exploit the members by lengthening the working day and cutting down wages. In fact SHGs do not empower women and speed up development but work in the reverse direction

6.3 Historical analysis of empowerment and its present understanding in the context of microfinance Sunita Rabindranathan (pages 89 to95)

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Evaluation studies carried out in the recent years in India have clearly shown that while members of SHGs are slightly better off than non-members, and the process of their coming together builds the confidence of women members, there are limits to what microcredit based SHGs can achieve without other interventions. Critics have often pointed out that there has been a de-politicization of development and activism as a result of the mushrooming of microcredit-based SHGs, but there is no documented evidence of this. Historically, there have been different traditions of initiatives that built upon resources of the ‘self’, and tried to promote self-assertion, self-respect, self-governance and so on. Hence, it is essential to have a comparative understanding of the modern SHG with these initiatives. The terms ‘self-help’, ‘self-sufficient’, ‘self-reliance’, ‘self assertion’,’ self-respect’ and ‘self governance’ are often used interchangeably in literature, though some of these terms mean different things. ‘Self help’ means aiding one’s self without depending on the aid of others. It is also quite similar to phrases such as ‘self-sufficient’, which means sufficient for one’s self without external aid or cooperation and ‘self-reliance’, which means reliance on one’s self and power, trust on one’s self. While‘ self respect ’is respect for one’s self irrespective of background and regard for one’s character, ‘self assertion’ is a natural process for individuals who are confident and aware. Assertiveness is the ability to clearly represent one’s thoughts and feelings in a mutually respectful way, and claim rights from different institutions of society. ‘Self-governance’ refers to autonomy, self rule without outside interference. ‘Self-empowerment’ is when we realize our true potential within and make a conscious effort to transform that power to increase the quality of our life.ConclusionThere is no doubt that microcredit-based SHGs enhance the opportunities to earn a livelihood and increase the woman’s physical space due to her membership and activity in the SHG. However, empowerment does not necessarily take place when incomes are generated or when livelihoods are enhanced or, for that matter, when groups are formed. Even though history records the existence of social movements that contribute to the self assertion, self-governance, self-reliance and self-empowerment of people, the concept of the self has narrowed down to self-help and more so, self-help groups, which are considered to be empowering. The self-based movements reflected a ‘collective spirit’, with the feeling of self-worth part of a bigger change. SHGs, however, though they appear to be collective, often lack this spirit, as their members are more concerned about personal gain, rather than a common purpose. The disparity in issuing of loans, or the difference in profit making among the group members, invariably produces a competitive feeling that challenges the collective spirit. Though SHGs help in asset building and relatively good relations among the members, they bring a constant ‘debt pressure’ to the groups. Women even hesitate to go in for big business ventures, as they know that once their business is successful, the male members of the family will take charge of it. This clearly indicates that women’s empowerment cannot be ensured through micro-credit alone. Social constraints, too, need to be properly addressed. The argument that today’s microfinance is empowering to groups does not justify the concept of empowerment that earlier movements in the country fought for.

Notes A historical analysis of various empowerment paradigms has been undertaken and narrowed down to the empowerment aspects resulted from the microfinance interventions through self help groups. Memberships in SHGs invariably enhance the opportunities to earn a livelihood for the

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beneficiaries. However, empowerment is not a necessary corollary of one’s membership in a SHG.SHGs lacked the collective spirit evident in the earlier group movements in the country as the members were more concerned about their personal gain than the common purpose. The disparity in getting loans and the difference in making profit have instilled a competition among the members. Women hesitate to go for bigger ventures for the fear that once the ventures are successful they will be taken over by the male members of the family. This clearly indicates that women empowerment can not be attained through micro credit alone but social constraints have also to be addressed.

6.4 Can microfinance empower women?

Joy Deshmukh-Ranadive (pages 113 to 130 )

Conclusion

Just because microfinance interventions are routed through women, it does not necessarily imply that gender concerns have been addressed. The mere presence of women does not guarantee that issues of gender are in focus. Microfinance interventions that are limited to addressing only financial transactions have a limited impact upon the expansion of women’s spaces. When interventions extend their ambit to focus beyond finances, and in particular also delve into the household, then their capacity to empower increases. Women cannot be understood independent from their domestic environment and even while concentrating on their roles within SHGs, one cannot lose sight of their roles as members of domestic groups. Empowerment has to be understood as a complex process, and one that connects to multiple dimensions, beyond economic considerations of livelihood generation.

6.5 Self-help groups and the empowerment ofWomen – a study on Community Development

Society in Alleppey, Kerala

Binitha V. ThampiIn the context of enhanced significance for self-help groups (SHGs) in addressing poverty eradication and women’s empowerment, the Community Development Society (CDS), a confederation of SHGs in Alleppey, Kerala, assumes significance. The CDS has gained recognition for its innovative participatory approach to poverty alleviation, which focuses on the women in poor, neighborhood families.

It has been asserted by various studies,particularly on the Grameen Bank experiment in Bangladesh, thatmicrocredit activities significantly enhance the empowerment process ofwomen by providing them access to and control over major householdresources (Hashemi et al. 1996).

. .The CDS programme, which originated in 1993, selected nine riskfactors to identify the poor: (i) kutcha (mud) houses (ii) no access to safe

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drinking water (iii) no sanitary latrine (iv) illiterate adult in the family (v) onlyone or none employed (vi) family eating two or less meals a day (vii) childrenbelow five years in the family (viii) alcoholic or drug addict in the family (ix)Scheduled Caste (SC) or Scheduled Tribe (ST). A family with four or more riskfactors was identified as poor and accordingly, out of 32,000 households,10,304 were found to be at high risk. The CDS has a bottom-up organisationalstructure. 15-20 families constitute a neighbourhood group (NHG), and theyfederate at the ward level as Area Development Society (ADS). There are 350NHGs now existing, under 24 ADS. The ADSs are federated into a town-levelbody, the CDS, which is registered under the Charitable Societies Act. Themain focus of the CDS is thrift savings and loans. In addition, it conductsdevelopment activities such as various training programmes on accountskeeping, immunisation, nutrition, sanitation and so on. The CDS alsoundertakes income-generating activities such as diary farming, coir spinning,garment-making, cover-making, vegetable shops, firewood sales, bakery,mat-making, vegetable cultivation and so on by setting up micro-enterprises.

Since the CDS has been a successful programme, the Stategovernment replicated it as a Statewide programme. It is in this context thatthe Kerala State Planning Board approved and funded the research proposalthat this writer submitted for an evaluation study of the CDS under their“Evaluation of Innovative Schemes” programme. The evaluation study wascarried out with the main objective of analysing the status of the programmeand understanding the group dynamics that made the programme a success.The report of the study was submitted to the State Planning Board. The dataused in the present paper to analyse the effect of CDS on the povertyreduction and empowerment of women is drawn from this evaluation study.A primary survey was carried out in 2000 among a sample of 96 members ofthe CDS programme. In addition, qualitative methods such as discussionswith key informants and focus group discussions were employed tounderstand the quality of functioning of the programme

The objective of the present paper is to examine whether the microcredit activities have significantly enhanced the economic status of poor women and to understand the process of empowerment through these activities. The second part of the paper is devoted for analyzing the impact of the programme on the empowerment of women.

Definition of Empowerment: Empowerment is defined as a process by which the powerless gain greater control over the circumstances of their lives. It includes control over ideology (beliefs, values and attitudes (Batliwala 1994). It means not onlygreater extrinsic control, but also a greater intrinsic capability – greater selfconfidence,and an inner transformation of one’s consciousness that enablesone to overcome external barriers to accessing resources or changingtraditional ideology (Sen and Batliwala 2000). Sen and Batliwala identify thefour levels at which the unequal power relation operates. They are (1) thehousehold/family (2) the community/society (3) the market (4) the state.These different levels of power relations operate as a closely woven mesh of

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power, and imply that the unequal relations at one level may get reinforcedby the same at other levels. Also, even if the relations are eased at one level,it may continue to operate at another level.

A major change that the CDS programme has brought into the lives ofwomen is their enhanced mobility. Their participation in the neighbourhoodmeetings is also satisfactory. However, interestingly, only 30% of therespondents say that they have a major say in the household decision-makingprocess. Again, from the analysis in the above part, it was found that themajor share of women’s income is spent on household needs such as food,medical care of children and their education. These expenditures do notindicate merely the expenditure pattern but also indicate the culturallyconstructed role of the mother and hence the reproduction of patriarchalvalues. These evidences indicate the phenomenon of “contextualempowerment”. The CDS programme context might be an empowering

experience for women in term of their enhanced mobility, participation anddiscussion of various aspects of its functioning and collective action insetting up income generating activities, but it does not mean that the samecould be the case in other spaces of their lives, particularly in the domesticdomain. The other domains may not be conducive for the same level ofempowerment, due to various hindering factors. This has to be understoodand addressed properly.The author argues that the activities undertaken by the women members of CDS are highly gendered like diary, poultry farming coir spinning etc.By undertaking such gendered income generating activities, it is argued that, the existing gendered division of labour is hardly challenged.Rather it reinforces the same.Since empowerment implies control over ideology also and inner transformation of one’s consciousness that enables one to change traditional ideology, these gendered activities significantly adversely impact upon the empowerment process of poor women..

ConclusionThe study shows that the CDS programme, as an effort in the direction ofpoverty reduction, has had only a very limited impact during the six years of

its functioning.The use of a high proportion of the enhanced income for children andthe highly gendered income-generating activities undertaken by women werefound to be disempowering factors.The author raises the question whether povertyreduction and economic independence lead to empowerment and the de subordinationof women.Rather than accepting it uncritically, theconceptualisation of empowerment as a by-product of poverty reduction has

to be critically examined.

SEN, G. and BATLIWALA, S. (2000), ‘Empowering women for reproductive rights’, inH.B. Presser and G. Sen (eds.), Women’s empowerment and demographicprocesses: moving beyond Cairo, Oxford: Oxford University Press

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6.6 Microfinance and empowerment – concepts and tools: some preliminary insights from the SHG model in Andhra Pradesh

P.A. Lakshmi Prasanna (pages 285 to 293)

The available literature shows that the performance of SHGs is not uniform across all regions and social contexts. With this observation as the backdrop, a study was carried out with the specific objectives of comparing structure, conduct and performance of SHGs in different agro-climatic regions of Andhra Pradesh. Focusing on the “empowerment” dimension of performance, some preliminary insights from the study are presented in the paper.

MethodologyAndhra Pradesh was selected for the study as it has the largest number of SHGs linked to financial institutions in the country. As on March 2003, the State’s share in the number of SHGs, both credit-linked and bank loan, was39.22% and 47.61%.Besides this, the extent of group mobilisation in the State under various programmes is estimated to be about 4,80,000 groups involving nearly 7.2 million households. Two leading districts (in terms of the number of SHGs, as of March 2000) – Medak and East Godavari – representing two agro-climatic regions of the State (as per the planning commission delineation of 15 zones in the country) were selected for the study.

5. Group dynamics and empowermentGroup dynamics in terms of dropouts influences the extent of empowerment. Dropouts in Medak amounted to 6.5% and 7.6% in the case of East Godavari. The percentage of groups in which dropouts were observed was 33.3% and 43.24% in Medak and East-Godavari. In Medak, dropouts due to financial problems were 51% of the total dropouts, of which 36.2% were self-dropouts and 14.8 per cent were forced dropouts. In East-Godavari, the dropouts due to financial problems were 40% of the total dropouts, of which self-dropouts were to the extent of 31.4%. These figures once again reflect lower economic empowerment. In the case of Medak, 4.3% constitute forced dropouts as they were unmarried, while in the case of East-Godavari, 2.8% dropped out voluntarily after marriage. The reasons given for the dropouts make one question the empowerment effect of microfinance. Migration accounted to 19.2% and 34.3% of the dropouts in SHGs in Medak and East-Godavari. Conflict over the distribution of LPG connections under the Deepam Scheme led to 10.6% dropouts in Medak. The caste composition of the groups also influenced group dynamics. An attempt was made to explore why male thrift and credit-based SHGs were not coming up, by means of studying male groups in Medak district (only 3 groups). In one case, it was observed that the lack of agreement among members on the issue of which political party to support, led to the stoppage of functioning of the group, even though the group was homogeneous in terms of caste. In two other cases it was observed that after the first loan, the members were discouraged by the lack of bank support, resulting in dropouts in one (heterogeneous in terms of caste) group and passive functioning in the other (homogeneous in terms of caste) group. Agricultural labourers and factory workers formed a major share of the dropouts

How defaults affect empowerment

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Some of the reasons for default in repayment of loans by groups in the study districts were migration, exogenous group formation (i.e. group formed by the intervention of external agents pooling together members unknown to each other), domino effect (i.e. if one member defaults in a group, other members also strategically default), no economic activity on the part of members, and difficulty in exerting peer pressure when members of a group are close relatives.Defaults resulted in denial of future access to credit, which affected members of the group in genuine need of financial services.Thus defaults have a negative effect on the empowerment

Conclusion: further issuesJoint-liability-based microfinance offers some scope for empowerment of vulnerable sections. However, which vulnerable sections are empowered, and the areas in which they are empowered, are determined by microfinance programme design, the policy environment, the socio-cultural context, the mode of group functioning and group dynamics.

6.7 Findings from the mid-term impact assessment study of the CASHE programme in Orissa, carriedout by Sampark, Bangalore

(pages 277 to 284)

Prabhat Labh ( prabhatlabh@yahoo.com.)

CARE is an international relief and development organisation reaching out to improve the lives of more than 27 million people in 69 countries across the globe. In India, CARE helps over 6.5 million individuals across10 States. CARE started the 7-year project “Credit and Savings for Household Enterprise (CASHE) in 1999 with support from the Department for International Development (DFID). CASHE is a poverty-focused programme designed to address the fundamental problem of low income among poor rural women, and their limited control over that income. The programme aims at increasing significantly the incomes and economic security of poor women and their households’ .CASHE is operational in Andhra Pradesh, Orissa and West Bengal. The project proposes to increase the number of microfinance service providers by working in partnership with non-governmental organizations (NGOs) to establish and support savings and credit groups at the community level, and to organize “federations” representing these groups. These federations in turn are assisted to support self-help groups (SHGs) and to act as financial intermediaries. Through 25 partner NGOs in the three States, the programme reaches out to about 2, 48,000 rural women clients. At the community level, over 18,000 SHGs have been formed and the majority of them are federated in the form of cooperative or community federationsSince ensuring a good financial performance remains a key concern, the social inter-mediation agenda often takes a back seat. The control and usage of the financial services made available to microfinance clients, and their status in households and social fora do not factor-in the management decision as long as the microcredit operations remain financially viable. This results in the dilution of the focus of microfinance programmes, from being a powerful tool for economic empowerment, to a mere delivery of financial services. It is assumed that access to savings and avenues of credit would enable the clients to

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initiate income-generating activities, leading to their empowerment. Women’s empowerment is essentially conceptualized in individual economic terms, with the ultimate aim being the expansion of individual choices and capacities for self- reliance. However, a number of organisations have realized that as long as the root causes of poverty such as unequal power relations, women’s participation in household decisions, disadvantages and vulnerabilities and gender and caste based discriminations are not addressed, bringing about lasting changes in the lives of people will remain a distant dream. CASHE has been grappling with this issue of “minimalist” versus “credit-plus “approach. While the programme intends to nurture good and efficient microfinance institutions (MFIs), at the same time, it is also attempting to ingrain some of these concerns in the microfinance programming. Investing in building community-owned and community-managed institutions is one-step in this direction, wherein CASHE invests in the building capacities of community based organizations (CBOs).

CARE commissioned an impact assessment study of CASHE in Orissa in2003. The study attempts to find out the impact of the programme at different levels, i.e. economic impacts, asset creation, changes on the health and education front, status of women within the households and society and impact on vulnerabilities. This paper presents some of the key learning from the study and focuses on changes in the programme’s goal level indicators(mostly non-financial).The objective of the impact assessment was to document impacts accrued from CASHE at individual, household, group, and community levels. The different dimensions of changes studied include economic, social and gender, governance and sustainability. The methodology adopted for the study involved questionnaire surveys, group discussions and participatory rural appraisals (PRAs). It involved the use of control and experimental group’s as well as “Before-After” comparisons, covering over 1,300 respondentsMajor findings of the impact assessment study2.1. Increase in income level

The findings of the study revealed that the overall income level of the programme participants had gone up, compared to the control group

2.2. Changes in consumption patterns

In rural economies since income come from sources that are varied and not exactly identifiable and monetized, measuring the impact on income is difficult therefore, changes in consumption levels and pattern were relied upon to know the impact on economic well being. The study showed that there is an increase in the expenditure on food items with higher nutritious value than that of the controlled group.

2.4. Expenditure on educationThe expenditure on education of the experimental group was more than double of the expenditure of the controlled group

2.5. Ownership of house and assets The difference in asset holding between the two groups was largely due to the difference in value of livestock holding, which was Rs.2, 547 for the experimental group and Rs.1,630 for the control group.

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2.6. Reduced vulnerabilityThe higher expenditure level of project participants indicates that their ability to withstand shocks would also have increased.2.7. Participation of women in household decision-makingThe study found that in addition to an improvement in the quality of life, the woman’s position within and outside the household had also improved. There has been a marked improvement in the number of women reporting enhanced participation in household decision making. With the age of the group more women reported taking decisions either individually or jointly with their spouses. The difference in the role of women in experimental and control groups was not significant, when it came to spending money in general, but the difference by age of groups was quite significant. In most cases increased control of women over money spending was vouchsafed by men.2.8. Participation in social and political processes

The study analysed the participation of women in social and political processes and found that their participation at community fora had increased

Conclusions

Overall, the study shows that gradual but remarkable changes are taking place with regard to the status of women within households and in society. Women now have increasingly more say in matters relating to the usage of household cash, decisions on education, house repair and availing loans There is an increasing trend in most of these parameters commensurate with the age of the groups. One of the most important impacts is the greater awareness that women now have due to their increased mobility and interaction with outsiders. This is building greater confidence among the women. Besides, the access to savings and credit in the group gives them a fair amount of bargaining power within the household . The positive impact on social aspects is also visible. The women now feel more empowered and are aware of their rights. Their collective bargaining power gives them more confidence to fight against injustices and for their rights.

6.8 SHGs and their place and role in civil societyPrakash Louis (pages 295 to 301)

Objectives

This study focused on the extent to which SHGs build up confidence and mutual support for women striving for development and change by establishing SHG units in which the women can critically analyse their situation and devise collective strategies to solve their problems. The study had the following subsidiary objectives:• To study the functioning and management aspects of the SHGs;• To assess the role that SHGs play in the provision of different types of facilities, specially the health and educational facilities for women at the village level, and studying the impact that women SHGs have made in ‘local politics’ in terms of influencing decision-making at the gram sabha and gram panchayat level;

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• To find out the nature of the impact that women from these SHGs are trying to build at the personal, family and community level;• To evaluate the nature of the contribution of the SHGs in making its women members economically independent and secure, and the extent to which the economic benefits drawn from the SHGs have contributed to improving their social status;• And to analyse the role of the facilitators in the formation and running of the SHGs and in making them the instruments to fight for women’s rights.1.2. MethodologyBihar, Chattisgarh, Madhya Pradesh and Uttar Pradesh were selected for the study. From each of these States, data was collected from three districts From each districts, 50 SHGs were covered. Five members from each SHG were selected for data collection. Care was taken that at least one of them should be an office-bearer.A target of 20 facilitators was fixed for each district. Since the same facilitator helped many groups, at places those facilitators were included whose groups were not in the study. For a district, the sample size was 50 SHGs, 250 women members and 20 facilitators. Overall, the sample size for the study was 600 SHGs, 3,000 women members and 250 facilitators. Three schedules were used for data collection: for SHGs, for the members of SHGs and for the facilitators. Information was also gathered from SHGs through focused group discussions and from members and facilitators with the help of an interview schedule

Major findingsSince SHG s are small informal groups they are vulnerable to dangers both from within and without .If members of the group can identify and resist the forces from outside which are aiming to make use of them, they can grow and develop and play an important role in reduction of povery ,otherwise this is also going to become milestones in developmental endevours failed. Therefore it goes without saying that there should be some clarity with regard to the role of the agencies involved in the SHG s.If all of the members know one another their deposits are not at risk but in cases where the deposits are entrusted with NGO s there should be more transparency.The members are aware of the health care requirements and try to ensure that some amount of health care benefits reaches the poor from the government. So far the groups have been able to put away the fears of political interference.The challenge lies in the fact that unless the political interference is carefully avoided, the federations of SHG s will be reduced to vote banks. It is also significant to note that the SHGs have provided a platform for the Dalit and tribal groups, which are often excluded from most of the developmental schemes, not only in terms of savings and credit but also to raise their voice effectively to highlight their concerns There success stories of SHG s where movements against alcoholism succeeded by forcing men folk to give in to the resistance of the women.Concluding remarksThe analysis of the data gathered in this baseline study indicates that organising themselves into a group has made an impact on the lives of women. Expectedly, the extent of impact is limited and it is not apparent in all the indicators used for the study. The coming together of women itself has opened up avenues for their search for space for themselves. Many of the women found confidence and self-dependence by being in the group. Further, since women borrowed money from moneylenders, the interest payment went to an external agent, but now it goes to

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the common pool. In those SHGs, which have been in operation for a long time, women and their families are not at the mercy of moneylenders. Also, some of them need not mortgage their land as in the past. Political participation and empowermentare long-term objectives. Women have been found to take up challenges and to question all forms of exclusion, deprivation and exploitation

6.9 Social externalities of women’s empowermentthrough microfinance:

a comparative study of two interventions(M. Indira)

Microfinance programmes for women are more and more promoted not only as a strategy for poverty alleviation, but also for the empowerment of women (Mayoux 1996).These programmes have an impact not only on the target group but also on the society in which they live.

1. Conceptual clarification and methodologyExternalities are costs or benefits arising from an economic activity that affects people other than those engaged in that activity. Positive externalities are the benefits accruing to third parties other than those involved in the original transaction. Over the last few years, this economic concept has been applied in different fields to understand the social gain due to government programmers. For example there are studies that looked into the positive externalities of government water shed development programmes, immunization programmes and so on. In these studies, the positive impact of these programmes on the community as a whole, apart from the target group, has been studied. The present study makes an attempt to analyse the social gain from the women’s empowerment programmes through microfinance. It looks into the impact of the microfinance programmes on the community through their impact on the target group. Several studies have clearly brought out the impact of these programmes on women and their individual and group empowerment. A National Bank for Agricultural and Rural Development(NABARD) study clearly showed that the social impact of these programmes on the household is more than the economic impact (Puhazhendhi and Satyasai 2000). Another study (Rajashekar 2000) looked into the impact of microcredit on poverty alleviation and empowerment. A study of 64 women of MYRADA showed that the number of decisions made by the husbands fell significantly over a five-year period (Puhazhendhi and Satyasai 2000). In Bangladesh it was observed that “microcredit has not led to a transformation, but has become an additional resource, around which negotiation occurs” (Fisher and Sriram 2002).All these studies looked into the impact on the members and on the household, but no study has focused on the impact of this on the community and the village structure. The authors argue that the externalities occur because of women empowerment is in the following three ways:

1. They create a critical mass of women who are more confident to face the local problems, participate actively in the Grama Sabha, think rationally to take appropriate decisions, and make the local institutions function well.2. Create an equitable society where there are no gender biases.3. Contribute to the greater utilization of local resources and provide servicesThis paper makes an attempt to make a comparative analysis of the social externalities attained by the two different microfinance empowerment

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programmes - Stree Shakthi and Mahila Samakhya programmes introduced in Karnataka. While the former falls into the category of directly providing access to credit, the latter belongs to the category where providing access to credit is only one component.

