In India, growth with equity has been the central objective right from the inception of the planning process. Over the years, several initiatives have been taken both by the government and RBI to address the issue of inclusive growth. However, the last half a decade witnessed an enormous effort in advancing the financial inclusion agenda.
The latest endeavour is the Jan-Dhan Yojana, which saw the opening of 12.54 crore bank accounts and issued 11.08 crore RuPay debit cards by January 2015. A lot of these are through formal financial institutions—by opening fresh branches in unbanked regions, employing business correspondents (BCs) and helping open no-frills accounts.
While in terms of numbers, significant progress appears to have been made, the actual benefits of this linkage are not yet perceptible, with few accounts activated. The bank branches and officials did not take interest in keeping these accounts active through allowing transactions or, say, a small overdraft, the former deputy governor of RBI, KC Chakrabarty, said at an event on financial inclusion, organised by the Indian Chamber of Commerce. However, the interesting aspect of the government’s ambitious financial inclusion drive is positioning itself as an individual-centred and technology-based strategy to link the unbanked with formal financial service providers and completely bypassing group-based programme such as the Self Help Group-Bank Linkage Programme (SHG-BLP).
The SHG-BLP was conceived to fill the gap in the formal financial network by extending the outreach of banking to the poor in an affordable way. It was designed to supplement the formal credit delivery mechanism with a focus on savings first followed by credit. The programme has come a long way since 1992, passing through stages of pilot (1992-1995), mainstreaming (1995-1998) and expansion (1998 onwards), emerging as the world’s largest community-based microfinance programme in terms of outreach.
As of March 31, 2014, there were more than 74 lakh savings-linked SHGs and 42 lakh credit-linked SHGs; in fact, about 9.7 crore households are covered under the programme. Going by NABARD statistics, the movement, which started as a link between the “unbankable” rural poor and the formal banking system, now boasts of a group savings of a whopping R33,000 crore and a credit outstanding of R43,000 crore. With over 84% of these being all-women groups, the poor rural women in India now control a financial business with a turnover of nearly R1 lakh crore (deposits plus credit).
Based on the data on the number of SHGs credit-linked to banks (on the basis of loan outstanding), and their membership coverage (assuming an average of 12 members per group), we have made an attempt to capture the extent to which the rural poor population has been covered under the SHG-BLP.
The state-wise poverty estimates (poverty ratio as well as the number of persons)—released by the Planning Commission for 2011-12 based on the Tendulkar committee recommendation and the data on the number of SHGs credit-linked (loan outstanding) with banks as on March 31, 2012—were taken as benchmarks for the analysis. It indicates that, at the all-India level, 19% of the rural poor population has been covered through SHG membership.
Driven by the great success exhibited by the SHG-BLP in its efforts in making the poor as the “most bankable” clients, the central as well as the state governments have merged most of their poverty alleviation programmes to the SHG mode of financing with suitable subsidies. As per the Status of Microfinance in India, NABARD (2014), there has been commendable progress of SHGs covered under such poverty alleviation initiatives during 2013-14 in terms of the number of SHGs savings and credit-linked. A notable feature of these SHGs during the year has been the spurt in fresh loans extended to them by banks—nearly 58% over the previous year.
Ironically, the programme having an outreach of over 9.7 crore is not included in the financial inclusion strategy of the government, denying the opportunity to leverage and optimise the gains of a very large programme. According to NABARD, “no serious attempt was made to leverage the SHG-BLP to achieve the financial inclusion goals. A successful programme which could link millions of rural poor to formal banking system though indirectly could have been the main instrument through which financial inclusion in the country could have driven ahead.”
To accomplish financial inclusion for the 600 million unbanked and the enormous challenge that exists in bringing large numbers of unreached population under the ambit of formal finance, convergence needs to be seriously looked into. As Microfinance: State of Sector Report argued that all mechanisms/channels that have the potential to advance financial inclusion must be integrated into the plan. Unfortunately, convergence and mutual reinforcement between the channels has not received much attention yet among the policy-makers.
The author is faculty, National Institute of Bank Management, Pune. Views are personal
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