SHG Bank Linkage: Lending a Helping Hand?

Case Analysis I

The case examines the loan utilization pattern and the challenges faced by self-help groups (SHGs). The main focus of the case is to highlight the financial inclusion programme by the SHGs promoted by Lupin. The author tries to recognize whether SHG bank linkage transforms the lives of rural women by bringing about a change in their socio-economic status in the society or not.

The penetration of banking services in rural and suburban areas in India still needs a special care from the government and the other authorities. In the past, government has taken several initiatives in promoting multiple banking institutions in the country to bring happiness and growth in the rural areas, but still the results are not encouraging. The new addition in country’s banking and financial structure is SHGs to augment the banking needs. As the author pointed out, the SHG and banking linkage programmes (SBLPs) initiated by organizations have made some significant impact on the lives of rural citizens.

Lupin Human Welfare and Research Foundation (LHWRF) of Lupin Limited pioneered the social responsibility activities of developing and transforming rural villages in India. It is certainly significant that Lupin has revamped 2,200 villages in different states in the country. Their social initiatives cover all facets of rural development including employment creation to income generation, poverty alleviation and women empowerment.

Lupin promotes participatory rural model to revitalize the potentials of rural poor for better livelihood. This approach gained support from various government and non-government organizations. Looking into the diversity of rural needs and aspirations, the social responsibility activities of Lupin are segregated into three main grids—social, economic and infrastructure. This model is successful in poverty alleviation and creating employment for rural men and women.

The case highlights the welfare programmes of LHWRF in Madhya Pradesh. The various rural development initiatives taken by the foundation in the state include creating various women SHGs, programmes for agricultural advancement, irrigation development, animal husbandry, etc. The data revealed that the Lupin foundation has been able to impact 83 villages in the Raisen and Vidisha districts of the state through these social activities. The women SHG bank linkage programme, agriculture and irrigation development programme, animal husbandry programme and education programme are some of the extraordinary activities achieved by the foundation in the state.

The SHG and bank linkage initiative of LHWRF transformed many rural lives in the state. The basic problem a rural poor faces is the lack of fund and exploitation from village moneylenders. Moneylenders charge exorbitant rate which is unaffordable to a rural poor to start any self-employment venture. In order to address this abuse, LHWRF mobilized poor families into women SHGs and subsequently linking these SHGs with the Microsat branch of the Indian Bank in the state. Through the scheme, bank started extending credit to SHGs on an annual interest rate of 12–13 per cent. It offers multiple loans to SHGs on the basis of their cumulative savings.

The impact of SHG bank linkage model reveals a complete facelift of rural infrastructure and growth. The data collected from 32 SHGs formed and nurtured by LHWRF and Indian Bank for credit services show a significant change of rural lifestyle after the initiative. Many believed that their household income levels have increased because of the programme. The formal and informal financial literacy skills provided by LHWRF staff to the women SHG members helped them understand the concepts of thrift and credit and its importance in life.

The programme also brings about various social impacts and improves the self-confidence among women. Women also experienced a change in their communication skills and personality. The reasons cited include economic empowerment, exposure to people and meetings. Women members are now participating in decision-making—either in their own family or in the rural welfare initiatives. This shows their community participation and transformation.

The SHG and bank linkage programme also improved capacity building skill training to SHG members in the village areas. The additional livelihood opportunities—weaving, stitching, parlour work, etc.—helped the rural women generate extra income and engagement. The foundation has installed 200 sewing machines in some districts of Madhya Pradesh for the benefit of women. Various professional training courses including computer training are also provided to women and young girls in order to enhance their skills. The foundation also takes care of other facilities such as health camps—especially camps for women.

Overall, the initiatives taken by Lupin foundation in rural development and prosperity are extraordinary in the modern day India. Corporate bodies, in their corporate social responsibility (CSR) programme should focus more on these types of social initiatives to change in the lives of rural poor and provide them alternative sources of livelihood. This not only brings millions of smiles, but also transforms the growth trajectory of India.

The author has made a good attempt in highlighting the social initiatives of corporate India through this case study. The case is best fit for class room discussion on the subjects related to rural finance or microfinance.

Case Analysis II

This is an interesting case which attempts to discuss the major issues related to SHG bank linkage and tries to critically analyze initiatives of government in the field of financial inclusion. This is attempted by taking the Bhopal centre of LHWRF as a test case. The major issues analyzed in the case are:

Issue of sustainability of SHG’s promoted by Lupin?

