1
Microcredit
A policy instrument to beat poverty
Workshop on “Bank – SHG Linkages”
A Report
Organised by
IDPMS and Syndicate Bank
IDPMS
AUGUST, 1999
Microcredit
A policy instrument to beat poverty
Workshop on “Bank – SHG Linkages”
A Report
Organised by
IDPMS and Syndicate Bank
IDPMS
Microcredit : A Policy instrument to beat poverty
CONTENTS
Page No.
1.Introduction
2.Section I :
- Inaugural Session, 13 August, 1999.
- Welcome Speech by Shri U.R. Shanbag, Dy.Chief Manager
Syndicate Bank
- Inaugural Address by Sri B.L. Patil, Chairman, CAPART
- Dr. Param Gowda, CAPART
- Sri S. Sadananda, Director, IDPMS
Supply and Demand System,
SHGs and Reform Process,
Philosophy behind SHG-Bank linkage,
What is a SHG ?
Advantages to banks
Why do banks hesitate to lend to SHGs ?
Present scenario – Demand for Microcredit
3.Section II :
Putting People First : A taste of life at the grassroots
Visits to 3 SHGs : Question and Answer Session
Profile of Kusumavva S. Patil
4.Section III :
(14 August, 1999)
Group Reports
Remarks by Sri C.Y. Bharadwad, Director, CHINYARD
Panel Discussion : Women Leaders from SHGs
5.Section IV :
Valedictory Session
- Sri N.R. Desai, Syndicate Bank
- Sri S.M. Bhatt, Dy Chief Manager, Syndicate Bank, Hubli
Valedictory Address by Sri Nilaya Mitesh, Chief Executive Officer,
Dharwad District
Vote of Thanks.
Microcredit- A Policy Instrument To Beat Poverty
Report of a Two Day Workshop on "BANK - SHG Linkages"
for Syndicate Bank Officers, Dharwad, 13 and 14 August 1999
"Many little things done in many little places by many little people
will change the face of the world" - Old Chiese Proverb.
Introduction
Poverty alleviation has been one of the greatest challenges of our times, defyingremedy and ,solution. Worse still, measuresthat work have repelled replicability, andthere is no guarantee those efforts that metwith success in one region, must necessarilyrepeat such success elsewhere.
In a move to cater to the need for "grass roots" development all over thecountry covering those remote rural pocketswhere institutions like bank hesitate to enter, the Government Of India (GOI) hassupported the concept of "Microcredit"through the good offices of NGOs,Community-Based Organizations (CBOs)and Civil Society Organizations (CSOs), as apolicy operationalised since the last two orthree decades. State funding for micro creditstarted modestly and is slowly rising.
However, our planners realized that merelyfunding, and drafting policy andprogrammes were inadequate, given theyawning gaps between service-delivery andthe needs of the people they were to serve.Needless to say, the majority of them were,and still continue to be the poor. To addressthese flaws, the government, for the pastdecade, tried to get the various nationalizedbanks interested in microcredit, and trainingbank managers and other functionaries to
sensitize them to the condition of povertyand the needs of the poor.
In keeping with this, IDPMS (formerlyIndo-Dutch Project Management Society)which has a long and memorable history ofworking with the poor partnered with theSyndicate Bank to sensitize bank officers on"Banks - SHG Linkages" at Dharwad,Karnataka on 13 - 14, August 1999.
Section I
Inaugural Session:13 August 1999
The workshop was inaugurated on Friday the13th August 1999. Since the RegionalManager of Syndicate Bank Sri K.N. Sujir,who was one of the chief guests couldnot be present due to unavoidable reasons,Deputy Chief Manager of Syndicate BankSri U.R Shanbag took his place at theinaugural session.
The Chief Guests included Mr B.L. Patil,Chairman, CAPART (Council for People'sAction for Rural Advancement andTechnology), Dr. Param Gowda formerlyof the Bhabha Atomic Research Centre(BARC) and currently with CAPART, Mr. U.R. Shanbag, Dy Chief Manager, SyndicateBank, and Mr. S. Sadananda, Director,IDPMS.
Welcome Speech by Sri U R Shanbag, Dy Chief Manager, Syndicate Bank
Sri U.R. Shanbag welcomed the gathering,the Chief Guests, the STC (Staff TrainingCentre), and particularly those bankmanagers who were to undergo training inthis workshop. He noted that many of thebranch managers were already trained at theNational Institute for Personal Management(NIPM) in the concept of Self - Help Groups(SHGs); however the implementation ofSHG programmes had not been up to themark. This, he explained, was the mainreason behind organizing this workshop inassociation with IDPMS, Bangalore.
