SHG YAJI

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FINANCING SELF HELP GROUPS SHG - Bank Linkage PROGRAMME 1992 WELCOME

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Micro Enterprises Need of the Hour NARAYAN YAJI M.B.A, C.A.I.I.B SENIOR MANAGER KARNATAKA VIKAS GRAMEENA BANK MANGALORE

Changing the faces …: 

Changing the faces …

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FOUR IN ONE ROLE OF SHGs SHG A MONEY LENDER A DEVELOPMENT BANK A VOLUNATARY AGENCY A CO-OPERATIVE

MICRO FINANCE – A DEFINITION: 

MICRO FINANCE – A DEFINITION PROVISION OF THRIFT , CREDIT AND OTHER FINANCIAL SERVICES AND PRODUCTS OF VERY SMALL AMOUNTS TO THE POOR FOR ENABLING THEM TO RAISE THEIR INCOME LEVELS AND IMPROVE LIVING STANDARDS

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Small groups of poor people (10 to 20 members) Homogenous and affinity groups - having same social and financial background - Caste, religion, gender, poverty, neighborhood, occupation, social status etc Formal or informal groups Voluntary participation Help each other to solve their problems Promote small savings and create common fund Internal lending Loans for consumption and / or production purposes. Collective decision making What are Self Help Groups ?

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Promoter talks to people in small groups Explains benefits of thrift and group formation No promises given, not even of sanction of bank loan Helps group members to hold initial meetings Enables group to find a group leader for holding meetings, keeping books Animator guides SHG to become strong and matured Training at frequent intervals and in small doses Inputs through formal and informal training Guidance for opening bank a/c, credit linkage, getting benefits of govt. programmes, social mobilisation etc. How an SHG is formed ?

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What should be the ideal size ? All members should Actively participate Legal implications on size -- Registration One member – One family – More families can join . Groups with members of same sex – Preferred . Members of what age? Can a minor be a member ? Members of same Social & financial status Homogenity Individuals who is a defaulter to a bank or whose spouse is a defaulter to a bank – Can be admitted as a member? Exit policy? Basics of Self Help Group - Membership

SHG MEETING: 

SHG MEETING

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Regularity in conduct of meetings – At what intervals? Where to conduct? When to conduct? Day ? Time ? Who should convene? Recording of attendance ? Need? Any late arrivals? Any penalties? Absence from attending? Any penalties? Any condition for quorum? How to conduct? Transaction of business- Any recordings? Basics of Self Help Group- Meetings

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Leadership – Emergence – Not imposed How many leaders? Procedure to be followed? Any designations? Any change in leadership envisaged? At what interval? Leadership responsibilities- Know to leader? & others? If leader defaults? Basics of Self Help Group- Leadership

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Membership/ Entry fees? Thrift amount – How much? Same for all? Same all time How to collect? Any interest paid on savings? How much? Issue of loans & Interest on loans – When to start? What purposes? At what rate? Quantum? What procedure? Recording? Repayment period? Collection of interest and principal? Posting? Interest on Savings Bank balance with bank: Benefactions / Donations / Subsidies received Borrowing from bank: At what stage? Why ? How? Quantum, Records? Plan for repayment? Basics of Self Help Group- Financial Matters

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Records to be maintained : Attendance Register Minutes Book – Rules of the group , proceedings including loans sought and sanctioned , operations with bank including credit of collections, loans applied, availed and installments repaid and interest paid . Savings and Loan Register – Details of member-wise Savings, loans availed, details of payment of interest and loan installments. Pass book issued by the bank with updated entries . Individual member’s pass book with updated entries . Basics of Self Help Group- Records to be maintained

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What SHGs do ? Meet regularly Compulsory attendance Maintain records Create & develop common fund Internal lending Discuss problems of members Avail bank loan Encourage income generating activities Arrange skill development training Inculcate banking habit Take up joint ventures Take part in community / social activities

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SPECIAL FEATURES OF SHGs Flexibility, transparency & autonomy Democratic functioning Self discipline & conflict resolution through consensus Collective leadership & decision making Creation & development of common fund Loans without collateral Small, Timely & need-based credit at door step Market related interest rates Default management through peer pressure Transparency in operations Repeat loaning with impressive recovery Take up social and cultural activities

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Homogenous membership Members from poor families Regular (weekly) meetings Total Attendance & Participation Regular and compulsory savings Savings Bank a/c in SHG's name Proper Internal Lending Minutes Book and Registers Transparent decision making Democratic functioning Training and Awareness building Leadership Development Group & Social Action Characteristics of a Good SHG

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Who helps form SHGs !!!!!

