Big bets on small money

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: Microfinance participants, banks, NGOs, policymakers and researchers will converge next week in Delhi at the annual Microfinance India Summit. In many ways, this is the best of times to be in the sector. “Financial inclusion” has been a buzzword for years now and the enthusiasm for microfinance as its ideal vehicle has been palpable. Growth has been impressive and private equity funds, mostly foreign, are jostling to get a slice of major players. During 2007-08, close to 3.5 million self-help groups (SHGs) were linked to banks covering over 45 million households. The outstanding portfolio of loans soared by almost Rs 25 billion. Apart from SHGs, microlending to individuals and smaller joint liability groups has also emerged as an important avenue of microfinance.

And yet doubts remain. Is this quantity coming at the cost of quality? This motivated a survey-based study commissioned by the National Bank for Rural and Agricultural Development (NABARD) and executed by the Kolkata-based microcredit research and training outfit, Creditwatch, the preliminary results for which are now available. The attempt is to go beyond the mind-boggling national statistics to find out the grassroots-level reality of the SHG model and the bank linkage programme in West Bengal.

The study covered 300 SHGs and 300 non-members spread over five districts and on the whole painted a positive picture of the SHG movement, at least in that state. The 300 SHGs together had 2,858 members on March 31, 2009—bringing the average to just below ten members per group, with the typical size ranging between 6-10 members. About a quarter of the SHG members are below poverty line (BPL) women. This is not too bad given that it is an acknowledged fact that microfinance does not work too well at the absolute bottom of the pyramid. About 63% of the members reported loan balances. Some members have remained consistently credit-shy over time. There did not seem to be much demonstration effect of borrowers on the rest of the group. The average outstanding per borrower was Rs 6,269. Past due over 60 days, a measure of default, was about 8.5%. Repeat loans were estimated at less than a quarter of all loans disbursed during 2007-08, the rest being first-time loans.