Impact Of Micro Finance

Published Date: 02 Nov 2017

Finance is the root of economic development and credit is considered to be its branch. The latter grow vertically, which allows former to grow horizontally. The rapid growth of finance system depends upon the strong and sound system of credit policy in an economy. ‘The structure of rural financial market in India is dualistic consisting of both formal and informal financial intermediaries’. Micro finance has emerged as a powerful instrument for poverty alleviation in the new economy (Panigrahi, 2010).

The Indian Govt had been putting lot of stress on providing financial services to the poor and underprivileged since Independence. The late former Prime Minister Smt. Indira Gandhi nationalized the banks in the year 1969 and stated that one percent of the profit of these banks should go to the poor towards their micro-enterprises. Accordingly, 20 point Economic Programme was formulated to fight poverty and it was called as, "Garibi Hatao". The programme envisaged that credit to the poor should be an instrument of social change towards social justice and empowerment of the urban and rural poorer households. Almost for ten years the nationalized banks were bubbling with activities for approaching the poor households. The major problem with these programmes was that beneficiaries perceived the loan as a grant. They did not feel the responsibility of time or the mechanism for monitoring the repayment. This led to poor loan recovery and resulted in the scheme becoming non viable. Soon the banks were fed up with such huge losses and had been the main reason that drove the poor away from the bank.

Subsequently, the nationalised banks were directed by the Government to lend 40 percent of their funds as loans at a concessional rate to the priority sector. The priority sector included agriculture and other rural activities and the weaker strata of society in general. The aim was to provide resources to the poorer for attaining the self-sufficiency. As poorer neither had resources nor employment opportunities to be financially independent.

India for long has been trying to lift poor masses through various interventions. The most significant poverty alleviation programme that is Integrated Rural Development Programme (IRDP) was launched in 1980, wherein, rural poor (below poverty line) were provided loans to purchase livestock and other livelihood enhancing assets. It was one of the first micro-finance interventions at a large scale. India also had similar schemes for marginal and small farmers, urban-uneducated youth.

Under the social banking, finances were made available to weaker sections of the society like schedule cast/schedule tribe/artisans/retailers and so on. All this to a large extent excluded women as beneficiaries, bankers were reluctant to lend to women. Numerous studies have exposed the limitations of the various government schemes to provide different subsidised services to the poor households. It shows the lack of access of mainstream financial services for these poor households and their over-dependence on the local money lenders in meeting their consumption and micro-enterprise demand.

Thus, despite having a wide network of rural bank branches in the country and implementation of many credit linked poverty alleviation programmes, a large number of the poor continue to remain outside the fold of the formal banking system. Various studies have also suggested that the policies, systems, procedures and the savings and loan products often do not meet the needs of the very poor. Therefore, the need arose for alternate options for those engaged in micro-finance activities to initiate an informal and flexible micro-finance process for helping the poor through group dynamics in the poorer neighbourhoods.

But by then micro financing by non-formal financial organizations had already started. Smt Ela Ben Bhatt as mother of micro finance in India by establishing ‘Shri Mahilar Sewa Sahakari Bank" Self Employed women’s Association (SEWA) owned by women of petty trade groups was established on cooperative principle in 1974 in Gujarat.

In 1976, Nobel Laureate Mohammad Yunus started women’s group in Bangladesh and developed thrift and credit among the poorest, later on which has developed into a bank named Bangladesh Grammen Bank which evolved as a means of financial inclusion of poor based on the philosophy of "credit without collaterals". The strategy made a quiet revolution in Bangladesh in poverty eradication ‘by empowering the poor women’ and helped to erase the myth that "credit is the privilege of few fortunate people". The success of micro finance in Bangladesh, Bank Rakiat in Indonesia, Commercial and Industrial Bank in Philippines etc. gave further boost to the concept of micro finance in India.

1.1 Microfinance (MF)

Microfinance has evolved as an accepted institutional framework to provide financial services to the poor in the developing countries and Self Help Groups (SHGs) are considered as the vehicle for advancement of micro-credit to them.

