Role of NABARD in Poverty Alleviation through SHGs

Transcription

1 Role of NABARD in Poverty Alleviation through SHGs CONTENTS 2.1 Brief Profile of National Bank for Agriculture and Rural Development (NABARD). 2.2 Self Help Group & SHG Bank Linkage Programme of NABARD. 2.3 Performance of SHG Bank Linkage Programme in India. 67

2 2.1 BRIEF PROFILE OF NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (NABARD) An overview: Concern for poverty in India has always been universal but after colonial rules, interest in poverty got momentum at first slowly and then by leaps and bounds. This was due to the realization that there was nothing divine about poverty, that it was man made. This realization acted like a catalyst and fused the aspirations of masses (poor and non-poor) into a definite programme of actions against poverty. During the early phase of the process of socio economic transformation of Indian society, it was assumed that economic growth by itself will lead to the reduction in the incidence of poverty. However, around senetics it was felt that the benefits of growth have shared inequitably and therefore special efforts need to be made to supplement the growth process by developing special programmes to cater to the need and development of identified groups. Formulation of programmes to mitigate poverty essentially requires knowledge of what are now recognised as enormously complex causes. Empirical identification of these causes is a formidable task because of the conceptual issues involved in defining the many dimensions of poverty, the data constraints in measuring its incidence and econometric problems in estimating the relationships between the casual factors and poverty levels. (Sarma, 1990) 1 After Independence, a major task thrust upon the RBI was to put in place the necessary institutional mechanism to complement the planning efforts. This was crucial especially in the context of the weak financial system with an underdeveloped and evolved commercial banking set up. Organized credit institutions had a negligible presence in rural India. In this back drop building up a sound and adequate institutional structure for rural banking and credit was paramount. To supplement the institutional build up, the RBI also assumed special responsibilities for augmenting the flow of rural credit. The formulation of agricultural credit policy beginning 1951 The RBI organized a comprehensive all India rural credit survey under the direction of a Committee (Chairman: A.D. Gorwala) appointed in The recommendations of the Committee set the pace and directions for the subsequent years not only for the agricultural credit policy but also for the related policies of Central and State 68

3 Governments and accordingly the Agricultural Credit Department (ACD) was of other institutions engaged in Agricultural lending. The RBI Act was amended in 1955 to enable it to create two funds: National Agricultural Credit (Long term operation) Fund and National Agricultural Credit (Stabilisation) Fund. (Bhasin, 2007) 2 And thereafter the RBI set up the Agricultural Refinance Development Corporation (ARDC) in 1963 for extending refinance to cooperative banks for promoting programmes for agricultural development. However with the implementation of Integrated Rural Development Programme (IRDP), the need for strengthening the institutional arrangements for the supply of credit to the rural areas was being felt. The necessity for augmenting the flow of credit and giving it a proper direction became all the more imperative to achieve success in rural development. The RBI appointed a committee known as Committee for Reviving Arrangements for Institutional Credit for Agricultural and Rural Development (CRAFICARD) to go into the whole gamut of rural credit and to make recommendations for reorganizing and strengthening it. The Committee submitted its report in March 1981 and recommended for setting up of a National Bank for Agriculture and Rural Development. And accordingly National Bank for Agriculture and Rural Development (NABARD) was set up in July 1982 by an Act of Parliament to take over all the agricultural credit functions of RBI as well as the refinance functions of ARDC. In fact NABARD has been set up with an aim to fulfill the aspirations of the rural people in general and translates the recommendations made by several committees for accelerating the process of development of agriculture and rural industries and allied activities. (Singh, 2001) 3 The establishment of NABARD is a milestone in the history of banking in India which is set up to accelerate the process of development of agriculture, rural industries and allied activities and more particularly rural development. Inaugurating the Bank, the then Prime Ministe It would be dynamic service institution for rural development and the people should regard it as a friend interested in rural development. (Desai, 2005) 4 69

4 The functioning of NABARD can therefore be viewed as a national level apex refinancing institution in the field of rural credit and as Bank responsible for institution building in the field of rural credit and rural banking in the country. (Bhat, 1998) 5 The NABARD is an apex institution for rural finance just as IDBI is an apex institution for industrial finance. NABARD provides by way of refinance to banks all kinds of production and investment credit to agriculture, small scale industries, artisans, cottage and village industries, handicrafts and other economic activities in an integrated manner. (Chhabra & Taneja, 1998) 6 Management Structure of NABARD Managing Director Chairman 3 Directors out of the Directors of RBI 3 Directors from Officials of Central Government Composition of Board of Directors of NABARD 3 Directors from amongst experts in various fields 4 Drectors from officials of State Government 2 directors with experts in the working of cooperative banks & 1 of commercial banks Figure: 2.1 Source: NABARD Profile,