Only three branches in Dharwad districthad formed SHGs and linked the bankfinance so far. Sri Shanbag congratulated thebank managers at Hukodi, Bhadrawatiand Mundergi for the initiative they hadshown and their achievement. He hoped thatthe remaining branches would take keeninterest in the formation of SHGs, andlinking) - 3 SHGs in their area of operationafter this workshop.
The Government of India (Gal) and theReserve Bank of India (RBI) had introducedseveral policy and programme measuressince 1969 for the upliftment of the ruralpoor, most notable of them was thenationalization of the leading banks in thecountry. After intense study of the situationin the backward rural areas, the NationalBank for Agriculture and Rural Development(NABARD), Reserve Bank of India (RBI)and Government of India (GOI) had foundthe answer in the "Concept of SHGs" touplift the rural downtrodden.
Various advantages were available to thebankers, if finance were channelised to thepeople through the SHGs. Further, GOI hadalso given importance to SHGs in theimplementation of the newly introducedSwarna Jayanthi Swarajya Rojagar Yojana(SJSRY). This programme would be greatlyuseful to all the bankers in pumping credit tosegments in agriculture and ruraldevelopment. Hence Sri Shanbag stressedthe need for bankers to help position theirregional office vis-a-vis targets specified foragricultural advances.
"Our region has been assigned with anambitious target of Rs 30 crores worthdisbursements for the year 1999-2000. Thistarget is Rs 11 crores over and above theService-a Year Credit Plan launched bybranches in our region. The performance ofour region in the first quarter of this year isgreatly discouraging; it is a mere Rs 3.02crores as against the annual target of Rs.30crores. I earnestly appeal to all of you toformulate your own strategies to canvas agood number of high value proposals"urged the speaker.
He also recalled that in the case ofimplementation of the SKCC Card Schemealso, the actual performance was muchbelow par, although the scheme had beenaccorded great importance by GOL Effortshave fallen far short of the target of issuing10,000 SKCC cards; actual issuance hasbeen of a paltry 1500 cards.
After a brief self-introduction of theparticipants, the ceremonial lamp was lit byall the Chief Guests by turns and thus theWorkshop was inaugurated.
Inaugural Address by Sri B L Patil, Chairman, CAPART
Sri B L Patil, Chairman, CAPART, deliveredthe inaugural address. At the outset, herecognized that Syndicate Bank was the firstbank in the country to dedicate itself to therural masses by identifying itself with therural citizens of our country.
Sri Patil noted that a silent revolution ofsorts was taking place currently. Villagebased "Arts and Crafts" had died anuntimely death with factories in urban areascatering to the common needs and pumpingthese items to the villages. This had resultedin the mass exodus from rural areas to townsand cities. As people sought opportunitiesfor livelihood and survival blacksmiths andpotters, who were once the pride of thevillages, were conspicuously absent now. Itwould not be wrong to say that villageenterprises were wiped out today.
Hence the speaker appealed to the expertslike the bankers present here, to help revivethe many folk arts and crafts; a situation wasarising when such traditional arts and craftswere slowly being revived.
Sri Patil further noted that the country'smajor resource, namely Human Resource,was in the villages. And if this advantagecould be, properly harnessed and utilized, ourcountry could easily be converted into themost self-sufficient nation in the world in thetwenty-first century. Two examples weregiven by him to prove the point.
Firstly, certain communities like tribal folkin Madhya Pradesh and Bihar, who werecompelled to work at gun-point by landlords,had migrated to cities to avoid such cruelharassment. Over a period of time, whenthey could not find suitable employment inthe cities to sustain them, they becamerobbers and goondas. In course of time, afew NGOs and bankers approached themand weaned them away from criminal andanti-social activities. They were trained inthe cane work. As a spin-off of the process,the SHG concept was born. Today, the canefurniture of these communities are of exportquality.
Next example is that of the Bhadiga Sanghasof Gujarat, who made a name for themselveswith their highly popular furniture ofinternational standards. Needless to say, thattheir furniture sell like hot cakes.
Yet, this is relatively a recent activity of thepoor tribal folk, strengthened with bankcredit and finance. Thus a successfulenterprise was born and today the localhuman resource had been developed to theextent that the needy are strengthened tomeet their own needs.
