NMF Conclave Papers 2014

National Micro
Finance Conclave
2014
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Taking Rural India >> Forward
Published By
Micro Credit Innovations Department (MCID)
National Bank for Agriculture and Rural Development
Contact
P Satish, Chief General Manager
4th Floor, D Wing, Plot No. C-24, G Block
Bandra Kurla Complex
P B No. 8121, Bandra (E)
Mumbai 400 051
Telephone 022 -2653 9031
Email : mcid @nabard.org
Homepage : www.nabard.org
Responsible
Kaushal Kishore
Authors
P. Satish, A K Singh, Kaushal Kishore and Rajat Mohanty
Technical Assistance
Nitin Jindal, NABARD-GIZ Rural Financial Institutions Programme
Design/ Layout
Anshul Sharma/Artworkstudios.in
Cover Photograph
Enrico Fabian
Mumbai, 13 November 2014
The findings, interpretations, and conclusions expressed in this paper are those of the authors and do not
necessarily reflect the views of NABARD. NABARD does not guarantee the accuracy of the data included in
this document.
National Micro
Finance Conclave
2014
Venue
Auditorium, Ground Floor, NABARD Head Office, Bandra Kurla Complex, Mumbai
National Micro Finance Conclave 2014
Contents
SHG BLP and JLG Scheme of Financing Status, Issues, Innovations and Roadmap for the future .....................................5
A K Singh, Kaushal Kishore, Rajat Mohanty
MFIs - Role in serving the poor, access to funding sources,
fair lending practices and need for self-regulation ............................................21
P. Satish
Enabling environment Governance, Regulation and Technology ...............................................................27
P. Satish
SHG BLP and JLG

Scheme of
Financing
Status, Issues,
Innovations
and Roadmap
for the future
1. Introduction
Of late, there have been wide spread apprehensions in
certain quarters regarding the SHG-BLP hitting a plateau
and fast losing its relevance in serving the poor. Even a
few mandarins of microfinance belonging to this section
have gone overboard in highlighting the programme being heavily skewed in favour of four southern states of
Andhra Pradesh, Karnataka, Kerala and Tamil Nadu,
poor off take of credit in non-southern states, rising NPA
level in SHG financing, bankers losing faith, need for new
programmes / approaches etc. Actual data, however, suggest otherwise. NABARDs publication Status of Microfinance in India during 2013-14 reveals that more than 74
lakh SHGs were having savings deposits with banks to the
tune of Rs.9,897 crore as on 31 March 2014. Though the
number of savings linked SHGs increased marginally by
1.5 % (1.12 lakh) during 2013-14 over previous year, the
savings deposit with banks shot up by 20.4 % (Rs.1,680
crore) during the same period. It assumes greater importance in view of the fact that approximately 70 % of the
savings mobilised from members by SHGs is used for
By A K Singh, Kaushal Kisore and Rajat Mohanty

5
internal lendings. As such SHGs have been

able to mobilise untapped deposits of about
Rs 33,000 crores from their members with
monthly collection of small amount ranging
from Rs 10 to Rs 100 per member. Further,
13.66 lakh of these SHGs received credit support to the tune of Rs.24,017 crore from various banks during the year 2013-14. The credit
disbursement to SHGs during 2013-14 grew
by Rs. 3,432 crore (16%) compared to the previous year. The gross NPA in SHG financing
by banks during 2013-14 declined to 6.83%
from 7.08% during the previous year.
cial assistance to the tune of Rs. 3,717 crore

from various banks. The above figures bear
the testament to the fact that the relevance of
SHG-BLP in serving the poor has now grown
even more than ever before. However, instead
of basking in the glorious achievements of
SHG-BLP and JLG-BLP, it will be worthwhile
to trace the objectives behind launching SHGBLP, how far these has been achieved and improvements that may be required in achieving
the non-negotiable task of serving the poor.
2. Evolution of Self Help

Group Movement
Another offshoot of SHG-BLP, the JLG

scheme of financing, targeted at mid-segment
clients among the poor, which leverages on
social collateral offered by the members, has
also recorded an impressive growth during
2013-14 with 2.5 lakh JLGs receiving finan-
In mid-eighties, MYRADA started working

with groups of resource poor in rural areas and
termed them as Credit Management Groups.

These groups were taught the importance of
cultivating weekly savings and extending loan
facility to group members out of the corpus so
created. In 1987, these groups were renamed
as Self Help Groups. MYRADA provided
fund to such groups matching their corpus
under the Action Research programme sanctioned by NABARD. Capacity building training was also provided to the groups and the
success of Action Research encouraged NABARD to launch a pilot in 1992, which envisaged linking of 500 SHGs by the end of 1994.
3. Mainstreaming of SHGs
The pilot was successful and 4,750 SHGs were
credit linked with different banks by the end
of the three years phase with bank loan of
Rs.6.06 crore covering 28 commercial banks,
60 RRBs and 7 cooperative banks.
Quick studies conducted by NABARD in a
few states to assess the impact of the linkage
project brought out positive and encouraging features including nearly 100% recovery,
significant reduction in transaction cost of
banks and shift towards production activities. Subsequently, a Working Group constituted by Reserve bank of India, under the
Chairmanship of Shri S.K. Kalia, to study the
functioning of SHGs, clearly came out with
the findings that rural poor could save, they
were not concerned much with cost of credit,
only wanted timely and adequate credit and
were making prompt repayment of credit
in group. The SHG-BLP also evolved as a
supplementary credit strategy for banks for
reaching the poor, built mutual trust and
confidence between banks and rural poor
and encouraged banking activities among
poor. The working group viewed the linking
of SHGs with banks as a cost effective, transparent and flexible approach to improve the
accessibility of credit from the formal banking system.
Self Help Groups were conceived as informal

groups of 10-20 members having homogeneous socio-economic background coming
from a small contiguous area, to operate on
the principle of self-help, solidarity and mutual interest. They are encouraged to make compulsory thrift of the uniform amount as decided by them and pool resources so created to
extend interest bearing loans to its members
to meet their emergent needs. SHGs are given
the freedom of charging interest from their
members at the rate as decided by group consensus. Recovery is to be a mechanism of peer
pressure. The process helped SHG members
imbibe the essentials of financial intermediation, including prioritization of needs, setting
terms and conditions and maintaining books
of accounts. This was their learning ground
before they could be in a position to handle
bigger size funds by way of credits from banks.
As a follow up of the recommendations of the

group, financing to SHGs was mainstreamed
into the operations of the banks by Reserve
Bank of India in April 1996. It was stipulated
that micro credit extended by banks to individual borrowers directly, or through any intermediary, would be reckoned as part of their
priority sector lending.
It is interesting to note and remember that

the three radical innovations were introduced
through the RBI/NABARD guidelines during
the pilot phase:
Acceptance of informal groups as a client of
banks both deposit and credit linkage
Introduction of collateral free lending, and
NABARD had suggested three models for

