Amulya K Champatiray Parul Agarwal Misha Sharma IFMR Research, Chennai, India

1. Self Help Group Bank Linkage: Through the responsible Finance LensA study on state of Practice in SHG Bank Linkage in Madhya Pradesh, Bihar and Karnataka AmulyaK Champatiray ParulAgarwal Misha Sharma IFMR Research, Chennai, India

2. Agenda • Background • Research Questions • Methodology and sample • Financial Performance • Other Performance Indicators • Overall Recommendations

3. Background • SHG-BLP status as of March 2013 • 73.18 lakh savings-linked SHGs with savings balance of over INR 8217.25 cr • 44.51 lakh credit-linked SHGs with bank loan outstanding of INR 39375.30 cr • Over 95 million households covered as on 31st March 2013 • In March 2012, NABARD introduced ‘SHG-2’ with number of revisions in the programme including • Introduced the concept of ‘voluntary savings’ and • Joint Liability Group of entrepreneurial-members with the SHG for income generation activities • In June 2011, NRLM was introduced that envisions SHGs as a delivery mechanism of massive poverty alleviation initiative.

4. Introduction • Microfinance India Summit 2013: 10th edition of the annual policy conference, organized by ACCESS Development and ACCESS Assist. • AmulyaChampatiray represented IFMR Research at the panel discussion titled, ‘SHG Schematic: Applying the Responsible Finance Lens’ at the Microfinance India Summit 2013. The panel discussed issues and practices in Self Help Group bank linkage with respect to ‘responsiveness and responsibility’ to clients/members, and proposed a way forward. Amulya presented findings from the recently concluded study that attempted to understand the financial and non-financial interactions of SHGs with external agencies, as well as to review the group dynamics in terms of financial transactions, decision making, cohesiveness, transparency and acceptance towards technology and new policies. The study was conducted in three states; Bihar, Madhya Pradesh and Karnataka, with a total of 200 SHGs selected from each of the three study states. They were administered questions pertaining to their activities at different levels. The session was well received by an audience with diverse backgrounds including banking, government, research and practitioners. • For further details on the presentation, please visit: http://www.centre-for-microfinance.org/research-projects/financial-inclusion/financing-practices-shg/

5. Research Objectives • To understand the financial and non-financial interactions of SHG with external agencies like banks and SHPIs • To study the internal group dynamics in terms of financial transactions, decision making, cohesiveness, transparency and acceptance towards technology and new policy

6. Sample and Methodology • 200 SHGs each spread across 2-3 districts in the states of Bihar, Madhya Pradesh and Karnataka • SHGs ranged in the age group of 1-6 years • Data Collection Instruments: • Leader module administered with leader • Transaction module administered with leader and treasurer • Members module administered with progressive and not so progressive members • Interviews with respective SHPIs

7. Sample Characteristics

8. Financial Performance Performance and Policy implications on the following aspects: • Savings • Lending and Borrowing • Book Keeping

9. Savings: Performance

10. Savings: Default Management

11. Savings: Discipline among Members and Leaders

12. Risk with SHG savings

13. Demand for the additional voluntary savings options • None of the groups across the study SHGs are practicing the concept of voluntary deposits • A small fraction of SHGs faced a situation where some members in the group wanted to save more than others. • 4% of groups in Bihar, • 7% in MP and • 26% in Karnataka

14. Savings: Policy Implications • Needs and implications of flexibility in saving product/s? • Is it required across states/regions and SHGs? given the scenario where a substantial number of members are not participating in the compulsory savings • What benefit member will gain apart-from creating capital? There is no interest offered by SHG on member savings apart from few exceptions (in Karnataka) • Will it lead to conflict where majority of SHGs have a practice of not depositing the member savings at bank account (with the experience of poor bookkeeping)

15. Lending and Borrowing: Performance

16. Internal Lending: Performance

17. Internal landing- performance of leaders and members

18. Borrowing from bank and SHPI

19. Discipline among Members and Leaders in External Loan Repayment

20. Loan default management • Internal Lending • A better system of penalizing the members need to be in place. Current analysis shows that the penalty amount charged is not sufficient enough to incentivize members not to default indicating a scope of raising the penalty fee to control defaults further. • Lending by Banks • Considering the loan size and default rates, amount disbursed to SHGs need to be checked which might currently be too high for MP and Karnataka and a little low for Bihar.

21. Cost on bank loan • Interest rate on bank loans is charged at 12% to 14% • Opportunity cost during the loan process: Rs. 100 - 140 per member per day. • Average total transportation cost per SHG in processing bank loan • Bihar 111 • MP 518 and • Karnataka 1,803 • Processing fees being charged on their bank loans, • MP 268 • Karnataka 610 and • Bihar - not reported • Loan account maintenance • MP 500 • Karnataka 313 and • Bihar – not reported • Insurance contribution i.e. linked to their loan: Karnataka Rs. 8,736

22. SHG Interaction with Bank The average time taken during interaction with bank to facilitate regular transaction of deposit and withdrawal: • about 60 minutes in the case of Bihar and MP, • 30-45 minutes in the case of Karnataka

23. Lending and Borrowing: Policy Implications • Without proper mechanism of default management among substantial number of SHGs – would the soft loan / revolving fund be beneficial or will it create conflicts? • What should be the priority for SHG and SHPI – to offer more credit products or timely sanction of existing credit product? • Are banks prepared to take on more responsibility of managing funds that will come up with the structural and functional changes introduced?

24. Book-Keeping: Performance

25. Book-Keeping: Quality (accuracy, clear and timely update):

26. Book Keeping: Policy Implications • With the current standard of book-keeping • it will be difficult to manage voluntary savings – it might lead to group conflict • Managing soft-loan and revolving fund will be difficult and specifically JLG loan management will be a challenge • Groups’ involvement in community development work will be difficult to check and track

27. Other Indicators: Transparency Members’ awareness on group policy: • For a meagre 1.17% of the groups across the SHGs under study were the members not well versed with the group’s policies. Sharing of financial status with members in every meeting • 98% in Bihar, • 87% in MP • 84.21% in Karnataka • 11.58% SHGs in Karnataka share it only when a member asks for it

28. Information sharing and use of technology • About 90% of the sample SHGs believes technology can help in improving the standards of book-keeping (regular and accurate updating of records). • A significant number of SHGs across study states (18.95% in Karnataka, 25.63% in MP and 28% in Bihar) expressed their willingness to adopt technology. • SHGs are willing to pay a range of Rs. 3000 to Rs. 10000

29. Other Indicators: Social Performance

30. Other Indicators: Social Performance

31. Other Indicators: Member dropouts

32. Other Indicators: Perception on SHGs capacity SHPIs’ perception on social performance of SHGs • Participation of SHGs in community development activities: • SHPIs in Karnataka and Bihar rated high on performance of SHGs • SHGs performance in MP is moderate • Addressing community level issues: • SHPIs believe SHGs have limitations in addressing the community level issues on their own – they look at the SHPIs for support • Dealing with External Agencies: • about 60% SHGs looks for assistance from SHPIs across study states • SHGs’ capacity of adopting SHG 2 and Livelihoods promotion program: • SHPIs in Karnataka and Bihar believe that a large section of SHGs are capable of adopting the revisions

33. Overall Recommendations • Fund and Default Management • Transparency and Accountability • Engagement of External Institutions • Conflict Resolution • Community Level Sensitization

34. Thank you For further questions and discussion please write to the researchers at: amulyakrishna.champatiray@ifmr.ac.in parul.agarwal@ifmr.ac.in misha.sharma@ifmr.ac.in