The speaker felt that the present moment wasopportune to motivate and develop humanresource in rural areas of Karnataka. Herecalled his own life time of social activismand the responsibility he owed to helpDevadasi Women (who were exploited tothis day by an ancient and outdated custom).Through the medium of VimochanaDevadasi Punarvasathi Sangha, an NGOstarted and run by Sri Patil, devadasi womenhave been trained and encouraged to formSHGs, thus getting access to credit from thebanks.
Sri Patil also informed the gathering ofCAPART's programme in association withSyndicate Bank in many areas. The focus ofCAPART was to fund only through suchNGOs who support SHGs.
Dr Param Gowda, CAPART
Next Dr Param Gowda addressed thegathering. The speaker is currently workingon a voluntary basis with the "SriVivekananda Centre". He had distinguishedhimself by assisting communities in formingSHGs and linking them with banks.
Dr Param Gowda recalled the genesis ofCAPART in 1986 and its prior incarnationsas People's Action for Development of India(PADI) and Council for Advancement ofRural Technology (CART). He found thatfrom 1986 to 1997 CAPART had not givenany importance to SHGs. Only over the pasttwo or three years had the SHG concept beenintroduced in CAPART.
In 1997, CAPART conducted a sample studyin the States of Bihar, Uttar Pradesh andWest Bengal focussing on the impact offunding SHGs, which was a radical way oflooking at things, since CAPART hadtraditionally funded only NGOs. The speaker confessed that even now the institution wasnot very clear about the SHG concept.
He recalled that SHGs were formed only in1991 as per a circular issued from theReserve Bank of India to all nationalized andGrameen banks. According to the circular,the bank managers were to support SHGs.However a review of the data availableshowed that the bank managers were notcooperating with SHGs all over the country,and only a very small number appearedhelpful to SHGs.
The rationale of the majority of bankers waspredictable; since SHGs are essentiallyassociations of the poorest of the poor, whowould agree to give loans to them? Furtherthey were asset-less, and possessed noresources whatsoever. Thus the bankmanagers were not really interested inentertaining the idea of funding SHGs.
Therefore the concept of SHGs has not beenclearly understood by the majority of bankmanagers; possibly, the fact that SHGs werestill in an early stage of evolution, and areyet to be fully developed, added to thissituation.
Dr Gowda found that only three banks andfinancial institutions mentioned below hadshown sustained interest in the concept ofSHGs; it had generally not been clearlyunderstood by many of the other bankmanagers:
1) NABARD which refinances the banks.It has taken great interest in refinancingbanks, so that funds arc in turnprovided to SHGs.
2) Rastriya Mahila Kosh (RMK) of theGovernment Of India, which disbursesfinance to a number of NGOs tochannelise money for women's groups.
3) Small Industries Development Bank ofIndia (SIDBI).
All the three institutions are involved withSHG activities. CAPART has taken note ofthe experience of these institutions andformulated its own guidelines; a pamphlethas been brought out on this subject.CAPART has just made a beginning withSHGs.
The speaker recalled that just a few daysprior to the workshop, a project has beensanctioned by CAPART in Yaliwal village ofDharwad district.
NABARD had defined SHGs well and laidtoe parameters. In a document compiled byNABARD, some 20 pages have beendevoted exclusively to describing SHGs,their characteristics, the supporting peoplebehind them and the bankers who have beensuccessful in SHG programmes etc. InKarnataka, the Cauvery Grameen Banktopped in SHG financing with the help of awell known NGO, Mysore Rehabilitationand Development Agency (MYRADA).Syndicate bank was doing some work in therural· entrepreneurship sector throughRUDSET institutional programme, whichincidentally was also funded by CAPART.
In the speaker's experience, the RuralDevelopment for Self-EmploymentInstitutions (RUDSETI) programme onlysuited individual rural entrepreneurs andnot groups. A skilled carpenter, forexample, could get help to open a shop,provided he had been trained under aRUDSETI programme. Moreover, funding
was for individual entrepreneurships and notfor community trades.
Dr Gowda was of the opinion thatRUDSETI could take its activity to the
community by forming SHGs, Sincesupporting a community would greatly
benefit people rather than supportingindividual entrepreneurs.
He was of the opinion that RUDSETI woulddo well to adopt the SHG conceptand take itto the community. Bankers by themselvescould not form SHGs, but they can help anySHG identified in any particular area /district through a pre-identified NGO. ThisNGOin turn could approach CAPART forfunding.
