Self help groups being spoiled by the lure of subsidy

Way back in 1992 when banks were told to form self help groups (SHGs), the banking community across India did not know what they had to do with these small groups of poor people. Today the intrinsic value of SHGs is recognised as a potential antivirus for chronically ill banks.

The success stories of turn around of banks are pouring in from across the country and a majority of the banks have internalised the SHG formation as part of their business activity. As on March 31, 2008, nearly 35 lakh SHGs have been credit linked to banks across the country. The savings of SHG members have so far crossed Rs 4,500 crore.

Today the micro finance programme of banks in India has covered more than six crore poor households and it is considered as the biggest small loan activity in the world, which is more than 10 times the size of the Nobel Laureate Muhammad Yusuf’s micro finance programme in Bangladesh.

The scope of reaching credit to unbanked population in remote areas has widened as people have learnt the skill of self banking, which has considerably reduced the banks’ day to day administrative cost. In SHG activity, the bank initially grooms a healthy SHG, opens its saving account and disburse loan. The rest is taken care of by the group members, who distribute loans to the members as per their needs and take the responsibility of recovering it.

Today the recovery from SHGs is an average 90 per cent, which was unthinkable in the 90s. Many banks have opened exclusive SHG cells in their branches to take care of the small loan requirements of people.

When healthy SHGs were ticking entrepreneurship cycle and activating banks’ credit cycle even in remote districts, the mushrooming of subsidy-linked SHGs under government sponsored (SGSY) Swarnajayanti Gram Swarojgar Yojana has reversed the healthy SHG movement.

When subsidy and other benefits are linked to SHG formation, it adversely affects people’s saving habit, entrepreneurship skill, repayment ethics and self reliance. In fact, subsidy is a mismatch in SHG movement and it erodes away the villagers’ initiatives to work hard and does not allow village skill shaping into entrepreneurship.

The banks’ SHG which was trying to link village entrepreneurship cycle with the banks’ credit cycle for sustainable development is facing deep uncertainty. Today the bankers feel as if somebody is cutting the base of the tree after asking them to climb to the top.

Unregulated bodies

Poverty alleviation is a slow and steady process, which needs scientific grassroots level planning and deep understanding of the rural mindset. When banks’ regular SHGs are clashed with the SGSY’s subsidy-linked SHG for space, the entry of micro finance institutions has added to the problems as those unregulated bodies focus more on lending and recovery.

A few of them make scientific potential survey in sync with government plan outlay and the bank’s credit plan. Equipped with various insurance products as safeguard for their lending activity, those companies often charge exorbitant rate of interest.

Many insurance companies also look for the “fortune at the bottom of the pyramid” blown to their ears by economist C K Prahlad. Everybody wants to run away with profit like a mosquito does to a healthy person or a honey bee does to a flower. The poor rural folk do not understand what conditions are written in very small letters while buying insurance products. It should be compulsorily in local language.

There is a need for regulation of micro finance institutions and transparency in the operation of the insurance companies. Although insurance is a safety mechanism, the insurance business will never sustain if the villagers do not generate income on a sustainable basis.

For sustainable income, people want their water table, flowing rivers, original soil content, the presence of doctors and teachers in their areas. People want their biodiversity restored. We have many vibrant sectors which can easily generate income and provide food to all if proper environment is created.

For example animal husbandry, forestry and horticulture sectors can give sustainable income to more than 50 per cent  of our poor people; forget about other sectors like fishery, agriculture, handicraft making, eatable sector, forestry and Ayurveda sector.

Over the years, banks’ SHG was not only helping people to access bank loan it has revolutionised the thinking process of people.

Many untapped potentials have been turned into entrepreneurship due to SHGs’ effort.

It is high time we safeguard the banks’ SHG members from the lure of subsidy and other spurious influences.