Positive social externalities are those benefits accruing to the society as a result of forming SHGs. They are:

• Greater participation of women in local governance bodies.• Increased availability of services locally.• Increased utilisation of resources available locally.• Acting as agents of transformation.• Opposing social evils and taboos on the girl child and promoting the welfare of the girl child.• Facilitating group functions.• Better implementation of other welfare programmes.• Work towards building a healthy society.• Promotion of a society with gender equity.• Demanding accountability from mainstream education and health facilities.• Inspiring other local community-based organisations through healthy competition.• Promotion of human capabilities.

Negative externalities

• Increased social tension in the village.• Displacement of local structures.• Emergence of leaders who claim undue benefits

ConclusionsThe study shows that women’s empowerment through microcredit has a positive impact on the community. Linking empowerment through microcredit has a better binding and sustaining effect, because mere empowerment through awareness creation will soon lead to a loss of interest among the members. Microcredit programmes without the element of awareness creation will make these institutions only ‘micro-lending institutions’, where credit is available at a cheaper rate. If microcredit is part of the empowerment programme, “enlightened self-interest” makes members come together and participate actively. Mahila Samakhya is more successful in combining both and its members are more aware of social issues.

The author argues that the members are empowered and have produced positive social externalities because they were bound together by savings and credit through microfinance opportunities opened up by the SHGs and more so because the programme is , as evident from the outcomes of Mahila Samakhya group, not a structured and target oriented one. The structured and bureaucrat-motivated programmes produced fewer positive social externalities and more negative externalities. Another important observation is that all the drawbacks of bureaucracy have been inherited in the Stree Shakthi programmes, such as the race to reach targets, rigid rules and regulations, bias in the selection of training agencies and so on.

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Economic empowerment is only one necessary condition for the emergence of positive social externalities. But if economic empowerment can be cemented with other inputs such as awareness (health awareness, awareness about legal rights, political participation and so on) and gender sensitization, the emergence and impact of positive social externalities will be much more spectacular.

6.10 Microcredit programmes, poverty alleviation and empowerment of women – some empirical evidence from Kerala

K.R. Lakshmy Devi (pages319 to 324)Most of the studies on microcredit narrowly focus on the “pragmatic success” of the programmes, where the principal variables studied are the number of beneficiaries, the amount of credit disbursed, recovery rates and profit flows. Studies that evaluate the actual impact of these programmes on earnings, employment and socio-economic status of the women beneficiaries and their empowerment are very limited. The present study assumes significance in this context.

Moreover, in most of the studies on women and microcredit, only limited attention is given to the role of institutions. Empowerment is often conceptualized as the creation of institutional relations, which would enable women to achieve economic, political and social equality. The present study, which attempts to provide a critical perspective on the relationship between microcredit and women’s empowerment in Kerala by comparing non-governmental organization (NGO)-led and State-led initiatives in this regard, assumes added significance . The paper is based on a field investigation enquiring into the functionalities of some selected microcredit programmes in Kerala.. The basic objective of the present paper is to examine the comparative role of NGO-led and State-led microcredit programmes in creating income generating activities for poor women, and their success in the empowerment of the beneficiaries

On the whole, the study, based on limited sample observations, concludes that the microcredit based income generating activities initiated by both NGOs and the State, have clearly helped in poverty alleviation and the empowerment of women. These activities made a difference in the lives of the poor women by providing them with economic independence, which brought along with it self-esteem, self-confidence and autonomy. But contrary to the general belief that the NGO-led programmes have been more effective than the State-led programmes (Chavan and Ramakumar 2002), this study concludes that the State-led programme has been more successful in generating better incomes and empowering women. Microcredit-based income generation activities is a good beginning, opening the doors of credit to the marginalised women who were hitherto denied access to traditional channels of credit, but, it indeed not the panacea for all the problems of the poor.

7. Empowering Women: A Critique of the Blueprint for Self-help Groups in India ( Tanya Jakimow Patrick Kilby)

Ws: http://def.acfid.asn.au/resources/geographic-focus/south-asia/Empowering-Womenrt-final.pdfIndian Journal of Gender Studies, Vol. 13, No. 3, 375-400 (2006)

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Ws :http://asiapacific.anu.edu.au/maapd/papers/wp-06-02.pdfAbstract

Development agencies have increasingly regarded ‘empowerment’ as an essential objective to improve the well-being of marginalised women in India. The perceived success of self-help group (SHG) programmes in this project has encouraged their widespread application across India, becoming the primary mechanism to empower women. However, this success has often been assumed rather than proven, with evaluations generally lacking a conceptualization of empowerment based on theoretical understandings of power relations. This article aims to overcome this by evaluating the potential of SHG programmes through the reduction of internal, institutional and social constraints that prevent the marginalised from pursuing their interests. An analysis of the ‘normative’ model of SHG programmes, and its actual application shows that while SHG programmes have the potential to empower women, this is often not realised through the persistence of ‘top-down’ approaches in implementation. SHG programmes are further limited in their ability to transform social relations due to their apparent insistence that the marginalised are the only legitimate actors in their own empowerment. Rather than argue for the discontinuation of SHG programmes in India, their potential to empower women can be increased through a ‘bottom-up’ orientation in implementation, while recognizing that in and of themselves SHG programmes cannot reduce all the constraints preventing the pursuit of interests

ConclusionRather than advocate its rejection as a development intervention, this paper has sought to outline the limitations of the SHG ‘blueprint’ model in relation to its objective of empowering womenThe objective of empowerment is a process, with no definable endpoint. It is therefore not a contradiction to argue that SHG programs empower women to varying degrees, while being limited in that same objective. The provision of credit empowers them to some extent. However, this only empowers women within the prevailing system, and does not challenge the social structure in which marginalized women have relatively less ability to pursue their interests. While beneficial, this objective falls short of contemporary definitions of ‘empowering’ processes, which acknowledge that constraints to pursuing interests are a product of the social structure in which they arise. An increase in capabilities within the prevailing system will not overcome the long-term disadvantages faced by marginal women. (Tanya Jakimow, 2006)

In addition to not challenging the social structure, SHG programs have failed to devolve the direction of programs to members.The author claims that by maintaining that SHG programs successfully empower women, governments, the development industry and elites, are all seen to be taking action in what is popularly identified as an essential project. In this way, they are absolved of further responsibility, thus depoliticizing the empowerment project and helping to maintain the status quo.The finding of this paper is not only applicable in India, but also in the context of ‘empowering’ development interventions throughout the world. The desire to prevent the disasters of the past, where external values and norms were imposed on ‘undeveloped’ societies, has resulted in a discourse in which the marginalized are viewed as the only legitimate actors to ‘empower’ themselves. This has confused direction with action, and power with responsibility.

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The experience of SHG programs raises the question of whether it is fair to leave the burden of ‘empowering’ processes with the people least able to do so. Is social transformation only the domain of the marginalized, or do others also desire change, and have a responsibility to seek it

8. The Rationale of Self-help in Development Interventions: A Case Study of a Self-help Group Programme in Tamil Nadu ( TANYA

JAKIMOW Australian NationalUniversity Canberra Australia)Journal of South Asian Development 2:1 (2007)Sage Publications New Delhi/Thousand Oaks/London DOI: 10.1177

Abstract

The article scrutinizes the two claims generally made about the microfinance interventions throgh self help that it empowers more than any externally directed programmes and that the programme is compatible with the cost reduction strategies both in terms of material costs and in terms of costs to the prevailing economic and social structure. These two claims are explored through a case study of Self Help Group Programme in Tamil Nadu. The paper argues that although empowerment is stated as a rationale for the programme it is often neglected for cost reduction ones. The study is conducted among the SHGs under the fictional NGO in Tamil Nadu which is named as Tamil Nadu NGO for the purpose of confidentiality. The author argues that the self help must be conceptually (though not necessarily in practice) divorced from savings and credit it has come to signify.

9. Self-Help Groups in Empowering Women: Case study of selected SHGs and NHGs Jaya S. Anand

Discussion Paper No. 38 Kerala Research Programme on Local Level DevelopmentCentre for Development Studies

First published 2002 W S: http://krpcds.org/w38.pdf

Review of policy approaches to women “Nothing, arguably, is as important today in the political economy of development as an adequate recognition of political, economic, and social participation and leadership of women” (Amartya Sen, 1999).

Statement of the problemAbout 98 percent of the self-help groups in Kerala are women groups. In some areas men groups and mixed groups also exist. There has also been an increase in the flow of funds for micro-enterprises through various promotional agencies. Though NGOs were the forerunners in this field, the early nineties marked a new era for micro-finance programmes in the State with the evolution of the Community Development Society (CDS) model women groups in Alappuzha. Further the setting up of Kudumbasree – the poverty eradication programme of the State Government – has given a boost to the SHG strategy. There is a general tendency to consider SHGs as a panacea for all the ills of the rural community. This is evident from the mushroom growth of self-help groups in the State. In many cases it has been a blind replication of success models without considering the intricacies involved in group formation and sustainability. Hence, the present study is undertaken to enquire into the

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performance of women groups in Kerala commonly known as Self-Help Groups (SHGs) and Neighborhood Groups (NHGs) and to identify the factors contributing to their failure or success so that the strategy may be replicated effectively for empowering rural womenObjectives of the studyThe main objectives of the study are:(i) To evaluate the performance of selected SHGs and NHGs and to identify the extent to which the factors required for the successful functioning of the groups are present and in what ways they are influencing the performance of groups.

(ii) To comparatively examine the role of various promoting agencies and to discuss the differences in their approach in organising and managing the SHGs and NHGs.

(iii) To examine the impact of SHG and micro-credit on women empowerment

MethodologyThe above objectives are examined through an exploratory study of the functioning of selected SHGs and NHGs of Malappuram district. The district is purposively chosen on the following considerations:(i) It is the only district in the State in which model groups of the rural Community Development Society (CDS) exist;

(ii) Women in this district are, in general, backward both socially and culturally;

(iii) It is the district with the maximum number of SHGs and NHGs, as per official records (around 5000, of which 4645 are CDS groups)

(iv) No impact study to assess the micro-finance programmes in the district exists

SHG vs NHGThe main difference between SHG and NHG is that SHGs are non-CDS, non-governmental, and informal organisational structures promoted by voluntary agencies. CDS is sponsored by the government for the uplift of the poor especially women by bringing together the activities of various development departments. NHG members are from families facing high risks i.e., usually those belonging to below poverty line (BPL), identified on the basis of the nine point non-economic criteria. SHG members need not be from the high-risk families but are basically poor and marginalized who find it to difficult to have access to the formal credit system.

SHGs of AyalkoottamYet another promoting agency has crept in under the Panchayati Raj system during the late nineties, i.e., SHGs formed as a subset of the neighbourhood group. In the democratic process of micro-institution building, organisations termed as ayalkottams are formed with local people residing in a particular locality in a ward. The ayalkottam identifies women from among themselves and from SHGs for carrying out a group activity. These SHGs have been organised

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mainly for utilising the 10 percent grant-in-aid set apart under the Women Component Plan (WCP) for projects directly targeting women. Such SHGs are functioning effectively in many panchayats – Ulloor, Thiruvallam, Kumarakom, Kunnathukal, etc. There is an apprehension among sociologists about such SHGs getting politicised in the process of the ayalkottam of panchayats forming them. Experience shows that politics could kill a group (Alappuzha experience). Some of these groups are formed without the thrift component (TCS) which itself is so essential for the successful functioning of the SHG. These groups have been formed even without conceptualising the essence of SHGs, merely for availing the funds made available from the panchayat. The success of CDS and the wide publicity of SHG strategy have attracted several other agencies. Formal agencies (like District Collectorate) in Kollam, Primary Agricultural Credit societies in Kannur, Department of Industries, Department of Agriculture, and various other government agencies are now activeLinkage with banks The role of NABARD in the growth of SHGs in Kerala is worth mentioning. Besides the financial support, their guidance in group formation and imparting of training in leadership, maintenance of records, book keeping and accounts, have given a sound footing to many SHGs. Their timely intervention has provided the much-needed stability to the thrift initiative. Formation of SHG and their linkage with banks in the State have taken place on two fronts.(i) Through the CDS, formed with the support of State government, local administration, NABARD, UNICEF, and banks.(ii) Through efforts of voluntary agencies and banks under the leadership of NABARD. Farmers’ clubs promoted (under a programme called ‘Vikas Volunteer Vahini’) by NABARD have promoted SHGs too.NABARD has stipulated certain norms for linking SHGs to bank credit such as the following:(i) The group should have been in existence for at least six months; and(ii) The group should have scored 120/150 marks based on its evaluation criteria. Once the groups are linked to the scheme, in the first stage they become eligible for credit equal to their thrift. Subsequently repeat loans may be availed at the thrift-credit ratio of 1:2 and 1:4 depending on the repayment performance of the groups concerned. These provisions are seen to motivate members to exert peer pressure for prompt repayment. Kerala remains the third largest in the country next only to Karnataka and Andhra Pradesh, in the matter of the number of linked groups and accounted for 13 percent of the total linkedgroups . in India in 1999. The linkage programme involved 47 agencies promoting self-help (Kerala State Focus Paper, NABARD 1999-2000) of which 41 were NGOs and 6, Vikas Volunteer Vahini

2. Self-Help Groups: A review of progressMicro finance and women empowerment is a subject that has received growing research attention in recent years. Several organisations have promoted SHGs taking up the philosophy and approach of successful experiments of extending credit to poor women. Since the early 1980s, a large number of studies have examined the various dimensions of micro finance programmes and women empowerment. Several international organisations like Action-Aid UK, CGAP (Consultative Group to Assist the Poorest), and Overseas Development Authority have conducted case studies and organised workshops in various countries. The workshops had looked mainly into the experiences of different countries and the impact of the micro finance

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programmes in a cross cultural perspective. Other sources of information include published and unpublished materials including materials from the Micro-Credit Summit (February 1997 and 2001) and action research programmes of IRMA, NIRD, and CIRDAP Digest. Additional information is obtained from Internet websites. Over the years, the “informal sector debate” (Hart, 1973; ILO, 1972) has increased in scope and complexity. Terms such as informality, were used interchangeably with informal activity, sector or economy, self-employment and microenterprise. The popularity of the informal sector concept among policy advisors and governments arose from a convergence of interest in poverty issues and the need for a policy instrument (Tokman, 1987).Governments, international financial institutions, and private foundations found in the concept a common language to co-ordinate their activities and, in the case of governments, to improve their access to international welfare funds earmarked for income-generating activities.In part, the popularity of the informal sector concept comes from its ability to bridge diverse analytical and policy approaches, while its drawback is the inability to integrate approaches or improve analytical usefulness (Peattie, 1987). Though many approaches and perspectives have dominated since 1984, we have focused only on the micro-enterprise development approach. Though new to the informal sector debate, micro-enterprise promotion has evolved from poverty alleviation activities from the early 1960’s. The proponents of the micro-enterprise development approach are action-oriented, not interested in conceptual issues, and are only marginally concerned with theories of the origin of micro-enterprises (used synonymously with informal sector and poverty). They accept notions of stratification, exploitation, and privileged sectors of society and expand jobs and improve productivity and income. They aim to empower groups and communities through business assistance and development of organisational skills and capacity. They promote, fund, and carry out programmes that address the needs of the poor (Rakowski, 1994). Many micro-enterprises began as charitable and disaster relief organisations operating in rural and urban areas, while others were founded specifically to bring multinational corporate funds to the aid of the poor. Local groups often had financial support from and strong ties to international groups, especially during the first five years of operations. Charitable and welfare organisations started with short-term goals, but work turned out to be never-ending. As a result many found their organisational structure “institutionalising” and their staff “professionalising”. From direct assistance and welfare, they were transformed over time into organisations, which focused on “helping the poor help themselves”. By the early 1970s, their work concentrated on working with neighbourhood or village groups on self help initiatives and grassroots economic projects (Korten, 1987). For these NGOs the shift from charitable work and services to income-generating activities was a natural outgrowth of their collective and cumulative experience in helping organize community groups. Additionally, the expansion of the informal sector, especially in the poor neighbourhoods where NGO activities concentrated, led to an awareness of this sector of people in regulated, unlicensed, low resource, “marginal” activities which were critical to the survival of the poor, especially women (who predominated as heads of poor households) (Otero, 1990). The 1970’s marked the promotion of empowerment and social welfare through economic growth. The NGOs of the late 1980s and the early 1990s have been expanding their role. Despite the time and resources, which NGOs as a group have invested in the poor, a tremendous amount of need remains unmet. NGOs have begun to assume a role of catalyst for micro and macro level policies and they engage in dialogues with governments and the private sector. In fact, private sector business leaders, foundations, and corporations has created new local-level NGOs for promoting micro-enterprise development through

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“massification” applying the NGO method and philosophy on a broader scale to help increasing number of entrepreneurs and poor families (Bejar and Korten, 1987). Massification and overcoming institutional obstacles demand government and private sector collaboration. In direct contradiction with the legalists, NGOs stress that the most important role for governments is to provide the appropriate policy environment for micro-enterprise development (Otero, 1990). A large number of studies have been undertaken so far by CGAP, NGOs, and donors of micro-finance programmes highlighting the strengths and weaknesses of the programme in various countries. We present below a few studies conducted on SHGs in India – only those that have a direct relevance to the present study. Choudhary (1996), in her study stressed the need for sharpening women’s empowering strategies to make them effective and result-oriented. She pointed out that money earned by poor women is more likely to be spent on the basic needs of life than that by men and that this realisation would bring women as the focus of development efforts. She also examined the advantages of organising women groups thereby creating a new sense of dignity and confidence to tackle their problems with a sense of solidarity and to work together for the cause of economic independence. Shylendra (1998) in his paper attempted to evaluate the performance of eight women SHGs promoted in the Vidaj village by the Institute of Rural Management, Anand (IRMA). Here the SHGs failed to enable members to realise their potential benefits. The reasons identified for the failure were the wrong approach followed in the SHG formation by the team, misconceptions about SHG goals both among the team and the members, and lack of clarity about the concept. The main lessons drawn from the project are the need for creating SHGs based on a clear assessment of the needs of different sections of the society, ensuring clear understanding of the concept of SHG among team members involved in promoting SHGs, 13 and enhancing the relevance of SHGs to their members by enabling them to meet effectively their requirements, be it savings or credit or income-generating activities. Gain and Satish (1996) in their paper had described the factors affecting group dynamics and group functioning such as feeling of solidarity and pervasive benefits from group formation, increased awareness of group members, self reliance, and transparency. They feel that dependence on outside source either in material or human terms exist and so the group autonomy is not attained in many cases. Kartar Singh and Jain (1995) in their working paper ‘Evolution and survival of SHGs: Some theoretical and empirical evidences’ explained that there are four stages of group formation:forming, storming, norming, and performing. They identified the factors, which have an impact on group formation as full participation of all members, quality in leadership, some sort of homogeneity among the members, and transparency in operations and functioning of the groups. The study conducted by Karkar (1995) revealed that as the programme was effectively implemented, the monthly income of the beneficiaries had increased substantially. A large number of groups had become mini-banks reducing the dependence on moneylenders. It had also resulted in improving their standards of hygiene and nutrition. The major findings were that the urge for literacy especially for the girl child and the adoption of family planning measures had increased. The process of group dynamics strengthened the networking, homogeneity, and self-esteem of women. The “We can do it” syndrome is a part of their psyche today. The scheme had also provided women the opportunity to sit together, discuss, and share their long-pending problems, and seek joint solutions through sympathetic cooperation and advice. The group thus acts both as a pillar of strength and an information window. An article (Gramin Vikas, 1995) highlights the role of an innovative saving/credit programme called Podupu Lakshmi that had been successfully launched and carried out in the Nellore district of Andhra Pradesh. Podupu Lakshmi is based on a very simple principle of saving a rupee per day/per member. The erstwhile

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submissive, docile, silent, and meek women changed their psyche into assertive, confident, mobile, articulate, questioning and demanding pressure lobby groups. The aspirations of women for economic prosperity went up and they started climbing up the social ladder through the programme. The other factor for the success was the timely intervention of the government machinery. The careful identification of key government functionaries also led to the success of the programme. In Kerala, however, more than nine years have passed since the programme gained momentum. A few studies were undertaken by experts like Leela Menon (1994), Liliana Marulanda (1994) of UNICEF, and Sarala Gopalan and Hilda Rajan (1996), all of which were generally uncritical and highly appreciative of the programme. The South Malabar Gramin Bank (1998) conducted a ‘Monitoring Study on SHGs’ to examine the progress of the scheme since its implementation in 1995-‘96 in Malappuram and Kozhikode districts. About 60 percent of the bank-linked groups were rated as excellent.14 In a few groups, group dynamics decreased after the credit-linking. The study suggests that in 20 percent of the groups, the organisational set-up should undergo change by replacing the existing members. It identified several weaknesses in the CDS groups such as lack of monitoring; lack of interest among co-ordinators due to non-receipt of allowance whichthey had been formerly receiving; and static performance of groups. An impact study conducted in seven wards with 2003 risk families in Alappuzha by the Department of Statistics, University of Kerala, revealed that families with less than two meals per day had gone down from 57 percent in 1993 to 44.50 percent in 1996, families with one or more illiterates fell from 26.5 percent to 17.8 percent and families with persons addicted to alcohol declined from 32.5 percent to 22.10 percent. However, the most comprehensive study on SHGs in Kerala has been the one by Oommen (1999). He covered all the districts and municipalities in the State, in which the Urban Community Development Societies were functioning. The study has reviewed the progress of the programme under four heads: impact on poverty, income-generating programmes, thrift and credit societies, and women empowerment. Some of the major findings are the following:(i) About 51 percent of the households investigated have become non-poor;(ii) Housing conditions in Alappuzha and Malappuram have improved to some extent largely through convergence of resources and inputs from different agencies.(iii) Awareness of various communicable and non-communicable diseases has improved; un-immunised children and incidence of tuberculosis exist in some pockets in Malappuram.(iv) In spite of the several advantages, there remain some CDSs which have not promoted Thrift and Credit Societies;(v) The rate of repayment of loans is high;(vi) Efforts to formulate group projects for NHGs as a whole do not exist. CDS has failed in realising the full potential of creating self-employment;(vi) More than 56 percent of NHG households have improved their economic status and 65 percent of the members expected the programme to bring more economic opportunities;(vii) More than 90 percent of the women believed that their collective action against social injustice towards women is inevitable and that the NHGs could play an active role in this regard.The preceding review shows that the strategy of micro-financing through SHGs can help in a big way in eradicating poverty and empowering women. However, what is needed is a real change in the community’s attitude to depart from the traditional approach of highly subsidized support to the promotion of self-help. This is a time-consuming process; but regular followup and guidance are sure to bring about substantial improvement.Evolution of SHGs in Kerala

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The success of SEWA of Ahmadabad, Myrada of Mysore, and several other experiments in 15 different other parts of the country, has attracted many States for replicating this strategy. I has been widely accepted that the programme, if taken up and implemented in the right sense, would be very effective in poverty eradication and women empowerment. SHGs in Kerala have made significant strides in this field. Earlier efforts made by some NGOs were confined mostly to a few areas or remained rather scattered, making the concept relatively unknown and non-replicable. Historically, many church-based development institutions inKerala have been promoting credit unions. A credit union is a typical system, which organises the poor into large groups of 150 to 200 members and pools their meagre savings for their common benefit. Here also the basic objective has been to help the poor meet emergent needs and come out of the clutches of moneylenders. These credit unions lacked the participatory decision-making found in SHGs. During the late 1980s this drawback was realised and under the guidance of NABARD many voluntary agencies reorganised their Credit Unions into smaller and more effective SHGs.NGO interventionNGOs have been identified as the best promotional agency because of their long experience in working with local people. The success stories in Neyyattinkara, Wayanad, etc., revealtheir contribution towards nurturing and making women groups self-reliant. NGOs underthe guidance of NABARD have promoted groups, some of which have reached a self-reliantstage. It needs to be highlighted that these groups still remain apolitical, effectively responding to the needs of the community without actually becoming bureaucratic.Community Development Society (CDS): A new strategyThe CDS strategy – a modified version of SHG was introduced in 1993 as part of implementation of the Centrally-sponsored Urban Basic Services for Poor (UBSP) and UNICEF-assisted Community-Based Nutrition Programme (CBNP). Women from poor families identified through a transparent process using the nine point non-economic criteria, were organised into Neighbourhood Groups (NHG) of 15-40 families. The nine factors identified are: Scheduled Castes and Tribes, only one or more adult family members being employed, kutcha or thatched house, lack of household sanitary latrines, non-availability of drinking water, family having two meals or less per day, regular use of alcohol by a family member, family having at least one illiterate member, family having at least one child below five years. The NHGs organised at the grassroots-level are federated democratically into Area Development Society (ADS) at ward/ panchayat level and these are further federated into CDS, which would be a registered body at the municipality/district level. The entire three-tier structure is envisaged as an extension of the Panchayati Raj system providing a support system as well as a delivery mechanism for the unified implementation of all poverty eradication programmes. The approach is relied on fusion of formal and informal sectors for the development of the below-poverty-line families with focus on women andchildren. Departing from the traditional approach of heavily subsidised support, it aims atself-help. Probably the most important activity that is being implemented through the CDS system is the formation of Thrift and Credit Societies (TCS). The success of Alappuzha CDS and its smooth replication in Malappuram inspired the State Government for CDS expansion throughout Kerala. The Urban Poverty Eradication Mission known as Kudumbasree is the outcome of this and it envisages eradication of poverty from the State over a period of 10 years. This is being done by organising poor women into groups and empowering them.

