Sa-Dhan FI Conference 2014 – Enhancing Fund Flow to the SHG sector
Mr S. Venkataraman (GM, State Bank of Hyderabad)
Mr Amarendra Sahoo (Retd., CGM & RD, RBI)
Mr Sharad Yadav (ICICI Bank)
Mr K. N. Tiwari (Director, Disha India Micro Credit)
Moderator: Mr P. Satish (CGM, MCID, NABARD)
Mr Satish: The composition of the panel today is interesting since it makes up the supply side and the audience, the demand side….There are many of you who are members of SHGs. We cannot act like an ostrich and ignore the problems facing the SHGs. SHGs are expressing problems about credit flows. SGSY financing has been happening over the past few years but NPAs are growing. Eight million groups have been formed but only 60% of them are credit linked. There are also problems of groups performing well with the first line of credit but not being able to access the second line of credit. The Ministry of Rural Development has come up with the NRLM where the functioning of groups will be under the purview of the state. But so many organisations have been working at the grassroots with SHGs – what will happen to them? Sustainability of SHGs has to be kept in mind – we need to think of original movement of women members and how it began with motives of thrift rather than of credit.
Mr Venkataraman: This is a very contemporary subject we are discussing here. Almost 80 lac SHGs are there …out of them 63 lac are female SHGs and 44 lac have been bank lined with 36 thousand crores. From that 30,500 crores are outstanding. SERP has given good support – so has the state government. In the state of AP, SHGs have no interest burden for amounts up to 1lac. The crisis in AP was created by MFIs who did not look into the repayment abilities of the borrowers. That gave impetus to the Malegam committee and the SRO model. There has been lethargy in SHG repayment – people think that they can get away from repayment – despite having to repay only the principle – this is the fallout of the crisis. Now the focus is on the incremental loans (from first dose to 2nd and 3rd.) We have found that the SHG are no longer cohesive, people are moving from group to group and exceeding their repayment capacity. When we report information to credit bureaus, we only report the name of the SHG and not the member. We cannot keep track of the individual borrower in the credit bureau so a person can shift groups and borrow beyond what she can repay. The original saving motive of SHGs has lost its focus. After the initial credit linkage takes place, savings habits decline. Economically it may not be viable to distribute credit equally among group members which adds to the loss of cohesiveness of SHGs. Adding to it is the low level of knowledge/financial literacy and how members are engaging in traditional activities (for employment). Borrowings are being diverted to consumption (30% of loans) – education needs to refocus on the original concept of microfinance and make productive use of the credit.
Mr Yadav: The SHG-bank linkage is a much more hard working model. It has 2 clear and distinct roles: of the banker and the grassroots organisation as well. The banker has expertise in assessing a credit application but not in capacity building and hand holding (which falls in the domain of the grassroots organisation). Last 5-6 years we have gone into a number chase, we have increased penetration but only 30% meet the requirement of savings, etc. We should not go into a number chase but focus on quality - until then it will be a problem for the banks. SHG nurturing should continue after it has received the initial line of credit (now, the nurture and hand-holding stops after it is credit linked). We should see if SHGs are in a position to utilize the credit – this should be looked into by the grassroots organization. Organisations such as Mahavi have done a great job and have maintained a clean portfolio – its role is to recommend SHGs to formal banks. These institutions will encourage bankers to come forward.
Mr Tiwari: For 30 years after my studies, I have been working on poverty alleviation and have participated in movements that work for the poor. The government has sort of hijacked the SHG model but has not nurtured it. It is difficult to get continued lines of credit – SHGs get Rs.10,000 in the first dose and then it peters out. MFI model when it started was based on the Bangladesh model, which we had used in parts of Uttar Pradesh. However, there has been no change in the poverty situation despite the prevalence of MFIs. People have used MFIs to make profits but there are others who have started with nothing and have worked at the grassroots. There should be a visible social change with MFIs. Bankers only see those who are technically sound, have capital/equity and think only such groups are viable. The attitudes of banks are biased in favour of those who have the technical know-how and banks do not support those who are at the grassroots and suspect their loan-recovery abilities. It is not reasonable to withhold loans from small MFIs who do not meet credit bureau and RBI requirements. We want to thank the private banks who have financed these small organisations but after AP crisis they all stopped. Financial inclusion shouldn't be just a dialogue used by the RBI but something implemented on the ground – there should be no double standards.
Mr Sahoo: Now I am part of civil society since I left the RBI. It was mentioned earlier that the State Bank of Hyderabad has done a great job with the AP crisis which gave a big setback to microfinance. If the bank was doing so well then why was the crisis allowed to take place? We have to work together to build social capital and not just finance credit. The data has revealed that there has been an increase in NPAs but the corporate sector has been a major part of the NPAs.