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Microfinance challenges: empowerment or disempowerment of the poor?

Isabelle Guérin
Jane Palier

Part II - Microfinance in its environment

8. Situating microcredit in India: some reflections

K. Kalpana

Texte intégral

1Microcredit/finance programmes have inspired substantial critical research examining their claims to effectively address concerns of poverty, empowerment of (largely) female clients and institutional viability or financial self-sufficiency of the lending institution. Research on microcredit programmes, especially Grameen-styled programmes operating in Bangladesh (home to some of the largest and oldest microcredit programmes) has demonstrated that the institutional structures by which microcredit is delivered to the targeted clientele, programme design or the design of financial services and the larger socio-economic context in which microcredit transactions are embedded have critical implications for the impact of such programmes on the livelihoods and overall well-being of clients (Ackerly 1997; Fernando 2001; Goetz 1997; Montgomery 1995; Rahman 1999). The objective of this paper is to propose a methodological framework that helps situate and analyze microcredit within the institutional structures that are central to the practice of self help group based microcredit in India. This paper proposes a framework for research on SHGs which may facilitate a deeper understanding, than we have at present, of power dynamics and intra-group peer pressures, especially with regard to the degree of support extended to individual members in distress, the relationship between the sponsoring non governmental organization or microfinance institution and self help groups and the role of government institutions at local levels that have a critical bearing on the operation of SHGs. The paper also posits that the significant organizational and institutional differences between microcredit programmes in India and Bangladesh may warrant an additional set of research questions to be raised in the Indian context, when seeking to explore the effects of the embedding of microcredit in its local environment.

2The self help group, whether sponsored by a government agency, commercial bank or NGO, saves a pre-determined amount every month and lends its savings on a monthly basis to group members, usually on terms decided by group consensus. Group savings, repayment installments and interest income from loans constitute a major portion of the group’s loanable funds. Additionally, the group may borrow from external sources in order to supplement its loanable funds. Coordinators selected from within the group maintain group accounts, liaise with banks and government departments. We note the contrast with the Grameen-styled MFI model wherein the group saves with the local branch of the MFI/NGO and borrows loanable funds from the MFI. Borrowing terms are set by the MFI, while paid staff of the MFI manages the group’s financial resources. As SHG members maintain their individual accounts with the SHG (and not with the sponsoring NGO), the village-level primary group or self help group is the retailer in the Indian case and performs most of the transaction functions, unlike in Bangladesh, where the microfinance institution is the retailer. Therefore member-controlled and self-managed SHGs, by virtue of being micro-banks, are posited as being financial organizations in their own right (Harper 2002). Linkage of SHGs to the public sector formal lending institutions, especially the nationalized commercial banking structure, is another key distinguishing feature of the Indian experience.

3Our attempts to contextualize micro credit in India can perhaps start by identifying the specific institutional terrains that are involved in constituting the practice of self help group based microcredit. Identifying the key institutional arenas in which a study of microcredit needs to be located enables us to raise questions specific to each institution, which can serve as a lens providing glimpses into different facets of micro credit practice. These arenas may be identified as follows:

  • At the level of the village, the rural women’s micro credit group of 20 members and households of members.
  • At the level of the block/district, the apex federation of the village level groups, the NGO or voluntary agency promoting the groups, the local bank branches, block/district level government institutions such as the Block Development Office (BDO) and the District Rural Development Authority (DRDA), and institutions of local self government (the Panchayat structure) at village, block and district levels.