The speaker explained in detail the SHGmodel being practiced in Yaliwal village.The community had been requested to formtwo SHGs, each with ten to twenty members,the optimum being IS. More than 20members in any group would mean incometax issues and registration requirementsunder The Companies Act. Unfortunately,this scheme and concept had not beenunderstood by NGOs either.
CAPART had advanced a total of Rs 20,000,ie. Rs 10,000 each to each of the two SHGsin Yaliwal. The members of the SHGs hereare all landless labourers, and did not have toshow, pledge or mortgage any collateral inthe form of property or land to banks forgetting loans. CAPART had come to theirhelp by giving them a "Sustainability Fund"(otherwise it can also be called as RevolvingFund). It is desired that the SHG activitiesshould sustain and continue even after thepresent project period. This amount had to bekept in the bank for a period of one year, andfrom the interest on this fund, SHGs couldgive loans to members.
Sri S Sadananda, Director, IDPMS
Sri S Sadananda, Director of IDPMS, a wellknown development institution in Bangalorewhich has a long and proven record ofworking with rural communities throughSHGs, addressed the gathering, touchingseveral important points including the role ofbanks in the development sector, therationale of starting SHGs, the c'd paradigmversus the new paradigm reflected indemand versus supply visible in hisexperiences in Mysore and Dharwaddistricts; case studies and perception of theSHGs in banks.
Reflecting on Self-help Groups andFinancial Institutions, Sri Sadananda notedthat:-
In the early seventies, with thenationalization of banks, the concept ofsocial banking was born. Tremendousamount of resources were diverted towards"Mass Banking". Banks were expected tofinance such of the borrowers who werehitherto considered as grant-worthy and notloan-worthy. Credit was recognized as theonly remedy for many ills of poverty. Underpriority sector lending, banks were assignedtargets to meet the credit demands of thepoor. Prudential security-oriented individualbanking gave away to mandatory banking.Government also introduced several schemessuch as IRDP, JRY, DWCRA, TRYSEM andnow Swarna Jayanthi Grameen RozgarYojana, with massive allocations. Theassumption behind the introduction of thesewas that the poor cannot save, they needsubsidy, the poor cannot take decisions andso on. According to the 1997- 98 EconomicSurvey Report, the level of "per family"investment is currently Rs 14,441 ascompared to Rs 1642 during 1980-81. InKarnataka 95,000 families have beenprovided assistance of Rs 132.98 crores,(Government of Karnataka EconomicSurvey Report, 1998-99).
Even after implementing such massiveschemes, we still talk of inadequate outreachand access to credit by the rural poor. It isestimated that still 84% of the rural poorhave no access to the credit system, and areserved by the informal sector with exorbitantinterest rates. Then where have we gonewrong?
Supply And Demand System
The poor are considered grant-worthy sincethey cannot save. They only need money forself-employment, and hence economicallyviable activities should be considered. Thepoor do not need loans for consumptionpurposes; even if they do take loans, theycannot repay. Loans granted for productionpurposes should not be diverted forconsumption purposes. The poor needsubsidy. Those at the helm of affairs forgetthat the poor need comprehensive bankingservices over and above credit. Consumptionneeds are of primary importance for thepoor. Division and difference betweenconsumption and production is wafer-thin.
However, recent experiences of creditmanagement by SHGs have amply proved that the above assumptions are wrong. Weknow very well that people save money formany purposes, whether it is for communityevent or village festival, marriage, purchaseof assets, etc. The poor are no exception. Ifthey cannot save, it is only because of lackof opportunities. Have we not heard of thechit funds? There are many more such ageold savings practices. Even today they arevery popular in villages. The poor want toand can save, but they need a flexible,convenient system. In India the social fabricis endowed with the spirit of self-help andcommunity help.
SHGs And Reform Process
Various schemes launched by thegovernment for providing credit to the ruralpoor have failed to reach them. Severalevaluation reports and research studies haveshown that these schemes have not achievedthe desired results, and the poor are still atthe mercy of money lenders andintermediaries. Above all, bankers are leftwith non-performing assets. With theintroduction of liberalization, priority sectorlending has come under severe scrutiny.SHGs devised and managed by the poorhave become ideal institutions to meet theirfinancial needs. A breath of fresh air isneeded in an otherwise hot and cumbersomerural banking.