Role of SHG in Inclusive Growth

Dr V .B .Kakade
Reader, Department of Economics,
Shivaji University, Kolhapur
And
Shri. Bhosale Sunil Bhau
Research Fellow,
U.G.C. Rajiv Gandhi National Fellowship
Department of Economics,
Shivaji University, Kolhapur

Beginnings of Microfinance in India:

First official interest in informal group lending in India took shape during 1986-87

on the initiative of the NABARD. As a part this broad mandate NABARD initiated

certain research projects on SHGs as a channel for delivery of microfinance in

the 1980s. Amongst these the Mysore Resettlement & Development Agency

(MYRDA) sponsored action research project on "saving and credit management

of SHGs "was partially funded by NABARD in 1986-87. In 1988-89 in

collaboration with some of the member institutions of the Asia Pacific Rural &

Agricultural Credit Association (APARCA) NABARD undertook a survey of 43

NGOs in 11 states in India to study the functioning of microfinance SHGs & their

collaboration possibilities with formal banking system. Both these research

projects threw up encouraging possibilities & NABARD initiated a pilot project

called SHGs linked project (NABARD-1991).

But by then microfinancing by non-formal financial organizations had already

started. Self Employed women’s Association (SEWA) owned by women of petty

trade groups was established on cooperative principle in 1974 in Gujarat. The

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earliest stapes in microfinance in India can be treated to this initiative undertaken

for providing banking services to the poor women employed in the unorganised

sector of Ahmedabad Shri. Mahila SEWA Sahkari Bank was set up by registering

it as urban cooperative bank. Since, then the bank has been providing banking

services to the poor and self-employed, working as hawker, venders, domestic

servant, etc. This MFI model not been replicated elsewhere in the country,

though the working women's forum(WWF) started promoting working women's

cooperative societies in TamilNadu since 1980, Shreyas in Kelara activity got

involved in microfinance operations since 1988 with objective of promoting

peoples cooperatives, habits of thrift and self managing people's bank (HDFC-

1997). At the National level, while the SHGs movement has had a longer history

through NGOs work at the community origin. It is only in the late 1980's that a

few NGOs initiated experimentation in channelising microfinance through SHGs

mobilised by them. MYRDA mobilised multipurpose SHGs around group savings

and introduced credit. Professional assistance for Development Action(ARADAN)

in its project formed women’s SHGs with the explicit objective of mobilising &

rotating this as credit to group members, eventually towards the goal of forming a

community banking system (P.Satish, EPW,April 23, 2005,p-1732).

Formation of SHGs:

An SHG has 10 to 20 people from a homogenous class. They come together for

addressing their common problems. They are encouraged to make voluntary

thrift on a regular basis pooled resources to make small interest bearing loans to

their members. The process helps them imbibe the essentials of financial

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intermediation including prioritization of needs, setting terms and condition, and

accounts keeping. This gradually builds financial discipline in all of them. They

also learn to handle resources of a size that is much beyond individual capacities

of any of them. The SHG members begin to appreciate that resources are limited

and have a cost. Once the groups show this mature financial behavior, banks are

encouraged to make loans to the SHG in certain multiples of the accumulated

savings of the SHG. The bank loans are given without any collateral and at

market interest rates. The groups continue to decide the terms of loans to their

own members. Since the groups own accumulated savings are part and parcel of

the aggregate loans made by the groups to their members, peer pressure

ensures timely repayment (Progress of SHG-Bank linkage in India 2003-2004,

NABARAD).

In cases where groups have been given a reasonable operating shape by

promotional agencies like non government organizations, and an SHGs thus

formed is stabilized, (through repeated rotations of their won savings converter to

mutual credit), it is possible to introduce external funds. This completes the

cycle of SHGs & microfinance-based SHGs is fairly simple its management

intensive (P.Satish, EPW, April 23, 2005,p-1732).

