MICROFINANCING THROUGH SELF HELP GROUPS-

A STUDY OF CO-OPERATIVE BANKS IN KERALA

Dr. C. Krishnan
Associate Professor
Government College Kodanchery
Kozhikode, Kerala-673 580.
E-mail:ckcalicut@rediffmail.com

Abstract

The Co-operatives are equal partners in the promotion of Self Help Groups across
the country. Though they are behind the Commercial Banks, they are ahead of
Regional Rural Banks, in almost all the vital indicators pertaining to the SHGs. But it
is sad to note that the efforts to study the contribution of the co-operatives in the SHG
revolution are scanty. This study is conducted in the background of such a
realization. The main objective of the study is to understand the role of co-
operatives in Kerala in Self- Help microfinance promotion. We also attempt to
examine the outcome of co-operative microfinance on the income, employment and
entrepreneurship among the SHGs. Following a multi-stage random sampling
procedure the study concludes that the co-operatives in Kerala take every effort to
strengthen the SHGs. Both the PACS and the District Co-operative Banks are
effectively participating in the programme. Both the agencies in the study area
support SHGs and JLGs. However, the role of PACs is found to be more integrated
than the DCB. It was also noted that lack of enterprising ventures among the SHGs
cripple their sustainability. Similarly, diversification in the income generating
activities taken up by the SHGs is very poor. The study suggests among others to
set up a permanent training centre at the state level to train the SHG/NHG members
exclusively and to develop their human resource for the all-round development of the
economy.
Introduction

Financial inclusion through increasing access to credit to the poor is accepted as

an important strategy to fight against poverty In India. The nationalization of major
banks in 1969 and mandated directed credit programme to the priority sector since the
early 1970s were part of the push for financial deepening and inclusion. However, the
financial sector reforms since 1991 with emphasis on deregulation and efficiency had a
profound impact on the financial landscape especially the access of credit to the poor.
Studies have shown that access of rural households to institutional sources of finance has
declined since 1992 and the share of debt of rural households especially from non-
institutional sources has increased (Shetty, 2005; Swaminathan, 2007). The latest All
India Debt and Investment Survey have also brought out the fact of increasing
importance of non-institutional sources. In this juncture, the promotion of microfinance
through Self Help Group (SHG)-Bank linkage model adopted since 1992 is aimed to
replace the state activism of the 1970s and 1980s by private sector (microfinance) entities
to promote financial inclusion.

Hence, Microfinance has become an institutional channel for providing the credit
and other immediate requirements of the poor people across the world. Ever since its
birth in Bangladesh in 1976, the system of group financing has become a cliché among
the development practitioners. Banks, NGOs, Governments, Community organizations,
and the like has accepted group lending for attacking poverty, destitution and
empowerment. In India, right from the Community Development Blocks programme of
1952, several planned efforts were taken up to eradicate poverty and unemployment.
But, the results were far from satisfactory. Despite the working of the Co-operatives and
Commercial Banks in the country, the report of the All India Rural Credit Survey
Committee (1954) made a disquieting finding that only 7.3 per cent of rural credit is
being made available through formal financial institutions. Though the share of the
institutional agencies have improved over the years as evidenced in the All India Debt
and Investment Surveys, still the role of non-institutional sources occupy an
unquestionable position. In this era of liberalization, privatization and globalization, the

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plight of the poor in terms of adequate credit is a big question. The alternative is
microfinance and it has been accepted world over. Though several agencies have been
involved in the delivery of microfinance through SHGs, the role of Co-operative Banks
has not been examined meaningfully so far. Really speaking, they have become part of
the microfinance revolution for about two decades. In this background, it would be a
meaningful exercise to study the role of co-operatives in the promotion and strengthening
of SHG movement. This paper makes a modest attempt in that direction.

