Bankers' fretting about competition is a given. Bankers' grumbling about defaulters, the rigours of recovery and sub-prime lending rate lending is nothing new.
However, broach the topic of lending to self-help groups (SHGs) in rural areas, the stodgy bankers' will bare their soft corner for the fairer sex.
The SHGs-bank linkage has kindled the spirit of entrepreneurship among the rural poor, especially women. Besides helping women fight the malaise of poverty, it has empowered them financially and lead to their socio-economic emancipation.
Why are bankers gung-ho about SHGs despite the fact that they have to extend loans without physical collateral?
Firstly, SHG group members are required to save regularly before they can actually get credit. This saving in a way acts as a collateral for the bank.
Secondly, though the bank gives loan to the group, which in turn is on lent to members, the joint liability clause generates peer pressure, thereby ensuring timely payments. These are the two main reasons for banks to go the whole hog in chasing SHG credit.
In fact, banks' hope to also meet the regulatory prescription of lending 5 per cent of their net bank credit to women through the SHGs. Currently, banks' lending to women averages three to four per cent.
Here it may be pertinent to note that almost 90 per cent of the 700,000 odd SHGs in India comprise only women members and they boast of over 95 per cent on-time repayment of loans.
As per Nabard figures, 1.16 crore (11.6 million) poor families (approximately 5.80 crore (58 million) people) have been assisted through bank credit as of March-end 2003 and average bank loan per SHG works out to Rs 28,560.
Now lets examine the SHG phenomenon deeper. SHGs, which are informal savings and credit groups wherein members from below poverty line families pool their savings and deal in mutual transactions, are formed and nurtured by non-government organisations, farmers clubs, local bodies, field personnel of government agencies and bank staff.
Rural poor living below poverty line are organised into SHGs comprising minimum 10 members and maximum 20 members each.
The SHG members are encouraged to make voluntary savings at regular intervals so that resources so pooled could be used to make small interest bearing loans to their members on a rotational or needs basis.
SHGs are provided with Revolving Fund of Rs 25,000-Rs 10,000 from the District Rural Development Agency and Rs 15,000 from bank -- after six months of their formation, and upon qualifying the first grading to kick-start the loaning activity.
After receiving revolving fund, the activities of the group are monitored with regard to the usage of the funds, financial discipline, account keeping and once again graded.
The parameters for the second grading revolves round financial management of the funds provided. After the second grading, the successful groups become eligible for bank financing of economic activities. Bank loan is payable as per the project cost. There is no minimum or maximum limit prescribed.
Banks normally charge 8.75 per cent to 9 per cent interest for SHG loans up to Rs 50,000. In fact, the average size of the loans is under Rs 30,000.
The SHGs, which are a supplementary credit delivery mechanism to reach the poor in a cost effective and sustainable manner, function in a democratic manner with each member having a say in the decision-making process.
The members fix the terms and conditions for loans, including the interest rate to be charged of members. Loaning is done with minimum documentation and without any security and the amounts loaned are small, frequent and for short duration. Recovery is over 90 per cent owing to the peer pressure.
"Banks extend loans to SHGs for both 'consumption' and 'productive' purposes. Our experience is that women have shown lot of responsibility in handling funds. Rural poor are able to break free from indebtedness and rapacious money lenders," says C Sundardashyam, chief general manager, State Bank of India.
"The SHGs are meant to deliver women from socio-economic oppression, and empower them through monetary security. It fosters thrift and mutual help for the economic betterment of the rural poor and their families," says P Subba Rao, general manager, Central Bank of India.
The SHGs effectively act as an intermediary between banks and the rural poor. They cut down the transaction costs for both banks and their rural clients.
SHGs membership has come mostly from the poorest sections of the society. Demand for credit is frequent and for small amounts, at unpredictable times and sometimes not necessarily for purchase of income generating assets.
There has been a perceptive and wholesome change in credit from consumption to acquisition of income generating assets, increase in income levels of group members, development of thrift and self-help among members, reduction in transaction cost for both banks and SHG members.
The way out: Among 504 banks that are active in financing SHGs, State Bank of India, Andhra Bank and Indian Bank have assisted the maximum number of self help groups. Cumulatively, Rs 2,049 crore (Rs 20.49 billion) bank loan has been disbursed to SHGs as of March-end 2003.
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