If SHG version 2 is pushed through without a proper and objective understanding of how the SHG Bank linkage program currently functions at the grass-roots (and the path that it has traversed in the past), it could become a recipe for disaster as has happened with much of Indian microfinance lately…
I recently heard it through the grapevine that SHG Bank Linkage program version 2 is to be rolled out, beginning this month. According to official sources that requested anonymity, the new avataar of the SHG Bank Linkage Program (called as SHG version 2), is to be piloted in 30 districts. I am rather perplexed that this is happening so suddenly and without, the necessary stock taking of version 1 of the SHG Bank Linkage program. In my opinion, the SHG Bank Linkage program (as it is currently implemented) suffers many serious shortcomings that would need to be addressed before another expensive experiment begins in India.
Talking about experiments, I have a very innocent question—what is the relationship of version 2 of the SHG Bank Linkage program to the National Rural Livelihood Mission (NRLM), which is supposedly spending huge amounts of public money towards building peoples’ institutions at the grass-roots? Readers of Moneylife may recall that yet another program for revitalizing peoples’ institutions is already underway in the guise of co-operative reforms. And all of them are trying to achieve almost similar (if not the same) impact at the grass-roots. Therefore, I sincerely believe that much can be gained from convergence of these different efforts to build local peoples’ institutions at the grass-roots. Without any doubt, the “powers that be”, must look towards achieving this mandatory convergence so that—mistakes are not multiplied and—synergistic benefits accrue to the country
If preventing duplication and ensuring convergence is one aspect, a second crucial issue is learning from past experience. Take the case of SHG Bank Linkage program version 2. If indeed it is to be rolled out as a pilot in 30 districts beginning January 2012, it is about time that we had a serious and honest evaluation of the SHG Bank Program (version 1) so that not only appropriate lessons are learnt (going forward) but more importantly, they are also (subsequently) factored into the design of SHG bank Linkage program version 2. Otherwise, we stand to lose precious public money as has happened over the last 60 years in several such programs. And self-evaluation by NABARD or its funders/donors or SHG promoting institutions or related partners/stakeholders will not constitute a fair assessment of the SHG Bank Linkage program (version 1) as there is so much conflict of interest. Therefore, I do hope that NABARD, which has pioneered the SHG Bank Linkage program, will facilitate a candid evaluation by a neutral (and eminent) group of people so that real problems are identified and dealt with and critical issues are not swept under the carpet, as has usually been the case.
The need for an objective evaluation is best exemplified in the words of Dr YSP Thorat, former chairperson of NABARD, who used to repeatedly argue during his tenure, "We need to introspect with integrity as far as the SHG Bank Linkage program is concerned".
Likewise, as a former director of the Reserve Bank of India (RBI) argued in an e-mail to this writer,
“It would be useful to focus also on the sarkari and the bank-linked SHG programme that was pioneered by NABARD. Their number is very large and so are the amounts involved. The sarkari SHGs are also getting large amount of bank loans under government pressure, and the lines between the two are getting blurred to the disadvantage of the genuine and healthy non-government SHGs. The state-sponsored SHGs are widely sponsored by local party functionaries, who rake off a part of the loans they broker, and there is a strong widespread impression that these loans don’t need to be repaid. How widespread this is, and how it has affected the health of the whole movement remains to be documented.”
My own personal experience of the SHG Bank Linkage program in the southern states suggests that the famous micro-finance agents—who caused the 2010 AP Microfinance crisis and also led to the downfall of the decentralized commercial NBFC-MFI model are now slowly but surely gaining a foothold of the SHG Bank Linkage program, as well. And please note that agents are just a tip of the iceberg and there is so much more happening there in terms of burgeoning growth of not-so-good practices.
Therefore, I hope that an honest evaluation will ultimately happen soon and in a subsequent article, I shall attempt to raise some critical questions on the SHG Bank linkage program (version 1) that would need to be answered by such an evaluation. Make no mistake. If SHG version 2 is pushed through without a proper and objective understanding of how the SHG Bank linkage program currently functions at the grass-roots (and the path that it has traversed in the past), it could become a recipe for disaster as has happened with much of Indian microfinance lately…
(Ramesh Arunachalam has over two decades of strong grass-roots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural and urban development and urban poverty alleviation across Asia, Africa, North America and Europe. He has worked with national and state governments and multilateral agencies. His book—Indian Microfinance, The Way Forward, is the first authentic compendium on the history of microfinance in India and its possible future.)
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