Approach and Objectives of the Study

The role of institutional frame work is vital in determining the space of

growth and the quality of growth. The World Bank has stressed the role of

institutions in its Report of 2005 as institutions for poor. The challenge of

economics development being a multi dimensional one it naturally needed multi

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dimensional policy. However till 90’s the policies of developing countries were

concentrated only on raising the income rather than raising the standard of living

of the people. This has resulted into exclusive growth which created island of

prosperity in the midst of the abject poverty. Again the World Bank has given a

deep thought to this phenomenon and tried to provide policy framework and

policy interventions to rectify this problem The work of Dr. Mohmmad Yunus on

micro finance proved as an effective way to create demand for growth. The policy

of providing financial help to the group of deserving poor people in the form of

Self Help Group also emerging as effective alternative for attaining the growth

with inclusion in India. The growth story of India and its detail analysis will offer

more insight in the social engineering of economic development. In this context

the study of Kolhapur district conducted by us offers some important elements for

policy makers.

Objectives and methodology of the Study:

1) To study how the SHG has helped in creating employment in non-formal

sector.

2) To study how it resulted in reduction in indebtedness.

3) How the SHG has eliminated the need to borrow at exploitative rates from

money lenders.

4) How the status of women in economic decision making has changed.

5) To study the impact of SHG on savings, standard of living and other benefits

accrued. to SHG members.

6) To study the constraints and problems faced by SHG.

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 7) To suggest appropriate policy mix for improving the role of SHG.

8) To study how the gains of SHG are shares amongst the members.

Methodology: The present study uses both primary and secondary data. The

SHG in Kolhapur are promoted by Bank of India which is Lead Bank of the

Kolhapur district. The study of impact of SHG is undertaken for Kolhapur district

in which 225 SHG were working of which 50 were selected and the analysis of 46

is finally made. While selecting the SHG we have followed the criteria of availing

the loans from SHG. A care was taken to include the features such as caste and

level of income. Detail information was gathered through the field visit by using

questionnaire.

Section 2

Finding of the Study:

The working of SHG has benefited the members in various ways.

1) Impact on Employment:

The linkage between poverty and unemployment is as good as the two sides

of the same coin. The SHG impact in terms of employment is clear in the

following table.

Table No-1: Impact on Employment

Sr.
Nature of work Before % After %
No.
1. Only House work 17 37.0 9 19.6

2. Milk business 1 2.2 2 4.3

3. lady tailor 5 10.9 7 15.2

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4. Shopkeeper 1 2.2 4 8.7

5. Agricultural Labour 1 2.2 1 2.2

6. Making a Broom 3 6.5 1 2.2

7. Floor Mill 1 2.2 3 6.5

8. Other 9 19.6 1 2.2

9. Milk Business & Lady tailor 1 2.2 9 19.6

10 Milk Business & Agri. Labour 2 4.3 1 2.2

.

11 Milk Business & Agri. Business 2 4.3 2 4.3

.

12 Milk Business & Chili cutting 1 2.2 2 4.3

. Machine

13 Milk Business & Other 1 2.2 1 2.2

.

14 milk Business, lady tailer & Agri. 1 2.2 3 6.5

. Business

Total 46 100.0 46 100.0

Source : Compiled by the researcher

We can draw following conclusions from the above table:

1) The percentage of females spending their time in house work has been

reduced from 37 % to 19 % indicating that they are finding gainful

employment after joining the SHG.

2) The activities where the employment has increased are Milk business,

lady tailor Shopkeeper and Floor Mill indicating the fact that more

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 absorption is found in jobs with small skill which are more suitable for

females with low skill.

3) The proportion of employment with multiple activities is also significant. It

shows that the females are adopting the job which suits their needs.

2) Impact on Level of Income:

The more visible positive impact of impact of SHG is observed in the form of

increase in level of income after joining the SHG group. Our observation on the

basis of sample is presented below.

