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RAJASTHAN
MICROFINANCE REPORT
2013-14
Authors
Pratyaya Jagannath and Shipra Singh
Guidance
Yatesh Yadav
NABARD
Centre for microFinance
RAJASTHAN
MICROFINANCE REPORT
2013-14
2013
Centre for microfinance
Center for microfinance gratefully acknowledges funding and technical support from World
Bank. The findings, interpretations, and conclusions expressed in this report are entirely
those of the author and do not represent the views of the World Bank in any way. The
information published herein is free for public use. However, Center for microfinance should
be informed and due credit should be given to CmF.
foreword
It gives me immense pleasure to share with you the Rajasthan Microfinance Report 2013.
I would like to thank CmF for its sustained efforts to prepare Rajasthan Micro Finance
Reports at regular intervals. Year round rigorous efforts in the form of organising series of
consultations, round table discussions, feedbacks etc have culminated in the Rajasthan
Micro Finance Report 2013. This report seeks to serve as an informational compilation
about microfinance in Rajasthan. It analyses the current context and highlights a set of
issues which needs to be addressed for strengthening micro finance and rural livelihoods in
order to be able to address overall well-being of poor families.
I would like to appreciate the work of CmF in bringing about a positive change especially in
the community led microfinance sector basing on Self Help Groups. The National Rural
Livelihoods Mission (NRLM) has created new avenues for Self Help Groups and
strengthening rural livelihoods. Recently launched PradhanMantri Jan DhanYojna by
government of India and Bhamashah scheme to empower by Government of Rajasthan
could create a new trend in financial inclusion and Direct Cash Transfer schemes There is
need for a meaningful integration of SHG members with such new schemes and harness the
potential of mobile based technology which together can rewrite history in terms of bank
access, remittances and financial transactions through formal financial systems.I am
hopeful that sustained efforts of CmF to bring about a change in the quality of the SHGs
would bear fruits in the long run and be instrumental in meaningful financial inclusion as
the first step of poverty eradication.
I would like to complement the authors and entire CmF team for their commendable efforts
and dedicate this report to all those who were part of the journey, participated in
consultations, studies and workshops conducted by the Centre. I would like to thank
NABARD, Rajasthan Ajeevika Vikas Parishad and the Tata Trusts for their support to
publish the report.
I would like to welcome you to be a part of this movement and support CmF in its efforts to
strengthen the microfinance sector.
N.S. Sisodia
Chairman, CmF
Acknowledgement
We thank the whole CmF team led by Yatesh Yadav to give this opportunity to develop the
Rajasthan Micro Finance Report 2013. We extend our heartfelt thanks to Mr. Damodar
Mishra, who in each step of the report preparation lend his help with kind words and by
going out of the way to help us. We felt honouredto receive inputs from Mr. YC Nanda, who
with his pragmatic vision gave us direction to construct this report. It was a pleasure to
work with Ms. Malika Shrivastava from SRTT who helped us shape the report and
provided words of encouragement all the time. We thank Mr. Jaipal Singh for pitching in
with his suggestions.Weextend our sincere thanks to advisory group membersfor their
valuable inputs in the report especially the way forward. We thanks to leading Institutions
like NABARD, DWCD, SLBC, and RAJEEVIKAfor their support. This is a tribute to Late
Dr. SurjitSingh, who will remain in our memories, who was the first person we interviewed
for this sector report among many. The report has drawn inspirations from previous sector
reports published by CmF.
The assignment gave us opportunity to interact with SHG members throughout the
Rajasthan. It introduced us to the lives of poor women across the State. It was fascinating to
hear stories of these amazing people who dream big with their SHGs. It is a privilege to be
their guests and understand the ground situation on microfinance after being away from
the country for two years. We extend our heartfelt thanks to all those women from SHGs
who spared times, extended their support and shared valuable experiences as part of
SHGs.
It is difficult to thank each and every person in this space, however, special thanks goes to
the administrative and logistics support provided by CmF.
Pratyaya and Shipra
Sri YC Nanda, Chair, Sri Rajiv Thakur, Secretary, Rural Development and SMD, RGAVP,
Sri Rajendra Singh, CGM, NABARD, Jaipal Singh, Rajesh Singhi, Executive Director, Ibtada, and
Yatesh Yadav.
Executive Summary
The major issue which is determinant of poverty in Rajasthan is lack of access to productive
capital. The poor often find themselves trapped in a vicious circle: producing at a
subsistence level makes it difficult to accumulate savings or other assets, thus making it
difficult either to invest in productive resources or to gain access to credit from informal
financial sources, which leads to low productivity and continued poverty. Local money
lenders are the principal source of credit to peasant households. The major deterrent to
mainstream financial institutions is their 'access' rather than the 'interest rate' that is levied.
This inefficiency may have a greater impact on poor women headed households, who have
even lesser access than men to formal credit markets. It has been proved by a study
conducted by CmF that by becoming a member of an SHG there are various positive
improvements in the quality of life for a woman.
There is still a huge gap between demand and supply of microfinance services in the State
where voluntary organisations can play an important role. 23 out of the 33 districts are low
on SHG coverage and only 4 districts are women SHG districts. Districts in western and
southern Rajasthan still do not have reasonable outreach of quality SHGs and there is
limited presence of agencies which have a focus on SHGs to expand the outreach.
The target-based approach of forming SHGs and linking them with banks without proper
quality control has various negative consequences. Similar is the case of MFIs, which are
working in a target achievement mode and ignoring the social aspect of microfinance. As
long as the social component is there in the microfinance, it would thrive, once gone it is
difficult to survive. It is observed that the situation seems to be running out of control now,
as in the rush to promote SHGs (to reach numbers) quality aspects has been largely ignored.
There may be lack of clarity about the objectives and the long-term trajectory of the SHGs.
Continuous and sustained facilitation is a cost-extensive proposition for many SHPIs and
definitely a problem for the Government run programmes, which have to deal with paper
formalities and many other tasks entrusted with the promoter. The problems that are
associated with the self-help movement include disintegration of groups,
misappropriation of funds by SHG animators, political interference, and psyche of debtwaiver scheme (which is meant to be written off, challenging the sustainability). Helping
groups pass through times of conflict is extremely necessary to gain self -confidence as is
the facilitation which helps a group learn from its successes. Currently SHGs are treated as
a panacea for welfare delivery model for many Government programmes. However, it is
time to assert and define the objective of its existence as a vehicle for microfinance.
In last two years, RAJEEVIKA (NRLM, RRLP, and MPOWER) has proved to be a major
force in revitalising the movement of self-help. There has been an initiative to bring about
positive change in the quality of the SHGs by going back to the tenets of self-help approach.
This has been reflected with the increased thrift and credit activities among the SHG
members. There has been an emphasis on recognition of women empowerment by
collectivising them into clusters and federations at different levels. The introduction of the
Livelihoods Investment Fund has raised the hopes in livelihoods planning and finance.
Now with these unique concepts, we must expect that there would be an increased synergy
among various stakeholders to take the microfinance sector to newer heights.
As per MCRIL (2012), in Rajasthan about 17.3 lakh households are covered under different
microfinance services. According to the survey conducted by CmF, Rajasthan in 2006, more
than 72% rural families and over 90% urban families have been found to save. Most poor
families save for repair of house, construction of the new household, marriage of children,
celebrating festivals, buying agricultural inputs, paying previous debts etc. The annual
credit demand for the poor households in Rajasthan is of Rs. 14,292.5 crore. If the
requirement is to be realised inside the overall fabric of 'livelihood finance' then the micro
credit market can be reckoned to be about Rs. 42,877.5 crore in next 2-3 years in the rural
areas. Total annual credit requirement in urban poor is estimated to be Rs. 4655.6 crore and
demand for 'livelihood finance' is Rs. 13,964 crore in next 2-3 years.
The largest SHPI in the state is Department of Women and Child Development (DWCD)
with about 2.3 lakh SHGs across the State; has generated an external credit of amount
Rs.586 crore; total group savings of amount Rs.122 crore; Rs.84 crore in internal loaning
(69% of the total savings); and 17,719 bank accounts have been opened since the inception of
the SHG Bank linkage programme. NABARD along with other NGOs havepromoted about
89 thousand SHGs.
About 4,992 SHGs have been promoted by Sakh se Vikas (SSV) partners and Rs. 39.83 crore
savings has been mobilised (equivalent to Rs.79,792 per SHG). 3480 SHGs accessed credit of
Rs. 30 Cores (Cumulative) from banks. The SHGs have a loan outstanding of Rs. 9.33 crore
from external sources.
Looking at the mainstream institutions for financial service delivery, the State has a
network of 119 banks with 5,733 branches, including 3,820 rural/ semi-urban branches. 398
new branches were opened in the year out of which 318 (80%) were opened in the rural,
2
semi-urban setting.
There are about 2.32 lakh SHGs with about 25 lakh members linked with savings bank
accounts with a savings of about Rs. 157.6 crore; whichis savings of about Rs. 625 per
member (NABARD 2013). The public sector banks remain the leader in the number and
amount of bank linkages. The highest numbers of SHGs are linked with the DCCBs, but the
sum saved with the public sector banks is way higher at 43.92% compared to 31.86% with
the DCCBs (NABARD 2013).
There are about 1.3 lakh SHGs, which have an outstanding credit of Rs. 633 crore, which is
about Rs. 49,000 per group, only about Rs. 4,900 per member (if we consider an SHG has 10
members). One lakh eight thousand SHGs which consists of only women have taken a
credit of Rs.481.55 crore entailing to a credit of about Rs.44, 526 per women SHG (NABARD
2013). The highest percentage of SHGs linked for credit is 57.28% with the public sector
banks, while merely 3.9% of the SHGs are linked to the private sector banks for credit.
In the fiscal year 2013-14, the number of SHGs which took a loan last year from the banks is
17,407 (compared to about 4.66 lakh reported SHGs and 2.57 lakh having savings linked ) in
number. The total amount of credit from the banks is Rs. 194.60crore, the credit disbursed to
the SHGs is only 0.33% of the total loan portfolio of the State. Rajasthan has still a negative
growth rate of (-6%) in access of SHGs to bank credit, which construes it still need a lot of
energy to be invested in its microfinance programmes.
The private sector banks have lent the highest amount per women-SHG (about Rs.1.2 lakh).
The private sector banks through this model have disbursed 27.6% of the total credit to
2
(by 31.03.2013 reported in the 117th meeting minutes of SLBC)
different women SHGs. SHG-BLP through direct lending of SHGs should be reconsidered
with loaning with federations (with a legal recognition) which will offer a larger volume of
credit. It has two important functions i) easy availability of credit to the SHG, ii), the credit
capital within the federation generates extra revenue for its members.
There has been a worrying trend in which the credit against SHGs has attained an NPA of
12% way higher than the national average of 7%. This has resulted in stagnation of issuance
of fresh loans to SHGs and a growing mistrust among bankers. The major reason behind
this has been the credit issued to SHGs through SGSY. To curb the ill effects of NPAs in the
SHG credit, there is need to reinvent the basic principles on which SHG movement (propoor approach and social focus) was set up while responding innovatively to financial
access and effectiveness through the medium of SHG. The success of SHG-BLP (or FI)
should not be assessed on the basis of savings or credit linkage or on social capital
leveraged, but should be on the basis of the improvement in the quality of the lives of its
members.
There is a gamut of issues that needs to be addressed through customised microfinance
products for different target segments (i.e. Community groups, landless, destitute, widow,
etc.). These products should address such as water storage facilities in western Rajasthan,
agricultural inputs in the central part, dairy promotion in the eastern part, or can be for
subsistence needs in the southern part of the State. The products can be bundled with
technical support for productivity improvement or as a standalone product. As said before
microfinance is a human resource intensive sector, which thrives on social capital.
Simple and transparent Books of accounts are the backbone of SHGs. Since SHGs are
established on the basic premise to be community managed and self-sustained in longer
run, the books of accounts has to be simple, and minimum so that any less literate person
can write and SHG as collective of poor women can manage/govern the person who is
maintaining the books of accounts. More number of books and complex accounting system
create an external dependency of the SHG to maintain these books by external person and
thus impose big threat for sustainability of SHGs.
By introduction of a reliable MIS application, it would be easier to ensure quality of SHGs,
punctual maintenance of records, avoid duplicate entries of a person in multiple groups,
which may result in enhanced confidence of the bankers, timely grading of groups,
expedite the process of credit linkages, etc. Therefore, a comprehensive MIS application
like SakhDarpan at the State level to cover all the SHGs promoted under various
schemes. By the adoption of MIS application, we shall be able to ensure better group
quality, timely maintenance of records, avoidmultiple membership of a single person in
different groups, enhanced confidence of the Banks in group dynamics, timely and
convenient grading of groups, expeditious credit linkage, etc. Further, it can play a pivotal
role to eliminate discrepancies in the reporting of SHGs. The SHPIs can harness a lot of
benefits in bank linkage, transparency and having a platform to inform the policy makers.
This needs to be pursued with a greater zest and acceptance from the microfinance
fraternity.
It is now the time that Government Departments and agencies which do not have a clear
mandate to work with SHGs (such as Forest Department, Watershed Development); and
agencies which treat SHG activities on its periphery [Department of Women and Child
Development (DWCD)], should concentrate on their core work and mandates. Now that
there has been a push to improve the qualities of the SHGs, these institutions can push their
mandates through these good quality SHGs.
The next five years should be devoted to forming, nurturing and strengthening of SHGs/
clusters/VOs/CDOs and area level federations of SHGs.This would require a greater level
of sustained efforts, investment and patience because higher level institutions of the poor
take time and effort, and resources to become sustainable.
Given the need for scaling up of Self Help Groups as part of the National Rural Livelihoods
Mission, it will be desirable to consider the appropriate legal framework needed for SHGs
and SHG Federations.
It would be required to setup a Special Purpose Vehicle (SPV) NBFC to lend to SHGs in the
State. The Government may help in promotion of such NBFC and it should be managed by
professionals. This NBFC may be setup on a Public Private Community Partnership (PPCP)
model, where equities can be shared between these four entities. Government may attract
investment from the Private companies in terms of equity (about Rs. 500 crore) and banks
may give bulk loans or invest in its equity as well. The proposed NBFC can lend to SHGs or
to the Federations of the SHGs.
The Government and the banks should work jointly to resolve some of the operational
issues like the reluctance of bank officials in some branches to open the accounts of SHGs;
delays in disbursement of loans; impounding of SHG savings by banks; and insistence that
all the members of a SHG should be brought to the branch for identification and so on.
The biggest challenge that the producers'organisation (PO) and SHG federation working
on livelihood to programmeon their members face is that of access to credit from the
financial institutions.Aggregation is important for small/marginal farmers and
unorganised tiny rural procedures to get benefits of scale the absence of which makes it
nearly impossible for them to survive in the competitive environment.There is need for
financial support to the SHG Federations and Producers' organisations.
There is a need to support documenting the learning, take up action-research projects,
design capacity building programmes, continuously facilitating reflection, developing IEC
materials, develop and suggest policy interventions to strengthen the SHG and the
livelihood movement in the State. Such research and documentation must be outside the
Government apparatus so that it can take an objective neutral view and have adequate
flexibility
In Rajasthan, rural women from SHGs have been trained into 'KrishiSakhis' (Agricultural
Service Providers) and 'PashuSakhis' (Livestock Service providers) to act as extension
agents by voluntary agencies under MKSP and SSV. Rajasthan will need a few thousands of
such trained women in the above mentioned areas and they would need to be deployed
through SHGs and SHG federations to spread and strengthen the SHG movement and to
develop livelihoods for the poor. Government of Rajasthan may therefore invest in training
of local women to prepare them as CRPs for the SHG movement in the State.
Recently launched PradhanMantri Jan DhanYojna by government of India and
Bhamashah scheme to empower women by Government of Rajasthan could create a new
trend in financial inclusion.
Contents
State at a Glance
13
Growth of Community led Microfinance on key parameters in Rajasthan
14
1.
Introduction
Physical features of the State
Land use
Economy, employment, and livelihoods
Composite ranking of the State for economic environment
Agriculture
Industries
Income (major occupation), Engagement of household members in
different activities
Per capita income in Rajasthan
Poverty in Rajasthan
Food Insecurity
Role of Microfinance
Bibliography
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15
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2.
Banking setup and Demand for Microfinance

Banking setup in Rajasthan
Situation of Kisan Credit Cards in the State
Demand of Savings
Rural Poor
Urban Poor
Credit Needs
Credit sources, risk mitigation mechanisms
Formal institution and credit availability in Rajasthan
Demand of credit
Micro Insurance in Rajasthan
Rural Poor
Urban Poor
Health insurance
Crop insurance
Bibliography
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3.
Self Help Groups, SHPI and Bank linkage

Self Help Group
Promotion of SHGs in Rajasthan
Number of Self Help Groups (SHGs) in Rajasthan
SHG Bank linkage programme (SHG-BLP)
Contribution of SHPIs in Rajasthan
Department of Women and Child Development (DWCD)
SHG promoting programmes of Department of Rural Development
National Rural Livelihood Mission (NRLM)
MPOWER
NABARD, Banks, and Cooperatives
Civil Society Organisations
Sakh-se-Vikas initiative
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Source: data provided by CmF, Jaipur, 2014

Savings and Credit with SHGs in Rajasthan
Savings
SHG savings in the bank (until March 2013)
Total outstanding credit
Credit disbursed during year 2012- 2013
Non-Performing Assets (NPA) of Banks
Livelihood planning and finance
Bibliography
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38
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4.
SHG Federations
Why federate: benefits of federating
Issues encountered by federations in Rajasthan
Case 1: Mahila Sahgharsh Manch, Alwar
Case 2: Saheli Samiti, Dausa
Investment for promotion of SHG federations in Rajasthan
Legal structures and regulations in microfinance
Bibliography
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43
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48
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5.
Quality of SHGs
Impact of SHGs on the lives of the members
Issues of SHGs
Bibliography
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6.
Management information System (MIS) for SHGs and record keeping

Anomaly in number of Self Help Groups (SHGs) in Rajasthan
SakhDarpan developed by CmF
Mcfinancier of PRADAN
Record keeping
Bibliography
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7.
Micro Finance Institutions (MFIs)

Excerpts of current master circular of RBI on regulation of NBFC-MFI
Status of MFIs in Rajasthan
Gross Loan Portfolio (GLP)
NABARD's role in JLG based microfinance promotion
MFI interest and Operating Expense ratio
Bibliography
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8.
Financial inclusion
No frills account
The issues with EBT and DBT
Bibliography
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62
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66
9.
Way Forward: What needs to be done to strengthen the Community Based

Micro Finance Sector in Rajasthan?
Bibliography
67
72
Tables
Table 1-1
Table 1-2
Table 1-3
Table 1-4
Table 1-5
Table 1-6
Table 2-2
Table 2-3
Table 2-4
Table 2-5
Table 2-7
Table 2-8
Table 2-9
Table 3-2
Table 3-3
Table 3-4
Table 3-5
Table 3-6
Table 3-8
Table 3-9
Table 3-10
Table 3-11
Table 3-12
Table 3-13
Table 4-1
Table 7-2
Table 7-3
Table 7-4
Table 7-5
Table 8-1
Table 8-2
Table 8-3
Table 8-4
Table 8-5
Figures
Figure 1-1
Figure 1-2
Figure 1-3
Figure 3-1
Figure 3-2
Figure 4-1
Figure 7-1
Comparative GSDP of Rajasthan and India

GSDP distributed across sectors (%)
Distribution of workforce across sectors
Average wage/ salary earnings (Rs.) per day for a worker (15-59 years)
Highest and lowest incidence of poverty in the districts of Rajasthan
Most food insecure districts in Rajasthan (HHs)
Target vs. Achievement for priority sector advances in Rajasthan
(in Rs. Lakh)
Agency-wise Progress of Kisan Credit Cards (KCCs) in Rajasthan
(amount in Rs. Lakh)
Credit needs of a poor household
Matrix of formal and informal credit providers with the relation to poor
Indian financial system
Assessment of likely over indebtedness / Scope for further lending
by microfinance service providers (In Rs unless otherwise stated)
Coverage of Farmers under Crop Insurance Schemes
(NAIS+WBCIS+MNAIS) in Rajasthan (2011-2012)
Numbers of SHGS promoted by SHPIs as of March 2014
Growth Rate in SHGBank Linkage
SHG membership details under RRLP
Financial details of the SHGs working with RRLP
NABARD's grant support to SHPIs as on March 31, 2014
Achievements of a few SSV partners
SHG savings and credit status of various banks in Rajasthan
Savings through SHGs
Total outstanding credits of the SHGs
Credit linked SHGs (2012-13)
NPA of banks in Rajasthan
Estimated cost of formation, maintenance and support for promotion
of SHG Federation required per SHG for 3 years by SHPIs
Grant Support as on 31 March 2013
JLG status during the year 2012-13
Interest Rate of Financial Institutions for MFIs
Margins of operation for MFIs with different client outreach
Analysis of the issues in bank linkage
Direct Transfer of Cash Subsidy status in Rajasthan as of September 2012
Actual beneficiaries benefitting from EBT
Number of BCs in a district
Recommendations given by CGAP for quality improvement in BCs.
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17
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21
Political map of Rajasthan

Representation of poor households in the state
Food insecurity atlas of Rajasthan
Implementation Area Map of RGAVP (Rajeevika), Rajasthan
NPA (%) in SHG loans (Rajasthan and India compared)
Plotting of sustainability index of SHGs against cost of promotion,
maintenance and support49
Number of MFIs operating in a district
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21
22
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41
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25
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35
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Abbreviations
ASCA
BASICS
BC
BLBC
BOB
BPL
BRKGB
C: D Ratio
CAGR
CBO
CBRM
CBSG
CDO
CECOEDECON
CGAP
CmF
Cm
CRI
CRISIL
CSP
DCCB
DLBC
DMAP
DPIP
DTS
DWCD
EBT
FI
GDP
GOI
GOR
GSDP
Ha
HH
ICDS
ICICI
IFAD
IRDA
JLG
JLPIs
KCC
LIC
LIF
LWE
Accumulating Savings and Credit Associations

BharatiyaSamruddhi Investments & Consulting Services Ltd
Business Correspondent
Bank Level Bankers Committee
Bank of Baroda
Below Poverty Line
Baroda Rajasthan KshetriyaGramin Bank
Credit: Deposit ratio
Compound Annual Growth Rate
Community Based Organisation
Community Based Recovery Mechanism
Community Based Savings Group
Cluster Development Organisation
The Centre for Community Economics and Development Consultants
Society
Consultative Group to Assist the Poor
Centre for microfinance
Centimetre
Critical Rating Index
Credit Rating Information Services of India Limited
Community Service Provider
District Central Cooperative Bank
District Level Bankers Committee
District Microfinance Anchor Persons
District Poverty Initiative Programme
Direct Transfer of Subsidies
Department of Women and Child Development
Electronic Benefit Transfer
Financial Inclusion
Gross Domestic Product
Government of India
Government of Rajasthan
Gross State Domestic Product
Hectare
House Hold
Integrated Child Development Scheme
Industrial Credit Investment Corporation of India
International Fund for Agricultural Development
Insurance Regulatory Development Authority
Joint Liability Group
Joint Liability Group Promoting Institutions
Kisan Credit Card
Life Insurance Company
Livelihood Investment Fund
Left Wing Extremism
MACS
MCRIL
MCSA
MFIs
MGB
MGNREGS
MIS
MITRA
MKSP
MPCE
MPOWER
MRP
NABARD
NABFINS
NBFC
NGO
NPA
NRLM
NSS
NSSO
OBC
OER
PEDO
PNB
PRADAN
RBI
RGAVP
RGVN
RMSC
RMTS
RRB
RRLP
RUDA
SBBJ
SBI
SC
SERP
SGSY
SHG
SHG-BLP
SHPI
SIDBI
SLBC
SMS
SPIN
SRTT
SSV
ST
UNDP
WBIS
WSHG
Mutually Aided Cooperative Society

Micro Credit Rating International Ltd.
Multi-State Cooperative Legislation Act
Microfinance Institutions
MarudharaGrameen Bank
Mahatma Gandhi National Rural Employment Guarantee Scheme
Management Information System
Mobile Information Technology for Rural Development
Mahila KisanSashaktikaranPariyojana
Monthly Per Capita Expenditure
Mitigation of Poverty in Western Rajasthan
Mixed Reference Period
National Bank for Agriculture and Rural Development
NABARD Financial Services Limited
Non-Banking Finance Company
Non-Government Organisation
Non-Performing Assets
National Rural Livelihood Mission
National Sample Survey
National Sample Survey Organisation
Other Backward Caste
Operational Efficiency Ratio
Peoples Education and Development Organisation
Punjab National Bank
Professional Assistance for Development Action
Reserve Bank of India
Rajasthan GrameenAajeevikaVikash Parishad
RashtriyaGramin Vikas Nidhi
Rajasthan Medical Services Corporation
Regular Meeting Transaction Sheets
Regional Rural Banks
Rajasthan Rural Livelihoods Programme
Rural Non Farm Development Agency
State Bank of Bikaner and Jaipur
State Bank of India
Scheduled Caste
Society for Elimination of Rural Poverty
SwarnJayanti Gram SwarojgarYojana
Self Help Group
SHG Bank Linkage Programme
Self Help Group Promoting Institution
Small Industries Development Bank of India
State Level Bankers Committee
Short Message Service
Self Help Institutions Network
Sir Ratan Tata Trust
Sakh Se Vikas
Schedule Tribe
United Nation Development Programme
Weather Based Insurance Scheme
Women SHG
State at a Glance
Indicators
(As of March 2014 unless specified)
Total Population*
68,548,437
Rural Population*
51,500,352
Poverty rate
a) Planning commission
(Tendulkar Methodology) 2013
a) 14.71%
b) NABARD 2013
b) 17.5%
c) Government of Rajasthan 2013
c) 21.8%
d) United Nation Development Programme

