Keya Sarkar: SHGs need more than bank aid

OUT OF FOCUS

In this column I have earlier written about how India has crossed the milestone of setting up one million self-help groups (SHGs) before 2007, the deadline that the sector had set for itself.

But in order to appreciate what exactly this figure implies it is necessary to understand where these SHGs are being formed, who is forming them, and finally who is financing them, because that is the ultimate objective for setting them up.

This understanding actually would put in context the status of the SHG credit linkage currently in India and the options policymakers have for meaningful interventions.

Of the many publications that NABARD has on the SHG sector, the one on the "Progress of SHG-Bank Linkage in India 2003-2004" is a compilation of very useful statistics. I quote here those that I found relevant to understand the status and progress of this sector.

The progress of banks in linking SHG groups to the banking system was quite phenomenal during the year. The banks financed 361,731 new SHGs in 20003-04, almost 30 per cent of the cumulative 1,079,091 financed since 1992.

Bank loans disbursed to SHGs during the year aggregated Rs 1,855 crore, an increase of 82 per cent, as compared to Rs 1,022 crore during 2002-2003

By March 2004, of the total SHGs credit-linked, Andhra Pradesh accounted for 36 per cent, Tamil Nadu 14 per cent, Karnataka 10 per cent, and Uttar Pradesh 7 per cent, together accounting for 67 per cent of the total SHGs credit-linked and 80 per cent of the bank loans disbursed. In order to balance the uneven growth of the micro finance programme, NABARD has identified 13 states as priority states and special efforts have yielded positive results.

Of the total number of SHGs linked to banks, 20 per cent have been formed and financed by banks, 72 per cent formed by government agencies other than banks and NGOs, but financed by banks,and 8 per cent financed by banks through NGOs and other agencies as financial intermediaries.

The number of banks which participated in partnering NABARD in the SHG bank-linkage effort in 2003-04 was 560, of which 48 were commercial banks, 196 were regional rural banks, and 316 were cooperative banks. The number of NGOs and other agencies which partnered NABARD was 3024.

From the above, the clear picture is that the SHG movement has taken firm root in India, albeit in a geographically imbalanced manner. Also, it is apparent that suddenly the banks' propensity to lend to this sector has increased. Although the base is small, an 82 per cent increase in lending in one year seems significant.

While the nationalised banks have the branch network which can link with the SHGs, the new private sector banks or foreign banks do not. More importantly, as we know from experience, setting up SHGs is a long process that calls for great commitment.

But it would be a pity if banks were willing to lend to this sector, but the policy framework and therefore the apex institutions blessed only the bank-SHG linkage route to microfinance.

Especially when even Y S P Thorat, the NABARD managing director, feels that "there should be an independent evaluation of SHGs to actually appreciate how many of the 1 million SHGs are truly working".

So if the need of the hour is to increase the number of SHGs rapidly to ensure that all the bank credit that is available for this sector (as banks saturate personal finance loans in the urban areas) can be absorbed, what is the way forward?

Thorat feels that "impatience might hijack the SHG process". While he admits that there is no ready solution, one way he feels could be to train the personnel of rural bank branches to establish SHGs.

Whether or not that is the right way to go, the fact is that it is still a conjecture for the future. What policymakers are failing to appreciate is that the problem is here and now. How to increase the capacity of credit absorption in the rural areas? The answer might well lie in a comprehensive microfinance policy which not only involves banks but also micro finance organisations.

NABARD's experience with micro finance institutions has been that they are more often than not individual-oriented and do not have management depth and are therefore not worthy of encouragement.

That may well be the case, but the answer lies in first laying down a policy framework for MFIs (as even Pakistan has done) and then investing in capacity building to ensure that even micro finance organisations can gear up.

NABARD's own publication spells out how now "there are over 3 lakh SHGs which are three years old and are therefore ripe for micro enterprises. But in the absence of any specific hand holding strategy to provide financial and non-financial services in an integrated manner, graduation of SHG members from micro finance to micro enterprises has not been smooth due to several roadblocks".

There are now at least three microfinance/livelihood training schools that have been set up in the country, but the core funding is not coming from NABARD or SIDBI but from the likes of Citibank, the Ford Foundation, and the Ratan Tata Trust.

There is little doubt that progress is being made in the livelihood finance sector. What seems to be lacking is a grand plan on the part of the financial sector policymakers. Impatience certainly cannot be condoned, but for the 600 million poor, missing the bus would be a greater pity.