Micro finance broadly refers to the practice of ‘the supply of loans, savings and other basic financial services to the poor’ (CGAP, 2003). Micro finance is considered as a ‘Silver bullet’ (Kalpana, 2005) or ‘Golden Stick’ that helps the poor to avoid distress sale of assets and replacement of productive assets.

‘Micro-credit is a critical anti-poverty tool, a wise investment in human capital. When the poorest, especially women receive credit, they become economic actors with power to improve not only their own lives, but in a widening circle of impact the lives of their families, their communities and their relations’ (Kofi Annan, Secretary General, United Nations).

Fig. 1 : Impact of Micro Finance

The term micro finance is used in addressing issues related to poverty alleviation, financial support to micro entrepreneurs, gender development etc. The task force on supportive policy and Regulatory Framework for Microfinance has defined micro finance as ‘Provision of thrift, credit and other financial services and product of very small amounts to the poor in rural, semi-urban or urban areas for enabling them to raise their income levels and improve living standards’.

Microfinance has gained considerable importance in the last two decades as a tool of poverty reduction and promoter of gender justice, especially in poorer countries. In recognition of the growing role of micro credit in bringing about poverty reduction, micro credit movement assumed global advocacy through Micro Credit Summit held in February, 1997 at Washington. The summit, representing 1500 institutions and 137 countries, is a landmark in the collective crusade against poverty undertaken by the developed and developing countries together.

The "Credit-plus approach" of microfinance through SHGs not only provides small, timely and easy loans to the poor without any collateral but also inculcates savings behaviour amongst them. The microfinance movements through SHGs have been considered as an effective developmental tool in enabling SHG members to undertake micro-enterprises and in turn, to tackle poverty.

In the early 1990, the term micro-credit gave way to micro-finance. Microfinance began to be used to refer to a range of financial services for the poor, including credit, saving, insurance and money transfers.

Microfinance is the provision for financial services to low-income clients or solidarity lending groups including consumers and self-employed, who traditionally lack access to banking and related services. According to Robinson, (1998) microfinance refers to "Small scale financial services for both credit and deposits that are provided to people who farm or fish or herd; operate small or micro enterprises where goods are produced, recycled, repaired or traded, provide services; work for wages or commissions, gain income from renting out small amounts of land vehicles, draft animals, or machinery and tools; and to other individuals and local groups in developing countries in both rural and urban areas".

The salient features of microfinance are: (i) borrowers are from low income group (ii) loans are of small amount micro-loans (iii) short duration loans (iv) loans are offered without collaterals (v) high frequency of repayments (vi) loans are generally taken for income generating purposes.

The micro finance meets needs of poor people which are varied. The needs are : (i) life cycle needs (ii) protection against health shocks (iii) protection against loss of assets (iv) protection against weather shocks (v) send money to their families when migrate (vi) protect against sudden death.

The impact of microfinance on different sector is illustrated below.

Fig. 2 : Impact of microfinance on various sector

Micro finance institutions provides thrift, credit and financial services and products of very small amount, mainly to the poor in rural and semi-urban or urban areas for enabling them to raise their income level and improves living standards. Institutions like NGOs, federations of SHGs, Mutually Aided Co-operative Societies (MACS), state and national co-operatives and NBFCS which provide specified financial services targeted to the poor, may be classified as Micro Finance Institutions (MFI). Banks which provide microfinance along with their other usual banking services are termed as micro finance service providers. Apart from these, several state governments through their various programmes (poverty alleviation, employment generation) and agencies such as Rashtriya Mahial Kosh, Distirict Rural Development Agencies, Panchayati Raj Institutions are promoting formation of SHGs and providing revolving funds.

In India, microfinance operates through two channels:

SHG-Bank linkage programme (SBLP)

Micro Finance Institutions (MFIs).

The SBLP is the bank-led microfinance channel which was initiated by NABARD in 1992. Under the SHG model, the members, usually women in the villages are encouraged to form groups of around 10-15. The members contribute their savings in the group periodically and from these savings small loans are provided to the members. In the later period these SHGs are provided with the Bank Loan generally for income generation purpose. The group members meet periodically when the new savings come in, recovery of past loans are made from the members and also new loans are disbursed. This model has been very successful in the past and with time it is becoming more popular. The SHGs are self-sustaining and once the group becomes viable, it starts working on its own with some support from NGO.