(UNDP) (2009-10)
d) 24.8%
Population below poverty line as on 2011-12

(No. of persons in Lakh)
Irrigated Area#
Districts*
102.92
The gross irrigated area to gross
cropped area is 39.47%, and the
net irrigated area to net area
sown is 42.90%
33
Total Villages
44,672 (39,753 uninhabited)
Sex Ratio*
928 females per 1000 males
Literacy*
66.1%
Female Literacy*
52.1%
Sector-wise contribution of Gross State

GDP (2012-13)#
Agriculture and allied
19.88%
Industries
31.31%
Services
48.81%
Percentage slum population to total urban

population in the State*
9.8%
Area coverage per Bank as on Dec., 2013 in sq.km.
62.21
No of banking offices per lakh of

population as on Dec.,2013
Average population served per Bank branch
Per Capita Income per annum#
*- Census of India 2011
# Economic Review- 2013-14
7.8
11,957
Rs. 65, 098 at current prices
Numbers (in Lakh)

Number of SHGs
Amount (Rs. Lakh)
Potential rural households to

be covered under SHGs
SHGs having Savings Bank

Accounts with the banks (cumulative)
Amount (Rs. Crore)
Gross NPA
Number
Number
Number of semi-urban bank branches*
Number of urban bank branches*
4057
NA
NA
NA
25,004
NA
NA
NA
4,694.92
111,248
5,223
NA
24
As on
March
2007
409
849
1,176
1,777
527
8.1
37.51
96,206
46,328.65
71,876.17
26,674
19,172.25
6,683.27
213,295
14,255.08
NA
NA
3.6
As on
March
2010
441
901
1,354
1,834
505
8.49
37.81
90,393
44,540.04
68,989.66
28,723
19,815.90
6,001.76
233,793
14,031.70
NA
26.87
4.03
As on
March
2011
474
958
1,539
1,951
401.3
46.36
134,961
71,490.25
96,879.28
18,862
18,273.37
5,081.22
251,654
12,787.10
37.11
32.72
4.50
As on
March
2012
504
1,052
1,706
2,096
483.4
12
75.63
129,571
63,294.45
1,04,600
20,161
21,088.38
6,800
231,763
15,760.74
44.53
30.13
4.44
As on
March
2013
N.A
N.A
N.A
N.A
560.74
12.19
78.30
1,29,830
64,229.04
111,792.96
17,407
19,459.80
6,960.46
257,262
17,906.61
53.43
31.62
4.66
As on
March
2014
6.3%
9.8%
10.9%
7.4%
16.7%
1.6%
3.5%
0.2%
1.5%
6.9%
-13.7%
-7.7%
2.4%
11.0%
13.6%
19.99%
4.95%
4.96%
Growth
over last
year
* Only considered Scheduled Commercial Banks (http://dbie.rbi.org.in/OpenDocument/opendoc/openDocument.jsp accessed on 01st October 2014), Total branches as per June
2014 (Rural:2,352 , Semi-urban:1,726 , Urban:1,128 , Metropolitan: 550)
Sources: NABARD, RBI, SLBC, and MFIN, NA- Not Available
Number of metropolitan bank branches*
Number
Amount (Rs. Crore)
Number of rural bank branches*
Outstanding credit from

MFIs to clients
(%)
Number of SHGs
Amount (Rs. Lakh)
SHG lending
(Credit given to SHGs in the State)
NPA as % in SHG loan o/s
Amount in Rs.
Number of SHGs
Amount (Rs. Lakh)
Average credit disbursed to SHG

(during the current financial year)
SHGs which have taken credit

during the financial year
Amount (in Rs.)
Numbers (in Lakh)
Number of households covered

under SHG
Average savings of an SHG
Numbers (in Lakh)
Unit
Number of SHGs in the State
Parameter
Growth of Community led Microfinance on key parameters in Rajasthan
Chapter 1
Introduction
Chapter 1
Introduction
3
Rajasthan is the largest State in India with a total geographical area of 3.42 lakh square
kilometres. It accounts for 10% of the geographical area and close to 5.6% of the population
of the country (i.e. (5,65,07,188). Rajasthan, situated in the northwestern region of the
country, forms a corridor between the northern and the western States in the country. The
State is surrounded by Gujarat and Madhya Pradesh to the south, Uttar Pradesh to the
northeast, Punjab to the northward, and Pakistan to the westward. There are 7 revenue
divisions, 33 districts, 188 sub-divisions, 244 Tehsils, 249 blocks (Panchayat Samiti), 9,189
Gram Panchayat, 44,672 revenue villages and 39,753 inhabited villages (DoP, GoR 2012).
Figure 1-1 Political map of Rajasthan
Source: Created by the authors, with shape files downloaded from

http://gadm.org, created with QGIS 2013
The population density of the State is low (201 compared to the national average of 382) but
the population growth rate is higher than the national average (the birth rate is high, and
the death rate is lower). As per details from Census 2011, Rajasthan has a population of 6.86
4
crore , with an increase from 5.65 crore in 2001 (21.44% decennial growth rate). The male:
female population is skewed in favour of the male. Literacy in Rajasthan (67%) is lower as
compared to India (74%). Female literacy of the State (52.75%) is very low compared to the
national average (65.5%). Approximately 75.11% of the people live in the rural areas
3
4
Lakh= One hundred thousand

Crore= Ten million
Rajasthan Microfinance Report-2013
compared to the national norm of 68.84%. In Rajasthan, the people who belong to the
Scheduled Caste (17.2%) and Tribe (12.6%) communities have higher representation than
the national average (16.2% and 8.2% respectively) (Census of India 2011).
Physical features of the State

The topography of the State is varied, and characterised by hilly and sandy terrain. The
State is divided by one of the oldest mountain range in the world i.e. The 'Aravali'. It
stretches from Delhi in the north to Gujarat in the south-west, dividing the State into two
unequal halves. Two-thirds of the State (around 61%) lies on the westerly slope of the
'Aravali' known as the 'Thar' Desert (a portion of the Great Indian Desert). The Vindhayan
intrusions, in the eastern and the south-eastern part of the State, drained by rivers and
streams are as significant to the ecology of the State, as the man made canal system of 'Indira
Gandhi NaharPariyojna' in the Thar Desert. The State has faced 85 droughts of varying
degrees in the last 104 years, coming out to be every alternate year.
The State has wide of range of variation in the temperature, which can be termed as warmdry continental climate. The summer season commences in the month of March while the
temperature continues climbing up through June. West of Rajasthan and the easterly side of
Aravalli Range, in the region of Bikaner, Phalodi, Jaisalmer, and Barmer, the maximum
daily temperature hovers around 40C to 45C.Sometimes, it even reaches as high a 49C
during the summer months; while the night temperature remains around 20C to 29C. The
major portion of the state that consists of the arid west and the semi-arid mid-west has an
average maximum of 45C in June. The winters in Rajasthan are cold where the month of
January is the coldest. The minimum temperatures sometimes fall to -2C in the night at
places like Sikar, Churu, Pilani, and Bikaner. Most of the Rajasthan, except the southeast
Rajasthan comprises of Kota, Bundi, Baran, and western Barmer have an average
temperature of more than 10C. Due to the cold westerly winds, the whole of Rajasthan
sometimes come under the spell of the cold wave for 2 to 5 days during winters (RajasthanTourism.org n.d.); (Directorate of Economics and Statistics 2011-12).The annual rainfall in
the state differs significantly; the mean annual rainfall ranges from less than 10 cm in northwest part of Jaisalmer region (lowest in the state), to 20 to 30 cm in the regions of
Ganganagar, Bikaner and Barmer, 30 to 40 cm in the regions of Nagaur, Jodhpur, Churu
and Jalore and more than 40 cm in the regions of Sikar, Jhunjhunun, Pali and the western
fringes of the Aravalli range. The eastern side of the Rajasthan, Dholpur, Dausa, Alwar
region receives an average of 55 cm of rainfall to Ajmer, to 102 cm rainfall in Jhalawar.
Mount Abu in the Sirohi district in the southwest region receives the highest rainfall in the
state (163.8 cm). The southwest monsoon begins in the last week of June in the eastern parts
and may last till mid-September. There are occasionally pre-monsoon showers in May or
first fortnight of June while post-monsoon rains may occur in October/November. Winter
may also receive a little rainfall with the passing of western distribution over the region.
However, Rajasthan receives most of its monthly rainfall during July and August
(Rajasthan-Tourism.org n.d.), and (Directorate of Economics and Statistics 2011-12).
Land use
In Rajasthan, the net area sown is 17,551,000 ha (53.54%) of the total area 34,270,000 ha with
a cropping intensity of 142 is reported for utilisation, followed by cultivable wasteland
(13%). As per the Rajasthan Agriculture Statistics 2010-11, the total Gross Cropped Area is
26,001,788 ha, which is 75.87% of the total reported area in the State. The average
operational land holding is 3.38 ha. The gross irrigated area to gross cropped area is 32%,
and the net irrigated area to net area sown is 36.3 %(Directorate of Economics and Statistics
2011-12).
2
Economy, Employment, and Livelihoods

5
The Gross State Domestic Product (GSDP) at constant prices (2004-05) for the year 2011-12
(Real GSDP) is estimated at Rs.227,824 crore as compared to Rs.214,698 crore in the year
2010-11 showing a growth of 6.11%. As per advance estimates, the GSDP for the year 201213 at the constant prices (2004-05) is estimated to be Rs. 2,39,912.80 crore indicating a
growth of 5.31% over the previous year. The share of GSDP in national GDP is around 4.3%
(Department of Economics and Statistics 2013) and (Planning Commission 2013).
Table 1-1 Comparative GSDP of Rajasthan and India
Year
India
(in 000 croreRs.)
Rajasthan
(in 000 croreRs.)
2010-11
4,937.0 (P)
214.7 (P)
2011-12
5,243.6
227.8 (Q)
2012-13
5,505.4 (A)
239.9 (A)
#Base year 2004-05 GDP at factor cost, Estimates (P- Projected, A- Adjusted,
Q- Quick)
Rajasthan's economy is primarily agricultural, where about two-third of the population is
dependent on farming for their livings. The sector includes animal husbandry, forestry,
and fisheries sub-sectors. Agriculture contributes only 19.88% to the GSDP; Services sector
contributes 49% of the GSDP, whereas Industries has a contribution of 31.3%.
Agriculture contributes only 19.88% to the GSDP; Services sector contributes 49% of the
GSDP, whereas Industries has a contribution of 31.3%.
Table 1-2 GSDP distributed across sectors (%)
Sector
Rajasthan
(10-11)
India
(11-12)
Rajasthan
(12-13)
India
(12-13)
Agriculture and allied
22.09
27.51
19.88
26.75
Industries
29.85
15.7
31.31
15.11
Services
48.06
58.39
48.81
59.57
Source: Economic Review 2012-13, GoR, and Planning Commission-2013
Composite ranking of the State for economic environment

th
The composite ranking of the State is 12 among the States of India on the basis of all the
th
th
th
parameters of the economy. It stands 10 in agriculture, 11 in infrastructure, and 12 in
th
th
th
consumer markets, and 14 in the macro economy, 15 on investment environment, and 17
in primary education (PHD Research Bureau 2011).
Agriculture
Rajasthan contributes significantly in feeding the nation despite of low and erratic rainfall;
it has attained the highest output in many crops in India as illustrated below:
Stands at fourth position after Uttar Pradesh, Punjab and Andhra Pradesh in
food grain production, and stands at second position in the region;
The Gross State Domestic Product (GSDP) is the total monetary value of all the final goods
produced and services rendered by an economy during a given year, before making any provision
for consumption of Fixed Capital.
Fourth-largest producer of wheat and largest producer of all coarse grains;
Rajasthan is the largest producer of rapeseed and mustard;
Second in production of gram and the largest producer of Moth-Bean;
The second largest producer of total Oilseed, third position in Soybean

production, for Groundnut, it stands on the fourth position in the country;
Largest producer of spices such as Coriander, Cumin, Fenugreek, Fennel, etc.

(NABARD 2013) ;(Directorate of Economics and Statistics 2011-12).
Livestock rearing in Rajasthan is practiced as an integral part of the farming system where
the animals survive on farm based resources and in turn produce outputs such as labour
and manure that are utilised in the farm itself. In the last few decades, the State has
promoted cross breeding of livestock to improve its productivity. Rajasthan possesses
12.5% of the total animal population of the country and contributes to almost 10% of the
milk production, 1% of the meat production and 39% of wool production. The sector
accounts for nearly 13% of the GSDP. The State is the highest producer of wool and ranks
third in milk production in the country. As per the Livestock Census of 2007, there were 57.9
croreanimals (DoP, GoR 2012).
Even then, the State faces a set of challenges that cannot be dismissed. The first and
foremost concern for the State is about water. The gap between demand and supply of
water within the State is increasing. To some extent, it affects the realised yield of crops and
high inter-variation in the productivity of mono-cropping in the western dry region and
southern tribal belt of the State, limiting the scope for diversification. In addition, low share
of vegetables, fruits, spices, and medicinal crop production in the State is depriving the
benefits of value addition and additional work in the rural areas (DoP, GoR 2012).
Industries
In order to increase investment in the identified sectors and achieve global
competitiveness, the State has accelerated industrial growth, creating more employment
opportunities, ensuring sustainable development, and strengthening small, medium, and
large industries. Until December 2011, the sale of handicraft items contributed to an
amount of Rs.76.89 crore through various agencies. With Khadi and Gramodyog
Industries, there is a production of Rs.18.37 crore and Rs.91.89 crore respectively, during
the year 2011-12 up to December, 2011. The Rural Non Farm Development Agency (RUDA)
is also seeking to promote employment generation activities in leather, wool, textiles,
stones, handicrafts, handloom and so forth (DoP, GoR 2012).
Income (major occupation), Engagement of household members in different

activities
In Rajasthan more than half of the workforce is engaged in the primary sector that is
commonly known as agriculture and allied activities (50.41%); while about 30% of the
workforce are engaged in the secondary sector or industries; and rest 20% is engaged in the
tertiary / service sector. If the male workforce is taken in entirety then the representation in
primary (39%) and secondary sectors (35%) is nearly equal while the rest is in the service
sector (26%). Quite contrary to it, most of the women are engaged in the primary sector
(71%) and they have a very low representation in the service sector (09%). The rural
workforce is mostly engaged in the primary sector, whereas the engagement of the urban
dwellers in the agriculture and allied activities is insignificant. The urban male (42%) and
female (42%) workers are almost equally employed in the manufacturing sector (Secondary
Sector). The representation of the rural workers in the service sector is minimal (0.13), while
the urban dwellers are mostly engaged in the service or tertiary sector.
Table 1-3 Distribution of workforce across sectors
Sectors
Rural
Urban
Total
Male Female Total Male Female Total Male Female Total

Primary
49.91
77.39
60.80
3.80
18.68
6.82
38.88
70.98
50.41
Secondary
32.77
17.40
26.68 42.45
42.43
42.45 35.07
20.12
29.70
Tertiary
17.32
5.21
12.52 53.75
38.89
50.73 26.05
8.90
19.89
Self employed
61.7
76.5
67.6
41.8
60.2
45.6
57
74.7
63.3
Regular wage /
salaried employee
9.6
2.6
6.8
41.7
26.9
38.7
17.3
5.2
13
Casual employment 28.6
21
25.6
16.5
12.9
15.7
25.7
20.1
23.7
Source: (NSSO 2013), 68th Survey
In terms of employment, most of the rural (68%) and urban (46%) workers are selfemployed. 75% of the female workers are self-employed, while 57% of the male workers are
self-employed. Very few workers in Rajasthan are paid regularly with wages and salary,
where 17% of the male workers and 5% of the female workers belong to this category. But,
when we focus on the urban workers then it is found that a significant proportion of the
urban workers are paid regularly; this seems to apply more to the urban male workers.
Per capita income in Rajasthan

The averageper capita income of the state of 2013-14 stood at Rs. 65, 098 at current prices
and Rs. 30,120 at constant price of 2004-05 respectively. This entails an increase of 10.15% at
current prices from the previous year, whereas this is a 4.95 % increase at constant prices of
(2004-05) (Directorate of Economics and Statistics 2013-14).
When the sample data of NSSO 2013 is analysed, it is found that there are four primary
categories of workers along the basis of engagement as described in the table beneath.
There is a significant difference in the payment received by these workers (NSSO 2013).
Table 1-4 Average wage/ salary earnings (Rs.) per day for a worker (15-59 years)
A
Rural
Urban
Rural
Urban
Rural
Rural
Male
328.61
417.14
167.58
180.62
131.44
94.02
Female
177.86
412.89
118.67
131.84
105.36
87.29
Total
305.59
416.54
159.45
173.67
116.84
90.17
A. Regular wage/ salaried employees

B. Casual labourer engaged in works other than public works
C. Casual labourer engaged in public works other than MGNREGS public works
D. Casual labourer engaged in MGNREGS public works
There is a high difference among male (Rs.329) and female (Rs.178) workers, who are paid
regular wages or salary. This might be possible by the fact that the literacy level is low
among women and they are engaged in menial tasks rather than in supervisory or
administrative positions. This does not remain valid, when we compare the wage in the
urban areas for a male and female worker. Nevertheless, there is a pronounced difference
between urban and rural workers who are paid on a regular base, where the urban workers
receive approximately 36% extra on an average.
People who are employed in works other than public works earn more or less the same in
the rural and urban areas. The only marked difference is in the gender of the worker. The
public works earnings are limited to the rural area, where the earnings from the MGNREGS
work (about Rs.90) is less than that of other public work (Rs. 117). The public works while
mostly cater to the poor households are way below when equated with the MPCEMRP6.
Where earning of a single member is distributed among all the family members, which
forces them to have a basket of livelihoods activities.
The people who are below the poverty line are engaged as labourersapart from being
engaged as blacksmith, yarn spinning, potter, mason, weaver, tailor, embroidery, gem
stone fitting, goldsmith, painter, cobbler, barber, enameling, tie and dye, Coppersmith and
as a sculptor (278,463) (Government of Rajasthan 2013).
Poverty in Rajasthan
There is no universally accepted principle to measure, or define poverty. In pure economic
terms, income poverty is falling below a defined threshold (minimum acceptance level)
and in India it is estimated by the Planning Commission. The poverty generally is
measured per household, and then appropriated per individual/capita.7 Generally,
poverty is defined in either absolute or relative terms. Absolute poverty measures poverty
in relation to the amount of money necessary to meet basic needs such as food, clothing, and
shelter. This definition is not concerned with broader quality of life issues or inequality.
Hence the concept of relative poverty defines poverty in relation to the economic status of
other members of the society: people are poor if they fall below prevailing standards of
living in a given societal context. An important critique of both the concepts is that these are
mostly concerned with income and consumption. Today, it is widely understood that one
cannot consider only the economic function of poverty. Poverty is also social, political and
cultural. Moreover, it is seen to undermine human rights - economic (the right to work and
receive an adequate income), social (access to health care and education), political (freedom
of thought, expression and association) and cultural (the right to preserve one's cultural
8
identity and be involved in a community's cultural life) (UNESCO n.d.).
As per the Planning Commission, which follows the 'Tendulkar Methodology', the poverty
line is determined with the MPCE based on a Mixed Reference Period or MPCE MRP
(Planning Commission 2013). For the year 2011-12, the national poverty threshold for rural
areas using the 'Tendulkar Methodology' is estimated at Rs. 816 per capita per month,
whereas this is Rs.1,000 per capita per month in urban areas. In Rajasthan, the poverty
thresholds have been estimated at Rs.905 and Rs. 1,002 for rural and urban areas
respectively. Thus, for a family of five, the Rajasthan poverty line in terms of consumption
Mixed Reference Period MPCE (or MPCEMRP) This is the measure of MPCE obtained by the CES when
household consumer expenditure on items of clothing and bedding, footwear, education, institutional
medical care, and durable goods is recorded for a reference period of last 365 days, and expenditure on all
other items is recorded with a reference period of last 30 days.
Smelser, N. J. and Baltes, P. B. (eds.) 2001.International Encyclopedia of the Social and Behavioural Sciences.
Elsevier. Oxford Science Ltd.
Pierre San, in MOST-Newsletter, n 10, 2001.
expenditure would amount to about Rs. 4,525 per month (Rs.54300/year) in rural areas and
Rs. 5,010 per month (Rs. 60,120/year) in urban areas (Planning Commission 2013).
According to the Planning commission, in Rajasthan, 14.71% of the total population
remains below the line of poverty, as defined by the 'Tendulkar Methodology'. The
proportion of poor living in the rural areas (about 16%) is more than that of poor people
living in the urban areas (about 11%). There are approximately 1.3 crore people, who
remain below the poverty line in Rajasthan.
As per the estimates of NABARD, in their State Focus Paper published in 2013, 17.5% of
the people in Rajasthan are below the poverty line compared to the national average of
21.8% (NABARD 2013).
As per the data published by the Government of Rajasthan, the number of people who are
categorised under the BPL category is 94,33,181 (Government of Rajasthan 2013), which
entails to about 13.8% of the population.
United Nation Development Programme(UNDP) estimates the poverty headcount ratio is
24.8 % (2009-10) in their report on Rajasthan: Economic and Human Development
Indicators.9
In an article in Business Standard, it has been reported that Rajasthan had a lower growth
rate in GDP than the national average in the past seven years. It may be a result of underreporting or sampling problem to have reduced the poverty levels by 20 percentage points
in the same period. Even more remarkably, poverty levels fell by a full 10 percentage points
between 2009-10 and 2011-12. Some explanation has been given to the free health care costs,
which according to Mr. Samit Sharma, Managing Director of Rajasthan Medical Services
Corporation (RMSC) is the second largest cause of indebtedness (Mishra 2013).
According to the estimation of the State Government, most of the poor live in the southern
part of the State. The highest number of poor households is in the district of Udaipur
(261,092 HHs and 1,138,630 population) followed by Banswara (160,621 HHs and 414,101
population), Dungarpur (140,251 HHs and 510,086 population), and Barmer (130,084 HHs
and 645,143 population). However, when we consider the proportion of people who are
poor in a district, Dungarpur has the highest level of poverty followed by Banswara. The
least number of people who are below the poverty line are in the districts of Jhunjhunu,
Sikar, and Ajmer. The following table represents the five districts with highest and lowest
incidence of poverty in terms of household and population (Government of Rajasthan
2013).
Table 1-5 Highest and lowest incidence of poverty in the districts of Rajasthan
Highest
Household wise
Population wise
Dungarpur 56.30% Dungarpur 49.10%

Banswara
51.50% Udaipur
45.00%
According to the GoR, following regions require priority attention for poverty alleviation,
Whole southern region, including Banswara, Dungarpur, Rajsamand and Udaipur;
9
http://www.in.undp.org/content/dam/india/docs/rajasthan_factsheet.pdfaccessed on 11th April 2014
Eight out of eleven districts in the western arid region, including Barmer, Jaisalmer,
Pali, Sirohi, Bikaner, Jalore, Nagaur and Jodhpur;
Six districts namely Ajmer, Bhilwara, Karouli, Sawai Madhopur, Tonk and
Dholpur, out of the total 12 districts in the north-eastern region; and
Four of the five districts of southeastern region, including Baran, Chittorgarh,
Jhalawar and Bundi.
In Rajasthan, out of the total households the Other Backward Castes (OBCs) and Scheduled
Castes with 33% of the households form the majority among the poor. The Schedule Tribes
constitute 25% of the poor. Other castes grouped together as others have only about 10%
representation in the State's total rural poor (Government of Rajasthan 2013).
Yet, according to the data, among the communities, 41.4% of the ST population are poor,
according to the calculation done by Panagariya and More in 2013; and 18.6% of the SCs are
poor in the rural areas. Poverty amongst religious groups is one of the highest for Muslims,
especially in urban areas, in the State. In Rajasthan, about 29.5 % of the urban Muslims are
below the poverty line. The composition of other groups below the poverty line is ST
(21.7%) and SC (19.2%) (Panagariya and More 2013) and (Planning Commission 2013).
10.4 %
32.5%
33.2 %
23.9 %
Source:Rajasthan Census website,164.100.153.5/bpl/
Block_wise_bpl_fam_members.asp accessed on 20th December 2013
Food Insecurity
According to the food insecurity atlas (2010), the most insecure areas in the State are located
in sub-humid southern plain and western arid plain due to their low harvest, low female
literacy and below average health indicators. Many of these territories are inhabited by
communities belonging to Scheduled Tribe (ST) and Scheduled Caste (SC). Although caste
and tribe are important determinants of vulnerability, there are other households, such as
of landless, women and children, are still away from gaining the benefits of socioeconomic
development of the state.
Table 1-6 Most food insecure districts in Rajasthan (HHs)
One meal per day,

Less than one meal
per day
but occasionally none
Udaipur
23,945 Udaipur
88,802
Dungarpur 15,999 Dungarpur 73,003
According to the data accessed on the Government of Rajasthan as of 19/12/2013,

households which are food insecure mostly reside in the southern districts of Udaipur,
Dungarpur and Banswaraas already suggested while describing the poverty levels
(Government of Rajasthan 2013).
In the Thar Desert region food insecurity prevails in districts of Barmer and Bikaner. The
central region of the State is relatively better placed as demonstrated on the map. The
districts in which most of the households are food secure are Alwar (379,163), Jaipur
(357,302), Nagaur (313,479), Sikar (266,422), and Jhunjhunu (261,661).
Figure 1-3 Food insecurity atlas of Rajasthan
Source: Rajasthan Census website, http://164.100.153.5/bpl/

dist_wise_Food_sec.asp accessed on 19th December 201310
Role of Microfinance
Over two decades microfinance has been evolved and accepted as a means to relieve
poverty in many states including Rajasthan in India. The impact of microfinance
programmes has indicated increase in income levels, decreased dependence on local
money lenders, increase in expenditure on children's education, health, agricultural inputs
and production, and not to forget has improved women's self- confidence and increased
social capital (M-CRIL 2012).
Microfinance sector is operated mainly through two channels1. The SHG Bank Linkage Programme (SHG-BLP), and 2. The Micro Finance Institutions
(MFIs).
10
Ibid
The MFIs in India has taken many forms such as; NGO MFIs, cooperative MFIs, and
company MFIs. This third category refers to MFIs registered under the Indian Companies
Act as Non Bank Finance Companies (NBFCs), a classification that allows them to
provide microcredit but not to accept deposits, except under exceptional circumstances.
The NBFC-MFIs hold the 80% of the total outstanding loan portfolio (M-CRIL 2012).
Therefore, it is necessary to understand the demand and supply side of microfinance in the
State, which is detailed out in the next chapter.
Ensuing chapters deal with detailed analysis of the SHG-BLP with SHG at its focal point,
and later deals with the microfinance activities carried out by the NBFC MFIs and issues
related to it.
Bibliography
ARAVALI. Aajeevika - Livelihoods in Rajasthan: Status, Constraints and Strategies for