SHG vs. NHG

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The main difference between SHG and NHG is that SHGs are non-CDS, non-governmental, and informal organisational structures promoted by voluntary agencies. CDS is sponsored by the government for the uplift of the poor especially women by bringing together the activities of various development departments. NHG members are from families facing high risks i.e., usually those belonging to below poverty line (BPL), identified on the basis of the nine point non-economic criteria. SHG members need not be from the high-risk families but are basically poor and marginalized who find it to difficult to have access to the formal credit system.SHGs of AyalkoottamYet another promoting agency has crept in under the Panchayati Raj system during the late nineties, i.e., SHGs formed as a subset of the neighbourhood group. In the democratic process of micro-institution building, organisations termed as ayalkottams are formed with local people residing in a particular locality in a ward. The ayalkottam identifies women from among themselves and from SHGs for carrying out a group activity. These SHGs have been organised mainly for utilising the 10 percent grant-in-aid set apart under the Women Component Plan (WCP) for projects directly targeting women. Such SHGs are functioningeffectively in many panchayats – Ulloor, Thiruvallam, Kumarakom, Kunnathukal, etc.There is an apprehension among sociologists about such SHGs getting politicised in the process of the ayalkottam of panchayats forming them. Experience shows that politics could kill a group (Alappuzha experience). Some of these groups are formed without the thrift component (TCS) which itself is so essential for the successful functioning of the SHG. These groups have been formed even without conceptualising the essence of SHGs, merely for availing the funds made available from the panchayat. The success of CDS and the wide publicity of SHG strategy have attracted several other agencies. Formal agencies (like District Collectorate) in Kollam, Primary Agricultural Credit societies in Kannur, Department of Industries, Department of Agriculture, and various other government agencies are now actively promoting SHGs in Kerala for the effective utilisation of their funds.

Conclusions and Recommendations The study has attempted to examine the performance of selected SHGs and NHGs and to assess its impact, especially the impact of the micro credit programme on empowering women. For the study, SHGs promoted by three voluntary agencies in Chungathara panchayat – Shreyas, BVM, and the CDS – were selected. The government sponsors the CDS, while the other two are non-governmental agencies, which are actively involved in community development through SHGs. Five groups each from the three agencies were selected for a detailed study. Besides, in order to find the impact of SHGs on women, 10 percent of the members from the sample groups were selected randomly and interviewed using a structured schedule.

• A striking observation was that in all the groups, the women were more educated than their husbands

• .All the members, irrespective of the group, unanimously agree that the most striking advantage of the SHGs was the thrift component which acted as an ‘informal bank at their doorstep’.

• It was observed that both external and internal factors play an active role in making the groups self-reliant. When the roles of the coordinator and the promoting agency were identified as the most important external factors, it was the group leaders who determined the pace of growth of the group in the long run.

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• Deliberate external intervention by committed and sincere staff essential to give shape to, nurture, and empower the groups.

• The micro-finance programmes have enabled the poor to take up micro-enterprises by availing credit without outsiders dictating to them as to how and on what projects the loans should be used. Self-perception which had used to be low is high now because of attitudinal change and change in social outlook. The groups have provided a forum for women to express their concerns and articulate their aspirations for change (power within and power with) and enabled them to see and know what is happening outside the house. Several groups have become centres for initiating social action against the dowry system, alcoholism, illiteracy, and divorce.

• All the members, irrespective of the group, unanimously agree that the most striking advantage of the SHGs was the thrift component which acted as an ‘informal bank at their doorstep’.

• The leaders who got re-elected repeatedly seemed to have got ‘empowered’ and’ benefited’ the most. Though not undesirable, confinement of empowerment to themselves alone gives them the opportunity to dominate others in the group. Unless the group leaders educate the entire team to manage the group and maintain accounts and other records of the group it may lead to lopsided empowerment and not empowerment in the full sense. . It has been found that when efficient and dynamic leaders leave a group, it collapses.

• Distrust in the leaders, lack of transparency in transactions, and autocratic style of function of the leadership were identified as the major factors inimical to the success of groups in the long run. Instability in leadership in the initial years may lead to the failure

• It has been clearly established that delivering credit alone may not produce the desired impact. The supporting services and structures through which credit is delivered, ranging from group formation and training to awareness-raising and a wide range of other supporting measures are critical to make the impact of group activity strong and sustainable. Of groups

10. How Do Women in Mature SHGs Save and Invest Their Money? Evidence from Self-Help Groups in India

Lucie Gadenne Veena Vasudevan

Institute for Financial Management and Research Centre for Micro Finance Working Paper Series No. 18 November 2007

AbstractThis report seeks to fill this gap by looking at the credit behaviour of SHG members over time. We find that SHG members we surveyed use their loans for consumption purposes indicating the livelihood programs of SHG promoting NGOs may not be effective in inducing members to spend more of their loans on productive assets. While accepting the saving component of SHG membership, it is also found that they continue to use alternative savings and credit options such as banks, chit funds in terms of savings and banks or moneylenders in terms of credit.

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There is, still a relative paucity of quality research on the SHG movement in India. The present study seeks to fill in the vacuum by looking at the credit behaviour of SHG members over time, i.e., how the members of the SHGs utilize the loans and how this changes over time. The samples have been collected from Karnataka and Tamil Nadu. However, the authors testify that their study findings cannot be used to generalize because it is subject to several biases in data. Data related to SHGs in existence for at least five years have been used and it is stated by the researchers that the loan behavior of younger SHGs may not be the same. However, the researchers hope that their findings may be useful in drawing some stylized facts about the loan behavior of the members.

3 Literature Review and Motivation for StudySelf Help Groups may be the dominant microfinance paradigm in India but research which focuses on that particular model is still scarce. The study Self Help Groups in India: A Study of the Light and Shades (Sinha et al 2006) was a major attempt to fill this gap and contains in depth information about the outreach of the model – characteristics of the members and information on those who did not join or were excluded – and its financial aspects. Two studies looked specifically at group dynamics. Luders and Osborne (1996) looked into the issue of SHG longevity and the causes of group failure, while APMAS (2003) examined the differences between older and younger groups and found a cyclical pattern in group performance with groups younger than years or older than years displaying better performance in saving and credit behaviour than the middle-aged groups. No research has been done so far on what loans are being used for, or on the changes in the members’ choice of credit resources allocation as groups mature. We believe this is an interesting topic to look into for two reasons. First, while it is widely accepted that access to more and cheaper credit is welfare improving for microfinance clients, this relies on the assumption that members use their loans for something which will improve their lives. Currently, there exists little data on what SHG loans are actually used for, but the impact of credit on the household’s wellbeing may be very different depending on the loan usage. We might think, for example, that a production oriented(or ‘income generating’) loan such as buying a cow or investing in a power loom has more potential for increasing significantly and permanently a household’s income and hence its welfare than a loan which is used to finance a wedding. However this type of loan may be associated with risk levels which may even lead to a loss in income if the returns to investment are too low (see Case study: The Failed Investment of Dhanabagyalbelow), whereas loans which are used for consumption smoothing prevent households from falling into major financial hardship due to an occasional fall in income which could otherwise have made them cut down on essential expenditures such as school related costs. Analysing what members choose to do with their loans is therefore important to our understanding of how accessing credit affects their overall welfare. Keeping the microfinance sector’s preference for productive purpose in mind, it is also telling of the priorities and aspirations of group members and how they may differ from that of the SHG promoting agencies or international donors. Second, looking at loan usage may allow us to discern similarities in how members’ preferences for how loans are used change over time. There are several reasons why we may expect to see a general shift from consumption oriented to production oriented loans. The group’s own savings increase with time and these can be used for consumption purposes leaving increasingly larger bank loans to be used for production purposes. It could also be that with time members become more confident about their repaying capacity, more at ease

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with the risk involved in taking out a large loan and more knowledgeable about the investment opportunities available to them (as the success of one member provides encouragement to others), leading them to be more willing to undertake production oriented loans which involve greater risk. Finally, initial investments in income-generating activities may increase the household’s income, making the group’s role as a consumption smoothing mechanism less important and liberating resources for more productive investments.

ConclusionsThe researchers have found that the majority of the loans taken are for the purpose of generating income, therefore, it can be surmised that SHGs provide the members a means to improve their income in the long run. However, a few members have been able to make use of group loans to undertake income generating activity, may be because the amounts may be insufficient to begin an income generating activity.

• Our data provides us with some evidence of members switching from consumption oriented towards production oriented loans over time, but mostly when the share of consumption loans was high to start with

• Another fact is that there is an increase in the amount of loan taken to build assets over time. And, the members tend to save money outside the group.

Overall, the study does not lead to any surprising results or conclusion with regard to the SHGs in the districts of Chitradurga and Kanchipuram in Karnataka concerning the changes choice of members in resource allocation. The distribution of loan purpose remains fairly stable over time and whatever trends we do find are not necessarily present in both areas studied which leads us to be wary of hasty conclusions. This relative stability provides an important item of information that the groups work as means towards investment in income generating activities or human capital as well as mechanisms for consumption smoothing or asset building, and these different roles remain important as groups mature.

National council of applied Economic Research (NCAER)

11. Impact and Sustainability of SHG Bank Linkage Programme(Final Report Submitted to GTZ-Nabard), March 2008

Project Leader: Anushree Sinha

Executive SummaryThe present study assesses the impact and sustainability of SHG bank linkage on the socio-economic conditions of the individual members and their households in the pre-SHG and post-SHG scenarios. The study was conducted for India as a whole covering six states (Andhra Pradesh, Karnataka, Maharashtra, Orissa, Uttar Pradesh and Assam) from five different regions, namely the south, west, east, central and north-east. The overall findings of the study suggest that SBLP has significantly improved the access to financial services of the rural poor and had considerable positive impact on the socio-economic conditions and the reduction of poverty of SHG members and their households. It has also reportedly empowered women members substantially and contributed to increased self-confidence and positive behavioural changes in the post-SHG period as compared to the pre-SHG period.

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LiteratureIn this section, we present a review of a number of studies that has gone into the various socio-economic issues related to SHGs in India But has financial outreach made a significant impact on the economic, social and political life of the poor? 3. The existing literature suggests that the concept of forming SHGs and linking to banks would raise incomes and broaden financial markets by principally providing credit, among other services, to small scale entrepreneurs and thereby reducing poverty (Aghion & Morduch 2000). This would also lead to women’s empowerment, since microfinance programmes have mostly targeted women as clients (Littlefield, Morduch and Hashemi, 2003 and Cheston and Kuhn, 2002). India, which has about 70percent of the total population living in rural areas-most of who are poor - the programme of microfinance in terms of linking SHGs with banks holds a critical role in targeting poverty reduction and empowering women socially, politically and economically. Since the concept of SHGs is more than 25 years old, a number of studies have already examined the impact of microfinance on various aspects as noted above, we make an effort here to review a few of them to highlight the pros and cons of this programme in India. In India, the first survey on SHGs was undertaken by NABARD, along with other Indian members of the Asian and Pacific Regional Agricultural Credit Association (APRACA). They conducted an action research on linking SHGs with the concept of savings and credit in 1987 and published the outcome of the research in the form of a survey report in 1989. The survey was carried out in the form of case studies of 46 SHGs spread over 11 states and associated with 20 SHPIs. Of all the SHGs sampled 17 had savings collection and credit provision as a major activity. Another 13 were engaged in farming or farm based activities, five were into social forestry and afforestation, eight were engaged in non-farm activities and three were occupied in diverse occupations.

Based on the case studies on savings and credit of 17 SHGs, the study reported that when a SHG was promoted by a SHPI, it generally comprised only members of the weaker sections. In contrast, whenever SHG emerged on its own, it generally included members of the poor as well as not-so-poor households. Many SHPIs, including Andhra Mahila Sabha (AMS), Kerala Gandhi Samarak Nidhi (KGSN), Nazareth Ashram (NA) and MYRADA relied on the resourcefulness of the women and concentrated on forming groups involving only women. It was easier to form women’s groups by providing them necessary healthcare and other facilities and gradually involving them into other activities. Most of the SHPIs were reported to promote more than one development activity in a given area. With regard to savings activity, the study found that eight smaller SHGs tried to promote small or tiny savings. As most members were illiterate and the amounts were very small - in the range of 10 to 25 paise - and that too subject to uncertain periodicity, the concerned SHGs used the system of saving cards. In most cases it was found that a member could withdraw her money only after Rs. 100 had been accumulated and until then the money remained with the SHG and could be used for loans. Only a few of the SHGs paid interest on individual member savings. With regard to loans taken by members from the SHG group fund, the study reported that the loan amount ranged from Rs. 20 to Rs. 500. From the accumulated profits, the needy members could take small emergency loans of up to Rs. 100 for a month at an interest rate of 10 per cent per month. Interest rates on short-term loans ranged between 2 per cent and 3 per cent per month. Loans taken for consumption purposes generally carried a higher interest rate than that of loans for productive purposes. Relatively longer term loans in the sense that were repayable in 10 months or more formed a very small proportion of

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the total loans. The interest rates for such loans varied between 1 and 1.5 per cent per month, irrespective of the purpose for which it was being taken. The first impact study of NABARD on SHG-bank linkage programme was carried out by Puhazhendhi and Satyasai for NABARD in 2000. The study assessed the impact of microfinance on socio-economic4conditions of 560 household members from 223 SHGs located in 11 states; Rajasthan (Northern region), Orissa and West Bengal (Eastern region), Madhya Pradesh and Utter Pradesh (Central region), Gujarat and Maharashtra (Western region), and Andhra Pradesh, Karnataka and Tamil Nadu (Southern region).The selection of SHG household members was based on multistage stratified random sampling method. The number of SHGs was distributed across the surveyed states as per probability proportional to the cumulative number of SHGs bank-linked as on March 31, 1998 - subject to a minimum of 10 SHGs from3 each state. The study included SHGs that had completed a minimum of one year of bank linkage as on March 31, 1999.The results of the above study suggest that out of the total sample, 84 per cent belonged to the economically weaker sections, of which agricultural labourers comprised 32 per cent followed by 29percent of small farmers and 23 per cent of marginal farmers. Regarding the status on education, it was found that 24per cent of household members of SHGs were illiterate and 26 per cent could only sign their names. About 21 per cent had primary education, 23 per cent had secondary education and the rest had higher secondary education or something close to it.. The study found homogeneity in terms of group members living in the same village or having uniform socio-economic status. Homogeneity in standard of living of SHG members constituted about 60 per cent, followed by proximity of residence reported by29 per cent. With regard to meetings, about 65 per cent of the groups recorded more than 90 per cent of attendance during group meetings. The study found that frequency of monthly meetings was highest (54 per cent), followed by that of weekly meetings (23 per cent). Only about 8 per cent of the groups did not have regular meetings at all. When one assesses whether lifestyles have changed after getting into the SHG mould, it is found that people who come together to form SHGs end up better off in social and economic terms. The average value of assets per household (including consumer durables and livestock) was Rs. 6,843 during the pre-SHG period, which increased by 72.3 per cent to Rs. 11,793 in the post-SHG period. Only 23 per cent of the members had some savings during the pre-SHG period in contrast to almost all interviewed members who saved during the post-SHG period. The average household saving was merely Rs.460during the pre-SHG period, which increased manifold to Rs. 1,444.Similarly, average borrowings rose from Rs. 4,282 during the pre-SHG period to Rs. 8,341 in the post-SHG period. Most significantly, this increase was spent for income generating purposes by a large number of households during the post-SHG period. It could be the major reason for the 33 per cent increase in SHG households’ incomes, i.e. from Rs. 20,177 per annum before the formation of the savings group to Rs. 26,889 per annum after formation of the group5. The share of households’ within the SHG living below the poverty line was reduced from about 42 per cent to about 22 per cent in the post-SHG situation. Thus, nearly half of all the sampled SHG members were seen as competent to earn higher incomes and stay above the poverty line. The study also found that pre-SHG inequalities in the distribution of income, savings and borrowings declined in the post-SHG period. With regard to employment performance, the study established that employment increased by 17 per cent -from 320person days to 375 person days per household between pre-SHG and post-SHG periods. With regard to social aspects, the study found that becoming members of SHGs and associating in its activities had significantly contributed to improving the self-confidence of the participating women. The women admitted that their sense of self worth was enhanced. The members were

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also very confident of confronting the various social evils and problems they faced in their everyday lives. Moreover, there was a decline in family violence after members joined SHGs. In addition, the study stated that the composite index of different socio-economic parameters6 increased from 40 to 65 from the pre-SHG to post-SHG period. On the performance of different Model types, it was reported that linkage models involving NGOs as either facilitator or financial intermediary, recorded better performance than others7.

Another impact study on SHG Linkage Programme in India was carried out by Puhazhendi and Badatyain 2002. The study assessed the impact on SHG members in three eastern states, i.e., Orissa, Jharkhandand Chattisgarh. The analysis of the study was based on primary data collected from a sample of 115members of 60 SHGs. A socio-economic impact was arrived at by comparing the pre and post SHG situations of members. The overall findings of the study suggest that the SHG- bank linkage programme had made a significant contribution to social and economic improvement of SHG members. About 83 percent of the sampled SHG members belonged to the SC/ST communities. The study reported frequency and regularity in meetings among the members. It was found that 65 per cent of the time meetings were held on a monthly basis, 18 per cent of the time there were fortnightly meetings, the weekly meetings were held 8 percent of the time and only 1 per cent of SHGs had irregular meetings. Actually, NGO -supported SHGs were more particular about holding monthly meetings (68 per cent) than the bank linked groups (59 per cent). Older SHGs (formed 3 years or earlier) observed monthly meetings more regularly than the new SHGs. However,24 per cent of new SHGs had irregular meetings and 50 per cent of SHGs had a fixed date and timing for meetings. About 88 per cent of SHGs had meetings at the residence of members and 12 per cent had in a common place like Panchayat office, Anganwadi office, village community halls, etc. The study also reported an increase in household savings and assets for the SHG members after they became SHG members. The mean annual savings of households increased two - fold after joining SHGs. About 23 per cent of SHGs reported an increase in savings over a period of time. Higher savings were reported for bank linked groups (36 per cent) than for NGO supported groups (16 per cent). The proportion of savings to total resources was relatively higher for bank linked groups (35.7per cent) than NGO supported groups (30.5per cent). The average loan per member increased significantly by 123 per cent during the post-SHG situation. Out of total loans received by SHG members, 72 per cent were used for income generating purposes and 28 per cent for consumption. The size of loan was reported to be generally higher in the case of NGO -promoted SHGs than those promoted by banks. The distribution of loan suggests that about 78 per cent of members received loans, which indicate that loans were well distributed among SHG members The percentage of members who availed loan was higher for bank linked groups (86percent) as compared to NGO supported groups (72 per cent). The interest rate charged on loans out of group savings was higher in the case of bank linked groups (2.68 per cent) than in the case of NGO supported groups (2.50 per cent). About 60 per cent of the SHGs had borrowed from banks more than once, which indicates that SHGs increased their financial intermediation activities with the help of external borrowings. On loan repayment, the study reported that 83.3 per cent of the groups had promptly repaid the loans and only 16.7 per cent repaid late. The ‘in time’ loan repayment performance was reportedly higher for bank linked groups (90.8 per cent) than for NGO-facilitated groups (82.1 per cent).The net incomes of SHG member households increased by 23 per cent, from Rs. 12,319 to Rs. 15,814after forming the SHG. With regard to employment, the study found that employment per household increased by 34 per cent between

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the pre-SHG and post-SHG situations. The share of BPL households was reduced from a high of 88 per cent to about 75 per cent in the SHG after its group formation and activities. Thus, about 15 per cent of the sample SHG member households were able to raise their income levels sufficiently to cross the poverty line. There was also a remarkable improvement in the social empowerment of SHG members in terms of self-confidence, as reflected in their decision-making abilities and communication skills. Sustainability of SHGs was well established in terms of increased value of assets and savings rate, better access to institutional loans, higher rate of repayment of loans, elimination of informal sources and impressive social empowerment. The study reported that members in80 per cent of SHGs received some form of training. About 97 per cent formed by NGOs received training programmes, while only 50 per of those formed by banks got such inputs. When asked about the usefulness of training programmes, 73 per cent of the members said they were well served by them.