Review of Literature

According to Mansuri (2010) micro financing programme of NABARD through

SHGs is working very effectively, but a major challenge for this programme is the
viability of non-farm economic activities. One of the major problems of SHG products is
its marketability. Unless there is a proper marketing system, merely producing the
goods would not help. If the goods produced by the rural poor are sold at a right time
with profitable price, then the poor will be able to improve their savings potential, credit
handling capacity and access to financial institutions, inculcate entrepreneurial skill,
develop an urge for investment and also risk taking attitude through SHGs. .
Nagayya and Koteswara Roa (2009) review the recent trends in the SHG–Bank
linkage programme at national and state level, with special reference to Andhra Pradesh
in detail, and certain aspects of the other three southern States – Tamil Nadu, Karnataka,
and Kerala. The role of SHG federations and Micro Financial Institutions (MFIs) has
been highlighted, bringing out issues on which attention needs to be focused in future.
Baruah (2009) examined the contribution of SHGs towards asset creation of the
members. It was concluded that SHGs failed to create assets worth to lift the members
above the poverty line. Although their investment activities provided them employment
opportunities to some extent and also increased their income level, these were not so such
kind that could provide full employment opportunities to them. In a study Rangappa et.al
(2009) analysed the impact of SHGs on the financial inclusion. Results of the study
clearly showed that the SHGs increased the accessibility to institutional credit by
vulnerable groups and inculcated saving habit among the members. It has also been
found that the SHG-Bank linkage programme has increased the flow of institutional

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credit to landless and marginal farm households and discouraged non-institutional
borrowing through the thrift creation. EDA and APMAS (2006) conducted an all India
study to understand the contribution of the SHGs in the overall development of the
women community. The mission of the study was better to understand the promotion and
operation of self-help groups, how members related to one another, how groups
interacted with their communities, as well as the effect groups had on their social,
political, and economic environments and vice versa.

Anand (2004) seeks to examine the performance of selected Self Help Groups of
the local democratic institution at the grass root level and its impact on alleviating
poverty. The objectives of the study were three fold. First of all the study sought to
evaluate the functioning of SHG's and to identify the factors contributing to the
successful functioning and sustainability of groups in Kerala. Secondly, she has
examined the superiority of this participatory approach over the earlier poverty
eradication strategies and thirdly to examine its impact on poverty and the extent of
empowerment of poor women. The findings of the study show that this participatory
approach also helped in the focused selection and prioritization of the poorest of the poor.
SHG intervention has improved the living standards, inculcated saving and loan
repayment habits and had brought about a positive change in attitudes, social skills
thereby leading to empowerment in 52 per cent of the respondents. The study found
incidences where the non-sustainability of Income Generating Activities led to default
and heavy dependence on promoting agencies. In another work, Anand (2002) has
attempted to examine the performance of selected SHGs and NHGs in Kerala and to
assess its impact, especially the impact of the micro credit programme on empowering
women. All the groups have taken up individual economic activities; but group activities
are very few. However, the concept of group activity is gradually catching up. Beyond
financial intermediation, SHGs can and should bring about drastic changes in the lives of
the poor. It has been clearly established that delivering credit alone may not produce the
desired impact. The supporting services and structures through which credit is delivered,
ranging from group formation and training to awareness-raising and a wide range of other

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supporting measures are critical to make the impact of group activity strong and
sustainable.

In a study, Chiranjeevulu (2003) underlined that the women have tremendous

energies to start their own enterprises given the right opportunities. They have developed
abundant self-confidence and self esteem through SHG movement. Not only economic
poverty but also social and gender issues can be tackled effectively through this process.
A study by Simanowitz and Walker (2002) has also reported positive impacts . A high
proportion of the funds made available for self-help micro credit schemes were utilized
by women, enabling them to meet the subsistence needs of their families during those
difficult economic times (ESCAP 2002). Kumaran (2002) rightly pointed out that asset
creation among the SHGs is possible only when they use their loan for capital
investment. However, in most cases it is found that the number of loans taken by the
SHG members for consumption purposes was higher than that for investment purposes.

