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Self-help Groups Revolution: What Next?

Self-help groups, the major form of delivery of microfinance in India, have brought about dramatic changes in the lives of lakhs of women. In Andhra Pradesh, which has the largest network of SHGs and where the government has been a strong supporter, they have gone beyond provision of credit and assumed many non-traditional responsibilities. The Andhra model is one that other states should consider replicating.


Self-help Groups Revolution:What Next?

Self-help groups, the major form of delivery of microfinance in India, have brought about dramatic changes in the lives of lakhs of women. In Andhra Pradesh, which has the largest network of SHGs and where the government has been a strong supporter, they have gone beyond provision of credit and assumed many nontraditional responsibilities. The Andhra model is one that other

states should consider replicating.


he subject of the Silver Jubilee lecture of the Society for Promotion of Wasteland Development (SPWD) was on the future of self-help groups (SHGs). The SHGs are, as is well known, women’s SHGs that got a distinctive identity from 1992 onwards thanks to the leadership role provided by the Reserve Bank of India (RBI) and National Bank for Agriculture and Rural Development (NABARD). Even recognising that they are community-based organisations of the poor, what have SHGs to do with the mandate of the SPWD? Although it might appear that this discussion is straying far afield, it is really not so.

It is true that SHGs have been seen fundamentally as entities for savings and borrowings. This may have been true of an earlier generation of SHGs, but today, in some parts of the country, SHGs are taking on new roles and responsibilities that lie at the very core of livelihood security for the poor. Indeed, as institutions of social capital, they offer great potential for addressing the concerns that have been the preoccupations of the SPWD over the past quarter of a century.

While talking of the SHGs, another rapidly growing segment in the rural economy, namely that of microfinance or microfinance institution (MFI) – as it has come to be known – has been cons ciously left out in this lecture. This is because the MFI model rooted in financial intermediation is quite distinct from the SHG approach anchored in social mobilisation – the two are structured differently and indeed have different objectives to begin with.

Some estimates are that there are around 800 MFIs operating in India in various forms – trusts, societies, cooperatives, Section 25 companies and Non-Banking Financial Companies (NBFCs). Some MFIs have earned global encomiums and a number of leading venture capitalists like Vinod Khosla have emerged as their backers. These MFIs have also been mired in controversy at home and some district collectors are sceptical of their claims, suspicious of their loan recovery methods and critical of the high interest rates they charge. Without getting into the issue of MFIs vis-à-vis SHGs, it is enough to mention that Prabhu Ghate (2006) has recently prepared an excellent comparative analysis.

Like in most things related to economic and social development, the Gang of Four – Andhra Pradesh, Karnataka, Kerala and Tamil Nadu – lead the country in SHGs. They account for almost 54 per cent of the SHGs but more importantly, for almost 75 per cent of the bank credit. In the last few years, the SHG movement has picked up in other parts of the country such as Orissa, West Bengal and Assam.

Government Involvement

There is another dimension of what is happening in the SHG movement that is worth recalling here. Six years back, almost two-thirds of the SHGs were those promoted by NGOs. Today, a little over half of the SHGs are promoted by government (which means mostly state governments), less than a third by the NGOs and the balance by banks.

Some people may see this as the kiss of death for SHGs. But this is not so, and should be welcomed since it is only with the involvement of the state government directly that you can get scale and activity expansion, like what has happened in Andhra Pradesh. This is, however, not to deny the path-breaking work being carried out by NGOs like Sewa, the Dhan Foundation, Myrada, Seva Mandir, BAIF and Pradan.

But the difference in scale is striking. Sewa took 35 years to mobilise eight lakh women and the Dhan Foundation took 17 years to reach a membership of

2.6 lakh women. By contrast in Andhra Pradesh, 80 lakh women have been mobili sed in just 15 years. Again, take the example of MFIs. According to Ghate, their estimated portfolio outstanding is around Rs 1,600 crore whereas in Andhra Pradesh, the SHGs accessed Rs 3,400 crore in bank loans in 2006-07 and loans outstanding exceeded Rs 4,000 crore.