The study on SHGs conducted by EDA Rural System and APMAS (2006) on the SHG-Bank-linkage programme in India, addressed a wide range of issues including cases of dropouts from SHGs and internal politics, and issues of social harmony and social justice, community actions, book-keepings, equity, defaults and recoveries and sustainability of SHGs. The study was based on a primary survey of214 SHGs in 108 villages in 9 districts of four states, two southern (Andhra Pradesh and Karnataka) and two northern (Orissa and Rajasthan). The sample of the study was based on older women’s groups, mostly bank-linked (with a bank loan) before March 2000. The study found that 51 per cent of SHG members were poor, 55 per cent belonged to the SC/ST category and 66 per cent of SHGs had members of a single caste. It also found that 74 per cent of SHG members had no schooling at all, only 15 percent of SHG members had schooling till the primary level and 11 per cent had only adult education to become ‘neo-literate’. Average monthly savings were Rs. 45 and cumulative member savings were Rs. 2,400.The modest rate of interest charged on loans to members was 2 per cent per month. Around 77 per cent of the groups had borrowed from banks or federations at least once; the average number of borrowings was2.5 times. As regard longevity, it was found that the proportion of defunct and broken groups was only7 per cent, which is low considering that the average group age was 6 years. In case of dropout, 10 per cent of members had dropped out of the functioning SHGs of above sample, with over a third of them for reasons of migrations, death or illness. The dropout rate from the very poor was 11 per cent and was less for those who were financially better off. Members who dropped out usually obtained their savings amount without interest on savings. Only 10 per cent of dropouts were defaulters who did not get back their savings amount at all. With regard to social responsibility, the study reported that at least one member in a SHG ran a local political office and one in every five SHGs had a woman member who was elected either as a ward member at the village level or a ‘Sarpanch’ at the block level. The proportion of active representatives was surprisingly higher in the northern region than in the south. On SHGs based on caste, the study reported that two thirds of total sample were single caste groups and one third of SHGs had members from different castes. However, in some places with SHPI initiative, SHGs started bridging differences through mixed caste membership or through joint actions across groups of different castes. The study found that though SHGs supported their members in their fight for social justice, they did not deal with such issues regularly. Only 12 per cent of SHGs had taken up issues like domestic and sexual violence, bigamy (a punishable crime), dowry deaths, or had prevented child marriage or supported the remarriage of separated women. The study also did not find any significant involvement of members in community participation.

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Only 30 per cent of SHGs in the sample were involved in community actions. Of the total SHG members involved in community actions, 43 per cent were in community services (related to water supply, education, health care, veterinary care, and building and maintenance of village roads), 31 percent in campaigning against alcoholism, and 12 per cent for protecting natural resources and acts of charity work for non - members. On issues related to sustainability and financial aspects of SHGs, the study found that the quality of records/note books was good only in 15 per cent of groups, moderate in 39 per cent and weak in 40 percent8. The government-promoted groups were weakest in record keeping and were half as likely as NGO or bank-promoted groups to have well or moderately maintained records. In matters of distribution of loan amount, the number of non-borrowers was quite small -5 per cent in the southern region and 8 percent in the north. Overall, the data reflect relatively low standard deviation around the mean for the number of loans and amount borrowed by members. Group leaders generally have better access to loans. The study evaluated the repayment of loans by members to SHGs on monthly basis. It was found that 24per cent of borrowers were more than three months behind schedule on repayments, of whom 5 per cent were more than 12 months behind schedule. Default by 12 months was significantly higher for the very poor and 8-9 per cent for poor borrowers, compared to borderline cases at 4 per cent and for non-poor at1 per cent. Data on portfolio at risk (PAR) for 155 SHGs show that 45 per cent of such groups (but 66 percent in Andhra Pradesh) had defaulted for more than a year, amounting to 17 per cent of the port folio(but one-third in Andhra Pradesh).A study by Meissner (2006) of the NABARD-GTZ Rural Finance Program examined the viability of SHG lending in a regional rural bank branch, the Alwar Bharatpur Anchalik Gramin Bank (ABAGB),in Alwar district of Rajasthan. The analysis of the study was based on survey data collected in August and October 2005 for 2004 -05. Overall, the study found that the SHG lending operations of the branch were viable and sustainable. Moreover, the study found that the branch accumulated more profits from SHG lending (3.9 per cent of loan outstanding) than that from other (normal) lending operations (3.1percent). The operation cost9 of the branch on lending to SHGs was found to be higher in case of Model Type 1 (directly financed by bank) -Rs. 7,113) -than for Model Type 2 (SHPI as intermediary),Rs.6,808. With regard to the staff cost (expenses for staff involved in forming and promoting new SHGs) in a particular year (i.e., 2004–05), the study reported that staff cost was higher but risk of loan loss (1.5 per cent and 0.4 per cent of loan outstanding) was less. In the case of normal lending operations, this was just the opposite -low staff cost and high risk of loan loss (0.9 per cent and 1.5 per cent of loan outstanding). However, the study mentioned that the staff cost calculated over several years (6 years) was found to be less than that for one year (1.3 per cent as compared to 1.5 per cent under one year), but was still more time and cost-intensive than normal lending (0.9 per cent). The importance for the viability ofSHG lending operations lies in the low risk costs of SHG lending in comparison to normal transactions. Another study carried out by Ramakrishna (2006) of the NABARD GTZ Rural Finance Program assessed the SHG bank-linkage programme from the survey data that was collected from 27 public sector banks, 192 regional rural banks and 114 cooperative credit institutions in Tamil Nadu, West Bengal, Karnataka, Chhatisgarh and Maharashtra. The analysis of the study was based on information from the banks as on March 31, 2005. The study reported that commercial banks had a major share of the market at 61 per cent of total number of active SHG members and 68 per cent of the share in the number of loans outstanding to these SHGs. As compared to 61 per cent market share of commercial banks, the RRBs’ market share had 30 per cent and cooperative banks had very small market share of 9 per cent in the SHG-bank linkage programme. The cooperative

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banks in Tamil Nadu, Karnataka and West Bengal, however, had an 82 per cent of share in the overall share of the cooperative banks. The study has defined savings outreach in terms of opening of savings account and amount of money deposited by SHGs in their savings account. In the case of the former, the study found that commercial banks had major share (52 per cent) followed by RRBs (34 per cent) and cooperative banks (14 per cent).On the share of banks in savings of SHGs it was reported that RRBs had the major share of 49 per cent followed by commercial banks (44 per cent) and cooperative banks (7 per cent). The share of SHG loans in overall loans and advances was 0.36 per cent in the case of commercial banks, 6 per cent for RRBs and0.81 per cent for cooperative banks. The time required for a bank to sanction a loan was found to be relatively fast, with an average of only 11 days for the first loan and nine days for subsequent loans. On repayments of loans, 14 of the 27 (more than 50 per cent) commercial banks had an on-time recovery of more than 90 per cent, which compares favorably with the lower recovery rates for their normal lending activities. For banks like Oriental Bank of Commerce, State Bank of Bikaner and Jaipur, India Bank, Indian Overseas Bank and State Bank of Travancore, the recovery rate was more than even95 per cent. With regard to NPAs, the study reported that overall NPA of SHG-bank linkage programmeis 1.36 per cent. The NPAs of SBLP under commercial banks were found to be especially low, with only0.93 per cent, less than the overall NPA ratio of 2.65 per cent reported for their normal lending activities. The NPAs of SBLP under RRBs and cooperative banks were 2.32 and 2.14 per cent and compared also very well with their NPA ratio of 8.70 and 18.84 per cent for normal lending activities respectively. A study by MYRADA on women’s empowerment of SHG members commenced in 2002 for the southern region’s states. In all, 13 SHGs were surveyed and it covered four professionally managed NGOs (DHAN, RASS, CHASS and MYRADA), one from each state. The “empowerment” of a SHG member is defined in terms of her influence over the family’s economic resources and her participation in its economic decision-making. In addition, the influence made by her on her own development as an individual, power over local polity and participation in socio-political decision-making and influence over other decisions pertaining to general welfare of the family are considered. In order to assess the above aspects of empowerment, the study had undertaken four Model types of instruments such as structured interview schedule for SHG household members, in-depth interview schedule for SHG leaders, NGO-leaders and bank officials, peer group evaluations for skills and abilities evaluation of SHG members and in-meeting observations for evaluating the moderation skills of SHG leaders in a live meeting situation. The study found that most of the SHG members were young (26-35 years of age) married women in both type of SHGs (less than one year to more than three years old). About 45 per cent of SHG members were illiterate in the first category of SHGs and 47 per cent in the second group of SHG. In terms of occupation, 53 per cent of respondents were non - earning members in the first group and in the second, 66 per cent of the respondents were either the chief wage earners or contributors to the family earnings. While agriculture (55 per cent) and allied business (33 per cent) were the main manufacturing (29 per cent) were the chief occupations for the latter group. On sources of information about the concept of SHG, its activities and the benefit of joining it,34.4 per cent of SHG members in the old group and 41.9 per cent in the new group reported that others HGs in the locality was the main source that inspired them to join the SHG. With regard to impact of the SHG, 89 per cent of interviewees in the old group agreed that their financial position had changed for the better as against only 71 per cent in the new groups. More importantly, more members in the older groups reported a positive influence on their share in the family income than in the new ones. The average share of earning

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SHG members in the family income was also higher in the older SHGs. The impact of the SHG on the member’s level of comfort and confidence was reflected more in the older groups than that of new. For example, in case of dealing with people (outsiders / strangers etc.),75 per cent of members of old SHGs reported change in confidence as compared to 72.6 per cent for new groups. The study also found better awareness with regard to health and hygiene. About family planning methods, 53.9 per cent reported that change of knowledge was evident in the case of the old group against 35.5 per cent for new group. Older groups also reported better awareness in washing hands before eating/cooking, child’s vaccination, using toilets at home and adding fruits and vegetables in the diet of pregnant women. The contribution of SHG members in their respective household income was found higher for older groups as compared to the younger ones. The share of SHG members in household income between 50and 100 per cent was found 17.3 per cent for older groups against 6.8 per cent of younger groups. On a question pertaining to an important indicator -for instance, whether SHG members are practically empowered in managing the banking operations on their own -it was reported that more members in the older group (70.8 per cent) were aware about it as compared to 60 per cent in the younger group. With regard to power over her on development, the study found that more respondents in the older groups reported that their control over their own lives had improved and that they had a greater role in making decisions about themselves than before. As for the participation of SHG members in the local polity is concerned, the study found the situation was largely the same as before. Nearly 63 per cent of new groups and 49 per cent members of old groups reported that they had never had any role in village-level decision making. Only 10 per cent and 16 per cent members of these two groups revealed that they had participated more than before in the local polity. On group formation, the SHG leader stated that the focus should be on the women who need it the most. Therefore, members should be selected from the poorest of the poor households in the village. Another important aspect of group formation is stability. Because of migration, particularly of unmarried women who move after marriage to another village, it was suggested that group leaders focus only on married women for group formation. Apart from stability, the group leaders reported that SHG groups need the goodwill of the villagers, control and discipline and financial stability. The study also found that four NGOs have been playing an important role in different activities under the SHG programme. For example, RASS has been focusing on awareness of health and hygiene issues and DHAN on regular documentation. A study by Chakrabarti (2004) reassessed the microfinance scenario in India and the impact of microfinance programme on poverty eradication. It also discussed the role of banking sector in outreaching and financial sustainability. Based on the secondary data available, it found that the focus of banking, particularly of RRBs over the period, had shifted from outreach to financial profitability. To overcome the heavy losses incurred till the mid-1990s, regional banks started investing more in government bonds (narrow banking) on the recommendation of the Narsimhan Committee (set up in1991). The locational distribution of RRBs has also undergone a shift from rural to semi-urban and urban areas. In order to keep some balance between outreach and profitability, the study suggested that microfinance provides an important way to banking sector to operate in the rural areas. The study acknowledged the role of NGOs in promoting microfinance programmes. Though over half of the SHGs are formed by government agencies, NGOs continue to play a critical role in promoting and Impact and sustainability of SHG Bank Linkage Programme financing SHGs. Presently, well over 500 NGO-MFIs are actively engaged in microfinance activities across the country. In the policy perspective, the study stated that microfinance programmes have improved in various respects significantly. However, the scope

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for further improvement is unlimited. NABARD intends to cover 100 million of the poor through microfinance (about one-third) by 2008. The coverage by March 31, 2006 touched about 32.98 million families. This would mean the programme has reached over 150 million people, most of them poor. Nair (2005) examined the potential of SHG federations in providing sustainability to SHGs through financial and organisational support. Specifically, the study examined issues like (i) variety of services provided by the federations and their benefits to SHGs, (ii) financial variability of SHGs and SHG federations and cost of promoting them, (iii) identification of constraints of promoting SHG federations, and, (iv) policy recommendations to strengthen SHG federations. In terms of services provided by SHG federations and thrift cooperation to SHGs, the study found that the most common service is savings and loan facilities. Savings include general savings and particular savings for education, housing, marriages, and festivals. Loans include both small and large loans at costs lower than those available in the market. Besides these services, the SHG federations helped SHGs to internalize all operational costs and reduce the cost of promoting new SHGs. Further, SHG federations provide all essential services to SHGs with minimum costs. These services were often provided by the promoting agencies in the initial stage of SHG development. They include auditing, capacity building like training the SHG members, leaders and SHG accountants, and forming a common forum for reviewing the performance of SHGs. The federations also help in resolving conflicts among SHG members, between SHGs and between SHGs and banks. Another important aspect is that they assist in reducing the transaction costs of SHG-bank linkage programme by grouping 10-20 accounts into one single SHG account. The federations help in reduction of loan default-both within SHGs and from SHGs to banks. They provide micro-insurance services and social services such as education, health and livestock support. The federations employ their own resources in promoting new SHGs while minimizing the promotional costs as compared to other agencies like the banks and NGOs. They also help in empowering the SHG members.

A study by Prabhu Ghate (2006) highlighted the findings of recent studies on the SBLP-microfinance institutions model in India and in other countries. This report is important in the context of the unprecedented rise of the microfinance sector in India during the past decade and the anxiety of different players (like the government, NGOs, financial institutions and others) to know the pros and cons. The study reviewed the findings of three important recent studies, Prakash and others (2005), APMAS (2005) and EDA Rural System and APMAS (2006). All these studies revealed that SBLP is growing at a higher rate ahead of the capacity of SHPIs to ensure equity. The study notes that groups formed by government agencies tend to be the weakest and reducing their share relative to those promoted by NGOs and even banks could enhance overall programme quality. The study also reports that the key to a group’s prospects of achieving equity, longevity and reduction of drop out rates lies in improving its bookkeeping, capacity and the formation of clusters and federation. Further, this enables banks to appraise and monitor loan portfolios on which their repayment rate depends in the long run. Apart from the review of previous studies, this one highlights the issues based on the data reported in the annual reports of NABARD. The NABARD data revealed that the rate of growth of loans to new groups declined sharply in 2006 as compared to previous years. A similar trend is also observed for repeat loans to existing SHGs. The SBLP is especially prominent in the three southern states of Andhra Pradesh, Tamil Nadu and Karnataka. For some years now, NABARD has supported activities aiming at reducing the regional imbalances. The share of new loans for the four southern states (Andhra Pradesh, Tamil Nadu, Karnataka and Maharashtra) came down from 49

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per cent in 2005 to 44 per cent in 2006.Thirteen priority states identified by NABARD account for 70 per cent of India’s poor and these states have been provided special attention to increase the coverage of SBLP programme. In this regard, the number of groups linked in these states increased by 68 per cent in 2005 and 51 per cent in 2006 as against an increase of 49 per cent in 2005 at the all-India level. In policy recommendations, moreover, the study states that there is a need for slowing down of coverage and increasing the focus on quality to make SBLP successful. In this regard, it suggests that only indicative targets for the undeserved states and regions within them be encouraged. Policies could also be developed to ensure better book keepings, effective training programmes and helping to devise viable incentives for participation in the system. Apart from the SBLP model discussed above, the study also assesses the progress of the MFI model in India covering various issues like portfolio quality, efficiency, sustainability, delivery of other financial services like micro insurance including health insurance and issues related to commercial financing. On the progress of MFI model, the report reviews two recent studies by Sa-Dhan (2005) and by MIX (2006).The study found that like the SBLP model, the MFI model is also growing fast. It assures good portfolio quality and is efficient too. Most importantly, large and medium MFIs have attained operational sustainability. Moyle, Dollard and Biswas (2006) assessed the economic and personal empowerment of 100 women aged between 16 and 65 years, participating in SHGs from two villages (Delwara and Shishvi) in Rajasthan. Based on qualitative data, the study found that after joining SHGs, the members achieved both economic and personal empowerment in terms of collective efficiency, pro-active attitudes, self-esteem and self efficacy. In case of personal empowerment, 99 per cent of women believed that ‘self-help group members are always able to discuss problems that affect everyone’, and 91 per cent of women believed that ‘if a problem arises that people cannot solve by themselves, the group as a whole will be able to solve it’. Similar results were found in case of perceived capability of group members. Eighty one percent of members believed that ‘I have confidence that our group members can perform the tasks that are assigned to them’ and 85 per cent believed ‘our SHG has the ability to tackle any issue affecting the group’. In terms of perceived efficacy to solve problems as a group, 60 per cent believed that ‘as members of this group, we are able to tackle the most difficult situations because we are all committed tothe same collective goals’. In case of proactive attitude, 63 per cent of the women believed exactly true that ‘I feel responsible for my own life’ and 93 per cent believed that they were ‘able to choose their own actions’. Ninety-seven per cent said that ‘they focus their efforts on things that they can control’. In terms of ‘self esteem’, 91 per cent of women strongly felt that they had good qualities, and 71 per cent strongly agreed that they had a positive attitude towards themselves. Besides these positive results the study also found negative appraisals of pressure, challenges and stress for most of the SHG members. From the discussion of the above studies, we find that while several studies (Puhazhendi and Satyasai,2000; Puhazhendi and Badatya, 2002; and EDA Rural System and APMAS, 2006) discussed mainly various socio-economic parameters of SHG members related to the situation during pre-SHG and post-SHG periods, other studies (Nair, 2005; Moyle, Dollar and Biswas, 2006 and Chakrabarti, 2004) assessed more specific type of issues such as role of SHG federations in providing sustainability of SHGs, economic and personal empowerment of women and role of microfinance in poverty eradication. The broad findings of first group of studies suggest:A high percentage of SHGs are meeting regularly and mostly at monthly intervals.The average value of assets of SHG member households increased after joining a SHG.

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Household savings increased significantly during the post-SHG period as compared to the pre-SHG period.More percentage of household members reported that they use higher proportion of loan amount for income generating purposes.The repayment of loans by SHGs household members was reported to be much higher during post SHG period compared to pre-SHG period.The average annual net income of SHG member households increased significantly after joining a SHG and considerable contributions were made for poverty reduction.Employment per household increased during the post-SHG period as compared to the pre-SHG period.There was remarkable improvement in social empowerment of SHG members in terms of self-confidence, decision-making and better communication.

The discussion of the second group of studies suggests that SHG federations play a critical role in improving the sustainability of SHGs through financial and organisational support. Besides the promotion of general savings of SHGs and special savings for education, housing, marriage and festivals etc. they also provide loans to SHGs on low rate of interest. As far as organisational support is concerned, federations employ their own resources in promoting new SHGs and were able to reduce the cost of promotion of SHGs or promotional costs as compared to other agencies such as banks and NGOs. A specific study on women empowerment (Moyle, Dollard and Biswas, 2006) found that a high share of women SHG members reported significant development of their self-confidence and work efficiency. The study also reported that most of the women experience pressure, challenges and stress due to extra work and more responsibilities. The present study differs from earlier studies in many aspects. First, it covers a wide range of socioeconomic impact issues on the level of SHG members and not only at the level of a SHG. Moreover, it includes also the organisational and financial viability and sustainability aspects. Second, it covers long span data on credit link to get reliable information on the SBLP. Last but not the least, the analysis of the study are based on a large sample size with bank-linked group and cover a wide cross section from almost all regions of India.Objectives Of The StudyThe objective of this study is to assess the impact of the SBLP at two levels. First, the impact of microfinance on SHGs and, second, the socio-economic impact on the members of the SHGs and the households to which the SHG members belong is to be assessed. Only such SHGs are to be included in the study which have already completed at least four years of bank linkage.The specific objectives of the study are:To Assess the impact of participation in SHG activities on economic activities, household welfare and social empowerment of members.

Comparative assessment of the quality of the groups promoted by different self help promotion institutions (SHPI) including the changes over time in group members participation and behaviors, the quantity and quality of financial services and their sustainability.

To identify/ assess the extent of capacity building/ training needs of SHG members for undertaking income generate activities.

To prepare strategies for further strengthening of group cohesion within SHGs.

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To study the factors affecting the sustainability of SHGs and identification of constraints, if any.Can a SHG survive without mutual trust?This is a case study of a SHG formed by a group of women from Dhule district of Maharashtra, who were drawn from varying economic and educational backgrounds. The lack of uniformity was a factor behind the lack of mutual trust that developed between them, leading ultimately to the failure of the group. Thus, this study illustrates that for SHGs to function properly, it is very important to form groups with members drawn from similar socio-economic backgrounds and with like- minded people who share trust and co-operate with each other at all times. It is also important that the members choose suitable and competent leaders who can be trusted and respected by the group members.CONCLUSIONSThe results of the analysis suggest that SHGs have been performing better not only as providers of financial services in terms of augmenting savings, lending and ensuring loan recovery, but also in terms of awareness creation and empowerment. They also lead to the development of human resources and management skills, leadership and motivation.. Our findings on social empowerment indicate that more than 90 per cent of households in bank- linked groups reported that social empowerment of women has increased over time since joining the SHG movement. It indicates that SBLP has helped the rural poor, particularly women, to achieve social rights. Further, we found that more than 70 per cent of women respondents reported improvements or even significant improvements in their ability to face problems on health and financial crisis aspects and about 63 per cent reported the aspect of similar improvement in terms of family disputes. The study also found that the participation of women members in household decision making processes has considerably improved.

12. Can Microfinance Empower Women? Self-Help Groups in India (RANJULA BALI SWAIN)

Department Of Economics, Uppsala UniversityAda Dialogue, N°37, May 2007

This article argues that true women empowerment takes place when women challenge the existing norms and culture, to effectively improve their well being. While doing so, it carefully interprets the World Bank’s definition of empowerment within the South Asian contexts and makes comprehensible distinctions between community driven development, efficiency improving activities that are culturally considered to be women’s domain and activities which truly empower women. Based on this conceptual framework the results of the Focus Group Discussions (FGD) and interviews analyze the activities through which the Self Help Groups impact the lives of women in India. It is argued that only a fraction of these activities are truly empowering for the participating women, however, drawing inference from the household data, preliminary results indicate that SHGs could be leading to empowerment of women.

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Concept of Empowerment

Nobel Laureate Amartaya Sen (1993) explains that the freedom to lead different types of life is reflected in the person’s capability set. The capability of a person depends on a variety of factors, including personal characteristics and social arrangements. However, the full accounting of individual freedom goes beyond the capabilities of personal living. For example, if we do not have the courage to choose to live in a particular way, even though we could live that way if we so chose, can it be said that we do have the freedom to live that way, i.e. the corresponding capability? Another important point made by Sen (1990) is that for measurement purposes one should focus on certain universally-valued functioning, which relate to the basic fundamentals of survival and well-being regardless of context. Taking the example of universally valued functioning like proper nourishment, good health and shelter, Sen asserts that if there are systematic gender differences in these very basic functioning achievements, they can be taken as an evidence of inequalities in underlying capabilities rather than differences in preferences.

In the feminist paradigm, empowerment goes beyond economic betterment and well-being, to strategic gender interests. As Mayoux (1998) suggests, empowerment is a process of internal change, or power within, augmentation of capabilities, or power to, and collective mobilization of women, and when possible men, or power with, to the purpose of questioning and changing the subordination connected with gender, or power over. Empowerment can range from personal empowerment that can exist within the existing social order. Thus this kind of empowerment would correspond to the right to make one’s own choices, to increased autonomy and to control over economic resources. But self-confidence and self-esteem also play an essential role in change. Empowerment signifies increased participation in decision-making and it is this process through which people feel themselves to be capable of making decisions and the right to do so (Kabeer, 2001). Personal empowerment can lead to changes in existing institutions and norms, however, without the collective empowerment the personal empowerment and choices are limited, as Sen explains.The World Bank defines empowerment as “the process of increasing the capacity of individuals or groups to make choices and to transform those choices into desired actions and outcomes. Central to this process are actions which both build individual and collective assets, and improve the efficiency and fairness of the organizational and institutional context which govern the use of these assets.” Thus, as the World Bank (2001) report confirms societies that discriminate on the basis of gender pays the cost of greater poverty, slower economic growth, weaker governance and a lower living standard of their people. The World Bank also identifies four key elements of empowerment to draft institutional reforms: access to information; inclusion and participation; accountability; and local organisational capacity.Kabeer (1999), stresses that women’s empowerment is about the process by which those who have been denied the ability to make strategic life choices acquire such ability . According to her, it is important to understand empowerment as a process and not an instrumentalist form of advocacy, which requires measurement and quantification of empowerment. Kabeer emphasizes that the ability to exercise choice incorporates three interrelated dimensions: resources (defined broadly to include not only access, but also future claims, to both material and human and social resources); agency (including processes of decision-making, as well as less measurable manifestations of agency such as negotiation, deception and manipulation) and achievements (well-being outcomes).