Although the loan amount is small, it helps in meeting the requirement of the
poor. Small amounts of loans coupled with financial discipline ensure that loans are given
more frequently and hence credit needs for a variety of purposes and at shorter time
intervals can be met. This is a better mechanism to reduce poverty gradually as against
one time loan for productive asset, which may or may not lead to sustained increases in
income (Madheswaran and Dharmadhikary 2001). The micro financing to women
through SHGs has helped the groups to achieve a measure of economic and social
empowerment. It has developed a sense of leadership, organizational skill, management
of various activities of a business, right from acquiring finance, identifying raw material,
market and suitable diversification and modernization (Manimekali and Rajeswari 2001).
Hence micro financing through SHGs is contributing to the development of rural people
in a meaningful manner. It is seen that significant changes in the living standards of SHG
members have taken place in terms of increase in income levels, assets, savings,
borrowing capacity and income generating activities. (Sharma 2001). It has been
observed that the overall impact of micro-finance through SHGs is very effective in
combating poverty, unemployment and empowerment of women.

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 The economic impact of SHGs was relatively more pronounced on the social
aspects than the economic aspects (Puhazendhi and Satyasai 2001). The SHG is really a
boon in the rural areas which gives financial autonomy to the rural women and make
them economically independent , according to Laxman (2001). The SHGs have become a
platform for exchange of experiences and ideas (Tilekar et al 2001). According to
Zaman (2001), Self-help groups intermediated by micro credit have been shown to have
positive effects on women, with some of these impacts being ripple effects. They have
played valuable roles in reducing the vulnerability of the poor, through asset creation,
income and consumption smoothing, provision of emergency assistance, and empowering
and emboldening women by giving them control over assets and increased self-esteem
and knowledge. Self-help groups have facilitated the formation of social capital, where
people learn to work together for a common purpose in a group or organization (Putnam
2000).

Shylendra (1998) in his paper attempted to evaluate the performance of eight

women SHGs promoted in the Vidaj village by the Institute of Rural Management,
Anand (IRMA). Here the SHGs failed to enable members to realise their potential
benefits. The reasons identified for the failure were the wrong approach followed in the
SHG formation by the team, misconceptions about SHG goals both among the team and
the members, and lack of clarity about the concept. The main lessons drawn from the
project are the need for creating SHGs based on a clear assessment of the needs of
different sections of the society, ensuring clear understanding of the concept of SHG
among team members involved in promoting SHGs, and enhancing the relevance of
SHGs to their members by enabling them to meet effectively their requirements, be it
savings or credit or income-generating activities.

Self-help groups, especially linked to micro credit schemes, have not been
without their critics, nor are they are a panacea for meeting challenges in economic and
social development. It is widely recognized that such schemes are not universally

6
successful. For example, some studies have shown that micro credit will not work in
locations that do not have sufficient cash-based market activity, are isolated and with low
population densities, or are largely self-contained with few outside ties, such as in some
Pacific island countries (UNDP 1997). Some critics have pointed out that while micro
credit schemes can reduce vulnerability, they have not lifted women out of abject poverty
or have taken a long time to demonstrate any significant impact. On their own, micro
credit schemes have limitations as they cannot transform social relations and the
structural causes of poverty. One important shortcoming is that as micro credit is made
available to groups, based on collective collateral, the process of group formation often
precludes the very poor, who are perceived as being poor credit risks (Krishnaraj and Kay
2002 and FAO 2002).
From the aforesaid discussion, it is evident that a number of studies have been
carried out by several scholars and institutions on the varied dimensions of SHGs.
However, only a few attempts were done to examine the role of co-operative sector in the
SHG revolution. This study has been positioned in such a background so as to fill the
research gap.

Objectives of the Study

The general objective of the study is to understand the status of microfinance

penetration through the co-operatives in Kerala. The specific objectives of the study are:

1. To understand the role of co-operatives in Kerala in microfinance promotion.

2. To analyse the impact of co-operative microfinance on thrift and credit operation.
3. To examine the outcome of co-operative microfinance on the income generation,
employment generation and entrepreneurship.

