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Microfinance in India has come a long way since its authentic beginning in the form of Self Help Group Bank Linkage Programme in 1992-93. The microfinance movement has been widened, deepened and diversified with continued promotional focus on SHG-Bank Linkage Programme [SBLP] by NABARD as well as all the stakeholders. The SBLP has transformed the whole range of institutions – Government, banks, NGOs and development institutions, in their approach towards development of poor. In fact the Union Government and the State Governments have made this programme a corner stone of their approaches to deliver development services and products to the poor and marginalized sections of the society. Microfinance programmes are known for their potential to generate income and employment and alleviate poverty in developing countries. Moreover, microfinance has come to be regarded as a supplementary development paradigm, which widens the financial service delivery system by linking the large rural population with formal financial institutions through SHGs. As the microfinance sector grows, there is a need to ponder over some of the very important issues like; is microfinance a desirable alternative to informal, exploitative sources of finance? Is microfinance an important tool for poverty alleviation? And the most important being; Is microfinance sustainable or even profitable?
II. SUSTAINABILITY OF MICROFINANCE
Sustainability in simple terms refers to the long-term continuance of the microfinance programme without depending on the support of external agencies. It entails that apt systems and processes have been put in place that will enable the microfinance services to be available on a continual basis and the clients continue to benefit from these services in a routine manner. This also would mean that the programme would meet the needs of the members through resources raised on their own strength, either from among themselves or from external sources. Though sustainability does get understood immediately in the financial terms or the resource terms, it actually has broader dimensions, of which financial sustainability is only one major dimension.
Financial sustainability means that the MFI is able to cover all its present costs and the costs incurred in growth, if it expands operations. It would mean that the MFI is able to meet its operating costs, its financial costs adjusted for inflation and costs incurred in growth.
In microfinance, today, the debaters are generally divided between those in the “poverty” camp (“welfarist” school of thought) and those in the “sustainability” camp (“institutionalist” school of thought). Perhaps the debate can progressively become a spring of inspired accentuation that can help impel the field forward. While the poverty approach tends to appreciate wider objectives like empowerment, social capital, gender, health etc, the sustainability approach highlights the need for narrower financial objectives like, operational costs, return on investments, self sufficiency ratios etc. In other words, poverty approach measures the success by how well it fulfills the short-term needs of the poorest and sustainability approach proposes and assumes a long-term “win-win” situation between poverty outreach and organizational sustainability (Woller, 2002, Woller et al., 1999, Morduch, 2000, Schreiner, 2002, Rhyne, 1998).
We must acknowledge that many debates in microfinance should be seen in terms of differing levels of analysis (Singer, 1961). In effect, the “double bottom line” contains one set of goals – sustainability or profitability – that are expressed at the level of the program or firm and a second set – poverty alleviation, empowerment and the like – that makes sense only at the level of the community. However, according to Rhyne, Elisabeth (1998, p. 7), ‘Sustainability is but a means to achieve outreach. Sustainability is in no way an end in itself; it is only valued for what it brings to the clients of microfinance. This is a point on which the ‘poverty’ camp frequently misstates the motives of the ‘sustainability’ camp.
The financial self-sustainability paradigm (also referred to as the financial systems approach or sustainability approach) underlies the models of microfinance promoted since the mid-1990s by most donor agencies and the Best Practice guidelines promoted in publications by USAID, World Bank, UNDP and CGAP. This emphasis on financial sustainability is seen as necessary to create institutions which reach significant numbers of poor people in the context of declining aid budgets and opposition to welfare and redistribution in macro-economic policy. After all, program sustainability and financial self-sufficiency are two different things, since measures of the latter typically exclude subsidies from actual revenues and add imputed (market) rates of interest to actual costs. Murdoch’s (2000) schism “between rhetoric and action” is defined closely around the inevitability of subsidies. Any relationship between sustainability and self-sufficiency should be argued theoretically and established empirically. On both grounds, we have reason to doubt that the institutionist perspective relies on anything more than what Mitlin (2002: 175) refers to as “somewhat incredulous faith in markets”, akin to the worship seen by Lairson and Skidmore. Mitlin (2002: 175) wonders whether sustainability is necessarily a good thing. The sustainability approach, or different nuances of it, is the one generally promoted by major players like C-GAP, World Bank, UNCDF etc. However, several important researchers don’t find their arguments fully convincing (Murdoch, 2000, Woller et al., 1999). Yet most seems to agree that the sustainability of the providers of services, either MFIs or SCGs, is important.
