Why NABARD will NOT provide loans to the Self- Help Groups ( S.H.G.s )

Why NABARD will NOT provide loans to the Self- Help Groups ( S.H.G.s )

Background : When we form a Self- Help Group ( S.H.G.) in the rural areas we usually aim for the socio- economic upliftment of the members of the Self- Help Group ( S.H.G.). The savings generated by the members are slow and not sufficient enough to trigger the economic upliftment of the members. The concept of business and trading is not applicable to the typical Self- Help Group ( S.H.G.) as the members a re generally motivated by the earnings ( profits ) our of any activity which may  provide subsistence and help them in entering the next cycle of income generation thus sustaining the livelihood for the family members. Each individual member aims to earn profit, enjoy a share for her own free will and repay the loan in small repayment installments.

The profit will increase when every member makes an individual effort to sustain the activity provided by the shared capital of the Self- Help Group ( S.H.G.) thereby purchasing raw material, inputs for production and technologies required for this while applying a shared knowledge and labour for combined profit through individual IGA ( Income Generating Activity ). This is different to the business activity that is managed by an individual or an organization as these Self- Help Group ( S.H.G.) s are unorganized, scattered in rural settings, far away from their markets, susceptible to changes in demands of products and generally ill-equipped to package their products. The capital required for the  IGA ( Income Generating Activity ) varies wit the individual capacity of the family of the member of the Self- Help Group ( S.H.G.). The sum total of the capital generated from the group savings and / or the loans from the outside agencies, the capital reaches individual as per the capacity to repay and the total fund ( savings, loans and other income ) of the Self- Help Group ( S.H.G.) is re-allocated with this view point for the individual member. The total sum of the capital required for the micro-enterprise may vary from a few thousand to sum of two lakh of rupees. The example of backyard poultry may vary from as low as rupees five thousand to more than three lakhs for the 300 birds. The variance makes the calculations very clumsy and challenging.

The implementer NGO ( Non- Government Organisation ) / mFI ( micro –Finance Institutions) / FI ( Financial Institution ) cannot and does not enter into these calculations and they simplify the calculations by terming these IGA ( Income Generating Activity ) in terms of “ Unit- Cost”. All the calculations are based upon a fixed number of units to be manufactured / produced/ reared under a fixed number of shed/ farm/ factory under a fixed cost of production by a fixed number of  labour for a fixed sales price generating a fixed profit leading to a fixed repayment installments. So you see every individual step and process is  “fixed”.

When each step and process for setting up an enterprise to the installments of the local amount is “fixed” we find that everything gets “fixed”. The complications in each calculation provide an opportunity to the manager of the loan-provider agency susceptible to demand favors and manipulations are then common. This leads to the financial corruption which may start as early as the opening of the account in the branch of that agency. The middle men here the financer / facilitator / NGO/ mFIs / Self- Help Group ( S.H.G.) may have to promise a share or a “cut” as a percentage of the loan amount sanctioned by the manager. This may be followed by a series of meetings, preparation of loan application supported by an assortment of documents, photographs, quotations, plans, budgets, minutes of the meetings of the Self- Help Group ( S.H.G.), decisions of the Self- Help Group ( S.H.G.) to take loan, and further opening of separate loan account in the same branch.

Please remember that these procedures are binding for the Self- Help Group ( S.H.G.) when we see that they are semi-literate,  illiterate,   rural , coming from backward community having no experience in taking loans from the market  and members of the Self- Help Group ( S.H.G.). The age of these members may have crossed the limit where they can change the thought-process and the facilitator has to fill up these forms, provide documentary support asked for, submit fees for the documentation of the application, convince the members to put their signatures on the loan application, provide photographs of the groups and the Bank Account operators, meet the manager in the Branch and not claim any service charge for doing all this either from the Bank or the Self- Help Group ( S.H.G.) .The completed Application form reaches the table of the manager of the loan-provider where they have a habit of providing a series of suggestions, remarks, comments , changes and some negative remarks on poverty of the Self- Help Group ( S.H.G.) members. Then a Field Officer may visit the spot where the Self- Help Group ( S.H.G.) holds a special meeting for again “fixing” some answers to some pre-fixed questions on their loan-application.

The facilitator agency may feel uncomfortable by the series of queries related to their organization regarding the – registration, Income Tax returns, compliance with the Registrar Office Rules, Audit and Annual Reports, Record related to the Governing Body Meeting, Status of property owned by the members and the organization, reputation of their work, office and staff persons and then decides separately on the loan that may be sanctioned to the Self- Help Group ( S.H.G.). It is ridiculous that the promoter or the facilitator agency, here the NGOs in the forefront, have no part in accessing and usage of Loan but their papers are scrutinized minutely, as if they are taking loans and they will repay the loan.