5 The management of the NABARD is entrusted to a Board of Directors to be appointed by the Government of India in consultation with the Reserve Bank of India. The Board of Directors of the NABARD comprises the following personnel according to the provisions of sub-section (1) of the Section 6 of the NABARD Act, 1981: a) a chairman; b) three directors from amongst experts in rural economics, rural development, handicrafts and other rural crafts, village and cottage industries and small scale industries etc., the special knowledge or professional experience and exposure useful to the NABARD, as considered by Central Government; c) three directors out of whom two directors with experience in the working of cooperative banks and one with experience in the working of commercial banks; d) three directors out of the directors of the RBI. e) 3 directors will be from among the officials of the Government of India; f) 4 directors will be from among the officials of the State Governments; g) a managing director. (Shandilya & Prasad, 2006) 7 Organisation Structure: Figure: 2.2 Source: NABARD Profile,

6 In order to have a smooth functioning, the Board of Directors (includes a Chairman, a Managing Directors, and Executive Directors from various disciplines) is supported by a) 24 Head Office Departments each under the control of a Chief General Manager which includes Accounts Department, Business Initiatives Department, Central Vigilance Cell, Corporate Communications Department, Corporate Planning Department, Department of Core Banking Solution, Department of Economic Analysis & Research, Department of Information Technology, Department of Premises, Security and Procurement, Department of Refinance, Department of Storage and Marketing, Department of Supervision, Development Policy Department, Finance Department, Financial Inclusion Department, Human Resources Management Department, Inspection Department, Institutional Development Department, Law Department, Micro Credit Innovations Department, Rajbhasha Prabhag, Secretary's Department, Special Projects Unit- KCC-ICT, State Projects Department. b) 30 Regional Offices located in different States and Union Territories under the control of a Chief General Manager or Officer-in-Charge. And again under the Regional Offices there is one Sub-office Special Cell at Srinagar under the control of a Deputy General Manager, 395 District Development Offices under District Development Managers functioning at district level and 12 Project Monitoring Units under the control of an Officer-in-Charge at Andhra Pradesh, Gujarat, Rajasthan, Tamil Nadu, Karnataka, Uttar Pradesh, Maharashtra. c) Training Establishments at Bolpur, Hyderabad, Mangalore and Lucknow. Financial Resources The authorized capital at present is Rs.500 crores with a paid up capital of Rs.100 crores contributed by the Government of India and the Reserve Bank of Rs.50 crores each. The outstanding amounts of National Agricultural Credit (long term operation) Fund and National Agricultural Credit (stabilisation) Fund of the RBI were transferred to NABARD. The profits of these two funds for the year

7 were also transferred to NABARD. It is also empowered to draw funds from the Government of India, the World Bank, and the other financial institutions and also raise funds from open market through the issue of its debentures. (Reddy, 2001) 8 Functions of NABARD Refinance assistance: The establishment of NABARD is to provide refinance assistance to the State Cooperative Banks, the Regional Rural Banks or any other financial institutions approved by the RBI. The refinance assistances by the NABARD are provided to serve the following purposes: 1) To carry on agricultural operations or marketing of agricultural produce. 2) Marketing and distribution of various agricultural inputs (like improved seeds, chemical fertilisers, pesticides, etc.) necessary for carrying on agricultural operations and for agricultural development. 3) To carry on any other activity in the field of or for the development of agriculture and rural development. 4) For production and marketing activities of rural artisans or for small scale industries in the tiny and decentralized sector, village and cottage industries and to those engaged in the field of handicrafts and other rural crafts. In other words, it can be emphasized that NABARD provides refinance assistance for rural development in the sphere of agriculture, cottage and tiny industries and decentralized sector, small scale and handicrafts and various other rural crafts. Research and Development function: The NABARD through its Research and Development department promotes research in various aspects of the problems of agricultural and rural development and render assistance to NABARD in formulating development programmes and projects to suits requirements of various regions and areas in the country as also to cover activities requiring special attention due to one or other reasons. 73

8 The NABARD undertakes comprehensive training for its own staff and also for the staff of various financial institutions which seeks financial assistance from the NABARD. The idea behind is to upgrade the technical skills and competence of the financial personnel engaged in the task of agricultural and rural development. The NABARD is entrusted with the task of ensuring proper implementation of the aided projects and evaluate their performance with a view to improve the quality of their performance. (Desai, 1990) 9 Promotional Roles: NABARD plays the following promotional roles for the development of Indian Rural Economy: 1. Training and skill upgradation through Training cum Production centers, rural entrepreneurship development, training by and of master craftsmen, market oriented training for rural artisans and training the beneficiaries of development credit. 2. Development and dissemination of technology, employment oriented production technology, area planning for rural industrialization. Participation in Poverty Alleviation Programmes: Apart from the above functions NABARD also has actively participated in various other areas of which the prominent ones are discussed below: Integrated Rural Development Programme (IRDP): It is a scheme devised by the Government of India for generating self-employment opportunities in the rural sector and for the economic development of rural areas. Banks are advised to extend cheap credit facilities to the people group selected under this scheme. NABARD has accorded high priority to projects envisaged under IRDP by providing refinance to banks, which accounts for the highest share for the support provided for poverty alleviation programmes. 74