Table No-2: SHGs Member’s Income Position

Income of Income Income
S.N. % %
SHGs Member Before SHGs After SHGs
1. No income 17 17 9 19.6
2. 1 to 10000 15 32.6 16 34.8
3. 10000 to 20000 7 15.2 8 17.4
4. 20000 to 30000 4 8.7 4 8.7
5. 30000 to 40000 3 6.5 4 8.7
6. 40000 to 50000 - - 2 4.3
7. 50000 to 60000 - - 1 2.2
8. 60000 to 70000 - - 1 2.2
100000 to
9. - - 1 2.2
200000
Total 46 100.0 46 100.0
Mean 8245 16899
Variance 118634852.1 518795564.251
739 2
Minimum 1800 2000
Maximum 36000 1200000
Source:- Primary data
We observe following changes in the income of the SHG participants as

result of joining the SHG group.

1) The average income of the respondents was Rs 8245 which increase

to 16899 indicating an increase of 105 % during the period of 5 years. It gives

growth of 21 % increase in income.

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2) The increase in lowest bottom is only from 1800 to 2000 showing very

small change in income but if we consider the top income category it is

observed that the income jumped from 36000 to 1200000.

3) The gap in the income of the SHG members have widened during the

period under study as reflected in increase in the variance.

4) The members of SHG were benefited positively in terms of finding

better opportunity of income. But the activities in which they have joined have

benefited differently due to their skill, initial capital and knowledge about the

opportunities.

3) Impact on Saving:

The increase in saving is one important healthy indicator of economic

prosperity. The change in level of savings before joining the SHG and after

joining the SHG is noteworthy feature to study the impact of SHG. In the

following table the monthly savings of the respondent are presented.

Table No-3: SHG Member’s Monthly Savings

Sr. Monthly Saving
Before joining % After joining %
No. of SHGs
1. No Saving 40 87.0 0 0
2. 30 0 0 1 2.2
3. 40 2 4.3 2 4.3
4. 50 0 0 9 19.6
5. 80 0 0 1 2.2
6. 100 0 0 3 6.5

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 7. 120 0 0 2 4.3
8. 160 2 4.3 1 2.2
9. 200 2 4.3 24 52.2
10. 400 0 0 3 6.5
Total 46 100.0 46 100.0
Mean 17.39 159.56
Variance 2677.4879 8582.0290
Minimum .00 30.00
Maximum 200.00 400.00
Source: Primary Data.

The increase in income if followed by an increase in savings results in

sustainable increase in standard of living both at macro level and micro level.

The experience of the SHG in terms of increase in savings is presented in the

above table. Following conclusions can be derived on the basis of it.

1 The average savings of the people stood at Rs .17.39 which increased to

Rs.159.56. This implies that the savings of the SHG members increased by

more than nine times or by 917 %.

2) The variance in the savings has also increased during the period under

study. This shows an increase in inequality in the savings of the members.

3) The increase in savings of the members is attributed to the strong will of the

members for their economic betterment and institutional requirement as the

bank finances the SHG on the basis of the funds generated by SHG.

4) Deployment of Savings:

The deployment of savings or the portfolio of savings of the SHG members

affects the safety, profitability and liquidity of the savings. Following changes

are observed for the SHG members regarding their deployment of savings.

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 Table No-4 : Deployment of Savings
Sr. Number of Number of SHGs
Destination of savings % %
No. SHGs (After) (Before)
1. No saving 0 0 28 60.9
2. SHGs 14 30.4 0 0.0
3. Pathsantha 2 4.3 1 2.2
4. Others 1 2.2 1 2.2
5. Bank, SHGs 14 30.4 1 2.2
6. SHGs, Pathsantha 1 2.2 3 6.5
7. SHGs, Post 1 2.2 5 10.9
8. SHGs, Pathsantha & Post 1 2.2 1 2.2
9. Bank, Bhishi & SHGs 2 4.3 1 2.2
10. Bank, SHGs & Pathsantha 3 6.5 2 4.3
11. Bank, SHG & Post 2 4.3 1 2.2
12. Bhishi, SHGs & Pathsantha 1 2.2 1 2.2
13. SHGs, Pathsantha & Post 2 4.3 1 2.2
Bank, Bhishi, SHGs, Pathsantha &
14. 1 2.2 0 0.0
Post
Bank, Bhishi, SHGs, Pathsantha &
15. 1 2.2 0 0.0
others
Total 46 100.0 46 100.0
Source:- Primary data