The Government of India has adopted the SHG concept as its primary anti-poverty self employment programme (SGSY). The SGSY replaced the IRDP and other poverty eradication programmes. SGSY adopts the SHG concept of group and savings but provide capital and interest subsidy for investments loans. Unlike the SHG-based microfinance programme, SGSY lending by banks is mandatory. The major change in SGSY from that of IRDP is that a significant parts of the funds- both loans and grants are to be made available to SHGs rather than individuals. Though SGSY envisage an increased role for banks and NGOs, government owned DRDA that lack the required capacity to administer such programmes are the primary implementing agencies.

Concerns on SGSY’s potential, negative impact on the SHG-bank linkage programmes have been raised on accounts of its targeted and subsidy driven approach. As the quality of SHGs promoted under the programme is debatable.

1.2 Key players in the Micro finance system

1.2.1 National Bank for Agricultural and Rural Development (NABARD)

"WE MAKE BANKING POSSIBLE WITH THE LAST, THE LOST AND THE LEAST"

NABARD is an apex institution, accredited with all matters concerning policy, planning and operations in the fields of credit for agriculture and other economic activities in rural areas in India. NABARD was established in 1982 as a Development Bank. The SHG programme has had the sustained support of NABARD, over a period of 20 years. NABARD has made every effort at the national, state, and district levels to analyze and maintain progress, remove policy and operational hurdles, provide funds for training for a variety of stakeholders and persuade banks to increase their coverage. It has also made efforts to extend the programme to the more neglected and remote parts of the country.

The existing institutional arrangements for micro-credit delivery in India is presented in the Fig. 3.

DIAGRAM FROM XEROX

1.2.2 Reserve Bank of India

The earliest reference to micro credit in a formal statement of monetary and credit policy of RBI was in former RBI President Dr. Bimal Jalan’s Monetary and Credit Policy Statement of April 1999. The policy attached importance to the work of NABARD and public sector banks in the area of micro credit. The banks were urged to make all efforts for provision of micro credit, especially forging linkages with SHGs, either as their own initiative or by enlisting support of Non-Government Organisation (NGOs). The micro credit extended by the banks is reckoned as part of their priority sector lending and they are free to device appropriation loan and saving products in this regard. Reserve Bank of India’s policy guidelines for linkage banking, especially allowing banks to open bank accounts and lend to unregistered bodies like SHGs, non-insistence on physical collateral for loans and total flexibility in loan purpose and amount were path breaking developments. This policy support which the central bank provided for the SHGs to avail credit from banks has enabled the phenomenal growth of SHGs. The lending institutions accepted the rules and regulations adopted by each SHG-related to size and purpose of loans, interest and repayment schedules-without imposing its own norms or standardizing SHG functions.

1.2.3 Micro Finance Institutions (MFIs)

Microfinance institutions (MFIs) in India exists as NGOs and Non-Banking Financial Companies (NBFCs), Commercial banks, RRBs, Co-operative banks and other large lenders have played an important role in providing refinance facility to MFIs. Banks have also leveraged the SHGS channel to provide direct credit to group borrowers.

1.2.4 Non Government Organizations (NGOs)

The Non Government Organizations involved in promoting SHGs and linking them with the Formal Financial Agencies (FFAs) perform the following functions:

Organizing the poor people into groups.

Training and helping them in the organizational, managerial and financial matters.

Helping them access more credit and linkage with formal financial agencies.

Channelizing the group effort for various development activities.

Helping them in availing opportunities, widening the options available for economic development.

Helping them in sustaining the group effort independently even after withdrawal of the NGO.

1.2.5 Self Help Groups (SHGs)

The establishment of SHGs can be traced to the existence of one or more problem areas around which the consciousness of rural poor is built and the process of group formation initiated. SHG are considered a new lease of life for the women in villages for their social and economic empowerment. SHG is a suitable means for the empowerment of women. Since SHGs have been able to mobilize savings from persons or groups who were not normally expected to have any ‘saving’ and also to recycle effectively the pooled resources amongst the members, their activities have attracted attention as a supportive mechanism for meeting the credit needs of the poor.