9 Swarnajayanti Gram Swarozgar Yojana (SGSY): It is a scheme under which rural individual poor and group of individuals like the SHGs may obtain credit facilities to undertake any economic activity which will generate regular income for the borrowers. The main objective behind this scheme is to uplift those who are living below poverty line and enable them to get an income of atleast Rs.2,000 per month. The scheme envisages to lift the poor families within three years of assistance. NABARD will provide refinance to banks sanctioning loans under this scheme. Development of Women and Children in Rural Areas: NABARD prepared guidelines for promoting group activities under this programme and provided 100% refinance support. Training cum Production for Women: NABARD provides grants to voluntary/ development agencies for setting up of centres which aim at providing vocational/ entrepreneurship training centres for women exclusively. Some provide marketing-oriented skills to women for up grading technical and designing skill. Self Help Group (SHG): NABARD has been making efforts to establish linkages between SHG organized by some voluntary agencies for poor people in rural areas and official credit agencies. This would augment the flow of credit for production purposes and reduce their dependence on informal credit sources. Scheme for Monitoring Evaluation and Research Activities: NABARD conducts studies on ongoing schemes and completed studies to obtain feedback on performance on these projects. The NABARD has system of District Oriented Monitoring studies in which a cross section of schemes sanctioned in a district to various banks is studied to ascertain the performance of the schemes and to identify constraints in implementation and for initiating appropriate action to remedy them. Annually about 100 such studies are conducted. NABARD also provides 75

10 support to research studies by academic and technical institutions on matters having bearing on its developmental role. For this purpose it has Research and Developmental Fund. Vikas Volunteer Vahini Programme: NABARD has been organizing farmers club in association with voluntary agencies in rural areas particularly in tribal areas which have proved very helpful for credit institutions in extending credit to poor farmers. These clubs besides creating awareness among weaker sections about proper utilization of assets and imparting modern method of farm technology are involved in educating the tribal people. External Aid Projects: NABARD has been implementing various foreign aided projects. The projects are assisted by World Bank Group, Organisation of Petroleum Exporting Countries Fund for international development etc. NABARD actively participates in formulation and implementation of such projects. It also required to monitor the projects and to submit final report to aid agencies. Inspection and Supervision of Cooperative banks and Regional Rural Banks: NBARD has been entrusted with the responsibility of supervision of Cooperative Banks and Regional Rural Banks. For this purpose it conducts inspection of Cooperative Banks and Regional Rural Banks. These banks are also to submit periodical information to NABARD for monitoring purposes. NABARD gives its recommendations to RBI with the matters relating to licensing of Cooperative Banks and Regional Rural Banks. Human Resource Development: NABARD provides assistance and support for the training of staff and other credit institutions engaged in credit dispension for agriculture and rural development. Training facilities are extended at its two training institutions Bankers Institute for Rural Develoment (BIRD) and Regional Training Centres (RTCs). Some funding of the courses conducted at the College of Agricultural Banking of RBI and Junior Level 76

11 Training Centres of SLDBs are also provided. Apart from these NABARD conducts seminars/ programmes on Non-Farm Centre Business Development, inspection of banks etc. (Natarajan & Parameswaran, 2002) SELF HELP GROUP & SHG- BANK LINKAGE PROGRAMME OF NABARD Poverty is regarded as a main stumbling block to social development. All countries of the world openly admit the existence of poverty in them, and all have shown their commitment to eradicate it. Poverty was one of the main issues discussed at the World Summit for Social Development, held in 1995 in Copenhagen. (Choudhury, 2005) 11 Poverty is not only about what you need to avoid dying from starvation and cold, but the condition you need to stay healthy and participate in the society in which you need to live. Poverty is concerned with social needs as well as physical needs. (Singh, 2001) 12 India lives in villages. This edge which emphasizes the agrarian character of the Indian economy and to which such pointed attention was drawn by Mahatma Gandhi, continues to be true to this day inspite of industrial development that has taken place in the last four decades since independence. The industrialization has not made any substantial difference to the proportion of population that lives in villages, though the exodus from villages in recent years has created problems and added to the urban slums. The importance of rural development, looked at broadly as such is further intensified by the fact that poverty the alleviation of which is the supreme objective of all developmental efforts has the widest incidence, and infact its sources in rural areas. (Yadav & Gurjar, 1997) 13 It is well recognised that the avowed objectives of our social planners immediately after independence of our economy were the ending of poverty, ignorance and the inequality of opportunities. Of course, there has been an evolution of policy strategies, from time to time, since independence towards this direction. But ironically even after the elapse of sixty four years after independence about one-third of our total population still suffer from abject poverty and a large section of poverty afflicted people is entangled by the poverty trap i.e. they suffer from chronic poverty. The incidence as well as intensity of poverty has also been 77