SHG-BLP and supported all the three models
depending on the demand and supply environment in a particular region . These models
were:
Permission to lend to group without specification of purpose/activity/project.
SHGs promoted by banks and linked by

themselves,
SHGs promoted by NGOs and other SHG
promoting agencies and linked by the banks
directly, and
SHGs promoted by NGOs and other SHG
promoting agencies and financed by them
through bulk lending provided by the banks
to them.
members as entrepreneurs. The project aimed

at setting up of micro enterprises through
the members of matured SHGs using the
3M approach - Micro finance, Micro market and Micro planning. The project was implemented through 14 NGOs having a good
track record and designated as MEPA (Micro
Enterprise Promotion Agency). Based on the
learnings from the pilots, NABARD initiated
Micro-Enterprise Development Programme
(MEDP) for skill development in March 2006
with the objective to enhance the capacities of
matured SHGs to take up micro enterprises,
both in farm and non-farm sectors, through
appropriate skill upgradation. More than
2,90,900 SHG members have been benefitted
so far under this programme and a substantial
percentage of them have since turned into micro entrepreneurs.
During the pilot phase, major issue was sensitization of bankers for acceptance of the
linkage programme. On mainstreaming, additional challenge faced by NABARD was ensuring formation of quality SHGs. NABARD
accepted the challenge of the capacity building of various stake holders giving emphasis on capacity building of NGOs, who were
otherwise involved in various other types of
social activities and SHG concept was new to
them. Capacity building support on continuous basis was also provided to SHG members,
banks, government officials, etc. Since the inception of the programme, about 31.6 lakh
individual stake holders have been trained.
Apart from capacity building interventions,
NABARD, being the anchor in SHG-BLP,
has also been involved in extending promotional grant to Self Help Promoting Institutions (SHPIs), which included NGOs, Banks,
Farmers clubs, Individual Rural Volunteers,
etc. NABARD also extended 100% refinance
assistance to banks for lending to SHGs. As on
31st March 2014, NABARD has sanctioned a
grant assistance of Rs.452.29 crore to various
SHPIs for formation and nurturing of SHGs.
In order to support SHG linkage under model
C, NABARD initially provided need based
Revolving Fund Support to NGO for on lending to SHGs, wherever they could not avail
bulk lending from banks.
4. Suggesting product
level changes in SHG-BLP
under SHG-2
For making SHG Bank linkage programme
more client friendly and addressing some
emerging issues, NABARD suggested certain product level changes by reiterating
thrust on savings with introduction of voluntary savings, smooth flow of credit with
sanction of cash credit limit to SHGs, improved risk mitigation mechanism, leveraging second level institutions like SHG
Federations for sustained hand holding support, promoting JLGs out of SHG members,
strengthening the monitoring mechanism,
etc. The impact of this initiative was visible
during the year 2012-13 and 2013-14 with
growth in savings of SHGs to the extent of
25 per cent and 20 per cent respectively.
Similarly, the flow of credit from banks to
SHGs recorded a growth of 24% and 17 %
respectively during 2012-13 and 2013-14
over the previous year.
SHG members, after having access to credit support for consumption and emergent
needs, existing income generating activities
need to graduate towards more sustaining
livelihood. A Pilot Project launched during
2004-05 aimed at facilitate graduation of SHG
individual models also), MIS was modified to

align with the data available directly from CBS of
the banks from 2006-07 onwards. Data regarding
model C was now clubbed with banks financing
to MFI during the year and collated separately.
5. The status now

5.1 Cumulative progress in SHGBLP
NABARD suggested three models for SHGBLP and monitored the progress model-wise
till 2005-06. There were 22,38,565 SHGs having bank loan of Rs 11,398 crore till 2005-06.
Model-wise composition was 73% through
model B, i.e. SHG promoted by SHPI and
linked by banks directly, 20% through model
A i.e. SHG promoted by banks through their
staff, Farmers clubs and Rural volunteers and
linked by the banks themselves. The third
model C of bulk lending to SHG promoting
NGO by banks for on lending to SHGs promoted by these agencies constituted only 7%
of the total linkage.
As of 31 March 2014, there were 74.30 lakh saving linked SHGs with a bank deposit of Rs 9897
crore and 41.97 lakh credit linked SHGs with
bank loan outstanding of Rs 42928 crore. During
2013-14, 13.66 lakh SHGs were provided credit
assistance amounting Rs 24017 crore by banks.
All these are pointers to the sheer outreach of the
SHG movement.
The Self-Help Group movement in India is sui
generis because it is a savings-first programme
with credit being its logical corollary. Touching
over 9.44 crore households, it has become the
largest Microfinance programme in the world.
Considering the exponential rate of growth of

SHG-BLP, resulting in difficulties in obtaining
data about first time/multiple time lending data
and the fact that the bulk lending to MFIs by
bank was not necessarily for SHG model (MFIs
were now lending through JLG, Grameen and
5.2 Region wise - savings linked SHGs

Region wise1 number of SHGs savings linked
during the last five years is furnished in
table 1.
table 1
Region
No. of SHGs savings linked with banks
(No. Lakh)
2009-10
2010-11
2011-12
2012-13
2013-14
Northern
3.52
3.73
4.09
3.73
3.65
North Eastern
2.92
3.25
3.67
3.24
3.16
Eastern
13.74
15.27
16.26
14.71
14.69
Central
7.66
7.86
8.13
7.02
6.86
Western
9.46
9.61
10.62
9.06
8.97
Southern
32.23
34.89
36.83
35.41
36.96
Total
69.53
74.61
79.60
73.17
74.29
1 Northern Region Haryana, HP, J&K, Delhi, Punjab, Rajasthan

North Eastern Region Assam, AP, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura
Eastern Region A &N Islands, Bihar, Jharkhand, Odisha, West Bengal
Central Region Chhattisgarh, MP, UP, Uttarakhand
Western Region Goa, Gujarat, Maharahtra
Southern Region AP, Karnataka, Kerala, Tamilnadu
table 2
Region
No. of SHGs financed by banks during the year (No. Lakh)

2009-10
2010-11
2011-12
2012-13
2013-14
Northern
0.37
0.42
0.31
0.31
0.24
North Eastern
0.49
0.39
0.51
0.25
0.16
Eastern
2.77
2.48
2.01
1.83
2.97
Central
0.78
0.49
0.58
0.64
0.66
Western
1.49
0.92
1.01
0.70
0.88
Southern
9.96
7.26
7.05
8.46
8.75
15.86
11.96
11.47
12.19
13.66
Total
table 3
Region
Savings deposit with/ credit outstanding from banks

2009-10
Savings
Northern
NER
2010-11
Credit
Savings
2011-12
Credit
Savings
(Rs crore)
2012-13
Credit
Savings
2013-14
Credit
Savings
Credit
342
815
329
903
253
1178
291
1161
283
1101
121
673
131
695
153
993
130
797
129
754
Eastern
1120
3695
1408
4203
947
4630
1393
5538
1527
4944
Central
514
2463
603
2365
613
2780
624
2776
790
2697
Western
927
1369
829
1246
872
1364
696
1468
930
1640
Southern
3174
19023
3716
21809
3713
25395
5083
27635
6238
31791
Total
6198
28038
7016
31221
6551
36340
8217
39375
9897
42927
number of SHGs receive credit support from

banks, the other regions had a small share.
It can be observed that after exploiting the

available potential for promotion of SHGs, the
progress in southern states has more or less
remained stagnant. It is ironical that despite
the sizeable rural poor population available
for coverage in the other regions, they also
continued to maintain the status quo and
joined the southern states by freezing their
progress as well.
5.4 Region wise - savings deposit

and credit outstanding
5.3 Region wise - credit disburse-
The region wise details of savings deposit of