Rutherford, in the foreword of Allen, (2002), argues that sustainability in savings and credit groups is not about survival rate of groups. At the impact measurement level, while the poverty approach tend to measure impact at the individual level and sometimes also at the community level, the sustainability approach often assumes that as long as the clients return for repeated loans they experience a positive impact. The focus is therefore on measuring organizational sustainability that will indicate whether the services can become permanently available. According to most practitioners, the trade-off is real between outreach – the number of poor successfully targeted – and sustainable financial performance – operating at break even or better – despite the rhetoric of microfinance proselytizers that it is illusory. That does not imply a fixed trade-off, however, because “the exact relationship between financial self-sufficiency and depth of outreach in a given situation will depend on the way in which all these factors interact with each other. ” (Woller and Schreiner, u.d.:3)
For the long term success of microfinance, sustainability is an important aspect that has to be attained. It can be argued that successful scaling-up requires a clear understanding of how MFIs have addressed the high transaction costs problem that drove away the commercial banks earlier. MFIs success has largely been attributed for the use of variety of institutional models that they have developed to minimise transaction costs (Rhyne, 2002). The World Bank (2003, p. 45) rural financial services team has advised that poor people tend to use loan to meet basic needs such as food and shelter rather than to invest in income generating activities make the sustainability of MFI is in question. Therefore, innovation is needed in setting up the micro-finance program attracting these people to use loan for productive activities but at the same time do not push them to fall into the debt trap. We argue that the issue of sustainability should be understood as a long term viability of the borrowers. Given this backdrop, we attempt to look through the thicket of concerns, from the point of view of those who are avowedly in the sustainability school of thought, but with strong empathy for the poverty school of thought.
III. SUSTAINABILITY ISSUES IN INDIAN MICROFINANCE
The Self-Help Group (SHG) model is the dominant form of microfinance in India. SHGs have grown explosively in recent years. It is reported that by March 2006, 2.23 million SHGs were reaching about 33 million members. Such outreach appears to represent a major breakthrough in a country where 50 million households live in poverty, with very limited access to financial services. Although the term self-help group is used in different countries to describe a variety of financial and nonfinancial associations, in India it refers to a group of 10-20 poor women who band together for financial services-beginning with periodic, compulsory savings and then mainly loans-and sometimes social services as well. SHGs are managed by their members, with varying degrees of external support. SHGs are formed with the assistance of self-help promotion institutions (SHPIs), which include nongovernmental organizations (NGOs), government agencies, banks, cooperatives, and microfinance institutions. In addition to helping with group formation, SHPIs provide training, monitoring, and other support services. Occasionally, promoters give SHGs initial seed capital to lend, but more typically, groups begin by saving and lending out their members’ own resources. Most, but by no means all, SHGs eventually borrow from an external source, usually a bank. This bank linkage is the most distinctive characteristic of the Indian SHG model. The massive outreach of SHGs has generated interest in the model’s sustainability and replicability in India and elsewhere. Although SHGs have been widely studied (see the bibliography for examples), relatively little information has been published on their financial performance.
SHG federations have evolved as a model that promotes sustainability of the SHGs and provides the much-needed own institutional base for poor women to improve their quality of life. The SHG federation model has achieved significant scale and widespread acceptance but mostly with state support. The federations in becoming sustainable institutions should ensure that the SHGs retain their autonomy and vibrancy. Federations should be professionally managed in the interest of owner members and their costs defrayed by the user members. Federations should seek to be self-sufficient in terms of meeting operational costs in the long-run, so that they are in a position to serve member’s interests effectively. The Ministry of Rural Development, Government of India, has constituted a National Council for strengthening the SHG movement in the country. The ministry is of the opinion that SHG federations are necessary for the growth and sustainability of the SHGs (Srinivasan, 2009, P.32). Mahajan, Vijay (1998) has pointedly discussed the four dimensions of sustainability of microfinance in India such as; Sustainability of demand, financial sustainability, Organisational sustainability and sustainability of the mission of MFIs. According to Srinivasan (2009), Sustainability of SHGs is an imperative factor for the success of MFIs activity in India.
