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Assessment Methods

ASSESSING A SELF HELP GROUP

( Note for guidance)

[The norms for SHGs in a particular place may have to be developed keeping in view the local conditions. The above pattern is only a model and indicative one and could be used as the basis for developing suitable norms for financing SHGs be it banks or any other financing institution. A few proactive commercial banks, Regional Rural Banks and Cooperative Banks have already introduced their own norms and the same is being followed by the financing units.].

[This note may be read with NABARD circular letter dated February 2000, which also shares different formats for appraising a SHG for finance].

For any financing institution, appraisal is very important for ensuring the utility of the loan and repayment of the loan. Bankers generally appraise the project and the borrower. In case of SHG financing, most of the project appraisal norms like assessing the cost benefit and profits will not be workable due to the peculiarities of SHG financing. For considering a loan application for financing the Financer has to evaluate the capacity and character of the prospective borrower. SHG’s also being customers have to be appraised before extending credit facilities. But then assessment of creditworthiness of a SHG is very different from that of an individual. SHGs are not to be assessed in terms of their ability to provide collateral or guarantees of net worth. The SHGs have to be assessed in terms of Group dynamics like cohesion, vibrancy, goal-oriented action, participation of members, democratic decision and collective leadership. The appraiser has to see whether the group is functioning, actually as a group, why the members have come together, whether it is for obtaining loan from bank or the group sees other purposes, what is the group discipline and whether it is sustainable.

The basic principles on which the SHGs function are:

The members of the groups should be residents of the same area and must have an affinity. Homogeneity of relationship could be in terms of caste/occupation/gender or economic status (which is critical).

Savings first, credit thereafter

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SHGs should hold regular meetings

SHGs should maintain record of financial and other transactions

They should have norms regarding membership, meetings etc.

Group leaders should be elected by members and rotated periodically

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Transparency in operations of the group and participatory decision making

viii

Rates of interest on loans should be decided by the group

Group liability and peer pressure to act as substitutes for traditional collateral.

For assessing a Self Help Group the important aspects that a financer should look into include;

Norms for functioning :

The SHG should have developed some kind of norms for its functioning the norms should be covering major areas of its functioning as well as the decision making processes, leadership etc., Norms generally relate to

Membership

Meetings - time, periodicity

Savings - amount, periodicity, rate of interest (return)

Credit - procedure for sanction, ceiling amount, purposes, rate of interest to be charged, repayment period etc.

Fines - in case of default in attending meetings, savings and credit repayment. Group may also levy fines for any deviant behavior etc.

Leadership - election or nomination of leaders, rotation of leaders etc.

Personal/social improvement - minimum literacy level to be achieved, social work to be done etc.

The above norms may be written or oral. They may be decided in the initial meetings or they may evolve over a period of time depending upon the need of the group. The important aspect to be looked into are :

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How norms evolved, whether by the consensus of the whole group.

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Whether the members are aware of the norms (even if they are oral) and understand them,

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Whether the norms are implemented.

Meetings

The group decides the periodicity of the meetings i.e., weekly, fortnightly or monthly. They also decide on the time of the meeting. Decision on time and periodicity helps in regular conduct of meetings. The regularity in the holding of the meeting and the attendance during meeting gives an indication bout groups functioning. Therefore a Financer should see whether.

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The meetings have been held regularly

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The attendance in the meetings

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The members are punctual and stay till the end of the meeting

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Are there any sanctions for the delinquent members ?

The Financier can use his observations during the meetings and the meeting register to get data on this appraisal aspect.

Maintenance of Books

Whether group is maintaining the basic books that will give details of its functioning and accounts of the group is an important criterion to be judged. The books should give the details of number of meetings held, decisions taken in the meetings, amount of savings of the members and credit availed, the total savings of the group and repayments. Who maintains these books is another important criteria for judging the group. Do members maintain it, if not are they making efforts to achieve basic numeracy or literacy so that they can start doing it themselves.

Financer has to verify :

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Whether details of meetings, proceedings, and attendance are maintained.

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Whether member-wise record of saving and credit are maintained.

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Whether the records are upto date.

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Whether all members are kept informed of their savings and credit balances from time to time.

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In case of illiterate groups whether what is the system followed, does the group verify the books maintained by NGO/outsider.

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Whether systems have been developed to ensure safe custody of cash.

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Leadership

Two or three group members are elected as leaders/ book-writers. Initially the opinion leaders may be the leaders and over a period of time they are expected to be take turns. The group leaders are expected to a) regularly convene and conduct the meetings, b) help the group members in taking decisions, c) resolve conflicts, d) maintain books of account and e) approach bank branch for operation of accounts.

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The aspects that are to be seen are :

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Whether the leaders have been elected and rotated

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Whether they help in democratic functioning of the group

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Whether there is a conscious attempt to groom other members to take up leadership

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Are they marginalising the benefits (especially loans)

Participation and Awareness of Group Members

Are the Members aware of the purpose of group formation, the operations and activities of the group viz. The savings and the credit of the group as well as the individual member’s savings and credit details.

