A Study on Association of Social Capital with Microfinance and the Local Saving Programs among the Muslim Poor in Hyderabad, Andhra Pradesh, India By Rosina Nasir University of Hyderabad

Financial Inclusion of the poor ( $0.58 and $ 0.47 per day, 2011 ) Model adopted for Micro-Finance initiative in India 1.Self-Help Group- To implement Poverty Alleviation Program through National and State Initiatives: 1979-Integrated Rural Development Program (IRDP) Department of Women Children in Rural Areas Program (DWCRA)-Self employment and empowerment of rural poor women National Bank for Agricultural and Rural Development (NABARD) -Capacity Building -Social Mobilization Introduction

2. Self Help Group (SHG) Bank Linkage Programme- initiated in 1992 by Non-Governmental Organizations (NGOs) Started with 500 SHGs in 1992 and had grown to 8 million SHGs by March Among the regions, southern region is highest at Rs per SHG, (Karnataka SHGs Saving bank balance of Rs per SHG) and northeastern region recorded the lowest balance of Rs 4159 per SHG. SHGs are the association of up to 20 women (their average size is 14) Loan is given to the group and group decides how to allocate it to its member

Other attributes are: Weekly group meeting, Team leader, small and regular saving, saving account in the bank, internal lending from own saving. Revision in the SHG-Bank Linkage guidelines-Emphasis on steady graduation from community to individual banking with “no frill account” (Taking rural India forward, NABARD, ) Creation of enterprise/livelihood based groups associated with Joint Liability model within the SHG so that without affecting the functioning of the SHGs.

2. Microfinance Institution (MFI) Model : MFI acts as an intermediary and borrows in much larger amounts from the banks, mostly from the private banks who do not have rural branches to conduct SHG lending. Members organized into groups, either the classic five-member Grameen Bank- type group or larger ‘joint liability’ groups (JLG). Self-selection process leads to a positive assortative matching, that is, groups self- select members of the same risk type, forming homogenous group- TRUST Individual lending is prevalent under MFI model. Liability in JLG is more moral than legally enforceable, and is exercised through peer group pressure and the prospect of being denied future loans. High Chances of repayment No provision of saving within the group

Andhra Pradesh Microfinance Capital. 25% of the SHGs linked to SHG bank linkage programme. 30% of all borrower accounts and the outstanding loan portfolio in case of MFIs. From 2009 to 2010, an increase of over 7 percent is found. National Crime Records bureau showed that suicides among farmers in 2009 had increased with five states-Maharashtra (2,872), Andhra Pradesh (2,414), Karnataka (2,282), Chhattisgarh (1,802) and Madhya Pradesh (1,395).

Andhra Pradesh Suicides in Guntur in Andhra Pradesh and Kolar in Karnataka raised issue concerning customer protection against coercive recovery practices. In reaction of which Andhra Pradesh Ordinance came which has affected MFIs sector tremendously. However, No suicide case is recorded in the SHG-Bank Linkage programme. MFIs became infamous because of the group liability, inflexibility, lack of transparency and high interest rates. (SOS, 2012). At this stage it is very crucial to seek a single factor which differentiates SHG- Bank Linkage Model from the MFI Model. Or in other words, a factor which predicts the sustainability, particularly financial sustainability of the SHG or SHG-Bank linkage progarmme.

Trust

Social Capital (SC): It is popularly defined as local forms of association that express trust and norms of reciprocity- can contribute significantly to the alleviation of poverty worldwide. Bourdieu saw social capital as an asset used by elite groups, particularly those who had limited and cultural capital. However, Coleman defined SC as a resource for the relatively disadvantage group but Putnam has stretched the concept furthest and defined it as a resource that functions at societal level. Coleman and Putnam views together on social capital are taken into account to conceptualize its functioning in the Self-Help Groups in Microfinance. According to Coleman people choose to cooperate because it is in their interest to do so. Establishment of self-help group is an outcome of economic need which is the core reason of proclivity of the people to come together and trust each other.