4While the considerable research output and reasonably reliable empirical data available on the Bangladesh experience was studied in depth, it was seen that the Indian experience has not yet attracted such rigorous analysis of similar magnitude. Hence this paper raises the many issues that this researcher considers relevant but does not provide rigorous empirical data on any of the themes explored. However, the paper does draw upon some case studies from the earlier work experience of the researcher with a rural development organization – the Tamilnadu Science Forum – that has been mobilizing women in SHGs in parts of Tamilnadu. The current researcher has been actively involved with the Tamilnadu Science Forum (TNSF), a non-governmental organization, as a full time coordinator of its microcredit programmes between August 1997 and November 2001 and has since been involved part time in her capacity as State Executive Committee member of the Tamilnadu Science Forum. The TNSF has been active for over two decades in the state of Tamilnadu in popular science communication, community health and literacy campaigns. A state-wide organization, it has also been actively involved in establishing federations of rural women’s self help groups across the state of Tamilnadu.

1. Intra-group peer pressures and power dynamics

5Secondary literature on the operation of microcredit programmes in Bangladesh has shown that repayment oriented programme structure and donor-induced programme obsession with lender viability can exclude poorer sections from membership, force MFI staff to deploy coercive strategies for loan collection, induce group members to weed out poorer individuals as bad credit risks, bring to bear punitive pressures on defaulters despite stressful households situations they may face and adversely impact the livelihood and stress-coping strategies of poorer members (Montgomery 1995; Montgomery et al. 1996). In the context of the differently organized, more autonomous self-help-groups of India, it is perhaps possible to study intra-group peer dynamics in the absence of excessive external pressure from relatively more powerful and over-bearing NGOs and MFIs driven by donor impulses as in the case of Bangladesh. By suggesting this, we do not imply that SHGs in India are entirely free of repayment pressures imposed by the sponsoring NGO or bank, but only posit that there may be more room for maneuver for groups, which are not subject to the stranglehold of programme staff and non-negotiable loan packages. The greater reliance of Indian SHGs on group-generated loanable funds, relative to external resources, may imply that groups are able to rely on the strength of their accumulated corpus to bargain for relaxed terms and grace periods for particular individuals even on externally-sourced loans. SHGs may therefore feel less pressured to “discipline” defaulters, and may even be able to “protect” them, should the group perceive the cause of default as warranting support. However, we cannot assume that relative independence from the sponsoring MFI’s pressures would necessarily generate more peer sympathy in the case of self help groups. If MFIs in Bangladesh use the threat of cutting off loan access to other members in order to pressure defaulting individuals to repay, the dwindling of loanable resources in SHGs, because of repayment delays by members in distress, could well bring to bear similar pressures on individual defaulters.

6The possibility that peer pressure generated within the self help group is of a quite different order, compared to the pressures noted in the case of Grameen-styled Bangladeshi programmes, makes it worthwhile to investigate how exactly intra-group pressures on defaulters operate in SHGs. Branch officers of the local commercial bank might insist on checking group repayment records and making direct visits to groups before sanctioning loans under the SHG bank linkage scheme. The extent of their displeasure with the group’s tolerance of laxity in repayment could be an important factor influencing the group’s course of action in the event of occurrence of default. It might also be important to factor in the attitude of the sponsoring NGO, which could choose to not dictate policy on default and leave it entirely to the discretion of the group to be settled on a case-by-case basis. Alternatively, the NGO indicate through training programmes and interactions that it would prefer to see more stringent/sympathetic action. Understanding the social consciousness and ideological orientation of the NGO leadership might be significant in this context.

7Analysis of the willingness of SHGs to accommodate the crises of individual members requires intensive research that investigates the extent to which group norms make this possible. In the absence of formal regulations, a set of informal practices may have evolved over a period of time. It might be interesting to examine the extent to which these norms apply impartially to all members or whether they appear to be the privilege of some and whether the group’s willingness to empathize can always match the ability to do so, based on the group’s resource base.

8It may be pertinent here to recount two cases, both relating to SHGs belonging to the MALAR network of Kanyakumari district (Sponsored by the Tamilnadu Science Forum, the Mahalir Association for Literacy, Awareness and Rights (MALAR) is a district-wide network of over 1,500 self help groups operating in Kanyakumari district of Tamilnadu). An SHG member who had taken a Rs. 1,000 loan was left bereft when her husband suddenly died in an accident. Responding to her plight, the group decided to contribute Rs. 40 per person to repay the principal and waive interest payment. This ability to bear a member’s loan might not be possible in a more deprived and poorer area (as in several parts of Madurai and Virudhunagar). In the other case, the suicide of a husband forced a woman to quit as she felt she could not be regular in the monthly savings and would feel ashamed before others who do so. While the other members did sympathize with her predicament, they accepted her decision as the only option available to her.