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Do they participate in group discussions and decision making

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Do they help solve the problem that are raised in the meetings

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Do they work cohesively and have transparent dealings

The democratic character of the group may be judged by attending one or two meetings and talking to individual members. The awareness level of members helps in healthy functioning of the group and resolution of conflicts within the group.

Savings :

The group decides on the amount of savings as also its periodicity. It has to be seen whether the saving, as decided upon, is regularly made, how the defaults are dealt with and whether the system is modified as per the requirements of the members.

Credit :

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The following aspects to be looked into while assessing the credit function of the group :

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The decision making process of selecting loanees.

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The system followed in assessing credit requirement of individual members and the amount to be sanctioned.

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The system of monitoring the credit.

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The repayment performance of members and incidence of defaults besides the effectiveness to deal with such defaults; whether the concept of `peer pressure’ is working.

12.

Self Reliance of the Group

Can the group function on its own without the support of the NGO is an important criterion for assessment? The level of dependency on the NGO/promoter of the group and impact of withdrawal of NGO/promoter on the group is to be assessed.

RATING OF SELF HELP GROUPS

SL.NO	CATEGORY	CRITERIA	MARK	KEY
1	COMPOSITION	Membership is homogeneous No homogeneity in membership	10 5	The rating is based on the judgment of assessing official
2	AGE OF THE GROUP	One year and above Six months and above but less than a year	10 5	There is no need to evaluate an SHG if it is less than six month old (ignore marginal shortfalls upto 1 month)
3	WEEKLY GROUP MEETINGS	Four meetings per month 2-3 meetings per month 1 meeting per month	10 8 5	The total number of meetings conducted during the last 3 months may be divided by 3 to arrive at average no. Of group meetings.
4	ATTENDANCE	More than 90% Between 70% and 90% Less than 70%	10 5 3	See explanation 1 at the end.
5	MINUTES BOOK	Written in detail Maintained, but not in detail	10 5	Peruse of minutes book pertaining to meetings held during the last 3 months.
6	PARTICIPATION IN GROUP DISCUSSION	Participation by only a few members Participation by majority of members	5 10	Peruse minutes book (if rating is 10 for item 5) Observe during a couple of group meeting Interact with members
7	SAVINGS (FREQUENCY)	4 times a month ( by majority members) 4 times a month (but not by majority) 2-3 times a month (by majority members) 2-3 times a month (but not by majority) 1 time a month day (by majority members) 1 time a month (but not by majority)	10 8 8 5 3 1	Step 1 : Take the average no. Of members making saving during last 3 months. Step 2 : Compare this with the total no. Of members Step 3 : Majority mean > 60% Step 4 : For average no. Of meeting, follow rating given for item 3 above. Note : Please see explanation 2 at the end.
8	SAVINGS & LOAN RECOVERY (MODE OF COLLECTION)	Collected in group meetings House - to house collection	10 5	Ascertain form group leaders and members in this regard also, peruse minutes book.
9	STYLE OF FUNCTIONING AND GROUP DECISIONS	Democratic and Transparent Decisions taken by few dominant member / members / group leaders	10 0	Peruse minutes book, Interact with members, Observe in few group meetings, Ascertain whether periodical elections are conducted for the leadership and whether all decisions are in group meetings and on democratic lines.
10	SANCTION AND DISBURSEMENT OF LOANS	Selection of borrowers in group meetings Sanction and disbursement of loans in group meetings Loan terms and conditions discussed in group meetings and recorded in minutes Utilisation of loans reviewed regularly in group meetings Recovery of loans reviewed regularly in-group meetings.	2 2 2 2 2	Ascertain the position from group leaders/ members Peruse minutes book (Each item will get marks shown against it, if the conditions are satisfied)
11	INTEREST ON SHG LOANS	Uniform rate irrespective of source of funds Different rates depending on source of funds Interest rates vary according to the purpose of loan Uniform interest rate for all purposes	5 3 5 3	Peruse loan register. Ascertain from group leaders / members
12	UTILISATION OF SAVING FOR LOANING	Above 80% Above 50% and upto 80%	10 5	Compare savings outstanding on a given date with loans outstanding on the same date to obtain the percentage. Nil mark for utilisation of savings below 50%
13	RECOVERY OF LOANS	Dues not recovered in respect of 10% or less of total no.of loan accounts Dues not recovered between 10% and 30% of total no.of loan accounts.	10 5	Even one instalment unpaid without authorisation by the group is treated as dues not recovered. Count such accounts and compare them with total no. Of loan a/c. Also, peruse minutes book for authorisation for non-payment
14	BOOKS OF ACCOUNTS	Attendance cum minutes book Savings Register Loan Ledger Bank Passbook	3 3 3 1	Each record / register, if maintained properly and upto date, will get marks shown against each.
15	BYLAWS / GROUP RULES	Known to all members Known to most of the members Not known to many members	10 5 0	Ascertain from the member through interaction
		TOTAL MARKS	150

SELECTION CRITERIA OF SHG FOR LINKAGE TO BANK LOAN

SHG scoring more than 120 marks out of maximum of 150 marks could be chosen for credit linkage

SHG scoring less than 120 marks will have to be further developed before linkage. The areas for taken up after 3 months.

Many desist from the use of the word leader

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