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Microfinance challenges: empowerment or disempowerment of the poor?

Isabelle Guérin
Jane Palier

Part III - Assessing microfinance

18. Microfinance and empowerment – concepts and tools: some preliminary insights from the SHG model in Andhra Pradesh

P.A. Lakshmi Prasanna

Texte intégral

1In recent years, group-based microfinance with features such as joint liability (such as self-help groups [SHGs]) has attracted the attention of researchers, policy makers, financial institutions and international donors. This attraction is due to the reported ability of this form of microfinance to help in poverty alleviation by addressing certain credit market failures (thereby improving outreach in terms of serving vulnerable sections of the population), but at the same time maintaining a higher repayment rate (thereby contributing to financial sustainability). However, the literature shows that the performance of SHGs is not uniform across all regions and social contexts. With this observation as the backdrop, a study was carried out with the specific objectives of comparing structure, conduct and performance of SHGs in different agro-climatic regions of Andhra Pradesh. Focusing on the “empowerment” dimension of performance, some preliminary insights from the study are presented in the paper.

1. Methodology

2Andhra Pradesh was selected for the study as it has the largest number of SHGs linked to financial institutions in the country. As on March 2003, the State’s share in the number of SHGs, both credit-linked and bank loan, was 39.22% and 47.61%. Besides this, the extent of group mobilisation in the State under various programmes is estimated to be about 4,80,000 groups involving nearly 7.2 million households. Two leading districts (in terms of the number of SHGs, as of March 2000) – Medak and East Godavari–representing two agro-climatic regions of the State (as per the planning commission delineation of 15 zones in the country) were selected for the study. The data on the status of SHG-linkage in the study districts as on March 2002, is furnished in the table given below.

Table 1. Status of SHGs in selected districts of Andhra Pradesh


Cumulative number of SHGs provided with bank loan up to March 31, 2002.

Cumulative bank loan disbursed up to March 31, 2002 (Rs.million).

Average loan size (Rs.) Cumulative

Average loan size (Rs.) in 2001-2002






East Godavari





Source: Ten years of SHG-bank linkage (NABARD 2002).

3In each selected district, a minimum sample size of 30 groups was fixed so as to include SHGs linked to both regional rural banks and commercial banks, and linked through different modes (i. e. directly linked to financial institutions, linked via non-governmental organisations [NGOs], or linked by the involvement of other formal agencies such as the District Rural Development Agency [DRDA]). Leading financial institution branches were identified in each district in terms of early starters in lending to SHGs. From each selected branch, 3-4 SHGs (the oldest SHGs) were selected for the study. From each selected SHG, information was collected from their records, leaders and members (at least five members from each SHG were covered in data collection). In addition to these SHGs, 7-10 long-running SHGs from each district were selected and studied. For collecting data, group-level and individual-level questionnaires were used.

Table 2. Salient features of sampled SHGs


East Godavari

Number of SHGs sampled



Average age of the group (Years)



Number of members



Number of members per group



Share of illiterates (Percentage)



Share of Backward Class members (Percentage)



Share of Other Backward Class members (percentage)



Share of Scheduled Caste/Scheduled Tribe members (percentage)



2. Economic empowerment

4It was found from the sample that the women SHG members participated in both farm and non-farm activities. 6.5% and 18.8% members in Medak and East Godavari did not participate in any economic activity. Members engaged in farm-based activities constituted a major share of the sample in the case of Medak (76.8%), whereas in the case of East Godavari, the share of members engaged in non-farm activities was higher. This in turn is linked with the divergent social composition of the sample (in terms of caste and literacy) and the divergent contextual factors (natural resources) amidst which these groups exist. 10.3% widows and destitute women in East Godavari and 2.3% in Medak, representing the most vulnerable sections of society, were empowered through participation in SHGs

5In both the districts, non-farm activities in which members were engaged were of a traditional nature. East Godavari is in a better position compared to Medak in terms of natural resource potential and the quality of human resource (female literacy). Accordingly, two special Swarna Jayanthi Swarojagar Yojana (SGSY) projects are being implementation in the district, one for the development of coir-based products and the other in fashion designing, with project outlays of Rs.25 crores and Rs.23.97 crores. The distinct feature of these projects is that they encompass the capacity-building component. One main factor determining the nature of non-farm economic activities in which members are engaged is the anticipated marketing problem of new products. Accordingly in East Godavari, two special SGSY programmes and two marketing federations were formed to take care of the marketing problem. In the case of Medak, the lack of natural resources and the poor quality of human resource, limits the opportunities available in the non-farm sector. Consequently, farm-based activities such as animal husbandry, and the establishment of a neem seed oil extraction plant are receiving attention for helping in the economic empowerment of women. In East Godavari, too, women involved in agriculture are being targeted for empowerment through animal husbandry activity, as the coir-based activity is confined to 22 mandals only (a mandal constitutes an administrative zone within a district, comprising of a group of villages).