Sustainable Change. New Delhi: UNDP, 2004.
Census of India. Primary Census Abstract - Rajasthan. New Delhi: Government of India, 2011.
Directorate of Economics and Statistics. Economic Review. Planning, Jaipur,

Rajasthan: Government of Rajasthan, 2011-12.
DoP, GoR. Some Facts about Rajasthan. Jaipur, Rajasthan: Directorate of Economics and
Statistics, 2012.
Government of Rajasthan. jktLFkku jkT; esa [kkn lqj{kk ds vk/kkj ij ifjokjksa dh la[;k
December 19, 2013. http://bpl2002.raj.nic.in/164.100.153.5/bpl/dist_wise_Food_sec.asp
(accessed December 20, 2013).
jktLFkku jkT; esa Je 'kfDr ,oa ch-ih-,y- fLFkfr ds vk/kkj ij ifjokjksa dh la[;k December 19, 2013.
http://bpl2002.raj.nic.in/164.100.153.5/bpl/dist_wise_bpl_Labour_force.asp (accessed
December 20, 2013).
jkt lkekftd lewg ds vk/kkj ij ch-ih-,y- ifjokjksa@lnL;ksa dh la[;k iapk;r lfefrokj- December
20,2013.http://bpl2002.raj.nic.in/164.100.153.5/bpl/Block_wise_bpl_fam_members.asp
M-CRIL. M-CRIL Microfinance Review 2012: MFIs in a Regulated Environment a financial and
social analysis. Gurgaon, India: Micro-Credit Ratings International Limited, 2012.
Mishra, Mayank. How Rajasthan reduced poverty? August 06, 2013. http://www.businessstandard.com/article/economy-policy/how-rajasthan-reduced-poverty113080600021_1.html (accessed April 10, 2014).
NABARD. State Focus Paper for the XIIFive Year Plan - 2012-17: With Detailed Suggestions for
2013-14. Jaipur, Rajasthan: NABARD, 2013.
NSSO. Key Indicators of Employment and Unemployment in India. New Delhi: National
Sample Survey Office, 2013.
Panagariya, Arvind, and Vishal More. Poverty by Social, Religious & Economic Groups in India
and Its Largest States 1993-94 to 2011-12. Working paper, New York: Columbia University,
2013.
PHD Research Bureau. Rajasthan: The State Profile. New Delhi: PHD Chamber of Commerce
and Industry, 2011.
Planning Commission. Key notes on Poverty. Press Note, Government of India, 2013.
Rajasthan-Tourism.org. Climate of Rajasthan. http://www.rajasthantourism.org/climate/

rajasthan-climate.html (accessed June 06, 2014).
10
UNESCO. Poverty. http://www.unesco.org/new/en/social-and-human-sciences/

themes/international-migration/glossary/poverty/(accessed December 22, 2013).
Chapter 2
Banking setup and
Demand for Microfinance
Chapter 2
Banking setup and
Demand for Microfinance

Banking setup in Rajasthan
The State has a network of 119 banks with 5,733 branches, including 3,820 rural/ semiurban branches. 398 new branches were opened in the year out of which 318 (80%) were
opened in the rural, semi-urban setting.11 The total deposits at the banks of the State stood at
Rs. 193,790 crore. (SLBC 2013).
Table 2-1 Banking scenario in Rajasthan (in Rs. crore)
Nature of
Bank
Mar-12
Mar-11
Dep
Adv
Dep
Mar-13
Adv
Dep
Dep- Deposit, Adv- Advances, C: D ratio- Credit: Deposit ratio
As indicated in the table above maximum growth is reflected by Cooperative Banks with
18.83%, followed by commercial banks at 15.87% and RRBs at 9.14% over the previous year
(SLBC 2013). The Loan portfolio of the banks in the State at Rs. 178,026 crore has shown a
growth of 21.23%. Over the period of year the growth for Commercial Banks was at 20.41%,
RRBs at 15.77% and Cooperatives at 39.32% as against the previous year. The C: D ratio in
the State stood at 97.51%. The ratio is well above the RBI benchmark of 60% (SLBC 2013).
Table 2-2 Target vs. Achievement for priority sector advances
in Rajasthan (in Rs. Lakh)
Mar-11
Target
Agriculture
Ach.
20,242 22,214
%Ach
109
Source: SLBC, 2013
In the State, there are no unbanked districts/blocks. However, 198 blocks from the State are
under-banked. The strategy of setting of Ultra Small Branches (USBs) in all villages covered
or to be covered under Financial Inclusion has been prepared (NABARD 2013).
In 20 districts of the State C: D Ratio is above 60%. In 6 districts i.e. Ajmer (53.74%),
Chittorgarh (59.13%), Dholpur (59.21%), Nagaur (58.11%), Pali (57.34%) and Sawai
Madhopur (58.06%) CD Ratio is marginally below the benchmark. In Jhunjhunu (45.86%),
11
12
th
(by 31.03.2013 reported in the 117 meeting minutes of SLBC)

Karauli (45.23%), Pratapgarh (46.95%), Rajsamand (40.60%) and Udaipur (47.32%) CD

Ratio is below 50%. Sirohi and Dungarpur are the districts where CD Ratio is considerably
below 40%.
In the state, out of 136 Financial Inclusion villages having population of above 5,000 are in
under banked districts. In two Financial Inclusion villages, brick and mortar branches have
been opened where the population is above 10,000. In 28 FI villages and in 48 villages, ultra
small branches have been set up. Out of 3,883 villages with 2000+ population, 3,822 villages
have been covered by BCs and 61 by branches. There have been1,244,227 enrolments done,
506,403 smart cards issued. Out of the total 2,292 villages allotted to banks with 1,600 to
2,000 population, brick and mortar branches have been opened in 4 villages, BCA
appointed in 66 villages and two villages are being covered through mobile vans. 12,895
Financial Inclusion accounts have been opened by September 2012. The banks were
expected to cover all the allocated villages by March 2013 (NABARD 2013).
Apart from other priority sector lending, there have been significant growths experienced
in target versus achievements by the banks. This still fails to paint the real picture about the
approachability of the poor and needy.
Situation of Kisan Credit Cards in the State

In Rajasthan all the banks have been extending Kisan Credit Card (KCC) to the farmers. The
details of it are presented in the table below (As of 29.02.2012).
Table 2-3 Agency-wise Progress of Kisan Credit Cards (KCCs)
in Rajasthan (amount in Rs. Lakh)
Cooperative Banks
Cards
Issued
Amount
Sanctioned
Regional Rural Banks

Cards
Issued
Amount
Sanctioned
Note: *: No. of banks implementing the Scheme. &: Data Pertaining to Commercial Banks
Received RBI Up to 30.09.2011.
Source: LokSabhaUnstarred Question No. 5888, dated on 11.05.2012.
Demand of Savings
According to the survey conducted by CmF, Rajasthan in 2006, more than 72% rural
12
families and over 90% urban families have been found to save . Apart from a few families,
mostly destitute, who live hand to mouth, others (even beggars) have been found to be
saving some amounts for future needs. Most poor families save for repair of house,
construction of the new household, marriage of children, celebrating festivals, buying
agriculture inputs, paying previous debts etc. The current saving rate in households in
13
India is 21.9%.
Rural Poor
For the rural poor, the income from agriculture and allied activities is seasonal in nature,
mainly around the crop season.Therefore, most rural households have surplus for some
time after the harvest of crops.Even the landless agricultural labourers, generally
12
13
Cash flow studies conducted by CmF in 2006

http://www.livemint.com/Opinion/ZDgCdU87oxU6cPnClpc2yN/Improving-Indias-savingsrate.html accessed on 4th June 2014
13
considered at the backside of the poverty indicator, have steady employment in this season
and tend to save. Rural poor save money as cash in the pocket / house, saving in recurring
deposits in the post office, buying insurance (mainly life insurance of LIC), saving in SHGs,
chit funds/ committees, and in companies.
Urban Poor
People who migrate to urban areas initially save for remittances at home. Those families
who have cut off their ties with the village to a certain extent have accounts opened with
formal institutions such as banks. They too serve as moneylenders in their social circles
connected with their native villages. Informal sources such as relatives or local
moneylenders seem to offer emergency support during social events and occasions. The
lack of avenues to save for the settlers makes them susceptible to the trap of credit.
Credit Needs
Credit need of poor can be classified into two categories; (a) Invest for productive purposes,
(b) Household needs. The need varies with the occupation, and other factors like access,
social position, family size, etc.
Table 2-4 Credit needs of a poor household
Investment
Agriculture- land, inputs, equipment
Animal husbandry- dairying,
small animals
Source: Jagannath, Pratyaya. Evaluation of Microloan Programme of Dewan Foundation.

Evaluation Report, Dholpur, Rajasthan: PRADAN, Dholpur, 2008.Taking in to account of
480 borrower's loan information.
Credit sources, risk mitigation mechanisms

One of the issues in the Rajasthan is lack of access to productive capital. The poor often find
themselves in a vicious circle: producing at a subsistence level makes it difficult to
accumulate savings or other assets, thus making it difficult either to invest in productive
resources or to gain access to credit in formal capital markets, which leads to low
productivity and continued poverty. Local money lenders are the principal source of credit
to peasant households. One advantage of the village moneylenders is that they know the
reputations of his clients and can monitor their activities much more easily and cheaply
than their potential competitors. The moneylenders charge an interest rate ranging from
24% to 72% per annum in different regions and circumstances along with collateral
(Jagannath 2008).
Given that the access to formal credit markets (i.e. Banks, co-operatives and other
registered finance companies) is cumbersome and lengthy process. This inefficiency may
have a greater impact on poor women headed households, because women generally have
even less access than men to formal credit markets. Commercial banks generally do not
cater to the needs of the rural poor. The projects that most peasant borrowers would
undertake are small-scale enterprises, requiring small loans; therefore, the costs of
obtaining the information necessary to select borrowers, evaluate their credit worthiness,
monitor the use of the loans, and enforce repayment outweigh the potential profits to most
lending institutions.(Jagannath 2008)
14
Hence, previous Government-led efforts to deliver formal credit to rural areas have
included setting up Regional Rural Banks (RRBs) or ordering commercial banks to loan a
certain minimum percentage of their loan portfolio to rural borrowers. However, such
efforts have generally failed because it is often politically difficult for Governments to
enforce repayment of loans, and because the below-market interest rates that have been
charged induce non-price rationing of loans. Loaning to those who can put up the most
physical collateral is the common practice in the rural areas. These processes allow the rural
elites to be benefitted from such ventures rather than the poor (Jagannath 2008).
Table 2-5 Matrix of formal and informal credit providers with the relation to poor
Banks and
co operatives
Credit sources
Banks with and

without subsidy;
Primary Agricultural
Cooperative Societies
MFIs
Micro
finance
agencies
Accessibility
Low
High
Interest Rate
(per annum)
8-14 %
18-26%
Yes, Physical
Social
Pros
No frills, High
security, mobility
Reach and
access
Cons
Low accessibility
High
interest
rate
Collateral
14
Source: Jagannath, Pratyaya. Evaluation of Micro loan Programme funded by Dewan

Foundation. PRADAN, Dholpur, 2008; takes in to account of 480 borrower's loan
information.
The condition of the urban poor is similar in which most of the credit is sourced from
informal sources, where about 75% of the people are indebted. Banks have only a share of
8% to provide the credit the urban households. The urban households get these loans at rate
of 24% to 36% per annum which may go up to 60% with the credit worthiness of a borrower.
Most of these loans are consumption and life cycle events. Almost 45% of households avail
credit from friends or relatives (42% of the total loan taken). The second most important
source of credit for the urban poor is a local moneylender (30%).
Formal institution and credit availability in Rajasthan

The formal institutions do not have played their part in extending capital for agricultural
activities evident with the study on Livelihoods of poor in Rajasthan conducted in 2012 by
CmF, Jaipur. It is astonishing that more than 90% of such capital is sourced mainly from
own funds or from family, friend, relatives, and money lender. Low access to finance is
acting as a deterrent for farmers to invest in agricultures and other activities (CmF,
Rajasthan 2012). This is however is not matching with the figures shown in the SLBC
reports of over achieving the targets in priority sector lending.
14
SHG has an advantage in this as the member repays the loan; s/he always has a share in the
dividends accrued in the SHG due to repayments.
15
Table 2-6 Percentage of Bank credit for agriculture sector (region wise)
Agricultural
East
South
8%
2%
Source: Adapted from MCRIL 2012
Table 2-7 Indian financial system

Type of financial institution
Commercial Bank
Regional Rural Bank (RRB)

State Cooperative Bank
District Cooperative Bank Primary
Agricultural Cooperative Societies
Non-Bank Finance Company
(NBFC)
Source: Adapted from MCRIL 2012
Demand of credit
As per (M-CRIL 2012), the calculated rate of financial exclusion in Rajasthan is 75.3% of the
households, with a poverty rate of 64.2%. However, if we take the current census of 2011
into account, out of the total 1,25,81,303households 94,73,721 can be considered to be out of
microfinance service delivery. As per the data provided in 2012, 12.2 lakh households have
been provided with SHG loans, whereas it is 5.1 lakh for MFI loans; therefore, 17.3 lakh
households are covered by different microfinance agencies (M-CRIL 2012).
On an average a poor family needs about Rs. 20,000 credit (in multiple doses) every year to
meet their consumption and small working capital needs (CmF, Rajasthan 2012). If
sustainable livelihood is to be ensured and people have to be brought out of poverty, then a
family would need at least Rs. 60,000 credit (cumulative) over a period of 2-3 years.15 This
translates into a total annual credit demand of Rs. 14,292.5crore16. If the demand is to be seen
15
16
16
However it is important to mention here that 'credit alone' will not bring people out of poverty
and a number of services like technical skills, market linkages etc. will be needed along with
credit. But credit as capital investment (long term capital and working capital) is critical.
Extrapolating number of rural families in Rajasthan as of March, 2011 to be 94, 90,363. Assuming
about 75.3% are financially excluded as per MCRIL (71,46,243), total annual credit demand works
out to be Rs. 14,292.5 crore.
within the overall framework of 'livelihood finance' then the micro credit market can be
estimated to be around Rs. 42,877.5crore in next 2-3 years in the rural areas.
17
Total annual credit demand in urban poor areas is estimated to be Rs. 4,655.6 crore . If the
demand is to be seen within the overall framework of 'livelihood finance' then the urban
micro-credit market can be estimated to be over Rs. 13,964crore in next 2-3 years.
Table 2-8 Assessment of likely over indebtedness / Scope for further lending
by microfinance service providers (In Rs. unless otherwise stated)
Description
Rajasthan
India
Loan outstanding in Rs. per member in SHG
3,650
4,831
Loan outstanding Rs. crore in MFI
823.6
54,693.1
45.90%
42.90%
4,747
5,664
68,378
102,994
Annual payment (% of family income)
14%
11%
Estimated debt servicing capacity
20%
35%
6%
24%
MFI loan(%) of the total

Average MF debt/ excluded family
40% of average family income
Scope for further lending
Average income
financially excluded
% of family income
Source :(M-CRIL 2012), According to the data published by MCRIL, the scope for further
lending is 6%.
Micro Insurance in Rajasthan

The insurance needs of the poor are diverse. Meeting these diverse insurance needs of
commercial companies has always been a limitation. This section attempts at estimating the
insurance needs of rural and urban poor. It also emphasises the need of community led
health insurance mutual.
Estimating demand for insurance, assuming a) 'life' insurance coverage equal to two years'
household income and 'non-life' insurance coverage equal to 50% of household income, it
can be deduced that there is a demand of Rs. 1.52 lakh of insurance coverage per
18
household. Of course, provided that household is ready to pay around Rs. 61.3 as
19
premium per month. This translates to potential premium turnover of over Rs. 954 crore
for insurance companies per annum in Rajasthan.
Rural Poor
The major risks that rural household faces are four types: Life, Health, Animal (illness and
death) and crop failure. About 69% of households face risk of crop failure, 57% of
households face the risk of death of livestock, 43% of households face risk of health and
illness and 17% face risk of death in the family. Poor households in rural areas spend 19% of
their income on health and illness, bear loss of 14% of income on livestock death and loss of
20% of income on crop failure. Therefore, more than 50% of poor's household expenses in
rural areas are lost on items that should ideally fall under non-life insurance coverage. In
contrast, only 7.5% of the households have life insurance policies without other products
(CmF, Jaipur 2012).
18
19
Average household income of Rs. 60,652

Most Indians are willing to pay 1.35 per cent of income or more for health insurance, as per survey
conducted in 7 locations by David M Dror- Health Insurance for the Poor: Myths and Realities
Assuming that the premium for cover of Rs. 1.52 lakh to be 0.5% at Rs. 758 per annum
17
Urban Poor
The major risks that urban households face are health and life. About 42% of households
face risk of health and illness, while 18% face risk of death in the family. Poor households in
urban areas spend over 26% of their income on health and illness. Therefore, more than 26%
of poor's household expenses in urban areas are lost on items that should ideally fall under
non-life insurance coverage. In contrast, only 10% of the households have only life
insurance policy. During emergencies, the poor resort to taking credit at a very high rate of
interests from informal sources and sometimes, end up losing all their savings and assets
during the course.
Health insurance
Due to limitations of traditional mode of health insurance services, at that place is immense
scope for community led micro-insurance 'health mutual' schemes in Rajasthan.Health
mutual funds allow people to share the risk through saving a small sum of money along the
basis of 'one for all, all for one' so that in times of health crisis, a lump sum amount can be
made available to meet the hospitalisation expenditure to smoothen the financial impact of
poor households. While the system is similar to the insurance industry, the risks here are
not transferred to an insurer, but shared by the community. Setting up Health Mutual is
more comprehensive and elaborate than traditional health insurance as the risk is carried
in-house rather than transferring to a commercial company. Health mutual involves three
main stakeholders
Community, which pays a premium and make claims;
Community Institution (say SHG federation), which collects premium, handle
claims and manage processes;
Health care provider, which provides cashless health care services.
This model has already been piloted in several states. For example, in Maharashtra, around
60,000 people are pooling their risk in 21 health mutual funds. These funds are physically in
bank accounts with communities and facilitating organisations being the joint signatories.
The SHPIs in Rajasthan can play a key role in triggering the creation of much-needed health
mutual in poor communities (CmF, Jaipur 2012).
Crop insurance
As per the latest data until March 2012, the number of farmers covered under crop
insurance is about 3 crore and about 1.1crore farmers have been benefitted from different
schemes. The premium collected has been Rs. 225 crore;interestingly, the claims (paid or
payable) are more than the collected premium. However, with the poor the penetration of
these schemes has been on the low side as per our experiences and interaction with the SHG
community across the State.
Table 2-9 Coverage of Farmers under Crop Insurance Schemes
(NAIS+WBCIS+MNAIS) in Rajasthan (2011-2012)
Farmers
Insured
(No.)
Area Insured
(Hectare)
Sum
Premium
Insured Collected
(Rs. Lakh) (Rs. Lakh)
Claims
Farmers
Paid/
Benefited
(No.)
Payable
(Rs. Lakh)
Rajasthan
30,775,906
54,523,747
3,586,867
225,213
375,971
11,389,164
India
218,533,091
326,795,663
30,163,488
1,168,285
2,704,719
63,178,510
Abbr. : NAIS : Crops Notified Under National Agricultural Insurance Scheme.

MNAIS : Modified National Agricultural Insurance Scheme. WBCIS: Weather Based Crop
Insurance Scheme. Source: Rajya Sabha Unstarred Question No. 1557, dated on 07.12.2012.
18
In this chapter it is clear that the microfinance products have not been able to reach out to
the poor and there remains a huge demand for microfinance products. However, the State
still lags behind in meeting the demand and supply. Self Help Group (SHGs) has become an
important vehicle in microfinance and offering different services and products. This has
been described in details in the ensuing chapter.
Bibliography
Census of India. Primary Census Abstract - Rajasthan. Government of India, 2011.
CmF, Jaipur. Risk profiling Study. Jaipur, Rajasthan: Centre for Microfinance, 2012.
CmF, Rajasthan. Livelihoods of Poor in Rajasthan. Report, Jaipur: Center for

Microfinance, 2012.
Jagannath, Pratyaya. Evaluation of Microloan Programme of Dewan Foundation.

Consultancy Report, Unpublished, 2008.
M-CRIL. M-CRIL Microfinance Review 2012: MFIs in a Regulated Environment a

financial and social analysis. Gurgaon, India: Micro- Credit Ratings International
Limited, 2012.
NABARD. State Focus Paper for the XIIFive Year Plan - 2012-17: With Detailed
Suggestions for 2013-14. Jaipur, Rajasthan: NABARD, 2013.
NABARD. Status of microfinance in India. micro credit innovations Department,

Mumbai: NABARD, 2013.
SLBC. Rajasthan- State Level bankers Committee memorandum. Jaipur: State Level
bankers Committee, 2013.
19
Chapter 3
Self Help Groups,
SHPI and Bank linkage
Chapter 3
Self Help Groups,
SHPI and Bank linkage

Self Help Group
A Self Help Group (SHG) is a group of about 10 to 20 people, generally women of
homogeneous background, who come together to fulfill a common objective, which most of
the time is savings and credit. The members of SHG develop a credit history while
undertaking internal-lending among them and have a social capital to boost. A study in
three south Indian States during the pilot phase of the SHGs in the early years of 1990s,
estimated the reduction in transaction cost of banks to an extent of 41% as compared to
normal individual lending. Since the groups' own accumulated savings is part of the
aggregate loan made by the group to its members, peer pressure, ensures timely repayment
and replaces the 'collateral' for the bank loans. Apart from financial help in the time of need,
the group provides social security to its members (Tankha 2012).
Various organisations promote SHGs known as Self Help Promoting Institutions (SHPIs)
can be briefly summarised as follows;
Government Organisations/ Non-Government Organisations-MFI promoted with

support/grant from national and/or international donor agencies and/or
NABARD or Government;
Groups promoted by banks, farmers club, individual volunteers, and agents;
Promoted by District Rural Development Agency, Integrated Child Development

Scheme (ICDS);
Other Government departments such as animal husbandry, forests, and tribal

affairs etc.;
Groups of civic bodies (Municipalities and Panchayat).
Promotion of SHGs in Rajasthan

The SHG movement was initiated by voluntary organisations, NABARD and Department
of Women and Child Development (DWCD). These institutions have contributed
significantly to cover more and more households to be a part of this movement. With the
objective of alleviating poverty, the State Government has been implementing
programmes such as SGSY, DPIP, MPOWER and so forth through the SHGs. Below are a
few projects promoted by various SHPIs through SHGs in Rajasthan.
21
Table 3-1 Self Help Group promoting Agencies in Rajasthan

Agency
Scheme/ Project
Remarks
DWCD
No specific scheme
Groups are organised by

Anganwadi workers and Sathins
Department of
of Rural
Development
NRLM (earlier SGSY),

Watershed Development
Programmes, DPIP
(now RRLP) MPOWER
Groups comprising of mostly BPL

households- inclusive of co-opted
from NGOs following the norms of
Panchasutra
NABARD and
Banks
SHG-Bank Linkage
Programme
Through NGOs, RRBs and

Cooperatives.
Cooperatives
The cooperatives have

very recently started forming SHGs
Civil Society
Oraganisations
With support from Donor

agencies (such as Sakh Se Vikas
of SRTT) and Govt. programmes
Others
Forest Department Department of

Industries (under cluster
development programme)
Groups promoted by NGOs

under Govt. sponsored programmes
are often reported by both
Source: compiled by CmF for their 2011 sector report, which has been modified with the
corresponding financial year (2012-13)
Number of Self Help Groups (SHGs) in Rajasthan

Different SHPIs have different channels and formats for SHG information. The largest
SHPI in the state is DWCD with about 2.3 lakh SHGs across the state. NABARD along with
NGOs promote about 89 thousand SHGs. NABARD promotes about 14 thousand SHGs.
However, it is difficult to predict and report the exact number in the absence of a formal
reporting mechanism. There are cases of double counting, and confusion as how many
SHGs that exist in the State. There is a need to streamline this issue, which is described in a
separate chapter which discusses about sophisticated Management Information System
(MIS) about SHGs.
Table 3-2 Numbers of SHGS promoted by SHPIs as of March 2014
DWCD
ICDS
2,31,212
NRLM (earlier SGSY)

NABARD-SHG-BLP
DPIP
Others
Total
20
21
22
23
24
25
26
22
RGAVP NGOs Cooperatives Others
20
2,31,212
Total
2,31,212
22,246 40,978
21
13,776
22
23,065
23
11,417
24
22,246 89,236
13,659
76,883
13,776
23,065
82,250
25
82,250
27,690
26
121,357
41,349 4,66,293
DWCD report as on August 2013