1.3 Evolution of SHG Banking

There are three sectors of the financial institutions in India, which provide services to lower-income people: regulated banks, unregulated micro finance institutions (MFIs) and informal Self Help Groups (SHGs). As stated earlier, India has one of the most diversified network of banks in the developing world, comprising commercial banks, RRBs and cooperative banks. Yet according to the All-India Debt and Investment Survey of 1981, some 250 million of the rural poor still had no access to formal finance, despite years of massive branch expansion, priority sector programmes for rural areas and numerous credit lines.

The National Bank for Agriculture and Rural Development (NABARD), carved out of the central bank in 1982, analysed the reasons behind the failure of reaching the rural poor: a sole emphasis on production loans, prohibitive transaction costs for lenders and borrowers, failure to mobilize savings, and overly complicated procedures.

During the second half of the 1980, NABARD took first step turning from the old world of supply-driven to a new world of demand-driven, stipulating that programmes with the poor have to be savings-led and not credit-driven and that the poor have to have a say in their design. As a part this broad mandate, nabard initiated certain research projects on SHGs as a channel for delivery of microfinance in the 1980s. Amongst these the Mysore Resettlement and Development Agency (MYRDA) sponsored action research project on "Saving and credit management of SHGs" was partially funded by NABARD in 1986-87. In 1988-89 in collaboration with some of the member institutions of the Asia Pacific Rural and Agricultural Credit Association (APARCA), NABARD undertook a survey of 43 NGOs in 11 states in India to study the functioning of microfinance SHGs and their collaboration possibilities with formal banking system. Both these research projects threw up encouraging possibilities and NABARD initiated a pilot project called SHGs linked project (NABARD-1991).

In a parliamentary debate NABARD argued against introduction of the Grameen Bank Model of Bangladesh on a national scale, opting instead for a linkage banking approach: using the existing infrastructure of banks and social organisations, being saving-driven rather than credit-led; and using bank rather than donor resources in the provision of credit (Nanda, 1995, Kropp and Suran, 2002 and Seibel, 2005).

NABARD started a pilot project in 1992, contributing to the goal of solving the perennial problems of rural indebtedness and poverty in India. Results were promising and NABARD decided to mainstream SHGs banking on a national scale: Setting up a Credit and Financial Services Fund in 1996 for extensive capacity building and a Micro Credit Innovations Departments (MCID) for programme implementation in 1998, with MCI cells in every state. Transaction cost studies in the 2002 found that SHG-Banking was highly profitable to banks and transactions cost for borrowers were low for SHG and members. SHG bank linking programme (SBLP) encompasses three broad models of linkage:

I. The SHG-Bank Linkage Model I : Bank –SHG-Members

Under this model, banks promote and nurture the SHGs till they mature. Banks play a role of promoting SHGs and providing credit to SHGs.

Fig. 4 :

II. The SHG-Bank Linkage Model II : Bank-Facilitating Agency –SHG- Members

After formation of groups, they are supported by Government agencies or NGOs, but financed by banks. NGOs and Government agencies play a role of facilitator.

III. The SHG-Bank Linkage Model III – Banks –NGOs-MFI-SHG Members

The NGOs act as both facilitators and micro-finance intermediaries and micro-finance intermediaries and often federate SHGs into apex organisations for group lending and larger access from banks.

1.4 Growth of SHGs in India

The small beginning of linking only 500 SHGs to banks in 1992, has grown to over 0.5 million SHGs by March 2002 and further to 8 million SHGs by March 2012 (NABARD 2011-12). The Government of India made linking SHGs with banks a national priority from 1999 and NABARD continues to nurture the expansion of the outreach of the programme by providing umbrella support to various stakeholders. The programme is growing at a pace of about 2.5 million households annually. It is the largest and fastest growing microfinance programme in the world in terms of its outreach and sustainability.

Table 1: Overall progress under SHG-Bank Linkage for last 3 years.