The time for approval of the loan-application is not “fixed” and may take weeks’ time or remain “pending” for years. The ombudsman agencies for Banks seldom intervenes in the delay of loan and it depends on the information relayed by the loan-provider agencies. The status of loanee is mostly like a beggar and Self- Help Group ( S.H.G.) looses its self-respect in this process.

The loan application usually gets approved at the Branch level as the demand for amount of loan by the Self- Help Group ( S.H.G.) is usually  not very high .The sanctioned loan amount is then transferred in the loan account of the Self- Help Group ( S.H.G.) that may have been opened in the same branch of the Bank. This loan amount could be in the range of the double amount of the money saved by the Self- Help Group ( S.H.G.) upto four times the total fund with the SHG. It is very rare that the Banks sanction the loan amount on a 1:4 ratio. The loan amount sanctioned and  transferred in the loan account is monitored by the Bank Staff and they wait for an opportunity to receive their share in the loans. It is usually seen that the first loan is easily accessed by the Self- Help Group ( S.H.G.) but the next dose and increase in the limit may be very difficult to achieve.

The amount of loan sanctioned by the branch of a Bank is reported to the Head Office of the Bank which gets refinanced from the NABARD ‘s Central- Pool.

NABARD calculates the amount of loan reaching the people living in the rural areas through the data provided by the Banks who “sanction” the amount of loan and transfer that amount in the loan account of the Self- Help Group ( S.H.G.) s. Our experience and data shows that this is a misleading data churned out by NABARD and reported to the Ministry of Finance. The amount of loan that is finally made available (sanctioned, disbursed and withdrawn from the Bank Loan Account ) to the loanee Self- Help Group ( S.H.G.) is far less than the amount of loan “sanctioned” by the Bank.

The loan reaching the Self- Help Group ( S.H.G.) is again reallocated to each member based upon three major factors :-

1. The savings and previous loan-repayment behavior of the member ,

2. Amount of capital required in the kind of IGA planned by the member and

3 The final capacity of the member to repay the loan that is to be taken now.

Thus, we see that there is a lot of wrong reporting by the Banks to the Ministry of Finance which further leads to some or most of the following complications for the rural people in India.

1. The Amount of loan provided to the Self- Help Group ( S.H.G.) is inadequate, rather miniscule to reach a profit-making limit for any Income Generating Activity (IGA):

The loans finally reaching the hands of  ( not the sanctioned amount of loan )   members of the Self- Help Group ( S.H.G.)s may be as low as a few hundreds to a few thousand of rupees when they would have required a loan nearing fifty thousand rupees or more. This small loan is useless for the member and may not support the financial need to start an IGA

2. The Procedure followed to access Loan from a Bank / Loan Provider is still cumbersome.

The access to loan is not without the lengthy procedures in the form of the filled  Application form, documents, verifications, notaries, non-judicial stamps, photographs and no-dues certificates in most of the nationalized Banks adhering to norms that flout the zero-balance and KYC Norms also. This problem may increase when the total amount of loan sought is more and second or third dose , the physical distance between the locations of the Self- Help Group ( S.H.G.) and Bank increases and there is an absence of a facilitator in the form of a Cluster of SHGs/ Federation / NGO / mFIs.

3. The leaders or the active members of the Self- Help Group ( S.H.G.) also claim a necessary amount of expenses that further leads to erosion of trust on the SHG Concept. SHG has no extra fund to spend on the preparation expenses of loan application. The loan application demands repeated visits, phone calls, sometimes a Project Report, Documents, Photographs, travel expenses and related unforeseen expenses. The chances are that even when they may get help from the facilitator in the preparation of these documents there is no guarantee to get the loan sanctioned by the Bank. The loss in making these efforts is seldom redeemed by any financer or funding agency. NABARD has never been empathetic to this need of the Self- Help Group ( S.H.G.) in India. The expenses are borne by the poor members of the Self- Help Group ( S.H.G.) s. Thus we see that even when there is lot of talk on encouraging the concept of  SHG- Bank Linkage Model there is no thought on how to compensate the financial losses incurred by the Self- Help Group ( S.H.G.) in pre-loan access activities.