Under SGSY2011, total SHGs reported are 213,738 but it has been found that many of SHGs reported were
not formed. Therefore, all SHGs having passed grade one and the SHGs, which have been formed but yet to
be graded (almost about 20% of graded SHGs), are reported here. On enquiry, it was told that 75% of the
groups are formed by NGOs and 25% by others.
NABARD Status of Microfinance Report 2013
Number of CIG (Common Interest Groups) until Dec. 2007 http://www.dpipraj.gov.in
CmF internal research
NABARD Status of Microfinance Report 2013
Watershed Development (9,400); Literacy Mission (12,977); RCDF (5,168); Forest (145)
SHG Bank linkage programme (SHG-BLP)

The concept of linking SHGs to banks was launched as a pilot project by NABARD in the
year 1992. The pilot envisaged to link just 500 SHGs to mainstream banks. By the end of
March 1994, 620 SHGs were linked to different banks. The success of this pilot led to its
transformation into the SHG-BLP with an ever-increasing number of banks and NGOs
participating therein. From modest beginnings in 1992, the SHG-BLP spread rapidly and in
just over a decade had emerged as the single largest microfinance programme in the world
(Tankha 2012).
Table 3-3 Growth Rate in SHG Bank Linkage
27
CAGR (%)
Cumulative number of
SHGs credit linked
(2002 to 2007)
CAGR (%)
Number of SHGs with
loans outstanding
(March 2008 to March 2010)
Number of SHGs
with loans outstanding
(% change between March
2010 and March 2011)
Rajasthan
49
9.8
6.0
All India total
36
10.2
1.3
Source: Progress of SHG Bank linkage in India 2005-2006, Status of Microfinance in India
2007, 2008, 2009, 2010 and 2011)
Rajasthan has still a minus growth rate of (-6%) in SHG-BLP, which construes it still need a
great deal of vitality to be vested in its microfinance programmes.To understand this
negative growth from another lens, we engage in a few other things or that impact the SHG
linkage programmes in India.One among others is SHG coverage data itself, as the data
quoted by various agencies do not supply the same information.There are differing
opinions around the accuracy and legitimacy of the estimates of bank linkage as conveyed
by the data compiled by NABARD. Even, the authors of this book felt the same after
referring the numbers claimed by various SHG promoting agencies in the State. It is opined
that the SHGbank linkage data are underestimated since they cover the loans for which
refinance has been sought from NABARD and could miss out loaning undertakenby banks
with their own resources.
Moreover, the credit-linkage data represents an overestimate of the true picture as multiple
agencies are involved with the SHGs at different levels. These agencies include such SHGs
in their reporting; hence create the phenomenon of double counting. Still, in the absence of
common reporting or MIS, it has been seen that every SHG that has given a loan is
considered a new credit linked SHG or defunct/default groups continue to be reported as
linked by their promoting agencies. A study undertaken in Bikaner district for all banks
found that the actual number of SHGs credit-linked was only 1,755 instead of 2,978 as
reported.A previous sector report by CmF states that it may be safer to assume that 70% of
the SHGs reported to actually exist (CmF 2008).
Contribution of SHPIs in Rajasthan
With the objective of poverty alleviation and women empowerment, various agencies such
as the rural development department, NABARD, or cooperatives, these oraganisations
have adopted Self Help Group approach for poverty alleviation. In the process, they have
customised the programmes as per people's current needs. The NRLM has replaced the
SGSY and Rajasthan Rural Livelihoods Programme (RRLP) has come in place of DPIP.
27
Compound Annual Growth Rate (CAGR)

23
Although, banks and cooperatives focus mostly on providing credit to SHGs, a few
financial literacy projects have also been started. The detailed coverage and achievements
of the SHPIs are discussed below.
Department of Women and Child Development (DWCD)
The DWCD has been leading in promotion of SHGs in the State of Rajasthan. With the help
of the cadre of SathinsandAnganwadi workers at village level, DWCD has been mobilising
women into SHGs and facilitating credit linkages. The department promotes 2, 31,212
SHGs and has been able to generate an external credit of amount Rs.586 crore; total group
savings of amount Rs.122 crore; Rs.84 crore in internal loaning (69% of the total savings);
and 17,719 bank accounts have been opened since the inception of the programme in the
State. In the financial year 2012-13, there was a target to form 35,000 SHGs, out of which 4,
577 SHGs were formed (13% of the target), and 2,435 SHGs were provided with bank loans.
However, the department also reports about 41,243 defunct SHGs during the financial year
(2012-13). As per the monthly progress report of August, 2013, the bank linkage target for
the financial year 2013-14 is 38,000(Department of Women and Child Development 2013).
SHG promoting programmes of Department of Rural Development
Department of Rural Development, Government of Rajasthan is promoting Self Help
Groups through its three major programmes- 1) National Rural Livelihoods Mission
(NRLM) i.e. earlier Swarnajayanti Gram SwarojgarYojana (SGSY), 2) Rajasthan Rural
Livelihoods Project (RRLP)i.e. earlier District Poverty Initiative Project (DPIP), and 3)
MPOWER.
National Rural Livelihood Mission (NRLM)
With the objective of reducing poverty by enabling the poor households to access gainful
self-employment and skilled wage employment opportunities, resulting in an appreciable
improvement in their livelihoods on a sustainable basis through strong grassroots
institutions of the poor, Government of India initiated National Rural Livelihoods Mission
in 2011. UPA Chairman Smt. Sonia Gandhi in Banswara in Rajasthan launched it on June 3,
2011. This project is named Rajasthan Rural Livelihood Project (RRLP) in Rajasthan. NRLM
adopts a three pronged approach- 1) enhancing and expanding existing livelihood options
of the poor, 2) building skills for the job market, and3) nurturing the self-employed and
entrepreneurs(Press Information Bureau, GoI 2011).
The Government of Rajasthan constituted a society named Rajasthan Grameen Aajeevika
Vikash Parishad (RGAVP) or RAJEEVIKA, registered under The Society Registration Act
of Rajasthan (1958), as an umbrella implementation agency, for implementing these key
schemes. The Chief Minister is the president of the society, whereas the Chief Secretary of
the Government of Rajasthan is the Chairperson of the Empowered Committee. An officer
from the Indian Administrative Service acts as the chief of the RGAVP and known as the
State Managing Director of RAJEEVIKA. At present the Parishad is implementing the
following Projects.
24
RRLP is a World Bank funded Programme.
NRLM/NRLP is a Central Government funded Project.
MPoWeRproject in which the funding partner is IFAD.
Figure 3-1 Implementation Area of RGAVP (Rajeevika)

NRLM
Blocks
RRLP
Blocks
MPoWeR
Blocks
Source: RGAVP Annual Report 2013-14
NRLM/NRLP, RRLP and MPoWeR programmes are being implemented in the entire state
in a phased manner. The number of blocks covered presently under different programmes
is as follows:
Project
No. of blocks covered
RRLP
51
MPoWeR
NRLM/NRLP
191
Total
248
Objective of RGAVP: - To support the development of livelihood opportunities for the

rural poor, especially women and marginalised groups, in through:-
Social inclusion and community mobilisation
New livelihood strategies that are adaptable to climate change.
Building sustainable member based organisation of the poor.

Creation of credit linkage between the organisations and financial institutions
and other service providers.
As mentioned in the first chapter, NRLM is the restructured SGSY programme, in which a
number of significant changes have been made. A number of reports, including (Tankha et
al. 2008; and Patel 2011) have highlighted the shortcomings in the SGSY which were taken
into consideration in the designing of NRLM. Here are a few major weaknesses of SGSY
(Press Information Bureau, GoI 2011).
25
The capital investment was provided upfront as a subsidy without

adequate investment in social mobilisation and group formation.
One off programme focusing on creating assets, and one livelihood activity was
unable to meet different livelihood needs of the poor, resulting in poor accepting
whatever they were getting without any interest in the activity.
Absence of any collective institution such as SHG federation that made poor
difficult to access high order services for productivity enhancement, marketing,
or risk management.
Considerable mismatch between the capacity of implementing structures and

the requirements of the programme.
Similar to SGSY, financing of NRLM is shared between the Centre and the State in the ratio
of 75:25 except in the Northeastern states where the ratio is 90:10.NRLM provides a
framework for each state to prepare its own state level plans based upon micro-business
plans prepared at the household and SHG levels and appraised at intermediary levels
(Press Information Bureau, GoI 2011).
NRLM has a key component for livelihoods that is called Mahila Kisan Sashakti karan
Pariyojana (MKSP). MKSP aims at providing a complete package (credit, marketing
support, business development support, capacity building etc.) to primary producers in
areas of agriculture, non-timber forest produce (NTFP), renewable energy and fisheries.
The objective is to build capacities of poor women, by leveraging the potential of
community institutions, to increase their income many-fold through higher productivity
and better price realisations (CmF 2011).
st
During the financial year 2013-14, there are total of 9,386 number of SHGs (as per 31 March
2014consolidated data 12,142) were promoted under RRLP, out of which 5680 SHGs are cost
opted and 6,462 are newly formed. The total savings as on 31 March 2014 was 21.12 crore
st
against the amount of credit mobilised was Rs. 13.79 crore. In Rajasthan as on 31 March
2014, 1182 villages are covered under the RRLP. Dholpur, Dungarpur and Udaipur have
the highest coverage with 256, 191 and 145 villages respectively. Karouli, Chittorgarh and
Pratapgarh have the lowest performance district. Sawai Madhopur (10) and Bundi (25)
st
have the lowest villages covered under RRLP. As per 31 March 2014 Dungarpur (1270
SHGs), Dholpur (993 SHGs), and Udaipur (887 SHGs) lead the SHG movement under the
RRLP. Karauli(0 SHGs), Pratapgarh (111 SHGs) and Chittorgarh (172 SHGs) are the least
performer districts in Rajasthan. Out of these SHGs about 53% are formed whereas rest 47%
is co-opted. 3,036 SHGs reported around 25% of promoted SHGs still do not have a savings
bank account opened yet. About 4371 SHGs are more than 18 months old, about 5,222 SHGs
are aged between 3 to 18 months and about 2,500 SHGs are aged less than 03 months of
formation as on 31st March 2014. Dungarpur and Dholpur have the most number of
matured SHGs, in these two districts, there are 15 women SHG federations and 8 are coopted by the RRLP (RAJEEVIKA 2014).
Table 3-4SHG membership details under RRLP
Number of SHG Members

Total
143,093
26
SC
ST
OBC
Other Category
Disabled
Minority
28,619
65,823
34,342
12,878
202
1,431
Table 3-5 Financialdetails of the SHGs working with RRLP

Number
of SHGs
Total
Number
Total
amount
of SHGs
amount
outstanding having
disbursed
Interbank
by bank to
loaning
linkage
SHGs
9219
47,96,00,000
1,994
13,79,00,000
Average
amount
disbursed
by
69,157
Cast
at
bank
Cash
at
bank
10,63,00,000 2,20,00,000
Tranche Tranche
1
2
availed availed
SHGs
SHGs
5,228
3,294
At the time of writing the report the data for 2013- 14 was published. The highlights of the
financial year 2013-14 are (RAJEEVIKA 2014)
Total 22,246 SHGs have been formed/co-opted as on 31st March 2014 (12,142 under
RRLP, 1171 under NRLP, 957 under NRLM intensive. Apart from this 2,980 under
NRLM non-Intensive and 4,996 under MPOWER). During 2013-14 about 14,828
SHGs were formed/co-opted under RAJEEVIKA. There has been a substantial
increase in the SHGs formation compared with previous years. More than 83% of
SHGs under RAJEEVIKA fold (18,545 SHGs) following Panchsutra.
1,035 Community Development Organisations (CDOs) have been formed/coopted under (609 under RRLP, 55 under NRLP, 97 under NRLM non-intensive and
328 CDOs/CSOs under MPOWER).
17,454 SHGs have bank accounts opened (9,001 under RRLP, 651 under NRLP, 957
under NRLM intensive + 2,839 under NRLM Non-intensive and 4,619 under
MPOWER).Cumulative savings of the SHGs is Rs. 30.22 crore and the outstanding
amount under inter loaning is Rs. 58.47 crore.3,905 SHGs have credit linked with
banks to the tune of rs.22.85 crore (1,994 SHGs under RRLP, 646 SHGs under
NRLM/ NRLP and 1,265 SHGs under MPOWER).
Tranche-1 has been given to 11,203 SHGs (5,228 under RRLP, 497 under NRLP, 971
under NRLM and 4,507 under MPOWER).Livelihood funds (Tranche-2) have been
given to 3,818 SHGs (3294 SHGs under RRLP 25 NRLP 75 under NRLM and 424
SHGs under MPOWER).
Total Expenditure during 2013-14 under all components up to 31st March 2014 is
Rs. 89.68 crore (Rs. 61.02 under RRLP, Rs. 5.71 crore under NRLM and Rs. 22.95
crore under MPOWER).
MPOWER
The Government of Rajasthan, in collaboration with IFAD and SRTT, started a project
named 'Mitigating Poverty in Western Rajasthan (MPOWER)' in 2007 for BPL households
who reside in the dry arid zones of the State. A total of 1,040 villages in 245-gram panchayat
are being covered under this project. The MPOWER's objective is to mitigate the poverty of
the target households through strengthened capacity; improved livelihood options;
sustainable enterprises; natural resource management; and increased access to credit and
markets. The project, with an estimated investment of Rs.415 crore, will be implemented
over a six-year period with the first year of the project being devoted for community
mobilisation and capacity building. The project aims at increasing the credit flow to SHGs
to the tune of Rs.180 crore. The investment towards institution building will be to the tune
of Rs.20, 000 per SHG. The project is expected to have an impact over 87,000 households and
the State Government has decided to give 50% subsidy on interest to the SHGs (from July
2010) who will make prompt repayment (RAJEEVIKA 2013).
27
NABARD, Banks, and Cooperatives

NABARD's target of promoting almost 46,000 SHGs and get them credit linked is growing
at a gradual scale. However, NABARD has travelled this journey very well- from pilot of
linking500 SHGs of rural poor two decades ago to cross eighty lakh groups in 2011
nationally and the total saving corpus to 27,000 crore today which shows the utmost
potential in the oraganisation.
The efficiency of financial intermediation by NABARD in Rajasthan, though has improved
from last year, but it still remains a challenge to meet the desired goal. As of March 2013, the
target for SHGs promoted and credit linked last year were 35% and 13% respectively.Only
42.91% (23,596) of the target to form new SHGs was achieved and only 25.56% (14,053) of
the SHGs were credit linked (NABARD 2014).
Table 3-6 NABARD's grant support to SHPIs as on March 31, 2014
Name
of
Agency
No. of
No. of
Beneficiary proposals
NGOs
Grant
Grant
sanctioned released
(lakh)
(lakh)
No. of
No. of
SHGs to be
SHGs
promoted/
promoted
credit linked
No. of No. of
SHGs
SHGs
savings credit
linked linked
NGOs
304
478
2,207.52
452.60
44,228
19,366
19,366
11,448
RRBs
47.56
10.55
2,620
741
Cooperative
14
14
121.58
48.50
8,135
3,489
3,489
2,120
Total
322
496
2,376.66
511.65
54,983
23,596
23,596
14,053
741
485
Source: Status of Microfinance in Rajasthan, NABARD Annual Report 2014

NABARD has provided a grant of only Rs. 5.11crore compared to the sanctioned amount of
about Rs. 23.76crore. Similarly the achievement versus the target is really low because of
various factors.
NABARD has continued with its role as the main facilitator and mentor of microfinance
initiatives in the country, particularly the SHG-BLP initiative. A large number of seminars,
workshops, and training programmes were organised to create awareness about the
microfinance programme among all the stakeholders the bankers, Government agencies,
NGO partners, Panchayati Raj Institutions and more importantly the SHG members
themselves.
Table 3-7 Glimpse of the facilitator role played by
NABARD in this sector during 2013-14
Potential Rural households to be covered
53.43 lakh
Rural households covered*

(SHG: Savings linked)
31.62 lakh
Districts with low coverage of SHGs
23 out of 33 districts
Average savings / SHG
6,960.46
Average credit disbursed / SHG
1,11,792,96, (National Average : 175,768.36)

2011-12
2012-13
2013-14
Gross NPA (crore)
46.36
75.63
78.29
SGSY (crore)
25.69
33.18
34.32
SHG (non-SGSY) (crore)
20.67
42.45
43.97
Number of Women SHG districts
Source: Status of Microfinance in Rajasthan, NABARD Annual Report 2014
28
Two new initiatives of NABARD

Posting microfinance anchor persons for SHG intensification
A pilot programme with the objective of strengthening the Self Help Group movement is
being implemented across 25 resource poor districts from 10 priority states of the country.
The programme aims at leveraging the services of retired bankers by placing them as
District Microfinance Anchor Persons (DMAP). The role of the DMAP in the district will be
to prepare a roadmap for promotion of SHG-BLP, to establish a Self Help Institutions
Network (SPIN), facilitate the conduct of training programmes for SHGs, facilitate better
MIS and document success and failure stories, serve as an anchor resource person for the
SHG-BLP and facilitate the promotion of livelihoods, etc.(NABARD 2013).
Intensifying SHG promotion in backward districts
The Women SHG (WSHG) Scheme of Ministry of Finance envisages positioning an anchor
NGO in each of the 150 backward districts of the country for promotion and financing of
Women SHGs. The role of the partner NGO is expected to be for a longer term and not
merely for promoting and enabling credit linkage of these groups. It is expected that these
NGOs should serve as a business facilitator, tracking, supporting livelihoods, and also
being responsible for loan repayments. Promotional support to anchor NGOs will be
funded by NABARD out of the WSHG Development Fund of Rs. 500 crore allocated for the
purpose. In Rajasthan, the scheme is implemented in four districts viz. Barmer, Banswara,
Dungarpur, and Jhalawar. The regional office has sanctioned projects for formation of 3,500
WSHGs (NABARD 2013).
Civil Society Organisations
There are many oraganisations working as NGOs or voluntary oraganisation or
community based organisations in different districts of the State and it could be around 810 in each district that are promoting SHGs either on their own or with the support of the
Governmentprogrammes. Most of the voluntary agencies have promoted a few hundreds
of SHGs, as per their financial capacity and geographical expansion capacity. However,
there are a few agencies that have substantial numbers (500 to 1,500 SHGs) of groups. For
instance, People's Education and Development Oraganisation (PEDO) is the biggest
oraganisationworking with a total of almost 1,500 SHGs in a very difficult and secluded
terrain of Dungarpur for the last 15 years by understanding the social dynamics in a careful
manner. PRADAN in Dholpur, and Sirohi; Ibtada in Alwar; ASSEFA in Baran and
Banswara; URMUL in Bikaner; SevaMandir in Udaipur; NavyuvakMandal and Bhoruka
Charitable Trust in Churu; IIRD in Baran; CECOEDECON in Tonk, Jaipur and Baran; and
SRIJAN in Tonk and Bundi are the organisations, which have been promoting large
number of SHGs for their respective microfinance programmes (CmF 2011).
However, there is still a huge gap between demand and supply of microfinance services in
the State where voluntary oraganisations can play an important role. 23 out of the 33
districts are low SHG coverage areas and only 4 districts are women SHG districts. Districts
in western and southern Rajasthan still do not have many agencies which has a focus on
SHGs (there are few as mentioned above) to expand the outreach. The authors themselves
found a great need of microfinance services among villagers in the Barmer district.
Moreover, Dholpur, Karauli, NagaurandJalore have been found to fall lowest on the SHG
Saturation Index (CmF 2011).
Sakh-se-Vikas initiative
Sakh-Se-Vikas (SSV) is a development initiative in Rajasthan that seeks to propagate the
best practices in SHG movement among all the stakeholders' viz. SHPIs, Government
agencies, and NGOs. Promoted by Sir RatanTataTrust, it has strategic partners, which are
29
well-acknowledged development agencies at regional and national levels. Centre for

Microfinance (CmF) is the nodal agency for the SSV initiative. The initiative has two
primary objectives-a) to disseminate best practices of the sector across various stakeholders
and b) to develop resource agencies for the microfinance sector. SSV partners aim to create a
conducive policy environment that fosters growth of self-help based microfinance (CmF,
Jaipur 2014).
The SSV initiative has been active in 9 districts, 22 blocks and 1,289 villages and has been
able to directly impact 69,057 poor households, 4,992 SHGs and 26 SHG federations. SSV's
thematic verticals include livelihood enhancement, strengthening the interface of
banks/financial institutions with SHGs, risk mitigation, and social security and
strengthening people's institutions(CmF, Jaipur 2014).
Table 3-8 Achievements of a few SSV partners
Partner
District
Number
of
functional
SHGs
Savings
mobilised
Ibtada
GDS
Alwar
Ajmer,
Pali
Tonk,
Bundi
Dholpur
Ajmer
Ajmer
Dausa
883
343
SRIJAN
PRADAN
GMVS
GSVS
Saheli
Samiti
Vaaghdhara Banswara
PEDO
Dungarpur
Total
Number
of
SHGs
Credit
linked
673
241
Loan
Outstanding
Internal
lending (Rs.)
Loan
Outstanding
- Bank loan
(Rs.)
70,969,008
24,360,394
Number
of
SHGs
bank
linked
811
292
88,612,540
25,784,900
23,321,774
9,057,300
414
16,687,956
295
282
24,188,340
6,370,836
1,014
202
233
170
104,856,180
20,102,770
14,005,000
7,075,534
863
202
210
170
106
202
206
161
183,136,222
19,559,300
8,988,600
25,212,780
2,340,000
20,120,400
16,265,000
14,717,730
148
1,585
4,992
2,194,955
138,070,674
398,322,471
148
1,585
4,576
24
1,585
3,480
2,033,083
165,862,548
543,378,313
1,185,140
0
93,378,180
Source: data provided by CmF, Jaipur, 2014
Savings and Credit with SHGs in Rajasthan

Generally, an SHG provides savings and credit services (internal lending and bank loan) to
its members but in some cases SHGs have facilitated to take up services such as insurance to
offer to its members. SHGs have also started to functions as agencies to access Government
facilities and services such as social protection schemes.
Table 3-9 SHG savings and credit status of various banks in Rajasthan
Particulars
Commercial
Bank
Regional
Rural Banks
Cooperative
Banks
Total
SHG Savings
(cumulative)
(Year 2012-13)
Number of SHGs
1,05,491
63,420
88,351
2,57,262
Amount (Rs. Lakh)
8,208.08
4,618.51
5,080.02
17,906.61
SHG lending
(Year 2012-13)
Number of SHGs
Amount (Rs. Lakh)
8,634
11,017.04
5,360
4,702.89
6,167
5,368.45
20,161
21,088.38
SHG lending
(cumulative)
Number of SHGs
Amount (Rs. Lakh)
79,337
40,133.24
20,675
12,226.09
29,559
10,935.12
129,571
63,294.45
Source: Status of Microfinance in India, NABARD 2014
30
Savings
Saving as the foremost product makes the basis for an SHG to kick-start its microfinance
programme. SHG members save as small as Rs. 10 to a maximum of Rs. 100 per month,
according to the SHG quality study conducted by CmF in 2011 in Rajasthan, over 89% of the
SHGs save monthly.
SHG savings in the bank (until March 2013)
There are 231,763 SHGs that have savings bank accounts with the banks, catering to
2,516,053 members with a total savings of Rs. 157.61 crore. This entails to a per capita
savings of Rs.626.41 per member, for a member of the women SHG, per capita savings this
is Rs. 624.93. The number of exclusively women SHGs with savings in the banks is 199,088
with 2,166,020 members having a savings of Rs. 135.36 crore(NABARD 2013).
Table 3-10 Savings through SHGs
Details of SHGs Saving
linked with Banks
Out of Total SHGs - Exclusive

Women SHGs
Savings amount
in Rs. Lakh
Number of
SHGs
Savings amount
in Rs. Lakh
Number of
SHGs
Public
87,608
7,173.21
73,192
5,945.59
Private
5,332
560.92
5,332
560.92
RRB
56,573
3,272.57
42,844
2,716.73
CCB
82,250
4,754.04
77,720
4,312.80
Total
231,763
15,760.74
199,088
13,536.04
When we consider all the SHGs, the highest number of SHGs linked to the banks for savings
is with the public sector commercial banks (37.8%), closely followed by the district central
cooperative banks (35.49%). The amount of savings with the public sector commercial
banks is 45.51% of the total savings with the banks. Only 30.16% of the savings of the SHGs
are with the CCBs. Among all the banks, the highest savings is with Sate Bank of Bikaner
and Jaipur (SBBJ) with 20.74%, considering all the SHG savings with the banks; followed by
Baroda Rajasthan KshetriyaGramin Bank (BRKGB) with 13.35%. The other such significant
banks are Bank of Boroda (BoB) with 8.54%, Punjab National Bank (PNB) with 7.79%,
MarudharaGrameen Bank (MGB) with 7.33%, Ajmer DCCB (4.29%), and ICICI bank
(3.06%).
While considering the savings for SHGs with exclusively women members; the highest
number of groups are linked with the CCBs (77,720), followed by public sector banks
(73,192). But the amount saved with the public sector banks is 43.92% of the total savings
followed by 31.86% with the CCBs. Among all the banks, the highest savings is with SBBJ
(22.75%), followed by BRKGB (11.53%), MGB (8.47%), BoB (6.63%), PNB (6.37%), Ajmer
DCCB (4.75%), and ICICI Bank (3.57%).
Total outstanding credit
There are 129,571 SHGs, which have an outstanding of Rs. 632.95 crore. The number of
exclusively women SHGs with credit in the banks is 108,149 with a credit of Rs. 481.55
crore(NABARD 2013).
31
Table 3-11 Total outstanding credits of the SHGs

