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Status of Micro Credit through SHGs in Meghalaya (The contents below is extracted from author’s book on "Credit
related Issues in Meghalaya", Published by NEICSSR Shillong, August,
2006. ©
Shreeranjan) Introduction Planning Commission in 2002 has acknowledged that
“the credit needs of the rural poor are at present only partially met by
formal credit agencies and a majority of rural poor continues to depend on
the informal sources of credit”. Following pattern of credit usage by
the rural poor has emerged from the study of PriceWaterHouse Coopers as
quoted by the Planning Commission (2002):
The
study gave the following reasons for this distortion:
3.10. Role of Micro Finance, Micro Finance Institutions (MFIs) & Self Help Groups (SHGs) in Rural Credit Microfinance
refers to small scale financial services for both credit and deposit
purposes. ADB (2000, cited by Satish, P, 2005) ‘defines microfinance as
the provision of broad range of services such as deposits, loans, payment
services, money transfers, and insurance to poor and low income households
and their micro enterprises.’ The task force for NABARD (2003) sums up
microfinance as "Provision of
thrift, credit and other financial services and products of very small
amounts to the poor in rural, semi urban or urban areas for enabling them
to raise their income levels and improve living standards". Micro Credit as we know
refers to small amounts of credit both for production and consumption
purposes to those poor households who remain or chose to remain outside
the reach of the formal credit system but have demonstrated their credit
worthiness. It is perceived as the springboard on which the economic
emancipation of the weaker section could be initiated. Micro Credit helps
the poor to acquire new assets, produce goods and services, and encourage
collective self-management of resources for sustainable development. RBI
(1999) mentioned “micro-credit organisations are institutions which
provide thrift and credit and other financial services and products of
very small amounts mainly to the poor in rural or urban areas for enabling
them to raise their income level and thereby improve living standards. The
micro-credit organisation would include institutions such as
Non-Governmental Organisations, federations of Self Help Groups, Mutually
Aided Cooperative Societies, etc.” There has been a rise
in micro credit programmes through
MFIs. The key aspects and lessons from Grameen Bank experiences (Hulme and
Mosley, 1996) are:
It has been
established that microfinance programs both sponsored by NGOs and the state have
been better in reaching out to moderately poor and vulnerable (not necessarily
poor) households than to the extremely poor households. The usage of loans is
often to protect against risk ahead of time than as ex-post coping mechanism,
loans are rarely used for consumption directly which is generally met by
smoothing income flows. When used as a coping device, loans usually go into
rebuilding assets rather than direct consumption. Presently
micro finance institutions (MFIs) are broad spectrum entities which obtain
finance from banks according to guidelines issued by RBI. MFIs seek to provide
small scale credit and other financial services to low income households and
small informal businesses.
As per one definition in MFDEF scheme of NABARD
“Micro Finance Institutions means an entity whose principal object or
principal business is the provision of micro finance services to eligible
clients and comprises microfinance organisations and MFI-NBFCs.”
MFIs appears
to be ‘legally amorphous entities’ (RBI, 2005). In terms of nature and
extent of regulation and supervision there are significant differences across
the legal forms. .Most of these institutions are not under any prudential
regulation and hence often do not enjoy confidence of lenders, donors and other
stakeholders (RBI, 2005).
‘For profit’
MFIs are incorporated under the Companies Act, 1956 and are registered as NBFCs
under the RBI Act, 1934 which fall within the purview of RBI regulations. ‘not
for profit’ companies under section 25 of the Companies Act, 1956 are exempt
from the regulatory requirements under the RBI Act subject to certain
conditions.
[Source:
NABARD, 2003
( cited by Sen and Shylendra) & Satish, P. 2005 Economic and Political Weekly, The position of micro
credit providers and present legal framework governing them is as under(RBI, 2004 ):
In recent
years, banks have also resorted to involving NGOs and other CSOs (Civil Society
Organisations) for the SHG-Bank linkage programme, Joint Liability Groups,
MFOs, and Microfinance institutions (MFIs), as "pass through"
agencies. New generation banks with a heavy reliance on technology but with a
very limited branch network also have started to tap the rural credit market.