SHGs with banks and credit outstanding from
banks during the last five years is furnished in
table3.
ment to SHGs
5.5 Region wise - savings to credit
The region wise number of SHGs which received credit assistance from various banks
during the last five years is furnished in
table 2.
While southern states ensured that a substantial
ratio
The region wise credit to savings ratio, furnished in Table 4, could be a good measure in
understanding the extent to which the savings
10
table 4
Region
Credit to savings ratio

2009-10
2010-11
2011-12
2012-13
2013-14
Avg. of last 5
years
Northern
2.38
2.74
4.66
3.99
3.89
3.53
North Eastern
5.56
5.31
6.49
6.13
5.84
5.87
Eastern
3.30
2.99
4.89
3.98
3.24
3.68
Central
4.79
3.92
4.54
4.45
3.41
4.22
Western
1.48
1.50
1.56
2.11
1.76
1.68
Southern
5.99
5.87
6.84
5.44
5.10
5.85
Total
4.52
4.45
5.55
4.79
4.34
4.73
table 5
Region
2009-10
SHG
fin%*
2010-11
Gross
NPA%
SHG
fin%*
2011-12
Gross
NPA%
SHG
fin%*
2012-13
Gross
NPA%
SHG
fin%*
2013-14
Gross
NPA%
SHG
fin%*
Gross
NPA%
Northern
Region
10.51
6.61
11.26
7.05
7.58
6.92
8.31
11.19
6.58
13.67
North
Eastern
Region
16.78
5.51
12.00
8.42
13.90
5.17
7.72
8.56
5.06
8.88
Eastern
Region
20.16
3.21
16.24
4.31
12.36
7.28
12.44
10.30
20.22
11.07
Central
Region
10.18
8.07
6.23
10.74
7.13
13.20
9.12
17.28
9.62
18.87
Western
Region
15.75
4.46
9.57
7.26
9.51
8.22
7.73
8.63
9.81
11.11
Southern
Region
30.90
1.87
20.81
3.79
19.14
4.98
23.89
5.11
23.67
4.64
Total
22.81
2.94
16.03
4.72
14.41
6.09
16.66
7.08
18.39
6.83
* Indicates the percentage of savings linked SHGs that received fresh finance from banks during the year
aging for northern (Haryana, Himachal

Pradesh, Jammu & Kashmir, Punjab, Rajasthan) and eastern (Bihar, Jharkhand, Odisha,
West Bengal and A & N Islands) regions.
amount of SHGs were leveraged by banks for

disbursing the credit to SHGs during the last
five years.
While the banks in southern part of the country extended credit support at an average
rate of 5.85 times of the savings pooled by
the SHGs, the same figure dropped to a very
discerning low level of 1.68 times in Western
Region of the country comprising important
states like Gujarat, Maharashtra and Goa.
5.6. Region wise - gross NPA in SHG

financing
The region wise trend in percentage of savings
linked SHGs receiving fresh credit and gross
NPA in SHG financing by banks during the
last five years is given in table 5.
Similarly, the figures were not very encour-
11
table 6
Bank
States
2009-10
2010-11
2011-12
2012-13
2013-14
State Bank
of India
AP
1.06
3.10
4.72
5.73
5.83
4.09
Odisha
2.23
9.80
22.71
35.27
34.98
21.00
MP
7.79
27.30
28.01
30.46
35.38
25.79
Maharashtra
3.34
9.00
14.14
20.64
24.33
14.29
19.50
16.85
18.98
38.20
18.71
UP
3.71
19.60
26.91
34.71
39.65
24.92
AP
4.54
1.40
3.75
2.83
1.52
2.81
Odisha
5.17
22.90
28.46
40.12
40.62
27.45
0.06
6.50
5.23
2.46
1.52
3.15
0.00
0.00
Rajasthan
Andhra Bank
MP
Maharashtra
Rajasthan
Central Bank
of India
Avg. gross
NPA in last
5 yrs.
UP
0.00
0.00
AP
66.05
6.50
6.47
6.47
2.09
17.52
Odisha
0.89
5.00
4.95
4.92
6.55
4.46
MP
9.04
7.60
7.62
7.56
5.23
7.41
Maharashtra
7.38
5.20
5.23
5.20
7.19
6.04
34.59
29.8
15.07
14.96
1.52
19.19
UP
0.52
0.70
0.65
7.48
3.20
2.51
AP
0.74
1.40
2.05
4.02
5.48
2.74
Odisha
2.35
0.00
4.15
7.87
4.05
3.68
MP
9.40
2.50
7.39
12.64
8.75
8.14
Maharashtra
17.77
8.10
12.61
19.45
23.41
16.27
Rajasthan
6.09
6.80
0.79
16.21
13.94
8.77
Rajasthan
Punjab National Bank
Gross NPA %
UP
7.25
5.40
3.15
12.27
12.77
8.17
Bank of India AP
0.10
0.00
2.02
1.12
0.23
0.69
Odisha
5.88
6.60
11.37
4.13
5.44
6.68
MP
13.81
4.30
25.06
25.83
12.62
16.32
Maharashtra
2.00
11.80
8.01
22.92
5.86
10.12
Rajasthan
1.20
0.90
18.88
45.73
18.81
17.1
UP
3.04
51.00
21.07
2.15
31.70
21.79
doses of credit after the loan is repaid led larger

default in repayment of bank loans and thereby
causing a spurt in rising NPA or the defaults by
a few SHGs was taken as a pretext by the banks
to reduce their financing to SHGs.
The above data reveals that there is a general

trend of rise in NPA in all regions of the country wherever there was decline in fresh financing by banks. However, the point to ponder
here is whether lack of assurance of subsequent
12
5.7. Performance of major banks in
absent or not available to the extent in Andhra

Pradesh. It is astonishing to observe that, with
the exception of Andhra Pradesh, the State
Bank of India has not been able to contain its
NPA in SHG financing below 10% in all five
states indicated above. At the same time, while
the Central Bank of India and Punjab National
Bank have been to a certain extent successful
in containing their gross NPA in states like
Odisha and Madhya Pradesh, the other major
banks have failed to do so in these states. The
above trends clearly indicate that the issues related to NPA have more to do with the states
and the banks involved rather than weakness in
the programme itself.
managing NPA in financing the SHGs

A few banks have sometimes raised concerns
about the rising NPA in their financing to
SHGs. It will be interesting to analyse the gross
NPA of a few major banks in financing the
SHGs across several states during the last five
years. For this, a few major banks were selected in terms of their presence across different
regions. The banks selected are State bank of
India (pan India), Andhra Bank (Southern region), Central Bank of India (Central region),
Punjab National Bank (Northern region) and
Bank of India (Western Region).
Table 6 data reveal that most of the banks with
the exception of Central Bank of India (owing
to 2009-10 position) have been able to manage their NPA to an acceptable level in case of
SHGs financed in the state of Andhra Pradesh.
However, same is not the case in respect of
other states where the state patronage is either
6. SHGs - the cog wheel

of policy planning
The success of SHG-BLP also attracted the
attention of state governments. Many of the
13
To overcome these issues, SGSY was restructured in 2011 to form National Rural Livelihood Mission (NRLM) to be implemented in
mission mode across the country. While in
SGSY, there was provision for both individual
as well as group loans for capital subsidy based
asset creation, NRLM is an entirely group
centric, group driven poverty alleviation programme. NRLMs components are: formation,
federation and financing of women SHGs;
livelihoods programme for rural women
farmers and agricultural labourers; value addition in non-timber forest produce in tribal
districts; gender rights issues and various skill
development programmes. It aims to cover all
the rural districts in the country intensively,
in phases.
state governments, over a period, undertook,