Total Loans Outstanding
against SHGs
Out of Total - Exclusive

Women SHGs
Number
SHGs
Loans O/S in
Rs. Lakh
Number of
SHGs
Loans O/S
in Rs. Lakh
Public
74,325
35,460.13
58,577
27,847.86
Private
5,012
4,673.11
5,012
4,673.11
RRB
20,675
12,226.09
17,218
7,217.81
CCBs
29,559
10,935.12
27,342
8,416.26
Total
129,571
63,294.45
108,149
48,155.04
The highest percentage of SHGs linked for credit is 57.28% with the public sector banks,
while only 3.9% of the SHGs are linked with the private sector banks for credit. The highest
percentage of credit disbursed by the banks is: SBBJ (31.63%), followed by BRKGB (11.54%),
PNB (8.93%), BoB (8.37%), and MGB (6.76%). Private sector banks ICICI (3.82%) and Yes
Bank (3.12%) are other major banks extending credit to the SHGs.
There are 108,149 exclusive women SHGs which are credit linked compared to 199,088 for
savings linkage. Most of the SHGs (54.16%) are linked with the public sector banks for
credit linkage. Among all the banks, the highest credit given to exclusively women SHGs is
SBBJ (32.75%), followed by BRKGB (13.55%), PNB (8.82%), BoB (8.63%), ICICI Bank
(5.02%), YES Bank (4.11%), and SBI (3.86%).
Credit disbursed during year 2012- 2013
The number of SHGs which took a loan in year 2012-13 from the banks is 20,161 in number.
The total amount of credit from the banks is Rs. 210.88 crore, which is 33.31% of the total
loan outstanding. The number of exclusively WSHGs with credit in the banks is 18,213 with
a credit of Rs. 178.59 crore.
Table 3-12 Credit linked SHGs (2012-13)
Total Loans Disbursed
Loan disbursed
Number of
in Rs. Lakh
SHGs
Exclusive to Women SHGs

Number of
Loan disbursed
SHGs
in Rs. Lakh
Public
4,556
6,082.85
3,246
3,664.13
Private
4,078
4,934.19
4,067
4,922.73
RRB
5,360
4,702.89
4,921
4,222.96
CCBs
6,167
5,368.45
5,979
5,048.95
Total
20,161
21,088.38
18,213
17,858.77
The highest percentage of the total SHGs linked for credit with the banks is with the CCBs
(30.59%), followed by RRBs (26.59%), public sector banks (22.6%), and private sector banks
(20.23%). The highest percentage of credit disbursed by the banks is: SBBJ (15.25%),
followed by BRKGB (14.39%), ICICI Bank (11.65%), YES Bank (10.04%), BoB (6.3%), and
MGB (5.2%). This section emphasises the importance of private sector banks extending
credit through various channels inspite of the fact that they have very few branches in the
State. BRKGB apparently has a large percentage among the banks, underlining its spread in
extending savings and credit.
32
While considering credit for SHGs with exclusively women members; the highest number
of groups are linked with the CCBs (5,979), followed by RRBs (4,921). But the amount
disbursed by the CCBs is 28.27% of the total credit followed by private sector banks with
27.56% with the RRBs (23.65%), and public sector banks (20.52%). Among all the banks, the
highest credit given to exclusively women SHGs is BRKGB (14.85%), followed by ICICI
Bank (13.7%), YES Bank (11.85%), SBBJ (10.64%), and MGB (6.14%). This shows the absence
of many major public sector banks which do not feature in this list.
Non-Performing Assets (NPA) of Banks
The public sector commercial banks have the highest NPA of Rs. 3,956.04 crore, out of
which, SGSY scheme alone contributes the highest NPA with Rs. 2,046.42 crore. In terms of
percentage, out of the total credit outstanding with the SHGs, the NPA is 11.9% out of
which the highest NPA is with the CCBs (17.91%).
Table 3-13 NPA of banks in Rajasthan
Gross NPAs data of SHGs against Bank Loan
Total loans Outstanding
against SHGs in Rs. Lakh
Amount of NPAs
NPA as %age to
total loans O/S
Public
35,460.13
3,956.04
11.16
Private
4.673.11
101.77
2.18
RRB
12.226.09
1,546.7
12.65
CCBs
10,935.12
1,958.89
17.91
Total
63,294.45
7,563.4
11.9
Figure 3-2 NPA (%) in SHG loans (Rajasthan and India compared)
14
12
12
10
8
6
4
7
6
5
3
2
0
2009-10
2010-11
Rajasthan
2011-12
2012-13
India
In Rajasthan the NPA of credit against SHGs has arisen to a worrying 12 % (compared to a
th
national average of 7%) requires immediate attention and resolution (12 5 year plan 201217, Planning Commission, Government of India).The number of SHGs having loan
33
outstanding are on decline trend. This can be a case of consolidation from banks' side. Also,
it may reflect towards the issue of NPAs at bank related to SHG portfolio and bankers'
declined trust over SHG-bank linkage programme. There has not been a trend in which
Banks issued fresh loans to the SHGs for last few years. The NPAs of the banks related to
SHG portfolio are on the rise in all the regions across India. This could be one reason why
banks are adopting a conservative approach in lending to SHGs. These NPAs includes the
loan disbursed during SGSY programme, and Bharat Microfinance report reflects that the
financial disciple among the SHGs promoted by NGOs is stronger than those promoted
under Government-sponsored programmes. Further, as indicated, this potent and
effective financial inclusion measure, has not received the attention with bankers presently
focused on opening individual accounts through BFs/ BCs. Nevertheless, the answer lies in
reinventing the basic principles on which SHG movement was set up while responding
innovatively to financial access and effectiveness through the medium of SHG. The success
of SHG-BLP (or FI) will be assessed not on the basis of savings or credit linkage or on social
capital leveraged, but on the basis of the improvement in the quality of the lives of its
members (NABARD 2013), (CmF 2013).
Livelihood planning and finance
With advent of NRLM, there has been a larger push on livelihood planning for members.
As each beneficiary of the member of a SHG has a different background, livelihood and
microfinance products need to be planned accordingly. There is a difference of skill sets,
resources at the helm, entrepreneurial aptitude, different social safety vaults, and
moreover the access to the surrounding ecosystem. Thus, livelihood planning is necessary
to segregate two members according to background for encouraging to take-up a particular
livelihood activity. For instance, if a member has no farming land and has not nurtured a
large ruminant in the past; that member should not engage in dairy activity. Further the
economies of scale should be maintained for a sustainable livelihood; for example, buying
only one cow or buffalo for livelihood promotion creates a huge burden on the rearer when
the animal becomes dry and there is a gestation period to be able to produce milk again. A
combination of two animals keeps healthy cash inflow round the year and protects the
livestock rearer from indebtedness.
Similarly, a microfinance credit product should not charge the farmer for repayment
during the months when the farmer requires a big sum of money for input purchase
(fertiliser, seed, pesticides), or engagement of labourers for weeding and harvesting. The
loan repayment procedure should be lenient and take into account of such requirements.
Coming back to the point of SHGs, there should be a livelihood plan for each member
irrespective of the fact that there is availability of finance or not. The plans should be
changed if there is a change in any of the assets mentioned above (skill sets, resources at
helm, etc.). Such livelihoods planning have been done with groups formed and supported
by NRLM and MPOWER.
As per the recent practices, RGAVP channelises an amount of Rs. 1,10,000 (One lakh ten
thousand only) per SHG. This amount is provided as a loan to the SHG through the CDO.
This fund is termed as livelihood investment fund; however the amount is inadequate for a
10 member SHG. Similarly the Ministry of Finance has a provision of providing grant
incentive of Rs. 10,000 in the Left Wing Extremism (LWE) affected districts. These are
inadequate funds for effective livelihoods promotion. There is a need of additional funds
from other sources or bank credit to supplement it. Therefore, there is a need to sensitise
and provide timely capital for the members to be engaged in sustainable livelihoods.
34
Currently there have been advances in which Clusters and Federations have been groomed
to take charge of the affairs of the SHGs and to be sustainable. These are now considered as
entities which can act as intermediaries between Government and financial institutions for
availing various schemes and services. However, there is a cost of promoting such
structures and efforts to build capacity of the members as well as the staffs. This has been
elaborated in the ensuing chapter.
Bibliography
CmF . Microfinance Sector Report . Jaipur: Center for Microfinance, 2008
CmF. "Microfinance Sector Report 2011." Jaipur, 2011.
CmF, Jaipur. Progress and acheivement in Sakh se Vikas initiative (SSV). MIS data,
Jaipur: CmF, 2014.
Department of Women and Child Development. "Status of SHGs." Jaipur, 2013.

Press Information Bureau, GoI. National Rural Livelihood Mission launched . June 03,
2011. http://pib.nic.in/newsite/erelease.aspx?relid=72489 (accessed December
20, 2013).
RAJEEVIKA. Acheivements of 2013-14. Internal communication, Jaipur:

RAJEEVIKA, 2014.
RAJEEVIKA. Revised Annual Action Plan (April 2013- March 2014). Jaipur:
Rajasthan GrameenAjeevika Parishad, 2013.
Tankha, Ajay. Banking on Self-help groups : Twenty Years On. New Delhi: Sage
Publications India Pvt. Ltd., 2012.
35
Chapter 4
SHG Federations
Chapter 4
SHG Federations
The growing number of SHGs and their operational challenges gave the idea of mobilising
SHGs into federations. Some of the visionary and determined people came up with idea
and NABARD took this movement of SHG federations ahead with great energy and
motivation. As SHG movement taken up fast, through various agencies also brought up the
question of sustainability of these microfinance-promoting oraganisations taking shape in
the poverty alleviation process. From the mid-nineties SHG federations came up with full
swing to give SHGs another winning edge and strengthen them further. Generally, the
rationale behind promoting federations was to promote new SHGs; access to various
services; a sense of solidarity among members; facilitate linkages; empower women; and
ensure sustainability of SHG (Tankha, Banking on Self-help groups: Twenty Years On
2012)
Generally federations operate with the help of clusters which is the second tier containing a
few SHGs in a given location. In Rajasthan, a cluster consists of about 10-20 SHGs across 1-4
villages or in a Gram Panchayat. Consequently, about 15-20 such clusters make a
28
federation, which means a federation normally handles 1500-4000 women. Though
clusters are unregistered entities, the federations are mostly registered organisations as
societies, or trusts or companies (Section-25 of the companies act, which is now changed to
section 8).
Sa-Dhan studied federations various federations in India and came up with two categories
of federations based on the primary functions and type of governance within the
federations. According to the study, the first category consists of federations, which are
solely involved in financial activities or the 'financial type' federations that strategically
take up livelihood, social, and women's empowerment issues in addition to their finance
functions. The second category is the 'non-financial type' of federations was identified
which is not involved in any type of financial activities and essentially performs social roles
(Sa-Dhan 2004). However, as far as federations in Rajasthan are concerned, the authors
found federations involved in both financial and non-financial activities and providing
services of both types.
Why federate: benefits of federating

The motivation behind promoting federations by the SHPIs has varied from one to the
other in Rajasthan. Here are a few motivational factors defined by CmF in federating
(Center for Microfinance 2010).
Federations, because of sheer volume of members, empowers the poor to 'voice' their
opinion and get things done, be it at Government level or bank level.
The second motivation is from SHPI's perspective where SHGs are clubbed together for
ease of management.As the number of SHGs increase, the promoter finds it increasingly
difficult to monitor individual SHGs. However, clusters and federations present a platform
to simplify monitoring of SHGs in a cost effective manner.
28
Considering 10 members in an SHG

37
The third motivation is to strengthen the poor's capability and empower them to an extent
that they undertake business activity on their own. In other words, federations of SHGs
undertake financial intermediation (bulk loan from Banks/NBFCs and on lending to
SHGs) by themselves without support of SHPIs, thereby releasing SHPIs resources, which
can then focus on other key issues.
The fourth motivation is multi-facet utility of SHG Federations. Apart from financial
intermediation, SHG federations have also demonstrated significant progress in their
engagements on other issues like education, health, and sanitation etc.SHG Federations
serve a role of multi-utility vehicle for SHGs. Federations have been successful in
supporting livelihoods of SHG members (by providing services like veterinary care,
supply of agricultural inputs, cattle feed etc.) and have been instrumental in improving
bank linkage of SHGs. A major benefit of Federations to SHGs and their members is the
empowerment and the improved solidarity among SHG women. The SHG members,
through federations, have got a 'voice' that helps them get heard in a bank, Panchayati Raj
institution or any other Government department. This has led to increased confidence
among women that they too can make a difference in their society and their lives.
Lower cost of credit is another benefit of federating. Though the rate of interest in case of
SHG federations is relatively higher by 2- 4% per annum, the SHG members save enormous
time and money, which they would have otherwise spent in following banks, had they
approached the banks alone. Through federation structure, SHGs have been able to access
insurance services, which they might not have fetched otherwise. Another key benefit of
SHG federation, not stated above, is simplification of record keeping and generation of
regular reports through management information system (MIS), which is not possible at
SHG level.
Nair (2005) has suggested that there are five predominant benefits of federating SHGs:
Creation of economies of scale;
Reduction of transaction costs;
Provision of value-added services such as special loan products, insurance services,

etc.;
Reduction in the cost of promoting new SHGs; and
Play an important role in SHGs capacity building and conflict resolution, both
internally and externally.
Issues encountered by federations in Rajasthan

However, everyone has appreciated the concept of collectivising SHGs into federations; we
find a few contrary arguments questioning the need of federations in financial
intermediation. Malcolm Harper (2003) argued that federations were redundant since
India had the largest network of banks in the world and that the SHG itself achieves the
necessary bulking up function and reduces transaction costs. Moreover, federations
require much more handholding, additional to SHG members' costs of financial access and
being prone to political influences. Rajasgopalan (2003) raised questions about financial
accounts and accountability of federations. So far, three major roles of federations have
been identified :(a) Non-financial support services to SHGs; (b) financial services to SHGs;
and (c) Non-creditrelated social and economic services (Schwiecker 2004).
Another study comparing SHGs supported by a federation with SHGs not supported by a
38
federation provided a few more surprising results. Parameters related to financial

management such as savings, internal lending, bank linkage, amount of credit from
external sources for federation supported SHGs were better than the non-Federation
SHGs(Tankha, Banking on Self-help groups: Twenty Years On 2012). However, in general
management practices such as frequency of meetings, level of attendance, and
levelofawareness regarding objectives of SHGs, availability of written rules and
regulations, and so forth, in both the categories of SHGs were found to be more or less
similarly placed. In terms of governance (rotation of leadership) and writing of books of
accounts, non Federation SHGs exhibited better quality as compared to Federation SHGs.
Nevertheless, the authors themselves during the field visits found that SHG quality has
been compromised in the process of promoting more SHGs through federation and the
second tier i.e. clusters. The field staffs seemed overburdened with the credit management
jobs among SHGs. Group members were found so engrossed in the loan repayment or
acquiring a new one that they forget the basic rules or norms of an SHG. Considering the
situation in other districts the quality of book keeping was poor and signatures of the
members or field staff were missing. Group members did not even remember the name of
the group and when it was formed. However, SHG members in general were actively
participating in the group activities and decision-making process. Therefore, it was visible
that presence of federation has indeed helped SHGs to manage their financial operations
better as compared to non Federation SHGs.
Case 1: Mahila SahgharshManch, Alwar

The federation promoted by Ibtada, an NGO was set up in 2004 and registered in 2006 as
Trust. The decision to establish federation was based on elaborate consultations with SHG
group leaders. The motivation behind establishment of federation was to ensure
sustainability to SHG programme. Members of staff were trained to have an institution
which will manage the SHG programme independent of the promoting institution i.e.
Ibtada.
Need for a federation
Helping groups in regular conduct of meetings;
Maintenance of books with the help of SamoohSakhis;
Providing training to new SHGs;
Arrangement for training of new leaders at (i) group level and (ii) cluster level;
Helping groups to get credit linked with Banks;
Providing loan for livelihood for dairy / bullock cart, small retail shops, vegetable
growing, Biogas;
Providing agricultural inputs i.e. seeds, manure, pesticides, etc. by buying in bulk
and selling to groups at reasonable rates and ensuring adulteration free materials;
Arranging for vaccination/ deworming of animals through PashuSakhis;
Providing loan for livelihood (goat rearing);
Providing housing Loan / sanitation loan sourced from Ibtada;
Issues Drinking water availability and wine shops closures.
39
Areas of concern
Many SHG leaders are not able to devote adequate time for work relating to
Federation (such as attending meetings / training programmes / strategy
meetings, etc.);
Same leaders continue to represent their groups / cluster due to lack of good new
leaders;
There is shortage of community resource persons (Sakhi);
There is shortage of good quality manpower to work in Federations, mainly due to

low remuneration offered to them;
The turnover rate of professionals who are employed in federation's office is high;
Cost recovery is a major challenge as the wages of Munshi have increased

substantially during recent years;
Many SHG members do not still perceive federation to be their own oraganisation
as they are not yet convinced about the value added by the federation.
Case 2: Saheli Samiti, Dausa

The federation (registered as a trust) was promoted by PRADAN when they planned to
withdraw from Dausa in 2007 to ensure that the SHGs formed by them under a World Bank
Project (DPIP) continued to operate even after withdrawal of NGO. The motivations
behind establishment of federation were that the women leaders of SHGs were concerned
that SHGs should not close down after withdrawal of PRADAN. In a meeting of group
leaders it was decided that they would form federation to ensure that SHGs do not wither
away due to lack of support from the promoting institution i.e. PRADAN. The different
roles played by the federation are
Arrangement for training of new leaders at (i) group level and (ii) cluster level;
Helping groups to get credit linked with Banks;
Providing loan for livelihoods creation;
Providing agricultural inputs i.e. seeds, manure, pesticides, etc. by buying in bulk
and selling to groups at reasonable rates and ensuring adulteration free materials;
Arranging for vaccination/ deworming of animals through paravets;
Areas of concern for Saheli Samiti
It is very difficult to get learned and empowered group leaders to represent them in
federation;
To attain financial sustainability is a major challenge;
Difficult to get quality human resource to work in the organisation.
Investment for promotion of SHG federations in Rajasthan

There have been a very few detailed studies done on the cost of promotion of SHGs and
even little information have been provided on how the total estimates were computed.
Harper (2002) provided some of the early estimates of cost of SHG promotion. He reported
that the costs of developing an SHG from scratch to bank linkage were found to range
40
between Rs.1, 350 and Rs. 16,000. He also found that it costs an NGO Rs. 8,520 to develop
SHG linkage and to a bank INR 11,000 (Tankha, Self-help Groups as Financial
Intermediaries in India: Cost of Promotion, Sustainability and Impact 2002).
In another study conducted by ACCESS and Rabo Bank recently, explains cost of
promotion of SHGs by SHPIs. This study analyzed the developmental costs of ten SHG
based federations including two federations in Rajasthan involved in financial
intermediation in India. The developmental/promotional costs of SHGs cover costs such
as (a) initial phase of SHG promotion and stabilisation; (b) initiation and establishment of
the financial federation and (c) Maintenance support for federation operations after startup. The average development cost of the federations under study has been estimated at Rs.
19,676 per SHG. When adjusted for price differences in the estimates and normalised for
support for a five-year period, the average total promotion cost per SHG for the 10 study
federations worked out to be Rs.20, 521 per SHG (Srinivasan and Tankha 2010).
According to a study conducted by CmFand Sadhan in 2013 on the 'Cost Structure of SHG
Federation: Promotion to Sustainability', the developmental cost of a SHGs and their
federation is different for different oraganisations.Below table shows cost of various
agencies for promoting SHGs and Federations except SevaMandir. SevaMandir promoted
SHGs, not their Federation(s) in study area.
Table 4-1 Estimated cost of formation, maintenance and support for promotion
of SHG Federation required per SHG for 3 years by SHPIs
SHPI / Federation Name
No. of SHGs Formed
A. Cost of SHG formation
Staff cost of field staffs
Training cost
Other cost
Sub-total (A)
Cost of formation per SHG
B. Cost of Maintenance
Administration cost
Staff cost
Sub-total (B)
Cost of Maintenance
per SHG
Cost of formation and
maintenance (A+B)
C. Support Cost
Staff cost
Administration cost
Training/capacity
building cost
Sub-total (C)
Cost of support
per SHG
Total Cost (A+B+C)
Total Cost per SHG
PEDO SevaMandir
208
135
675,000
45,000
194,532
914,532
4,397
720,000
144,000
IBTADA
200
Saheli Samiti PRADAN

157
337
131,061
280,680
133,095
544,836
3,470
2,063,346
319,500
864,000
6,400
191,276
216,000
490,146
897,422
4,487
210,386
,198,718
1,409,105
296,400
576,000
872,400
27,302
372,994
400,296
252,070
417,038
669,109
502,023
668,362
1,170,385
6,775
6,462
2,001
4,262
3,473
11,171
12,862
6,489
7,732
10,544
,798,078
181,525
864,000
444,600
650,337
27,302
625,558
147,215
1,002,542
544,685
92,100
2,071,702
961,500
2,270,100
677,640
289,935
1,062,707
675,000
2,222,228
9,960
4,395,339
21,131
16,816
4,006,500
29,678
3,388
,975,357
9,877
6,769
2,276,652
14,501
6,594
5,775,458
17,138
2,382,846
7,071
Source: CmF Sadhan joint study on A Study on the Cost Structure of SHGs Federations:
Promotion to Sustainability
41
It is seen that cost of formation of a SHG is highest with PRADAN, yet the total cost per SHG
is not the highest among the promoters. PEDO has one of the highest costs in maintaining
the SHGs might be because of their financial activities. SevaMandir has the highest cost of
promotion while spending the most during formation and maintenance. SevaMandir also
spends the most on support costs. It is evident from above table that cost of SHGs is
relatively less if promote SHGs integrated with promotion of Federation.
It has been experienced that each SHG has its own growth path dependent on the socioeconomic scenario of the members and it needs support for several years. The SHGFederations which are primarily an association of all SHGs operating in nearby geography
can extend support to these SHGs and also work as a platform for strengthening demands
from external agencies. In such parlance it becomes inevitable to look into the issue of
sustainability and viability of SHG-Federations as their sustainability could be correlated
to the sustainability of SHGs in long run.
The range of services provided by federations to SHGs are crucial for ensuring their
sustainability, and can be grouped into four categories, viz., institutional development,
financial intermediation, livelihoods and business development service, and social
intermediation. These four categories are list of services that federations in general provide,
whereas in practice it is not necessary that all federations provide all four categories or their
services are restricted to these four only. The activities undertaken by federations and their
support mechanism to SHGs mainly depends on the objective of their promoting NGOs
and what they envision about development and growth of SHG members. Also, it largely
depends on the socio-economic scenario of the area and its differential features. In this way
we can say that the sustainability of SHGs and its federations needs to be viewed from the
lenses of their promoting agencies as it is primarily facilitated by them. Moreover, there are
different means of sustaining these federations, viz., grants from Government agencies for
facilitating some of their programmes, margin earning through financial intermediation,
service charge paid by the member SHGs etc. This can be clearly assessed by looking into
the income and expenditure statement of SHG-Federations presented in the table- 4.2.
The analysis of income and expenditures of the four selected federations gives a rough
estimate about the average cost of running a federation. It is found that the average cost is
around 13 lakh, however there are huge variations in the cost of these federations.
Moreover, three out of four selected federations generates surplus showing that they are
operationally sustainable. This clearly shows that the cost of federations depends on the
activities undertaken by them and the types of support extended to its member SHGs.
Accordingly, the income and cost pattern of the federation varies and determines how the
federations manage their operations. For example, in case of PEDO the income from service
charges constitutes around 60% of total income to federation whereas in other cases like
Saheli Samiti and PRADAN service charges constitutes to only around 20% and 30%
respectively of their total cost. These two federations, Saheli Samiti and PRADAN's, the
major income source is grant received and it constitutes around 70% of their total income.
These grants come from different sources like through implementing Government
schemes and acting as bank's business correspondents.
42
Table 4-2 Income and Expenditure Statement for SHG-Federation for the FY 2012-13
Grant received
Bank Interest
Annual Membership
Fees
Service Charges
Other Income
Total Income (A)
Staff Cost
Administrative &
Capacity Building
Training Costs
Other Costs
Total Cost (B)
Surplus (A-B)
Mahila
Mandal Samiti
(PEDO)
SevaMandir
Sangharsh
Mahila Manch
of IBTADA
Saheli Samiti Saheli Samiti

(Dausa)
of PRADAN
373,320
15,669
527611
1,636,040
182,964
1,035,075
20,045
322,586
980,634
160110
14,000
433,298
40,550
424,221
1,692,209
998,932
591799
1,279,520
425,055
2,266,302
381,164
1,519,891
556,968
118,427
146,432
107,103
747,624
30,700
349,114
1,497,173
195,036
4,500
210,697
786,684
492,836
39,994
271,541
799,802
1,466,500
225,000
727,714
2,257,306
(737,415)
Note: Break-up of income for the federation promoted by IBTADA was not readily available
for the FY 2012-13 during the time of study visit. (Estimate made with the help of CMF Data).
SevaMandir has not promoted federations in study SHGs.
For definition of Parameter, please refer Annexure VI
Source: CmF Sadhan joint study on A Study on the Cost Structure of SHGs Federations:
Figure 4-1 Plotting of sustainability index against cost of promotion,

maintenance and support for 3 years
However, these estimations don't take into account the differential environmental
dynamics in which these SHPIs are operating. It is commonly argued that SHPIs working in
geographically tougher and remote areas have to invest higher amount in promotion,
maintenance and support of SHGs.
The study29 have evidently shown that it takes a long time to attain the desired goals of
SHGs, so focus shouldn't only be given on promotion of SHGs but also to sustaining them
29
Study : CmF Sadhan joint study on A Study on the Cost Structure of SHGs Federations:
43
for longer period. In this regard SHG federations could be of higher importance, so now
time has come to visualise the importance of SHG federations and work for their
sustenance. Moreover, it is required to work on the effective support mechanism so that
these federations could stand by the expectations of member SHGs and become financially
and operationally self-sustainable over the period of time. It is evident that a wellfunctioning federation requires around 13 lakh annually to deliver its functions, so the
support agencies need to work-out the support mechanisms in this regard.
Legal structures and regulations in microfinance