Andhra Pradesh is what I want to concentrate on. Not only is it the state that I represent in the Rajya Sabha – a Kannadiga educated in Uttaranchal, Jharkhand and Maharashtra, married to a Tamilian and representing Andhra Pradesh must make me a member of the endangered species called the “Indian”

– but it is where the SHG movement has expanded spectacularly.

What makes the Andhra experience unique are not just the numbers. The numbers are impressive no doubt. Six years ago, a staggering 40 per cent of the country’s SHGs were in Andhra Pradesh. Now, the proportion is 26 per cent. Further, almost 40 per cent of the loans given by banks to SHGs are in Andhra Pradesh alone. These loans, in turn, constitute some 6 per cent of all rural credit in the state but 24 per cent as a proportion of lending by RRBs and cooperatives. The existence of strong local commercial banks like the Andhra Bank and the State Bank of Hyderabad and the presence of healthy RRBs has undoubtedly given a fillip to the SHG movement in Andhra Pradesh.

What gives further distinctiveness to Andhra Pradesh’s endeavours is the

Economic and Political Weekly September 8, 2007 fede ration structure that has been adopted. There is first a SHG in a village – actually many SHGs. Each SHG has 10-15 women as members. These individual SHGs are federated into a village organisation (VO). The VOs are, in turn, federated into mahila mandal samakhyas. The mandal samakhyas in a district come together to form a zilla samakhya. This federation structure is crucial to provide economies of scale and to establish institutions of the poor and by the poor at all the three tiers of administrative hierarchy. Having appropriate institutions at appropriate levels of governance has a logic that is simple but powerful; yet it does get ignored in practice. Thus, the combination of the federation structure and the principle of subsidiarity makes the Andhra SHG movement a trendsetter.

Presently, there are 22 zilla samakhyas, 1,000 mandal samakhyas and 29,000 VOs in Andhra Pradesh, all registered under the landmark Mutually-Aided Cooperative Societies Act or the MACS Act as it is called, that came into being in 1995 when N T Ramarao was chief minister. MACS is a great innovation for it eliminates both political and bureaucratic control over cooperatives. Tremendous contributions that former chief minister, Chandrababu Naidu later made to the growth of the SHG movement in the state has to be acknowledged, even though the movement got a fillip after the literacy and anti-arrack campaigns in Nellore district in the late 1980s and early 1990s and grew out of the earlier Development of Women and Children in Rural Areas (DWCRA) groups.

Indira Kranthi Patham

The best political tribute to the SHGs came in 2004 when the newly-installed Congress government in Andhra Pradesh reaffirmed its commitment to Velugu, the state government programme launched by Naidu with World Bank support in 2000 for promoting and operating SHGs, by giving it an expanded role with a new name Indira Kranthi Patham (IKP). The IKP is managed by an independent Society for the Elimination of Rural Poverty (SERP) which is a government agency with all the flexibility that a society structure provides especially for hiring of professionals. SERP employs some 2,200 such professionals across the state who provide administrative and managerial support to the entire SHG network.

Since 2004, I have been intimately asso ciated with the IKP and have seen for myself the dramatic changes that are taking place in the lives of lakhs of women. I am not the only one who has been impressed. It is not exactly an adver tisement these days but Paul Wolfowitz was so taken up by what he saw in August 2005 that he reportedly urged president Bush to include Hyderabad in his India itinerary in March 2006. Less contr over sially, the management guru C K Prahalad has become an ardent advocate after his exposure and sees in these SHGs, economic entities that exemplify his Bottom of the Pyramid paradigm.