(Amount in crore /Numbers in lakh)

Particulars

2009-10

2010-11

2011-12

No. of SHGs

Amount

No. of SHGs

Amount

No. of SHGs

Amount

SHG savings with Banks as on 31st March

Total SHGs

69.53

(13.6%)

6198.71

(11.8%)

74.62

(7.3%)

7016.30

(13.2%)

79.60

(6.7%)

6551.41

(-6.7%)

Of which SGSY groups

16.94

(12.5%)

1292.62

(-17.3%)

20.23

(19.4%)

1817.12

(40.6%)

21.23

(5.0%)

1395.25

(-23.2%)

% of SGSY to Total

24.4

20.9

27.1

25.9

26.7

21.3

All women SHGs

53.10

(9.18%)

4498.66

(1.46%)

60.98

(14.4%)

5298.65

(17.8%)

62.99

(3.3%)

5104.33

(-3.7%)

% of women Groups

76.4

72.6

81.7

75.5

79.1

77.9

Loans Disbursed to SHGs during the year

Total SHGs

15.87

(-1.4%)

14453.3

(9.1)

11.96

()

14547.73

()

11.48

()

16534.77

()

% of which SGSY groups

2.67

2198

2.41

2480.37

2.10

2643.56

% of SGSY to Total

All women SHGs

% of women Groups

The SHG bank linkage model experienced a massive growth in recent years. Under the SHG-Bank linkage programme, over 103 million rural households have now access to regular savings through 7.96 million SHGs linked to banks (NABARD, 2011-12). While bulk of these savings is used for internal lending within the group (over 70%), the balance is maintained in the savings accounts with the financing banks. Over 79% of SHGs linked to banks are exclusive women groups, which is one of the most distinguishing features of Micro Finance sector in the country.

The balance in the savings accounts of the banks as at the end of March 2012 stood at Rs.6551.41crore. Among the major states, Karnataka SHGs maintain the highest S.B. balance of over Rs.16000 per SHG followed by Punjab of nearly Rs.12500 per SHG. Among the regions, southern region is highest at Rs.10080 per SHG and north-eastern region recorded the lowest balance of Rs.4159 per SHG. On an average, the SHGs maintain a balance of Rs.8230 per SHG. Commercial Banks account for 58% of the savings account maintained by SHGs and RRBs 27% and Cooperative Banks the remaining 15%.

Fig. 4 shows a graphical presentation of the savings, fresh loans and loan outstanding of SHGs with banks for the last 4 years.

Fig. : SHGs as on 31.03.2012-Savings and credit.

Fig. 6 : Saving Linked SHGs (Number) : Agency wise.

Fig. 7 : Average Savings Balance of SHgs with Banks-regionwise.

Further, over 4.36 million SHGs have now access to direct credit facilities from the banks and the total bank loans outstanding against these groups is over Rs.36340 crore as on 31 March 2012 i.e. an average of Rs.83500 per group. About 1.15 million SHGs were extended fresh loans to the extent of Rs.16535 crore during 2011-12 by all banks averaging Rs.1.44 lakh per group. Although fresh lending to SHGs during the year showed an increase of 13.7% over last year, the steady decline in the number of SHGs being extended fresh loans by banks for the last 3 years is a matter of concern. Number of SHGs having outstanding loans with banks is also showing a decline partly due to the continued decline in the number of SHGs being extended fresh loans by banks for the last 3 years.

1.5 SHG Movement in Maharashtra

The concept of SHG was not new to Maharashtra. Beginning with a tiny amount of only 25 paise, the women of Maharashtra from Amaravati District had established one SHG long back in 1947. Further in 1988, ‘Chaitanya’ Gramin Mahila Bal Yuvak Sanstha started promoting SHGs in Pune District, informally.