Table 3. Profile of economic activities taken up by sampled SHG members in selected districts


East Godavari

Number of housewives (members not participating in any economic activity)

44 (6.5%)

80 (18.8%)

Agriculture/agricultural labour

523 (76.8%)

191 (44.8%)


14 (2%)

30 (7.1%)

Petty shop/hotel

16 (2.4%)

9 (2.1%)

Beedi rolling

46 (6.7%)


Handloom weavers


21 (4.9%)

DRDA/Anganwadi workers

11 (1.6%)

3 (0.7%)


27 (4.0%)

92 (21.6%)

Vulnerable sections (widows and destitute women)

16 (2.3%)

44 (10.3%)

Others include

Ironsmith, washerwomen, pottery, nursery workers, factory workers, vegetable sellers.

Saree rolling, selling fish, leaf plate making, pickles making, and wire bag knitting.

Note: Anganwadi workers are health workers who look after the health and nutrition programmes for rural women.

6The above-mentioned efforts become operational only when an SHG attains certain standards. In general, the effect of visible economic empowerment through SHGs, especially in the case of members engaged in farm-based activities, is very low. This in turn is due to the fact that the first loan size is fixed at Rs.10,000-15,000 per SHG, based upon the number of members in the group. In subsequent loans, there is a gradual increment in the loan size, which is a feature of microfinance lending. The average loan size per SHG in selected districts is presented in Table 1. In most SHGs, members share these loans equally, and each member thus gets a very meagre amount. In the sample SHGs, the average loan size per member in the first loan works out to Rs.1,000. According to NABARD, the average (cumulative) loan size per member (family) at the country level increased from Rs.1,016 to Rs.1,316 only from March 2000 to March 2002. The SHG members from cultivator households use this amount for farm activities such as the purchase of seeds and fertilizer or the payment for labour, or other household expenditures. Consequently, economic activity resulting from SHG-lending is invisible in most cases. The equal sharing of loans in most cases is a behavioural response (to share and spread the loan repayment responsibility) following the joint liability feature.

3. Social empowerment (network building)

7The federation of SHGs is being promoted now in Andhra Pradesh. Some reasons for the initiation of informal networking of SHGs by NGOs are to deal with issues such as inter-group lending (thereby ensuring mobility of capital), negotiate with higher-level structures, and gain greater bargaining power (Reddy and Prakash 2003). In later stages, the formalisation of this networking is facilitated by the introduction of the Andhra Pradesh Mutually Aided Cooperative Societies (APMACS) Act 1995, by the State government.

8In the study area, some distinct features were observed in the formation of federations. In Medak district, both DRDA promoted-federations and NGO-promoted federations were observed in the sample. In the DRDA federations, SHGs federated at Mandal level as the Mutually Aided Cooperative society (MACs). In NGO-promoted federations, SHGs were federated at the village levels as Mahila Mandals/Sanghams, and at Mandal level as MACs. These federations provide scope for cross-learning and also deal with common problems at the macro-level.

9In the case of East-Godavari district, activity-based federations were observed such as fashion designing and garment manufacturing marketing MACs, and coconut by-products marketing MACs. The main advantage of these activity-based federations is efficiency in marketing. Thus the federations build up on the concept of networking and aid in not only social empowerment, but also economic empowerment of SHG members. In East-Godavari there are four MACs and in Medak district, 95 service area federations (SAFES, which are unregistered) and 24 MACs have been established. At the State-level, 1,800 thrift and credit MACs are registered, and the number is growing at an exponential rate (Reddy and Prakash 2003). In the South Asia Poverty alleviation programme (SAPAP)) and the Velugu programme area, successful intervention in commodity markets through federations was reported by Shenoy (2002) in terms of eliminating the role of middlemen and improving the price realised for these commodities.

4. Political empowerment

10In July 1999 the State government launched a scheme called “Deepam”, in which domestic LPG connections are provided to women below the poverty line, both in rural and urban areas, at a subsidised rate. The scheme has a one-time capital subsidy – under this scheme, LPG connections are subsidised and cost Rs. 1000 per connection – rather than providing LPG refills at a subsidised price. The up-front cost of taking an LPG connection has to be borne by the beneficiary. Under this scheme, beneficiaries are members of thrift and credit societies, members of DWURA (Development of Women and Children in Urban Areas) in urban areas and members of DWCRA (Development of Women and Children in Rural Areas) in rural areas. Thus, initially, SHGs formed and nurtured by NGOs in rural areas were not recognised as beneficiaries under the scheme. Over this issue, a representation was made in Dubbak Mandal of Medak district by SHGs promoted by Navjyothi, an NGO. This was not successful with the officials at the lowest level. Hence the members made a representation at higher levels and got some LPG connections, according to the seniority of the group. Thus the SHG members, through their federation, questioned the power relations and established their claims. Also, in Medak and in East-Godavari, SHGs participate in Grama Sabhas during the Janmabhoomi process (an effort to take administration to the doorsteps of people, with five core areas: community works, primary education, primary health and family welfare, environment conservation and responsive governance with people’s participation).

5. Group dynamics and empowerment

11Group dynamics in terms of dropouts influences the extent of empowerment. Dropouts in Medak amounted to 6.5% and 7.6% in the case of East Godavari. The percentage of groups in which dropouts were observed was 33.3% and 43.24% in Medak and East-Godavari.