The most recent and perhaps unusual tribute has come from Shoaib Sultan Khan who runs the Aga Khan Rural Support Programme in Pakistan. I still recall his words expressing his appreciation: “Jairam Saab, aap log Yunus ke peeche kyon bhag rahe hain. Andhra mein jo ho raha hai, woh Grameen se kuch kam nahi hai. Main dus saal se dekh raha hoon aur Andhra mein asli kranti aayi hai” (Why are you after Yunus, what is happening in Andhra Pradesh is not any inferior to grameen. I have been watching for the past 10 years and there is a revolution taking place in Andhra.) Many people wouldn’t know of Shoaib Saab in India. Lucknow-born and educated, civil servant, a Magsaysay award winner for his rural development contributions, he was a member of UNDP’s South Asian Poverty Alleviation Programme (SAPAP) team that along with people like K R Venugopal and B N Yugandhar triggered the massive Andhra SHG initiative in the late 1990s.

Apart from Shoaib Sultan Khan, the fact that Bihar – at the highest levels of government – is showing great interest in the Andhra experience and is taking steps to replicate it is of significance. Learning from each other is something we rarely do and that is why Bihar’s enthusiasm is particularly noteworthy even though the involvement of the World Bank has kept the enthusiasm going, no doubt. A caveat though is in order here. Programmes can be easily replicated but people matter most. What has given Andhra the SHG edge is that there has been virtually the same team in place for almost a decade, a team with a shared vision and values.

New Responsibilities

The SHG network in Andhra has gone beyond credit and assumed responsibilities which can only be called non-traditional. Four are worthy of mention here.

Firstly, it has taken up marketing of commodities like maize, neem, soybean, coffee, lac and red gram. Last year, the value of procurement was in the region of Rs 130 crore. The big challenge here is to go beyond traditional marketing and get into value-addition in meaningful measure and develop linkages with exporters and processors directly.

Secondly, it is being used to distribute old-age pensions – in 2006-07, over Rs 700 crore was distributed to around three million beneficiaries through the SHGs. Timely disbursement of pensions and disbursements without a “consideration” are the hallmark of the SHG involvement.

Thirdly, the elements of a communitybased food security system are being put in place. At the moment, it consists almost entirely of a rice credit line but the goal seems to be paddy purchase and milling by the SHG network at the village and mandal level itself.

Fourthly, dairy interventions have started with livestock being purchased through SHG-bank linkages and with the SHG network setting up bulk milk coolers and milk procurement centres. Ensuring that there are links established between the network of SHGs and the traditional National Dairy Development Board (NDDB) procurement network is important as dairying is very significant as an incomeaugmenting occupation to crop agriculture.

There is one more somewhat unusual intervention through the SHG network. This relates to non-pesticide management (NPM) in agriculture, particularly cotton. As is well known, 50-60 per cent of the pesticide applied in India is in cotton cultivation; in Andhra Pradesh, the proportion is 55 per cent. Cotton lies at the heart of the suicide tragedies that have stalked the state over the past decade and so this particular initiative has great significance. So far, something like two lakh acres have been covered and by the end of the decade about 10 per cent of the net sown area in the state will be covered.

Exports of spices need special mention. Today, about 25 per cent of the $ 600 million of spice exports is accounted for by chillies that are grown predominantly in Andhra Pradesh. Chillies without pesticide residue command a premium in world markets. One needs to distinguish between non-pesticide agriculture where fertilisers are still used and organic farming where yields may turn out to be lower but net returns to farmers could actually increase. NPM agriculture is,

Economic and Political Weekly September 8, 2007

probably, the first step to organic farming that has relevance in certain situations and niche regions.

Land Development Project

Another important initiative taken up by the SHG network that has the most direct bearing on the SPWD’s own agenda needs to the mentioned. About two million ha of government land has been assigned to the landless poor in Andhra Pradesh over the past decades. But as is well known, productivity of these assigned lands is very low – perhaps, that is why they were “assigned” in the first place. Against this background, the state government has launched a comprehensive land development project that takes up about 10 per cent of this area to be brought under productive use in four years time.