In Maharashtra, the NGOs not only have catered to the economic needs of the participants, but also involved in the process of social development. The aim of ‘Chaitanya’ is also the same to empower the women in both ways, economically and socially. Presently, numerous NGOs and governmental institutions promote SHGs on a large scale. There are

Maharashtra : SHGs coverage ratio

I-Green : Above 80%

II. Yellow : Between 50%-80%

III. Red : < 50%

Fig. 8 : Maharashtra - SHGs coverage ratio

Table 2 :

1. Potential Rural households to be covered

104.39 lakh

2. Rural households covered* (SHG: savings

linked)

107.52 lakh

3. Districts with low coverage of SHGs

26 out of 33 districts

4. Average savings/SHG (Rs.)

8749

National Average :8230

5. Average credit disbursed/SHG (Rs.)

87988

National Average : 144046

2010-11

2011-12

6.1 Loans issued No. of SHGs (lakh)

0.63

0.68

6.2 Loans issued (Rs. crore)

512.27

601.80

7. Loans outstanding (Rs. crore)

1044.82

1162.54

8. Gross NPA (Rs. crore)

81.62

103.40

8.1 SGSY (Rs. crore)

29.82

58.51

8.2 SHG (non-SGSY) (Rs. crore)

51.80

44.89

9. No. of WSHG districts

6

* No. of SHGs x 13 members/SHG

SOURCE: NABARD - Status of Microfinance in India 2011-12.

1.6 Microfinance profile of Pune District

As reported in NABARD PLCP Plan 2011-12, there are 41158 SHGs in Pune District as on 31.01.2010. The total loan sanctioned by the banks to SHGs during the year 2011-12 amounted to Rs.14324.29 lakh. This could be achieved due to joint efforts of the members of the SHGs, NGOs, Banks and the Government Agencies Coverage of the district under IFAD assisted Maharashtra Rural Credit Project (MRCP) laid a strong foundation for development of Microcredit activities in the Pune district. Besides, SHGs concept has also been dovetailed with poverty alleviation and employment generation programs sponsored by the government. Microcredit activities are more or less evenly spread in the 13 blocks of the Pune district. The 236 branches of 16 CBs and 250 of Pune District Central Co-operative Banks are participating in the SHG bank linkage programme. Besides, various other co-operative banks, Pat Saunsthans are involved in promotion of SHGs in the Pune district.

1.7 Role of banks in Pune District

All the major banks in Pune district are actively participating in the Microcredit activities. The agency wise details of the SHG linkage in the district during the year 2009-10 are given in the Table 3.

Table 3 : Agency wise details of the SHG linkage in Pune district

Sr. No.

Name of the Bank

SHGs credit linked (Cumulative Position)

Numbers

Loan Sanctioned (Rs. lakh)

1

Commercial Banks

22429

8203.11

2

The Pune DCCB Ltd.

14428

4705.53

3

Urban Banks

1990

449.10

Grand Total

38847

13302.98

As per the available data (2001 census), there are 625423 rural household having a population of about 3127115. This indicates that there is vast scope for promotion of new SHGs and their credit linkage. The potential of formation new SHGs and scope for credit linkage of new as well as the existing SHGs to be credit linked is assessed excluding APL as per the following details.

Table 4 : Potential of formation of SHGs and credit linkage in Pune district

Potential for formation of new SHGs

Potential for credit linkage

No. of rural household

625423

No of SHGs credit linked

38847

Total population estimated (approx.)

3127115

No. of SHGs available to be credit linked for the year 2011-12

10000

No. of SHGs which can be

208474

No of existing SHGs (approx.)

41000

No. of SHGs to be provided repeated finance

5000

No. of SHGs to be formed during 2011-12

167474

No of SHGs to be formed during 2011-12

12,000

Table 5 : SHGs established from 1999 till March 2011 in Pune Disrict

Sr. No.

Name of Block

SHGs established from 1999 till March 2011

BPL

APL

Total

1

Ambegaon

665

2600

3265

2

Baramati

1304

3296

4600

3

Bhor

717

1762

2479

4

Daund

1174

2618

3792

5

Haveli

692

3354

4046

6

Indapur

1219

2942

4161

7

Junnar

901

2921

3822

8

Khed

715

2846

3558

9

Maval

680

2960

3640

10

Mulshi

409

1428

1837

11

Purandar

728

3167

3895

12

Shirur

615

2799

3414

13

Velha

144

794

938

Total

9963

33484

43447

Source : DRDA, Pune 2011.