The deployment of savings before joining the SHG and after joining the SHG is

presented in the table no 13.

1) The most important change due to SHG is that the proportion of zero

saving families was 61 % which brought to zero indicating the fact that the

saving habit was cultivated due to SHG.

2) The local patsanstha or cooperative banks were the places where the

members were keeping their savings before joining SHG. But now these

savings are placed with SHG.

3) The SHG helped in increasing the savings and channelised them in

institutional set up.

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 5) Impact on Borrowing:

The poor families struggling with poverty are compelled to borrow from various

sources. As the institutional sources are not available they are compelled to

borrow from non institutional source. In the following table the borrowing pattern

of the SHG members before joining to SHG and after joining SHG is presented.

Table 5: Sources of Borrowing Of SHG’s Member

Sr. Loan taker of Loan taker of
Name the Loan Giver % %
No. SHGs before SHGs after
1. No loan 25 54.3 0 0
2. Moneylender 7 15.2 0 0
3. Jewelry 1 2.2 0 0
4. Relativest 1 2.2 0 0
5. Pathsantha 3 6.5 0 0
6. Bank 2 4.3 0 0
7. Bhishi 3 6.5 0 0
8. PMYR 3 6.5 0 0
9. Jewelry & relatives 1 2.2 0 0
10. Bank Through SHGs 0 0 46 100
Total 46 100.0 46 100.0
Source:- Primary data

The change in borrowing pattern is reflected in the table no 14. We come to

following observations-

1) The poverty of SHG members deprived them to borrow and improve their

economic standards as t is reflected in zero borrowing of 25 % members before

joining the SHG.

2) The major source for borrowing during economic crisis was money lenders

as 15 % members were borrowing from this source before joining the SHG.

3) The other informal sources were relatives, Patsanstha, and Bhishi.

4) The joining of SHG has replaced the informal sources of borrowing and the

share of borrowing through SHG increased to 100 %.

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6) Impact on Standard of Living:

The improvement in income due to gainful employment is reflected I

increase in use of modern instruments such as use of cooking gas, cooker,

TV, phone, cycle motorcycle in the family. These changes can be seen as

physical indicator of improvement in the standard of living of the SHG

members. It is presented in the following table.

Table No-6: Improvement is Standard Living

Sr. Name of Modern Qty. of SHGs

%
No. Instruments Members
1 3 4 8.70
2 4 4 8.70
3 5 4 8.70
4 6 11 23.91
5 7 19 41.30
6 8 above 4 8.70
Total 46 100
Source:- Primary data
Note:- 1=Gas, 2= Mixer, 3=Kukar, 4=Iron, 5=T.V., 6=Phone, 7=Fan, 8=others
(Cycle, Motor Cycle, Computer, Sewing Machine, etc.)

It is evident from the above table that the SHG members are using modern

instruments in increasing number as their income permits. The additional

income is in the hands of women which is the major factor for this positive

change. The SHG members have improved their standard of living by

enjoying the modern amenities.

7) Impact on status in family:

The SHG movement has not only resulted in improvement in economic

standard of the poor families but more importantly it has resulted increase in

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 social status of the families on various parameters. These changes are

presented in the following table.