12 reflected in its various dimensions viz., the social, regional, occupational, ethnical etc. in both rural and urban areas of our economy albeit with some degree of variations. Interestingly the Govt. has made changes in the policy strategies towards the objective of alleviation of poverty depending on the dynamic behaviour of our macro-economic scenario during the plan period. In fact up to the early 70s we actually followed the strategy of growth mediated development policies on the basis of the expectation of the op growth would automatically percolate amongst all sections of people irrespective of region, religion and castes etc. But astonishingly the proportion of people lying below the poverty line remained well above 50% up to mid70s which was followed by a declining trend thereafter albeit with some degrees of fluctuation. Because of this pessimistic experience of the failure of trickle down hypothesis, our Government has made a radical shift of her policy strategy towards the direct attack on poverty by pursuing various workfare and welfare programmes viz., different employment generating programmes like IRDP, SJGSY (latter renamed as SGSY) and other social security programmes like NREG etc. so that the benefits of this programmes could reach the target group. (Ghosal, 2012) 14 The development of the concept of Self Help Group was one of the most prominent poverty alleviation programmes. Self Help Groups (SHGs) A Brief History: The history of the SHGs (Self Help Groups) movement, a noble mission was originated in Bangaldesh under the leadership of Prof. Mohammed Yunus. (Sadyojathappa, 2011) 15 However in India the concept of SHGs has been familiar to people from generations. The structure was informal (sangha), small groups of rural and urban people hand together to form savings and credit organisations. Self Help Groups mean small, socially and economically homogeneous group of rural and urban people, who assembled together for some productive purpose. In the early stages, NGOs played a pivotal role in innovating the SHG model and in implanting the model to develop the process fully. In 1987, NABARD took an initiative to serve the lowincome population of the country with financial services in cost effective manner. This led to the development of a relationship between the informal SHGs and the formal banking system. The bank provides loan to the groups for various financial activities. Later on, NABARD formally launched the SHG-Bank Linkage Programme 78

13 as a pilot project in 1992 with the support of the Reserve Bank of India. (Das & Tiwari, 2012) 16 This programme envisages organization of the rural poor into SHGs for building their capacities to manage their own finances and then negotiate bank credit on commercial terms. The poor are encouraged to voluntarily come together to save small amounts regularly and extends micro loans among themselves. Once the group attains required maturity of handling larger resources, the bank credit follows. (Feroze & Chauhan, 2011) 17 Self Help Groups are voluntary gatherings of persons who share needs or problems that are not being addressed by existing organizations, institutions, or other types of groups. The broad goals of a Self Help Group are to bring about personal and socioeconomic change for its members and society. All of those groups emphasises face to face interaction among members and stress a set of values or ideology that enhances a rsonal sense of identity. Self Help Groups (SHG) is a group of rural poor who have volunteered to organize themselves into a group for eradication of poverty of the members. They agree to save money regularly and convert their savings into a common fund known as the group corpus. The members of the group agree to use this common fund and such other funds that they may receive as a group through a common management. (Chandrashekar & Lokesh, 2009) 18 SHG Definition: socio-economic background. They come together for the purpose of solving their common problems through self-help and mutual help. These groups may be registered or unregistered. The members of these groups save small amounts regularly and mutually agreeing to contribute to a common fund to meet their emergency needs on Vasanthakumari, 2011) 19 An SHG has an average size of about 15 people from a homogeneous class. They come together for addressing their common problems. They are encouraged to make voluntary thrift on regular basis. They use these pooled resources to make small 79

14 interest bearing loans to their members. The process helps them imbibe the essentials of financial intermediation including prioritization of needs, setting terms and conditions and accounts keeping. This gradually builds financial discipline in all of them. They also learn to handle resources of a size that is much beyond individual capacities of any of them. The SHG members begin to appreciate that resources are limited and have a cost. Once the group shows this mature financial behavior, banks are encouraged to disburse loans to the SHGs in certain multiples of the accumulated savings of the SHG. The bank loans are given without any collateral and at market interest rates. The groups continue to decide the terms of loans to their own members. loans made by the groups to their members, peer pressure ensures timely repayments. (MCID, NABARD) 20 Self Help Groups (SHGs) formed in rural India, consisting, usually fifteen to twenty members hailing from a certain locality with similar socio - economic backgrounds. The unregistered groups operate on the principles of mutual trust, co-operation and interdependence. Preference in membership is offered to the poorest of the poor, handicapped, windowed, deserted and dalits. The leaders are selected from members of the group. The SHGs work through a process of social mobilization to set up a successful enterprise to earn a sustainable living that helps the beneficiaries to lift themselves above the poverty line. (Sreedhar, 2012) 21 small and informal association of the poor, usually from socio-economically homogeneous families who are organized around savings and credit activities. Members of SHGs meet weekly or monthly and discuss common problems and share information to come out at a solution. Group members make effort to change their economic and social problems through mutual assistance. (website: Planning Commission) 22 Need and Objectives of SHGs: Formation of Self Help Groups for rural unemployed, especially women, would ensure the best satisfaction of the poor. The membership in a group activity gives 80