through departmental initiatives, major programmes of SHG promotion. Notable among
the state governments was Andhra Pradesh
with Podupulakshmi programme, wherein,
during two years period from 1997-99, 2 lakh
SHGs reported to be formed. Indira Kranti
Patham programme of AP, Jeevika Project of
Bihar, TRIPTI and Mission Shakti projects in
Odisha were some of the other projects implemented by state governments. Now, certain
State Governments have separate department
for SHG promotion and development and
have contributed substantially in intensification of SHG-BLP.
The recognition for Self-Help Groups as a
vehicle for purveying microcredit as a tool
for poverty alleviation came in April 1999
when the Government sponsored Integrated
Rural Development Programme (IRDP), the
largest poverty alleviation programme in the
world was amalgamated with other govt. programmes like DWCRA, SITRA, TRYSEM,
GKY to be rechristened as SGSY (SwarnaJayanti Gram Swarojgar Yojna) where group
mode of financing was recognised. In the
past also GOI had toyed with the concept
with DWCRA groups but SGSY was the first
large scale programme to do so. Though
there were many dissimilarities with NABARDs concept of group, particularly subsidy
as source of cheap money introduced under
the scheme, it introduced the policy framework for group-oriented poverty alleviation
approach.
7. Joint Liability Groups

(JLGs)
The SHG-Bank Linkage, spearheaded by NABARD, has proved to be a successful instrument
in providing access to financial services from
the formal banking sector for asset less poor.
Taking this learning of collateral free lending
further, NABARD piloted and developed an
effective credit product for mid-segment clients- Joint Liability Groups (JLGs). Unlike
the conventional JLGs normally nurtured by
microfinance Institutions, this product facilitates hassle-free credit which is of longer
term; fulfilling seasonal needs of credit larger
in quantum. The product however, relies on
mutual guarantee of clients like small /marginal/ tenant farmers, oral lessees and sharecroppers, micro-entrepreneurs, who have no
conventional collateral to offer. Objectives for
introduction of the product were:
Though SGSY was the holistic approach to

eradicate poverty and had many positive features like group approach, credit linkage, involvement of NGOs, line departments, banks,
PRIs, etc., it faced problems at implementation stage. Some of the difficulties encountered were due to its design while some of the
basic assumptions were flawed. SGSY was
perceived as a large scale program, covering
all BPL families but it was not consistent with
other developmental programmes.
To augment flow of credit to farmers, especially small, marginal, tenant farmers, oral
lessees, share croppers / individuals, for taking up farm activities, who have no collateral
to offer.
14
nancial inclusion of hitherto unreached poor

households particularly in rural hinterlands.
Despite the laudable achievements, there are
issues like skewed growth, inadequate outreach, poor credit off take and delay in credit
dispensation, etc. Major issues and challenges
may be listed as follows:
To serve as collateral substitute for loans to

be provided to the target group.
To minimize the risks in the loan portfolio
for the banks through group approach.
To reduce transaction cost to the banks by
substituting individual lending with Group
Lending and also conventional collateral
with social collateral/peer pressure.
Against the estimated potential for promotion of about 67.81 lakh SHGs, we have an
existing stock of about 74 lakh SHGs. Four
southern states of Andhra Pradesh, Karnataka, Kerala and Tamilnadu account for
about 36 lakh SHGs out of 74 lakh SHGs
savings linked, so far. Resource poor states
like Madhya Pradesh, Uttar Pradesh, Bihar,
Jharkhand, Chhattisgarh, Rajasthan account
for more than 42% of the estimated potential for formation of SHGs, but account for
only 18% of the SHGs formed. To address
the observed skew ness and the regional imbalances the programme has witnessed in favour of southern states, greater focus of the
programmes is required in lesser-endowed
regions.
To enhance agriculture production / productivity and livelihood promotion through JLG
mechanism.
A Joint Liability Group (JLG) is an informal
group comprising of 4-10 individuals coming together for the purpose of availing bank
loan against mutual guarantee. Generally, the
members of a JLG would engage in a similar
type of economic activity in the Agriculture
/Allied / Non-Farm Sector from the near vicinity. The activity/activities can be pursued
in group or individually. The members would
offer a joint undertaking to the bank that enables them to avail loans. JLG members are
expected to provide support to each other
in carrying out occupational and social activities. Since the launching of the concept in
2006-07, till the end of March 2014, 6.72 lakh
JLGS have been promoted across the country with cumulative loan disbursement of
Rs.6,776 crore from banking sector. NABARD
has sanctioned grant assistance of Rs. 76.13
crore, so far, for promotion of JLGs. The announcement in Union Budget for 2014-15 for
financing of five lakh Joint Farming Group of
Bhoomi Heen Kisan (Landless farmers) has
further given credence to efforts of NABARD
in innovating and reaching out to the landless
farmers through JLG scheme of financing.
Large variation in average amount of loan

disbursed per SHG was observed during the
last year. The variation ranged from Rs. 2.15
lakh per SHG in Andhra Pradesh to Rs.0.50
lakh per SHG in West Bengal.
A sizeable number of the poor families of
the country continue to be out of the coverage of the programme. The Committee
on Financial inclusion (2008) which had attempted an analysis of the district wise gaps
in financial inclusion suggested that critical
exclusion (in terms of credit) is manifest in
256 districts in the country, spread across
17 States, where the credit gap is of 95% and
above. Thus, poor households continue to
face challenges for seeking financial services
from banks because of the continued risk
perception and doubt about their bankability.
8. Issues and challenges

Over the years, the SHG-Bank Linkage programme has emerged as a viable model for fi-
The thrust on promoting SHGs for the sake
15
Financial inclusion efforts have improved

the outreach of banks in the rural areas. Still,
the banks are not able to serve the SHGs adequately, mainly because of lack of adequate
bank staff, lack of proper attitude and inability to use the BC/BF outlet properly for the
purpose.
of getting various benefits under Government schemes like SGSY, interest subvention
/ waiver, subsidized finance in certain states,
and non-availability of required hand holding
support to SHGs in certain area, have resulted
in Pancha Sutras of SHG promotion (regular meeting, regular saving, internal lending,
timely repayment, proper book keeping) not
being followed in promotion of SHGs. This resulted in instances like misutilisation of bank
credit, default in loan repayments, rise in NPA,
etc. in certain area.
The availability of Bulk customers for microfinance in the form of MFIs, which are at par
with the SHG-BLP both in respect of Priority sector status and availability of refinance
from NABARD, is gradually making SHGBLP less attractive to bank.
Even though NABARD has scaled up its training interventions at retail level, due to lack
of adequate thrust from the Management,
the controlling offices and branches of banks
do not perceive SHGs as a business proposition for the bank. Besides, frequent shifting of
bank branch officials posted in rural areas has
resulted in poor banker interface with rural
clients and lack of sensitivity to their financial
needs.
The information technology could not be