Issue of Sustainability of SHGs Promoted by Lupin

In this case, we have to analyze the working of SHG, its structure and also the processes followed for bank linkage programme. If we look at Lupin model of working in these directions, we can say that the SHGs promoted by Lupin seem to be going towards sustainability. The reasons for this argument are as follows:

The SHG is evolved with a proper structure of functioning, which is going to be a strong foundation towards sustainability. In LHWRF, the organization promotes women SHGs consisting of 10–12 members on the basis of affinity. Each SHG elects a president, a secretary and a treasurer. The SHG members meet at least once every month. Each member saves ₹ 100–200 every month; however, certain groups save as much as ₹ 1,000 per month. The total monthly savings generated by the SHGs are ₹ 412,000/month. The total savings generated till date are ₹ 7,984,000. This is a proof of sustainability of the SHGs through a well-defined system of working in a structured form.

Loan Utilization Pattern

This is also linked to the sustainability issues. A loan taken for consumption purpose is a slow poison, which is ultimately going to kill anybody. In case of SHGs promoted by Lupin, as suggested by the case and the data gathered by author, loans are majorly taken for income-generating activities rather than for consumption purpose. This is a healthy sign and is verified by the fact that almost 605 of the respondents think that their income has increased after joining the SHG initiative and example of Santo Bai of Rukmini Samuh is a classical case of it. So, it gives a positive sign for sustainability of SHG initiative.

Challenges Faced by SHGs, Lupin and Bank

When you are working in an area which is identified among top 100 in poverty-stricken villages in India, there are bound to be more challenges than opportunities. But, we must remember that challenges come with opportunities and they also prompt people to come up with innovative ways to counter the challenges. Like in this case, the top challenge for SHG is considered to be late contributions. This challenge also came with innovative way of countering penalty by contributing on behalf of others. This innovative way of contributing is also going to go a long way in strengthening the SHGs.

Another challenge is inadequacy of funds. Here, the solutions may be to merge some of the SHGs. Another solution which is already in place is to equip the members with skills which can give them alternative source of income.

The obvious challenge for Lupin foundation is to convince people to join SHG. Here, the solution available is, to take one case as a role model and then make people aware of the growth of members in that SHG. As we say that a live example is the best way to communicate the concept. Another way can be to give incentives to people who convince people to be part of SHG. Yet another way to induct members could be cross SHG loan facility from successful SHG to newer ones, hence leading to build microfinance institution within SHG. This may also solve the other problem of withdrawal strategy.

The problem for bank till now is non-availability of branch, which required members to visit Bhopal branch whenever money was to be deposited or loan was required, impacting the increase in transaction cost of financial service. The problem was tackled innovatively, by sending bank personnel every month to the SHG areas and collecting the amount of savings.

Impact of SHG Bank Linkage

It can be said that there is a positive impact of SHG bank linkage in transforming the lives of rural women by bringing about a change in their socio-economic status. This is evident from following facts:

Women involvement in economic activity has increased.

Anticipated Future Challenges

On the basis of case, following future challenges are anticipated for this programme:

In case of loan for livestock, there are chances of members being trapped in debt trap. How Lupin foundation is going to address this issue which can become death trap for SHG also?

At last, it can be concluded that Lupin foundation has done a nice work by successfully creating a framework for SHG working and also by implementing that, but it has a long way to go in future to make the dreams a reality for them. At the same time, it is an example of the microfinance industry to look at and to adopt the best practices specially in organizational set-up and operations side.

Case Analysis III

This analysis aims to analyze the case ‘SHG Bank Linkage: Lending a Helping Hand?’ which aims to bring out the efforts made in the realm of financial inclusion through the SHG bank linkage model and the issues pertaining to the same. The case also aims to analyze the efforts made by Lupin foundation in promotion of SHGs and their bank linkage in Raisen and Vidhisha districts of Madhya Pradesh.

The first part of the case talks about India’s performance on the financial inclusion index which has been poor with India occupying 50th position out of the 100 countries surveyed. Out of the 600,000 villages in India, the penetration of banking services only reaches to about 50,000 villages. This calls for immediate robust initiatives for financial inclusion from across various stakeholders.

The Government of India along with the apex bank, the Reserve Bank of India (RBI) has taken some initiatives for the financial inclusion of the rural poor. The nationalization of the banks followed by researches for alternative credit strategies resulted in the following initiatives:

Self Self-help Group Bank Linkage Programme: A total of 7.4 million SHGs were covered under the SBLP by NABARD through various nationalized banks. Launched in 1992, the SBLP as on 31 March 2011 has over ₹ 7000 crores worth of savings balance. However, the SBLP has been plagued with issues of multiple borrowings and memberships and delays in disbursements and account opening.

