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Microfinance challenges: empowerment or disempowerment of the poor?

Isabelle Guérin
Jane Palier

Part II - Microfinance in its environment

10. Microfinance, informal finance and empowerment of the poor: lessons from a case study of the SHG-bank linkage programme in a backward district in India

R. Sunil

Texte intégral

1This paper discusses the process of access to finance, primarily credit, and the resultant empowerment of the rural poor, especially women, facilitated by the self-help group (SHG)-Bank linkage programme in India. Based on a case study, it argues that in backward economies – characterised by uncertainties with regard to employment and income, and the gradual withdrawal of the state from providing social safety networks and services (health, primary education, old age welfare and so on) by assigning a greater role to markets and private enterprises in livelihood systems – credit demands and usage patterns of the poor could differ from general theoretical/programmatic assumptions. In such a socio-economic context, the perceived positive link between credit empowerment of women and the wider empowerment of the poor becomes weak and unpredictable. On the contrary, in the long run, the strategy of targeting poor women to provide credit could result in women ending up with more financial responsibilities (credit contracts) and having to deal with credit related issues (its management, use and repayment) than men, even while they continue to spend more time and energy for the welfare of their household. This paper is organised into four sections; In section 1, the SHG-bank linkage programme is briefly examined, against which the above research problem is posed; The study locale and research methodology are discussed in section 2; Major findings of the study and its analysis are documented in section 3; General conclusions and policy implications are discussed in section 4.

1. SHG-bank linkage programme and empowerment of the poor

2The SHG-bank linkage programme is an institutional microfinance (primarily, credit) outreach programme, spearheaded in India by the National Bank for Agriculture and Rural Development (NABARD) since 1992. It is implemented through the rural branches of various formal financial institutions such as commercial banks, regional rural banks and cooperative banks. The programme strives to expand the financial outreach of the formal financial institutions to the rural poor through the effective credit linkage of SHGs (primarily women) with the rural branches of the financial institutions. With a modest beginning of 100 SHGs in 1992, the programme has been able to credit-link more than 7,00,000 SHGs across the country to various rural financial institutions (NABARD 2003). More than 17,000 bank branches participate in the programme; the average loan given to individual SHGs is around Rs. 22,240 and the average loan per family is around Rs. 1,316 (NABARD 2003).

1.1. Engendering credit

3The impact pathways of the SHG-bank linkage programme for the rural poor can be broadly identified as (a) financial inclusion—credit empowerment achieved through their enhanced access to quality credit from the rural financial institutions and (b) social inclusion—empowerment achieved through the active and continued participation of the poor women in the SHGs, which has the potential to emerge as a development initiative by the people and as a social negotiating platform for the poor.

4The world over, microfinance programmes, especially group-based micro-lending programmes, adopt a conscious bias towards providing credit to women, since it has been proved that (i) poverty, irrespective of countries and regions, is biased towards women, especially in rural areas, and (ii) the development impact of credit is more when women are provided access to credit (Mayoux 1997; Kabeer 2001; Johnson and Rogaly 1997; Hulme and Mosley 1997). Increased access to credit for women leads to a sense of empowerment, as it brings forth a sense of self-worth and self-esteem at the individual level (Kabeer 1994). It is now well recognised that economic contributions by women, made possible through credit access, result in an increase in the security and welfare of the entire household. It also provides women with a voice in the household, and gives them greater choice in household resource allocation, especially those who were previously disenfranchised (Kabeer 2001).

5Various studies have reported that microfinance through SHGs have significantly contributed to the empowerment of women and to gender equity (Puhazhendi and Badatya 2002; Puhazhendi and Satyasai 2000; Srinivasan 2000). However, these studies ─ using higher rate of savings, borrowings, timely repayment of credit, promptness in attending SHG meetings and decisions by individual members as indicators of enhanced credit access, income generation and socio-economic empowerment of the poor ─ focus on the individual SHG members and their financial transactions within the SHG. This kind of an approach suffers from multiple deficiencies (a) the constraints of the parameters to reflect the wider financial behaviour of these individual SHG members at a household level (attribution problem) and (b) a restrictive/simplified perspective of the financial behaviour of the poor at a complex household level.

1.2. Objective of the study

6The objectives of the present study are to identify (a) the process of credit empowerment of women (b) the intra-household debt patterns of the household and (c) whether the emerging debt patterns correspond with the declared and documented pathways of empowerment of the poor through microfinance, especially microcredit.

2. Locale of the study and methodology

7The present discussion is based on a case study undertaken as part of a larger research study by the author in Wayanad district in Kerala, from October-December, 2002. The study sought to: (a) examine the aspects/quality of financial outreach achieved under the SHG programme and (b) empirically analyse and compare the credit functions, that is, the SHGs and the non-SHG sources. The present discussion focuses on the gender aspects of credit empowerment of the SHG member-households in the district and their macro implications.