Table No-7: Classification of Changing living of

Standard Before & After
Sr. Frequency of
Answer of SHGs member %
No. SHGs Members
1 Yes 39 84.8
2 No 7 15.2
3 No answer 7 15.2
4 working in house 2 4.3
5 develop in house 1 2.2
6 occupation increases 1 2.2
standard living
7 1 2.2
increases
8 others 12 26.1
9 Two Answer 7 15.2
10 Three Answer 1 2.2
11 Four Answer 5 10.8
12 Five Answer 6 13.1
Six Answer 2 4.3
Seven Answer 1 2.2
Total 46 100.0
Source:- Primary data
Note:-1=Working in house, 2=Develop in house, 3=Beer habit less, 4=occupation increase, 5=standard living,
6=Use out of house, 7=No out of house, 8= others(Standing our foot, I am making self-support, Understand to Bank
transactions I advice our SHGs member, Education benefit, go to out of house, helps to women, collect the all
women, due to SHGs increase in Women recognised, increase economic help, House expenditure both thinking,
Own money expend own, Social in understand & identity , Others need i understand, learn speak to other man, use
education, children learn, gold, silver & cloth purchase, house build, social knowledge getting, understand of clean &
health, get a speech chance, time to time house manage, )

It is observed from the table no 7 that 85 % members have experienced

increase in standard of living after joining the SHG. These social

improvements are in the form of getting self employment and utilizing their

spare time in productive way, providing education to their kids, pleasure of

self reliant economic life, expressing views even with male participants whom

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 are not possible to quantify but have immense impact on improving quality of

life.

8) Impact in participation in Social life:

The benefits of SHG movement to the members have resulted not only at

individual level but at the social level also. The process of economic

liberalization has improved the level of income and so also their economic

status and participation in social life. It is presented in the following table.

Table No-8: Social Participation of SHG members

S.N. Institutional membership Frequency Percent

No Membership of other
1. 13 28.3
institute
Membership of
2. 1 2.2
Grampanchayat
Membership of
3. 1 2.2
Panchayat Samiti
4. Pathsantha 19 41.3
5. Membership of Dairy 2 4.3
6. Women Mandal 4 8.7
7. Membership of Institute 5 10.9
8. Four Institute Member 1 2.2
Total 46 100.0
Source:- Primary data

After joining the SHG the participation of women members extended to the

membership of other institutes. In this regard we observed following trends.

1) The participation in local government bodies such as village panchayat.

From the sample members 28 % members have not befitted in terms of
participation in other institutes. But 68 % members have got opportunity to
participate in other institutes.

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2) The joining in local government bodies is a remarkable benefit as it
influences the status and moral of the other women.
3) The increase in institutional participation helps the women to play an
active and decisive role.

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 Section 3

Policy Implications:

The benefits of development are shared more effectively if the

development process id demand driven rather than government initiated,

controlled and managed. The main lesson of SHG impact is that the

development process can be made inclusive if the institutional set up has a

flexibility, liberty and control to the users. The institutional reforms were kept at

the backburner for a long time but now this can not be postponed further. The

World Bank also took notice of it and devoted more attention to it by making a

separate issue of its annual report as Institutions for poor.

The experience of SHG in Kolhapur of Maharashtra is a torch bearer in

this respect. The SHG benefited the poorest of the poor without imposing heavy

burden on the government finances. It self promoting, propagating system which

requires initial push up. The role of the government should now be focused on

educating the poor as well as making available the opportunities to the poor.

In the era of globalization and dominance of multinationals there is need to

create a linkage between the SHG and the corporate world is also need of the

time. At present the effective linkage between banks and SHG proved fruitful and

this needs to be strengthened. But along with the financial tie up it is necessary

to establish linkage with industrial sector as well as with service sector. The

corporate sector can set example of social commitment by creating collaborative

production with SHG.