The route to productivity enhancement includes (i) traditional land development itself; (ii) soil and moisture conservation works; and (iii) horticulture and raising of nurseries and agro-forestry plantations. 95 per cent of the funds come from the Rural Infrastructure Development Fund (RIDF) window of NABARD as loan to the state and the state contributes the balance 5 per cent. The entire financial assistance goes as grant to the assignees. What is of particular significance is that it does not entail what might be called the “unit-cost” approach to land restoration. This affords flexibility and enables works to be taken up depending on the quality of the assigned land and what the as signee sees as the priority as part of upgradation.

The Andhra SHG story has undoubtedly been government-driven. Perhaps that is one reason why it has not drawn attention as much as that received by some MFIs operating at vastly smaller scales and vastly lower scope. What it shows is that government can innovate, that government can demonstrate commitment and concern. Efficiency is not the monopoly of the private sector nor is sensitivity the preserve of civil society. Within the govern ment system, there are people who are motivated and who, given political support, can and will deliver.

There is also a strong element of subsidy in the Andhra SHG story. The state government provides an interest subsidy to SHGs of 75 per cent of the interest paid by them to banks. Subsidy is not necessarily bad. If it can be targeted, if it can be made transparent in the budget, if it can be afforded and if an overwhelming social purpose is being served, is there any reason why we should decry subsidies? In 2006-07, the interest rate subsidy scheme – called ‘pavala vaddi’ – cost the state exchequer Rs 75 crore. Actually, this subsidy is performance-linked. Only SHGs that repay bank loans regularly are eligible. Loan accounts classified as “overdue” in the books of banks at the time of half-yearly closing and as “non-performing assets” (NPAs) at year-end closing are ineligible for the subsidy. And this is indeed as it should be.

To be sure, over time the SHG network must become self-sustaining. Indeed, that is the true test of whether the government has succeeded or not. When will this happen? I have been asking this question of my colleagues in Andhra Pradesh and the answer they have come up is the following. A mandal samakhya will have the capacity to be on its own feet when it has a monthly net income of Rs 50,000. Today, while a detailed financial analysis is still being done, it appears that of the 1,000 mandal samakhyas, perhaps just about 10-15 per cent meet this criteria. Clearly, there is a long way to go yet. Further, even in these 100-odd mandal samakhyas, bulk of the monthly income

– around three-fourths – is really interest income. This proportion has to reduce.

This is why it is critical to see SHGs not as just networks for confidencebuilding and empowerment but also as networks that must have access to new economic opportunities. One of the initiatives taken by the ministry of commerce in recent months is to link export promotion councils with SHGs so that the benefits of export expansion can accrue directly to the poor where they have skills. A beginning has been made in leather in Tamil Nadu and in shellac in Andhra Pradesh. The export promotion councils are working with SHGs to provide design and marketing assistance, while the SHGs are responsible for production. Another example is how the SHG-run lace export park in Narsapur in west Godavari district of Andhra Pradesh is being facilitated to establish global linkages. A recent breakthrough has been obtained with IKEA – the international, low-cost home products retailer.

SHGs and Panchayats

The relationship between SHG institutions and panchayat bodies needs greater attention. The central government has made panchayats the pivot around which the implementation of the National Rural Employment Guarantee Act, Bharat Nirman and the Backward Regions Grant Fund revolves. Devolution of finances in many instances is to elected zilla parishads and gram panchayats. There is really no conflict between the two. SHG institutions can and must play a supporting role in social mobilisation and in social audit, like, for instance, in the National Rural Employment Guarantee Act (NREGA).

The only state where the SHG network is fully integrated into and derives strength from the panchayati raj system is, not surprisingly, Kerala. The state highly successful Kudumbashree programme launched in 1998 is a separate story in itself and it has to be acknowledged that it is well and truly community-driven, much more extensively than in Andhra Pradesh. Over time, as SHG members gain in voice and self-confidence, they can be expected to contest panchayat elections on their own. In the recent local body elections, about 9-10 per cent of those elected to mandal and zilla panchayats were “SHG women”, something that was unheard of before.

