Assessing Micro Realities With Macro Policy: a Study of the Self Help Group (SHG) - Bank Linkage Programme

Abstract

"There is a growing fascination with the mechanics of microfinance, with the vehicle. There is less and less concern about the passengers and their destination," Aminur Rahman. Widespread poverty remains a key development challenge in India. Expanding access of the poor to credit has been at the centre of poverty alleviation policy in India. The major thrust of policy until the 1990s was on increasing credit supply at subsidized rates through expansion of the banking network. Inadequacy of this approach to reach the poor and ensure sustainability of lending institutions led to a reorientation in the policy. In this backdrop, Self Help Group-Bank Linkage Programme (SBLP) was conceptualized as an innovative microfinance programme building on the synergy between existing banking network, NGOs and informal groups of rural poor. The success of SBLP is described in terms of outreach to the poor through collateral free lending, full cost recovery and high repayment rates, thereby balancing the needs of clients and institutions. Though influenced by Financial System approach, institutional sustainability has come to the fore; client level impact is mainly interpreted in terms of proxies like repayment rates. This research focuses on clients of SBLP to investigate whether SBLP is effective in reaching the poor, meets their needs and its impact on their economic and social life. Through participatory study of four SHGs comprising 62 members in three villages, the research documents clients' perspective on SBLP. The role of policy, banks and Self-Help Promoting Agencies (SHPA) is also analysed to assess the suitability of operational design to meet the needs of the rural poor. The findings show that while SBLP has been able to effectively overcome barriers in access to financial services, the economic impact on clients is limited to consumption smoothing and reduction in recourse to informal credit. Group dynamics positively affect confidence of members and social impacts depend on the orientation of SHPA. Programme focus on achieving numbers has resulted in enlisting SHPAs having neither the capacity nor orientation to provide economic facilitation to the groups. The constraint faced by SBLP to go beyond first generation issue of access to financial services to economic development lies in its inability to build capacity of the group members, provide local context based financial services and livelihood support. While the microfinance community debates on lending approaches, the major contribution of this research is in arguing that access to credit is not sufficient for positive economic impact. The needs and livelihood choice of the poor depend on the local context and are shaped by their past experience. The linear process of development based on credit, ignores key factors such as unproductive landholdings, low risk appetite of the poor and their inexperience in setting up micro business. Unless these are addressed through public investments in agriculture, availability of risk mitigation mechanisms and provision of support services, the impact of credit availability on poverty would continue to be minimal.