Report On SHG Bank Linkage Facts & Problems

I visited Orvakal Mandal in Kurnool district and Bukkarayasamudaram Mandal in Anantpur

district. In my visit I interacted with members (women) of SHG groups on difficulties they face
in getting loans from the bank. I tried to get the genuine response on these points.

 MCP Prepared: In both the Mandal where I visited and interacted with SHG members
they all said that they prepare MCP before approaching to bank for loan. They
mentioned that not all the SHG members in group are qualified to understand MCP
preparation, hence their book keeper along with leader prepare MCP. Here I observed
in most of the cases they prepare MCP, 1 or 2 day before approaching to the Bank, by
looking at the date mentioned in MCP and Bank loan sanction date.

 MCP submitted to Bank: All those SHG members with whom I interacted in this two
Mandals submit their MCP to bank on each time they approach to bank for loan.

 Bank loan sanction: Bank after screening the whole necessary documents sanctions the
loan, but here one thing is worth mentioning that loan requested amount by SHG group
may not be fully sanctioned by the respective bank.

 Members received the loan: It is now become a practice in almost every SHG groups
that loan amount received from the bank is equally divided among the members
irrespective of the amount demanded by the members.

 Rate of interest charged by bank: Bank charge 13% pa, interest rate on loan amount.

 Penal interest: Penal interest is charged when group is not paying the loan EMI on
scheduled time, it is 18-19% pa

 Processing charge: Bank collects 1% as processing charge for the loan sanctioned for
which bank gives receipt also.

 Insurance: No insurance is taken on loan by bank

 Any other cost (hidden cost): No, there is no hidden cost in loan getting from bank. It is
different that members sometime buy some sweets for their Bank Mithras or their book
keeper just for as kind gesture.
  SHG to member loaning interest rate: SHG group re- lend the loan amount to its
members at the same rate at which they get from bank i.e. 12% pa.

 No. of trips to bank: In this point woman’s looked bit uncomfortable, they told they gets
loan, on prodding by me they revealed that it may take 2days to 1 week, depending
upon the rush in bank, bank staff presence. Some time delay also causes due to
incomplete papers, stamp, photo etc.

 No. of members visited the bank each time: At the time of loan taking from the bank, all
group members visit bank, while at the time of depositing EMI generally group leader(s)
and book keeper visit bank.

Observation:
I visited some villages (Uyyalawada, Nanoor, Lodhipally) in Orvakal Mandal here presence of
MFI is insignificant, although there is 2 MFIs (Spandana and Mullshednam) in Hussainapuram,
but the SHG women in this Mandal prefer to take loan from their group and from MMS.

Reason for these could be attributed to:

 Mrs. Vijaya Bharti, it’s her sheer effort that brought awareness among the women of
this Mandal.
 Gramin Vikas Bank, Nanoor’s the present manager is very helpful to SHG groups,
sometimes if documents are in order than, group do gets loan sanctioned in one day!!!
 Presence of Mahila bank in this Mandal.

While in my visit to Bukkarayasamudaram Mandal, I came to know that there are almost all the
major MFIs operate in this Mandal and in large whole district, with a rate over than 25% pa on
loan amount.

I visited Kusnagar village in this Mandal, here almost all the women of the all SHG group, have
taken loan from MFIs, shockingly not with 1 or 2 MFIs but on average more than 3 MFIs.

On asking about it, women told me that their requirement is more than what they get from
bank or Mandal Samakhya. These rural poor women pay a hefty rate of interest on loan taken
from MFIs, even though they take loan from MFIs because they don’t have any other avenue.
IRR Calculation:
(In Rs.)
Money sanctioned from bank: 1,00,000

Money deducted as processing fee (1%): 1,000

Wage loss (20 mandays @ Rs. 80/mandays): 1,600

Transportation cost (10 members 2 day bank visit, to and fro): 400

Goodwill gesture to Book keeper, Bank Mithras 1000

Bank interest rate: 12% pa.

Effective Loan Rate for SHGs in Orvakal Mandal, Kurnool

S. No. Deposit Date Cash Flow

Principle Interest
1 1-Jan-10 -96000
2 1-Feb-10 10000 1000 11000
3 1-Mar-10 10000 900 10900
4 1-Apr-10 10000 800 10800
5 1-May-10 10000 700 10700
6 1-Jun-10 10000 600 10600
7 1-Jul-10 10000 500 10500
8 1-Aug-10 10000 400 10400
9 1-Sep-10 10000 300 10300
10 1-Oct-10 10000 200 10200
11 1-Nov-10 10000 100 10100

Total 1,00,000 5500 105500

IRR 1.780%
Annual rate 21.36%
 IRR Calculation With Penal Interest (@18%)

Delay in payment Total interest Extra Loss of T. Extra Amt. E. IRR Annual Rate
amount to Pavala
Paid Vaddi
1st EMI 8250 2750 4125 6875 2.30% 27.54%
2nd EMI 7750 2250 4125 6375 2.20% 26.34%
3rd EMI 7300 1800 4125 5925 2.11% 25.29%
4th EMI 6900 1400 4125 5525 2.03% 24.38%
5th EMI 6550 1050 4125 5175 1.97% 23.60%
6th EMI 6250 750 4125 4875 1.91% 22.94%
7th EMI 6000 500 4125 4625 1.87% 22.40%
8th EMI 5800 300 4125 4425 1.83% 21.98%
9th EMI 5650 150 4125 4275 2.18% 26.16%
10th EMI 5550 50 4125 4175 1.79% 21.46%