Two years ago, Nirmala Devaki borrowed Rs 50,000 for a cousin's wedding from her self-help group (SHG), one of 3.9 million across India that offer loans as small as Rs 10,000, including for marriages.
To Devaki, a landless farmer from Dastikoppa village in Karnataka's northwestern Dharwad district -- and one of approximately 40 million SHG members nationwide -- the monthly interest rate of 2 per cent charged by her SHG, Gayatri Sevasahaya, seemed easy to handle.
Today, Devaki owes the SHG nearly Rs 1 lakh, a sum the widow with five children says she, like 8 million women, cannot pay back. Her family survives on Rs 5,000, which it earns from selling the milk of its one cow. "Being part of a self-help group has become more of a burden than a help," she complained.
Across India's villages, over the last three years, Rs 9,000 crore given by banks to SHGs, under the National Rural Livelihood Mission (NRLM), a government programme set up five years ago to boost rural incomes, have turned into non-performing assets (NPA), or loans in danger of being written off, much like the bad-loan crisis unsettling India's commercial banking system, with more than 5,000 wilful defaulters owing banks Rs 56,621 crore, as IndiaSpend reported in March 2016.
At 12 per cent of the Rs 77,650 crore the NRLM has lent over the last three years, the NPA figure may appear low. The corresponding NPAs in the commercial banking system for corporate sector are 5.5 per cent up to March 2015, according to Reserve Bank of India data.
The scale of the NPAs in the SHGs pale in comparison to corporate NPAs: Rs 9,000 crore owed by 8 million women is less than the Rs 9,478 crore default of one commercial defaulter, Lloyds Steel, second on the corporate NPA list.
The defaults of the women from SHGs are warning signs of similar stress and indicate that the Mission's goal of organising up to 90 million rural households into SHGs over the next decade may have overambitious targets, inadequate safeguards and could jeopardise the very livelihoods it hopes to improve.
There are two rules to lend money, said micro-finance expert M.S. Sriram, an economics professor at the Indian Institute of Management, Bangalore: One, assess the credit worthiness of a consumer, as banks do; two, penalise defaulters, which means customers can assess their repayment ability.
Those rules were ignored by banks lending to India's largest companies, and they are being ignored now, as the NPA crisis similarly grows in rural India.
There are two reasons for the unfolding rural debt crisis involving women. One, SHGs are not educating and training rural women on the basics of smart borrowing, how to invest and spend wisely. Money borrowed for income-generating activities such as stitching, candle making or farming, is often spent on personal expenses, from weddings to home construction. Two, banks are aggressively pushing loans through SHGs to meet the government's loan targets, without similar efforts at checking where this money goes.
You can hear stories like Nirmala's in rural north India too. Mamta Kanwar, of Niwaru village in Jaipur, borrowed Rs 50,000 from her SHG, Om. She then distributed it to the group's members so they could invest in stitching units. But they spent the money for personal purposes. Today, three years later, the Rs 50,000 has become an NPA.
Until June 2016, Rs 9,000 crore in loans disbursed under the National Rural Livelihood Mission had turned NPA since 2013-14, according to government data.
Stories from rural India reveal why loans are turning bad: Bankers appear to be scrambling to meet government-set loan targets, sacrificing due diligence.
Consider the example of Kalghatgi. The town has 1,907 Stree Shakti (Woman Power) SHGs with more than 25,000 registered members, which is more than the town population of 17,000, according to the 2011 census. This is because each of these members is registered with more than one SHG.
"The NRLM is not a government subsidy scheme," said B. Lokesh, senior mission executive (Financial Inclusion), NRLM. "It is basically helping banks increase business. SHGs are a priority sector under RBI (Reserve Bank of India) guidelines, which means banks have to lend a certain percent of their total credit to SHGs."
Banks are given targets, starting with an initial loan of Rs 50,000. If this amount is repaid, banks have to finance that SHG with an amount of up to Rs 1 lakh, which can later be raised to Rs 3 lakh. The branch manager decides the final loan, based on a SHG's records, book-keeping and repayment. So far, each SHG has received, on average, Rs 2.5 lakh.
SHGs are judged on the basis of regular meetings, regular internal lending and bank linkage. There are no clear instructions or conditions to loan money. "Banks do not enquire about the purpose of loan from the self-help groups," said Vasanth Gowda, a field worker from Ujjivan Mini bank in Dharward.
"Members show handmade items to the government official for loans," said Gaourava Ningappa, a member of a SHG in Tabakadahonnalli village, Kalghatgi. "But once the loan is sanctioned, and the money is withdrawn, they will stop whatever business they took the loan for and use the money for personal expenses."
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