leveraged to the desired extent so as to improve the quality of service to the SHGs,
their book keeping and also monitoring system. Interventions in this front have been
sporadic without any serious efforts for upscaling.
16
NABARD and RBI provide the basic framework only stressing on both these aspects and
also giving complete freedom to banks to design their SHG-BLP methodology so as to cater
to the needs of the SHGs in the best possible
mutual beneficial way. Guidelines have also explained, the way SHGs become strong and their
grading methodology to support banks in their
appraisal. While attempting any innovations,
one needs to be careful that the basic aspects of
SHG-BLP are kept intact.
Lack of scope for pursuing income generating livelihood opportunities, has not helped
the growth of income level of the majority of
SHG members.
The issue of sustainability of SHGs has attracted attention in recent past. Exit of initial
support mechanism has resulted in several
SHGs failing to get further credit support
from banks - more so after the transfer of
bank staffs initially connected in their linkages. Several NGOs/ projects have experimented with the mechanism of federations
of SHGs as their exit strategy, however, even
after the creation of such federations, SHGs
have failed to maintain sustained credit linkages with the banks.
Large numbers of SHGs are required to be promoted and linked to bank branches, thus the
role of the branch manager is extremely important. The banks need to be convinced about the
fact that SHG-BLP makes business sense, and
percolate this message down to the branch level.
The SHG-BLP forming part of corporate plan
of banks and periodical monitoring by controlling authorities may help in providing required
linkages to all eligible SHGs. As regards products, largely saving bank deposit, term loan
and cash credit limits have been provided to
SHGs by banks. A wide range of deposit and
credit products suiting to the requirements of
poor need to be designed and offered by banks
through SHGs.
The sustainability of SHGs had further been

affected by the Government sponsored development programmes like SGSY, which
required specific proportion of BPL families in the SHGs forcing the existing SHGs
to disintegrate and form new ones to comply with the guidelines. The restructuring
of SGSY into National Rural Livelihood
Mission (NRLM), a flagship programme of
MoRD, GoI, from 201-12, has yet to make
any concrete impact, except implementation of Interest Subvention Scheme in certain districts/ states from 2013-14. In many
states like Uttar Pradesh, the NRLM has so
far been almost non-starter.
India needs a very large number of institutions/ organisations to promote and nurture
SHGs. But no institution shall take up the task
of promoting SHGs unless they appreciate its
usefulness for themselves. These organisations
can take up the task of promoting SHGs and
facilitate their linkages provided they find a
value in doing so. They need to be motivated,
convinced, and supported to attract them to
group approach which may also provide them
opportunities in delivering a host of activities
otherwise being undertaken by them for the rural poor. It is always more cost effective to work
with groups of poor rather than dealing with
individuals.
9. Innovations and Road

Map for the future
The SHG-Bank Linkage programme in itself
is a very innovative saving led credit model.
Most essential aspects of SHG-BLP linkage
programme were and still are, first the informal nature of group not requiring any type
of registration and second, the flexibility allowed in operation of SHGs and in lending
methodology of the bank. The guidelines of
Another innovation is required to ensure sustainability of SHGs, post exit of SHG promoting agencies, including GOs, NGOs and others.
17
ganizations, community resource persons,

secondary level institutes, State Government
Departments, etc.
Mostly the issue has been tried to be tackled through formation of federations of the
SHGs. While most of these federations have
only non-financial functions, some have been
conceived as financial intermediaries. However, in both the types of institutions, there
are issues of viability of federations and most
of the original proponents of SHG-BLP have
apprehension about the shift towards formalization of the process from a non-formal and
flexible system to a rigid rule based one. They
are afraid as they have experience of three-tier
formal cooperative system in the country and
feel that such formalization would bring political interference and SHGs will lose their participative democratic decision making capacity. Moreover, structure based formalization
of developmental process is breeding ground
of unfair practices.
Effective steps to build capacities in financial

literacy at the SHG level to be taken up simultaneously to ensure that over-indebtedness at the member level is avoided.
Momentum created after the launch of PMJDY, to be leveraged to ensure opening of
new saving accounts to expedite the process
of universal financial inclusion. Convergence of SHG-BLP with FI initiatives of the
Govt. of India and RBI and also other Government programmes to be ensured.
Training and capacity building support being extended to the stake holders to be upscaled for greater appreciation of SHG-BLP
and JLG mode of financing. However, focus
to be on sensitizing bankers at senior level
as well as branch level about the need for financing through SHG and JLG.
The goal of universal coverage of poor households for creating livelihood through the
mechanism of SHG-BLP requires several innovations. Some of these may be attained
through leveraging technology and some others would like innovations in designing the
products. Accordingly, Road map for further
development of SHG-BLP may include:
Mere access to finance does not help SHG

members in poverty alleviation and development of livelihood activities. Therefore,
specialized investments in human capital
are needed to facilitate their growth to take
up larger investments, yielding adequate incomes. Hence, closer attention to be given
for handholding support from specialized
institutions.
More focus on resource poor states having

lower financial inclusion like Assam, Bihar,
Chhattisgarh, Jharkhand, Odisha, Madhya
Pradesh, Maharashtra, Rajasthan, Uttar
Pradesh and West Bengal.
Requisite skill for undertaking livelihoods to

be imparted to the matured SHG members
through convergence with Skill development programmes of GoI.
The focus of the approach may shift from

the State as a whole to Districts in a state
and Blocks in a district as a unit so as to
ensure that the spread and outreach of the
programme is balanced and complete.
The SHG members with higher credit needs

may be encouraged to graduate as members
of JLGs for undertaking livelihood activities.
Such JLGs / SHG members to be encouraged
to aggregate into Producers Groups.
Efforts to be undertaken in reviving the dormant SHGs through effective capacity building and hand holding supports.
Efforts in close coordination with NRLM to
be undertaken to form and nurture groups
by involving NGOs, community based or-
Efforts to be made to encourage Community

Based Organizations (CBOs) as the nodal
18
points for promoting livelihood activities of

members of SHGs. The role of such CBOs
will include identification of members of
SHGs willing to take up livelihood activities
and facilitate their capacity / skill building
process, providing marketing facilities and
a host of activities that can add value to the
process.
Existing training modules to be redesigned

with apt training tools, case studies and appropriate field interfaces to ensure the desired impact of the training programmes.
Digitisation of microfinance sector, including that of SHG-BLP is very essential. At
the SHG level, since book keeping has been
an area of concern, integration of information technology will be useful for improving
efficiency and monitoring. Technological
interventions at different levels i.e. at SHG
level, SHPI level, Bank level and at National
level are envisaged. While using technology,
efforts to be made to keep it simple and user
friendly so as to enhance client comfort, accuracy and ease the work process at branch
level.
T
o enable the SHG members to reach scale
of economies, it may be essential to aggregate the demand for raw material as well as
produce for appropriate market intervention. Thus it is envisaged to assist the SHG
members with the help of CBOs to graduate
as producers so that they could be nurtured
into Producers Organizations (PO) of farm
and non-farm activities. This facilitation will
have to be intermediated with smaller village
level collectives of SHGs.
Alternative delivery channels and support

mechanisms are to be encouraged to provide the SHG members timely banking services at a reasonable cost. The NABFINS
model by NABARD has proved that how
an MFI can provide adequate and timely
credit to SHGs at reasonable rate of interest in a transparent manner without using
coercive methods of recovery and still continue to be a profitable entity. Efforts need
to be undertaken to scale up this model to
the other areas of the country.
S tudies / Action Research need to be taken

