1 Optimizing SHGs Sustainability

2 Who Maintains Books In AP, the books are maintained by Office Bearer – paid or unpaid. In other three states by SHPA staff or paid bookkeeper. Depends on who maintains the records- SHPA staff do best, unpaid non-members do the worst

3 BOOK-KEEPING 54% of the SHGs have reasonably good records (15% good and 39% moderate) 40% have weak records- over half the sample in AP; 1/3 rd in the other 3 states. Over half of the Govt. promoted SHGs have weak records; 36% of both NGO and bank promoted groups 72% of the SHGs have up-to-date passbooks 73% of the SHGs kept their records at leader’s house

4 RECORD QUALITY 83% SHPAs have some internal verification systems, computerization and external audit Quality of records is better where SHPAs focus is more on microfinance than MF+ Lesser the distance to main road better the quality of books

5 Group Records Overall, the quality of group records require considerable improvement. A system need to be in place to verify the maintenance of books on a regular basis and to support the bookkeepers. The book keeping system seems to be complex: the number of records and the workload to record transactions. Bookkeeping still seems to be a “dark” area. The “light” is that where the book keepers are paid & supported, they maintain the books well. SHG Federations could supervise & support bookkeeping.

6 EQUITY the average portfolio size is Rs. 69,100, ranging from Rs. 27,400 in Orissa to nearly Rs. 1 lakh in Karnataka. Loan portfolio of SHGs by wealth rank and caste - smaller for poorer groups, and the largest for BC groups Incidence of non-borrowers is 5% in South and 8% in North The groups with non-borrowers 25% in South 38% in North

7 ACCESS TO LOAN Average no. of loans per member is 2.2 in south (last one year) and 3.8 in the North since group formation Average of Rs. 9,500 borrowed as loan by each member in the South (in the last one year) which is almost the same as borrowed in the entire period of SHG in the North. Degree of inequality- 68% of the SHGs overall have low std dev. Value of less than Rs. 5,000; 10% of the SHGs have more than Rs. 10,000 Std. dev.-’0’- equally distributed among all group members. 16% in the South and 5% in the North Equal distribution of external loans to avoid conflicts among the group members and to simplify procedures and record keeping.

8 Loan Access: Leaders and Members A PKarnOrissaRaj Members (excl. leaders) 1. Average number of loans Average loan amount (Rs.) 6,57012,5005,24012,660 Std dev 5,70011,3005,90011,400 Leaders 3. Average number of loans Average loan amount (Rs.) 7,97016,3907,07017,820 Std dev 6,10013,9007,10020,000 Leaders: other members No. of loans [3/1] Loan amount [4/2]

9 LENDING TO NON-MEMBERS 18% of the SHGs have lent to people outside the group. It is high in AP-23% and Orissa-22%; and Govt. promoted SHGs-24% Interest charged to non-members is always higher. The lending to non-members is often not recorded in the books At times, the members borrow and lend to non-members. Issues in lending to non-members: i) default by the non- members and ii) new form of money lending

10 Equity Within Groups SHGs practice need-based lending. The analysis reveals a high degree of equity among members. The leaders in the Northern sample borrowed significantly high amounts compared to South. Lending to non-members either by SHGs or individual members reflects supply-driven credit distribution.

11 DEFAULTERS Defaulters >90days-12 m >12m Current borrowers 19%5% Avg. Loan O/S2,7001,700 Overall (All members)20%4% Leaders19%1% Members21%5% 39% Highest level of default is found among the very poor borrowers compared to other wealth ranks The period of overdues also increases with poverty Very poor find it difficult to pay - poverty, vulnerability and risk- an accident, illness or death in the family, crop failure Note : Defaulters data is only for the North sample, defaults higher in South as the SHGs are much older and manage larger funds

12 RECOVERIES Group norm-interest monthly and principal over the term of the loan 8% of the borrowers were > 12 months behind in repayment. Default at 12 months was significantly higher for very poor and poor borrowers at 8-9% compared to borderline (4%) and non-poor (1%) borrowers. For repayment of bank loans the pattern is clearly specified for 1 st linkage loans: repayment period months; often the principal is paid in 10 equal monthly instalments and the interest is paid at the end. In the subsequent linkages the repayment period varies from months, and up to 60 months.  Quarterly/monthly repayment of principle + interest  Seasonal approach-different times of the year, depending on ag seasons.

13 Strategies to Deal with Defaulters Social collateral- members making repayments on behalf of defaulter Exerting pressure on defaulters to pay-discussions within the group, warnings, imposing fine, taking assets into possession, locking her out of her house Ensure repayment depending on defaulter’s situation, rescheduling, willing to wait until the members can begin repayments again Follow-up on continuing default-visit to the members house, and a period of waiting for about 6 months to 1 year Low MF inputs and higher development inputs, higher rates of default. SHPA staff role in repayment, Recovery Committees. Adjustment of savings by the bankers, targets and repeat loans

14 GROUP SUSTAINABILITY Financial statements are not being regularly prepared. Only in 28% of the SHGs (22% in the South and 35% in the North) income and expenditure statement available An equal number balance sheet and portfolio information available Financial performance of the SHGs showing mixed findings Around half of the groups are operating at profit with a good return on assets of assets of 6.5%, and a return on internal capital of 11% Around 20% of the sample are running at a loss Most SHGs report Zero cash in hand. In Rajasthan, 8% of the groups with cash in hand is more than Rs more distance.

15 COST OF BANKING Direct costs of banking are mainly transport In 36% of the SHGs, a visit to the bank takes less than an hour; for 25% a visit takes more than 3 hours 63% of the SHGs, leaders visits the bank The costs were reported to be zero in one-third to a half of the groups in Karnataka and the northern states. In AP all groups incur some costs Rs. 300 is the average annual direct cost. It is high for Karnataka groups –Rs. 500 Opportunity costs of the time spent by SHG leaders and members in bank transactions not included

16 Portfolio At Risk OverallA P Karnat akaOrissa Rajast han N - SHGs with portfolio data Total portfolio outstanding (million Rs) With PAR =/>360 days number % SHGs53%80%52%41%12% %PAR31%55%25%9%2% average (Rs)/SHG at risk40,00049,00046,0005,00011,000

17 Portfolio At Risk 53% of the overall sample (80% in AP) have defaults more than one year past due, representing one –third of the portfolio in the southern sample, less than 10% of portfolio in the northern sample. PAR in bank promoted groups is lower than for NGO and Govt promoted groups. Half the bank promoted groups have an average 18% PAR at 360 days. There is not much difference between NGO and Govt promoted groups

18 DEFUNCT AND BROKEN SHGs 8-11% of the SHGs formed are no longer functioning in AP, Orissa and Rajasthan; but in Karnataka <2% 3.6% of groups formed were defunct; 3.3% had broken Savings account is closed- group funds divided among the members, with adjustments against outstanding loans; account not settled- the SHG continues but is defunct Reasons-no bank linkage, irregular savings, absence of SHPA, loss of records, defaulting Split or reorganization of groups in three situations- New government schemes, going independent, traditional ROSCA

19 Thank You