India’s microfinance approach has many of the elements, such as “saver graduation” and a built-in tendency towards membership expansion, which have been identified as key to make micro-finance sustainable (Ahlin and Jiang 2008). Indeed, a large and growing literature discusses SHGs’ evolution, their role in the broader financial system (Basu and Srivastava 2005, Sinha 2006, Shah et al. 2007) and recent innovative practices (Nair 2005). According to Mukherjee (1999), “As a methodology, Self-Help Group (SHG) facilitates the service provider (government, development agencies) to reach the poor communities on a wider scale and at lower costs”. According to Sheokhand (1995), Microfinance offers potential advantages to all stakeholders viz., the Poor, the NGOs and the banks. The linkage between banks and SHGs with the NGOs as facilitators / financial intermediaries as a mechanism for channeling credit to the poor on a sustainable basis, offers a number of potential advantages.
Sustainability of SHGs was well established in terms of increased value of assets and savings rate, better access to institutional loans, higher rate of repayment of loans, elimination of informal sources and impressive social empowerment Puhazhendi, V and K C Badatya (2002). The study on SHGs conducted by EDA Rural System and APMAS (2006) on the SHG-Bank-linkage conducted in states of Andhra Pradesh and Karnataka among other wide range of issues including s addressed sustainability of SHGs. According to the study, Data on portfolio at risk (PAR) for 155 SHGs show that 45 per cent of such groups (but 66 per cent in Andhra Pradesh) had defaulted for more than a year, amounting to 17 per cent of the portfolio (but one-third in Andhra Pradesh). The studies like Nair (2005), Moyle, Dollar and Biswas (2006) and Chakrabarti (2004) examined the potential of SHG federations in providing sustainability to SHGs through financial and organisational support. The study found that, federating helps in reducing the transaction costs of SHG-bank linkage programme by grouping 10-20 accounts into one single SHG account. The federations help in reduction of loan default-both within SHGs and from SHGs to banks. They provide micro-insurance services and social services such as education, health and livestock support. The federations employ their own resources in promoting new SHGs while minimising the promotional costs as compared to other agencies like the banks and NGOs. They also help in empowering the SHG members. SHGs have reported better performance both in financial as well as in empowerment aspects (NCAER, 2008).
IV. RESEARCH CONTEXT
The up-scaling of SHGs in Andhra Pradesh has been both in terms of numbers as also in terms of structure. GOAP established an independent support organization by the name of Society for Elimination of Rural Poverty (SERP) to implement poverty elimination projects which aim at social mobilization to enhance livelihoods and employment generation opportunities of the poor. This organisation forms a bridge between the government and people and is in the nature of a government NGO (GONGO). It is simultaneously autonomous to oversee Velugu, even whilst originating from the government. Institutional structural building has taken the shape of forming new edifices. The SAPAP project focused upon the creation of self-managed grass root level institutions of the poor, such as Self Help Groups, Village Organisations (VOs), and Mandal Samakhyas (MSs). The Mandal Mahila Samakhya (MMS), the apex body of VOs at the mandal level, plays a crucial, supporting role in sustaining the VOs. Federations provide an organizational identity to SHGs that, while crucial for sustainability, is difficult for small organizations such as the SHGs to develop. Federating helps SHGs realize benefits of a larger organization, without losing the advantages of small organization. Just as the political environment of the state of Andhra Pradesh was conducive to the up-scaling of SHGs, the overall national economic environment has played a pivotal role in the spread of micro credit to the rural poor.