Over the last five years, the Indian microfinance sector experienced tremendous growth
but at the same time, institutions were subject to little regulations, which resulting in
outcomes like what happened in Andhra Pradesh in 2010. Some microfinance institutions
were subject to prudential requirements; however no regulation addressed lending
practices, pricing, or operations. The combination of minimal regulation and rapid sector
growth led to an environment where customers were increasingly dissatisfied with the
microfinance services. On the other hand, the crisis in A.P. also taught us a difficult lesson
about sector's regulation that the sector has seen the consequences of the programme that is
not customer centric.
The major objective behind microfinance programmes would always be to improve status
and livelihoods of the poor population and address the major issue (Kline and Sadhu 2011).
In order to run microfinance programmes, agencies or organisations need to be registered
in the legal entity. Each legal structure has different formation requirements and privileges.
Microfinance institutions in India are registered as one of the following five entities (Kline
and Sadhu 2011):
Non Government Organisations engaged in microfinance (NGO-MFIs),

comprised of Societies and Trusts;
Cooperatives registered under the conventional state-level cooperative acts, the

national level Multi-State Cooperative Legislation Act (MSCA 2002 ), or under the
30
new state-level Mutually Aided Cooperative Act (MACS Act) ;
Section 25 Companies (not-for-profit), which is now Section 8 in new Companies

Act;
For-profit Non-Banking Financial Companies (NBFCs) and NBFC-MFIs.
Inspiteof the significant achievements, the growth of the Self Help Groups and Federations
is constrained due to lack of an appropriate legal framework. Most SHPIs are initiating
SHG Federations as Societies, Trusts or Cooperatives. In seven States of the country, the
most frequently used law is the Self Reliant Cooperative Societies Acts. Post 97th
Amendment of Constitution, which recognised the fundamental right of citizens of India to
form cooperatives, there was a ray of hope that a member/citizen- centric framework,
independent of Government control, will be established. However, under the 97th
Amendment, part IXB goes on to prescribe provisions for bylaws of cooperative societies.
Based on this ground State Governments of Madhya Pradesh and Odisha quickly repealed
the Self Reliant Cooperative Societies Acts operational in their States.
30
44
For more information please see http://www.cooperation.ap.gov.in/pdf/MACSAct.o.pdf
At the National Level, no appropriate legal framework exists which can address the needs
of informal Self Help Groups and their federations. Given the need for scaling up of Self
Help Groups as part of the National Rural Livelihoods Mission, it will be desirable to
consider the appropriate legal framework needed for SHGs and SHG Federations.
There is a need to go back to the basic tenets of Self-help and emphasise on the importance
of targeting social capital. This would improve the quality of SHGs and hence the
performance indicators in microfinance. Therefore, it is necessary to have an
understanding about the quality of SHGs and that is discussed in the following chapter.
Bibliography
Center for Microfinance . "Microfinance Sector Report." Jaipur, 2010.
Kline, Kenny, and Santadarshan Sadhu. Microfinance in India: A New Regulatory

Structure. Working Paper, Chennai, Tamilnadu, India: Centre for Microfinance,
2011, 1-19.
Sa-Dhan. SHG Federations in India: Emerging Structures and challenges. Excerpts

from the study, New Delhi: Sa-Dhan, 2004.
Schwiecker, Sebastien. The Impact and Outreach of Microfinance Institutions: The

Effect of Interest Rates. Master's thesis, University of Tbingen, 2004, 1-78.
Srinivasan, Girija, and Ajay Tankha. SHG Federations: Development Costs and
Sustainability. New Delhi: Access Development Services, 2010.
Tankha, Ajay. Banking on Self-help groups : Twenty Years On. New Delhi: Sage
Tankha, Ajay. Self-help Groups as Financial Intermediaries in India: Cost of

Promotion, Sustainability and Impact. New Delhi: Sa-Dhan, 2002.
A study on the Cost Structures of SHGs & Federation: Promotion to

Sustainability conducted in 2014 by Sadhan and Centre for microFinance
(CmF), Jaipur
45
Chapter 5
Quality of SHGs
Chapter 5
Quality of SHGs
SHGs as a microfinance vehicle has to attend developmental objectives along with profit for
its sustainability, therefore the growth and quality are both important. Promoting an SHG
has different perspective and agenda, and mostly promoters put their expectation on these
institutions. The outlook and expectations are also correlated to these organisational
expectations. The promotion process too is different with beliefs and intended outputs
expected from the community mobilisers. Quality of SHGs is one of the top most discussion
among the policy makers and users of microfinance. Centre for Micro Finance, Chennai has
identified sixteen variables to access the SHGs quality viz. Feeling of homogeneity/
solidarity, velocity of internal lending, governance issues, attendance in meeting, member
awareness about financial, transactions involvement in village issues etc. (Das and Chanu,
Quality Parameters of Self Help Group's: A Review 2013).
There are organisations which focus on sustainability of SHGs such as Pradan, PEDO, and
Ibtada. Very few self-help institutions have been promoted, which can represent the
members on their behalf with external stakeholders. Such successful operation of women
led federations are Sakhi Samiti in Alwar, Saheli Samiti in Dausa, and similarly in three
blocks of Dholpur promoted by PRADAN. These examples point at the need of long-term
active facilitation. As quoted in the (A Vision for SHGs in Rajasthan: From Social
Mobilisation to Social Capital 2008) each group goes through a variety of experiences
which are both positive and negative. Helping groups pass through times of conflict is
extremely necessary for the group to gain self- confidence as is the facilitation which helps a
group learn from its successes.
The Self- help movement faces a myriad of challenges such as a) uneven growth across the
State and social and economic categories; b) low quality SHGs; c) inadequate funding for
the promotion and on-lending; d) conflicting policy environment for credit linkage and
registration as an institution;e) inadequate capacity building infrastructure; f) severe
shortage of quality human resources (g) Complex or limited books of records or books of
accounts (h) unavailability of real time data base etc.
The target-based approach of forming SHGs and linking them with banks without proper
quality control has various negative consequences. This kind of challenge remains high for
large Governmentprogrammes promoted such as DWCD. It is observed that the situation
seems to be running out of control, as in the rush to promote SHGs (to reach numbers)
quality aspects has been largely ignored. The perception of leading SHG promoters is that
very few promoters have any clarity about the objectives and the long-term trajectory of the
SHGs. Continuous and sustained facilitation is a cost-extensive proposition for many
NGOs and definitely a problem for the Government run programmes, which have to deal
with paper formalities and many other tasks entrusted with the promoter. The problems
that are associated with the self-help movement includes disintegration of groups,
misappropriation of funds (savings and credit) by promoters (read animators), political
interference, and psyche of debt-waiver scheme (which is meant to be written off,
challenging the sustainability) (Das and Bhowal, Quality Assessment Parameters of Self
Help Group's: a Psychometrics Analysis on Stakeholders' Perception 2013).
47
BASICS Limited in one of their studies reported that the involvement of Government
departments deteriorates the quality of the group, inability and lack of long term of vision
of promoters, improper facilitation resulting in diminishing skill sets of SHG member to
manage their group. The study also pointed that due to stress on bank linkage the quality is
put at risk. This deterioration of quality is reflected in indicators such as the poor
maintenance of books and accounts, irregular meeting, high cost, low recovery rate etc.
(BASICS 2007).
When asked to opine, late Dr. Surjit Singh quipped that the SHG programme should on
maintain and respect the diversity among social groups and geographies and provide
products as per people's needs. 'One size fits all' policy does not work; there is a need to
create programmes and policies, which respects the diversity that persists in the given area.
Different agencies such as DWCD, NRLM, MFIs, watershed groups, RRLPs are doing the
same thing of alleviating poverty and have the same challenges/pitfalls, can we have some
kind of convergence or collaboration here. The subsidy is not given in NRLM and a
revolving fund is provided in the form of credit. There is a need to study the effectiveness of
this delivery method which can have a huge impact on the community.
Impact of SHGs on the lives of the members

Becoming a part of an SHG has a significant impact on the lives of its members. A research
conducted by CmF revealed these motivating facts: Over 97% of the households reported
increased availability of credit; Over 79% of households reported reduced dependence on
moneylenders; Over 95% of households reported better access to formal institutions; Over
97% of households reported better access to pro-poor programmes; Over 95% of
households reported better health status; Over 96% of households reported better
educational level.
Issues of SHGs
Some of the issues that need immediate attention are
48
Social issues go ignored, SHGsdonotensureentitlementsfortheir members; rather

there is an increased and add-on burden of savings and loan repayment on
women.
The SHGs facilitated by Government schemes lack capacity building inputs or

feeds on gender or livelihoods.
Mostly SHG animators and literate powerful caste group members dominate the
proceedings, leaving behind other members powerless. While accessing a loan,
these people get larger loans.
The instrumentalist use of labour and time of poor women is evident in these
SHGs, and it may be denounced.
Complex books of records introduced in SHGs by SHPIs/agencies created

external dependency to maintain the books of records. As books of
accounts/records are instrumental for SHG quality, the promoting agencies
needs to simplify and introduce simpler and minimum books of
accounts/records.
The record keeping at the SHG and institutional level is poor and needs to be
improved by capacity building and creating a cadre of service providers.
Such large number of SHGs with low quality creates problem for quality SHGs to
access mainstream services creating a misconception among bankers and other
agencies and hence declining trend in accessing credit from banks.
A study was conducted in 2012 by CmF in six representative districts from all the
representative regionsto ascertain the quality of SHGs. The study covered 2995 current
members from 266 SHGs in 177 villages (of 160 Gram Panchayat) of 12 blocks. Out of total
266 SHGs, 147 (55%) are promoted by the Government, 92 (35%) are promoted by NGOs, 23
by SHG Federations and four groups by Banks (Center for Microfinance 2011).
Only 32% of groups are formed under some Government scheme/ project while
68% groups formed are not under any scheme or project. The average
membership is 11 and more than 90% are members from BPL.
The maximum and minimum of age of sample SHGs studied is 17 years and 9
months respectively. Age of the SHGs - 26% less than one year; over43% groups
are in the age group 1-3years; 3% in the age group 4-6 years; 26% above 6 years.
There is a downward trend in the number of SHGs in higher age groups
particularly from 2-3 years to 4-5 years, among all the promoters. This reflects that
the life cycle of majority of SHGs is in the range of 2-3 years and thereafter SHG
either getting dormant or is dissolved. It is evident from the data that across
promoters' emphasis is given towards promotion of new SHGs.
The current membership SHGs have covered largely disadvantaged sections.

However, the coverage of ultra-poor segments like people with disabilities,
widows/destitute, nomadic tribes etc is insignificant.
Average membership in SHGs is 11.5; about 5 % members dropped after group

formation. This drop of members was in 18% SHGs. Reported reasons for dropout
expulsion by other members (18%); Lost interest in group (16%); Not able to save
(15%); Migration (13%); old age/Death (13%)
71% SHGs followed monthly meeting frequency; over 26% SHGs did not follow
any decided meeting frequency; weekly and fortnightly meeting reported in 2.6%
SHGs. 58% groups, had good attendance (over90%) in last 6 months,25.5% SHGs
had attendance in the range 70-90%; 16% groups had attendance below 70%.
About 85% groups have defined norms with respect to group meeting, date and
attendance of members, savings, loaning, record keeping; 15% groups have no set
norms. However only 69% groups adhered to the group norms of on meeting and
attendance.
62% groups have complete set of records (cash book; member passbook and
minutes book) for group; 27% groups have no or improper records; 10% groups
have some records.
In very few SHGs, practice of leadership rotation has been adopted. Even where
elections were held, only the portfolios of the leaders were interchanged in most
cases.
In 90% groups, saving collection takes place at the meeting. However in 10%
groups' saving through door to door collection by facilitator has been reported.
Over 93% groups follow saving norm on monthly frequency. 77% groups doing
regular saving; 23% groups have irregular frequency. 32.7% groups have saving
rate of Rs. 100 per monthand above; 36.8% groups have saving rate in the range Rs.
50-99
49
Average fund of SHG is Rs. 25,214; 72% SHGs have group fund below Rs. 25,000;
17% SHG have fund in range Rs. 25,000-50,000; 7% SHG have fund in range Rs.
50,000-100,000; 4% SHGs have fund above 1 lakh internal lending of group funds.
34% members have taken loan for enhancing livelihood; 23% have taken for
immediate household needs; about 12% for social occasions and over 9% for
medical reasons.
28% groups maintained high repayment frequency (over 90% repayment rate);
18% groups maintained average repayment rate (70-90% repayment rate); over
54% SHGs have low repayment rate (less than 70% repayment rate).
Groups surveyed were assessed using two tools Critical Rating Index (CRI) for
SHGs and SHG grading tool approved by SLBC, Rajasthan. Outcome of CRI Tool
33.4% SHGs 'A' grade; 17.9% SHGs 'B' grade; 17.66% SHGs 'C' grade; 31.5% SHGs
'D' grade groups. Outcome of SLBC Tool: 48% SHGs 'A' grade; 18% SHGs 'B'
grade; 12% SHGs 'C' grade; 22% SHGs 'D' grade.
Majority of the SHGs have performed poorly on account of the financial

parameters and record keeping resulting in overall poor performance.
Capacity building inputs from promoters were found wanting in most groups, as
a result of which the capacities of groups to self manage, was effected.
48.8% members reported developing savings habit;60% members reported

greater access to financial services and reduced dependence on moneylenders;
48% members reported enhancement of awareness level; 30% members reported
being able to take benefit of various development programmes; 28.6% members
reported having created or enhanced their livelihood asset base.
SHGs have reported involvement in social activities like stopping of child labour,
promoting girl child education, involvement in pulse polio mission, anti- liquor
movement and distribution of mid-day meal.
MPOWER project in the State has successfully demonstrated that SHG quality can be
maintained by providing strong foundation while promoting the groups and infusing the
essence behind it. In this project Community Resource Persons (CRPs) or Community
Service Providers (CSPs) who actually are members of some SHG affiliated with PRADAN,
Dholpur and Saheli Samiti, Dausa, go and engaged with SHGs to strengthen quality of
SHGs in the western (e.g. Barmer) and southern (e.g. Sirohi) part of the State. These CRPs
are selected from the community who demonstrate leadership and ability to comprehend
and elaborate the fundamentals of SHG.
NRLMprogramme which was designed with its true value of mitigating poverty through
sustainable livelihood with the help of innovation, skills and financial services, but the way
the model is being replicated in field, many issues pertaining to quality are emerging. The
issues of quality human resource, support to whole programme, concept seeding, capacity
building of SHGs, norm setting, complex records, proper record keeping etc. are cropping
up. Another issue that needs to be highlighted is the fact that the Andhra Pradesh model
(Society for Elimination of Rural Poverty- SERP) is blindly followed in the State.Copying
everything from the Andhra Pradesh does not serve the purpose in Rajasthan, which has
different culture, language and geography.
50
SHG programme needs to reorient and reinvent to suit the needs in different social and
geographical settings. It should always be the discretion of the members, to decide the
frequency of holding a meeting. Insouth and west Rajasthan it can be difficult to hold SHG
meetings every week. The current regulation about weekly SHG meetings may not
financially and practically feasible for all the promoting organisations. The NGOs does not
have the human resource or the financial capability to do so. There is an urgent need to
recognise such practical implications and make amendments to the guidelines which
remain as dictate for programme implementation. The Swadaharini Project launched by
NABARD aims at improving the quality issues of the SHGs. However, with the resources at
the helm, it is to be seen how effective it will be for the SHG movement. Currently SHGs are
treated as a panacea for welfare delivery model for many Government programmes.
However, it is time to assert and define the objective of its existence as a vehicle for
microfinance.
There is a great deal of misinformation, double counting and non-transparency on the
number and spread of SHGs in the State. The demand of taking in all the information about
SHGs on a single platform with real-time data is a requirement. This has been fairly
addressed by the CmF promoted MIS SakhDarpan. We will discuss about various MIS
platforms in India and try to paint the picture of Rajasthan in particular in the next chapter.
Bibliography
BASICS. A Study on SHG-Bank Linkage and Status of MFI in Bihar. Patna, Bihar,
India: Bihar Rural Livelihoods Promotion Society, Bihar,Bhartiya Samruddhi
Investments and Consulting Services Ltd, 2007.
Center for Microfinance. Quality of SHGs in Rajasthan. Jaipur: CmF, 2011.
CmF. "Microfinance Sector Report 2011." Jaipur, 2011.
Das, Sanjay Kanti, and A. Ibemcha Chanu. "Quality Parameters of Self Help
Group's: A Review." India Streams Research Journal III, no. 11 (December 2013): 1-6.
Das, Sanjay Kanti, and Amalesh Bhowal. "Quality Assessment Parameters of Self
Help Group's: a Psychometrics Analysis on Stakeholders' Perception." Journal of
Finance and Economics (Science and Education Publishing Co. Ltd) I, no. 4 (2013):
69-83.
51
Chapter 6
Management information
System (MIS) for SHGs
and record keeping
Chapter 6
Management information System
(MIS) for SHGs and record keeping

Anomaly in number of Self Help Groups (SHGs) in Rajasthan
There is no systematic and standardised aggregated record of SHG's financial health and
operations. SHGs have been promoted by many different supporting institutions across the
State (NGOs, State Government, SHPIs, Cooperatives/other institutions, etc.), each with its
own systems, procedure, and objectives. Different SHPIs have different channels and
formats for SHG information, which creates problem in data retrieval and compilation at
one place. To estimate the number of groups promoted by various SHPIs a suggestive table
has been furnished in this report. However, the grand total number has not been reported
given the problem of double counting. It has been earlier stated in the status report that the
absence of a uniform reporting procedure creates confusion, e.g. every SHG that is given a
loan is effectively shown as a newly credit- linked SHG. Besides, it is asserted, that groups
whichbreak up or become defunct or cease to take loans from banks continue to be reported
as linked by respective agencies.
Data security is also a proposition; therefore there is a need of comprehensive MIS
application at the State level to cover all the SHGs of different promoters under various
schemes. By introduction of a reliable MIS application, it would be easier to ensure quality
of SHGs, punctual maintenance of records, avoid duplicate entries of a person in multiple
groups, which may result in enhanced confidence of the bankers, timely grading of groups,
expedite the process of credit linkages, etc. In this chapter we will discuss few SHG MIS
systems which can be useful for the sector to consolidate. Followed are few examples of
SHG MIS used by few large operations.
SakhDarpan developed by CmF

Earlier no consolidated SHG database was available in the State. Majority of SHGs accounts
were maintained manually, which was time consuming and costly. There was always a risk
of losing data. Therefore, it was felt that there is a need of comprehensive MIS application at
State level to cover all the SHGs promoted under various schemes. By the adoption of MIS
application, we shall be able to ensure better group quality, timely maintenanceof records,
avoidmultiple membership of a single person in different groups, enhanced confidence of
the Banks in group dynamics, timely and convenient grading of groups, expeditious credit
linkage, etc. RGAVP uses the application for maintaining its MIS.
The transaction based mobile enabled MIS application known as SakhDarpan
(www.sakhdarpan.net) has been developed under the MPOWER project by the Center for
Micro finance (CmF) on behalf of co-funding agency of MPOWER, i.e. SRTT. The
application captures substantial features of the transactions involved in registration of
SHGs, its meetings, savings, credit linkage and other such features.
SMS Services have been incorporated in SakhDarpan. Under this scheme, an SMS is
planned to send to each SHG member for his savings deposited, loan taken and loan repaid.
This helps in building transparency among SHG members and also builds confidence
53
among the members regarding the operation of SHGs. The cost of each SMS while
designing was 9 paise per SMS and at present it is Re 0.53per SMS and the cost has been
calculated assuming 30 transactions per member in a year.
This real time based online generic application with Short Message Service (SMS) facility
can be used by any SHPI to enroll its SHGs. The application has various modules /
components in it i.e. project management system, SHG Level accounting system (Includes
meeting, saving, internal loaning, credit linkages, any product designed by the SHG),
federation level accounting system, insurance module, and livelihood module. The
application has different user levels with different access levels, it records all data
(transactions, profile) related to the project, and allows used to have a ready reckoner for
decision making at various levels ( i.e. SHG, cluster, and federation level)(RGAVP 2012).
Mcfinancier of PRADAN
PRADAN has been creating different applications such as McFinancier with Community
based entrepreneurs known as Computer Munshi who on a fees basis consolidate the
operations of the SHGs at all the levels. PRADAN has been trying to upgrade its
applications by making the application online across the locations of seven States it
operates in India.
The accountant works as a paid service provider and serves between 100 and 200SHGs in
an area. The tasks of the accountant is to enter the data weekly by verifying eradicating
errors of the manual regular meeting transaction sheet (RMTS) which comes from the
SHGs. Providing necessary information (hardcopy) on member dues and balances before
each weekly meeting. Apart from it the accountant provides consolidated trial balance and
other information for external agencies to access services such as availing credit (Ratan
2007).
PEDO uses the MIS named MITRA - Mobile Information Technology for Rural
Advancement. Other such MIS software used is Leaps and Bounds by NABARD.
Record keeping
The issues which affect Self-Help movement in record-keeping, which needs to be
addressed are: 1) complex and many books of records introduced by SHPIs / agencies in
their own frame of reference (2) errors in SHG accounts, (3) laborious auditing and
dividend distribution procedures, (4) wastage of SHG members% time in complex
accounting tasks every week, (5) dependency of the SHG members, (6) wastage of
professional staff time in correcting SHG accounts, and (7) lack of reliable, up-to-date
records of SHG financial performance to give partners.
There is a need to develop a kind of standard record keeping procedure with simpler and
minimal books of accounts/records at SHG level. It has been found during the field visit
and interacting with SHPIs that the number of records maintained for a SHG varies from
place to place. Some organisations maintain record for savings, credit and minutes of the
meeting separately apart from maintaining separate member passbooks. This kind of
complex record keeping makes the job of abookkeeper cumbersome and time consuming.
We as authors have experienced that in the villages of Rajasthan it is difficult to find a
bookkeeper with such high level of intellectual capability to maintain so many different
books of accounts. Until and unless an accountant has high level of dexterity and logical
reasoning, they are unable to prepare trial balance accounts for a SHG. Further as these
books of account are important instruments for availing bank loans and other social
services; there is a need to have a unified simple book of accounts which should have details
54
about members' information and transactions done on a single day along with the minutes
of discussion at the back of it. Many pioneer organisations in the State use records which
address the above issues by amalgamation of manual record keeping and sophisticated
Management Information System; as PRADAN does by feeding in Regular Meeting
Transaction Sheets (RMTS) in to Mcfinancier the unified MIS.
There is a need to develop a cadre of trained youth, mostly women who would help other
women in keeping records and maintain the MIS. There is a need of lot more resources for
capacity building of such personnel. As the volume of transaction in a SHG increases, the
amount of work load also is increased. As NRLM is spreading its operation by co-opting the
SHGs, it is but necessary to allocate resources and get these people ready to take on the
challenge.
Thus far, we have mostly concentrated on the significant aspects of SHGs and the details of
it. However, there have been other modes of microfinance delivery through MFIs and
Government institutions promoted under financial inclusion initiatives. In the coming two
chapters we would share with these two delivery mechanisms. There have been dramatic
changes over the last few years in these two delivery mechanisms after the Andhra Pradesh
debacle and chit fund scams that caught attention of the whole nation.
Bibliography
Ratan, Aishwarya Laxmi. An assessment of Pradan's 'Computer Munshi' intervention

to improve microfinance accounting operations. Case Study, Bangalore: Microsoft
Research India, 2007.
RGAVP. SakhDarpan. 2012. http://www.rgavp.org/sd.html (accessed December

20, 2013).
55
Chapter 7
Micro Finance Institutions

(MFIs)
Chapter 7
Micro Finance Institutions (MFIs)

Micro Finance Institutions (MFIs) serve as an important channel to raise resources from
mainstream banks and other institutions to extend credit to Joint Liability Group (JLG) and
its members. The MFIs have different legal affiliations viz.
Table 7-1 Type of MFIs in India
Type of MFI
Not-for Profit MFIs
NGOs
Non-Profit companies
Mutual Benefit MFIs

Mutual benefit MFIs Mutually Aided
Cooperative Societies (MACS)
For Profit MFIs
Non-Banking Financial Companies
(NBFCs)
Legal Registration
Society Registration Act, 1860
Indian Trust Act, 1882
Section-25 of Indian Companies Act, 1956,
which changed to Section -8 in new
Companies Act in 2013
Mutually Aided Co-operative societies, Act
enacted by State Governments
Indian companies Act, 1956
Reserve Bank of India Act, 1934
Source: Issues in Microfinance, NABARD
The Reserve Bank of India has notified guidelines for the lending operations of a new class
of financial organisations named as NBFC - MFIs, subject to certain conditions regarding
the capital to be employed, lending to members, cap on interest to be charged and margin to
be retained, etc. (RBI 2013). In India MFIs started their operations in the late 1990s and
gained momentum in the 2000s. It is reported by authors that it has replaced SHG as the
primary source of credit. Many argue that as the accessibility to MFIs becomes easier, this
makes the client repeat borrowers. However, the terms of multiple credits and over
borrowing are different. The Malegam committee, constituted by the Reserve Bank of
India, has recommended that there be a cap put on a number of loans a borrower is entitled
to, and the number of groups a person can be a part of. The mechanism of joint liability has
been able to put a control over the borrowings for people, who have unplanned expenses or
are likely to have one. Lahkar, Pingali, and Sadhu point that regulations put a cap on the
number of loans and interest rates can exclude people from social welfare of obtaining the
loan and put an unwanted imposition of extra costs for remaining borrowers (Lahkar,
Pingali and Sadhu 2012).
The RBI amendment of fixing margin caps of 12% over the cost of borrowing rather than
cost of funds to the MFI has done little to reduce the cost of credit for poor. The loans
extended to these NBFC-MFIs by banks now qualify for priority sector lending category
(NABARD 2013; RBI 2013).
57
Excerpts of current master circular of RBI on regulation of NBFC-MFI