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Any one !!!!! Any reasonably educated and helpful local person may facilitate poor people to form groups . !!! Retired School Teacher / retired govt. servant Health worker / field officer /staff of development agency or govt. dept / GP Secretary etc Field officer / staff member of bank Field level functionary of an NGO Unemployed educated local person (IRV) House wives Social workers Who helps form SHGs

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To know whether SHG is functioning well Grading norms include group's characteristics, style of functioning and extent of members' involvement in the group activity Grading not only at the time of first financing - periodical grading necessary Banks may adopt their own grading norms Joint and transparent Grading suggested Grading feedback can help SHG improve its performance Assessment of SHGs - Checklist

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RBI circular dated 04-01-1993 permitted banks to open SB account in the name of SHGs SB account is opened soon after SHG is formed Documents to be submitted : Resolution from the SHG, signed by all members, deciding to open SB a/c with bank Authorisation from the SHG: 2-3 to jointly operate upon their account. Introduction / Photographs Copy of the rules and regulations : Not compulsory Linking of SHG with Bank

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Principle of Savings First Credit Later Internal lending can start from first meeting itself Purpose, terms and conditions of loan, rate of interest etc., may be decided by the group through discussions Group may have its own rules for internal lending : Prioritisation of activities, upper ceiling for amount that can be given to a member / activity / purpose may be decided by the members through discussions Interest is usually charged at Rs.2 - Rs.3 per Rs.100 pm . Generally it is lower than moneylenders' rate but higher than interest charged by the bank Internal Lending by the SHG

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MICRO FINANCE AND NABARD The group in active existence for atleast 6 months Should have successfully undertaken savings and credit operations - No internal loans no bank loan Democratic working / participatory decision making Grade the SHG to assess its maturity and strength BM to attend the SHG meeting before sanction of first loan SHG to prepare a credit plan and apply for bank loan; Promoting agency to recommend sanction of loan Loan in the name of the group; No purpose/project insisted Initially, more loans given to consumption purposes; Gradual shift towards income generation activities Sanction of loan to SHGs

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Sanction of loan to SHGs (cont'd) May sanction Cash Credit or Term loan Repayment period: 2 to 10 years Simple documentation : Loan application ; Sponsorship letter from NGO (if needed) Inter-se agreement – members jointly and severally liable for the loan availed by the group; loan agreement Collateral Security & Margin : Relaxed . Interest rate : Respective lenders to decide Presence of a few defaulters can be ignored To keep the SHG loan accounts healthy and performing Periodical visits to the group meetings frequent grading & counselling ; continuous desk monitoring

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How Much Credit ? Linked to Group’s total savings – Not the balance in SB account Quantum of Loan as multiple of SHG’s savings Generally 1 to 4 times of corpus More than 1: 4 can be sanctioned depending on strength of the SHG, credit needs confidence of branch manager on the group SHGs will seek smaller quantities after 4 - 5 linkages unless graduation from micro credit to micro enterprise is achieved Rs.10,000 > 30,000 > 100,000 > 1,75,000 > 5,00,000

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Own Funds / Corpus of the SHG Total of SHG's amount kept in SB & other accounts Cash Balance Loan amount receivable from members Alternatively, aggregate of Cumulative savings collected from members Interest / fine collected Grant / donations received Deduct : Loan received from other sources

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Linkage Model -1 Linkage Model -2 Linkage Model -3 What is Credit Linkage

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Linkage Model -2 Linkage Model -3 BANK forms SHG & extends credit S H G Linkage Model -1 S H G BANK NGO Forms SHG BANK S H G NGO

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Credit flow from SHG to members Loans for a) Consumption purpose b) Production purpose c) Consumption & production purpose

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Advantages of SHG to members Credit delivery at door step Flexible norms in credit dispensation Mutual trust and co-operation Development of thrift habit among poor Financial & social empowerment Employment generation Confidence building among members

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Improvement in standards of living Entrepreneurship development Asset creation Low interest rate Availability of small and need based credit No security Convenient repayment schedule Advantages of SHG to members (contd.)

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Advantages to Banks Wider coverage Less desk work to field staff Low transaction cost High recovery Externalization of credit function Goodwill creation & image building Meeting social objective Profitable

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To know whether SHG is functioning well Grading norms include group's characteristics, style of functioning and extent of members' involvement in the group activity Grading not only at the time of first financing - periodical grading necessary Banks may adopt their own grading norms Joint and transparent Grading suggested Grading feedback can help SHG improve its performance Assessment of SHGs - Checklist

Innovative Loan Products through SHGs: 

Innovative Loan Products through SHGs Crop Loan Through SHGs Based on members requirement One Time Repayment Single loan would take care of 20 crop loans Maximum period of loan is 6 months Multiple Credits to SHGs Loans for purchase of land through SHGs Loans for purchase of second hand vehicles / machinery

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Programme Impact Economic Empowerment Social Empowerment Political Empowerment Access to Financial Services Income generating activities Participation In NRM Eradication of Social Evils Education Better Health Care & Nutrition Participation in relief measures Women Participation in PRIs Savings Credit Insurance Agricul- ture Allied activities Small business & Tiny Units Watershed Developmen t Wadi Development

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Other Services from SHGs Information about defaulters Recovery Drive Renewal of Document - AoDs Special Deposit Scheme for the SHGs Recurring Deposits from individual members

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Effect of SHG financing on members SHG MEMBERS FEEL A SENSE OF BELONGING WOMEN MEMBERS TAKE PART IN FAMILY WELFARE CONSIDERABLY WOMEN MEMBERS FEEL PROUD OF THEIR ECONOMIC SECURITY MEMBERS ENCOURAGED FOR MORE LABOUR / WORK TO CONTRIBUTE / SAVINGS. MEMBERS MOTIVATED FOR PROMPT REPAYMENT OF BANK LOAN

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