15 him/ her a feeling of self esteem, self dependence, cooperation and protection. The approach towards poverty alleviation is based on the formation of SHGs at the grassroots level. This brings about the necessity for organizing them in a group by which they get the benefit of collective perceptions, collective decision making and collective implementation of programme for common benefits. This organization acts as an instrument of empowerment of the poor as well as antidote to the helplessness of this section of the people. The group savings of SHGs serve a wide range of objectives other than immediate investment. A SHG is usually formed with the following objectives in mind: Improve discipline among the group members in developing a saving habit. Savings enhance self-confidence of the individual as it is a sign of group encouragement. Group savings of the poor can demonstrate the strength of unity of members. With credit becoming available out of collective savings, the members can start new, viable, economic activities to rid themselves of the scourge of poverty. (Kapoor, 2013) 23 Formation of SHGs: A reasonably educated helpful local person, may be a retired school teacher or government employee or an unemployed youth or any NGO, called animator, takes the lead in mobilizing the poor people to form a group. Such animator or facilitators, helps the group members develop the habit of thrift and promotes small savings among them. The group savings are kept in common bank account from which small loans are given to members. After six months of the formation, the SHG can approach any bank for availing loan facility to undertake suitable entrepreneurial activity. The group loan is distributed among the members to run small business. The loan is repaid out of the profit earned. Formation Steps: 1 st step: Introduction and relationship building with the group 81

16 The animator or facilitator sits with the masses and have first hand knowledge about the village economic situation, the importance of having the natural resources, to ascertain the available skills and expected market of the produced product etc. -At the very outset, to awaken the people, regular visit to the set village should be made and the importance of building SHG should be propogated there and they should be made to realize that- (i) regular savings ensures economic self sufficiency. (ii) small loans pay early dividends. (iii) SHG shows the way of financially and socially independent units and caring the concept in true sense of the term. (iv) SHGs help the people through small savings and guide them to proceed in the right direction. (v) there will be a marked development of literacy, health and social standing, once their economic condition is improved. 2 nd Step: Organisational operation To become aware of the aim and choose the way. -To elect the executives and to set forth the rules and regulations of the group. -The organized group could easily open bank account in its name. Functioning of SHGs: 1. Size of SHG: Minimum ten members are essential to form a group and the maximum numbers of members must not exceed 20, as SHGs are informal groups. Legally, a group of more than 20 members are required to be registered. 82

17 2. Membership: According to NABARD guidelines: Only one person from a particular family can join the group as in this way more family can be included in the movement. Members are generally from the same locality or village as it helps in easy communication. They are from same social and economic background. It helps in good interaction among the members. 3. Election of group leader: The members of the group elect the group leader democratically. The leader has the responsibility to organize the group meetings and chair its proceedings. She or he maintains the group records and helps to facilitate the process of banking and other economic and social contracts. 4. Group meetings: The group meeting is organized weekly or at least monthly. It helps better. Attendance in meetings is compulsory for members. Absence may draw fines according to bylaws of the group. All the major decisions on saving and lending transaction are taken in the meeting. They decide on the date and venue of the meetings and savings of all individuals are collected in the meeting. The member share and discuss the problems faced by them. 5. Keeping accounts by the SHG: Simple and clear accounts are kept for all transactions. If none of the members of the group is able to maintain the account, the group takes help from outside the group. He or she may be rewarded for the same. Sometimes the animators or the NGO personnel help the group to maintain different records. To avoid any confusion and mistrust all the transactions are recorded during the group meeting only. 83

18 6. Books kept by a SHG: Minutes book: The names of the members, rule and regulations, proceedings of the meetings etc., are recorded in this book. Savings and loan register: Individual savings as well as group savings are recorded in this book. Individual loans, repayments, interest collected, balance etc., are entered here. Weekly/ fortnightly/ monthly register: Summary of receipts and payments are kept in this book. Individual savings and loan balance outstanding is regularly entered here. 7. Savings and lending mechanism: a) Savings and Thrift: The group members start saving a small amount Credit members and they become disciplined in financial matters which will help them while handling bank loans. b) Bank accounts: Soon after one or two meetings, the SHG passes a resolution in the group meeting, signed by all the members to open a saving bank account in the name of the SHG. The SHG authorizes at least three members, any two of whom, to jointly operate the account. The resolution along with the filled in application form and a copy of the rule and regulations of the SHG is filed with the bank. Then saving bank account pass book is issued to the SHG. c) Internal lending: After saving for a minimum period of two or three months, the group starts lending to its members at a pre-decided interest rate from the common savings fund. The terms and condition for advancement of loans are pre-decided. Generally, intra-group loans are available for production as well as consumption purposes and interest rates vary between two to three percent per month. d) External credit: After six months when the members show a saving habit and learns to manage, utilize and repay their loans, the SHG seeks external credit from the bank. The bank assess the performance of the group based 84