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 The success of micro enterprises needs to be strengthened though

training of these members as the SHG members do not have any experience and

training of the business. The role entrepreneurship development institutes both at

national and regional level becomes important. At present EDI or

Entrepreneurship Development Institute of India, Ahmedabad is catering the

needs of SMEs ( Small and Medium Enterprises). There are state level agencies

such as MECD, District Industry Centers are also importing training to the

budding entrepreneurs. But the SHG entrepreneurs need different approach and

package to train them to understand the business risk and business

management techniques.

The training of SHG female members can be more rewarding as these

people have ability to work in adversities. The habit of thrift and low cost of

operation can act as asset to these entrepreneurs. The search on new avenues

of self employment needs constant research and understanding of changes. The

education system which is now suffers from various flaws can be made

productive by incorporating success stories of SHG and some training of

business modalities.

The SHG are dominated by females and it has helped in improving the

quality of expenditure. The improvement in standard of living is the result of

spending the additional income on family needs. If the same amount of income is

given in the hands of male earner there is possibility of increase in spending of

personal needs rather than the family needs. This gender dimension of

expenditure is also one more dimension of SHG success.

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 The experience of SHG shows that SHG can act as a vehicle to transform

the lives of the poor and make the growth process inclusive. The large section of

the society which is poverty ridden in developing countries like India can not

share the fruits of development with traditional model of state lead

industrialization. The process of growth can become inclusive if it is demand

driven. The demand for growth should come from masses is the pre condition for

growth. This is ensued through SHG. The SHG can act as an alternative

institutional asset up to tackle the problems of unemployment poverty and gender

justice.

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 References:-

1) CGAP(2002): Microfinance Poverty Assessment of Tool, 2002, CGAP/

The International Bank for Reconstruction and Development (The
World Bank) 1818 H street, NW, Washington, DC 20433.
2) C.Rangarajan (2005): Chairman Economic Advisory Council to the
Prime Minister, High Level Policy Conference on Microfinance on
Microfinance in India-May3,2005.
3) Deborah Drake & Elisabeth Rhyne (2002): The Commercialization of
Microfinance, Published 2002 in the United States America, by
Kumarian Press, Inc.
4) Deodhar Rekha (2004): A Critical Study of Self Help Groups in Sangli
District, Shivaji University Kolhapur, June 2004.
5) Kadam Prakash (1999): Self Help Groups, Bank of India, Lead District
Office Kolhapur.
6) Kamata Prasad (2003): NGO’s and Socio-Economic Development
Opportunities, 2003, edition-I.
7) Mnab Sen (2003): Self Help Groups & Microfinance, NGO & Socio
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8) Marguerite S. Robinson (2001): The Microfinance Revolution :
Sustainable Finance For The Poor, The world Bank, Washingaton,
D.C. Open Society Institute, New York, May 2001 First Printing.
9) P.Satish (2005): Economic & Political Weekly, April 23, 2005,p-1732.
10) Process of SHG’s -Bank linkage in India-2003-2004 (NABARD).
11)Raghuram Rajan (2006): Finance & Development March-2006.p-56.
12) R.Suryamurthy (2005): Microfinance & Women in Kerala, Sociological
Bulletin, 54(1) January-April 2005.
13)Sabyasachi Das (2003): Kurushetra, Aug,2003,p-25.
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Shivaji University, Kolhapur, India.
15)Vijaya Agarwal & VRP Kasyap (2005): ICFA University Press, Edi-1,
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Web sites: -

1. http://www.worldbank.org
2. http://www.cgap.org
3. http://www.cgap.org/KeyPrinciplesSummary.html
4. http://en.wikipedia.org/wiki/microfinance/
5. http://www.epw.org.in
6. http://www.sewa.org/
7. www.nabard.com/microfinance/
8. www.rbi.com
9. http://www.ifad.org/media/success/india.htm
10. http://www.wougnet.org/Profiles/searchin.html

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11. http://www.newsfromafrica.org/newsfromafrica/articles/art_864.html
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16. http://www.woman.ch/women/files/ImpactReport2003.doc

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