Methodology
Both primary and secondary data have been used in the study. Primary data on
the working of the co-operative microfinance in the state is collected through a scientific

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sampling procedure. A multi-stage random sampling technique is adopted to collect the
sample SHGs. It is seen that in Kerala co-operative microfinance is effectively operating
in four districts. One of these districts has been selected at random in the first stage. It
happened to be Wayanad. From this district, 10 SHGs each have been selected at random
from the Primary Agricultural Credit Societies (PACS) and District Co-operative Bank
(DCB). So a total of 20 SHGs have been identified in the second stage. From these
SHGs, three members each have been selected at random in the third stage for in-depth
analysis. Focus group interviews and participant observation were primarily used to
gather information about the functioning of SHGs. Discussions with the Management
of the District Co-operative Bank and some of the selected managers of the PACS were
also conducted simultaneously.

Evolution of SHGs in Kerala

The success of SEWA of Ahmadabad, MYRADA of Mysore, and several other

experiments in different other parts of the country, has attracted many States for
replicating this strategy. It has been widely accepted that the programme, if taken up and
implemented in the right sense, would be very effective in poverty eradication and
women empowerment. SHGs in Kerala have made significant strides in this field. Earlier
efforts made by some NGOs were confined mostly to a few areas or remained rather
scattered, making the concept relatively unknown and non-replicable. Historically, many
church-based development institutions in Kerala have been promoting credit unions. A
credit union is a typical system, which organises the poor into large groups of 150 to 200
members and pools their meagre savings for their common benefit. Here also the basic
objective has been to help the poor meet emergent needs and come out of the clutches of
moneylenders. These credit unions lacked the participatory decision-making found in
SHGs. During the late 1980s this drawback was realized and under the guidance of
NABARD many voluntary agencies reorganized their Credit Unions into smaller and
more effective SHGs (Anand, 2002).

The Community Development Strategy (CDS) – a modified version of SHG was

introduced in 1993 as part of implementation of the Centrally-sponsored Urban Basic

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Services for Poor (UBSP) and UNICEF-assisted Community-Based Nutrition Programme
(CBNP). Under the CDS, the Women from poor families identified through a transparent
process were organised into Neighbourhood Groups (NHG) of 15-40 families. The
NHGs organised at the grassroots-level are federated democratically into Area
Development Society (ADS) at ward/panchayat level and these are further federated into
CDS, which is a registered body at the municipality/district level. The entire three-tier
structure is envisaged as an extension of the Panchayati Raj system providing a support
system as well as a delivery mechanism for the unified implementation of all poverty
eradication programmes. Probably the most important activity that is being implemented
through the CDS system is the formation of Thrift and Credit Societies (TCS). Enthused
by the success of the CDS as piloted in Alapuzha district and its replication in
Malappuram district, the Government of Kerala expanded the CDS to the entire state.
The Urban Poverty Eradication Mission known as Kudumbasree1 is the outcome of this
and it envisages eradication of poverty from the State over a period of 10 years. This is
being done by organising poor women into groups and empowering them. So, NHGs has
become part of the Kudumbashree programme.

In brief, the state government took keen interest in micro-finance groups after
the successful implementation of the Community Development Society of Alapuzha
organised as part of the decentralisation efforts in the I990s. In 1999, the Government of
Kerala, in collaboration with NABARD and Government of India, had set up
Kudumhashree - State poverty Eradication Mission of the Government of Kerala. This
programme, which was part of the Peoples’ Planning campaign (PPC) 2 of the state,
introduced Neighbourhood Groups (NHGs) involved in micro-finance at the grassroots
level through local self-governing institutions all over the state and aimed at women
empowerment and wiping out absolute poverty from the state within a period of ten
years. Now, Kerala has a strong network of SHGs under the patron of NGOs, Banks,
Community organizations, Religious institutions and State Government.

