1. Sector Own Control APMAS Pilot in Kamareddy Cluster, Andhra Pradesh

2. The Indian SHG Movement One of the best financial intermediaries for the alleviation of widespread poverty due to a tremendous potential for outreach, a low cost approach and its flexibility. Combined with the Bank linkage program of NABARD and about 4 million bank linked SHGs it is the biggest and fastest growing microfinance program in the world.

3. What is an SHG a group of 20 or less people from a homogenous class willing to come together for addressing their common problems (economic & social) make regular savings and use the pooled savings to give interest-bearing loans to their members builds financial discipline and credit history improves access to bank loans for members through bank linkage

4. The Indian SHG movement is huge and heterogeneous, and thus supervision by Govt. authorities difficult SHGs are unregistered SHG Federations are registered under various laws, e.g. different co-operative laws (e.g. MACS Act), Societies Act, etc. Under Co-operative law obligation for annual external audit, AGM and filing of annual returns No regulation and supervision of the sector so far Regulation of SHGs in India

5. Regulation and supervision of Microfinance Institutions by the sector itself, usually by a special sector-own body, e.g. an Apex The sector defining its own standards and regulations and supervising compliance Is needed where government authorities are not willing or able to undertake the task of regulating and/or supervising the microfinance sector, mainly due to lack of interest insufficient capabilities / inadequate knowledge about the microfinance sector large size of the sector with many small institutions What is Sector own Control

6. SOC provides reliable information about the performance of a mF organisation facilitates proper financial management and reduces risk builds ownership and trust among the members increases trust on the part of other stakeholders like banks, facilitating access to additional funds, e.g. from bank linkage program. increases active participation of the members, thus contributes to empowerment of women. provides for well functioning SHGs and their federations Why SoC

7. Adequate norms and standards (external and internal) Approved common bookkeeping and accounting Effective internal control of management and risks Sector-wide reporting, monitoring and rating (off-site sector control) Compulsory cooperative audit Follow-up activities Institutional protection, deposit insurance Linkage to the Financial Regulator for regulatory and supervisory duties. Important elements of a SOC-system

8. SHGs and their federations have the potential for being highly self-reliant and sustainable, but currently depend on external agencies for financial, human and material resources take savings deposits from their members – need checks and balances to control the various financial transactions need to strengthen internal capacities, improve systems, increase accountability and transparency In 2007 APMAS together with DGRV and SERP started a pilot in the Kamareddy Cluster in Andhra Pradesh to promote self- control and self-regulation Why the Pilot

9. In Andhra Pradesh most SHG Federations registered under the MACS Act compelled to submit audited annual reports to the office of the Registrar Simple control tools were used e.g.: a simple bookkeeping system and rudimental reporting, but no effective control system as required In 2007 APMAS together with InWent and DGRV started the pilot on ‘Sector-own Control’ Situation before the Pilot

10. To contribute to and ensure the further successful development and sustainability of the SHG system The Overall Objective

11. 1. Economic and Social Development of the members Member savings protection Sustainable growth of thrift and credit services Financial Literacy among the members 2. Sustainable Democratic and Legal Institutions Growth of resources Equality among the members Profitable Institution Institutional Accountability Specific Objectives

12. The Concept Build strong ownership among SHG members Members to feel the need and understand the rationale of SOC SHGs and especially their federations to take over the leadership over the pilot

13. The structure of the pilot organisation was framed accordingly, with a Coordinating Committee (steering body), composed of all 12 members of the Executive Committee of each federation responsible for implementation of activities and taking necessary decisions to guide the Federations in developing and establishing internal control systems, finalize key performance standards and to plan the pilot activities The Structure of the Pilot

14. … supported by an Advisory Group comprising staff of APMAS and the Government Project IKP

15. To build and enhance the capacity of SHG members to run and control their SHGs and federations on their own. Therefore members and office bearers of the federations are trained to be capable to implement the developed systems standards are developed a simple but standardized system of bookkeeping is introduced internal control and audit are introduced manuals for training on the related topics are elaborated The Strategy

16. Trainings Activities so far Subject (as of 30.06.2009)No. of trainings No. of participants Training of Trainers on SHG Bookkeeping8195 Training on SHG Bookkeeping to Bookkeepers56712 Refresher on SHG Bookkeeping to Bookkeepers457 Understanding Financial Statements of a Federation 249 Training on Internal Audit to SHG Auditors (Members), incl. Master Auditors 6112 Training on Bookkeeping to Federation Office Bearers and CC Audit Subcommittee Members 222

17. Elaboration of 11 Booklets on The significance of Savings The significance of loans SHG - Bookkeeping Reconstruction of Accounts SHG external audit Federation Bookkeeping Annual planning - Federations Federation internal audit Federation external audit Election process in SHGs and Federations Annual planning – SHGs Activities so far

18. 14 Coordination Committee meetings organised ‘Savings Study’ on savings features in the cluster elaborated Workshops conducted to develop key performance standards Grading of 6 Federations based on the Performance standards developed Activities so far

19. SHGs and Federation audit committees established, 24 members trained Internal audits in 189 SHGs and 2 Federations completed External Audit in 164 Federations completed Annual planning & budgeting workshops in 7 Federations organized Annual Reports for GB meetings of 6 Federations facilitated Election process effectively facilitated in 6 Federations Awards for the best Federation of the year Results

20. The members mention that they are less dependent on SHPI staff now decisions are taken in a more participatory way Due to increased transparency the women now understand: why savings are important, should not be withdrawn arbitrarily, and should not be used to pay back bank loans, that regular repayment of internal loans is as important as that of bank loans, Results

21. ….. that interest should be paid on savings and why, that the groups should not keep idle money on their bank account or in cash, as idle money does not earn income, that costs of the group should be borne by group income and not paid from the savings that family members of leaders should not be bookkeepers of the same group Results

22. Lesson 1: Ownership among women increased significantly through the SOC process and especially the audits and the increased transparency. Group members interviewed were very excited about the outcome of their audits: ‘Now for the first time we understand the situation of our SHG, and what happens with our money’ Lessons learnt

23. Lesson 2: For successful SoC and groups, the women need to have a significant stake in their SHG and federations. To achieve this, two main factors are considered relevant: Money is a strong bond. If the women have larger amounts deposited as savings and are not entitled to withdraw at any occasion except when they leave their SHG, they will be concerned about their money. Lessons learnt

24. Democratic and co-operative principles need to be in place. The women need to experience, that they can influence the development of their group and are not depending on the goodwill of others Then the women will see the SHG and federation as their own and not as those of the agency supporting them, and feel responsible for their group Lessons learnt

25. Lesson 3: Identify and design appropriate incentives to raise the interest and commitment of a sufficient number of literate women to agree to be trained as bookkeepers and auditors, to stay with these duties and not leave for other (better paid) positions or lose interest due to lack of assignments Build the necessary social capital within the groups Lessons learnt

26. Lesson 4: Have your own funds for all necessary activities. The best developed concept is of no use, if the activities have to be stopped or unfavourably altered due to lack of funds. This will avoid disappointment and frustration among members and other stakeholders. Ideally, the groups and Federations have their own funds Lessons learnt

27. Institutionalising SoC by developing the Coordination Committee into a specialized organisation for Sector own Control Up scaling of activities and dissemination nation wide A National Network of Support Organisations promoting SoC Plans for the Future

28. Thank You