The state of Andhra Pradesh is at the forefront of the SHG-Bank Linkage Program with close to 40 percent of the cumulative bank linkages. A total of 12,80,900 groups in Andhra Pradesh ( (i.e. 20.92% of 61,21,147 groups in India) have saved Rs.1,19,192.63 lakhs as against the total savings of 5,54,561.82 lakhs in India which amounts to 21.49% of national savings by SHGs. A total of 6,36,816 groups (i.e 39.56% of the national total of 1,609,586) have been credit linked with banks in Andhra Pradesh until March 2009 with loans of Rs.5,50,860.01 lakhs (i.e. 44.95% of the national total of 12,25,351.39 lakhs). Bank Loans Outstanding against SHGs in the state of Andhra Pradesh were to the extent of 1219311 groups (i.e. 28.86% of the national total of 4224338 groups) having outstanding loan amount of Rs. 890,216.81 lakhs (i.e. 39.25% of the national total of 2267984.25 lakhs). The state of Andhra Pradesh, has used development self-help groups (SHGs) extensively as a primary tool of poverty alleviation and empowerment. A key in the success of the program has been the commitment of NABARD administration with this program. Beginning with its top management they have had the vision that SHGs were a good scheme for rural development. Andhra Pradesh has shown that, to approach a complicated problem such as poverty, a complex mix of methods is required. At one level, use has to be made of existing structures and at the same time new edifices have to be created. In view of the need for long term sustenance of the self help group approach, it is needed to understand the sustainability aspects of these SHGs in the state of Andhra Pradesh in a more focused manner truly capturing the exact trends and thereby find solutions for the issues concerned and further refine the strategy for the future.
V. APPROACH OF THE STUDY
This study distinguishes itself from earlier studies in many aspects. First, it focuses specifically on the sustainability aspects of SHGs in Andhra Pradesh. Moreover, it aims to study the organisational and financial viability aspects. Second, it envelopes long span data on credit linkage to get reliable information on the SBLP. Last but not the least, the analysis of the study would be based on a large sample size with bank-linked group and covers a wide cross section drawn from all regions of Andhra Pradesh. The institutional sustainability of SHGs depends on their management, systems (including external support) and membership. Analysis would be focused on the source and volume of SHG funds, return on assets, loan portfolio quality, profitability, operating costs, efficiency, growth, outreach, operating income, costs of borrowing for SHG, yield from the lendings for SHG, spreads of financial intermediation, operational self sufficiency of SHG, Profitability of SHG, loan losses, economic opportunities to SHG and economic threats to SHG.
VI. OBJECTIVES OF THE STUDY
The objective of this study is to assess the sustainability of the Self Help Groups.
The specific objectives of the proposed study are:
To understand the features and factors of financial sustainability of Self Help Groups
To estimate to what extent the differences in SHG models affect their performance and sustainability.
To estimate (i) average number of borrowers served (ii) Portfolio At Risk [PAR] (iii) Operational Self Sufficiency [OSS] (iv) operating costs per portfolio (v) yield per portfolio (vi) margin from the operations per year
Comparative assessment of the quality of the groups promoted by different self help promotion institutions (SHPI) including the changes over time in group members participation and behaviour, the quantity and quality of financial services and their sustainability.
Study/assessment of the factors affecting the sustainability of SHGs and identification of constraints, if any
VII. RESEARCH METHODOLOGY
VII. A Proposed Study Area
The study is intended to cover all the regions of the state of Andhra Pradesh. In each of the regions, two districts would be selected taking into account the development of the SBLP against their overall socio-economic profile. The classification of the districts into ‘developed’ and ‘less developed’ with respect to data on development indices would be made on the basis of data on the number of SHGs, extent of bank branch network in rural areas and indicators of economic development at the district level (e.g., poverty ratio).
VII.B Sample Design
The researcher intends to adopt a proportionate stratified random sampling methodology would be adopted for selecting the sample SHGs interviewed in the survey. The methodology would encompass all the spheres of microfinance in the state of Andhra Pradesh. Efforts would also be made to cover all the different categories of microfinance activities in terms of their age, gender, social backwardness and other related traits.
VII.C Selection of Districts
As mentioned above, the sample districts would be classified in two categories i.e., less developed and developed, mainly on the basis of the District Infrastructure Index and district-wise poverty ratio and also taking into consideration the views of the NABARD functionaries in the district. Normally, it is believed that the district infrastructure index and poverty ratio are negatively correlated, indicating that higher the infrastructure index, lower the poverty ratio. One district was selected from each of the two groups, with the Probability Proportional to Size (PPS) method, size being the number of bank-linked SHGs in the district as on March 1999. Care would also be taken to select districts in which there are at least 1000 SHGs as on March 1999.