9Understanding the processes by which intra-group peer pressures work to the detriment of poorer members or in defense of their interests in SHGs leads invariably to the issue of examining power dynamics within the group. We note that the more heavy-handed, top-down mode of operation of Bangladeshi MFIs may tend to iron out intra-member differences within groups. As Malcolm Harper (2002) points out, regular supervision by a relatively more powerful MFO can protect weaker members from exploitation by others. However, it appears imperative to pay closer attention to intra-group power dynamics in Indian SHGs. A useful way to explore intra-group power dynamics in SHGs might be to understand the strategies that members deploy and the resources they draw upon in the pursuit of their interests vis-à-vis other group members. What strategies do individual members use to strengthen their respective positions vis-à-vis other members? How do members use their differential access to external institutions (such as banks or Panchayats) to influence bargaining outcomes within groups? (Some members might already have operated individual bank accounts prior to their group membership. Some others might be Panchayat members, Ward members or councillors or relatives of Panchayat members). Members who represent the group at higher level meetings and those with formal literacy skills and a consequent better understanding of group accounts could exercise greater clout in group decisions. Examining individual loan histories of individual members of SHGs may also enable questions such as what makes some members borrow repeatedly while some others only save. Do group transactions enhance access of the relatively better-off to institutional credit on easy terms and thereby sharpen class related hierarchies among members? Do class differences get reinforced through intra-group borrowing norms that tie loan access to the size of member savings?

  • 125 The term ‘Scheduled Caste’ refers to those considered ‘untouchable’ or ‘outcaste’ by caste Hindu s (...)

10A sharp focus on the issue of caste is also warranted. This remains important not only in the case of mixed caste groups but also in areas (as in several parts of Tamilnadu) where the same NGO has organized groups in both the Scheduled Caste125 and non-Scheduled Caste populations of the villages, adhering to their segregated pattern of residence. The experience of the current researcher in Kanyakumari district included instances where women SHG members belonging to the numerically predominant backward caste stoutly resisted attempts of the NGO to start groups among the much poorer Dalit sections of the Panchayat. Examining the relative access of the most socially oppressed groups to NGO and bank-sourced resources and the role caste plays in the larger federations of SHGs would be an interesting area of entry into this under-researched, yet vital, issue.

2. The relationship between self help groups and the sponsoring NGO/MFI

11The concerns raised by the secondary literature in Bangladesh of the undemocratic, non-participatory organizational structure of microcredit programmes (Fernando 2001; Jain and Moore 2003) give rise to important questions regarding the nature of the relationship between the NGO/MFI and the village level primary groups. The relationship between the SHG and the sponsoring NGO needs to be studied to examine whether there are adequate organizational mechanisms in place that ensure representation of the interests of poor women clients in the decision making bodies of microcredit programmes. In India, about 72% of the SHGs linked to commercial banks under the bank linkage scheme are sponsored by voluntary agencies (including government departments and NGOs), which engage in promotion, training and monitoring of the groups. In no more than 9% of the linked groups does the sponsor agency also double up as financial intermediary by borrowing funds from outside and onlending to groups (NABARD 2002-2003). Our comments in this section are relevant both to NGOs that are only promoting groups and those undertaking financial intermediation.

  • 126 The Swarna Jayanthi Gram Swarozgar Yojana (SGSY) was introduced as a nation-wide, self-employment (...)

