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A Nabard project kickstarted India’s microfinance story, and how….P S M Rao
To understand, in clearer terms, how the money in the banking system entered into MFIs it will be necessary to give, though in brief, an account of the microfinance evolution in India. Although it has become sacrilegious to say anything against the microfinance, which has worldwide acceptance of the mainstream thinkers and policy makers, the time has come to be bold enough to call a spade a spade, to trace the real causes of the catastrophe the sector has created.
The term ‘microfinance’ is technically used roughly to mean credit in small doses and similar products of savings and insurance and needless to add, targeted to the poor. For the present discussion we may take it to mean ‘micro credit’ which is its most important part.
Instead of giving loans to individuals, to take up certain projects under schemes such as Integrated Rural Development Programme (IRDP), the Nabard thought it good to give it to the groups, without specifying any project.
After its satisfactory experimentation involving some NGOs through an ‘action research project’ in 1987, the Nabard introduced the self-help groups (SHGs) scheme in 1992 in banks in India.
Under the scheme, people (mostly women and essentially from poor families) of identical socio-economic background inhabiting in close proximity and numbering less than 25 are formed into small groups. They pool savings as per their capacity — say a rupee a day — and open a bank account. They lend the money pooled to their members as per the group decision. The purpose could be either consumption or production. And the rate of interest and repayment mode too is as decided by the groups themselves.
Since the group’s savings are not sufficient to meet the needs, banks lend after, say, six months. By this time, groups are expected to collect savings, grant loans, recover them and the skill to maintain their books of accounts. In other words, banks can now grant loans to the groups, giving them full freedom to utilise the money for the benefit of their members.
Banks gave loans to the groups linking the quantum to their savings; in the first phase, equal to the group savings which in course of time enhanced to four times the corpus. No restrictions were placed on the groups on the purpose of loan and the rate of interest at which they lend to the members, since whatever they charge over and above the bank’s rate finally devolves to the group themselves, which they ultimately apportion among
themselves. The recovery of loans was the responsibility of the groups. It was not through the pressure exerted by the banks, but indirectly through the other members of the group – the ‘peer pressure’, to use the SHG jargon.
This scheme of lending to groups, in fact, as hailed by many, yielded significantly better results than the individual project based lending programmes. The recovery rate was very high, close to 100%, although there was no collateral for the loan; a result not seen in any other schemes designed for the poor.
Borrowing by the members was also hassles-free. No restrictions on the purpose of loan. Since the groups themselves select the borrower, they empathetically understand the needs and decide whose urgency and purpose is the most.
More than the financial needs, the women coming together and discussing their problems and collectively addressing their issues made them assertive. This definitely was a step, a concrete at that, in the path of empowerment.
Banks, which were reticent in the beginning, were later very liberal in lending in the SHG mode. Started with just 255 groups in India in 1992 the number reached to 69.53 lakh by March 2010. That means 9.7 crore families are covered, assuming 14 members in each group on average.
Out of these groups with saving accounts, 48.51 lakh groups availed loans Rs28,038.28 crore (outstanding by March, 2010). These groups have savings aggregating to Rs6,198.71 crore.
The Nabard has given refinance, it is significant to note here, an amount of Rs12,861.65 crore (cumulative up to March, 2010).
This means the SHGs’ savings plus Nabard’s refinance together accounts for 68% of the loans given by the bank. That means banks did not have the problem of cheap resources. It was a good business proposition to them even lending at 10% since there was no problem of recovery.
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