19 on certain parameters (16 in number) such as group size, regularity of meetings, saving collection within the group, utilization of savings, loan recoveries etc. After being satisfied about the viability of the group, the bank issues a loan in the name of the SHG. The quantum of loan generally varies between one to four times of the savings amount of the group but it may be more than that provided the bank becomes satisfied about the health of the SHG. e) Further lending activity: Further loan is given to the group members. They decide on the candidature of loan applicant on the basis of need and purpose of spending. The purpose can vary from buying of assets for income generating activities to emergency needs like illness, marriage etc. The interest earned is deposited in the account as a part of group fund. f) Repayment of loan: The group remains collectively responsible for repayment of the external loan. A small and regular repayment schedule is finalized with the SHG. Peer pressure, peer support, peer monitoring discourages willful default. Every member is made to realize that the money belongs not only to him but other members of the group also. The group may have common income generating activities for which the promoting institutions may arrange training programmes. SHG-Bank Linkage Programme Models: The SHG-bank linkage programme has its origin in a GTZ-sponsored project in Indonesia. Launched in 1992 in India, early results achieved by SHGs promoted by NGOs such as MYRADA (Mysore Resettlement and Development Agency), led NABARD to offer refinance to banks for collateral free loans to groups. The collateral free loans increase progressively to up to four times th banks able to access funds from the formal banking system. 85

20 The programme encompasses three broad models of linkage: Figure 2.3: SHG BANK LINKAGE MODEL - I BANK FORMING AND NURTURING SAVINGS SHG CREDIT LINKED TO SAVINGS MEMBERS Source: NABARD Website SHGs formed and financed by banks. In this model, the bank itself takes up the work of forming and nurturing the groups, opening their bank accounts and providing them with bank loans after satisfying itself as to their maturity to absorb credit. Here, the bank acts as the SHPI. Figure 2.4: SHG BANK LINKAGE MODEL - II NGO, GO, FORMING, NURTURING & MONITORING BANK CREDIT LINKED TO SAVINGS SHG SAVINGS MEMBERS Source: NABARD Website 86

21 SHGs formed by NGOs and formal organizations but directly financed by the banks. In this model, groups are formed by NGOs (in most cases) or by government agencies. The groups are nurtured and trained by the agencies. The bank then provides credit directly to the SHGs after observing their operations and maturity to absorb credit. While the bank provides loans to the groups directly, the facilitating agencies continue their interactions with the SHGs. Most linkage experiences begin with this model, where NGOs play a major role. The model has also been popular with and more acceptable to banks, since some of the difficult functions of social dynamics are externalized. Around 75 percent of the total numbers of SHGs are financed under this model. Figure 2.5: SHG BANK LINKAGE MODEL -III FORMING, NURTURING, WHOLESALE CREDIT NGO, Federation of SHGs MONITORING CREDIT BANK SAVINGS? SAVINGS? SHG MEMBERS Source: NABARD Website SHGs financed by banks using NGOs and other agencies as financial intermediaries. For various reasons, banks in some areas are not in a position even to finance SHGs promoted and nurtured by other agencies. In such cases, the NGOs act as both 87

22 facilitators and microfinance intermediaries. First, they promote the groups, nurture and train them and then they approach banks for bulk loans for onlending to SHGs. 2.3 PERFORMANCE OF SHG BANK LINKAGE PROGRAMME IN INDIA The initiative of NABARD with support from RBI in 1992 to make traditional and formal banks to extend financial services to deprived sections through informal SHGs has now blossomed into a monolith microfinance initiatives and now it has been recognised as a decentralised, cost effective and fastest growing microfinance initiative in the world which enabled the poor households access to a variety of sustainable financial services from the banking system. The linkage with banks has provided the members of the group the facility of not only pooling their thrift/ savings access credit from banking system but also created a platform through they would launch a number of livelihood initiatives and also facilitate the empowerment process. And as a result the SHG Bank linkage programme of NABARD has now become a well known tool for bankers, development agencies and even for corporate houses. SHGs in many ways has now gone beyond the means of delivering the financial services as a channel and turned out to be focal point for purveying various services to the poor. This programme over a period, has therefore become the common vehicle in the development process. With a small beginning of linking 500 SHGs to banks in 1992 the programme has reached 8 million SHGs by March, 2012, out of which 4.4 million SHGs are regularly availing credit facilities from the banks. (Status of Microfinance in India, ) 24 Detailed analysis of the SHG Bank linkage programme across the geographical spread of the country and across the financial agencies is being presented in this Bank linkage programme can be analysed. 88

