Author: Madhukar Shukla
Publication: The Wall Street Journal
Date: January 4, 2010
URL: http://online.wsj.com/article/SB126258063197814415.html
Mahua Devi is a petite woman in her early
twenties. She cycles through 10 to 12 villages of the Koraput district in
Orissa everyday.
"I help these women keep their accounts,"
she tells me as we walk towards a group sitting in the shade under a tree.
When she says "these women" she
is referring to one of India's millions of self-help groups, or SHGs. Each
group has 15 to 20 women who pool their tiny savings of only 5 rupees to 10
rupees at a time. They use the money to give loans to members for income-generating
investments like chickens, seeds or goats. The interest on the loans then
adds to their savings pool.
Driving from the nearest city to the village,
I don't see any bank branches. Even if there is a branch, it's unlikely it
would be equipped to open even simple savings accounts for these women, given
their meager savings, lack of assets and inability to read or write. For most
of the village women the SHG is the only bank they have ever had.
Ms. Devi keeps the accounts for 20 groups,
for which she gets a commission of 2% of the value of all the transactions.
"On average, I earn about 5,000 rupees per month," she tells me.
That, I quickly calculate, works out to 250,000
rupees in cash transactions per month - an amazing economic engine, silently
working in one of India's poorest regions.
Self help groups are a transformational phenomenon
which has swept the Indian countryside over the last decade and a half. The
groups are India's own social innovation. In a country where almost two-thirds
of the population have no access to formal financial services, SHGs are a
unique route to financial inclusion, increasing incomes and helping build
productive assets among the poor.
Though similar groups were promoted by many
non-government organizations in the 1980s the turning point of the SHG movement
was a pilot project by the National Bank for Agricultural and Rural Development
(NABARD) in the early 1990s.
Despite India's network of around 30,000 bank
branches in rural areas, a majority of the poor still remained outside the
fold of the formal banking system. NABARD studies showed this was because
existing bank policies, systems and products were not aligned to meet the
financial needs and constraints of the poor. What the poor can earn and save
varies widely each day. Meanwhile their tiny savings - as little as 50 rupees
per month - make providing banking services to them too expensive for banks.
To bridge this gap, NABARD and a group of
NGOs started a pilot project o 500 groups of women to be used a vehicle for
financial intermediation through its SHG-Bank Linkage Program. Typically,
these were informal groups of up to 20 women, who would meet regularly and
pool their savings.
After saving for six months and proving the
group had developed the required fiscal discipline through consistent savings,
on-time loan payments and maintaining records the group becomes eligible to
be "linked" to the local bank branch. The innovation here was that
the group, rather than the individuals in it, could open an account with the
bank and use that account to save and take loans.
The pilot was a remarkable success and within
a year more than half of the first groups had become eligible for the bank-linkage.
Even more impressive was the fact that 90% of the loan payments were on time
and there were no defaults. The success of this pilot project sparked the
SHG movement which has been an unparalleled, albeit under-reported, revolution
in financial inclusion.
The number of bank-linked SHGs crossed 10,000
in five years. By 2004, there were more than one million groups with their
own bank accounts. By the year ended this March, the number of groups had
grown to about 4.7 million, touching 59 million rural families through their
members. Meanwhile, the average loan size per group has increased from 1,137
rupees in 1992 to 74,000 rupees this year. That shows the women's rising capacity
to manage, utilize and pay back loans.
So is everything fine with the SHG movement?
Not entirely.
According to one 2006 study (EDA Rural Systems
and Andhra Pradesh Mahila Abhivruddhi Society's "Self Help Groups in
India: A Study of the Light and Shades") the groups still suffer from
many inadequacies. For instance, the study found that a large proportion of
SHG members remained poor even after being in the groups for seven years.
Another report (Access Development Services' "Microfinance in India:
The State of the Sector Report 2009") underlined the popularity of SHGs
has so far been a regional phenomenon tilted towards the southern and eastern
states of India.
In spite of such inadequacies, however, self
help groups have emerged as a critical vehicle for creating social equity
and empowerment.
I once sat with women from three SHGs in the
community hall of Madanpur in Haryana. The women had assembled for a workshop
on "legal literacy" organized by a Delhi NGO. There was jubilation
in the air and the village women were talking animatedly.
"We got the license of the local liquor
shop stopped yesterday," one of the members told me with glee. "It
was a drain on us because the men-folk would squander away their earnings,
spoil their health, and often physically abuse us. This time we protested
and kept the liquor license from being renewed."
The self help groups have gone beyond financial
inclusion and become a platform to provide a voice to a marginalized section
of society. Some SHGs have become forums for women to discuss everything from
health and sanitation to legal rights and human trafficking. They are also
being used to promote education and skill building. The groups are so respected
now that they have been called upon to implement government and donor-driven
programs such as the mid-day meal program for school children and HIV/AIDS
awareness campaigns.
Between 2006 and 2008, more than 600,000 new
self help groups were linked to banks. Assuming an average group size of around
13 or 14 members, that means more than 400 women are joining a SHG every hour!
Now if that's not a revolution, then what
is?
- Madhukar Shukla is a professor of organizational
behavior and strategic management at the XLRI School of Business & Human
Resources in Jamshedpur.