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History of Co-operative movement in Kerala

Co-operative movement has a long history and tradition in Kerala. It is the

appropriate instrument for rural transformation for a society like ours where weaker
sections, marginal farmers and tiny holdings predominate. In our approach to rural
development under the Five Year Plans, co-operatives were, therefore, recognized as the
main source of rural credit. Over the years the movement has diversified its activities and
today there is hardly any development sector without a co-operative wing. The
agricultural credit sector was the pioneer in co-operative movement and continues to be
the major segment even today.

Even though the co-operative movement was originated in Kerala in the early
years of the 20"' Century, it gained momentum only in the post Independence period.
Co-operative movement in the state started even before the formation of the state itself.
During the British rule, Kerala was divided into three administrative units viz.,
Travancore, Cochin and Malabar. In Travancore, the Co-operative Societies Regulation
Act was passed in 1913 based on the Co-operative Societies Act I1 of 1912 of British
India and the first co-operative society in Travancore was registered on 23 rd November
1915. The Cochin Co-operative Societies Act was enacted in 1913. The first co-
operative society registered under this Act was ‘Advanced Co-operative Society’. The
Cochin Central co-operative Bank was formed in 1918, based on British co-operative
movement. The first co-operative credit society in Malabar region was registered in
1910 and started work at Kannambra. The Malabar district and Kasargode Taluk was
governed by Madras Co-operative Societies Act of 1932. The Malabar Co-operative
Central Bank registered in 1917 at Calicut provided financial support to primary co-
operatives. In 1949, Travancore and Cochin were merged into a single state known as
the Travancore-Cochin State. In 1956, Kerala state was formed by merging all the three
regions. By the formation of the State of Kerala in 1956, a common co-operative law
became inevitable as all the states in India have its own Acts on co-operation.
Accordingly, the Kerala Co-operative Societies Act came into existence on 15 th May
1969. Thereafter, the Co-operative Act in Kerala has been revised and modified at
various stages.

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 Kerala has a wide network of co-operatives engaged in various promotional
activities such as distribution of credit, marketing, agro processing, consumer activities,
public health, education, insurance and infrastructure development. From the Table
given here one can see that credit co-operatives and a number of other types of co-
operatives are functional in the State to meet the multiple needs of its members.

Table 1: Co-operatives under the control of Registrar of Co-operative Societies

Sl.No Type of Societies Total Number Functional
. of Societies Societies
1 Credit Co-operatives 3257 2976
2 Marketing Co-operatives 544 244
3 Consumer Co-operatives 4709 4086
4 Processing Co-operatives 41 13
5 Housing Co-operatives 375 278
6 SC/ST Co-operatives 809 431
7 Health Co-operatives 182 96
8 Women Co-operatives 975 719
9 Other Co-operatives (Miscellaneous) 2459 1387
Total 13351 10230
Source: Government of Kerala, Economic Review 2011, State Planning Board

Co-operative Banks and SHGs in Kerala

It is true that the SHG-Bank linkage programme has been revolutionizing the rural
credit operation. In this process, a large number of institutions are playing a central role.
In Kerala also, different agencies take part in this silent revolution. As is seen from Table
2 that, out of the total number of SHGs with savings in banks in Kerala, 78.77 per cent
are attached to commercial banks, followed by co-operative banks (13.21 per cent). In
the case of total amount of savings of the SHGs in the State, 81.24 per cent was with the
commercial banks and 16.41 per cent was with the co-operative banks.