2.1. District economy

8Wayanad is a hilly district situated in an elevated, picturesque, mountainous plateau on the crest of the Western Ghats at a height of between 700-2,100 metres above sea level. The district has an area of 2,131 square kilometres with a total population of 7,86,627 as per the 2001 census. Tribal people constitute 17% of the population of the district, which has an extensive forest cover that accounts for 38% of the total forest area in the State. It is an agrarian economy that depends on cash crops such as coffee, cardamom, tea, pepper, ginger, turmeric and areca nut. Wayanad is a district with no industry and hence, is a declared backward district. Further, with more than 37% of its population below poverty line (against the State average of 23%), Wayanad is considered a typical example of Indian rural economic life.

2.2. Performance of the SHG programme in the district

9The programme has been in operation in all the three taluks (revenue divisions) of the district since 1998. Almost all the bank branches and 12 out of the 20 NGOs in the district participate in the programme. At the end of March 2002, there were 2,381 SHGs linked to the banking system and a cumulative amount of Rs. 55 million was disbursed to them (NABARD 2002).

2.3. General livelihood concerns in the district

10The economy of Wayanad has been affected very negatively by globalisation, which is reflected in the heavy fall in prices of agricultural commodities and the subsequent impact on its rural livelihood systems. Many tea and coffee plantations have ceased functioning, been abandoned or workers were locked out, virtually driving them to starvation. The migration of male family members to nearby districts and cities has been on the increase (NABARD 2003). Further, there have been repeated media reports on the increasing incidence of nutrition-related diseases and tuberculosis in the district. There has been inadequate involvement by the government in providing basic nutritional support, medical services and other public health activities (Peters et al. 2002). The district witnessed 37 small-farmer suicides during 2002, 67% of the total farmer suicides reported for the year in the State.

2.4. Selection of Households and data collection

11The selection of households for the study was by the multi-stage sampling process. First, the taluk-wise distribution of SHGs with three years of continuous credit linkage in the district was computed. The number of SHGs from each taluk was arrived at based on its respective share in the total number of SHGs in the district, and the selection of SHGs was by the random sample method. From each SHG thus selected, two SHG memberhouseholds were randomly selected for administration of the questionnaire. Thus, the study covered 358 SHG households, equally drawn from 179 SHGs, which were proportionately distributed in the three taluks (Mananthavadi, Sulthan Batheri and Vythiri) of the district. Information was also gathered through focus group discussions with the SHG members and interviews with local moneylenders and bank officials.

2.5. Profile of the SHG member households

12The average age of members was 34, with a standard deviation of 17, which implies that the members were in their prime earning age. The average number of members/SHGs in the district was 16 in the year 2000, which declined to 15 in the year 2002.

13The livelihood pattern of the members of the households consisted of working on their own land or working as wage labour. Only 5% of the households studied suffered from landlessness. The average monthly individual contribution to the SHG corpus ranged between Rs. 20 and Rs. 60. Poverty and a commonality in their livelihood concerns were observed as the major driving forces for participation in the SHGs. The official poverty level in the State has been defined as those families whose monthly income is Rs. 1,750 or less. In general, the SHG members reported monthly incomes well below the threshold income of Rs. 1,750 a month.

3. Major observations and analysis of the study

14This section has been organised as follows: (i) Gender aspects of credit, (ii) Credit usage patterns and (iii) Summary of findings.

3.1. Gender aspects of credit

15In poor economies, households tend to borrow from as many sources as possible to meet their financial needs. Non-institutional sources comprise of the private, unregistered moneylenders/trader-lenders and so on. The basic objective of all the initiatives in the development of financial systems in rural areas, especially the SHG-bank linkage programme, has been the institutionalisation of rural credit.

Table 1. Classification of SHG households according to prime borrower and the corresponding source of borrowing for the years 2000, 2001 and 2002

Table 1. Classification of SHG households according to prime borrower and the corresponding source of borrowing for the years 2000, 2001 and 2002

16An analysis of the shift in the financial (credit) liabilities that take place in rural areas due to the enhanced credit worthiness of rural women and their participation in SHGs revealed that the number of male members of the household who had accounted for 60.47% of the total number of borrowings of the SHG households in 2000 had declined continuously during the period of study and it was only 39.08% during 2002 (Table 1). The corresponding figures for women were 39.53% and 60.92%. Women – voluntarily or because of livelihood compulsions – assume more financial responsibility in situations of disturbed livelihood patterns and socioeconomic uncertainties. However, while 48% of the women borrowers could contract loans from institutional sources in 2000, it sharply declined to about 20% by 2002, while the corresponding figures for male members in the household remained above 70% during the period 2000-2002. More and more women are borrowing from non-institutional sources.

17It is observed that the average annual borrowings made by the SHG households during the period of study (2000 to 2002) declined from Rs. 35,000 to Rs. 32,500 (Table 2). The share of institutional sources, in general, and gender-wise, registered a decline in total household borrowings, while the average amount borrowed from the non-institutional sources registered a significant increase in the case of women. However, in the case of men, the figure decreased from Rs. 9,500 in the year 2000 to Rs. 4,600 in 2002.