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Microfinance and Women Empowerment There are different views on the effect of women’s accessibility to credit on their empowerment. Both positive and negative effects have been advocated .Hashemi’s (1996) results suggest that women’s access to credit contributes significantly to the magnitude of the economic contributions reported by women. Mayoux (1997) argues that the impact of microfinance programmes on women is not always positive. Mayoux (1997) further discusses that the impact within a programme also varies from woman to woman Mayoux (2001) also warns about the inherent dangers in using social capital to cut costs in the context of other policies for financial sustainability. Another issue that needs further investigation is whether without change in the macro environment, microfinance reinforces women’s traditional roles instead of promoting gender equality? A woman’s practical needs are closely linked to the traditional gender roles, responsibilities, and social structures, which contribute to a tension between meeting women’s practical needs in the short-term and promoting long-term strategic change. By helping women meet their practical needs and increase in their efficacy in their traditional roles, microfinance can help women to gain respect and achieve more in their traditional roles, which in turn can lead to increased esteem and self-confidence. Although increased esteem does not automatically lead to empowerment it does contribute decisively to a woman’s ability and willingness to challenge the social injustices and discriminatory systems that they face (Cheston and Kuhn, 2002).Finally, it is important to realize that empowerment is a process. For a positive impact on the women empowerment may take time.The self-help group bank linkage Programme. Apart from the large numbers of households that this programme services, the following features make the Nabard SHG model unique:

1. The distinctive process of formation of the SHGs and the freedom that they have in deciding the terms of their lending and borrowings within the group, once they receive the loan.

2. The use of the existing and extensive infrastructure of rural bank branches for disbursing microfinance services.

3. Three distinctive ways of linking the SHGs to the banks, through NGOs, commercial and rural banks, with the NGOs playing a major role in promotion of the SHGs and their training.

4 The government’s poverty alleviation programmes such as Swaranajayanti GramaSwarojgar Yojna (SGSY) and the Rashtriya Mahila Kosh implement their programmes through microfinance interventions Using higher rates of savings, borrowings, timely repayment of credit, promptness in attending SHG meetings and decisions by individual members as indicators of enhanced credit access, income generation and socio-economic empowerment of the poor, Puhanzhendi and Badatya (2002) find that the SHG programme has a positive social impact. Puhanzhendi and Satyasai (2000) further argue that the social impact of these programmes on the household is greater than the economic impact

Data and Focus Group DiscussionsThis study is based on a unique database collected from five states89 in India,in two periods (July 2000 and end of 2003. The survey was undertaken with a view to accumulating data on the impact of SHG Bank Linkage Programme on poverty vulnerability and social development .

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SHGs and Women EmpowermentUsing the World Bank’s definition of empowerment along with Kabeer’s sensible interpretation of women empowerment within the South Asian context, this paper argues for a more strict interpretation of women empowerment. It is interpreted as the process in which a woman challenges the existing norms and culture to effectively improve her well-being. A distinction is therefore made between the outcomes that lead to greater efficiency within the existing norms, community driven development (CDD) and outcomes that can be directly interpreted as women empowerment.For instance, activities like improvement in nutrition of children, lead to greater efficiency in the woman’s role in the household but it also falls within the existing role of the women within the norms of the society. When a woman is better able to perform such activities, it leads to an increase in her self-confidence and feeling of well being. This might create conditions leading to woman empowerment, but are not empowering on their own. Similarly, Community Driven Development activities, undertaken under the initiative of the SHGs – for instance, solving drinking water problems in the village, reduces the demand on a woman’s time while leading to better health of all household members, particularly children. However, most of these activities are for the welfare at the household (including women) or community but are not directly empowering. According to our definition, the truly empowering activities are those that reflect the changes that women have effectively made to better their lives by resisting the existing norms of the society.Based on the conceptual framework above the responses of the FGDs have been classified as follows:91

A. Efficiency improving activities that are culturally considered within the woman’s domain:

1. Sending children (both girls and boys) to school more regularly;2. Improved nutrition in the household;3. Taking better care of health and hygiene of their children;4. Taking care of other group members in time of health and psychological crisis, e.g., taking a pregnant member within their group to a hospital for delivery of a child. Helping a group member with household and income-generating activities at the time of loss of her husband;5. Helping in social functions like marriage

B. Community Driven Development Activities commonly taken up by theSHGs members:

1. Cleaning the village road, village pond and village school;2. To solve the drinking water problem, arrange a tube-well in the village;3. Helping to start a school for their own children and children of the village;4. Building a bridge over a small rivulet, thereby connecting the village road to the outside world. They did this by taking a contract from the local authorities and using their own and other villagers’ free labour;5. Build a small patch of the village road;6. Starting a store with groceries, vegetables and other basic requirement within the village at reasonable prices, so that people do not have to travel to the nearest village market for shopping;7. Starting an adult literacy programme in the village;8. Participating in the sanitation programme of their village;

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9. Help government in immunization programmes;10. Monitoring the school and primary health care centre in their village;11. Street light for the village and its maintenance;12. Anti-alcohol campaign to stop consumption of alcohol by men in the community.C. Women empowering activities:1. Overcoming the resistance from husband and other members of the family to join the SHG;2. Increased participation in decision-making within the household to issues that were usually considered outside the domain of woman;3. Improved status and increase in respect within the household;4. Feeling fearless, open and confident;5. All group members learn to sign their names and some have joined adult literacy programmes;6. Adopting family planning measures;7. More mobile, can move out of the house and the village more frequently;8. Talking to the male persons in their village, which they were not confident to do before because of cultural reasons;9. They have more information about the government programmes due to their exposure and can apply for them for their own betterment and the benefit of the community;10. Actively participating in the decision to send their children to school;11. Eradication of prostitution;12. Some women can actively engage in the decision of their marriage with the elders in her household;13. Awareness about politics and engaged in political participation by way of voting or directly, by standing as a candidate in the local elections

Conclusion Given this detailed investigation of women with respect to the control of resources, changes in behavior and the decision-making reveals that many strides have been made in the right direction and women are in the process of empowering themselves. But examining the evidence on some key issues both within the quantitative household data and the FGDs, suggests that a lot needs to change to make women truly empowered.Based on the evidence along with a more strict interpretation of women empowerment, it is difficult to believe that a minimalist microfinance programme would have sustainable impact on the empowerment of women. SHGs have a greater ability to make appositive impact on women empowerment where a majority of groups are linked with the help of NGOs that provide support in financial services and specialized training If women empowerment is to be pursued as a serious objective by SHG programmes in particular and the larger microfinance community in general, greater emphasis needs to be placed on training, education and creating awareness in order to achieve a larger and more lasting empowerment

13. Self Help Group Linkage Programme: ACase-study

Kumar Aniket November 15, 2006 AbstractThe case-study examines the group lending mechanism of a particular Microfinance Institution working in Haryana, India. The Microfinance Institution restricted the number of group members that could borrow simultaneously from it and allowed the internal lending amongst the group members. We found evidence of negative assortative matching in group’s i.e., relatively wealthy

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individuals grouping with poorer individuals, with the wealthier members obtaining a higher proportion of the loans in the group.The study was conducted taking a sample of 54 members from 5 SHGs from the tehsil of Hathin in the state of Haryana. The objective of the study was to find out the group lending mechanism of SHGs solves the problems of information associated with providing finance to the poor. For this the researchers studied the group lending mechanism of a particular MFI operating in the area. The MFI selected is Society of Promotion of Youth and Masses (SPYM), based in New Delhi.ConclusionsThe objective of this exercise was to examine the group lending mechanism used by the SHG Linkage Programme. We were also able to analyse how the SHG mechanism solves the information problems associated with lending to the poor. We examined how implementing full and immediate joint liability and restricting the number of simultaneous borrowers in a group enhances the SHG mechanism’s ability to screen the group and give the group member’s incentive to peer monitor. Along with giving the poor access to credit, the mechanism also allows the poor to obtain a premium on their savings

14. Sustainability of Microfinance Self Help GroupsIn India: Would Federating Help?

Ajai Nair Consultant, World Bank Email: anair@worldbank.org(World Bank Policy Research Working Paper 3516, February 2005)

AbstractUnlike most Accumulating Savings and Credit Associations (ASCAs) found in several countries, these groups also obtain loans from banks and on-lend them to their members. By 2003, over 700,000 groups had obtained over Rs.20 billion (US$425 million) in loans from banks benefiting more than 10 million people. Delinquencies on these loans are reported to be less than 5%. Savings in these groups is estimated to be at least Rs.8 billion (US$170 million Despite these considerable achievements, sustainability of the SHGs has been suspect because several essential services required by the SHGs are provided free or at a significantly subsidized cost by organizations that have developed these groups, even though a few promoter organizations have developed federations of SHGs that provide these services to SHGs. Using a case study approach, this paper explores the merits and constraints of federating. Three SHG federations that provide a wide range of services are studied. (All the federations offer financial services and therefore the authors want to clarify that it is not necessarily implied that offering financial services is required to make the federations sustainable. He also makes it clear that the study is not an assessment of SHG federations, on the other hand it is an exploratory study into the potential that make the federations as well as the SHGs sustainable.)The findings suggest that federations could help SHGs become institutionally and financially sustainable because they provide the economies of scale that reduce transaction costs and make the provision of these services viable. However, their sustainability is constrained by several factors – both internal, related to the federations themselves and external, related to the other stakeholders. The paper concludes by recommending some actions to address these constraints

15. Microfinance and Women EmpowermentAn Empirical Study with special reference to West Bengal

Dr. Jyotish Prakash Basu

Abstract

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The paper examines the two basic research questions. First, the paper tries to attempt to study how a woman’s tendency to invest in safer investment projects can be linked to her desire to raise her bargaining position in the households. Second, in addition to the project choice, women empowerment is examined with respect to control of savings, control of income, control over loans, control over purchasing capacity and family planning in some sample household in Hooghly district of West Bengal. The analytical framework of underlined the study is based on Nash bargaining game theoretic model. The first part is based on two household members make a few non co-operative production decision regarding a credit contract and risky business projects. This is also an empirical study based on 100 SHG members in the Hooghly district, West Bengal in 2006. The empirical findings show that the empowerment of women is established in weak form using the above indicators. This paper has important policy implications. It is appropriate to emphasize the strategy of financial inclusion in the wider context of economic growth and financial deepening.

Conclusion and Policy implicationsFrom the above analysis the following conclusions emerge. First, the theoretical model explains the basic question of women empowerment. The empowerment depends on the choice of investment of project. The choice of safe project leads to more empower of women than the choice of uncertain projects. Third, the Commercial Banks and Regional Rural banks played a crucial role in the formation of groups in the SHGs -Bank Linkage Program in Andhra Pradesh while the Cooperative Banks played a crucial role in West Bengal. Fourth, among women who had taken loans for income- generating activities, only 5%reported having total autonomous control over the money. 56% reported that they share control over the loan money with their husbands, and 38% reported that their husbands have sole control over the proceeds of the loan. The above conclusion shows that micro finance program does not explain the strong form of Women empowerment rather it is weak form of women empowerment. This paper has important policy implications. It is appropriate to place the strategy of financial inclusion in the wider context of economic growth and financial deepening.

16. Commercial Aspects of SHG Banking In India(By Dr. Hans Dieter Seibel Harishkumar R. Dave)

Paper presented at the Seminar on SHG-bank Linkage Programme at New Delhion 25th and 26th November 2002

(Published by: Microcredit Innovations Department, National Bank for Agriculture and Rural Development.2002)

The two aspects of SHG Bank Linkage Programme that makes it unique are: first it is the largest non directed micro savings and micro credit programme in the developing world and ,second, its bank lending rates around 7% are among the lowest .The point addressed here is :is it a commercial proposal for the participating banks ? The report presents a methodology for the study of financial products applied to seven units of three banks in October 2002. The tools applied are average cost analysis, attributing all costs duly to each product; and marginal cost analysis, in response to the advice of bank managers to ignore personnel costs of SHG banking because of existing idle capacities. Main performance indicators are non-performing loans, return on average assets and operational self-sufficiency.

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Self reliance of SHGs based on internal savings and retained earnings were growing rapidly. In the case of older groups, this was found to be exceeding the volume of refinance from the banks. Besides, the SHGs deposit in banks a substantial amount of savings as a reserve against bad debts.The SHGs have an indirect effect on the commercial effects on banks in terms of overall vibrancy in banking activities Indirect effects at the village level include the spreading of thrift and financial self reliance and of a credit culture among the villagers, micro entrepreneurial experience, and growth of assets and incomes and decline of private money lending.Intangible social benefits are many. It has attained self confidence and empowerment among womenThe future sustainability of SHG banking hinges on five factors such as: 1.Despite the exceptionally low interest rates, the programme was found to be viable to many banks and SHGs but rural banks need to be restructured.2.SHGs have substantially increased their level of slef reliance and deposited reserves while banks are constrained by high statutory liquidity requirements.3.Given the low inflation rates preserving the value of resources, except in distressed banks does not pose a problem.5.Effective supervision of SHGs through delegated system , together with prudential norms in banks emerges as a major challenge to the long term sustainability of SHG banking and rural financing in India.

Summary and conclusions

Profitability has been measured with Return on Assets and Operational Self Sufficiency.ROA and OSS are the measures which are used as standard performance measures in banking industry and micro finance community respectively. Both average cost analysis and marginal cost analysis have been used wherever applicable. All costs including personnel costs have been attributed to SHG banking. Marginal cost analysis is used on the assumption that excess capacity exists in the banks and SHG banking does not involve any additional personal costs. In terms of all the measures used, the profitability of the SHG banking product is positive, in spite of the very low interest charged by the banks. The profitability of the SHG banking products exceeds the profitability of the respective units when average cost analysis is used and when marginal cost analysis is applied it exceeds the profitability of banking units by wide margin. SHG products outperform the other banking products by a wide margin Self relianceSince the members of SHGs are poor and require more credit than their savings, SHGs are net borrowers, if viewed in the long term perspective. However, the groups are first required to build up internal savings and start lending to members as a foundation to getting credit facilities from banks .This essential condition has resulted the following:

Many of the SHGs are thrift groups and do not avail bank credit Internal funds have grown substantially overtime even exceeding bank refinance. Those SHGs which bearing credit risk make substantial amounts in banks as a reserve

against arrears or bad debts.Indirect effects of SHG Banking

Resulted in higher volumes of loans and deposits in branches where underutilized capacity existed.

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Increased loan recovery due to the influence of the SHG members on other villagers. Substantially invigorated business in primary cooperatives. Better services extended to all clients obviating the necessity of gheda banking (which

means a banking facility requiring many visits before the benefits can be availed.) Expected future growth of business with SHGs and individual members.

Indirect commercial benefits at the village levelSpreading thrift among members, excellent credit culture, income generating activities of SHG members, incipient commercialization of production, e.g., in the diary sector financial management skill at village level, better entrepreneurial skill, preparing ground for microenterprise promotion, and decline of the influence of money lenders.Indirect social benefitsSelf confidence and self discipline among women, empowerment of women in community development programmes, improved literacy among women, increase in enrolment in schools, declined population growth due to adoption of family planning measures, vaccination of children and better health, improved sanitation and access to safe drinking water, change in the attitude of male members to females, voicing of objections against child marriage, child labour and dowry, and decline in adherence to local extremist groupsSustainabilityThe sustainability of the programme depends on five factors as revealed by the authors.

1. Overall institutional framework 2. Viability of the institutions in terms of profitability at all levels.3. Self reliance in terms of resources4. Maintenance of the value of resources during inflation 5. Regular and effective supervision

The present study can only partially and indicatively answer the questions of sustainability, but it can point to the strong and weak parts of the programme.

The programme has a strong institutional framework founded on SHGs. Linkage banking is found to be viable and profit making SHGs have substantially enhanced their self reliance through savings and retained

earnings. The value of the resources is maintained against inflation.

Regulation and effective supervision Appropriate regulation of rural financial institutions is in place; but major efforts are still required to enable them to cope with the effects of liberalization and fully utilize market opportunities

17. Linking Banks and (Financial) Self Help Groups in India-An Assessment(Dr. Erhard. W. Kropp and Dr. B. S. Suran)

Definition of SHG BankingSHG Banking is a programme that helps to promote financial transaction between the formal rural banking system in India comprising of public and private sector commercial banks, regional rural banks and cooperative banks with the informal Self Help Groups (SHGs) as clients. (SHGs are financial intermediaries owned by the poor).They usually start by making voluntary thrift on a regular - mostly fortnightly or monthly - basis (contractual savings). They use this pooled resource (as quasi-equity) together with the external bank loan to provide interest bearing loans

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to their members. Such loan provides additional liquidity or purchasing power for use in any of the borrower’s production, investment, or consumption activities.SHG-Banking through SHGs and the existing decentralised formal banking network including several organisations in the formal and non-formal sectors as banking partners allow for large-scale outreach of microfinance services to the poor in India. These banking services (depositing savings, taking loans) are made available at low cost, are easily accessible and flexible enough to meet poor people’s needs

18. SHG-Bank Linkage Programme for Rural Poor – An Impact AssessmentBy

V. Puhazhendi K. C. Badatya (NABARD) (Paper presented at the Seminar on SHG-bank Linkage Programme at New Delhi on 25th and 26th November 2002)

Executive Summary

This is an attempt to study the impact of microfinance channelized through SHG Bank Linkage ptogramme in the eastern region comprising of the states Orissa, Jharkhand, and Chhattisgarh . The study is based on primary data collected from 115 members in 60 SHGs by administering a structured questionnaire. The socio economic conditions of the members were compared between pre SHG and post SHG period. The reference period of the study was 2001-02.The conclusion of the study was that the programme has made a significant contribution to the social and economic improvement of the participants.

Notes With a view to studying the impact of micro Finance channelised through this programme in areas where growth has been rapid during recent years, the present study was conducted by Department of Economic Analysis and Research (DEAR) of NABARD covering states of Orissa, Jharkhand and Chhattisgarh. SHGs having completed one year of bank linkage were selected for the study assuming that the benefits from the SHG bank linkage programme would have fairly well stabilized. The distribution of sample SHGs and members were proportionate to the number of SHGs linked as at the end of March 2001 In order to assess the impact of the programme “before and after” approach was followed.

Objectives of the StudyThe overall objective of the study is to measure the impact of the programme on the participants. The specific objectives were:

1) to study the structure, conduct and performance of SHGs promoted under the programme;2 ) to quantify the changes in savings and borrowing pattern among group members due to the programme;3 ) to study the impact of the programme on level and composition of income as well as employment of the group member households and4) to assess the changes in the social conditions of member households due to their association with SHGs.The sampling method adopted was multistage sampling

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19. Microfinance and the Rural Poor: Impact Assessment Based on Fieldwork in Madhya Pradesh, India (Niranjan Sarangi1) Final Draft. 26th Jan, 2007

Research Scholar, CSRD, JNU, New Delhi. E.mail: nir_sarangi@yahoo.co.in.WS: http://www.cdedse.org/conf2007/niranjan.pdf

|A number of programmes and policies aimed at alleviating poverty have been criticized on the grounds of mistargeting. For example, Gaiha et al. (2001) argued that benefit to the rural poor of two major anti-poverty programmes (Rural Public Works and Integrated Rural Development Programme) are likely to be limited, given their gross mistargeting. Larger sections among the poor were not covered and moreover, the non-poor were the majority among the participants. Similar outcomes were also reported by Dreze (1990) in his study on IRDP in the state of Uttar Pradesh. Such mediocre performance of antipoverty programmes during the 1980s questioned the poverty alleviation strategies. During this period group based microfinance programmes aimed at the poor caught the attention in many developing nations in Asia, Africa and Latin American countries. Some popular examples are SBLP in India BancoSol in Bolivia, and Grameen Bank in Bangladesh apart from many other microfinance programmes in different developing countries.Evaluation studies on Indian microfinance programmes have been mostly conducted by MFIs. In most of the cases they supported the voice that microfinance is a tool against poverty by using simplistic analysis. Puhazhendi and Badatya (2002) evaluated the impact of SHG Bank Linkage Programme. However, this is an evaluation of NABARDs own evaluation. They highlighted the positive outcomes of the analysis based on the difference in means among the groups of participants and non participants and, therefore the results are not robust enough to be acceptable. Most of the other impact studies are qualitative in nature giving emphasis on empowerment of women and other social benefits rather than quantitative estimation of household gains from the programme. There is no significant academic endeavour in India in measuring impact of microfinance programmes at the household level in a comprehensive manner although at international level there are many. The present study is an attempt to see how far the microfinance services have been successful in delivering their promise and impact on household income.The present study assesses the impact of the group based microfinance focusing on the rural poor households in India. In particular, it examines three most popular group-based microfinance programmes in India, such as; (i) government supported Swarnajayanti Gram Swarozgar Yojana (SGSY) programme, which is operational in all over the country since April 1999; (ii) NABARD’s SHG-Bank linkage programme, particularly the second model in which a facilitator promotes the SHGs (PRADAN in the present study8); and (iii) the World Bank promoted SWASHAKTI SHG programme with participation of state government and local community level organisations, which is operative since 1999Further, the study attempted to examine impact in two different regions where microfinance programmes were active. The idea of selection of two districts was to examine the regional variation in impact of microfinance programmes. So, the motive was to take one tribal region and another relatively prosperous region. Under the framework of the selection of regions Betul and Sehore in the state of Madhya Pradesh were typical for the present study11. In short, the fieldwork area in Betul represents tribal and high poverty region whereas the fieldwork area in Sehore is agriculturally prosporous and relatively better off than Betul. After the selection of regions, the sample villages were selected, again on the basis of programme availability.

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Conclusion

The study results showed exclusion of the very poor from the pogramme. The probability of participation is low at the lower end of the income distribution and it increases with increase in per capita income of the household. However, it declines with very high level of house hold income. This is particularly true with regard to the top 20% of the house holds. The rich may not have joined the programme for many reasons. But the exclusion of the poor is a matter of concern. Many of those who were excluded reported that they could not find the contribution for the group savings fund .Some reported that they were rejected because the quorum was filled. Therefore, the issue of rejection of a household arises not on the grounds of vulnerability alone.

A clear regional dynamics can be observed in the analysis of the probability of participation. Results indicate high probability of participation in Betul, which is tribal and more backward, than Sehore. But, the regional effect may not be explained in isolation. It has to be viewed against the programme characteristics .A principal research question was whether the design and process of programme characteristics was significant in influencing the group participation. It is found that the programme effect was significant.There is no conclusive evidence to say whether peer selection causes exclusion of the poor although qualitative observation points to that. However, exclusion of the poorest is a matter of concern. Therefore, the results of the study manifest that this is not going to help those who need it the most.

