The role of banks in the successful micro-finance initiatives gain considerable importance in India, where, unlike in many other developing countries, the formal banking system has a phenomenal reach of about 1,50,000 retail rural outlets. This works out to one retail credit outlet for less than 5,000 rural people or say about 1,000 households. Through this extensive network, the banks have provided credit of almost Rs 25,400 crore to over 5.5 crore rural poor households under different poverty alleviation programmes. With around Rs 15,000 crore added to this as subsidy routed to the poor through the same banking channels, this would normally be regarded as an effective step in meeting the financial needs of the rural population.
However, the decennial All India Debt and Investment Survey (1982) told a different story. It showed that despite the proliferation of rural banking, the magnitude of the dependence of the rural poor on informal sources of credit was as high as 38 per cent even though it had reduced from over 90 per cent in the 1950s. The 1992 survey showed that this proportion reduced only marginally to 36 per cent. While banks and cooperatives provided credit support to almost 55 per cent of the rural indebted households, the money-lenders were still providing credit to almost one sixth of the rural households. The survey also showed that dependence on money lenders and other informal sources increased as asset base of households decreased, signalling that the dealing between banks and the rural people was perhaps adversely related with the levels of poverty.
This phenomenon became a central theme for the research work done by Nabard in mid and late 1980s and it looked into causes which inhibited the banking system from reaching out to the poor. It was becoming clear that the products offered by the banking system and also the systems and procedures through which these products were offered did not meet the needs and capacities of the poor.
It appeared to us that if the poor have to be provided financial services, not only new products have to be designed, but also they have to be provided in a much simpler client-friendly way.
It was also necessary that these were provided in an efficient manner which reduced the transaction costs for both -- the clients and the service provider.
Bankers, generally, found transaction cost of the small loans/deposits rather high, adversely affecting their bottomline and the poor households felt that banks were the institutions of the elite to which they found difficult to relate.
The linkage programme between self help groups (SHGs) and banks grew out of this search. The strategy involved forming SHGs of the poor, encouraging them to pool their thrift regularly and using the pooled thrift to make small interest bearing loans to members, and in the process, learning the nuances of financial discipline.
Bank credit to such SHGs followed. Nabard saw the promotion and bank linking of SHGs not merely as a credit programme but as part of an overall arrangement for providing financial services to the poor in a sustainable manner and also an empowerment process for the members of these SHGs.
Nabard launched a pilot project in 1992 to link 500 SHGs with banks. Banks were permitted by the RBI to open saving banks accounts of informal SHGs. Steady progress of the pilot project led to the mainstreaming of the SHG-bank linkage programme in 1996 as a normal lending activity of the banks with widespread acceptance and treating their lendings to SHGs as part of priority sector lending.
The core of SHG-bank linkage in India has been built around an important aspect of human nature -- the feeling of self worth. Over the last 10 years, it has come to symbolise an enduring relationship between the financially deprived and the formal financial system, forged through SHGs which is a socially relevant tool. An amazingly large number of formal and non-formal bodies have partnered with Nabard in this process of socio-economic engineering. What had started off in 1992 as a modest pilot testing, today involves about 20,000 rural outlets of more than 440 banks, with an advance portfolio of more than Rs 1,200 crore in micro-finance lending to SHGs. Formal banking services have reached the doorsteps of over 8 million very poor people, through 5,00,000 SHGs, hand-held by over 2,000 development partners.
The process has touched the lives of millions of poor women, building their self-confidence and increasing their self-worth. An evaluation study carried out by Nabard brought out the social aspect of the programme along with its economic impact. The study covered 560 SHG member households from 223 SHGs spread over 11 states revealed that there have been perceptible and wholesome changes in the living standards of the SHG members in terms of ownership of assets, increase in savings and borrowing capacity, income generating activities and in income levels. Some of the major findings of the study are presented here.
* Member households: Land-less agricultural labourers (31 per cent); marginal farmers (23 per cent); small farmers (29 per cent); and others (17 per cent).
* Average value of assets/household which included livestock and consumer durables etc, increased by 72 per cent from Rs 6,843 in pre-SHG stage to Rs 11,793 in post-SHG stage.
* About 58 per cent of the households reported increase in assets.
* Housing conditions generally improved with a shift in the ownership from kuchha (mud walls, thatched roofs) to pucca (brick walls, tiled roofs) houses.
* Almost all members developed saving habit. Average annual savings per household registered over three-fold increase from Rs 460 to Rs 1,444.
* The average borrowing/ year/ household increased from Rs 4,282 to Rs 8,341.
* The share of consumption loans declined from 50 per cent to 25 per cent. About 70 per cent of loans taken in post-SHG situation were for income generating purposes.
* Annualised interest rates on loans from SHGs to members were in the 12 per cent to 24 per cent range.
The number of SHG members experiencing better treatment from within their own families increased from 11 per cent before joining SHGs to 63 per cent afterwards. It is through these and similar other forms of empowerment that the programme has transformed itself into a sustainable movement of poor people.
Today, these poor people are in a somewhat better position to demand the kind of service they require, and are able to be a meaningful part of the society they live in.
(The author is chairman, Nabard. The views expressed here are his own)