An approach to building sustainable SHG An approach to building sustainable SHG federations federations

Kalpana Pant with federations – 7Kalpana Pant with federations – 7thth August 2012 August 2012

Chaitanya – Empowering Women and

Youth

One of the earliest institutions to promote SHG women’s financial institution - 1991

Currently, 91000 families organised into SHGs/ clusters and federations in 1200 villages and 50 federations

A Resource organisation on self –help groups and federations in the country

Closely worked with the government – designing of MRCP (Swa-shakti, Swayamsiddha, CAIM, Tejaswini, Vasundhara)

Courses on SHG and micro finance with State Open University and TISS

Microfinance: Issues and Challenges of Non- community Based Approach

• Capital Adequacy and Commercial Investment- mobilizing capital to maintain debt equity ratio. Ownership transfer and often mission drift.

• Elimination of Saving Services - focus of MFs remain primarily on credit services.

• Drift in Community and Poverty Focus – Without participation of community greater possibility of mission drift

• Community Remains Mere Group of Customers -Social capital and social development process is alienated

Need of Community Based Microfinance Approach

• Empowering Community– participation of community in decision making is essential

• Community Ownership Retains Focus on Community and Poverty- Resources from community are invested to leverage funds

• Need Based Service Delivery – Extends thrift and credit services with social intervention support quite effectively.

• Strengthening Local Institutions for Local Development – To address context specific local development issues people’s institutions with resources can play crucial role.

• Eliminates Dependence and Risk Attached to Foreign and Commercial Investments – upholds the interest of people first.

Most Importantly…

An integration of financial as well as non financial services

Social intermediation helps cement the foundation of a micro finance programme – it builds ownership, networks, increases involvement and risk taking capacities

Genesis of the Federation

•SHGs started in 1989 in Chas area in Khed block of Pune District

•In 1991, 14 SHGs decided to come together and form a federation

•The federation was registered in 1993 under Societies’ registration Act 1860 and Bombay Public Trust Act 1950

Sustainability – what Do we Mean?

Key Aspects of sustainability

•Value orientation to avoid mission drift•Increased capacity of members to take

risk•New innovative ideas•Strong governance, community

ownership – •Networks and convergence •Conflict resolution •Role transformation of leadership •Members perceiving direct benefit

Financial Sustainability

Business Model-2011 calculations •Cost of promotion -Rs. 400 to 500 per year

per member over a period of 4 years for a federation with membership of 2500.

•Recurring cost – Rs. 50000 per month (2011 calculations)

•Easy to achieve with low cost of operations •Demonstrated with 15 sustainable

federations –trying different models of income in 35

5 Sustainability Model Projections5 Sustainability Model Projections

Financial Costs Paid to Bank

Model 1 & 2 15%

Model 5 0%

Interest Charged to Borrower

Model 1 & 2 –Direct

24%

Model 5 –interest free

12%

Loan Loss Provision Model 1 & 5 1%

Model 2 –BC 0.1%

Model 3 - NABARD 0.1%

Model 4 0%

Assumptions with INR 20000 & 10 InstallmentsAssumptions with INR 20000 & 10 InstallmentsLoan O/S Model 1 Model 2 Model 3 Model 4 Model 5

Indian Bank Yes Bank NABARD ICICI Bank Vasundhara

20000 150 150 200

9000 67.5 67.5 90

8000 60 60 80

7000 52.5 52.5 70

6000 45 45 60

5000 37.5 37.5 50

4000 30 30 40

3000 22.5 22.5 30

2000 15 15 20

1000 7.5 7.5 1000 400 10

Sub Total 487.5 487.5 1000 400 650

Less Loss 200 20 20 0 200

Total 287.5 287.5 980 400 450

Assumptions with INR 40000 & 20 InstallmentsAssumptions with INR 40000 & 20 Installments

Loan O/S Model 1 Model 2 Model 3 Model 4 Model 5

40000 300 300 2000 800 400

38000 285 285 380

36000 270 270 360

34000 255 255 340

32000 240 240 320

30000 225 225 300

28000 210 210 280

26000 190 190 260

24000 185 185 240

22000 165 165 220

20000 150 150 1000 200

18000 135 135 180

16000 120 120 160

14000 105 105 140

12000 90 90 120

10000 75 75 100

8000 60 60 80

6000 45 45 60

4000 30 30 40

2000 15 15 20

Sub Total 3150 3150 3000 800 4200

Less Loss 400 40 40 0 400

Total 2750 3110 2960 800

1. The most sustainable option is of course interest free loans where with a spread of 12% p.a.

2. The second best option in case the loan size demanded is small (less than Rs. 25000) is a 5% service charge as in NABARD’S WSHG programme

3. For larger loan sizes, interest spread instead of fees based on loan outstanding is a much better option as clear in the comparison with Yes Bank where the income is higher with limited risk of 10%

Projections Summary

4. Model of 2% service charge can be explored in case federations are dealing with loans of small sizes – but not for large loan sizes

5. Most banks only give partial payment (1%) and remaining after repayment – in case of default the 1% remaining is not paid

6. Need to negotiate with the banks for an increase in service charge in case of loans of longer duration

Reducing cost - Human Resources

•Shift over a period of four years from professional to local staff

•Recruited from the community – from operational villages

•Recommended by women’s groups•Primarily women – requires high

investment in capacity building

Jankar – Key to sustaianability Jankar – Key to sustaianability Developing Capabilities and Skills of Rural SHG Women to Address their Developing Capabilities and Skills of Rural SHG Women to Address their Self Identified NeedsSelf Identified Needs

• community resource persons – for capacity building, audit of SHGs as well as financial counseling

Profit distribution by GMSS

•20% of profits for social programmes – Dipti Arogya Nidhi –community health programme

•20% for livelihood promotion – capacity building and loan fund for cow project

•20% for Chirag technical support team•40% for other expenses (Older federations

want an office of their own!)

Challenges in Mobilising resources

•Regulatory issues – savings not legal except in Cooperatives

•Rating agencies not familiar with CBMFI•Capital Adequacy Ratio not sufficient •Portfolio at Risk relatively higher that

other models •MIS – not customised – federations cannot

afford •Internal audit and control – possible with

training of the federation office bearers