The above mentioned initiatives taken by the government with the RBI have been excellent at the policy level, but have faltered at the implementation level. The penetration of banks in the villages has been poor and the rural poor still relies on the informal sources of credit. As of 2009, 60,000 villages in India with a population above 2,000 remain without any banks. The SBLP aimed at plugging the gaps of financial exclusion has had its own problems all throughout. Some of the major issues with the SBLP have been regional disparity where the southern states of India have been able to utilize the SBLP and the northeastern states have been largely excluded. The utilization of the credit amount by the SHG members has largely been for their personal consumption rather than income-generating activities. There has been a lack of capacity building of SHGs by the SHG promoter institutions. This has resulted in poor quality SHGs which have made it difficult for formal credit institutions to maintain their faith in the SHG model.

The second part of the case analyzes the initiatives by Lupin Limited, India through its CSR activities in the form of LHWRF. LHWRF, Bhopal has been working in Raisen and Vidhisha districts of Madhya Pradesh since 1988. Lupin foundation is involved in organizing poor women into SHGs, handholding them for 6–8 months and then facilitating bank linkage with Microsat branch of Indian Bank, Bhopal at an interest rate of 12–13 per cent per annum against 60–120 per cent offered by the informal credit sources.

The model followed by Lupin foundation is that the formation, nurturing and strengthening of the SHGs are taken care of by the foundation whilst the financial services are directly provided by the bank. The SHGs promoted by Lupin foundation typically consist of 10–12 members with a president, a treasurer and a secretary being the office bearers. The SHGs have monthly meetings and save a minimum of ₹ 100 and a maximum of ₹ 1,000. A total of ₹ 7,984,000 have been saved by the SHG members till date. Lupin foundation at present nurtures 346 SHGs. Each SHG after a period of six months is linked with the bank. The SHG members have two sources of credit; through internal lending within the SHG and through bank loans. The SHG members are also insured to reduce the risk of non-payment in case of death of a member. Out of 346 SHGs, 275 have been linked with the bank with the cumulative loan amount being ₹ 55,100,000.

The author has sampled 32 SHGs and the following have been the key findings:

60 per cent of the respondents believed their income levels were enhanced.

Lupin foundation is also facilitating skill development of the SHGs by providing vocational training in trades such as weaving, tailoring and parlour work.

The SHGs face a number of challenges such as the non-regularity in savings by some members, inadequate loan amounts which force them to go to moneylenders to start income-generating activities and lack of skills. On the other hand, Lupin foundation faces challenges such as maintaining the faith of the SHG members in the entire programme and deciding on the withdrawal strategy. The bank has been lending to the SHGs in areas where it does not have its branch which has been tackled by sending a personnel to the SHGs for collection of their savings.

In terms of the sustainability of the entire programme by Lupin foundation, the author finds that 58 per cent of the respondents are dependent on other sources of credit apart from the bank and the SHGs. Since the loan amounts are very low, the SHGs find it difficult to initiate economic activities. The loan amounts are utilized for personal consumptions such as marriage and construction.

The author concludes by mentioning that the bank linkage programme by Lupin foundation has altered the social condition of the women and has encouraged additional savings, but in order to make the programme more sustainable, the foundation needs to nurture the SHGs further and initiate group microenterprises. Also, the foundation needs to study the loan utilization pattern of the SHGs and needs to guide the SHGs for appropriate utilization of the loans for economic activities.

Case Analysis IV

SHG bank linkages provide an important plank to achieve the ambition of financial inclusion in India where formal credit and banking services have yet to make a mark in the rural domain of the country. The case presented is an attempt to understand the challenges and constraints by studying LHWRF in districts Raisen and Vidisha (Madhya Pradesh).

Doubts abounds, SHG model has revolutionized the rural sphere in terms of social and economic empowerment. Poverty binds people together and the organized power helps them get out of the clutches of poverty. Here, credit access is provided to organized groups at affordable rate of interest which has brought economic and social empowerment. It is not only about extending credit to women of the family, but it is also about having a say in family affairs, empowering women to take decisions and go out of their doorstep and explore new opportunities. As highlighted in the case, Government of India has tried to give a flip to financial inclusion by promoting SHG bank linkages model. This is being operationalized by formulating and implementing various schemes and programmes.