Table 2. Gender-wise classification of average borrowings by SHG households for the years 2000, 2001 and 2002

Table 2. Gender-wise classification of average borrowings by SHG households for the years 2000, 2001 and 2002

3.2. Credit usage patterns

18An analysis of gender-wise borrowing for 2000 to 2002 is furnished in Table 3. The share of investment activities, which was 35.66% in 2000, declined to about 30% in 2002. The number of borrowings made by the households for meeting basic life needs (such as food, medical treatment and health, education, basic amenities and so on) has significantly increased from 15.89% in 2000, to a little over 22% in 2002. Similarly, the share of borrowings made for the repayment of previous loans, in the total borrowings of the household, also registered a significant increase over time – from 9.30% in 2000, to 13.36% in 2002. More women are observed to be borrowing, but an increasing percentage of them have been borrowing to meet the basic life needs and repayment commitments of the household, while the share of men in all the four categories identified, registered a continuous decline during the period under study.

Table 3. Gender-wise classification of purpose of borrowing (loan use) by households for the years 2000, 2001 and 2002

Table 3. Gender-wise classification of purpose of borrowing (loan use) by households for the years 2000, 2001 and 2002

3.3. Summary of findings

19Some important observations of the study are:

  • Local moneylenders prefer to lend money to women rather than men. Further, among the women, SHG women are increasingly preferred over other women for credit.
  • Men took fewer loans than women. However, men could avail larger amounts per loan than women borrowers, at relatively lower interest rates. Institutional credit, which is cheaper than other sources, showed a bias towards men (because they have larger assets).
  • Women maintain a wider, more diversified loan portfolio than men (when borrowings from SHG are included).
  • Women contracted more high interest, low maturity (short-term) loans than male members in the family.
  • There has been a clear shift in credit liability towards women. The average amount borrowed by men decreased from Rs. 22,900 to Rs. 16,500, whereas the corresponding figures for women showed a significant increase from Rs. 12,000 to Rs. 16,000.
  • There is a significant increase in the number of loans taken (especially for women borrowers) for meeting subsistence and immediate welfare needs of the households, than for its long-term development needs.
  • The average annual interest rate hovered at around 24% for SHGs, 30% for local moneylenders and 18% for institutional credit.
  • The average interest liability of households has increased despite the general fall in interest rates in the formal system, due to an increase in the percentage share of non-institutional credit in total borrowings of the households. Women bear a major portion of this increased interest liability due to their sources of borrowing.

4. Conclusions and implications

20The study observed that SHGs are emerging as a potential source of credit for women. Further, participation in the SHG has enhanced their financial credibility in the local money market and they are, therefore, able to contract more credit from sources other than the SHGs. However, the increasing of non-institutional sources over formal financial institutions in the credit portfolio of the households is a cause for concern. Further, women are emerging as an important borrower within the household. However, there is an unhealthy shift in liabilities, with high risk, high cost, short duration loans being taken by women.

21SHGs are a promise and hope for the socio-economic empowerment of the rural poor. From the entitlement angle, when credit is focused on women, they are empowered to access/control other resources and services that should contribute to their increased welfare through better incomes. However, each credit is a debt and under conditions of severe livelihood uncertainties and dwindling State participation in social security services, the poor are inclined to borrow more and more to meet sustenance and social security/lifecycle needs. The borrowings help them meet their immediate sustenance needs, while their development needs are hardly addressed. The absolute powerlessness of the households could continue or even worsen in the long-term, while in the short-run, the relative intra-household inequities in credit access could be addressed by focusing credit specifically at women. Empowerment of women and the poor through providing credit is a weak assumption and does not result in an interactive process that would eventually result in the transformation of the poor. On the contrary, focussing on women to expand credit outreach could result in their ending up with more unfriendly credit/debts and repayment liabilities, which is not in their welfare interests. The empowerment of women through credit, and the empowerment of the poor are, therefore, not synonymous, at least in the socio-economic contexts as discussed above. This is notwithstanding the fact that women constitute the majority of the poor (there is a gender bias in rural poverty). In stagnant and declining economies, providing more credit to women need not result in empowerment of the household in general, unless it results in additional income generation, employment and welfare at the household level.

Table des illustrations

Titre Table 1. Classification of SHG households according to prime borrower and the corresponding source of borrowing for the years 2000, 2001 and 2002
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Titre Table 2. Gender-wise classification of average borrowings by SHG households for the years 2000, 2001 and 2002
Fichier image/jpeg, 179k
Titre Table 3. Gender-wise classification of purpose of borrowing (loan use) by households for the years 2000, 2001 and 2002
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PhD Research Scholar in Economics at the Indian Institute of Technology, Bombay (India)

© Institut Français de Pondichéry, 2005

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