up to find out reasons for dormancy, disintegration of SHGs, need for continuous hand
holding for long period of time, likely support emanating from SLIs, apathy of formal
credit agencies and possible convergence of
SHG-BLP with development programmes
of Government / Development agencies /
NGOs / Philanthropic institutions. Such
findings may be used for re-strategising the
approach under implementation towards
holistic empowerment of rural poor.
19
Paper II
MFIs - Role in
serving the
poor, access
to funding
sources, fair
lending
practices
and need for
self-regulation
The MFI model in India is characterised by diversity of

institutional and legal forms. The first well-known MFI
SEWA Bank was incorporated as an Urban Cooperative Bank in 1974 and paved the way for microfinance
in India by showing that the poor were bankable. In
the 1980s, a number of registered societies and trusts
commenced group based savings and credit activities on
the basis of grant funds from donors. The others, from
the beginnings of 1990s began replicating the Grameen
Bank based initially on donor funding but increasingly
on funding from domestic apex financial institutions
such as NABARD, SIDBI, FWWB and RMK. As the
profitability of microfinance got established, the incentive to access equity capital with which to leverage
the funds becoming available from the banking system
grew stronger and this led to the transformation in the
late 1990s of several of the larger and medium MFIs
into NBFCs and Section 25 companies and one local
area bank, all of which enable the MFI to attract investments as shareholder equity. The passing of MACS Acts
in several states in the mid-1990s led to an increase in
the number of cooperatives registered under the new
Act and an increasing number of SHG federations being
registered as MACS.
The sector which was experiencing a fast pace of growth
encountered a setback due to crisis in Andhra Pradesh,
By P. Satish
21
ratios of the two categories of MFIs, NBFCs

and NGOs reveal more about the patterns in
the growth experience of different sizes and
classes of MFIs. In many quarters, the expectation seems to be that the sector is heading
steadily for consolidation to gain from the
economies of scale. It is worth noting that
majority of the non NBFC-MFIs have limited outreach and moderate portfolios. The
data suggests that the outreach of almost half
of such MFIs is less than 10,000 clients with
portfolio size in the range of Rs. 150-700
lakhs.
first in 2006 and later in 2010. Four years

since the crises in Andhra Pradesh have seen
major changes relating to the sector. RBI
has come out with a range of guidelines to
improve the functioning of MFIs, especially
the NBFC-MFIs. As such post-crises era
is the new normal for microfinance sector.
The pre-crises era witnessed unjustified and
non-transparent pricing, over indebtedness
and coercive recovery methods leading to
crises. Post crises, suitable and structured
regulations have given a new framework to
the industry reducing the potential risks for
clients as well as lenders. The code of conduct, fair practices code, etc. have brought
necessary checks and balances resulting in
client protection and productivity enhancement. As such, the sector is itself in a corrective mode. With the revised guidelines and
categorisation, RBI has more control over the
MFIs in restricting the exponential growth in
portfolio, leading to a more disciplined business environment for the sector. MFIs are
now more transparent in their business and
overall it has brought radical change in microfinance sector. Many of the NBFC-MFIs
have regained their confidence during the
period as banks have started lendings to the
MFIs and investors have shown their interest
in them. Thanks to the regulatory guidelines
issued by the RBI, the sector has begun to
behave in orderly fashion that brought in a
fresh perspective about it as being transparent and less risky.
Therefore, it is a clear indication that this

subsector is on the path to recovery after the
different phase that followed the unfortunate
events in Andhra Pradesh. The continuation of the tendency towards settling down
under the umbrella of regulatory guidelines
has been observed. The flow of funds cannot
be said to have smoothened but banks and
financial institutions have become more accessible and responsible.
However, it is disturbing to know that lopsidedness in the distribution of the microfinance facilities has continued during the
years, with the south having a dominating
presence in the sector. While states such as
Karnataka seems to have saturated the districts with microfinance, there are other
states like Bihar, Chattisgarh, Jharkhand that
are yet to have MFIs reaching their interiors.
As far as NBFC MFIs are concerned, as of
31 March 2014, they have provided credit to
over 28 million clients with a gross loan portfolio of Rs.279.31 billion. During 2013-14,
the gross loan portfolio grew by 35 per cent
for the entire industry of which NBFC MFIs
grew by 51 per cent. The loan amount disbursed in the year increased by 48 per cent
for the entire industry and 56 per cent for
NBFC MFIs. Funding to NBFC MFIs grew
by 49 per cent. The portfolio at risk for MFIs
(excluding the Andhra Pradesh portfolio) remained under 1 per cent for 2013-14.
The NGO-MFI sector also referred as the

non-profit or community based microfinance sector, in which most of the institutions are small and local in terms of their operational focus is finding it difficult to attract
loan funding as well as equity funding. With
the rising optimism among the players and
confidence in the funding and policy environments, the NBFC-MFIs appeared to have
done well operationally over the last couple
of years. This is explained by the overall
improvement in the operational parameters
in the last two financial years. The financial
22
duce risk. The securitisation model is being

used as such for the purpose of overcoming
the capital constraint. The loan amount per
borrower is an important criterion to understand the general profile of the clients borrowing from MFIs. It has also implications
for operating costs. In 2013, the average loan
outstanding for all MFI borrowers has been
Rs.8112 showing an increase from Rs.7481
in 2010-11. MFIs have been consolidating
their operations to cope with the effects of
transition in the sector. One such manifestation is occurring in the form of shrinkage of
branch network. There was a contraction of
branch network by 7 per cent during 2012-13
as compared to previous year. As of March
2013, the reporting MFIs had 10,700 branches spread across India. The sector has also
brought down the work force significantly
from over one lakh in 2011 to around 75,600
in 2012-13.
MFIs render their services in 28 states and 5

Union Territories of India. They have presence in 573 districts of the country in providing financial services. MFIs have services
in backward states like West Bengal, Odisha,
Chhattisgarh, Madhya Pradesh, Assam, Uttar Pradesh, Bihar and Rajasthan apart from
the pioneering southern states. Two-thirds
of MFI clients live in rural and semi urban
areas and around 95 per cent of them are
women, majority of whom are unbanked.
This indicates microfinance sectors ability to
focus on womens empowerment. The total
number of clients of MFIs stood at 275 lakhs
as on 31 March 2013. The number of clients
of MFIs had been growing phenomenally till
2010-11 reaching over 300 lakhs. This trend
had a slump in 2012. MFIs now serve 275
lakh borrowers. As usual, NBFC-MFIs have
larger share of the client base. MFIs have increasingly become prudent to use financial
innovations to enhance their income and re-
23
higher rates of interest on loans, clients prefer MFIs over branches of commercial banks,
RRBs or cooperatives due the ease of procedures and documentation, fast credit decision and door step delivery of credit. In many
areas MFIs are the only institutions purveying financial services. Thus, MFIs can play
a vital role in bridging the gap in demand
and supply of financial services if the critical
challenges confronting them are addressed.
These are;
Funding for MFIs has largely been from one

of these two sources borrowings (84%) and
securitisation/ portfolio sale (11%)-though
other forms do exist to some extent. The
other forms include subordinated debt, overdraft, bonds, non-convertible debentures,
external commercial borrowings, savings
and deposits from borrowers/ members.
Banks are major lenders to MFIs followed
by bulk lenders and other financial institutions. Banks in general have positive notion
on supporting MFIs and on their contribution to priority sector lending. Their credit
appraisal norms to fund MFIs have undergone significant change, knowledge of which
would help MFIs to readjust their system to
ensure banks continued support. The role of
bulk lenders is also crucial for funding MFIs.
Banks need to patronize bulk lenders also, so
that they can on-lend to, and nurture small
MFIs.
1. Sustainability :
The first challenge relates to sustainability. It
has been documented that the MFI model is
comparatively costlier in terms of delivery
of financial services. This is explained by
the fact that while the cost of supervision of
credit is high, the loan volumes and the loan
sizes are low. It has also been commented
that MFIs pass on higher cost of borrowings
Feedback from grassroots and a number of