Impact AssessmentThere is a positive and significant impact on the income of the households. This is as expected because the participants now has access to credit. This is true even in the case of poor who, although do not have access to formal finance , can easily access group savings. The formal sector loans are directed towards better off households. However, the impact of the programme is negligible for the lower end of the income distribution

The findings, thus, suggest that on the one hand, many of the very poor households are excluded from the programme, and on the other, the gains from participation of the programme are mostly observed for the better off section of households, particularly those with high per capita income or the large land holders. Therefore, credit to serve as a sole instrument of poverty alleviation does not seem to be plausible, without other corroborative mechanisms that help increase the potential of credit use by the poor or the small farmer----------------------------------------------------------------------------------------------------Dreze. J.(1990). Poverty in India and the IRDP delusion. Economic and Political Weekly, 25(39), A95-A104Gaiha, R., Imai, K., & Kaushik, P. D. (2001). On the targeting and cost effectiveness of antipoverty programmes in rural India. Development and Change, 32, 309-342.

Doctor of Philosophy Dissertation20. Scaling up and mission drift: can microfinance institutions

Maintain a poverty alleviation mission while scaling up?Gaamaa Hishigsuren

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(A dissertation Submitted in Partial Fulfillment of the Requirements for the Degree ofDoctor of Philosophy at Southern New Hampshire University, August 2004)

Abstract

To meet the large unmet demand, and to provide for their own long-term sustainability, microfinance programs are facing increasing pressure to expand their outreach, to grow and to enhance their impact. This pressure often poses a dilemma to many microfinance programs in making difficult decisions between following their original poverty alleviation mission and pursuing the path to achieve financial sustainability. The question of concern is how microfinance institutions adhere to the social mission of reaching the poor while scaling up. This question is addressed through the case study of ASA (Activists for Social Alternatives) , a poverty focused microfinance organistion in India.

Methodology: The study assumes that the original mission of microfinance is poverty alleviation.

(1) Use of multi-dimensional pre-post quantitative data to show whether or not there is mission drift at ASA, (2) Use of mixed-methods to identify challenges that lead to drift while scaling-up and strategies that inhibit drift, based on whether there is mission drift or not, (3) Use of purposive sampling to explore selected themes of primary findings in order to gain better understanding

The results indicate that the microfinance institutions have not significantly drifted away from the mission of poverty alleviation. The specific strategies that have enabled the microfinance institutions to stay with the mission despite the many challenges are: (1) likeminded board, (2) loyal staff and management, (3) participation of members (clients), (4) keeping the platform for development, and (5) member-responsive assessment and monitoring system

The study also provides a set of tools and indicators that may be used by researchers and practitioners to measure the fulfillment of social mission.Research questions1How does scaling up affect poverty alleviation mission? 2. If there is a drift from the mission, how does it happen? 3. What are the challenges during scaling-up that lead to mission drift? What can be done to prevent drift? 4. If there is no mission drift, what are the strategies that enabled the organization to scale up without drifting from its poverty alleviation mission?5. This dissertation focuses on these key questions The study focuses on the dynamics of scaling up. In other words the study aims to analyse how the microfinance institution, ASA, maintained the mission while scaling up.

See the questionnaire

Z e n t r um f ür E nt wi c kl u n g s f or s c h u n g ( Z E F )

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21. The impact of microfinance on rural poor households’Income and vulnerability to poverty: case study of makueni

District, kenya(WS:http://depot.gdnet.org/cms/conference/papers/P005-M3-Joy%20Kiiru-Paper_2.3.pdf)

I n a u g u r a l - D i s s e r t a t i o nzur

Erlangung des GradesDoktor der Agrarwissenschaften

(Dr. agr.)der

Hohen Landwirtschaftlichen FakultätDer

Rheinischen Friedrich-Wilhelms-Universitätzu Bonn

vorgelegt am 31 Juli 2007von

Joy Mueni Maina Kiiruaus

Machakos, Kenia.

Abstract: The main objective of the thesis is to analyze the impact of microfinance on household income as well as measure household vulnerability to poverty after access to microfinance. The study is an experimental case of Makueni district where participants in microfinance programmes and non participant households were studied over time; thus yielding a rich pooled data for analysis. The thesis argues that microfinance has a positive and significant impact on household income. The thesis reasserts that providing finance to the rural poor at affordable rate still remains to be an important component of development strategy.

In particular the study cautions that the ability of households to begin informal sole micro entrepreneurships should not be assumed to be adequate for the improvement of household income. There is need to create a policy framework to spur growth not only in the micro enterprises but also in the overall rural economy that would lead to the creation of employment opportunities and an increment in the agricultural output. This is quite a big task to accomplish and may require more than one particular policy intervention. In essence this calls for both private (microfinance) and public partnerships to create the environment where such poverty reduction objectives could be realized.The word microfinance is being used very often in development vocabulary today. Although the word is literally comprised of two words: micro and finance which literally mean small credit; the concept of microfinance goes beyond the provision of small credit to the poor. Christen (1997) defines microfinance as 'the means of providing a variety of financial services to the poor based on market-driven and commercial approaches' (Christen R.P., 1997)1. This definition encompasses provision of other financial services like savings, money transfers, payments, remittances, and insurance, among others. However many microfinance practices today still focus on micro-credit: providing the poor with small credit with the hope of improving their labour productivity and thereby lead to increment in household incomes.

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The focus of the study is JLL (Joint Liability Lending).JLL is the sort of microfinance lending to the very poor who cannot individually borrow but have to borrow within a group of other borrowers. The participants of JLL must organize themselves as a group and act as security for others in the group. It is the group which is liable for the repayment of the loan to the microfinance institutions and not the individuals.

The focus of the study1. Participation and access to loans by the poor through JLL microfinance programme2. The main interest of the study is to understand how the members organized themselves

into borrowing groups and how these groups operated as institutions facilitating household access to credit.

3. To understand how the households used the credit and to measure the impact of that credit on household income

4.Recent Studies and the Current Research ProblemRigorous empirical analysis in the issue of statistical impact of microfinance began in the1990s.The studies so far remain few and the results of these studies are highly provocative. The first school of thought questions the relevance of microfinance as a poverty reducing policy in the first place. (Adam & Von Pische, 1992) Adam, D., & Von Piscke, J D. (1992). Microenterprise Credit programmes: deja Vu. World Development, 20, 1463-1470) argued that “debt is not an effective tool for helping most poor people to enhance their economic condition be they operators of small farms or micro entrepreneurs”. The main argument of Adam and Von Pische (1992) is that there are other more important constraints that face small agricultural households and they include product prices, land tenure, technology, market access and risk. Also in support of the same view is Gulli (Gulli, H. (1998): Microfinance and Poverty,Questioning the Conventional Wisdom. InterAmerican Development Bank, Washington, Dc.) who argues that credit is not always the main constraint for micro enterprises´ growth and development, and that poor people demand a wide range of financial, business development and social services for different business and household purposes. In a close rejoinder Mayoux (Mayoux, L. (2002): “Womens Empowerment or feminization of Debt? Towards a new Agenda in African Microfinance”. Report Based on a One World Action Conference, London March 2002) argues that the logical assumption of virtuous spiral of economic empowerment to the household due to microfinance does not in reality exist. This is particularly so given that there exists gender relations in society in relation to loan uses; a scenario that more often that not leaves poor women borrowers highly indebted, and not much wealth to show for it (Mayoux 2002). { Virtuous spiral of economic well being refer to the positive chain of economic wellbeing that is assumed to originate from access to credit by a poor household. For example, access to micro credit may lead to micro entrepreneurship, leading to increase in household income, leading to increased household demand for goods and services and the alleviation of poverty.}

Rigorous studies have shown that micro entrepreneurs below the poverty line experience lower percentage income increases after borrowing than those above the poverty line. Studies have also demonstrated that households below the poverty line tend to use the loans for consumption purposes to a greater extent than households above the poverty line; thus their income should be expected to increase less (Gulli 1998). Research findings that poor households are likely to use

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micro credit loans for consumption purposes yet their loan repayments rates are higher than repayment rates for the formal financial institution, which are normally used by the well off in society (Ghatak, M., Guinnane, T., (1999): The economics of lending with joint liability: theory and practice. Journal of Development Economics. Vol. 60, P. 195–228) is quite intriguing. As though to counter the negative arguments against the impact of microfinance on poverty reduction, other studies have found that microfinance is relevant to poverty reduction not just for the beneficiaries but also there are positive spill over effects to the rest of the community (Khandker, S. (2006): Microfinance and Poverty: Evidence Using Panel Data from Bangladesh: World Bank Economic Review: 19, 263-286.) In his study Khandker (2006) uses a panel household survey from Bangladesh and observes that access to microfinance contributes to poverty reduction, especially for female participants, and to the overall poverty reduction at the village level. Pitt and Khandker (Pitt, M. and Khandker, S. (1998): The Impact of Group Based programs on Poor Households in Bangladesh: Does the Gender of Participants matter? Journal of Political Economy Vol. 106 No. 6, Pg 958-996) find , using data from three programs in rural Bangladesh, that borrowing from group-lending schemes increased consumption of poor households. However, Morduch 1998b has argued that Pitt and Khandker’s result reflect program selection effects rather than the impact of borrowing per se. There are also other studies that seem to support to some extent the relevance of microfinance in poverty reduction. Morduch (1999) argues that microfinance has had positive impact on poverty reduction. However he is keen to add that “Even in the best of circumstances, credit from microfinance programs helps fund self employment activities that most often supplement income for borrowers rather than drive fundamental shifts in employment patterns. It (microfinance) rarely generates new jobs for others and success has been especially limited in regions with highly seasonal income patterns and low population densities (Morduch 1999 ,Morduch, J. (1999): The Microfinance Promise Journal of Economic Literature: Vol XXXVII Pp. 1569-1614. Morduch, J. (1999): Does Microfiance Really help the Poor? New Evidence from Flagship Programs in Bangladesh. Mimeo, Princeton: Princeton University.)”. Other similar studies have shown that microfinance may be relevant for poverty reduction, but does not reach the poorest as often claimed. The results from these studies have identified beneficial impacts to the “active poor” but argue that microfinance does not assist the poorest as it is often claimed mainly because it does not reach them (Hulme, D., & Mosley,P. (1996). Finance Against Poverty. London: Routledge. Ignacio Ramonet, The politics of hunger, Le Monde Diplomatique, November 1998 (http://Mondediplom.com/1998/11/01leader), Sharma, M. (2000): Impact of Microfinance on Poverty Alleviation: What does Emerging Evidence Indicate? In Microfinance: A Pathway From Poverty; edited by Sharma, M., International Food Policy Research Institute. ,and Kiiru and Mburu, 2007 Kiiru, J. and Mburu, J. (2007): User Costs of Joint Liability Borrowing and their Effect on Livelihood Assets for Rural Poor Households: July - December Issue: International Journal of Women, Social Justice and Human Rights). This group of studies often report mixed results suggesting the possibility of both positive and negative impacts for different households. Coleman (Coleman, B. (2006): Microfinance in North East Thailand: Who Benefits and How Much? World Development Vol. 34, (9) pp 1612-1638) found that microfinance programs have a positive impact on the richer households but the impact is insignificant to the other poorer households. In Coleman’s (2006) study, richer households were able to commandeer larger loans to them because they sat in influential positions in the village banks as committee members. Coleman (2006) argued that it is the size of loans that households were able to acquire that was very important in determining the impact of those loans in household incomes. In the same

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study, many poor women borrowers dropped out of the borrowing programs citing the size of loans as too small to make any significant investments that that can significantly improve their incomes. In his study of Bolivia’s Bancosol, Mosley (1996) reports that in any given cohort roughly 25 % showed spectacular gains to borrowing , 60-65% stayed about the same, and 10 to 15% went bankrupt (Mosley 1996). Kiriti, (2005 ) argues that microfinance tends to indebt too poor women leaving them more vulnerable and exposed. In the study, Kiriti (2005) concentrates on the impact of microfinance repayment on household assets. The findings are that poor households depleted livelihood assets in the course of loan repayment since the income generating activities were not raising enough profits to repay the loans on time. Aghion and Morduch 2005(Aghion, and Morduch, J. (2005): The Economics of Microfinance, The MIT Press Cabridge, Massachussets London, England) observe that microfinance can make a real difference in the lives of those served, but microfinance is neither a panacea nor a magic bullet against poverty, and it can not be expected to work every where and for every one. Much as there have been mixed statistical impacts of microfinance, there also has been no widely acclaimed study that robustly shows strong impacts, but many studies suggest the possibility of good welfare impact (Aghion and Morduch 2005). More research should therefore be directed towards not just specific results but also the context within which particular results are expected. What worked in a particular socio cultural and economic context may not necessarily work the same if the socio cultural and economic conditions are changed in another context. This kind of focus for future research will contribute more to knowledge, for the purposes of policy. It is within this background that this study is conducted. Specifically the study focuses on the impact of microfinance on poor rural households´ income, and household’s future vulnerability to poverty. To achieve this; the study keenly focuses on household participation and access to credit through Joint Liability Lending (JLL) programs, household credit (cash) allocation and subsequent loan repayment. There is a special reason why the study chose to concentrate on joint liability lending programs other than other models of microfinance. This is because joint liability lending model targets the much poorer population. Poverty reduction is clearly spelled out in many of the objectives of such microfinance models. Not all microfinance institutions have poverty reduction as a primary mission. The microfinance industry today consists of a wide range of institutions serving different market niches with the sole aim of providing small scale financial services to businesses and households traditionally kept outside the financial system; without necessarily having a poverty reduction mission.In particular there are four main objectives of the thesis. All the objectives are closely interrelated if we were to have a systematic understanding of the impact of microfinance on household’s incomes and household future vulnerability to poverty. To this end, there is need to really understand the attributes of the households that participate in these programs. This will help us to understand whether it is really the poor households that participate or not, there is also need to understand why the households need the loans along the objectives of the lending institution. Finally it is also important to know the impact of the loans on household incomes as well as the participants´ future vulnerability to poverty. The objectives of this study could be formally spelled out as follows.

Objectives of the study

1. To understand the socio economic attributes of the households that participate in the Joint Liability Lending microfinance programmes

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2. To understand what determines the household decisions for the loan sizes that they acquire

3. To analyse the impact of microfinance on household income using both cross sectional and pooled data.

4. To investigate if participation in microfinance programs significantly reduces household vulnerability to poverty

Study hypothesis

Our study hypothesis includes (i) Microfinance has had a significant positive impact on household income (ii) Participation in Microfinance programs significantly reduces household vulnerability to poverty. (iii) Joint liability lending institutions attract the poorest of society

The methodology

The study is designed as an experimental case study using panel data. A randomized sample of respondents from 16 villages in Makueni district was used. There were two sets of respondents; one set consisted of 200 respondents who were microfinance recipients. The criterion for choosing the microfinance participants was that the respondent should not be older than two months in the program at the beginning of the survey. The idea was to capture household socioeconomic welfare before and after the micro credit loans. From a list of new beneficiaries obtained from the local offices of micro credit institutions the respondents were selected at random.The other set of respondents were for control purpose which consisted of those who did not receive loans from the microfinance institutions. Formal Structured questionnaires were administered every six months to both participants of microfinance and non participants.

ConclusionIn conclusion to this study it is argued that there is a role for microfinance as a poverty reduction policy tool. However it is emphasized that if microfinance is chosen as an intervention policy for poverty reduction there is need to set clear objectives for the indicators of economic empowerment for the people. More importantly the ability of households to begin informal sole micro entrepreneurships should not be assumed to be adequate for the improvement of household income. There is need to create a policy framework to spur growth in the enterprises as well as the rural economy as a whole through the creation of employment opportunities and an increment in the agricultural output. To achieve such objectives more than one policy intervention may be required. In essence this calls for both private (microfinance) and public partnerships to create the environment where such poverty reduction objectives could be realized. Overall there is need to have a sustainable mix of both market and non market policy interventions for poverty reduction if the impacts due to an intervention policy are to be sustainable. This is so because the structure of markets in which households operate is critical in shaping household response to exogenous policy changes. The existing market structure is also very important in determining the impact of policy interventions on the target outputReferences

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22. BANCOSOLThe Challenge of Growth for Microfinance Organizations(by Claudio Gonzalez-

Vega, Mark Schreiner,Richard L. Meyer,Jorge Rodriguez and Sergio Navajas May, 1996 Revised August, 1996 )

Rural Finance Program Department of Agricultural Economics The Ohio State University2120 Fyffe Road Columbus, Ohio 43210-1099

WS:http://aede.osu.edu/programs /ruralfinance/PDF%20Docs/Publications/ESO%20Papers/ eso2332.pdf

AbstractThis paper focuses on the difficulties inherent in the prudent management of growth of microfinance organizations and on potential limits to the increased efficiency, profitability, and sustainability expected from growth and large size. It addresses both positive and negative implications of rapid growth for microfinance organizations. The experience of BancoSol in Bolivia is used to illustrate these questions. It shows outstanding success in terms of breadth, depth, and quality of outreach and in terms of sustainability. It is the microfinance organization with the largest number of clients in Latin America and it reaches poor clients who could never expect to gain access to conventional financial institutions. Success is explained by a strong concern with financial viability, development of a lending technology appropriate for the market niche, a long learning period, and upgrading into a formal intermediary.

ConclusionsThis paper has illustrated the comparatively successful performance of BancoSol in terms of outreach and sustainability, has identified likely determinants of such success, has examined the process of rapid growth of the bank’s operations, and has evaluated the organization’s responses to the challenges posed by rapid growth. This concluding section attempts to derive some general lessons for microfinance organizations about how best to address the challenge of reaping the gains from large size while avoiding the dangers from the acceleration of growth. Although BancoSol’s clients are poor, not all of them are among the poorest of Bolivians. There is no doubt, however, that many of its clients could never expect to gain access to conventional formal financial institutions and that they prefer BancoSol over traditional sources of informal credit. BancoSol can legitimately claim to have expanded the frontier of microfinance. BancoSol’s success in terms of outreach and sustainability can be attributed, among other things, to the strong concern of its leaders with the financial viability of the organization, including the adoption of cost-covering interest-rate policies and a firm commitment to enforcing loan repayment. Success can also be attributed to the development of a cost-effective lending technology that is appropriate for the target clientele, because it is based on the

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accumulation of information and experience about the organization’s market niche and about its individual customers

23. CREDIT FOR THE POOR: MICROLENDING TECHNOLOGIESAND CONTRACT DESIGN IN BOLIVIA

DISSERTATION Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University By

Sergio Navajas, Lic., M.A(.The Ohio State University1999)Abstract

This dissertation develops models to represent alternative lending technologies and the resulting loan contracts when the lender simultaneously faces moral hazard and adverse selection in markets where collateral is scarce. These models are used to predict who gets loans and in what conditions, when the lender must overcome collateral imperfections, high fixed costs, and increasing competition from lenders offering different contracts. The model correctly predicts borrower types for two Bolivian microfinance organizations. Access to credit for the poor has dramatically improved in Bolivia due to new micro lending technologies that significantly differ from collateral-based technologies and among themselves. A benchmark model is developed to compare technologies when lenders simultaneously address information asymmetries about actions (diligence) and type (productivity). Depending on the lender=s stock of information and lending technology and the borrower=s collateral, different contracts are offered that match different borrower classes. Comparative statics results about imperfect collateral, equity contributions, and fixed and monitoring costs are examined. Both portfolio quality and size matter, because micro lenders must cover substantial fixed handling costs related to lending to the poor. A tradeoff emerges as the interest rate increases, augmenting individual repayment promises, but the total number of borrowers and portfolio quality decline. The different technologies of the two largest Bolivian microfinance organizations, BancoSol and Caja Los Andes, are studied. An important difference is the degree of standardization of loan contracts. Andes offers personalized (separating) contracts after intensive screening, pledging of imperfect collateral (assets with high consumption but low resale value), and monitoring to ameliorate moral hazard. BancoSol offers standardized (pooling) contracts to all takers and screening and monitoring is delegated to joint liability credit groups. Matching is determined by the lending technology. Low-productivity borrowers prefer standard contracts due to the possibility of cross-subsidization. High-productivity borrowers prefer personalized contracts to avoid cross-subsidizing others. Competition may improve access for the poor through lower monopoly rents but it may deteriorate the quality and size of the portfolio of poverty-oriented lenders. Non-parametric statistics show that lower-productivity and poorer borrowers are more likely to borrow from BancoSol

24.The miracle of microfinance? Evidence from a randomized Evaluation( Abhijit Banerjeey Esther Du.oz Rachel Glennersterx Cynthia Kinnan) May 30, 2009

Abstract

Microcredit has spread extremely rapidly since its beginnings in the late 1970s, but whether and how much is helps the poor is the subject of intense debate. This paper reports on the first

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randomized evaluation of the impact of introducing microcredit in a new market. Half of 104 slums in Hyderabad, India were randomly selected for opening of an MFI branch while the remainder was not. We show that the intervention increased total MFI borrowing, and study the effects on the creation and the profitability of small businesses, investment, and consumption. 15 to 18 months after the program, there was no effect of access to microcredit on average monthly expenditure per capita, but durable expenditure did increase. The effects are heterogeneous: Households with an existing business at the time of the program invest in durable goods, and their profits increase. Households with high propensity to become business owners see a decrease in nondurable consumption, consistent with the need to pay a fixed cost to enter entrepreneurship. Households with low propensity to become business owners see nondurable spending increase. We find no impact on measures of health, education, or women’s decision-making.ConclusionThese findings suggest that microcredit does have important effects on business outcomes and the composition of household expenditure. Moreover, these effects differ for different households, in a way consistent with the fact that a household wishing to start a new business must pay a fixed cost to do so. Existing business owners appear to use microcredit to expand their businesses: durables spending (i.e. investment) and business profits increase. Among households who did not own a business when the program began, those households with low predicted propensity to start a business do not increase durables spending, but do increase nondurable (e.g. food) consumption, consistent with using microcredit to pay down more expensive debt or borrow against future income. Those households with high predicted propensity to start a business, on the other hand, reduce nondurable spending, and in particular appear to cut back on .temptation goods, such as alcohol, tobacco, lottery tickets and snacks eaten outside the home, presumably in order to finance an even bigger initial investment than could be paid for with just the loan. This makes it somewhat hard to assess the long run impact of the program. For example, it is possible that in the longer run these people who are currently cutting back consumption to enable greater investment will become significantly richer and increase their consumption. On the other hand, the segment of the population that increased its consumption when it got the loan without starting a business may eventually become poorer because it is borrowing against is future, though it is also possible that they are just enjoying the "income effect" of having paid down their debt to the money-lender (in which case they are richer now and perhaps will continue to be richer in the future). While microcredit .succeeds in affecting household expenditure and creating and expanding businesses, it appears to have no discernible effect on education, health, or women’s empowerment. Of course, after a longer time, when the investment impacts (may) have translated into higher total expenditure for more households, it is possible that impacts on education, health, or women’s empowerment would emerge. However, at least in the short-term (within 15-18 months), microcredit does not appear to be a recipe for changing education, health, or women’s decision-making. Microcredit therefore may not be the .miracle that is sometimes claimed on its behalf, but it does allow households to borrow, invest, and create and expand businesses.