12Is accountability of the microcredit NGO to the groups it sponsors built within the institutional structure of the NGO? Secondary level federations of primary groups, operating at the level of the block or the Panchayat, could potentially exercise a significant role as a pressure group in advocating members’ demands and bargaining with the sponsoring NGO. Given that organizations such as BRAC in Bangladesh are reluctant to create such federations to avoid member pressure for changes in their rigid financial services (Montgomery et al. 1996), the case of Indian NGOs that promote federations of SHGs raise interesting questions. Literature informs us that such federations could ensure the sustainability of groups after the sponsoring agency withdraws and that they facilitate training, account-keeping, trouble shooting and access to government schemes (Fisher and Sriram 2002a). An issue that could be further investigated through field research is whether federations also provide some immunity to the groups from certain insidious effects of dealing with governmental agencies and whether they can challenge the more oppressive aspects of NGO operations as well. For instance, are secondary federations able to ensure access to government loan schemes such as the Swarna Jayanti Gram Swarozgar Yojana (SGSY)126 without paying bribes to block level government officials? Are federations able to contest official processes of determination of Below Poverty Line (BPL) households (which is critical to SGSY disbursal) and demand inclusion of those they believe have been unfairly excluded? If the groups perceive the sponsoring NGO as making excessive demands on their resources such as deposit payments, donations to other programmes or frequent attendance as captive audience at NGO-organized meetings, does the federation raise these issues with the NGO/MFI?

  • 127 The self help group-bank linkage project, pioneered and popularized by the National Bank for Agric (...)

13A related issue is that of examination of the forms of control that the sponsoring NGO exercises over groups. Are rules on savings, borrowing terms, repayment duration and interest payment determined autonomously by the group or imposed by the NGO? Even where the NGO only facilitates group linkage with banks and does not engage in financial intermediation, it is possible that the lending terms of group funds generated through savings are determined by the NGO and enforced on the group. We would need however to be cautious about the social benefit of completely decentralized versus controlled decision making power. Rules determined by an outside agency, sensitive to the concerns of poorer members, may offset exclusivist norms the group may adopt if left to own discretion. Moreover, the NGO’s role as an intermediary between the group and other external institutions could serve as another lever of control by which the NGO attempts to discipline groups. In the SHG-bank linkage programme127, the presence of a sponsoring NGO is critical for banks to reduce their work burden and supervision and recovery costs. In cases like the SGSY loans that require more intensive paper work and form-filling by the group, the assistance of the sponsoring agency becomes critical. The control of information about the availability of government enterprise promotion schemes and other social welfare programmes could be another instrument the sponsoring agency may deploy to keep self help groups in line.

14Another aspect deserving investigation is the direction of the flow of resources between the group and the NGO, whether it is entirely one way – viz., donor/external funds routed to the groups through the NGO or whether groups contribute to the operational expenses of the microcredit programme. Some programmes may solicit regular group contribution for the expenses of the larger federation or for NGO services rendered to groups. In such cases, it would be instructive to examine whether there is a trade-off to the financial burden borne by groups by way of greater group control over decision-making and ownership of the programme.

3. The importance of government organizations in the Indian context

15Research on Grameen-styled programmes in Bangladesh identifies the village level groups, the NGO/MFI and the donor supporting the NGO as the key institutional players. In the Indian context, we need to remember that government institutions at local levels and nationalized commercial banks are significant institutional actors. While banks have been linking up with self help groups since the onset of the SHG-bank linkage scheme in 1992, the block development office (BDO), the District Rural Development Authority (DRDA) and the Panchayats have entered the arena of microcredit only after the introduction of the SwarnaJayanthi Grama Swarozgar Yojana (SGSY) scheme from April 1999.