studies reveal that despite the comparatively
24
to their clients who are not interest sensitive for small loans but may not be so as loan
size increases. It is, therefore, necessary for
MFIs to develop strategies for increasing the
range and volume of their financial services.
Besides, MFIs may also make conscious efforts to guide and educate their clients so that
they make informed and judicious decisions
about size and purpose of loans and their
terms and conditions.
funds from banks after 2000 when RBI allowed banks to lend to MFIs who treat such
lendings as part of their priority sector funding obligations. Many banks especially the
Private Sector Banks have designed innovative products to fund MFIs and have started
viewing the sector as good business proposition. However, the crises in the MFI sector in Andhra Pradesh first in 2006 and later
in 2010 has dampened the growing flow of
funds to MFIs.
2. Lack of capital :
4. Capacity building of
MFIs :
The second area of concern to MFIs which

are on the growth path is that they face the
paucity of own funds. This is a critical constraint in their being able to scale up. Many
of the MFIs are socially oriented institutions
and do not have adequate access to financial
capital. As a result, they have high Debt-Equity ratios. Presently, though the India Microfinance Equity Fund exists in SIDBI, there
have to be more broad based mechanisms for
meeting the equity requirements of MFIs.
It is now recognised that widening and deepening the outreach to the poor through MFIs
has both social and commercial dimensions.
Since sustainability of MFIs and as also their
clients livelihoods complement each other, it
follows that the building of the capacities of
the MFIs and their primary stakeholders are
preconditions for successful delivery of flexible client responsive and innovative microfinance services to the poor. Efforts towards
training and capacity building of MFIs and
their human resources have to be upscaled
from the present levels.
3. Borrowings :
In comparison with the initial years, MFIs
had found it relatively easier to raise loan
25
Paper III
Enabling
environment Governance,
Regulation and
Technology
The orderly growth and development of microfinance

sector requires suitable enabling environment in the
form of policy support, regulatory systems, governance, technology and other support services. Microfinance activities globally have come under the close gaze
of banking regulators and governments over the past
two to three years. In India, MFIs are registered under
a variety of laws like the Companies Act, Societies Act,
Trusts Act and the Cooperatives Act for the various
states. Only MFIs which are for-profit companies (i.e.
NBFCs) are covered by RBIs regulation. Other forms of
MFIs remain under regulatory vacuum.
The regulatory response in India was trigged by the developments in Andhra Pradesh during 2010 culminating in the Andhra Pradesh Microfinance (Regulation
and Moneylending) Act, 2010. This Act curtailed the
activities of MFIs and prescribed several restrictions on
functioning of MFIs. The central government and the
banking regulator responded to the crisis and the action
initiated by the state government. The Ministry of Finance prepared a draft legislation to regulate the sector
nationally, while the RBI came up with a series of steps
to guide the working of for-profit companies engaged in
microfinance activities. The Microfinance Institutions
(Regulation and Development Bill 2012) was introduced in Parliament in May 2012. After discussions on
By P. Satish
27
er. Sa-dhan and MFIN came together facilitated by SIDBI and IFC under the banner of
responsible finance forum to harmonise the
Sa-Dhan code and MFIN code and came out
with unified code of conduct.
the floor of Parliament, it was referred to the

Standing Committee on Finance. The draft
bill was returned by the Standing Committee
with the comment that it cannot be accepted
in its present form. It lapsed on the dissolution of the last parliament. The government
has now sought comments on draft bill from
all the stakeholders.
The lenders forum was established under

SIDBI with 12 leading banks as members to
coordinate their activities and banks lending
to MFIs. The periodical meetings of the forum discuss the issues in microfinance sector
and precautions to be observed while lending
to the sector. The forum prescribed common
loan covenants that the banks and borrowing MFIs need to follow. Lenders associations and other stakeholders have come together to form responsible finance forum to
ensure fair and sustainable financial services
through MFIs. This forum is hosted by IFC
and actively participated by SIDBI, Associations and independent experts. The forum
monitors activities in the microfinance sector and conducts various studies to understand client response and the delivery of microfinance services. It primarily focusses on
building robust client protection framework
for microfinance borrowers. Microfinance
Institutions largely realised that it was of utmost importance to detect and prevent over
leveraging/ over indebtedness of borrowers.
MFIs and their Associations have worked for
the setting up of MFI Credit Bureau as a joint
venture with High Mark. MFIs must make
full use of the Bureau Report to take proper
credit decisions and lower future credit risks.
The use of the Bureau has resulted in marked
improvements in repayment behaviour and
collections in general.
RBI appointed the Malegam Committee to

look into various aspects of the sector consequent to the crisis. On the basis of this
committees report, it created a separate
category of non-banking companies called
NBFC-MFIs and put in place detailed guidelines for them. These include restrictions and
safeguards with regard to minimum standards of governance, management, customer
protection, financial health and regulatory
systems. Self-regulation is an integral part of
the regulatory arrangements that RBI has put
forth. RBI has maintained a stand that principle based regulation, including self-regulation, is better than rule based regulation
as the former is less prescriptive with lesser
compliance costs attached. RBI has indicated
the need for Self Regulatory Organisations
(SRO) for monitoring the regulatory compliance. All NBFC-MFIs will have to become
member of at least one SRO recognised by
the Reserve Bank of India and will have to
comply with the code of conduct prescribed
by SRO. The Industry Association/ SROs will
also have to play a key role in ensuring compliance with the regulatory framework.
In addition, banks lending to NBFC-MFIs
would also ensure that lending practices are
aligned to the regulatory framework. Earlier
NBFC MFIs were not under any financial
regulation. The microfinance business was
unique and there were no performance indicators available for MFIs to benchmark upon
and for outsiders to judge MFI operational
efficiency. The MFI financial performance
standards have to be a balance between cost
efficiency and financial sustainability on one
hand and development initiatives on the oth-
The regulatory focus of the last couple of

years has been on NBFC-MFIs with some
attention to modifying SHG-Bank Linkage
Programme. No framework or guidelines
have been evolved for the other important
component of MFI sector in the country-the
not for profit MFIs. Many of them have been
following the RBI directives for NBFC-MFIs,
while others are confused about their status
28
so that there is a smooth and seamless flow

of data, information and transactions across
the banking system. The MFIs also should be
able to work in synchronisation with this system. The Self Help Groups have more or less
remained outside the technology platform
except for the pilots taken up by NABARD
and a couple of other institutions. There is a
view that the client data reporting requirements must be made applicable to SHGs to
enable lenders to have a realistic picture of
individual indebtedness and financial vulnerability at individual level. The time, therefore, is now opportune for Self Help Groups
to get their entire data onto a digital form
and also get their operations linked to their
banks through this form. The costs and the
rolling out of these initiatives will also require greater attention from all the players
in the sector. There are many constraints to
technology adoption-cultural, institutional
and infrastructural-that limit the impact of
technology driven solutions in the microfinance sector. They may be overcome mainly
by making committed efforts to enhance the
financial and technical literacy of the potential users; and designing appropriate mechanisms to improve and broad-base the capabilities of the human resources engaged with
technology in microfinance operations.
and future in the sector. Probably enactment