25. A report on women Self Help Groups (SHGs) in Kerala state, India: a public health perspective (K.S. Mohindra, Université de Montréal Département de

medicine sociale et prevention,March 2003)K S Mohindra

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Desk top

Study siteThe research was conducted in Kotthatara panchayat6, which is located in the district of Wayanad. Here, I focus exclusively on women groups, which has been the main thrust of the SHG movementThere is a powerful linkage between poverty and ill health and it has been characterized as bidirectional and synergistic (Das Gupta & Chen, 1996; Leon, et al., 2001; Wagstaff,2002).First poverty aggravates ill health because the poor have little access to health inputs like nutritious food, non toxic environment, health services etc. Besides, they have little capacity to convert the inputs they have (e.g., education) into health. Second, poor health may lead to impoverishment and downward mobility. Poor health results in less labour productivity, it creates dependence on others and less availability of workers.This work has been undertaken to understand the potential health benefits of participating in micro credit. Other studies have cited unintended side effects of micro-credit, including increased violence against women, negative peer-pressure linked to loan repayment, and emotional stress of females due to family-related conflicts (Amed & Chowdhury, 2001; Montgomery, 1996; Rahman, 1998). The extent of women’s empowerment is also unclear, as some authors have found that these initiatives have led to another form of domination over women, through the development of new hierarchies of power (Rahman, 1998). For example, Rahman stated that 60% of husbands were using loans secured by women. This means that even if household income increases and women are gaining new experiences with financial institutions, they are not acquiring new status or power within the family. The conflicting results of micro-credit on women’s status and well being, may be attributed, in part, to methodological variations (Kabeer, 2000). Some studies base their findings purely on statistical evidence, while others rely on qualitative approaches. Kabeer points out that a quantitative survey may determine an average reduction of violence, while ethnographic work may find increased violence within certain households. Differential impacts of credit schemes may also be related to the type of questions being addressed, those studies which have found positive impacts usually focussed on outcomes, while studies finding negative results focussed on processes (Kabeer, 2000). Also, the underlying issues being addressed, such as autonomy and empowerment, are not always measured appropriately. Kabeer promotes a comprehensive approach, which includes the participation of female members in the evaluation process, combined with conceptual clarity and validity of the elements of study. Much of the evidence of the impacts of micro-credit in South East Asia has arisen from Bangladesh, where the micro-credit ‘movement’ originated (Yunus, 1999). In particular, studies have focussed on the larger and well-known schemes such as the Grameen Bank. There is, however, a diversity of initiatives across the continent. In India the importance of the Self Help Group (SHG) is expected to grow rapidly; NABARD (1999) predicts that by the year 2008, at least one third of the rural population will be covered by one million SHGs (Sivramkrishna & Panigrahi, 2001).

Self Help Groups: Health producers?The literature has focused on two main aspects of micro-credit schemes, the ability of the scheme to reduce income poverty, and the impact on female empowerment. There are, however, other potential outcomes of participation in such schemes. Here it is suggested that these schemes

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may play a role in health production. Based on my field visits, SHG meetings, and informal discussions in Kottathara, I have developed a preliminary framework (Figure 4) on the potential pathway between being an SHG member and producing health. Two main factors are proposed as key elements in health production, female autonomy at the individual level and social solidarity at the group level. These factors were selected over simply outlining straightforward factors such as increased income, due to the interactions between poverty and female sub-ordination. Female autonomy has been defined as “the capacity to manipulate one’s personal environment” (Dyson & Moore, 1983, p.45). Autonomy is a complex concept, which should be viewed as a process with continuous evolvement, rather than a state (Ghandi & Shah, 1999). In addition autonomy should not only incorporate individual beliefs, desires, and choices, but also the social context in which they are made (Ghandi & Shah, 1999). For example, female autonomy has been found to change over the course of a women’s lifetime in some societies. In India, particularly in the North, women acquire more autonomy as they age and produce sons, and then lose autonomy when they are elderly or widowed (Das Gupta, 1996).Autonomy is a multidimensional concept. Therefore, I have separated autonomy into three dimensions, economic, social, and political. Economic autonomy represents not only the capacity of a woman to earn income, but also to have command over resources through personal access or control in how the income is spent. Social autonomy is the freedom a woman has to travel outside the domestic household and to engage in social activities. Finally, political autonomy is the capacity of a woman to use her voice either within the household or in public in order to influence decision-making. Economic, social, and political autonomy are inter-linked and capable of reinforcing the other dimensions. While it is hypothesized that autonomy is a main factor in which health production is assumed, social solidarity is a supporting factor in increasing female autonomy, as well as a factor in health production at the group level. Social solidarity can increase individual female autonomy through support of and learning from other members. Social solidarity also represents a group level effect, obtained through mutual trust and support of each other. Although not depicted Figure 2, social solidarity may be further characterized as female social solidarity, which has specific attributes pertaining to the coming together of women. An SHG may then represent a ‘community of women’ (Andermahr, Lovell, & Wolkowitz, 1997), where: “It is possible to single out networks of women, shadow communities within ‘the community’, where responsibility for the creation of community and kinship ties and support systems which secure communal social life are often undertaken, and to associate those with women’s culture”. (pp. 39-40).

If SHGs are indeed ‘communities of women’, then the feminine nature of social solidarity can be a powerful tool for resisting patriarchal norms in society, providing women opportunities to be unaffected by male presence or influence, Table 12 summarises the factors and mechanisms involved and their hypothesized impact on health and access to health care. Here I attempt to summarise how the factors of female autonomy and social solidarity might be operationalised, concluding the section with an illustrative example.Access to credit, unsurprisingly, is one of the main rewards of participating in an SHG. While there are cases where husbands assume loans secured by their wives, in general the women find themselves in a new economic position. Women not only gained experience with financial affairs, but they also claimed that their status within the household was raised, as they were seen to be contributing to the welfare of the family. Their opinions became more valuable and their

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household decision-making powers increased. Greater decision-making powers of women within a household do not only improve gender justice by creating a more equal dispersion of power in a household, there are also specific implications for the health and well-being of the family. There is a large base of literature now that women spend more money on food and health promoting goods for the entire household, than do men, who have a tendency to use money for selfish interests.Access to credit also decreases the need for women to depend on previous sources of cash, involving more exploitive relationships. Typically villagers will approach moneylenders who are men who lend money to poor individuals, but charge very high interest rate. This is usually perceived as a stressful experience, but often the only option, particularly during crisis situations. Women also have had to depend exclusively on their husbands and male relatives for cash, as men control economic resources in society. By having access to credit from other women in the village, members may potentially have improved emotional well-being through greater independence and less stress. Generally, women are confined to their households, due to societal norms, and because it is perceived as unnecessary for them to leave their homes. In order to participate in SHG meetings and activities, the women were required to exit their homes, thus opening opportunities to gain social autonomy. Many women now claim they have acquired freedom not only to attend meetings and SHG functions, but also can travel for other purposes. This increases their potential to travel independently to health care facilities for themselves or their children, without the accompaniment of male relatives. The experience of travelling and participating in SHG functions also opened up new ideas and practices to women. Some SHG held meetings on special topics of interest. For example, one group invited a women lawyer and human rights specialist to their group to discuss women’s rights. New information can lead to changes in behaviours which are healthier and more empowering. Also, women acquired new skills through various trainings (e.g. umbrella-making, bamboo crafts, etc.). These new skills may not only lead to future income generation activities, but also increase their self-efficacy, which has been linked to improved health and well-being (Bandura, 1989). SHG meetings open up a space for women to not only engage in financial activities, but also as a place of discussion. Through regular meetings, women become more comfortable in sharing their ideas, and learn to speak up for themselves and for each other. In turn, they begin to increase their voice outside of SHGs, in private and public domains creating a political autonomy for themselves. This voice may be used both within the household, to have more control over household decisions, positively impacting on the health of the family, or by participating in public debates and forums, potentially impacting on the formation of public health programs, services, and policies. SHGs bring together groups of unrelated women, thereby expanding their social networks outside of the family. This may lead to social support as well as enlarging their range of coping strategies. Women share their problems within group meetings, which are often related to family problems they are unable to discuss within the home. They may also approach members outside of meetings, as they have established various levels of rapport and trust with members. The poor are often limited in the range of coping strategies when faced with a crisis or shock in the family, such as an illness or death of a family member. A network of women opens up new possibilities, which are accessible to women. That SHGs are exclusively women creates potential solidarity among women, which is one of the main routes towards decreasing male control and patriarchal attitudes in society.An example of group and female solidarity can bee seen through a case involving the collective efforts of multiple SHGs to eliminate an illegal alcohol shop. The women were upset that their

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husbands were coming home drunk, and also that the shop was set up on a main road, where women would have to pass by. The men drinking at the shop displayed rowdy and inappropriate behaviour towards women who has to pass the shop, creating a situation of discomfort and aggravation among the women of the community.Members of numerous SHGs decided to put an end to this situation, by physically destroying the shop. Consequently men were coming home sober, and the women felt much safer and more comfortable when passing the shop. The women expressed that such a feat would not have been possible at an individual basis. As one woman put it, imagine we are sticks, ifwe are only one stick we can be easily broken, but if we are many sticks, then, it is not so easy. Such an example illustrates the creative and radical behaviour that women can take together as a group, even if they are individually oppressed. These actions can both increase female autonomy at the individual level and strengthen solidarity through successfully bringing about purposeful changes in the community. Furthermore, their actions in and of themselves led to the desired goal of social change, which impacted not only on the women members themselves, but others in the community

NotesThe author seeks to establish a link between health of the poor and their membership in micro credit providing self help groups of Kottathara Panjayath of Wayanad district of Kerala.For this the author has identified two variables as having positive influence on health such as individual autonomy sought to be measured through the impact on the dimensions of economic social and political on the one hand, and social solidarity on the other hand. He argues that since membership in self help groups has positively contributed to enhancing these , it has an impact on health of the participants also.

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26. Micro-finance and Collective Action:A Study of Self-Help Groups In Kerala

(Thesis submitted for the degree ofDoctor of philosophy in economics to the University of Mysore through the Department of Economics, University of Mysore, Mysore by Emil Mathew)

Centre for Decentralisation and Development, Institute for Social And Economic Change, Bangalore-560 072, May 2006

The Research ProblemIn the microfinance groups, the transaction costs of both the lenders and the borrowers could be reduced .Since the members of the group belonged to the same socio economic background, they could undertake collective action in selecting borrowers and monitoring the repayment. This allowed the lenders to shift a part of the responsibility of administration to the borrowers. For the borrowers, they do not have to undergo the cumbersome procedure of submitting applications and other details individually. The peer pressure is the main force behind the continued existence of these groups especially, since the loans are granted social collateral.

The joint liability provided incentives to the group members to undertake those activities which reduced uncertainty in the credit market. Thus collective action within the group is the key aspect of microfinance groups. The reliability and sustainability of microfinance institutions depended on how well it could enforce the contract among the members. Microfinance groups arrive at certain rules and regulations to ensure that the mechanism concerning the contractual relations were in operation. Similarly, the members were provided with adequate incentives to promote cooperation or to avoid the emergence of non cooperative outcomes. Institutional mechanisms and incentives involved in the selection of borrowers, monitoring the utilisation of the loans and ensuring repayment of the loans were, thus, important in micro-finance programmes. The incentives and mechanisms for the selection of borrowers aimed to rectify free rider problems. The chance to get a bigger loan next time can be considered a positive incentive and punishment in case of default a negative incentive to reduce free rider problems. The theoretical foundations for microfinance state that institutional regulations play a major role in the reduction of information asymmetry and incentive problems. It is in this context that a study on the incentives for and processes of collective action in different types micro-finance groups, the impact of mechanisms and incentives in undertaking collective action and the pattern of selection, monitoring and repayment become important. Some of the questions that can be raised in this context are as follows. What have been the institutional mechanisms and incentives provided to the members in selection, monitoring and repayment? Do micro-finance programmes select the neediest? Or, do they select members/borrowers on the basis of risk bearing capacity? How is the monitoring and supervision pattern of the borrowers? Does this make any difference to the selection of activities for which loans have been taken? What kind of training programmes have been organised for the poor and what impact does this have? What types of economic activities have the micro-finance group members undertaken?

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What has been the repayment pattern among different types of groups and members? How are the members repaying the loans? What have been the institutional regulations and incentives for all the above? Do they work? If yes, how? If not, why? This study seeks to address these questions in the specific context of micro-finance programmes of Kerala state.

Objectives

The objectives of the study were toI) understand the existence and the nature of collective action among microfinance group members,2) examine the mechanisms and incentives incorporated for collective action among micro-finance group members while selecting the borrowers, monitoring the utilisation of the loans and enforcing repayment, and,3) analyze the impact of mechanisms and incentives for collective action among micro-finance group members while selecting the borrowers, monitoring the utilisation of loan and enforcing repayment.

HypothesesI) Appropriate mechanisms and incentives have not been incorporated in micro-finance groups for collective action in the selection of borrowers, monitoring and enforcing repayment of loans;2) Micro-finance groups do not select creditworthy borrowers, monitor the utilisation of the loan and enforce loan repayment; and,3) There are no differences between government and NGO initiated microfinance group members in terms of their socio-economic profile and their performance in terms of selection, monitoring and repayment

Methodology

This study was undertaken in the specific context of Kerala because the microfinance developments in the state offered scope for comparing the functioning of institutional mechanisms and incentives in government and NGO micro-finance programmes. In Kerala, micro-finance programmes have been promoted both by the government and NGOs. But the interventions of NGOs in micro-finance were prior to those of the government. Many NGOs made attempts to alleviate poverty and empower the poor through micro-finance in socially and economically hack ward regions of the state. Some of these NGOs had promoted credit unions, which, however, had problems of free riding due to their large size. The SHG movement in the other states inspired the NGOs in Kerala to form small micro- finance groups (consisting of about 15 women) for socio-political and economic empowerment (Rajasekhar, 2000). The state government also took keen interest in micro-finance groups after the successful implementation of the Community Development Society of Alapuzha organised as part of the decentralisation efforts in the 1990’s. In 1999, the Government of Kerala, in collaboration with NABARD and Government of India, had set up Kudumhashree - State poverty Eradication Mission of the Government of Kerala. This programme, which was part of the peoples' planning campaign of the state, introduced Neighbourhood Groups (NHGs) involved in micro-finance at the grassroots level through local self-governing institutions all

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over the state and aimed at women empowerment and wiping out absolute poverty from the state within a period of ten years. This programme, proposed by the Left Democratic Front (LDF) government, mainly aimed to strengthen gramma sabhas introduced at the grassroots level, since gram panchayaths in the state were very large in terms of population size. It was assumed that women participating in NHGs could bring their local issues to the gramma sabhas held at the ward level. The mobilisation of savings, and labour could be undertaken through NHGs" organised and promoted during the Peoples' Planning Campaign decentralisation programme of the state. This was considered to be essential given the precarious situation of revenues in the state. NHGs received wide popularity since the government had decided to direct 10 per cent of the plan fund for women through them. Wayanad district of Kerala was selected for the study, as this district was not only poor in relative terms but also provided an opportunity to make comparison between the government and NGO micro-finance groups. The proportion of tribal population in the district was the highest in the state. The incidence of SHGs was also the highest Two panchayaths - Sulthan Bathery and Noolpuzha - were randomly selected from Sulthan Bathery block, where micro-finance programmes were flourishing. Since the total number of NHGs and SHGs (initiated by NGOs) or the universe was not available due to problems of dual membership, we selected an equal number of groups from these panchayaths. Moreover, equal number of groups was selected based on the assumption that both the categories of groups performed more or less equally. Accordingly, 8 NHGs and 8 SHGs were selected from each of these panchayaths and a total of 32 NHG/SHGs were selected randomly. From each of these groups, 6 members were randomly selected and thus, a total of 192 members were selected for the study. Interview schedule was used for collecting information from the sample member households. The information collected included demographic profile, access to loans, utilization and repayment of loans, the use of mechanisms and incentives in the selection, monitoring and repayment of loans. A group questionnaire was used to conduct focus group discussions at the group level, and a format was obtained to collect the quantitative data on the micro-finance operations at the group level. Checklists were prepared to gather information about the groups from bank officials, NGO and government personnel.

Summary and ConclusionsIn microfinance groups, the transaction costs arising out of three main problems (namely, selection, monitoring and repayment) of the credit market can be reduced through familiarity of the members, small size of the groups and repeated interactions. Since these are small groups and members of such groups belong to similar socio-economic background, they can undertake collective action in the selection of borrowers, monitor the utilisation of the loan and ensure timely repayment of loans. The outcome of such collective action is expected to reduce transaction costs and as a result of which both lenders and borrowers benefit. The lenders are able to shift a part of the burden associated with borrower selection, loan administration and repayment enforcement onto the borrowers. Similarly, borrowers will be able to save transaction costs by not having to undergo the cumbersome procedure of filling out lengthy applications, and undergoing project and collateral appraisal (Bhatt and Tang 1998). The peer pressure is the main force behind continued existence of the group. The joint liability provides incentives to (and/or compels) the group members to undertake those actions, which reduce uncertainty in the credit market (Ghatak and Guinnane 1999; Bhatt and Tang 1998; Morduch 1999b). Thus, collective action within the group is the key aspect of micro-finance groups. The reliability and the sustainability of micro-finance institutions, however, depend on how well they can enforce

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the contracts among the members. Micro-finance groups arrive at certain rules and regulations to ensure that the mechanisms concerning contractual relations are in operation. Similarly, the members are provided with adequate incentives to promote co-operation or to avoid the emergence of non-co-operative outcome.

Findings of the StudyIt is often noted that the three problems of rural credit markets, namely, selection, monitoring and repayment, can be solved in micro-finance groups, as the problem of asymmetric information is dealt through collective action. For this, groups must incorporate institutional mechanisms and incentives. Let us now examine the study findings relating to the extent to which these were present in the groups, and whether they helped in solving the problems of selection, monitoring and repayment.

Selection Of Borrowers

In the absence of information about the borrowers, adverse selection is the result in the rural credit market. Therefore, the different aspects of selection with regard to NHGs and SHGs were examined. Surprisingly, there was no association between the loan amount and mechanisms and incentives incorporated for good selection. In other words, the members who did not follow the institutional rules were the ones who received larger loan amounts. However, there was no association between incentives and the member perceptions on type of selection procedure adopted in the groups.

Why incentives for the selection of borrowers did not work?

The results show that despite the fact that some of the members did not comply with the norms they obtained loans because of the following reasons. First, these members had urgent credit needs. Second, since the groups simultaneously disbursed both internal and external loans, the norm relating to repayment could not be strictly enforced. Third, non-conduct of regular meetings was the reason for not fulfilling the attendance norm by a few members. Fourth, since there was no other borrower and the group wanted to disburse loans in any case, a few of the members obtained loans though they did not comply with savings norm.

This also led to reciprocal relationship. The tendency of the members to relax the selection norms indicates that there existed mutual understanding among the members to help each other even though some borrowers had not fulfilled the norms. In other words, there existed some leniency at the time of disbursal of loans. Thus, there was reciprocal understanding and relaxation of the rules against the formal stipulations to benefit each other. The net result of the above tendencies was that certain institutional rules had been gradually weakened

Thus, in groups with familiar members having diverse types of credit needs in the wake of agrarian crisis, strict enforcement of the group norms was found to be difficult while selecting the borrowers. Hence, relaxation to the compliance of norms (except, to significant extent, in the case of repayment) was given to the members based on humanitarian considerations and expectations of future cooperation from their peers. This suggests that certain institutional

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rules would not work in the communities where people are known to each other and share their problems and in the context of widespread problem such as agrarian crisis.

Monitoring the Utilization of Loans

Moral hazard problem in the credit markets arises when borrowers undertake those actions that may adversely affect the chances of repayment. The microfinance groups undertake monitoring to ensure that borrowers utilize the credit productively for the stated purposes and help them in succeeding in economic activity (undertaken with the loan from micro-finance group) so that repayment is prompt and timely.

Types Of and Incentives For Monitoring

The groups incorporated four types of monitoring mechanisms. They are monitoring of purpose of loan utilization, skills, availability of raw materials and marketing opportunities. The evidence shows that monitoring was limited to loan utilization where group ensured that loans are not diverted. The sample groups did not, however, strictly enforce the monitoring mechanism to ensure that the loans were utilized for economically productive purposes. This led to certain practices resulting in poor incomes.Now the question arises as to what factors influence the success of group monitoring. The results show that homogeneity, mechanisms (attendance in meetings) and incentives for monitoring are the factors.

. Repayment of loans what factors influenced the delayed repayment of loan ?

The incentives also influenced the members to repay on time. If micro-finance groups introduced the incentive that every repayment would lead to next and bigger loan, the delay tended to be less. Similarly in the case of those groups, where social pressure was intense, the delay tended to be lower.

How did the members make the repayment?

The results of the study show that members borrowed from the group soon after the repayment either to repay moneylenders from whom they had initially borrowed. This shows that the purpose of micro-finance programme was defeated. The members, instead of obtaining cumulative benefits through borrowing from the groups, had been only circulating money obtained through borrowing from informal agencies to micro-finance groups and vice versa. Such a practice, no doubt was due to agrarian crisis, would not lead to sustained poverty alleviation among the members

Conclusions : Group size

Theories on collective action note that the groups function effectively when they are small in size (Olson 1965). Stiglitz (1990) has stated that the members in a group would take up the responsibility to monitor only if the number of members involved in a group was small . The chances of free riding would be less or the incentives to act collectively would be more in a

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group where the number of members is less. In the present study, we have taken group size as a variable influencing the selection monitoring and repayment. It has been observed that the members belonging to smaller sized groups received lower amounts of loans. Moreover, the member belonging to small sized groups did not express a better opinion about the selection procedure followed in the group. Similarly, the monitoring was less effective in small sized groups. This indicates that the outcomes with respect to selection and monitoring had not produced the expected results with respect to the group size. On the other hand, the members belonging to small sized groups were better in enforcing repayment. In the study area, we have examined that members belonging to some of the smaller groups stating that they became smaller in due course of time due to conflicts within the groups. Thus, small group, need not necessarily be democratic and inclusive especially when they were large to begin with and become small due to internal conflicts.

Homogeneity of the groupsAnother important variable discussed by collective action theorists as having a hearing on collective outcome is homogeneity of the groups. The members belonging to homogeneous socio-economic conditions provide familiarity to one another and contribute towards social networking and produce positive impact on collective outcome. Instead of resulting in better outcomes in terms of selection, monitoring and repayment, homogeneous groups in our study area resulted in a mutual adjustment with regard to the relaxation of selection, monitoring and repayment mechanisms. Members were finding it difficult to close their eyes to the plight of their neighbors and it was for this reason that the members became lenient when it came to enforcement group mechanisms. One of the reasons behind poor performance of homogeneous groups in our study area may be because of high presence of tribal members. Perhaps because of the financial backwardness and lack of awareness, the groups in which tribal members were the maj0rity experienced poor outcomes with respect to selection, monitoring and enforcement. The study, therefore, suggests that homogeneity of the groups need not always contribute positively towards collective action.

Mechanisms and Incentives The study has revealed that in a community where the members had close face to- face interaction with each other, it was difficult to enforce norms and regulations. This was the reason behind strong reciprocal adjustment among members with regard to selection, monitoring and repayment. Moreover, the absence of alternative credit source for a majority of the members forced the members to relax the norms. Therefore, in the context of homogeneity of the groups and absence of alternative credit source, it was difficult for the members to strictly enforce group mechanisms. The study has revealed that both the positive and negative incentives had worked effectively towards collective action in so far as monitoring and repayment are concerned, To conclude, the micro· finance groups have incorporated certain mechanisms and incentives, to encourage and/or force the members to participate in collective action relating to selection, monitoring and repayment of loans. The members in these groups however, exercised their own

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judgment on which of these were to he complied with based on genuine credit needs of member households facing several hardships due to agrarian crisis and their own capacity. The institutional rules, relating to mechanisms and incentives led to desired impact only in the case of monitoring and repayment of loans, but, the outcome of the collective action did not always result in the cumulative benefits to member households. Thus, although collective action existed in the groups, the nature was such that it did not result in sustained poverty alleviation. This was largely due to the agrarian crisis in the district, which adversely affected not only the employment and incomes of households depending directly and indirectly on agriculture but also investment and marketing opportunities in the areas. This was also an important reason why there was not much of difference between government and NGO initiated groups in the outcomes of collective action, though the latter were formed earlier than the former ones. Institutional mechanisms and incentives are thus important in facilitating collective action. But, whether the members comply with these mechanisms and incentives in such a manner that they result in beneficial outcomes is context specific.

