Is this what microfinance was intended to be?

“Somebody has done good work in forming SHGs” – A member of Caspian Team during the field visit to Kalahandi in Orissa in November 2017

Before the Self-Help Group (SHG) movement, if you were visiting a village, and wanted to meet the women folk there, how would you approach them? Whom would you invite? Maybe the local organiser of your trip would ask the local field person to call some women to interact. It would certainly have been a challenge. Today, such a dilemma no longer exists. The SHG as an institution through which women in the village negotiate the outside world is firmly grounded. An identity that transcends and subsumes family, caste and religious identities. A silent societal revolution has happened. Only a few politicians who have ground connect understand the implications of this revolution, and the potent force it carries.

Travelling recently into the back and beyond of interior Kalahandi district of Orissa, Team Caspian, as guests of Chetna Organic, a Farmer Producer Company, had the opportunity to test whether the miracle of Microfinance had moved beyond the easily accessible semi-urban centres and road-side villages into the rural hinterland.

Our brief to our host was clear, we were looking to understand Rural India, and farming communities. We had not asked for, and were not interested in microfinance. However, in village after village we visited, where we requested interaction with people, the common institutional identity that existed was of the SHG. Women who gathered to meet and interact with us preferred to relate through their SHG identity. Therefore, although microfinance was not the focus of our study visit, we were drawn into understanding what was happening to SHGs in the rural hinterland.

The mainstream MFIs are still a long way from penetrating deep inland. For all the noise of saturation of MF in India, take a detour from the roadside village, and the MFIs activity thins-out and disappears. But the SHGs are still there. State Governments and NGOs have planted SHGs, and they are doing ok, inspite of the functionaries often no longer being active, after the funding to meet their costs phasing-out. SHGs have taken an institutional identity of their own.

What’s happening in the Groups?

Across geographies, SHGs are institutions that continue to exist and operate. Savings at the group level are happening, and these are getting deposited in the bank. Precious savings of the poor, locked away unproductively in savings bank accounts, earning 4% interest at quarterly intervals, which the bank in turn deploys & earns 14% or more. In one sense, is it not exploitation of the poor by the banks? Another state programme that failed in implementation! Is this what microfinance was meant to be?

Is Internal lending working?

The key differentiator between the SHG programme and the MFI JLG model was group saving and internal lending. To an MFI, a non-borrower is a cost, a liability, and irrelevant. Not so for an SHG, where the discipline of regular savings is ingrained, and the norm. The amount is flexible and decided by the group based on their ability to save. This savings habit has sustained through thick & thin, irrespective of credit linkage happening.

What was envisaged

The next step envisioned in an SHG was Internal Lending. It was meant to be a 3-step process. Step 1; address the emergency needs of Group members. Step 2; once those needs are met, help members deal with seasonal cash flow issues. Step 3; as the corpus builds-up, the enterprising members start small economic activities that grow over time, and create employment opportunities for the other local women who may not be as enterprising. It was envisaged that a bank loan at this point as a multiple of group savings would boost the corpus of the group. It is only the enterprising who understand the magic of microfinance. The major role of the SHG promoting institution was to help those enterprising women to graduate into enterprises. As described in the earlier paragraph, this has not happened. The savings are put-away in a bank account and forgotten. Why are SHGs not blooming in the countryside? Why are they languishing and operating at a sub-optimal level? Why is everybody so easily contented?

The endless struggle of SHGs to get bank loan

Loans by banks to SHGs in the areas visited was a stray exception. Questions about why the group did not get a loan was most often met by stony silence. In most cases, they seemed reconciled to the fact that they would not get a loan. In other cases, they were told there are lot of overdues in their village, so lending was not possible. Flimsy excuse by an organised workforce, who fight and every 5 years gets a hefty pay rise. Indian bankers have not changed much from what I saw of them 30 years ago, when I started working in the banking sector. Attract low cost deposits, lend when you run out of excuses why you cannot, and do subsidy programme funding using all sorts of tricks to minimise the loan size.

What to do? Unleash the power of the people

The power of human potential is infinite. People are limited by their world view by factors like; the family into which they are born, the caste into which they are born, the place they are born in and the like. We need to fire-up people to dream big, not think incremental, but think transformational. It is not the body that is limiting, but the mind. Once the power of the mind is unleashed, no force on earth can stop it.

I wish institutions see that the intrinsic strength of these SHGs is not lost, the potential they have of unleashing the power of the poor. Organise them, empower them and put them on the path to progress.

What is required is Financial Literacy, to explain why money sitting idle in the bank is meaningless, when the child in the home is under nourished. Providing proper nourishment to the child is not consumption expenditure, it is investment in the future generation. Feeding the adolescent girl child who is going to be leaving the family soon is investment whose ROI is immeasurable. The emphasis on savings is good, but extend that thinking to include investment into assets, the biggest of which is ones own body.

Let’s make people change the way they see the world. Stop the idiotic banker approach of seeing expenditure on family as consumption expenditure and expenditure on the cow bought with the bank loan as productive.