VII.D Selection of SHGs
Only such SHGs would be included in the study which have already completed at least five years of bank linkage in order to understand all the facets of sustainability. Further, it can be noticed from the available data that three categories of agencies are playing a significant role in financing the SHGs in India apart from the MFIs. MFIs are also financed by the banks in order to enable them to on lend to the deserving SHGs. Since the prime objective of the study would be to assess the impact of the SBLP on the quality and sustainability of SHGs by the three different Model types:
Microfinance Model-1: SHGs formed and financed by banks
Microfinance Model-2: SHGs formed by formal agencies other than banks,
NGOs and others but directly financed by banks
Microfinance Model-3: SHGs financed by banks using NGOs and other agencies
as financial intermediaries
VII.E Data Collection Methods
The proposed study being a field based primary study, primary data would be collected by participating in several meetings of the SHGs, interviewing the SHG members and microfinance practitioners in the study area. Field interviews with SHG members, SHG federations office bearers, other villagers and microfinance practitioners would be jotted down and would be subsequently detailed out using MS Office Excel sheet in order to make the data unambiguous and arrive at correct estimates of the costs of the different components involved in the borrowing for the poor. Informal interviews to allow “others” to interact freely and share information – including SHG federation office bearers, group members, and neighbours would be encouraged in order to gain a broader perspective on the topic. Elite Interviews with the branch manager of lending banks / MFIs in the area would also be conducted to gain the lenders perspectives.
Feedback from the functionaries of banks and SHPIs associated with the SHGs would also be used to cross-check the data. Relevant information from the banks and SHPIs was collected on the performance of the selected SHGs on loans taken and disbursed and repayment performance of loans. Relevant data would be collected through pre-structured questionnaires, covering the qualitative and quantitative aspects of SHGs before and after bank linkage. The consistency of data collected from primary sources would be ascertained by using different styles of questions to capture the same information. The validity of the information would be crosschecked through NGOs to get reliable information on the pre-SHG situation. Data would be cross-checked using loan and saving ledgers, member passbooks, and minutes of meetings, and verified with members during individual and group interviews. The field survey would be was conducted in consultation with NABARD Regional Office at Hyderabad. The reference year for the study would be March 2009. All the economic parameters for pre and post-SHG analysis would be measured at reference year prices. However, depending upon the need to capture the exact prices for previous years the appropriate price deflator would be employed.
The methodology of the assessment of sustainability indicators of SHGs would be based on assessment of the detailed information obtained from a primary sample survey of major model types of SHGs. In order to assess the impact on sustainability of SHGs, the “before and after” approach would be primarily adopted. A structured questionnaire targeting SHGs would be administered. Some of the approaches like ‘the focus group discussion method’ and elite interviews would also be employed to capture the factual data. Case studies of SHGs as a group and of their individual members were conducted to supplement the fin dings of the quantitative survey. Office bearers as well as members of SHG would be interviewed for obtaining information about their SHG. Financial and meeting records would be reviewed, verified, and entered into spreadsheets to create detailed financial statements, loan portfolio reports, and attendance records for each group.
VIII. ACADEMIC SIGNIFICANCE OF THE PROJECT
The study assumes greater significance in view of very few studies reported on this subject. Enormous academic importance could be ascribed as there are no comprehensive studies on this theme solely focusing on the organisational sustainability of SHGs as effective informal financial intermediaries. Further, it intends to build a solid foundation for further studies on this theme by capturing the required database comprehensively to understand the dynamics of sustainability of informal financial intermediaries like SHGs in the area of lending to poor. Since the study aims at employing the best available tools of analysis in establishing the findings this would go a long way for further research in the area.
IX. RELEVANCE OF THE STUDY
Institutional Sustainability derives a lot of significance in the field of finance to the poor in view of the very nature of provision of finance covering the space and distance of the targeted poor. It is an important aspect in order to ensure the long term sustenance of informal financial institutions like SHGs in the area informal finance. The outcome of this study would go a long way in understanding the growth of financial intermediation especially in process of lending to poor and also the long term viability of these institutions in area of informal finance. Further, this would help all the stakeholders in coordinating their efforts to develop a sustainable self help group approach for furthering microfinance to achieve the long term goals in the Indian economy.
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