NABARD does not provide any kind of financial help to the facilitators for the loan-facilitation expenses. It may provide assistance to the facilitator after it sanctions a Project-based procedure for SHG- Bank Linkage Model. The release of such grants are at the mercy of the Project Implementation Unit ( PIU ) comprising of the DDM of NABARD, the representatives of the District Lead Bank ,The Branch Manager and One person from the facilitator- Agency. The meeting of this PIU is expected every month which is not possible due to failure to reach a quorum, which recommends the release of grant after putting all reports in the pre-determined Formats and discussing the issues. The majority are from the Bank side so the facilitator is at the mercy of these big-brothers. NABARD has been sanctioning and providing Grants only to the well-reputed   ( read financially sound , Big and previously overflowing with Funds - NGOs/ Trusts / Banks/ Companies, etc. ) implementor which means again that the new NGOs/ Clusters or Organization formed by the Self- Help Group ( S.H.G.) members themselves are thrown out  of this scheme by the difficult procedures and norms unless and until they themselves become “well-reputed” as per the unwritten norms in NABARD.

The Grant in aid provided by NABARD can be withdrawn and recovered during and after the Project period. This one clause makes a mockery of providing assistance to those who really need this most. This has been misused by NABARD in many cases in our notice where the PIU of the Projects have not honoured the reports submitted by the facilitators and the verification sat the DDM level was never done on time. The DDMs are busy in reporting false data to their offices where they have no interest to cross-check the data provided by the small NGOs/ VA s working in the remote rural areas. The Annual Reports of NABARD for the last ten successive years, published on its official website , clearly shows hardly any positive change in the BIMARU States with respect to the SHG- Bank Linkage efforts. They have failed to bring any change in the rural economy in the States of Madhya Pradesh, Chattissgarh and Odisha. The data is also not reliable in the terms of loan sanctioned by Banks and the amount which is finally reaching the members of the Self- Help Group ( S.H.G.).  New facilitators are neither interested in this programme nor approaching NABARD as they are aware about the shoddy behaviors of the personnel at NABARD and the faulty implementation of the SHG- Bank linkage Model. Even the established NGOs are now avoiding partnership with NABARD due to their poor and autocratic behavior.

4. NABARD is misleading the country: The data on the loan sanctioning and the amount finally reaching the poor people of India is one such example which I have elaborated here. There are three major areas that the reporting by the Highest Office of NABARD can be said to be under black spot for the country –

1. Number of beneficiary reported through NABARD are not very reliable: . The numbers quoted by NABARD on its website are provided by the Banks and the implementing NGOs / other facilitators which may have been inflated for getting loan-reimbursements and grant in aid. Even when we assume that these figures  are correct we see that the total number of poor people ( registered as Below Poverty Line Level )  covered by NABARD is still less than 10 % of our total  population. When we have more than 47% people living in an BPL situation, NABARD took almost thirty long years to reach only 10 % of Indians. To reach the rest 37 %  Indian ( poor ) will require another 300 years or so and for 70% rural people they will need 600 years at the present pace. Do we allow this fallacy to continue ?

2. NABARD is autocratic, NOT  autonomous:    When NABARD can mislead the Members of Parliament on the restructuring of its agenda of work who will believe that they are not autocratic? ( See www.dnaindia.com  dated 02^nd. May 2012) . They act in their own ways, whims and fancies. The DDM in the district level hardly find time to hold regular meeting s with the NGOs, Individual Social Workers, Peoples’ representatives and Bank Managers. They usually file false bills for travels and meetings as many NGO have reported to us and which can easily be verified through the RTI Applications in their Office. They do even encourage the RTI Applicants to apply at the District level they ask them to report and apply at the State or Regional Level. The plans prepared by them at the district level are not shared with the common persons for whom they are supposed to address.

3. NABARD does not fight poverty, they help is sustaining poverty level and numbers :  The Self- Help Group ( S.H.G.) are the best alternative for the poor to sustain and survive in the given harsh conditions in India. We have been advocating formation of Self- Help Group ( S.H.G.) for a long time now. But the policies, implementation and wrong dates have shown how the poverty and the inflation is increasing. The wrong amount of loan, no tax rebates for the poor, heavy quantity of documentation and dictatorial attitudes of the Banks have been supported by NABARD. They never encourage poor people, unorganized Sector, Social Sector Activists and Decentralized Banking Operation to flourish. The terms of “financial-inclusion” is a misnomer as  they are including all those who are financially sound in the system which they do not need. The socially and financially under privileged need help from NABARD which they are not getting today.

What do we do ?  Wait for another 300 Years for NABARD ( National Bank for Agriculture And Rural Development ) to reach you doorstep ?

 The Day has come where we need to look into the way our national –level organization function.

I am writing on the solutions and will update them on my Blog. Can you suggest some ways out of this status quo ?  

Please reply. Thank you. 

www.parvezameer.blogspot.in