There are more than 800 MFIs
operating in India and more than 3000 organisations involved in promoting and
facilitating the SHG-Bank Linkage Programme as per RBI (2005).
MFIs provide a multidimensional services,
besides enabling the poor to avail
of some of the financial services. The activities
covers wide spectrum such as promotion of SHGs, partnering with banks for
financial services, to be facilitators without carrying the micro finance assets
and liabilities on their balance sheets. Barring
some large NGOs, NBFCs, MACSs which function as "pass-through"
entities in "partnership" with banks [ for Example
MFIs like SPANDANA (SPANDANA is a NGO
operating in Guntur, Andhra
Pradesh ), Share-Micro Finance Limited
(Society for Helping and Awakening Rural poor through Education, Hyderabad,
Andhra Pradesh.,)] others do not handle cash.
Most MFIs have lopsided geographical distribution concentrated in There
are various approaches,
classification, models , categorisation of MFIs a snapshot of which is presented
below: Francis Sinha, 2005, indicates
i) SHGs model ( MACS is included in this) and Grameen Model. Satish , P. (2005)
mentions broadly five (5) categories of methodologies in
microfinance,
(Source: Extracts from an article written and
presented at the APRACA Seminar at There is
ongoing debate in respect of a regulatory
system for the MFIs which focuses on three stages approach as
indicated by RBI and NABARD:
The
Committee of RBI recommended that while the MFIs may continue to work
as wholesalers of micro Credit by entering into tie-ups with banks and
apex development institutions, more experimentation are needed about
the suitability and sustainability of the MFI model. Such
experimentation needs to be encouraged in areas where banks are still
not meeting adequate credit demand of the rural poor such
as North-eastern states and tribal dominated states such as Jharkhand,
Chhattisgarh and Orissa which
is pertinent to the Meghalaya context. There is also a view that
while the NGO-MFIs can continue to extend micro credit services to
their clients, they could play an important role in facilitating
access of their clients to savings services from the regulated banks.
As regards allowing NGO-MFIs to access deposits from public / clients,
the Committee of RBI consideresd that in view of the need to protect
the interests of depositors, they may not be permitted to accept
public deposits unless they comply with the extant regulatory
framework of the Reserve Bank of India; further, as no depositors'
interest is involved where they do not accept public deposits, the
Reserve Bank of India need not regulate MFIs. The committee is also of
the view that lenders of MFIs should ensure that these institutions
adopt a ‘cost-plus- reasonable-margin’ approach in determining the
rates of interest on loans. NGO promoted Micro Finance Institutions
either in the shape of SHGs and NBFCs traverse the thin line of formal
and informal structure and could emerge as a sturdy hybrid which takes
on the best elements if governed and delivered properly. According
to a study by Kropp and Suran (2002), three different models of credit
linkages have been found feasible while applying to their formation in
the country:
I
would like to add 4th dimension of stand alone or abandoned
SHGs promoted by NGOs, Govt., banks as per some programmes and abandoned
or left alone in the tumult of development and finance. An additional
fifth column of SHGs is such that mutates from one form or format to
another in the spirit of survival of the fittest through adaptation. Based on
above stipulations, there could be different
models of the linkage between SHG and banks ( modified after study by
Thorat, YSP. 2004; Nanda, Y.C.
1994 ): Model
1: The
simplest and most direct is a model in which the banks deal directly with
the individual SHGs, providing financial assistance for on-lending to the
individual members. Model
2: Another
model, a slight variant of the first, is where the bank gives direct
assistance to the SHG and the SHG promoting instituion (SHPI), usually an
NGO, provides training and guidance to the SHG and generally keeps a watch
to ensure its satisfactory functioning. Model
3:
The third
model places the NGO or SHPI as a financial intermediary between the bank
and a number of SHGs. The linkage between the bank and the SHGs in this
case is indirect. The NGO accepts contractural responsibility for
repayment to the bank. Model
4: The most
common linkage model in Model
5: In many
cases, the NGO/ SHPI also provides or organizes/ channelise some amount of
initial support to these SHGs to augment their resources (for e.g.