Much has so far been said in praise of SHGs; I am dwelling mostly on their activities. Important as these activities are in themselves, we cannot neglect concurrent evaluation, particularly social audit. Such assessments are few and far between. But special mention must be made of an excellent study carried out last year by the Gurgaon-based EDA Rural Systems and the Hyderabad-based Andhra Pradesh Mahila Abhivruddhi Society called ‘Self-Help Groups in India: A Study of the Lights and Shades’, done for four donor agencies. 108 villages in four states – 33 in Rajasthan, 31 in Orissa, 28 in Andhra Pradesh and 16 in Karnataka – were taken. The study looked at various issues including outreach, social role, sustainability and reached the conclusion that there are perhaps more social lights beginning to appear and more financial shades. Such studies done on a regular basis by the involvement of a large number of research institutions will help SHG networks develop a culture of measurable outcomes.

SHGs are not panaceas for every situation. In India, there have been many instances of innovative initiatives that have been taken and pretty soon these initiatives degenerating into “solutions in search of problems” – the example of technology missions with which I was intimately associated in the late 1980s comes immediately to my mind. Since

Economic and Political Weekly September 8, 2007 the state administrative machinery has collapsed in so many areas, there is a temptation to give the SHG network an ever expanding role.

Proponents of SHGs have raised the possibility of SHGs managing public health centres (PHCs), for instance. When there is a good thing going, exaggerated expectations can and do set in, especially when there is political mileage to be derived as well. Drawing a ‘lakshman rekha’ around the SHG network so that it does not spread itself very thin is very essential. At the same time, there has to be some room for responding to new challenges. For instance, now that Andhra Pradesh has emerged as number one in HIV/AIDS prevalence in the country, public health planners should use the extensive SHG network for combating this scourge.

Coming to MFIs that had been referred to earlier, the Andhra MFIs have been very much in the news, not always for the right reasons. There has been competitive tension between the IKP and these MFIs. “SHG-poaching” may well be one reason but the exploitative practices of some of these MFIs and the lavish lifestyles of their promoters may be the primary cause of why they have been reviled by both administrators and the local media. Both have important roles to play. The separation of the social organisation to be performed by the IKP and capital mobilisation and disbursement to be performed by the MFIs is the starting point of a cooperative approach. In such an approach, the regulation of the industry will be driven by the market and community, rather than by legislation.

Mani Shankar Aiyar has been an indefatigable champion of the panchayat revolution that has swept India, thanks to the 73rd Amendment to the Consti tution. While much remains to be done, over 30 lakh elected representatives now all over rural India with over 12 lakh of them being women is a visible manife station of this momentous change.

Simultaneously, there has been the SHG upsurge, an upsurge that is uniquely Indian. Over three crore women are now linked to banks through over 22 lakh SHGs and as shown, financial services is only a small part of their success story. More fundamental has been voice, identity and empowerment.

For inclusive growth which has become the mantra these days, India needs not just globalisation as traditionally understood but actually globalisation which ensures that economic growth is more broad-based, equitable and sustainable than it has been so far. Panchayats are institutions of representation. SHGs are institutions of participation. These are the twin pillars on which India’s globalisation strategy should rest.



[This is adapted from the text of the Silver Jubilee lecture delivered at the Society for Promotion of Wastelands Development on May 5, 2007. I agreed to deliver this lecture as the request came from V B Eswaran and because I owe so much to Kamala Choudhury, Lovraj Kumar and V B Eswaran, the three people most closely associated with the SPWD.]


EDA Rural Systems and APMAS (2006): Self-Help Groups in India: A Study of Lightsand Shades, a report prepared for Catholic Relief Services, CARE, USAID and GTZ/ NABARD.

Ghate, Prabhu (2006): Microfinance in India: A

State of the Sector Report, CARE and Ford


Economic and Political Weekly September 8, 2007

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