i nc lu s i ve f i nanc e i nd i a re port 2014
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CIF will be used by the federations to advance loans to
the SHGs and/or to undertake the common/collective
socio-economic activities. However, it does not indicate a
clear role for federations to intermediate borrowed funds
over and above this limited facility. The annexure to the
circular also clearly suggests that federations will play a
role in financial inclusion. However, federation promoters
are still grappling with the appropriate legal framework
for the involvement of SHGs and SHG federations in
NRLM.
As noted by Smita Premchander and M.
Chidambaranathan
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federations are second-level aggre-
gators of SHG activities which can be listed under the old
cooperative acts or, in seven states, under the Self-reliant
Cooperatives Act. However, there is lack of clarity on
their function as aggregators of credit demand without
which they will not be acceptable to banks as serious ac-
tors in financial inclusion. The biggest regulatory hurdle
for cooperatives is that they cannot receive external grants
or equity investments, hence the need for an act on SHG
federations. Promoters of SHGs and community-based
MFIs are consulting with NRLM in developing a model
act for this purpose.
4.9 SHG BANKING, NRLM, AND
FINANCIAL INCLUSION
Though a large number of SHGs that are saving with
banks appear to be still without access to credit, the
SBLP has been mainly about providing loans rather than
savings and a wider range of financial services. While the
programme has expanded enormously, the growth story
is not without accompanying concerns. The levelling off
of the growth in the SHG clientele of banks during the
past four years has been accompanied by concerns about
its performance.
Issues related to SBLP that have emerged include,
among others, poor quality of groups, limited products,
rising NPAs in the SHG portfolio of banks, multiple
memberships of SHGs and MFIs and equal sharing of
loans. Constraints on the supply side appear to result in
banks becoming unwilling to extend their SHG opera-
tions.
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The function of SHGs in financial provision and
management has also been diminished as indeed their
role in empowerment and livelihoods promotion.
The innovation of SHG federations has proved to be
a contested one. Where federations have had a financial
intermediation role, they have contributed to reducing
the margins available to SHGs. The undermining of the
financial role of the SHG is similarly observed in cases
where NGOs have promoted in-house MFIs to provide
loans to SHG members. Reports also suggest that weak
capacity building has resulted in an absence of sense of
ownership among SHG members, and that SHG meet-
ings are often routinely held for savings collection rather
than with a wider empowerment agenda. In government-
promoted structures SHG and federation leaders have
been involved in programme implementation and mem-
bers mobilized for political ends.
The banking system, along with NABARD, has been
at the receiving end of much criticism. Very few banks
have invested in their SHG clients to ensure financial
discipline and financial expansion. SHGs have generally
been promoted as part of a target-oriented approach,
without thought to their institutional development or
graduation of their members to individual loans under
the banks’ mainstream programmes. There are extensive
reports of practices by banks that include impounding
SHG savings, requiring mandatory fixed deposits, forc-
ible selling of insurance and unilateral transfer of funds
from SHG savings accounts into loan accounts.
It would appear that funding available fromNABARD
to SHPIs was inadequate for them to pursue a process-
oriented strategy for SHG development that would
ensure financial discipline and building of necessary skills
among SHG members. This has led to a compromise in
the quality and sustainability of the SHGs over time even
as the level of the SHGs’ borrowing increased. Besides,
though NABARD was also involved in the SGSY, a
tension came about among policy makers between SBLP
and SGSY on the subsidy issue. With the successor to
the SGSY, viz. NRLM, continuing with interest rate
subvention and subsidies, a unified approach is needed
for convergence between the two programmes (NRLM
and SBLP).
The dilution of the role of SHGs as important
financial intermediaries appears to be carried over to the
financial inclusion model. The strategy and components
of the financial inclusion thrust, both in the period of
implementation of financial inclusion plans of banks as
