Sa-Dhan Newsletter Volume 4 Issue 2

Community Based Organisations

unless the SAG is registered we cannot give a loan.

say first there is no legal framework, secondly, they are not

MYRADA'S SAGs replied: " We function according to all the

allowed to take deposits from the public, and therefore, have

norms of registered institutions". Secondly, the banks want

no low-cost capital and stable resource mobilisation

to know in advance the purpose of each loan. The groups

opportunities. There are many versions of this, but it comes

said don't give us individual loans, lend to us as a group.

basically to these reasons. To my mind, NGOs need to live

Thirdly, the formal institutions insist on lending only for

with a sense of insecurity in order to be effective. They need

assets or productive purposes when the SAGs want to be

to have a strategy for withdrawal (from sectors and from

free to lend for any purpose including health, food, repayment

areas) after their objective is achieved. This sense of

to money lenders, purchase of land, trading etc. MYRADA

insecurity is not a negative one which fosters a sense of

studies have indicated that over 60% of repayments on asset

exclusion; it is instead one which promotes a renewed vision,

loans were not from the income derived from the asset at

increased commitment and new strategies which allow other

the time of repayment.

institutions to grow. So it's insecurity in a positive sense.

The repayment came from other small income sources, so

What then do I propose? Instead of trying to morph into

why worry about unit costs and viability? All these official

an MFI, the NGO should promote a separate financial

rules and procedures have to change. The SAG Bank Linkage

institution. Possible models are companies (for profit or not

programme has succeeded because we have allowed the

for profit), co-operatives (various types) etc.

groups to develop their own alternate systems, without trying

to mainstream them. And we have managed to get the

MYRADA promoted Sanghamitra (a not-for-profit company),

mainstream banks, thanks to NABARD and the RBI, which

which lends only to SAGs. The Sanghamitra Board believes

accepts the SAGs policies and practices, interest rates.

that a MFI should be comparatively small, around Rs. 20-

Focusing on assessing the SAGs as institutions, on repayments

Rs. 25 crores. The growth strategy adopted is to promote

and on reducing transaction costs. So I would like to

several Sanghamitra's and an Asset (or Fund) Management

question this other big push to mainstream the micro-finance

Institution which will monitor/supervise, mobilise/manage

sector. Mainstreaming can be disempowering.

funds, influence policy and represent the several

Sanghamitra's. The basic financial institution will continue

to be the SAG, the second-tier institution will be the

3.

HOW THE ALTERNATE MODEL EMERGED:

Sanghamitra's (all non-profit companies) mobilising grants,

The first self-help groups emerged in MYRADA in 1984-

subsidised loans and graduating to loans at market rates of

85 when the co-operative societies we had organised broke

interest. The Asset (Fund) Management Institution will be a

down. However, small groups of members of the co-operative

for-profit institution.

decided to return the money they owed to the Co-operative

society to their group. Initially these small groups were called

Finally included in the growth scenario is the trajectory of

Credit Management Groups. By 1986-87 about 300 such

individual members of SAGs. The MYRADA experience

groups emerged in MYRADA's projects. In 1986 MYRADA

indicates that in the first year or so the number of loans

approached NABARD with a proposal to support the formation

for consumption is large (though the amounts are

of an alternate model of credit provision for the poor.

comparatively small). The trend during the second and third

MYRADA asked NABARD for a grant. In 1987 after several

years indicates that the number of consumption loans fall,

field studies, NABARD gave MYRADA a sum of Rs. 1 million.

the number of loans for trading and small assets increases

The name of the groups was changed to Self-Help Groups

-- the average size of the loan is around Rs. 3,000. After

as requested by NABARD. This amount from NABARD was

the third year, the average increases to Rs. 5,000, with several

used to train the groups and to match their savings. Between

loans ranging from Rs. 10,000 to Rs. 15,000. During this

1998 and 1990 NABARD conducted studies to assess the

period, the SAGs links up with banks or with Sanghamitra.

progress of this pilot: a study of the comparative transaction

After the fourth year, several members approach the banks

costs of three models was also carried out. The SAG model

directly for larger loans. The banks assess their credibility

turned out to be the most cost effective. NABARD organised

on the basis of their performance in the SAGs.

several meetings with MYRADA and bankers to convince

them that this was a viable model. In 1990 - 1991, the RBI

2.

MAINSTREAMING VS. ALTERNATE SYSTEMS

allowed the banks to lend directly to the groups, and in 1991

NABARD came out with guidelines which have been reviewed

The other issue is this whole question of mainstreaming. The

and updated regularly thanks to NABARD's initiative. When

basic reason why credit from the formal sector has not

the SHG strategy was adopted by the Government in 1999,

reached the poor is not only the extra paper work involved,

MYRADA decided to change the name to SAGs. This was

but because we have always tried to mainstream the poor.

done to stress the basis on which the group was formed,

In other words, the formal system has insisted that they fall

namely affinity (a network of relations based on trust and

in line with the official system. The poor have never been

mutual support), and to distinguish these groups from those

allowed to develop a sound alternate system that the

that were being formed to meet targets of beneficiaries whose

mainstream financial institutions would recognise in its own

profile was decided by a particular scheme. In 1992,

right. Like for example we have SAGs, which do not want

NABARD launched the SHG Bank Linkage strategy which has

to be registered because they will have to serve some kind

spread all over the country.

of harassment from petty officials. But the banks said that

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