of MF Act is the only way forward for them
to feel integrated into the larger ecosystem of
microfinance.
While regulatory and supervisory practices
are a must for any financial institution, the
aspects of governance and transparency both
in the internal functioning and in dealing
with the external environment are necessary
for microfinance sector. Most of the corporate governance norms which the Companies
Acts prescribe for corporate entities could
be looked at by the microfinance sector also.
These would include, a well dispersed and balanced Board of Directors, avoiding concentration of operational powers with the promoter
CEO and keeping managerial responsibilities
away from the promoter CEOs and/ or their
family members. Transparency in setting the
rates and charging them to the clients, information on the costs and source of the resources for the Institution should all be in the public
domain to be freely accessed by all, especially
the clients and market players.
In the entire financial inclusion arena, technology has been a great leveller in providing and taking the services forward. Earlier
technology use was mainly for MIS. Gradually, Microfinance Institutions have benefited
also from using technology platforms for
their loaning operations and also maintain
their contacts and interaction with the clientele. There is a noticeable change in the
technology orientation of MFIs currently,
though the status of technology adoption
and preparedness vary among them. Changing regulatory arrangements are a trigger for
technological upgradation. In order to report
individual data to credit bureaus, to ensure
compliance to codes of conduct, detailed
and regular data and information flow is
required. In recent years the primary objective of technology adoption has been to automate the transaction processing activities.
This has to be seen in the light of the entire
banking sector coming on the board for CBS
The industry requires financial support from

apex institutions like NABARD and SIDBI.
After the closure of Microfinance Development and Equity Fund, NABARD has been
funding the SHG promotional programmes
through the Financial Inclusion Fund. Its
funding support covers financial support to
SHPIs for promotion of SHGs, training and
capacity building of various players in the
sector and innovations. The India Microfinance Equity Fund set up with SIDBI in
2011-12 with budgetary support of Rs 100
crores aims at making investments in socially oriented NBFCs with less than 250,000
borrowers and all non-NBFC-MFIs. The allocation to the fund had been increased in
2013 budget. The Fund is meant to be offered
29
on enhancing the overall capacity of the microfinance sector rather than on supporting
discrete activities of individual entities. And
associations are best suited to carry out sector wide capacity building activities. How to
develop the necessary infrastructure for upgrading the capacities of the sector-all channels included-is a question that must bother
the policymakers.
to MFIs to improve their equity base, meet

capital adequacy requirements, and leverage
additional debt from banks and social investors. Lack of a clear cut approach to capacity
building for all players in the sector including MFIs, SHPIs, SHGs and mutually aided
cooperatives has been a perennial issue of
complaint. In case of SHGs, adequate promotional assistance is crucial as the process
of formation of groups is an important determinant of group quality. NABARDs enthusiasm in sanctioning promotional grants
has been dampened by lack of credit linkage
for the groups already formed. Industry experts are of the view that it is high time that
we recognise the significance of investing
substantial resources in increasing the effectiveness and efficiency of the microfinance
sector to facilitate its integration into the
mainstream financial market. Such investment has been lacking in the sector. As the
sector provides substantial business potential with quality assets and returns, banks
should also invest in the capacity building in
the microfinance sector. Support strategies
of donor institutions need to be geared towards locally grounded initiatives, focussed
The entire microfinance sector requires the

guidance and hand holding of bigger NGOs,
bulk lenders, resource NGOs so that the
smaller players in the sector, especially the
non-profits can strengthen their financial as
well as operational capabilities. Further, the
role of industry associations like Sa-Dhan,
MFIN and INAFI has never been greater
than at present juncture. It is time that, avoiding internecine quarrels and one-upmanship,
these institutions should focus on industrywide problems, coordinate their activities
and present a broad common platform to
state and central governments, regulators,
apex organisations, financial institutions and
donor agencies.
30
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Head Office: Plot No.24, G Block,
Bandra Kurla Complex, Bandra (E), Mumbai-400 051
Tel:+91 22 26530084 Fax: +91 22 2652 8141
E-mail: mcid@nabard.org
Visit us at : http://www.www.nabard.org

NMF Conclave Papers 2014

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National Micro

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National Micro Finance Conclave 2014

SHG BLP and JLG

By A K Singh, Kaushal Kisore and Rajat Mohanty

National Micro Finance Conclave 2014

internal lendings. As such SHGs have been

cial assistance to the tune of Rs. 3,717 crore

2. Evolution of Self Help

Another offshoot of SHG-BLP, the JLG

In mid-eighties, MYRADA started working

National Micro Finance Conclave 2014

termed them as Credit Management Groups.

Self Help Groups were conceived as informal

As a follow up of the recommendations of the

It is interesting to note and remember that

NABARD had suggested three models for

Permission to lend to group without specification of purpose/activity/project.

National Micro Finance Conclave 2014

SHGs promoted by banks and linked by

members as entrepreneurs. The project aimed

National Micro Finance Conclave 2014

individual models also), MIS was modified to

5. The status now

Considering the exponential rate of growth of

5.2 Region wise - savings linked SHGs

No. of SHGs savings linked with banks

1 Northern Region Haryana, HP, J&K, Delhi, Punjab, Rajasthan

National Micro Finance Conclave 2014

No. of SHGs financed by banks during the year (No. Lakh)

Savings deposit with/ credit outstanding from banks

number of SHGs receive credit support from

It can be observed that after exploiting the

5.4 Region wise - savings deposit

5.3 Region wise - credit disburse-

The region wise details of savings deposit of

5.5 Region wise - savings to credit

National Micro Finance Conclave 2014

Credit to savings ratio

aging for northern (Haryana, Himachal

amount of SHGs were leveraged by banks for

5.6. Region wise - gross NPA in SHG

Similarly, the figures were not very encour-

National Micro Finance Conclave 2014

doses of credit after the loan is repaid led larger

The above data reveals that there is a general

National Micro Finance Conclave 2014

5.7. Performance of major banks in

absent or not available to the extent in Andhra

managing NPA in financing the SHGs

6. SHGs - the cog wheel

National Micro Finance Conclave 2014

state governments, over a period, undertook,

7. Joint Liability Groups

Though SGSY was the holistic approach to

National Micro Finance Conclave 2014

nancial inclusion of hitherto unreached poor

To serve as collateral substitute for loans to

Large variation in average amount of loan

8. Issues and challenges

The thrust on promoting SHGs for the sake

National Micro Finance Conclave 2014

Financial inclusion efforts have improved

The information technology could not be

Permission to lend to group without specification of purpose/activity/project.

SHGs promoted by banks and linked by

To serve as collateral substitute for loans to

Large variation in average amount of loan

The thrust on promoting SHGs for the sake

Financial inclusion efforts have improved

The information technology could not be

The sustainability of SHGs had further been

Effective steps to build capacities in financial

Mere access to finance does not help SHG

More focus on resource poor states having

Requisite skill for undertaking livelihoods to

The focus of the approach may shift from

The SHG members with higher credit needs

Efforts to be made to encourage Community

Existing training modules to be redesigned

Alternative delivery channels and support

S tudies / Action Research need to be taken