However, the objective seems to be a distant dream despite achieving success in some pockets of the country. There are many glitches in penetration of SHG bank linkages. According to Mor Committee on Financial Inclusion, about 90 per cent of small businesses have no links with formal financial institutions and 60 per cent of population is out of formal banking sector. This statistics is effective to get an idea in context of the inadequate access of bank services to Indian population. So, we understand that enabling environment for financial inclusion is quite far away from the doorsteps of SHG women. They still have no option but to depend on informal sources of credit that keep them in poverty trap, thanks to the exorbitant rates of interest charged by moneylenders.

Financial inclusion is not only about access to credit, but also about financial literacy which seems to be brushed aside in the process of financial inclusion. Illiteracy and less understanding of managing books and accounts cause poor management of operations of SHG. Paucity of information about government schemes is another impediment in financial literacy. Also, the tendency has been to utilize SHG funds for consumption purposes rather than productive purposes which restrict the recovery and savings of the members of the group. Trainings and capacity building initiatives have not marked a positive change in attitudes and actions of SHG members. As the case emphasizes, a substantial credit to start a livelihood is not accessible to SHGs via formal channels. As far as geographical spread of these linkages is concerned, these have been south centric and yet to take off to other regions effectively especially in Bihar, Chhattisgarh, Odisha, Jharkhand Madhya Pradesh and northeastern states.

A distinctive feature of SHG bank linkage scheme is high recovery rate. SHG bank linkages should not be limited to extending credit to the poor households. Other forms of financial services such as insurance, loan guarantees, leasing, factoring, etc can be provided to rural areas. The advantage will be twofold: poor households will be able to invest in a portfolio and have a range of economic activities and banks will be able to maintain viability for branches in rural areas by providing customized solutions to the marginalized yet a large section of society. In this way, banks have to play a pivotal role in covering vast majority of disadvantaged and low-income groups into fold of financial services. Another important consideration to strengthen SHG bank linkages may be performance linked incentives so as to prevent defaults. It should also be tracked how SHGs are using their loans and keep a track of regularity in SHGs’ meeting and performance. In view of this, it is important to impart financial literacy to the women federations to optimize the fund utilization. Many innovations can be involved to achieve this objective. Community radios, plays, workshops, trainings, etc can be effective to build awareness, knowledge and skills.

In a nutshell, there is a lot of potential for achieving twin objectives of business growth as well as social inclusion by addressing the lacunae and bridging the missing links in SHG bank linkages. Addressing sustainability issues and intra-group conflicts, mechanism to provide consultancy to SHGs should also be at place. Capacity building for SHG members and training to bankers for sensitivity are a must to bring stakeholders at same page. Notwithstanding, concerted and multi-pronged strategy and effort will have to be effectively implemented to fill gap in existing formal financial network and lend a helping hand to the poor.

Case Analysis V

This case discusses the issues related to SHG bank linkage through the lens of corporate social activity (read— responsibility). CSR stands for corporate social responsibility which is also known as corporate citizenship, corporate conscience and responsible business. Different organizations have framed different definitions—but in a nutshell, CSR is about how companies manage the business processes to produce an overall positive impact on society. It is like giving back to the society. This article covers the aspects of all the pertaining issues related to Lupin’s CSR activities, SHGs and their operations. This article broadly discusses the following facts about SHGs:

Tool for financial inclusion.

The case also reveals the challenges that the LHWRF, Bhopal faces and how they have worked their way around these problems. LHWRF, Bhopal has been working in Raisen and Vidisha districts of Madhya Pradesh. Both of these blocks feature in the list of the poorest 100 districts in the country. A major reason for poverty is the unavailability of credit at an affordable interest rate for undertaking productive activities. Hence, the poor are dependent on local moneylenders who provide credit at an annual interest rate of 60–120 per cent. Hence, to reduce the dependency on these local moneylenders, LHWRF came into play. The challenges relating to Lupin foundation’s social responsibility can be broadly classified in following criteria:

Creation of SHGs by convincing members to save money for some duration before credit could be provided to them.

The Lupin foundation of Bhopal is involved in the CSR activities broadly comprised of women SHG bank linkage programme, agriculture and irrigation development programme, animal husbandry programme and education programme. It also tries to recommend some future measures for its sustainability and growth. In order to reduce the dependence on agriculture or livestock as the only livelihood option, it suggests the promotion of group enterprises.

Later in this article, the two diverse live examples of two different women Santo and Mamta, tried to shed light on the pros and cons of financial activities and SHG lending mechanism. These two examples tried to illustrate some negativities of this SHG model, which is that, it leaves out the ultra poor/poor who either fail to repay loan or are too poor to carry out any livelihood activities, waiting time for loan sometimes results in dropout, despondency and corruption.