Questionnaire pages 221 to 237

Microcredit and the Poorest of the Poor:Theory and Evidence From Bolivia

(Sergio Navajas, Mark Schreiner, Richard L. Meyer,Claudio Gonzalez-Vega, and Jorge Rodriguez-Meza) June 5, 1999

Ws: http://www.microfinanzas.org/uploads/media/0978.pdf

Contact author: Mark Schreiner,Center for Social Development, George Warren Brown School of Social Work ,Washington University in St. Louis Campus ,Box 1196, One Brookings Drive,

St. Louis, MO 63130 .Office telephone: 314-935-9778, fax: 314-935-8661 Home telephone/fax: 31 481-9788 e-mail: schreiner@gwbmail.wustl.edu

Web page: http://gwbweb.wustl.edu/users/schreiner

AbstractWe construct a theoretical framework that describes the social worth of a microfinance organization in terms of the depth, worth to users, cost to users, breadth, length, and scope of its output. We then analyze evidence of depth of outreach for five microfinance organizations in Bolivia Most of the poor households reached by the microfinance organizations were near the poverty line—they were the richest of the poor. Group lenders had more depth of outreach than individual lenders. The urban poorest were more likely to be borrowers, but rural borrowers were more likely to be among the poorest.

Summary and ConclusionsWe analyzed the depth of outreach of five microfinance organizations in La Paz, Bolivia. The first step was to construct a theoretical framework in which depth is one of six aspects of

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outreach. The second step was to compare the poverty of a sample of the borrowers of the five lenders with the poverty of all the households in La Paz.

We found five main results. First, improved social welfare from microcredit depends not only on depth of outreach but also on worth, cost, breadth, length, and scope . Length matters most since the drive for length leads to incentives that prompt improvements in the other aspects. Second, the lenders in La Paz tended to serve not the poorest but rather those near the poverty line. Most microfinance organizations will probably serve this same niche . The poorest are less likely to be creditworthy and to demand loans, and many of the non-poor can borrow elsewhere. Third, because the distribution of demand and creditworthiness unconditional on supply is unknown, we cannot say whether the Bolivian lenders had deep outreach in an absolute sense. Fourth, group lenders in La Paz had deeper outreach than individual lenders. In general, group technologies have more potential for deep outreach since they substitute joint liability for physical collateral. Fifth, the rural lenders in La Paz had deeper outreach than the urban lenders in that the typical rural borrower was more likely to be among the poorest. At the same time, the urban lenders had more market penetration among the poorest due to their bigger portfolios.

These results on depth of outreach do not tell whether the five microfinance organizations did well in terms of all six aspects of outreach. On the one hand, perhaps the drive for length and breadth is what prompted these lenders to grow and to have some depth. On the other hand, perhaps these lenders would have reached more of the poorest had they stayed small and unprofitable with a single-minded focus on depth. The theoretical framework described here can help to improve social welfare by making more explicit the judgments that back the choice of which focus to take.

The empirical results sketch some of the limits of microcredit for the poorest of the poor. They highlight the need for more scrutiny of the flood of funds budgeted in the name of access to loans for the poorest. Even when microcredit does reach the poorest, it may not increase incomes as much as smooth consumption and diversify income (Mosley and Hulme, 1998; Morduch, 1998b). Even if it turns out that microfinance organizations do not reach relatively or even absolutely many of the poorest, this shallow depth may be more than balanced by net gains that accrue to those near the poverty line.

Microcredit may or may not be a good development gamble. If donors and governments have social welfare in mind, then they should check whether microcredit is the best way to spend public funds earmarked for development. Is microcredit worthwhile or worthless? The theoretical framework here is a better way to judge this than simple measures of the number of the poorest served by a lender.

Micro Finance and Empowerment of Scheduled Caste Women: An Impact Study of SHGs in Uttar Pradesh and Uttaranchal

Sponsored by Planning Commission New DelhiConducted by: BL Centre for Development Research and Action 5/857, Vikas Nagar, Lucknow

(ws:http://planningcommission.nic.in/reports/sereport/ser/stdy_mcrofin.pdf)

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Micro-credit intervention programme has been well-recognized world over as an effective tool for poverty alleviation and improving socio-economic conditions of rural poor. In India too, micro-credit is making a strong headway in its efforts to reduce poverty and empower the rural poor. Against this backdrop, the present study has been carried out to assess the impact of micro-finance on socio-economic status of Scheduled Caste women.

The study has been carried out in UttarPradesh and Uttaranchal, covering a sample of 1120 beneficiariesand 173 officials and non-officials, 224 SHG’s, 143 villages, 28 blocksand 7 districts.

Determinants of Group Performance of Women-led Agro-processingSelf-help Groups in Kerala

Lina Joy, A. Prema* and S. KrishnanDepartment of Agricultural Economics, College of Horticulture, Kerala Agricultural University,Thrissur - 680 656, KeralaWs: http://ageconsearch.umn.edu/bitstream/47885/2/6-L-Joy.pdf

Micro Finance and Empowerment ofScheduled Caste Women: An Impact Studyof SHGs in Uttar Pradesh and UttaranchalSponsored byPlanning CommissionGovernment of India New Delhi – 110 001 (ws:http://planningcommission.nic.in/reports/sereport/ser/stdy_mcrofin.pdf)

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Micro Credit/ Micro Finance/ Self Help Groups

004Bandyopadhyay, D.Convergence of programmes by empowering the self-help groups and Panchayati RajInstitutions/by D. Bandyopadhyay, B. Yugandhar, B N and Amitava Mukherjee. p. 122-145IN New issues in panchayati raj/ed. by D. Bandyopadhyay and Amitava Mukherjee.-NewDelhi: Concept, 2004.172p.352.00722 RAJ.N 10850

008Bauman, Eveline.Vulnerability and micro-insurance reflections on 'post-adjustment' Africa. p.27-44 INMicrofinance: from daily survival to social change/ed. by Isabelle Guerin and Jean-MichelServet.-Pondichery: French Institute of Pondichery, 2003.vi, 153p.-(Pondy Papers in Social Sciences; 30)332.7 FRE.M 11058.010Bose, B K.Banking with the poor: SIDBI's initiatives/by B K Bose and K C Ranjani p.319-324 INMicrofinance: emerging challenges/ed. by Krishanjit Basu and Krishan Jindal.-New Delhi:Tata McGraw-Hill, 2000.xvii, 407p.332.7 BAN.M 10078012Capoor, Jagdish.

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Microfinance in India: role of banks. p. 344-347 In Microfinance: emerging challenges/ed.by Krishanjit Basu and Krishan Jindal.-New Delhi: Tata McGraw-Hill, 2000.xvii, 407p.332.7 BAN.M 10078013Centre for Development Studies.Agrarian distress and livelihood strategies: a study in Pulpalli Panchayat, Wayanad District,Kerala/by K. N. Nair, C. P. Vinod and Vineetha Menon.- Thiruvananthapuram: The Centre,2007. 87p.-(Working Paper; 396)MP-R CEN.N 12423014Chavan, Pallavi.Micro-credit and rural poverty: an analysis of empirical evidence/by Pallavi Chavan and R.Ramakumar.Economic and Political Weekly. 37(10); 9-15 March 2002. p.955-965.3

016Das, Rimjhim Mousumi.Micro-finance through SHGs: a boon for the rural poor.p. 16-21 IN Rural empowerment through self-help groups(SHGs); non-governmentorganisations (NGOs); and panchayati raj institutions (PRIs)/ed. by S. B. Verma and YaswantTukaram Pawar.-New Delhi: Deep and Deep, 2005.xiv, 350p.307.72 RUR 11369027Guerin, Isabelle.Can microfinance free debt slaves? First hypothesis.p.113-142 IN Microfinance: from daily survival to social change/ed. by Isabelle Guerin andJean-Michel Servet.-Pondichery: French Institute of Pondichery, 2003. vi, 153p.-(PondyPapers in Social Sciences; 30)332.7 FRE.M 11058030Harper, Malcom.Why are commercial banks not entering the microfinance marketp. 372-387 IN Microfinance: emerging challenges/ed. by Krishanjit Basu and Krishan Jindal.-New Delhi: Tata McGraw-Hill, 2000.xvii, 407p.332.7 BAN.M 10078033Hermes, Niels.

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Impact of microfinance: a critical survey/by Niels Hermes and Robert Lensink.Economic and Political Weekly. 42(6); 10-16 February 2007. p.462-465.034Institute of Development Studies.Micro finance for poor in Rajasthan: the importance of self help groups/by Surjit Singh.-Jaipur: The Institute, 2000.14p.-(IDSJ Working Paper; 118)MP-R INS.S 10667035Jain, Ritu.Socio-economic impact through self help groups/by Ritu Jain, R. K. Kushawaha and A. K.Srivastava.

036Jindal, Krishan.Successful efforts in microfinance: a case study of South Malabar Grameen Bank p. 208-218IN Microfinance: emerging challenges/ed. by Krishanjit Basu and Krishan Jindal.-NewDelhi: Tata McGraw-Hill, 2000.xvii, 407p.332.7 BAN.M 10078

042Karmakar, K G.Rural credit and self-help groups: micro finance needs and concepts in India.-New Delhi:Sage, 1999. 374p332.7 KAR.R 10077.049Mohammad Yunus.How donor funds could better reach and support grassroots microcredit programs workingtowards the Microcredit Summit's goal and core themes.Roshni: Journal of the All India Women’s Conference. February-June 2001. p.10.056Purushotham, P.Marketing support to the SHGs.p. 3-15 IN Rural empowerment through self-help groups (SHGs); non-governmentorganisations (NGOs); and panchayati raj institutions (PRIs)/ed. by S. B. Verma and YaswantTukaram Pawar.-New Delhi: Deep and Deep, 2005.xiv, 350p.307.72 RUR

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20. Microfinance for Microenterprises- An Impact Evaluation of Self Help Groups, K C Badatya, BB Wadavi, Ananthi S

Entered on desk top 48.pdf

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GRAMEEN BANK GROUPS AND SELF-HELP GROUPS; WHAT ARE THE DIFFERENCES?

Malcolm HarperWs : http://media.microfinancelessons.com/resources/grameen_v_shg_harper.pdf

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BANCOSOL: From microcredit to microfinanceWS: http://zunia.org/uploads/media/knowledge/historiamicro.e.pdf

THE IMPACT OF MICROFINANCE ON RURAL POOR HOUSEHOLDS’From exclusion to Inclusion through MicrofinanceReport 1-Social and Financial Exclusion Map , April 2007,cdfa,MFC,EMN

(Microfinance Centre for Central and Eastern Europe and new Independent States)

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. The Voice of Marginalised Women in Managing Small-Scale Development Projects:

Some Lessons from IndiaKilby P*School of Archaeology and Anthropology, Faculty of Arts, Australian National University, Australia

W S: http://www.engagingcommunities2005.org/abstracts/Kilby-Patrick-final.pdf

Promoting Quality Bookkeeping inSelf-Help Groups:The Mahakalasm ManagementInformation SystemPrincipal Authors: Tapan S. Parikh, Kannaiyan Sasikumar, andSundarmoorthy Olaganathan

Ws:http://www.ruralfinance.org/fileadmin/templates/rflc/documents/1180103191039_SEEP_Promoting_Quality_Bookkeeping_2006.pdf

The need for Financial Inclusion with anIndian perspectiveAmol Agrawal amol@idbigilts.com March, 2008

Ws http://www.oecd.org/dataoecd/16/55/40339652.pdf

Microfinance in south Asia toward Financial Inclusion for the Poor

Ws http://siteresources.worldbank.org/SOUTHASIAEXT/Resources/Publications/448813-1184080348719/fullreport.pdf

This is available in f drive in thesis on 18-01-11ACKNOWLEDGEMENTS 4

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State Bank of Travancore

6. Report of the Sub-Committee of the Central Board of Directors

Of Reserve Bank of India To Study Issues and Concerns in the MFI Sector

RESERVE BANK OF INDIA

(January 2011)

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Introduction 1.1 The Board of Directors of the Reserve Bank of India, at its meeting held on October 15, 2010

formed a Sub-Committee of the Board to study issues and concerns in the microfinance

sector in so far as they related to the entities regulated by the Bank under the Chairmanship

of Shri Y.H. Malegam

The provision of credit to the Microfinance sector is based on the following postulates: a) It addresses the concerns of poverty alleviation by enabling the poor to work their way out of poverty. b) It provides credit to that section of society that is unable to obtain credit at reasonable rates from traditional sources.

c) It enables women’s empowerment by routing credit directly to women, thereby enhancing their status within their families, the community and society at large.

d) Easy access to credit is more important for the poor than cheaper credit which might involve lengthy bureaucratic procedures and delays.

e) The poor are often not in a position to offer collateral to secure the credit.

f) Given the imperfect market in which the sector operates and the small size of individual loans, high transaction costs are unavoidable. However, when communities set up their own institutions, such as SHG federations and co-operatives the transaction costs are lower.

g) Transaction costs, can be reduced through economies of scale. However, increases in scale

cannot be achieved, both for individual operations and for the sector as a whole in the absence of

cost recovery and profit incentive.

Given the above considerations, the essential features of credit for Microfinance which have evolved are as under:-

a) The borrowers are low-income groups. b) The loans are for small amounts. c) The loans are without collateral. d) The loans are generally taken for income-generating activities, although loans are also provided for consumption, housing and other purposes. e) The tenure of the loans is short. f) The frequency of repayments is greater than for traditional commercial loans.

The players in the Microfinance sector can be classified as falling into three main groups

a) The SHG-Bank linkage Mode l accounting for about 58% of the outstanding loan portfolio

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b ) Non-Banking Finance Companies accounting for about 34% of the outstanding loan portfolio c) Others including trusts, societies, etc, accounting for the balance 8% of the outstanding loan portfolio. Primary Agricultural Co-operative Societies numbering 95,663, covering every village in the country, with a combined membership of over 13 crores and loans outstanding of over Rs.64, 044 crores as on 31.03.09 have a much longer history and are under a different regulatory framework. Thrift and credit co-operatives are scattered across the country and there is no centralized information available about them.

The SHG-Bank Linkage Model was pioneered by NABARD in 1992

Under the NBFC model , NBFCs encourage villagers to form Joint Liability Groups (JLG) and give loans to the individual members of the JLG. The individual loans are jointly and severally guaranteed by the other members of the Group. Many of the NBFCs operating this model started off as non-profit entities providing micro-credit and other services to the poor. However, as they found themselves unable to raise adequate resources for a rapid growth of the activity, they converted themselves into for-profit NBFCs. Others entered the field directly as for-profit NBFCs seeing this as a viable business proposition. Significant amounts of private equity funds have consequently been attracted to this sector

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The need for Regulation NBFCs are currently regulated by Reserve Bank under Chapters III-B, for NBFCs operating in the Microfinance sector. The need for a separate category of NBFCs III-C and V of the Reserve Bank of India Act. There is, however, no separate category created operating in the Microfinance sector arises for a number of reasons First, the borrowers in the Microfinance sector represent a particularly vulnerable section of society They can, therefore, be easily exploited. Second, NBFCs operating in the Microfinance sector not only compete amongst themselves but also directly compete with the SHG-Bank Linkage Programme. The practices they adopt could have an adverse impact on the programme. JLGs are being formed by poaching members from existing SHGs. About 30% of MFI loans are purportedly in Andhra Pradesh. The Microfinance in India- A State of Sector Report 2010 also says that there are many reports of SHGs splitting and becoming JLGs to avail of loans from MFIs. Thirdly, credit to the Microfinance sector is an important plank in the scheme for financial inclusion. A fair and adequate regulation of NBFCs will encourage the growth of this sector while adequately protecting the interests of the borrowers. Fourth, over 75% of the finance obtained by NBFCs operating in this sector is provided by

banks and financial institutions including SIDBI. As at 31st March 2010, the aggregate amount outstanding in respect of loans granted by banks and SIDBI to NBFCs operating in the Microfinance sector amounted to Rs.13, 800 crores. In addition, banks were holding securitized paper issued by NBFCs for an amount of Rs.4200 crores. Banks and Financial Institutions including SBIDBI also had made investments in the equity of such NBFCs. Though this exposure may not be significant in the context of the total assets of the banking system, it is increasing rapidly. Finally, given the need to encourage the growth of the Microfinance sector and the vulnerable nature of the borrowers in the sector, there may be a need to give special facilities or dispensation to NBFCs operating in this sector, alongside an appropriate regulatory framework. This will be facilitated if a separate category of NBFCs is created for this. The committee therefore recommends that a separate category be created for NBFCs operating in the Microfinance sector, such NBFCs being designated as NBFC-MFI.

The Sub-Committee defines a NBFC- MFI as “A company (other than a company licensed under Section 25 of the Companies Act, 1956) which provides financial services pre-dominantly to low-income borrowers with loans of small amounts, for short-terms, on unsecured basis, mainly for income-generating activities, with repayment schedules which are more frequent than those normally stipulated by commercial banks and which further conforms to the regulations specified in that behalf”.

According to Access to Finance in Andhra Pradesh 2010 the usage of loans given to JLG and SHG is as follows:NO JLG % SHG %

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1 Income Generation 25.6 25.42 Repayment of old

debt285.4 20.4

3 Health 10.9 18.64 Home improvement 22.1 135 Education 4.4 5.76 others 11.6 7.9

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List of Lead Banks in Kerala

Alapuzha State Bank of Travancore

Ernakulam Union Bank of India

Idukki Union Bank of India

Kannur ` Syndicate Bank

Kasaragod Syndicate Bank

Kollam Indian Bank

Kottayam State Bank of Travancore

Kozhikode Canara Bank

Malappuram Canara Bank

Palakkad Canara Bank

Pathanamthitta State Bank of Travancore

Alapuzha State Bank of Travancore

Ernakulam Union Bank of India

IdukkiUnion Bank of India

Kannur Syndicate Bank

Kasaragod Syndicate Bank

Kollam Indian Bank

KottayamState Bank of Travancore

Kozhikode Canara Bank

Malappuram Canara Bank

Palakkad Canara Bank

Pathanamthitta

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7. Occasional Paper NO. 12 AUGUST 2007 CGAPSustainability of self-help groups in India:Two analyses

The study demonstrates the methodology by analyzing the operational structure and financial performance of four leading SHG programs. The SHG-Bank Linkage Program, launched in1992 by the National Bank for Agriculture and Rural Development (NABARD), stimulated the development of many SHGs nationwide. NABARD is a government-owned apex refinance (wholesale loan) institution with a combination of promotional, supervisory, and refinance functions for retail institutions—rural branches of commercial banks, regional rural banks, and cooperative banks. SHGs were initially promoted mainly by NGOs such as MYRADA and PRADAN. Since the middle of the 1990s, when the model was scaled up, promotional work was largely done by specialized government agencies, such as the District Poverty Initiatives or the Velugu project in Andhra Pradesh and the Kudumbshree project in Kerala, the Women’s Development Corporations in the states of Tamil Nadu and Maharashtra, the Women and Child Development departments, and the District Rural Development Agencies (DRDAs) in most others states. Although the more specialized agencies have, by and large, established SHGs of fair quality, the departments and the DRDAs pursued numbers approach that produced SHGs of indifferent quality. In Andhra Pradesh, for example, the government uses gas connections and revolving loan funds as incentives to encourage women to form SHGs. Members joined the groups to capture these benefits. But after achieving their short term goals, most of these groups stopped functioning. SHGs in which members have not been bribed” by quick-and-easy subsidies have proven more durable. The incentives for such groups are more conducive to member participation and group solidarity, both of which are crucial to group’s sustainability.

Models Linked to BanksMost—though not all—Indian SHGs eventually get loans from commercial banks. Three models have emerged for SHG–bank linkages. In the dominant model, used by NABARD’s SHG–Bank Linkage Program, a bank lends directly to a group after evaluating the group’s operations, maturity, and capacity to absorb credit. The groups lend the proceeds to their members. An SHPI—an NGO or government agency—remains involved with the group, but is not part of its funding chain. As of March 2005, 72 percent of bank-linked SHGs had been financed through this model. In the second model, the promoting institution also plays a funding role. A bank lends to the promoter, which then on-lends the funds to its SHGs. As of March 2005, 7 percent of bank-linked SHGs had been financed using this approach. Banks like these two models because the costs of group formation and support are borne by SHPIs. In the third model, a bank acts as an SHPI—forming SHGs, training them, and then lending to them. As of March 2005, 21 percent of bank linked SHGs had been promoted by banks. NABARD’s program is designed to integrate informal savings and credit groups with the mainstream banking system. Under the program, NABARD refinances bank loans to SHGs—that is, it provides financing to banks at a below-market interest rate (currently 6%), though banks continue to carry the risk for their loans. By March 2006, NABARD’s program had lent 114 billion rupees (US$2.8 billion to 545 banks through 44,362 branches, half of which was still outstanding). These banks in turn extended loans to 2.23 million SHGs that

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served an estimated 33 million poor women over 13 years.4 Banks establish links with groups that have maintained regular savings relationships with them, usually after six months. Banks then lend to the group without collateral, relying on self-monitoring and group peer pressure for repayment. Banks typically initiate lending to SHGs with a loan-to savings ratio of 1:1 or 2:1, and then gradually increase this ratio to 4:1. SHGs normally borrow from banks at an annual interest rate of 8–12 percent and lend to their members at 24 percent, although in some cases it has come down to 18 percent. Groups retain the interest rate differential as earnings. Over several years, this revenue typically surpasses member savings as a source of funds. More than 95 percent of the bank loans to SHGs backed by the NABARD program are repaid.5 The NABARD program is nationwide, but it is especially active in the southern states of Andhra, Tamil Nadu, and Karnataka, which are home to more than half of all bank linked SHGs. Most of the banks that lend to SHGs in India are government owned, though a few private banks participate as well. What motivates the banks to lend to such unconventional borrowers? The dominant factor is government-mandated lending targets of 40 percent of total bank credit to borrowers from priority sectors, including agriculture, microfinance, small industry, housing, and education. Of this, 10 percent must be to the “economically weaker sections.” These targets are monitored by bank senior managers and government officials, who are answerable to Members of Parliament. But some banks are engaging in SHG and other microfinance operations because they think this market may be profitable. It is an open question whether banks would have much interest in doing business with SHGs if there were no governmental lending targets.

Model 1Type of support Model 2

Model 3Promotion NGO or government agency NGO or government agency promotes the group

promotes the group Bank promotes

the group

FinancingBank lends directly to the group NGO or government agency Bank lends directly

obtains funds from bank and lends to group lendsto

the group

• ADDRESSING POVERTY THROUGH SELF-HELP GROUPS:A CASE STUDYDr. Jaya S AnandAssociate ProfessorInstitute of Management in Government (IMG)Kerala, India

Ws: http://img.kerala.gov.in/docs/papers/jsa1.pdf