The RBI recently has issued a Master Circular RBI/2013-14/49, DNBS. (PD) CC.
Number 347 /03.10.38/2013-14 on July 01st 2013, Introduction of New Category of
NBFCs - 'Non Banking FinancialCompany-Micro Finance Institutions' (NBFCMFIs) Directions for regulation of NBFC-MFIs. Certain sections of the circular are
represented in the table below (RBI 2013).
AnNBFC-MFIisdefinedasanon-deposittakingNBFC (otherthanacompanylicensed
underSection25oftheIndianCompaniesAct,1956)that fulfils the following
conditions:
Loan disbursed by an NBFC-MFI to a borrower with a rural household

annual income not exceeding Rs. 60,000 or urban and semi-urban household
income not exceeding Rs. 1,20,000;
loan amount does not exceed Rs. 35,000 in the first cycle and Rs.50, 000 in
subsequent cycles;
The total indebtedness of the borrower does not exceed Rs. 50,000;
Tenure of the loan not to be less than 24 months for loan amount in excess of
Rs. 15,000 with prepayment without penalty;
Loan to be extended without collateral;
The aggregate amount of loans given for income generation should

constitute at least 70 % of the total loans of the MFI so that the remaining 30%
can be for other purposes such as housing repairs, education, medical and
other emergencies.
Loan is repay able in weekly, fortnightly or monthly instalments at the

choice of the borrower
Further the income an NBFC-MFI is derived from the remaining 15 percent

of assets shall bein accordance with the regulations specified in that behalf.
An NBFC which does not qualify as an NBFC-MFI shall not extend loans to
the micro finance sector, which in aggregateexceed10%ofitstotalassets.
Provisioning norms
In view of the problems being faced by MFIs in Andhra Pradesh many of them
have had to provide sizeable amounts towards the non-performing assets in the
country. To reflect the true and fair picture of the financials of the NBFC-MFI in the
Balance Sheet, the provisioning made to wards the AP portfolio should be as per
the current provisioning norms i.e. Non-Deposit accepting or holding) Companies
Prudential Norms (Reserve Bank) Directions, 2007. Provisioning for the non-AP
portfolio will be as per the December 02, 2011 which is as given below with effect
from April1, 2013
The aggregate loan provision to be maintained by NBFC-MFIs at any point of time
shall not be less than the higher of a) 1% of the outstanding loan portfolio or
58
b) 50%of the aggregate loan installments which are overdue for more than 90 days
and less than 180 daysand100%of the aggregate loan installments which are
overdue for 180 days or more
Pricing of Credit
All NBFC-MFIs shall maintain an aggregate margin cap of not more than 12%. The
interest cost will be calculated on average fortnightly balances of outstanding
borrowings and interest income is to be calculated on average fortnightly balances
of outstanding loan portfolio of qualifying assets.
The margin cap for all NBFCs irrespective of their size would be 12 % % till March
31, 2014. However, with effect from 1st April, 2014 margin caps as defined by
Malegam Committee may not exceed 10 % for large MFIs (loans portfolios
exceeding Rs.100 crore) and 12 % for the others.
NBFC-MFIs will ensure that the average interest rate on loans during a financial
year does not exceed the average borrowing cost during that financial year plus the
margin, within the prescribed cap. Moreover, while the rate of interest on
individual loans may exceed 26%, the maximum variance permitted for individual
loans between the minimum and maximum interest rate cannot exceed 4 %. The
average interest paid on borrowings and charged by the MFI are to be calculated on
average monthly balances of outstanding borrowings and loan portfolio
respectively. The figures may be certified annually by Statutory Auditors and also
disclosed in the Balance Sheet.
iii. Processing charges shall not be more than 1 % of gross loan amount. Processing
charges need not be included in the margin cap or the interest cap.
iv. NBFC-MFIs shall recover only the actual cost of insurance for group, or
livestock, life, health for borrower and spouse. Administrative charges where
recovered, shall be as per IRDA guidelines.
Fair Practices in Lending
I. Transparency in Interest Rates
a) There shall be only three components in the pricing of the loan viz., the
interest charge, the processing charge and the insurance premium (which
includes the administrative charges in respect thereof).
b) There will be no penalty charged on delayed payment.
c) NBFC-MFIs shall not collect any Security Deposit/ Margin from the
borrower. d. There should be a standard form of loan agreement.
d) Every NBFC-MFI should provide to the borrower a loan card reflecting
i.
the effective rate of interest charged
ii. all other terms and conditions attached to the loan

iii. Information which adequately identifies the borrower and
acknowledgements by the NBFC-MFI of all repayments including
installments received and the final discharge.
iv. All entries in the Loan Card should be in the vernacular language.
59
e) The effective rate of i.nterest charged by the NBFC-MFI should be

prominently displayed in all its offices and in the literature issued by it and
on its website.
II. Multiple-lending, Over-borrowing and Ghost-borrowers
a) NBFC-MFIs can lend to individual borrowers who are not member of Joint
Liability Group (JLG)/Self Help Group (SHG) or to borrowers that are
members ofJLG/SHG.
b) A borrower can not be a member of more than one SHG/JLG.
c) Not more than two NBFC-MFIs should lend to the same borrower.
d) There must be a minimum period of moratorium between the grant of the
loan and the due date of the repayment of the first installment. The
moratorium shall not be less than the frequency of repayment. For e.g.: in
the case of weekly repayment, the moratorium shall not be less than one
week.
e) Recovery of loan given in violation of the regulations should be deferred till
all prior existing loans are fully repaid.
f) All sanctioning and disbursement of loans should be done only at a central
location and more than one individual should be involved in this function.
In addition, there should be close supervision of the disbursement function
(RBI 2013).
th
The cap of Rs. 60,000 in rural areas and Rs. 120,000 are not equivalent in terms of the NSS 68
round data, which can be equal at Rs. 85,000 at the most. This cap would not cover the
neediest for microfinance that will have to cross a lot of hurdles to access formal financial
institutions. As per (MCRIL 2012), the estimated rate of financial exclusion in Rajasthan is
75.3% of the households, with a poverty rate of 64.2%. Yet if we get hold of the current
census of 2011 into account, out of the total 1.27 crore households 95.72 lakh can be
considered to be financially excluded (Census of India 2011). A study conducted by EDA
and MCRIL suggests that the limit of credit should be increased to Rs. 100,000 for the rural
areas (M-CRIL 2012).
It has been observed during the field visits and during informal interviews with the NGO
partners; that there is phenomenon of repeating a loan by the same borrower from different
MFIs. Suppose a client has taken loan from MFI A, in order to repay and maintain the cash
flow the same client takes loan from MFI B as the repayment schedules are fixed. Further
the credit rationing for productive purposes would compel the borrower to pile up
consumption expenses and force them to be in a debt trap of informal sources such as local
moneylenders, who generally charge a much higher rate of interest.
Status of MFIs in Rajasthan
As per the latest data published by Sa-Dhan, as of March 2012, the total number of MFIs
operating in the state is 23, out of which 8 have their headquarters in the state itself (SaDhan n.d.). According to Micrometer March 2013 issue, the number of NBFC MFIs is 13 in
the state of Rajasthan. Rajasthan registered an increase of 20.45% growth over the last
financial year ending in March 2013 in gross loan portfolio (MFIN 2013). As per the
Micrometer September 2013 issue the total gross loan portfolio in the state is 483.4 crore
with 5.9 lakh active borrowers, there are 1,585 employees working in 237 offices / branches.
60
The MFIs those operated during the FY 2012-13 in the state were Asmitha, Bandhan, BSFL,
Equitas, Arth, Janalakshmi, Navjeevan, Sahayata, Satin, Share, SKS, Sonata, Swaadhar,
SVCL, Ujjivan, (MFIN 2013).
In Alwar alone there are 7 MFIs (11 branches) which are in operation is the highest in the
State, closely followed by Jodhpur and Jaipur each having 6 operating MFIs in the district.
As per the data reported by Microfinance Information Exchange Inc, in 2013 there is not a
single MFI in operation in Banswara, Jaisalmer, Pratapgarh, and Sikar districts
(Microfinance Information Exchange, Inc. 2013).
Figure 7-1 Number of MFIs operating in a district
The number of points of service (defined as branch locations) for each MFI as of June 30,
2012 and then the number of MFIs operating in each district, the total number of
outstanding loans per district and the total amount of the loan portfolio in each district for
the fiscal quarter ending on March 31, 2013.
Gross Loan Portfolio (GLP)
All outstanding principal for all outstanding client loans, including current, delinquent
and restructured loans, but not loans that have been written off. It does not include interest
receivable or employee loans (Microfinance Information Exchange, Inc. 2010).
The GLP is highest in Jaipur district with 21.8% of the GLP of the State, followed by Ajmer
(11.8%), Alwar (9.4%), and Jodhpur (8.4%). The lowest among the MFI served districts are
Barmer (2.7%), Jhalawar (3.7%), and Rajsamand (4%). When the loan outstanding is
analysed then it is seen that the higher loan outstanding as similar pattern as the GLP.
However, the least percentage of loans outstanding is in Barmer (0.18%), Jhalawar (0.35%),
Rajasmand (0.46%), and Dholpur (0.83%).
NABARD's role in JLG based microfinance promotion
NABARD has provided a grant of Rs 33.97 lakh in Rajasthan to support the Joint Liability
Group Promoting Institutions (JLPIs). This amount is only 17.5% of the sanctioned amount
61
of Rs. 194.3 lakh. Similarly the JLGs to be credit linked is way par below the target where
only 2,784 JLGs are linked, only 28.7% achievement (NABARD 2013).
Table 7-2 Grant Support as on 31 March 2013
Grant sanctioned
(lakh)
Grant
released
(lakh)
Number of JLGs
to be Promoted/
Credit Linked
Number of JLGs
Credit Linked
(Cumulative)
Rajasthan
194.3
33.97
9,715
2,784
National
5,824.35
1,030.72
301,625
105,566
During the year 2012-13, 5963 JLGs were promoted, which is a 187% increase in the existing
JLGs of 2011-12. During the fiscal an amount of Rs.56.19 crore was disbursed.
Table 7-3 JLG status during the year 2012-13
Number
of JLGs
promoted
as on
31.03.2012
Loans
disbursed
Number
of JLGs
promoted
during
2012-13
Loans
Disbursed
during
2012-13
Cumulative
Number of
JLGs
promoted
Cumulative
loans
disbursed
Rajasthan
3,185
3,907.38
5,963
5,619
9,148
9,526.38
National
332,707
284,568.5
196,539
183,764.34
529,246
468,332.84
MFI interest and Operating Expense ratio

The table below shows that the interest rates charged by the financial institutions for MFIs
are in the range of 8.0-15.0%, which has a direct impact on the interest rates charged by the
microfinance institutions to their clients. Rashtriya Gramin Vikas Nidhi (RGVN), a
developmental institution provides credit to microfinance institutions at 15% interest rate.
Few NBFCs like MAS Financial Services, Reliance Capital, Tata Capital, and MV
Microfinance Private Limited among others are also involved in institutional lending and
provide loans at more than 14% per annum. Further, some institutions charge a loan
processing fee to the tune of 1% of the loan amount to the MFIs. However the interest
charged by nationalised banks is somewhat lower at 0.2 to 0.5% (SIDBI 2011).
Table 7-4 Interest Rate of Financial Institutions for MFIs
Type of
Institution
Nationalised
Banks
Developmental
Institutions
Private
Banks
NBFCs
RRBs
Number of
Institutions
37
16
15
Interest Rate
(Range)
9.5-14.5
8.0-14.5
9.5-15
12.5-15.0
9.0-13.5
Consequently, the interest cap of 26% makes the operations of an MFI problematic at 26%
(otherwise it would bring the interest rate beyond the limit of 26%). A 10% margin plus the
1% as loan processing fee for large MFIs must cover both loan loss provisioning as well as
operating costs. Since 1% of disbursement translates roughly to a 2% return over the term of
a loan, this means the maximum Operating Expense ratio (OER) for viable operations of
large MFIs is 10.5% (10% margin + 2% processing fee minus 1.5% for loan provisioning) and
for small MFIs is 15% (M-CRIL 2012).
To illustrate it SIDBI in a study done in 2011, has divided the MFIs into three Tiers defined
as per the number of clients served i.e. Level I: > 250,000, Tier II: 50,000 250,000, Tier III: <
62
50,000.The table below shows that both tier II and III institutions have a negative margin
because of the high operating costs as MFI business is human resource driven enterprise.
Table 7-5 Margins of operation for MFIs with different client outreach
Tier-I
Tier-II
Tier-III
1,853,469
97,368
22,078
5,680
5,466
14,894
10,526,958,902
532,193,214
328,838,406
26%
26%
26%
Costing of the Loan (A+B+C)
20.61%
28.14%
29.49%
A. Operating Costs- Operating

Expense Ratio
9.77%
15%
18.38%
B. Cost of Capital (debt)-Financial

Expense Ratio
8.84%
11.14%
9.11%
2%
2%
2%
5.39%
-2.14%
-3.49%
Number of borrowers
Average Loan size
Outstanding Loan Portfolio
Interest Rate (as per RBI guidelines)
C. Loan Loss Provisioning Ratio

Profit / Margin (Interest Rate
Costing of the loan)
The MFIs are required to make efforts to improve efficiency in delivery of services and
reduce the OER by process re-engineering, deepening/expending their observations. For
example, if the loan book increaseswithout increasing wage bill (by process re-engineering,
increasing loan size, increasing regular of borrowers). The OER would come down, the
important challenge for the MFIs to strike a balance in reducing the transaction cost and not
allowing deterioration in quantity of loan. The 100% margin is the outer limit allowed by
RBI; good MFI's should be able to work within it and ensure a reasonable surplus too.
As noted earlier, in this chapter, we talked about several aspects of MFI led microfinance, in
the ensuing chapter, we would discuss about financial inclusion which now has been
pursued aggressively by the Government institutions.
Bibliography
Census of India. Primary Census Abstract - Rajasthan. Census of India 2011. 2011.
http://www.censusindia.gov.in/2011census/hlo/pca/PCA_Data_Rajasthan%
20.html (accessed 2013- 31-December).
Lahkar, Ratul, Viswanath Pingali, and Santadarshan Sadhu. Does Competition in

the Microfinance Industry Necessarily Mean Over-borrowing? Working Paper,
Ahmedabad: Indian Institute of Management, 2012, 18.

financial and social analysis. Gurgaon, India: Micro-Credit Ratings International
Limited, 2012.
MFIN. MFIN Micrometer. 5. Gurgaon, Haryana: Microfinance Institutions

Network, March 2013.
MFIN. MFIN Micrometer. 7. Gurgaon, Haryana, September 2013.
63
64
Microfinance Information Exchange, Inc. Glossary of Terms. 2010.

http://www.themix.org/about-microfinance/glossary-terms (accessed January
01, 2014).
"Rajasthan map of financial inclusion." Microfinance Information eXchange. March

30, 2013. http://maps.mixmarket.org/rajasthan/ (accessed October 13, 2013).
RBI. "Master Circular- Introduction of New Category of NBFCs - 'Non Banking

Financial Company-Micro Finance Institutions' (NBFC-FIs) - Directions ." Reserve
Bank of India. July 1, 2013. http://rbidocs.rbi.org.in/rdocs/notification/
PDFs/49010713MFIFL. pdf (accessed January 5, 2014).
"Master Circular- Introduction of New Category of NBFCs - 'Non Banking Financial

Company-Micro Finance Institutions' (NBFC-MFIs) - Directions." Reserve Bank of
India. July 01, 2013. http://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.
aspx?id =8195 (accessed January 5, 2014).
Sa-Dhan. Microfinance Map of India. http://www.sa-dhan.net/files/Sa-dhanindian-map.htm (accessed January 02, 2013).
SIDBI. Study on Interest Rates and Costs of Microfinance Institutions. New Delhi:
Access Development Services, 2011.
Chapter 8
F inancial Inclusion
Chapter 8
Financial Inclusion
Financial inclusion is crucial for 'inclusive growth'. Though banks have registered
tremendous growth in terms of number of branches, clients and turn over since their
nationalisation; but still a large number of people do not have access to formal financial
institutions. Incidentally people who are excluded are poor and live in remote areas. Access
to financial services plays a crucial role in poverty alleviation. However, poor have limited
access to formal financial institutions for financial services like savings, credit, insurance,
remittances etc. As a result, most poor depend on informal sources for above mentioned
services especially credit that have very high costs and exploitative also. Self Help Groups
have demonstrated that poor and marginalised can be served by banks and also that poor
are bankable.Further, SHG has emerged as an effective medium of Financial Inclusion.
In the present context of SHG based livelihood projects, Financial Inclusion can be defined
as summation of Community Savings, Community Investment Support from projects and
SHG Bank Linkages.
SHG Bank Linkage Programme is one of the most potent initiatives since Independence for
delivering financial services to the poor in a sustainable manner. Self Help Groups have
emerged effective people's institutions for delivery of financial services as well as for
women empowerment. However, there are certain constraints from both side i.e. Supply
side and Demand side.
Table 8-1Analysis of the issues in bank linkage
Demand side
Supply side
Lack of quality of SHGs and SHG

Promoter Institutions
Lack of adequate manpower at bank

branch
Lack of financial literacy an dawareness

among community
Lack of proper orientation of branch

officials on SHGs and microfinance
Incomplete books of records of groups
Lack of Uniform documentation
Lack of financial investment to promote

good quality SHGs
Inadequate loan amount and inordinate

delays in sanction of loan to SHGs.
Lack of quality man power to support

and facilitate SHG linkages
SHG Bank linkages is not institutionalise

but mostly person depended
Lack of support after credit disbursement

Increasing NPA
Source: RGAVP Action Plan 2013-14
Taking consideration of above mentioned issues; following Strategies have been worked
out for effective SHG Bank linkages in the State-
66
Formation of SHG bank linkage sub-committee at SLBC, DLBC and BLBC level;
Uniform documentations across State for SHG bank linkage;

Orientation, sensitisation and exposure of bankers;
Identification of Potential bank branches and branch wise planning;
Plan based linkages: shift from corpus based to plan based linkages;
Bank linkage committee at CDO level;
Establishment of Community Based Recovery Mechanism (CBRM) at federations

of the SHGs level.
No frills account
The banks, pushed by the RBI and the finance ministry, are opening 'no-frill accounts'. So,
they are tying up with banks to open electronic benefit transfer accounts: a type of no-frills
account where account holders can only make withdrawals. The banks in though now have
a major role now ranging from financial inclusion to Direct Transfer of Subsidies (DTS),
Aadhar Electronic Benefits Transfers (EBTs). Financial inclusion is a necessity Rajasthan,
where about half of the population still does not have access to banking services. In three
districts of Rajasthan the UID project and Scheme on Direct Cash Transfer (subsidies and
benefits of various welfare schemes to be routed through banks) is under implementation.
There have been directives of the GOI to open bank accounts for the migrant labourers,
street vendors/hawkers who work within 500 meters radius of the branch premises urban
areas (NABARD 2013).
In Rajasthan, 3 districts i.e. Ajmer, Alwar and Udaipur have been selected for
implementation of the scheme of direct transfer of eight schemes (seven related to
scholarship and one JananiSurakshaYojana). The progress of opening of accounts in the
districts is as under:
Table 8-2 Direct Transfer of Cash Subsidy status in Rajasthan as of September 2012
Districts
No of
Households
Opened during
Sept 2012
Total No of
Savings Bank A/c
Ajmer
581,251
14,243
1,441,461
Alwar
580,537
59,142
1,582,824
Udaipur
658,857
16,975
1,444,098
Source: NABARD State Focus Paper, 2013
The above table may represent a rosy picture of such initiatives but the actual
implementation lags far behind which is shown in the table below
Table 8-3 Actual beneficiaries benefitting from EBT
District
No of
Beneficiary
Actual Beneficiary
(who received the amount)
% of actual
beneficiaries
Udaipur
16,117
55
0.34
Ajmer
22,000
527
2.4
Alwar
84,000
20,500
24.4
Source: NABARD State Focus Paper, 2013
67
The issues with EBT and DBT
Infrastructure issues
Most districts do not have verified, digitised Aadhar card database. Where this is
available, there is a problem of not linking to the bank account of the beneficiaries.
Machines often do not take the fingerprint impression of senior citizens, due to the
age factor.
List of beneficiary bank accounts.
Respective departments are not yet ready to provide beneficiary list depriving a
large chunk from availing the cash transfer benefit.
EBT could be implemented for only 8 schemes in the three districts- Janani
Suraksha Yojana, and seven other scholarship schemes.
No of hand held machines necessary for cash dispensing in far flung areas not
sufficient
Neither no-frill accounts nor electronic benefit transfers is a viable business for banks and
Business Correspondents today. Banks primarily make money on no-frill accounts by
lending what is deposited in them. However, not enough money is residing or flowing
through accounts. It can be computed that the current level of float in no-frills account does
not make good business sense for banks, since the volume in float is less than the breakeven float. Therefore, banks are not finding no-frill accounts an attractive business model.
Banks themselves are partly to blame as they are not offering products on no-frill accounts.
Even the existing products are not customised to the needs and capabilities of rural poor
(CmF, Jaipur 2012).
This indicates that RBI's financial inclusion drive of opening No-Frills Account is not
sufficient. RBI or Government needs to reflect on the current situation where the volume of
float lying in no-frill accounts is lower than they had initially projected. Looking at viability
issues, RBI/ state Governments/ banks may want to allow savings in EBT accounts and
scale up financial literacy for EBT clients.
Inrecentyears,theReserveBankofIndiahasattemptedtopromotefinancialinclusionby
introducingthedeviceofbusinesscorrespondents,individualsorbusinessoutletsindiverse
locations, providing basic banking services to small account holders. (M-CRIL 2012). In
2006, the Reserve Bank of India introduced the use of Business Correspondents (BCs) by
permitting banks, and to organise a network of agents designated as customer service
points (CSPs), who act as the interface between the bank and its clients (CGAP 2013).
As per the data reported by Microfinance Information Exchange, Inc., 2013, the total
number of BCs in the state is 3,844. The number of BCs per district is provided in the table
below
68
Table 8-4 Number of BCs in a district

District
Number
of BCs
District
Number
of BCs
District
Number
of BCs
District
Number
of BCs
Nagaur
264
Hanumangarh
152
Dausa
109
Dholpur
50
Jodhpur
257
Bikaner
148
Barmer
100
Kota
47
Jaipur
248
Churu
140
Banswara
94
Rajsamand
45
Alwar
242
Karauli
134
Dungarpur
89
Bundi
41
Sikar
239
Udaipur
128
Sirohi
81
Jhalawar
40
Jalore
206
Pali
123
Sawai Madhopur
73
Chittorgarh
36
Jhunjhunu
184
Ajmer
114
Ganganagar
59
Baran
35
Bharatpur
179
Bhilwara
110
Tonk
58
Jaisalmer
19
agents designated as customer service points (CSPs), who act as the interface between the
bank and its clients (CGAP 2013).
As per the data reported by Microfinance Information Exchange, Inc., 2013, the total
number of BCs in the state is 3,844. The number of BCs per district is provided in the table
below
Table 8-4 Number of BCs in a district
Government
Set smart and meaningful service
quality minimums in financial
inclusion targets.
Ensure public sector banks include
precise quality criteria in tendering
and contracts.
Monitor closely client uptake as
a lead indicator.
Providers (Banks, BCs)
Ensure well crafted SLAs in

commercial agreements.
Incentives service quality, cross sell

and transactions.
Invest to synchronise products,

technology and service quality across
Banks, BCs and CSPs.
Source: Microfinance Information Exchange, Inc., 2013
As far as electronic bank transfers are concerned, unlike the no-frill accounts, electronic
bank transfers work on a flat fee. For MGNREGS, the Centre gives the state's 6% as an
administrative cost. Out of this, around 2% is paid to banks for payment transfers, out of
which BCs take away with around 1.75% and the banks are left with only 0.25%. Moreover,
with new norms last year regarding stricter time frame for payment, delivery and a full
withdrawal by account holder, the 'float' with banks has further been reduced. Thus, the
business is becoming more and more unviable for banks and BCs. BCs like FINO have been
struggling to break-even and have been breathing on funds received from donor agencies.
Even BC agents are struggling, resulting in high attrition. Primary research and interview
with Business Correspondents in villages and senior managers indicates that BC model is
not economically viable. Villagers are hesitant to take up Business correspondent role due
to viability issues. The commission earned through facilitating micro-credit from banks
and savings linkage is not viable enough for a business correspondent. The opportunity
cost (income which one could have earned by taking up alternative employment) is higher
69
than income earned from the business correspondent model, making BC model
unattractive to villagers/ potential BCs (CmF, Jaipur 2012).
At this hour, what is needed is a complete study of the value chain (Government to bank to
business correspondent to the BC agent to poor household) to assess inherent cost
structures and appropriate fee sharing structure reflecting current reality. Also, the
products and services of banks need to be re-designed to suit poor to ensure financial
inclusion (CmF, Jaipur 2012).
A nationwide survey was conducted by the CGAP and the College of Agricultural Banking
(an affiliate of the Reserve Bank of India) from March to May of 2012 to assess the
effectiveness of CSPs (CGAP 2013).
The key findings of the survey about the CSPs are mentioned below:
Value to Customers
Reliability: significant portions of CSPs unavailable and face technology failure
Convenience: differences between fixed and moving point; limited choice for many
clients
Efficiency: CSPs open accounts quickly; account activation time by BC/Banks too
slow
Products:most CSPs offer only single payment product; more cross-sell of other
critical products
CSP Motivations
Income: CSP earnings are very low
Liquidity costs: required amount of CSP liquidity not a major cost yet
Balance: less than half of CSPs earn income elsewhere; raises regulatory and labour
union questions
Support: training and visits from BC/Banks inadequate in too many cases
In the next stage, improving the quality of CSPs will be more important than growth.
Qualitywilldeterminewhetherclientsbenefit,whethercostscanbecoveredand whether
confidence can be built. Higher quality CSP networks should provide a more solid
foundation for Banks, BC companies and customers to build upon.
Table 8-5 Recommendations given by CGAP for quality improvement in BCs.
Government
Set smart and meaningful service
quality minimums in financial
inclusion targets.
Ensure public sector banks include
precise quality criteria in tendering
and contracts.
Monitor closely client uptake as
a lead indicator.
70
Providers (Banks, BCs)
Ensure well crafted SLAs in

commercial agreements.
Incentives service quality, cross sell

and transactions.
Invest to synchronise products,

technology and service quality across
Banks, BCs and CSPs.
Recent advancements in financial inclusion

