i nc lu s i ve f i nanc e i nd i a re port 2014
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of Odisha and Karnataka formed the basis for the study
findings. The objectives of the study included:
(i) Conceptualization of the process of graduation
among SHG members.
(ii) Measurement of the extent of graduation among
SHG members in the study area.
(iii) Charting out policy options and strategies for up
scaling the graduation process.
An SHG member acquiring such ability to start his/
her own enterprise or income generating activity can
be considered a graduate of microfinance system. The
study defined graduation as a two-dimensional process
and constructed a Graduation Index as a weighted aver-
age of the savings dimension and the micro-enterprise
dimension. The Graduation Index was constructed as a
combination of two dimension indices:
(i) Savings Dimension Index
(ii) Micro-Enterprise Dimension Index
The Graduation Index for SHGs was computed by
using the proportionofmembers having individual savings
bank accounts as an indicator (savings dimension) and
the proportion of members having income-generation
activity or micro-enterprise after joining SHG (micro-
enterprise dimension). Weights of 0.33 and 0.67 were
assigned to the savings index and the micro-enterprise
index, respectively.
The Savings Dimension Index for the study SHGs was
0.256, which coupled with a Micro-enterprise Dimen-
sion Index of 0.565 gave a Graduation Index of 0.447.
The graduation and micro-enterprise indices were higher
in Odisha as compared to Karnataka on account of exis-
tence of older groups. Two-fifths of the SHG members
did not graduate in terms of the savings dimension.
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Interestingly, a higher proportion of Below Poverty Line
(BPL) population in a SHG was associated with a higher
level of graduation. Ordinarily BPL households would be
expected to have weaker entrepreneurial skills. This was
possibly the result of other parallel interventions target-
ing BPL households.
The determinants of graduation at SHG member
level were found to be (i) age and family size; (ii) level
of savings; (iii) pre-SHG income; and (iv)
low level
of
development. Borrowing was negatively associated with
graduation, even though higher borrowings should
enhance graduation levels as well. In another counter-
intuitive finding, members from less-development
districts did better than their counterparts in developed
districts. The results suggested that though savings were
important for the poor, they could graduate to micro-
enterprises with loan support and that membership in
SHGs had given a definite edge to people in graduating.
An incidental finding of the study was that, barring a
few exceptions, equal distribution of loans among mem-
bers was the rule in the groups. Indeed, where distribu-
tion was according to need, it often led to the exclusion
of several SHG members from borrowing activity. The
study suggested alternate mechanisms such as allow-
ing relending among members after equal distribution
within the SHG to cater to the differential loan demand.
See Box 4.3.
The study highlighted the need to (i) increase the
frequency and amount of credit available to SHG
members; (ii) incentivize them to save through suitable
products; (iii) institute creative mechanisms for loan
sharing by members; (iv) develop the micro-infrastructure
to render small investments viable and fructuous; and
facilitate convergence across programmes and processes.
B
OX
4.3
Equal Sharing of External Loans in SHGs
It was observed that in a few SHGs in Andhra Pradesh,
after equal loan sharing, members with higher loan
demand borrowed from fellow members with smaller loan
requirements, paying higher interest than they paid on
their share of loan, but often less than the market rate. This
was an informal practice outside the control of the SHG.
Equal sharing of loans may be considered a market-driven
solution for the problem of total exclusion of some of the
members. In equal sharing of loans coupled with internal
relending, borrowers are paying a premium on amount
rightfully belonging to other members and re-lenders
receive a small price for waiting for their turn. Alternatively,
loan turns can be auctioned among members who can
offer a price (interest rate) that reflects their demand for
loan. The excess interest charged from the members can be
distributed among the members who had to wait for their
turn to avail loan.
Source
: Adapted from Satyasai et al. (2014).