23 Table 2.1: Savings of SHGs with Banks (Agency-wise all India Position from to ) Agency As on Savings of SHGs with Banks 31 st March No. of SHGs % Growth Amount of Savings % Growth (Rs. in lakhs) Commercial Banks (1.82) (11.72) Regional Rural Banks (34.70) (36.56) (3.75) (4.20) Co operative Banks (38.75) (23.48) (1.02) Total (6.63) (8.07) Source: Status of Microfinance NABARD to

24 Fig: 2.6 No. of SHGs Savings with Banks (All India Position) No. of SHGs No. of SHGs Year (As on 31st March) Fig: 2.7 No. of SHGs Savings with Banks (Agency-wise all India Position) No. of SHGs Commercial Banks Regional Rural Banks Co operative Banks Year (As on 31st March) 90

25 Fig: 2.8 Savings Amount of SHGs with Banks (All India Position) Rs. in Lakhs Amount of savings of SHGs Year (As on 31st March) Fig: 2.9 Savings Amount of SHGs with Banks (Agency-wise all India Position) Rs. in Lakhs Commercial Banks Regional Rural Banks Co operative Banks Year (As on 31st March) One of the priority features of the formation of SHG is to inculcate the habit of savings among the members of SHG, i.e., savings first credit next. Table 2.1; figure 2.6, 2.7, 2.8 & 2.9 shows the progress of microfinance in India with respect to the savings of SHGs with banks during the period to Under the SHG 91

26 Bank Linkage Programme, a total of 50,09,994 SHGs were savings linked with banks with a savings amount of Rs.3,78, lakh during the year ended 31 st March 2008 as against 41,60,584 SHGs savings linked with banks with a savings amount of Rs.3,51, during thereby having a growth rate of 20.42% and 7.76% respectively. Again, during the year ended 31 st March 2009 a total of 61,21,147 SHGs were having savings bank account with banking sector with a savings amount of Rs.5,54, lakhs and if compared during it registered a growth rate of 22.17% and 46.50% respectively. Likewise, during the year ended 31 st March 2010 a total of 69,53,250 SHGs were having savings bank account with banking sector with a savings amount of Rs lakhs and if compared with it registered a growth rate of 13.59% and 11.78% respectively and during the year ended 31 st March 2011 a total of 74,61,946 SHGs were having savings bank account with banking sector with a savings amount of Rs.7,01, lakhs and if compared with it registered a growth rate of 7.32% and 13.19% respectively. Similarly, during the year ended 31 st March 2012 a total of 79,60,346 SHGs were having savings bank account with banking sector with a savings amount of Rs.6,55, lakhs and if compared with it registered a growth rate of 6.68% in terms of number of SHGs having savings bank account with banks but there is a decline in the savings amount by 6.63%. And during the year ended 31 st March 2013 a total of 73,17,551 SHGs were having savings bank account with banking sector with a savings amount of Rs.8,21, lakhs. From the above facts it can be said that there has been a constant decline in the savings of SHGs with banks both in number of SHGs and in the savings amount. The reason may be either due to increasing awareness at the SHG level about the advantage of using the savings for internal loaning or due to less awareness at the SHG level regarding development of savings habit. 92

27 Table 2.2: Bank Loan Disbursed to SHGs (Agency-wise all India Position from to ) Agency Year Bank Loan Disbursed to SHGs Commercial Banks Regional Rural Banks Co operative Banks No. of SHGs % Growth Bank Loan Disbursed % Growth (2.69) (31.49) (0.57) (10.29) (14.05) (7.05) (39.09) (51.23) (18.37) (51) (28.91) Total (1.41) (24.62) (4.03) Source: Status of Microfinance NABARD to

28 No. of SHGs FIGURE: 2.10 No. of SHGs Disbursed with Bank Loan (All India Position) No. of SHGs Year FIGURE: 2.11 No. of SHGs Disbursed with Bank Loan (Agency-wise all India Position) No. of SHGs Commercial Banks Regional Rural Banks Cooperative Banks 0 Year 94

29 FIGURE: 2.12 Amount of Bank Loan Disbursed to SHGs (All India Position) Rs. in Lakhs Amount of loan disbursed to SHGs 0 Year FIGURE: 2.13 Amount of Bank Loan Disbursed to SHGs (Agency-wise all India Position) Rs. in Lakhs Commercial Banks Regional Rural Banks Cooperative Banks Year Table 2.2; Figure 2.10, 2.11, 2.12 & 2.13 shows the progress regarding the bank loan disbursed to SHGs with during the period to A total of 12,27,770 95