16We need therefore to rigorously examine the terms of interaction between government/bank officials and rural women’s groups, the unequal power dynamics likely to structure this relationship and women’s capacity to set the terms of the interaction or at least to significantly tilt it in their favour. Literature on the earlier experience with the Integrated Rural Development Programme (IRDP) shows that these institutions have functioned primarily as patriarchal, corrupt, anti-poor bureaucracies (Dreze 1990; Kabeer and Murthy 1996; Mayoux 1989). Field reports indicate that the channeling of credit cum subsidy assistance in the SGSY scheme through self-help-groups threatens to reintroduce the bureaucratic rigidity, red-tapism and corruption documented extensively in the lending practices of banks to the poor through older schemes such as the Integrated Rural Development Programme (IRDP). Insistence by commercial banks on repayment of earlier loans taken (primarily the IRDP) by male relatives of the women SHG members as eligibility criteria for the SGSY scheme has been detrimental for group cohesion. Women, whose husbands or sons have outstanding IRDP balances, are accused of queering the pitch for the rest of the group and have come under pressure by co-members to either quit the group or pay the balance immediately. Turning women SHG coordinators into unpaid debt collectors for the government and taking their assistance even for seizure of household property against other bank loan defaults have also been reported. In one SHG in the MALAR network of Kanyakumari district, the efforts of a single coordinator of 11 groups in a village ensured that 68 defaulter families in her Panchayat repaid the IRDP outstandings – a feat that paid bank functionaries could never have accomplished. The targeting of government loan schemes to families below the officially designated poverty line exposes women’s groups to conflicts emerging from the politics of BPL determination, which is mostly done in a non-transparent manner. In several parts of Tamilnadu, a routine percentage of the subsidy amount of the SGSY is agreed upon as the “cut” owed to the Block office. As noted earlier, there are signs that several structural features that rendered the earlier IRDP nonviable for the poor have also found their way into the SGSY and threaten to destroy the internal cohesion of self help groups by incorporating precisely those features of the traditional banking system that SHG based financial intermediation had helped to ameliorate.

17There is also the issue of micro credit programmes sponsored or supported by the state. While participation in such programmes may imply easier negotiation with bank and government bureaucracies, there are fears that local women’s initiatives to advance their interests through collective protest action, on issues such as Public Distribution System functioning or male alcoholism may get actively discouraged while groups and sponsoring agencies could be co-opted for varied purposes by the state. It is instructive to note that during the Lok Sabha election campaign of 2004 in Tamilnadu, widespread allegations surfaced that government supported SHGs were utilised to promote ruling party interests.


18By way of conclusion, we note that whether in India or Bangladesh, the institutional context in which microcredit transactions are located and the organizational structure through which microcredit is delivered are of great significance and need to be factored in any critical analysis of the effects of such programmes upon members’ lives.


125 The term ‘Scheduled Caste’ refers to those considered ‘untouchable’ or ‘outcaste’ by caste Hindu society and have been socially excluded and oppressed by the Hindu caste system for ages. Pervasive forms of discrimination against Scheduled Castes – social, cultural and economic – continue despite the assertion of Dalit movements for dignity and economic rights and positive discrimination provided for SCs by the Indian Constitution. Scheduled Castes comprise approximately 15% of India’s population.

126 The Swarna Jayanthi Gram Swarozgar Yojana (SGSY) was introduced as a nation-wide, self-employment based, poverty alleviation programme in April 1999 and replaced older self-employment promotion schemes such as the Integrated Rural Development Programme (IRDP) and the Development of Women and Children in Rural Areas (DWCRA). The SGSY seeks to use self help groups as channels of delivery of credit-cum-subsidy assistance to targeted below-povertyline sections. The guidelines of the SGSY, as enunciated by the Ministry of Rural Development, identify the District Rural Development Authority as the key agency of implementation of the SGSY, through the Panchayat Samiti (GOI 1999).

127 The self help group-bank linkage project, pioneered and popularized by the National Bank for Agriculture and Rural Development (NABARD) since 1991-92, involves a three-way relationship between the SHG as village-level retailer, the NGO as sponsor or promoter of the group and the commercial bank as financier of the group (Fernandez 2000).


PhD research scholar, Madras Institute of Development Studies, Activist with the Tamilnadu Science Forum (India)

© Institut Français de Pondichéry, 2005

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