Another interesting advancement is the introduction of mobile money transfer schemes.
Though, the simpler as it may seem, it is very difficult process to roll out the scheme. As
many villagers do not have bank accounts possess mobiles. RBI has often been pushing
the agenda of complex financial products than simple cash in and cash out schemes
envisaged by the mobile operators. This might seem ambitious, yet has a great potential
in addressing issues of financial exclusion. As per the RBI, the mobile money customers
need protection, just as with any other financial service. Poorer users might start off by
simply transferring money to friends or relatives, but under this model they can move
up to more complex savings and investment products. All these are not small duration
processes which would need time to show results.
PradhanMantri Jan DhanYojna (PMJDY)

Recently launched Pradhan Mantri Jan Dhan Yojna could create a new trend in financial
inclusion. It is a scheme for comprehensive financial inclusion launched by the Prime
Minister of India, Narendra Modi on 28 August 2014. The scheme is run by the Department
of Financial Services, Ministry of Finance. By September 2014, about 3 crore accounts were
opened; with around Rs. 1,500 crore were deposited under the scheme, which also has an
option for opening new bank accounts with zero balance.
The scheme has been started with a target to provide 'universal access to banking facilities'
starting with "Basic Banking Accounts" with overdraft facility of Rs. 5,000 after six months
and RuPay Debit card with inbuilt accident insurance cover of Rs. 1 lakh and RuPay Kisan
Card. In the next phase, micro insurance, and pension, etc. will also be added.
The key features of the scheme:
Account holders will be provided zero-balance bank account with RuPay debit
card, in addition to the accidental insurance cover of Rs 1 lakh.
Those who open accounts by January 20, 2015 over and above the Rs.1 lakh
accident, they will be given life insurance cover of Rs. 30,000.
After Six months of opening of the bank account, holders can avail a loan of Rs.5,000
from the bank.
With the introduction of new technology introduced by National Payments

Corporation of India (NPCI), a person can transfer funds, check balance through a
normal phone which was earlier limited only to smart phones so far.
Mobile banking for the poor would be available through National Unified USSD
Platform (NUUP) for which all banks and mobile companies have come together
In a run up to the formal launch of this scheme, the Prime Minister personally mailed to
CEOs of all PSU banks to gear up for the gigantic task of enrolling over 7 crore households
and to open their accounts. In this email he categorically declared that a bank account for
each household was a "national priority".
SBI, India's largest bank had opened 11,300 camps for Jan DhanYojana over 30 lakh
accounts were opened so far, which include 21.16 lakh accounts in rural areas and 8.8 lakh
accounts in urban areas. On the contrast, even taking together all the major private sector
banks, have opened just 5.8 lakh accounts.
71
The upcoming may unfold that how much the scheme is achieving its objective of the
financial inclusion of the excluded households in true sense (Source:
th
http://jandhanyojana.net/ accessed on 30 September 2014)
Bhamashah scheme to empower woman

th
31
Rajasthan government on 15 August 2014 re-launched the ambitious Bhamashah scheme

to empower women in the State. The Bhamashah scheme with a provisioning of Rs. 600
crore from the Rajasthan government was formally launched by Ms. VasundharaRaje, the
Chief Minister of Rajasthan from Udaipur. She also announced to launch SarkarApkeDwar
(government at your doorstep) programme aimed to solve the problems of the peoples.
The Highlights of the Scheme
Under the scheme, a bank account will be open on the name of a woman head of the
family to channelize all financial entitlements in her bank account.
The card issued under Bhamashah scheme would also work as an identity card for
the people of Rajasthan.
All the social benefit of Bhamashah scheme would flow through e-facilities
provided by the state government.
Under the scheme 1.5 crore bank accounts will be opened and Rs. 2,000 will be deposited
by the state government in those accounts (Source: http://bhamashah.rajasthan.gov.in/
th
UserP/Circular.aspx accessed on 30 September 2014)
Bibliography
31
72
CGAP. India Banking Agents Survey 2012. 2013. http://www.cgap.org/data/

india-banking-agents-survey-2012 (accessed January 6, 2014).
CmF, Jaipur. Microfinance Sector Report. Jaipur: Centre for Microfinance, 2012.
CRISIL. CRISIL Inclusix: An index to measure India's progress on Financial Inclusion.

Mumbai: CRISIL Limited, 2013.

financial and social analysis. Gurgaon, India: Micro-Credit Ratings International
Limited, 2012.
The Bhamashah scheme was announced in February 2008 during his earlier stint as Chief
Minister of the State. Under the scheme then 45.78 lakh women were enrolled, 8,000 cards were
issued and 29.07 lakh bank accounts were opened. The government was also deposited Rs. 160
crore in the banks.
Chapter 9
Way Forward: What needs to be

done to strengthen the Community
Based Micro Finance Sector
in Rajasthan?
Chapter 9
Way Forward: What needs to be done

to strengthen the Community Based
Micro Finance Sector in Rajasthan?
At the national level, the 'for profit model of micro finance' i.e. Micro Finance Institutions
have slowly recovered from the setback it received in 2010-11 in Andhra Pradesh. The
'community based micro finance' i.e. Self Help Groups and their federations have also
acquired prominence in policy through the National Rural Livelihood Mission. But in
terms of the actual financial services, the SHG model continues to face problems because
the formal financial institutions (banks) have slowly decreased their engagement with
SHGs.
In Rajasthan also, the SHG movement is now getting streamlined after implementation of
the National Rural Livelihood Mission has started, continued support from Sakh Se Vikas
Initiative by Sir Ratan Tata Trust, Mumbai for which CmF is the Nodal Agency, to promote
community led micro finance through select NGOs, and NABARD has initiated its
Swadhariniprogramme to focus on quality of SHGs. It is heartening to see that the SHG
movement has become stronger in the traditionally backward tribal area of southern
Rajasthan Dungarpur, Banswara, and Udaipur. However, the flow of credit from banks to
SHGs still continues to be a challenge. There are many issues that need to be addressed by
different stakeholders to strengthen and spread the SHG movement in Rajasthan. Some of
the important issues are highlighted below,
1. Recasting the SHG model

Taking it beyond savings, lending and livelihoods; developing SHGs and their federations
as peoples' organisations also to address 'malnutrition', 'illiteracy' and to deliver social
security schemes at the last mile:
Though SHGs were initiated as the institutions of poor women to promote the concept of
'self help' among them and to empower the poor; but over a period of time and due to
Government sponsored 'schemes,' the SHGs have been reduced mainly to informal thrift
and lending groups. Sometimes it is disheartening to see the SHG members meeting week
after week only to collect their savings of Rs. 10-15 from each member and to lend the
collected money. A large number of groups do not lend, even they just collect the savings
and deposit it in the banks. At the same time, they face issues like delayed payment of
wages from MGNREGs, or lack of work, free riding with a few influential people on their
MGNREGS wages, domestic violence against some of them, acute malnutrition among
them (anaemia) and their children, lack of access to safe drinking water, health issues and
so on. But they seldom discuss these issues in their meetings.
The SHGs need to be re-cast as true institutions of the poor that deal with all important
issues that women and poor face in everyday life. This orientation can be brought about if
the promoters of the SHGs are first properly oriented. Government can contribute to this
process by recognising SHGs as 'institutions of the poor' and if they are encouraged to act as
74
'pressure groups' of the poor in some cases and as vehicles of delivery of some of the
programmes.
The SHGs can play a significant role in addressing malnutrition, illiteracy, infant mortality,
and maternal mortality in the state along with access to micro finance services and
livelihoods. The State Government may consider increasing its engagement with SHGs and
SHG Federations on the issues mentioned above.
2. Too many promoters with different approaches and varied expectations from
SHGs
In the past the SHGs have been promoted by the Department of Women and Child
Development (DWCD) - for women empowerment; by the Rural Development
Department for poverty alleviation; by NGOs to implement their projects; through the
support of NABARD, to make credit available to farmers and so on. Forest Department,
Watershed Development, Credit cooperatives and other agencies also formed SHGs. Since
2010 or so, things are settling down a bit. Many departments have realised the futility of
promoting poor quality SHGs. There are now only selected SHG promoters viz.
Department of Rural Development through NRLM; NABARD through its Women SHG
programme and some donors like Sir Ratan Tata Trust (SRTT) through its Sakh se Vikas
(SSV) initiative.
There is also greater appreciation for the quality of the SHGs. RGAVP is promoting new
SHGs through Community Resource Persons (CRP) specially brought from Andhra
Pradesh and also through older SHGs under SSV within the state. The RGAVP'S strategy is
to focus on selective blocks (Resource Blocks and Intensive Blocks) so that the local resource
persons can also be developed in the process. They can later promote the SHG movement
all over the state over the next 8-10 years. NABARD has also started implementing its
'Swadharini' programme under which the services of resource agency are being taken for
training and handholding of the NABARD SHPIs (NGOs) for promoting SHGs and
facilitating bank linkages. So far, the experience of the SHGs promoted by CRPs under
RGAVP and those promoted by various NGOs with the support of NABARD, under its
Swadharini initiative has been encouraging. RGAVP is focusing on selected blocks and
NABARD is working in the remainder blocks, so that there is no overlap or duplication. It
will be worthwhile if RGAVP and NABARD forge a strategic alliance and work on a 5-10
year joint action plan, where NABARD through its Swadharini strategy does the ground
work of forming high quality SHGs and RGAVP works with these groups for livelihood
strengthening. NABARD should bring all its SHG promotion work under Swadharini
strategy, wherein the hand holding and training support of a suitable resource agency is
made available to community resource persons and smaller NGOs.
Department of Women and Child Development (DWC), Forest Department, Watershed
Development and any other agencies which do not have core competence in community
mobilisation should avoid creating SHGs in the state, which areof poor quality. If they wish
to work with SHGs they could do so with SHGs formed under RGAVP and NABARD
initiatives. Rajasthan Government may also ask its DWCD to come out with a clear
database/ listing of quality SHGs after auditing of all the SHGs it has promoted. It is
important that the state is able to assess the accurate numbers of SHGs available.
3. Need of Community Managed, Simple and minimum Books of Accounts

It is imperative that in field conditions, the book of accounts at SHG level should be as
simple as possible, without compromising the quality of book keeping and in accordance
75
with accepted standard bookkeeping practices. Simple and transparent Books of accounts
are the backbone of SHGs. Since SHGs are established on the basic premise to be
community managed and self-sustained in the longer run, the books of accounts has to be
simple, and minimum so that any less educated person can write and SHG as collective of
poor and less literate/illiterate women can manage/govern the person who is writing the
books of accounts. More number of books and complex accounting system create an
external dependency of SHG to maintain these books by external person. There are cases
where a plain notebook/register from market is being used in SHGs as its books of account
and similarly there are cases where 7 or more books of accounts have been used in SHGs to
keep accounts. There are SHGs of more than 10 years/15 years functional age, received
multiple loans from banks and revolving funds from RGAVP in areas of SSV partners and
these SHGs follows a simple 2-3 books of accounts only managed by the community (SHG).
Therefore, it is important to continue with existing systems of books of accounts in existing
SHGs and promote minimum number books of accounts in new SHGs as well so that these
books of accounts can be managed by semiliterate person from the community and make
these books of accounts standardised.
It may be worth suggesting that the Rajeevika being now a major player may come out with
a simpler book of accounts with minimum hassles for new SHGs by taking into account the
experiences of the federation and nurturing organisations of Rajasthan and also the best
practices from elsewhere so that Rajasthan can also have its own brand name and
uniqueness.
4. Need for a proper database of SHGs

In Rajasthan (and possibly in other states as well), one of the major issues affecting
community based micro finance (SHGs) sector is the lack of a database. An accurate figure
for the actual number of SHGs in the state is unavailable. Every Rajasthan Micro Finance
Sector Report has highlighted this issue. One of the SHPIs that claim to be the largest
promoter of the SHGs does not seem to have a list of even 20% of its promoted SHGs.
Similarly, many thousand SHGs promoted under SGSY, are simply non traceable.
In 2011, the Centre for microFinance (CmF) and the Department of Rural Development,
Rajasthan with the support from the Sir Ratan Tata Trust worked together and designed a
web portal to provide a simple platform to all SHG promoters and Banks to develop the
SHG database. The portal is called SakhDarpanand it is freely available (any one can post
their SHG data on it). Department of Rural Development through has started posting their
data on SakhDarpan and some NGOs under SSV have also done so. There arethe basic data
of about 23,000 SHGs on SakhDarpan by September 2014 and now SHG data are being in
process to update through transaction entries. The portal takes care of double reporting,
false reporting, duplication of members, and real time data can be maintained on it very
easily. The Banks would be greatly benefited if they use SakhDarpan to assess the quality of
the SHGs while linking them; and the state Government needs to take early steps to
promote it.
5. Need for developing teams of community cadre/ Community Resource Persons

(CRPs)
It is generally recognised that community mobilisation and provision of service in rural
areas, especially to the poor is best done by people belonging to their own community.
Earlier poverty alleviation projects like DPIP, IRDP, and SGSY etc. failed to effectively
address poverty mainly because they were led by external personnel and there was
minimal participation of the community. There is therefore a need to develop a large team
of community professionals (community resource persons- CRPs) for forming new SHGs,
76
facilitating their meetings, nurturing them, writing books of accounts, managing SHG
federations and village organisations and for giving livelihood support services to the poor
etc. Therefore, there is a huge need of human resource to work with SHGs at various levels.
It is now realised that experienced women in SHGs are the best human resource for
mobilising other women; and for working with SHGs.
In Rajasthan, rural women from SHGs have trained in- to 'KrishiSakhis' and 'PashuSakhis'
to act as agricultural extension agents and to provide animal health services by voluntary
agencies under MKSP and SSV. Rajasthan will need a few thousands of such trained
women in the above mentioned areas and they would need to be deployed through SHGs
and SHG federations to spread and strengthen the SHG movement and to develop
livelihoods for the poor.
Government of Rajasthan may therefore invest in training of local women to prepare them
as community resource persons for the SHG movement in the state. This activity can be
treated as vocational training under the RSLDC skill training programme.
6. The initial investment required for forming and nurturing Second Tier
institutions of the SHGs
It has been established that the Self Help Groups which are informal and small (of 10-20
women) can be very effective in ensuring the access of poor to financial services and in
contributing towards sustainable livelihoods, if they are organised into village level and
block/ sub -block level federations. Until now, the focus on village organisations in
Rajasthan has been weak. The village level Federation of SHGs called 'clusters' do not
provide financial services to member SHGs. The clusters are informal like SHGs. Only
NGOs have promoted Clusters and Federations of SHGs in Rajasthan. Now with NRLM in
operation, the role of clusters has undergone a change. They are now called Community
Development Organisations or Village Organisations (VOs). NRLM proposes a specific
role and institutional framework of these VOs, on the Andhra Pradesh model.
The next five years should be devoted to forming, nurturing and strengthening these
clusters/VOs/CDOs and area Level federations of SHGs. This would require a greater
level of sustained effort and patience because higher level institutions of poor take time and
effort, and resources to become sustainable. Even in the Dairy Sector, the District Milk
Producers Unions took almost two decades and large public investments to reach a stage
when they could provide livelihood support to milk producers. In micro finance and
livelihood sector also, there are evidences that a SHG federation or a producer organisation
of about 4,000 families takes anywhere between 5 to 10 years and a minimum investment of
Rs. 1.5 million to become self-sustaining excluding the cost of SHGs promotion. It is
estimated that about 1000 SHG federations in the state, would be formed. These federations
would require support to evolve as a community led institution, to manage its operations,
to meet out the aspirations of member SHGs/clusters, to manage the revolving funds and
to become a self-sustainable, community managed institution.
7. Enacting an appropriate Act to support the registration and growth of SHG

federations
Despite their significant achievements, the growth of the Self Help Groups and Federations
is constrained due to lack of an appropriate legal framework. Most SHPIs are initiating
SHG Federations as Societies, Trusts or Cooperatives. In seven states of the country, the
most frequently used law is the Self Reliant Cooperative Societies Acts. Post 97th
Amendment of Constitution, which recognised the fundamental right of citizens of India to
77
form cooperatives, there was a ray of hope that a member/citizen- centric framework,
th
independent of Government control, will be established. However, under the 97
Amendment, part IXB goes on to prescribe provisions for bylaws of cooperative societies.
Based on this ground, both Madhya Pradesh and Odisha State Governments quickly
repealed the Self Reliant Cooperative Societies Acts operate in their states.
At the National Level, no appropriate legal framework exists which can address the needs
of informal Self Help Groups and their federations. Given the need for scaling up of Self
Help Groups as part of the National Rural Livelihoods Mission, it will be desirable to
consider the appropriate legal framework needed for SHGs and SHG Federations.
8. Creating a special organisation to lend to SHGs and Federations

The credit flow from banks to SHGs has been around Rs. 150 to 200 crore in a year. It is
extremely low when compared with the need of SHG members and even as compared to
the savings of the SHGs deposited in the banks. Most unfortunately, there is a trend of
negative growth, if a comparison is made with the preceding year's achievements.
It is reported that banks are abandoning SHGs because the repayment rate of SHGs has
come down and almost 8-10% of their loans to SHGs have turned to 'NPAs'. A much deeper
analysis is needed to ascertain the real reason for banks backing out from the community
based model. In any case, except in Andhra Pradesh, banks were never pro-active in
lending to SHGs. It always needed a big push from the highest levels in Government
and/or in banks to persuade bank managers to lend to SHGs. In Bihar, it took large scale
'exposure' of bank managers to Andhra Pradesh and regular intervention from Deputy
Chief Minister so as to nudge the banks to lend. Also more than 80% of SHG-Bank linkage
has happened under Government sponsored schemes like SGSY which were closely
monitored by GoI and banks were regularly pushed with targets to lend. There are many
examples where it is proved that SHG-Bank linkage can be a viable/ commercial model for
banks. But most banks have not even thought about going in for large scale SHG Bank
linkage. Thus the increase in NPAs has given a good ground to already unwilling banks to
withdraw from SHGs.
It might be worthwhile to call a meeting of the CMDs of all major banks operating in
Rajasthan and ask them the reasons for low credit flow to SHGs. Though the focus on direct
SHG-Bank linkage needs to continue, but at the same time two more options should be
explored.
a) Setting up a special purpose vehicle (SPV) an NBFC to lend to SHGs in the state.
The Government may help in promotion of such NBFC and it should be managed
by professionals. Government may invest in its equity (about 500 crore) and banks
may give bulk loans or invest in its equity as well. The proposed NBFC can lend to
SHGs or to the Federations of the SHGs
b) NABARD has a plan to start the operation of its financial service institution
(NABFIN) in Rajasthan. Government of Rajasthan may consider contributing a
substantial amount for NABFIN for lending to SHGs in Rajasthan.
9. Addressing various operational issues related to Leveraging credit from Banks

As mentioned above, the focus on SHG-Bank linkage for credit will have to be continued.
Recently, some of the private banks have increased their engagement with SHGs for
making credit available to them. However, this amount is being lent at an annual interest
rate of 16 to 24%. The argument of these banks is that a) RBI has fixed the upper limit of 26%
annual interest for MFIs and therefore the banks are justified to charge 16-24% interest and
78
b) the SHGs are willing to take the loan at this rate. There is, therefore, no justification for
raising this issue.
Public sector banks have a significantly extensive network of branches to cater to the credit
needs of SHGs. Now with the increased focus on quality of SHGs by NRLM and
Swadharini, banks should closely work with SHGs to extend credit to the poor. The
Government and the Banks should work jointly to resolve some of the operational issues
like the reluctance of bank managers in some branches to open the accounts of SHGs; delays
in disbursement of loans; impounding of SHG savings by banks; and insistence that all the
members of a SHG should be brought to the branch for identification and so on.
The State Government and the Banks may set a target of annual credit to SHGs to the tune of
five to ten times of the SHG corpus (total funds available with SHGs from their savings,
incomes etc.) considering MCLP of SHG.
10. Financial support to producers'organisation and SHG federation

The biggest challenge that the producers'organisation (PO) and SHG federation working
on livelihood to programmeon their members face is that of access to credit from the
financial institutions. Banks are not willing to lend to these institutions primarily because of
their lack of familiarity with these organisations, absence of guidance for financing these
from their head office, low equity base, and their start up nature, and lack of a proven
concept.
Aggregation is important for small/marginal farmers and unorganised tiny rural
procedures of nonfarm products to get these units some benefits of scale the absence of
which makes it nearly impossible for them to survive in the competitive environment.
It is heartening to note that NABARD has created a fund exclusively for the
producers'organisation named Producers Organisation Development Fund. The financial
assistance from this fund is in the form of term loans, composite loans comprising both
working capital & term loan requirement and working capital as composite loans. It also
has a grant component to help in better implementation of loan projects. The financial
assistance from NABARD under this fund could be up to 90% of the project outlay.
The need is that NABARD may aggressively disseminate the details of this fund to the
development agencies operating in the rural areas so that these agencies could forward
their projects to NABARD for approval.
It is also understood that NABARD Financial Services Limited, (NABFINS) established by
NABARD in Karnataka is financing SHG federation and the PO's. We suggest that either
NABFINS opens a branch office in Rajasthan or alternatively NABARD may come forward
and establish a similar organisation in the state of Rajasthan.
It needs to be recognised by all concerned that upcoming PO's and SHG federations are not
well established business entities. These are managed by women from economically and
socially marginalised families, low in literacy, confidence and experience. These
organisations also need quality professional support and investment in capacity building
of their leadership along with some handholding support to make their business viable and
worthwhile for their members, it is necessary that NABARD plays its part as a development
bank and the state Government supports and strengthen NABARD in its efforts actively
finance PO's and SHG federations. It is hoped that these efforts would lead to
mainstreaming the financing of POs and SHG Federations by banks in the next few years.
79
11. Supporting a research and documentation for the sector

Presently, the implementation of the National Rural Livelihood Mission is guided
completely by Andhra Pradesh model. There is no harm in taking learnings from anywhere
but blindly copying a model, Rajasthan might lead to problems in the long run. There is a
need to pick up, learnings/ knowledge from different models from within and outside the
state and then adopt them into the local context of Rajasthan. The processes of SHG
formation and nurturing are more or less in place, but there is much more to learn on the
formation and management of SHG federations, producers' organisations and on the
various livelihood related strategies.
There is a need to support research and documentation to focus on documenting learning,
taken up action-research projects, design capacity building programmes, continuously
facilitating reflections, developing resource materials, develop and suggest policy
interventions to strengthen the SHG and the livelihood movement in the state. Such
research and documentation must be outside the Government apparatus so that it can take
an objective neutral view and have adequate flexibility.
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RAJASTHAN

Centre for microFinance

(by 31.03.2013 reported in the 117th meeting minutes of SLBC)

Growth of Community led Microfinance on key parameters in Rajasthan

Banking setup and Demand for Microfinance

Self Help Groups, SHPI and Bank linkage

Source: data provided by CmF, Jaipur, 2014

Management information System (MIS) for SHGs and record keeping

Micro Finance Institutions (MFIs)

Way Forward: What needs to be done to strengthen the Community Based

Comparative GSDP of Rajasthan and India

Political map of Rajasthan

Accumulating Savings and Credit Associations

Mutually Aided Cooperative Society

(As of March 2014 unless specified)

c) Government of Rajasthan 2013

d) United Nation Development Programme

Population below poverty line as on 2011-12

44,672 (39,753 uninhabited)

928 females per 1000 males

Sector-wise contribution of Gross State

Percentage slum population to total urban

Area coverage per Bank as on Dec., 2013 in sq.km.

No of banking offices per lakh of

Numbers (in Lakh)

Potential rural households to

SHGs having Savings Bank

Amount (Rs. Crore)

Number of semi-urban bank branches*

Number of urban bank branches*

Sources: NABARD, RBI, SLBC, and MFIN, NA- Not Available

Number of metropolitan bank branches*

Amount (Rs. Crore)

Number of rural bank branches*

Outstanding credit from

NPA as % in SHG loan o/s

Average credit disbursed to SHG

SHGs which have taken credit

Amount (in Rs.)

Numbers (in Lakh)

Number of households covered

Average savings of an SHG

Numbers (in Lakh)

Number of SHGs in the State

Growth of Community led Microfinance on key parameters in Rajasthan

Source: Created by the authors, with shape files downloaded from

Lakh= One hundred thousand

Physical features of the State

Rajasthan Microfinance Report-2013

Economy, Employment, and Livelihoods

Agriculture and allied

Source: Economic Review 2012-13, GoR, and Planning Commission-2013

Composite ranking of the State for economic environment

Fourth-largest producer of wheat and largest producer of all coarse grains;

Rajasthan is the largest producer of rapeseed and mustard;

Second in production of gram and the largest producer of Moth-Bean;

The second largest producer of total Oilseed, third position in Soybean

Largest producer of spices such as Coriander, Cumin, Fenugreek, Fennel, etc.

Income (major occupation), Engagement of household members in different

Rajasthan Microfinance Report-2013

Male Female Total Male Female Total Male Female Total

Casual employment 28.6