30 SHGs had access to direct credit facilities from the bank with a total bank loan of Rs. 8,84, lakhs during as against 11,05,749 SHGs with a total bank loan of Rs.6,57, lakhs during which registered a growth rate of 11.04% for number of SHGs and 34.68% with respect to the amount of bank loan disbursed. And total of 16,09,586 SHGs had access to direct credit facilities from the bank with a total bank loan of Rs.12,25, lakhs during and comparing with the that of it recorded a growth rate of 31.10% for number of SHGs and 38.47% with respect to the amount of bank loan. Again during the year the bank financed 15,86,822 SHGs with a bank loan of Rs.14,45, lakhs and if compared with it witnessed a decline of 1.41% regarding number of SHGs forwarded credit facilities but a growth rate of 17.95% with respect to the amount of loan forwarded. And again during the year the bank financed 11,96,134 SHGs with a bank loan of Rs.14,54, lakhs and likewise during the year the bank financed 11,47,878 SHGs with a bank loan of Rs.16,53, lakhs. And during the year the bank financed 12,19,821 SHGs with a bank loan of Rs.20,58, lakhs recording a growth rate of 6.27% with respect to number of SHGs having bank financed and 24.50% with respect to the amount of bank loan disbursed to SHGs. Considering these it can be rightly remarked that there is a continuous flow of finance from banks for the development of SHGs which indicates an increase in interest from inducement of such SHGs to develop. At the same time it is also a motivating factor from SHGs point of view. 96

31 TABLE: 2.3 Bank Loan Outstanding against SHGs (Agency-wise all India Position from to ) Agency As on Bank Loan Outstanding against SHGs 31 st March No. of SHGs % Growth Bank Loan Outstanding % Growth Commercial Banks (5.68) (14.29) Regional Rural Banks (59.08) (68.95) Co operative Banks (65.38) (74.21) Total (1.33) (9.03) Source: Status of Microfinance NABARD to

32 FIGURE: 2.14 No. of SHGs having Bank Loan Outstanding (All India Position) No. of SHGs No. of SHGs having Outstanding Bank Loan Year (As on 31st March) FIGURE: 2.15 No. of SHGs having Bank Loan Outstanding (Agency-wise all India Position) No. of SHGs Commercial Banks Regional Rural Banks Co operative Banks Year (As on 31st March) 98

33 FIGURE: 2.16 Amount of Bank Loan Outstanding against SHGs (All India Position) Rs. in Lakhs Amount of Outstanding Bank Loan against SHGs Year (As on 31st March) FIGURE: 2.17 Amount of Bank Loan Outstanding against SHGs (Agency-wise all India Position) Rs. in Lakhs Commercial Banks Regional Rural Banks Co operative Banks Year (As on 31st March) Table 2.3; Figure 2.14, 2.15, 2.16 & 2.17 shows the position of banks with respect to the bank loan outstanding with SHGs during the period to A total of 36,25,941 SHGs had an outstanding bank loan Rs.16,99, lakhs during the year ended 31 st March 2008 as against 28,94,505 SHGs with a total bank loan outstanding of Rs lakhs during which revealed that the bank loan outstanding increased registering a growth rate of 25.27% for number of SHGs and 99

34 37.47% with respect to the amount of bank loan outstanding. And a total of 42,24,338 SHGs had an outstanding bank loan Rs.22,67, lakhs during ended 31 st March 2009 which reported a growth rate of 16.50% for number of SHGs and 33.41% with respect to the amount of bank loan outstanding, if compared with that of the previous year Again during the year ended 31 st March ,51,356 SHGs maintained a bank loan outstanding of Rs.28,03, lakhs and if compared with it was increased by 14.84% regarding number of SHGs maintained bank loan outstanding and a growth rate of 23.62% with respect to the amount of loan outstanding. And again during the year ended 31 st March 2011, 47,86,763 SHGs maintained a bank loan outstanding of Rs.31,22, lakhs and likewise during the year ended 31 st March 2012 the 43,54,442 SHGs maintained a bank loan outstanding of Rs.36,34, lakhs. And again during the year ended 31 st March 2013, 44,51,434 SHGs maintained a bank loan outstanding of Rs.39,37, lakhs and after comparing with that of the year it shows a growth rate of 2.28% and 8.35% with respect to number of SHGs having outstanding bank loan and the amount of outstanding bank loan against SHGs respectively. Considering these it can be rightly remarked that there is a continuous increase of bank loan outstanding year after year which indicates that bank is still favoring SHGs with bank loan with considering the increase in the amount of bank loan outstanding. However, with respect to SHG maintaining bank loan outstanding, it shows a decreasing trend. The progress of SHG members to take up micro enterprise involves intensive training and hand holding on various aspects including understanding market, potential mapping and ultimately fine tuning skills and entrepreneurship to manage the enterprise. Hence NABARD in This involves organizing short duration, location specific 100