1.7 Sustainability of SHGs - Need, Issues and Challenges

The guidelines for SHGs –Bank linkage Programme were first issued by NABARD and the RBI in 1992, but the concept did not gain momentum until the end of the decade. Beginning in 2000, the country experienced tremendous growth in the formation of SHGs, particularly in southern India. In the movement’s nascent stages, SHG promotion was organised mainly by NGOs, but as the concept gained popularity, many government took on similar intermediary role. As the SHG-Bank Linkage programme spread geographically, Andhra Pradesh became a role model for the country, hosting about half of all SHGs formed under the bank-linkage programme.

It is expected that for effective functioning, all must participate and members must have confidence. They should be able to help each member in the process of developing his or her livelihood strategy, develop new and more complex functions in response to emerging needs and have the ability to re-engineer them in a business without disturbing membership.

It takes time and adequate funding for families to earn enough resources to climb out of poverty. Though SHGs growth is phenomenol through out the country, resulting in benefits to its members, it is facing serious challenges such as uneven growth of SHGs in different parts of country and uneven quality of SHGs and issues related to their sustainability.

As we look into the future, there are questions that have to be answered. These questions are not new ones but have been asked several times in the past. The first is the sustainability. Whose sustainability matters more in microfinance? Whether it is that of the institutions or of the customers? The next is whether the institutions are of the poor or they are for the poor? While it may be argued that if institutions are sustainable, then only they are in a position to serve the interest of the poor. However, the experience of the largest MFI in India has shown that once institutional sustainability becomes a priority, it can go beyond reasonable limits and look fancy market valuations as a part of ensuring sustainability. The SHG movement need to prioritize empowerment of women by making them participate in income generation activities, empowering women financially and socially and achieve sustainability of the groups. The next question is about what are reasonable returns from the group and from the income generating activities that women undertake.

As part of voluntary code or even as an informal understanding, MFIs should set about adopting such voluntary benchmarks. Building institutions of the people seems to be a better way of ensuring that institutions work for them. The profits and losses of such institutions accrue to the poor, as they would own these institutions. However, the policy framework is not favourable for institutions of the poor. The sustainability usually covers :

Organisational sustainability

Financial sustainability

In short, despite the considerable achievements of SHG Bank linkage programme, sustainability of the SHGs has not been clear. The extent of sustainability and factors determining sustainability are not known. The knowledge on impact is also inadequate. The need to investigate these issues is long overdue. The factors which are likely to make the benefits of SHG sustainable need to be identified. This study assumes the SHGs need to be sustainable and suggest that SHGs federations have the potential to contribute to this.

1.7 Significance of the study

The growth of SHGs in Pune District is significant and the quality of SHGs is matter of concern. The present study is likely to provide valuable information to the government and non-government agencies about how effective are the groups in managing their financial transaction, which are the factors that contribute in making SHGs a sustainable entity. As there are various parameters, on which SHGs can be assessed, as category (type), age, size, extent of empowerment of the rural women through income generating activities and the factors influencing the empowerment. The findings of the study could be used by various institutions, agencies, departments of the Government, researchers and NGOs to strengthen the groups through various capacity building inputs, which will benefit the women, to develop better strategies for the financial empowerment of women and sustainability of self help groups. This research will also help women to select the income generating activities, create better linkages for accessing raw material, skill training, marketing opportunities and credit needs.

1.8 Layout of thesis/Chapter scheme

Organisation of the Report

Chapter 2 : Presents the domain and outreach of SHGs in the microfinance sector and in poverty alleviation. It introduces the principal actors that promote and fund SHGs and the NGOs covered by the study.

Chapter 3 : Sets out NGO strategies for SHG development, including bank linkage and a variety of forms of SHG federations linked to other MFIs. It maps the structures of intermediation through which funds flow to SHGs and SHG federations from apex lending institutions.

Chapter 4 : Discusses estimates of costs of promotion under different models - minimalist, empowerment and livelihoods development - and develops benchmarks for costs of SHG promotion.

Chapter 5 : Examines, from available evidence, the prospects of long-term sustainability of the strategies adopted by the different NGOs for SHGs and SHG federations promoted by them.

Chapter 6 : Discusses the findings of various impact assessments of SHGs engaged in MF and identifies the capacity building needs of SHG-based institutions for impact assessment.

Chapter 7 : Makes recommendations for donor policy towards the future development of