an NGO, MYRADA, provided such financial assistance to SHGs from an
initial support of Rs. 1 million by NABARD before the Pilot Project was
started). The SHPI/NGO also monitors and ensures satisfactory functioning
of the SHGs even after the linkage. Model
6 : Mixed or Variants:
Very often in the older SHGs the linkages traverses an evolutionary
process where there is movement from model five or three to model two and
to model one and finally to model four as the objective is access to the
quantum of finance and end use. Growth,
evolution or adoption or adaptation of various course very often depend on
the perception and formalities of the bank and also on the strength of
MFIs/ Govt and other agencies. There have been cases where banker is
proactive, outgoing, having a first hand knowledge on the working of a SHG
has straightway taken model two or even model one. On the other hand,
conservative banking may follow model three and rely on the NGO or
SHPI or Model 4 which fits the Govt. Sponsored Programmes for defined
objectives (e.g. SGSY, IWEP, SGSRY etc). Group-based credit and insurance
programs experimented over the last two decades, also offer good promise
as it:
The shortcomings of Group-based credit and insurance programs are that:
Group
credit schemes may need to think of innovative ways to lower
costs while maintaining their outreach to the poor. On costs and benefits
of credit subsidies issue limited evidence shows differences across
programs and within programs across different groups of borrowers. Vijay
Mahajan (2005) has mentioned limitations
of micro
credit in having five fatal assumptions:
Drawing upon the concept of
livelihoods as mentioned in the opening portion of chapter I a more sustainable
broad based expanded paradigm of micro credit is engulfed in the concept of
‘livelihood finance’( Mahajan, V.2005) as intrisincally linked. According to
Mahajan (2005) ‘livelihood finance’ as a comprehensive approach includes the
following which must be brought in more proactively in integrated policy and
operational domain:
5.5.Status of Micro Credit through SHGs in Meghalaya The
main aspects, merits and demerits of micro credit have been touched upon
in brief above. With paradigm shifts in credit dispensation and
programmatic shifts in various sectors and schemes of Govt.of There
are also migration of groups for one objective to the other and thus,
possible overlaps. There is a need to survey, rate and involve these
socially mobilised groups towards consolidation, capacity building and
effective partnership in developmental delivery in the state. 5.5.
a.
The SHGs bank linkage programme
has not progressed in the State of As
per NABARD, as on (Rs.in lakhs)
Source
NABARD, 2005 & 2006 Besides
the above NEDFi has also promoted around 65 numbers of SHGs for microfinance
of which 51 are women SHGs. A total of Rs 41.37 lakh involving 759 beneficiaries
have been assisted as on February, 2006. As on 5.5. b. Status of NGO facilitated SHGs formation Most
of the micro credit initiatives in
the State have taken place with the involvement of NGOs such as Bosco Reach Out,
BAKDIL Diocesan Social Service Society, Bethany Society, FMA-Outreach for
Underprivileged Women and Children, Women for Integrated Sustainable Empowerment
(WISE), Nangroi Hynniewtrep Organisation, Namrhen Association, Western Cultural
and Socio Welfare Association etc., to name a few. Of these, the Bosco Reach Out
has been more successful in the formation and linking of SHGs with the banks.
NABARD has sanctioned grant assistance of Rs.8.00 lakh to Bosco Reach Out
for conducting various training programmes for strengthening 400 existing SHGs
and promoting 400 SHGs both in Meghalaya and Table : District-wise NGO facilitated SHGs in Meghalaya
(Source: NABARD,2006) Table : Details of district-wise SHGs formed in the State as per available records December 2004
(Source:
NABARD,2005) NABARD, Government departments like Community and Rural
Development (C&RD), Social Welfare, Agriculture , Cooperation, etc have
organised awareness and exposure programmes for government officials, NGOs,
communities, SHGs and for banks as a promotional step. 5.5. c. SHGs in IFAD Projects 1. North Eastern Region Community Resource Management Project for upland areas (NERCRMP): A pilot project with IFAD support on participatory development process is also under implementation in the state under the |