12In Medak, dropouts due to financial problems were 51% of the total dropouts, of which 36.2% were self-dropouts and 14.8 per cent were forced dropouts. In East-Godavari, the dropouts due to financial problems were 40% of the total dropouts, of which self-dropouts were to the extent of 31.4%. These figures once again reflect lower economic empowerment. In the case of Medak, 4.3% constitute forced dropouts as they were unmarried, while in the case of East-Godavari, 2.8% dropped out voluntarily after marriage. The reasons given for the dropouts make one question the empowerment effect of microfinance. Migration accounted to 19.2% and 34.3% of the dropouts in SHGs in Medak and East-Godavari. Conflict over the distribution of LPG connections under the Deepam Scheme led to 10.6% dropouts in Medak. The caste composition of the groups also influenced group dynamics.

13An attempt was made to explore why male thrift and credit-based SHGs were not coming up, by means of studying male groups in Medak district (only 3 groups). In one case, it was observed that the lack of agreement among members on the issue of which political party to support, led to the stoppage of functioning of the group, even though the group was homogeneous in terms of caste. In two other cases it was observed that after the first loan, the members were discouraged by the lack of bank support, resulting in dropouts in one (heterogeneous in terms of caste) group and passive functioning in the other (homogeneous in terms of caste) group. Agricultural labourers and factory workers formed a major share of the dropouts.

6. How defaults affect empowerment

14Some of the reasons for default in repayment of loans by groups in the study districts were migration, exogenous group formation (i.e. group formed by the intervention of external agents pooling together members unknown to each other), domino effect (i.e. if one member defaults in a group, other members also strategically default), no economic activity on the part of members, and difficulty in exerting peer pressure when members of a group are close relatives. Defaults resulted in denial of future access to credit, which affected members of the group in genuine need of financial services. Thus defaults have a negative effect on the empowerment effect through joint-liability-based microfinance.

15It was generally opined that groups with a cooperative mode of operation would be more effective and promote equity and empowerment. In the SHG-model of microfinance in the majority of cases it was observed that members of the groups shared the loans equally, but the repayment capability differed with each individual. In such a situation, members who were unable to contribute on par with others were either forcibly dropped or forced to adopt the method of “debt rotation” (i.e. to repay the SHG loan amount, they would have to borrow from outside). In many cases it was observed that the smaller loans were repaid earlier than final due date fixed, in order to avail bigger loans. In this process, the vulnerable sections in the group were affected and forced to follow the procedure of debt rotation. This has an adverse effect on the empowerment effect of microfinance. However, in one or two instances it was observed that the vulnerable sections are provided with internal lending (with flexibility of regular payment of interest only, and principal payable in one or two instalments, when the flow of income is good, such as during the harvest season). In these groups, bank loans were shared exclusively by members with a regular income. That is, the source of the loan was different for members with a regular income, and members with a seasonal flow of income. This kind of flexible cooperative behaviour has a positive effect on economic empowerment through microfinance.

16The positive effect of inter-group cooperation through networking has been highlighted earlier in terms of political empowerment. However, this networking concept has certain adverse effects such as the spreading of the domino effect. In Medak district it was observed that on account of apprehensions spread, due to lack of transparency in managing financial resources, one Sangham (SHG federation at the village level) promoted by an NGO completely defaulted. Thereby, all the members of the SHGs constituting this federation became dependent on informal credit resources for their requirements. Similarly, in Raikode area of Medak district, improper understanding about the Manjeera Suraksha scheme, an insurance linked savings scheme for members of SHGs, led to default by several SHGs. Thus, cooperation in such aspects and emulation without proper understanding has an adverse effect on empowerment.

Conclusion: further issues

17Joint-liability-based microfinance offers some scope for empowerment of vulnerable sections. However, which vulnerable sections are empowered, and the areas in which they are empowered, are determined by microfinance programme design, the policy environment, the socio-cultural context, the mode of group functioning and group dynamics. Due to linkage with the DWCRA programme, the SHG model focuses only on the empowerment of women. A recent initiative, the formation of “Rytumitra” groups, aims to cover small and marginal farmers including tenant farmers, irrespective of their gender. However, how far this joint liability concept is practical in the context of correlated risk of the agricultural sector, and what specific features need to be included in the microfinance design model to make the model perform well, are the issues of research.

18Within the existing SHG model focusing on women, some issues that need attention are:

  • How to make vulnerable people (who do not participate or dropout on account of inability to save and repay loans) participate in the programme. What flexible features need to be introduced in the existing model of SHGs?
  • In the context of low female literacy, especially in rural areas, how does one protect SHG members from instrumentalization and rent seeking behaviour from local, national and global players?

19These issues need to be addressed with care to avoid discrimination in the implementation of welfare programmes targeting SHG members, between SHGs promoted by NGOs and those promoted by other formal agencies. This will aid in the higher empowerment effect of SHG-model microfinance.


Scientist, National Centre for Agricultural Economics and Policy Research (NCAP), New Delhi (India)

© Institut Français de Pondichéry, 2005

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