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Self Help Group Bank Linkage: Through the responsible Finance Lens A study on state of Practice in SHG Bank Linkage in Madhya Pradesh, Bihar and Karnataka.

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Presentation on theme: "Self Help Group Bank Linkage: Through the responsible Finance Lens A study on state of Practice in SHG Bank Linkage in Madhya Pradesh, Bihar and Karnataka."— Presentation transcript:

1 Self Help Group Bank Linkage: Through the responsible Finance Lens A study on state of Practice in SHG Bank Linkage in Madhya Pradesh, Bihar and Karnataka Amulya K Champatiray Parul Agarwal 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 31 st 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: 10 th edition of the annual policy conference, organized by ACCESS Development and ACCESS Assist. Amulya Champatiray 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/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 State wise distribution of literacy levels among SHG members (%) Literacy LevelBiharMPKarnataka Can read and write162038 Cannot read and write but sign463539 Can neither read nor write384422 State wise distribution of occupation among SHG members (%) OccupationBiharMPKarnataka Farm activities548156 Non-farm activities411827 Unemployed5117

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

9 Savings: Performance Details of Compulsory Savings DetailsBiharMPKarnataka Average Savings Amount per frequency 9 (weekly) 3 (weekly) 114 (Monthly) Percentage of groups where all the members do not contribute to compulsory savings 15655 Percentage of groups where all the members' savings are deposited in SHG bank account 2.57.2597.25 Average number of times a member has defaulted in the group 4.520.4 Average number of times when a penalty is paid for default 00.1 Average member's savings corpus139411792875

10 Savings: Default Management Penalty and Interest Rate on Savings BiharMPKarnataka Average penalty amount for default 526 Percentage of groups with no penalty 847660 Average interest rate on savings 002 Percentage of groups that do not offer interest on members savings 100 47

11 Savings: Discipline among Members and Leaders

12 Risk with SHG savings Percentage of groups by the risks associated with saving with SHG RisksBiharMPKarnataka Loss in case of SHG defaulting a bank/ SHPI loan 4.55.548 Loss in case of default by a group member for which she guaranteed 1735.5 Loss in case of defaulting own loan17.538.5 Utilization of money by SHG for group activities that are personally not relevant 31837 Loss of Money due to poor accounting1.53.536

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 Details of Internal Lending Policy DetailsBiharMPKarnataka Average percentage of members/per SHG with loan outstanding as of 30th June 2013 33%41%38% Average loan size (minimum and maximum / in INR) 98 -5595 105 – 3210 5118 - 17850 Average loan repayment period (min-Max in month) 1 - 121 - 69 - 13 % of groups where interest rates differ for different loans 158 % of groups where loan repayment period differs for different loans 527918 % of groups where members are penalized for defaulting on repayment 72217 Average minimum and maximum penalty rate for single term default 6 – 134 - 715 - 17

17 Internal landing- performance of leaders and members

18 Borrowing from bank and SHPI Details regarding external borrowings BiharMPKarnataka BANKSHPIBANKSHPIBANKSHPI Percentage of SHGs whose loan application has been rejected at least once 12%95%7%2%19%14% Percentage of SHGs who have taken more than one loan 2% 21% no data 55%4% Average number of days taken to process the loan 596440 no data 2822 Average min and max amount borrowed per SHG (in INR) 21705- 54536 39171- 50374 4342- 54210 no data 51231- 230270 47875- 398880 Average annual interest rate charged 13 1201410 Average repayment period (months) 2341-02218 Percentage of loans linked to SHG corpus 23%68%26%0%48%32%

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 Percentage of groups by the type of assistance provided by the bank in the loan application process Type of assistanceBiharMPKarnataka Filling loan application175478 Guidance and information on required documents for loan 155175 Promptly conducting due-diligence (rating)32375 Providing assistance/guidance in making SHG eligible for loan 44069 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 Status of Book-Keeping States Recording of meeting (minutes) regularly % of SHGs NOT maintaining books of accounts Training on bookkeeping Bihar 99% (recorded after the meeting) 7% 44% SHGs received training 90% demand for more training MP 93% (recorded during the meeting) 3% 20% SHGs received training 90% demand for more training Karnataka 87% (10% of SHGs do not maintain meeting minutes) 2% 32% SHGs received training 78% demand for more training

25 Book-Keeping: Quality (accuracy, clear and timely update): Karnataka Majority of the SHGs were maintaining high standard of business records A smaller fraction of SHGs face difficulty in updating passbooks due to increase in migration of group members MP Most of the groups are depending on the SHPI/s for maintaining their records Groups in MP are performing second best after Karnataka. A small section of SHGs (5% to 10%) in MP reported of problems with record keeping Bihar Most of the groups are depending on the SHPI/s for maintaining their records Though books were updated but there are concerns of clarity and accuracy in their records A large section of SHGs are lagging behind due to lack of timely availability of required stationaries Overall observation Technology: None of the sample SHGs use any form of technology for their record keeping A lack of proper quality control mechanism in place

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 groups 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 Percentage of groups by the topics and frequency of discussion Topics BiharMPKarnataka Regular When needed Never Regular When needed Never Regular When needed Never Financial19815148181181 Social (Comm. Based) 143562369852426 Political3237485339124345 Development of the village 2405829647324721

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


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