Putnam introduced a distinction between two basic form of Social Capital : Bonding (or exclusive)- reinforces exclusive identities and maintain homogeneity. It is analogous with Marxian/Weberian notions of bounded solidarity and Durkheim’s mechanical solidarity which results in the formation of community instead of society-horizontal social capital. Bridging (or inclusive)-tends to bring together people across diverse social divisions.. It is analogous with Bourdieu/Marx’s concepts of aggregate social capital and Durkheim’s concept of organic solidarity – which form the society, a complex structure composed of inter-community relationship which is not bounded by community or national interest--- vertical social capital.

Research Question : Conceiving self-help group as a community where both vertical social capital and horizontal social capital are possible and together may result in solidarity and thus reduce propensity of default and regular repayment will be high because group emerges out of economic need based rational choice and trust becomes secondary. It is argued that sustainability of any self-help group does not depend only on the social capital- trust, shared knowledge and reciprocity- important as these are – but also on the nature and extent of social relationships among: (a)the group members, (b) group members and program/credit officer(s) staff (c) pursuit of self-interest of each group member.

Methodology : Fieldwork conducted in the month of October and September and intermittent visits were made to different NGOs and Microfinance Institutions. In contact with some SHGs functioning in Charminar area of the old city of Hyderabad. After Rapport establishment, information was collected by conducting group discussion and non-participant observation method with an SHG located in Yaqoob Pura in Charminar area.

Financial Inclusion and Muslims: Muslims accounted for only 4.6% and 6.6% of the total outstanding loan from the public and private bank sector respectively- low access to bank credit (Sachar Report, 2005). Low access to bank facilities with high Muslim population. Some banks identified Muslim areas as ‘negative geographical zones’ – where bank credit and other facilities are not provided. Besides this, Kolar incident- Muslim populated pockets where due to over debt some client, the Anjuman Committee declared MFI operation un- Islamic. Further added to Muslims deprivation and financial exclusion.

A Case Study of an SHG Under Roshan Vikas (RV) A brief about Roshan Vikas: Mutually Aided Cooperative Thrift Society (MACTS) registered under Andhra Pradesh Mutually Aided Cooperative Societies Act (MACS) It emerged with the notion to empower the women in the old city area of Hyderabad by rotating money in the form of small loans and to encourage productive activities. Roshan Vikas is serving approximately 1500 SHGs and each group constitutes of 15 members on an average. RV acts as an agent of the HDFC bank, a commercial Bank, and gets 2 per cent service charge for its efforts-1 per cent each on disbursement and recovery and charges 16 percent interest per annum from the client.

75 percent of monthly collection is deposited to RV as a temporary deposit instead of bank. RV was not giving any interest on the temporary deposit but women were under impression that their money is increasing by being with RV. Remaining 25 percent is also deposited to RV and an SHG receive 12 percent interest per annum on 25 percent deposit. Along with they provide RV loan and the loan amount disbursed among the client is 12 times of the 25 percent amount deposited by the members of a particular SHG. Clients’ saving (75% of the monthly deposit) is used by the group to float loan within the group according to the needs of members and it’s the group’s prerogative to decide imposed amount of interest rate or to decline from charging.

An SHG in Yaqoob Pura in Charminar Formed in 2008, women SHG. Constitutes 12 members now, earlier comprised of 15 members. Heterogeneous in age (17 to 56 years), marital and employment status. Homogenous in socio-religious-and-economic status. Four women had seven years of education and six were literate and the rest were literate. Not regular in conducting monthly meeting, and so in contribution. Most of them belong to Joint Family. All of them were Below Poverty Line (BPL). Nine women out of twelve have no trust on the stranger in the group, 4 women reported that they have “quite a bit of trust on family members” while all 12 women responded “no trust” on relatives and neighbors. However, only 4 women have “ quite a bit of trust” on the SHG Team while rest have either little or no trust in her.

Yaqoob Pura Slum’s SHG Mrs. Saleema-Team Leader Rehana-Drop Out

Thanks