Table: 2.savings of SHGs with Banks in Kerala

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 (Amount in Rs. Lakhs)
Agencies No. of SHGs Amount of Savings

Commercial Banks 282666(78.77) 18883.87(81.24)

Regional Rural Banks 28769(8.02) 545.20(2.35)

Co-operative Banks 47428(13.21) 3812.77(16.41)

Total 358863(100.00) 23241.84(100.0)

Source: NABARD, 2010

In the case of bank loans disbursed to SHGs in Kerala, 72.61 per cent of the SHGs
availed loans from the commercial banks, 21.88 per cent from the co-operative banks and
about 5.51 per cent from the RRBs. Of the total loans disbursed to the SHGs, 76.37 per cent
were through the commercial banks and 17.51 per cent through the co-operatives. Almost
the same pattern exists in the case of outstanding loans. However, in the case of the
percentage of non-performing assets (NPA) of outstanding banks loans to the SHGs, the co-
operative banks had a high ratio. From the analysis, it is obvious that the co-operative banks
are playing a pivotal role in the formation of SHGs.

Table: 3. Bank Loans Disbursed to SHGs in Kerala

(Amount in Rs. Lakhs)
Agencies No. of SHGs Amount of loan

Commercial Banks 43842(72.61) 39461.34(76.37)

Regional Rural Banks 3328(5.51) 3162.18(6.12)

Co-operative Banks 13206(21.88) 9050.00(17.51)

Total 60376(100.00) 51673.52(100.0)

Source: Ibid

Table: 4. Bank Loan Outstanding against SHGs in Kerala as on 31 st March 2009

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 (Amount in Rs. Lakhs)
Agencies No. of SHGs Amount of Av. % of NPAs of
Savings Outstanding outstanding
loan per SHG banks loans to
SHGs
Commercial Banks 144192 74788.47 0.52 2.4

Regional Rural Banks 10341 5955.77 0.58 4.0

Co-operative Banks 21620 14348.81 0.66 8.4

Total 176153 95093.05 0.54 3.5

Source: Ibid

The SHG formation through the co-operatives is generally done by PACS or

Village Co-operatives. The organization of PACS dates back to 1904, when the Indian
Co-operative Society’s Act was passed. They were intended to promote the economic
interests of its members, especially, the poor in accordance with the co-operatives
principles. It has to achieve its aim by promoting savings among members, providing
loans, supplying agricultural implements and certain essential domestic requirements and
arranging their marketing of agricultural products. However, the reality was that these
societies miserably failed to extend the intended services to the target group due to
several reasons like nepotism, over politicization, heavy overdue, self interests of the
director boards etc. This realization has led to the formation of SHGs as a suitable way
for solving the conceptual and practical issues in financing the poor.

The formation of SHGs by Co-operative societies in Kerala began in 1997. The

Co-operative Societies are exempted from Clause 59(1) of the Kerala State Co-operative
Act in order to provide loans to SHGs. In Kerala, under the co-operative sector, the SHG
scheme is implemented mainly through PACS. Table 5 provides the outreach of the co-
operatives in the development of SHGs through PACS in the State. There has been
considerable headway in the progress of SHG formation. Also the state contribution to
the SHGs through the PACS has also witnessed commendable progress.

Table 5: Self Help Groups and Co-operatives in Kerala

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 (Amount in Rs. Lakhs)
Year SHGs formed State Contribution to
by PACS SHGs through PACS
2000 1307 92.88
2001 5905 96.20
2002 5878 90.93
2003 7384 31.30
2004 9046 356.92
2005 18188 236.40
2006 11845 222.31
2007 19387 351.36
2008 21325 217.43
2009 33134 970.10
2010 47548 828.89
Source: Registrar of Co-operative Societies, Kerala

Having gone through the growth in the formation of SHGs through the co-
operatives in Kerala, now we attempt to understand the inter-regional and intra-regional
pattern in the SHG schemes promoted through the PACS. Table 6 examines the details
district-wise.
Table 6: Progress of SHGs through PACS (2010-11)
(Amount in Rs. Lakhs)
District No. of PACS No. of Deposits Loans Groups Groups
PACS participated Groups collected issued working working
to on on Loss
Groups profits
Trivandrum 113 51 3339 987 1148 1082 2257
Kollam 127 60 4401 417 3588 3747 654
Pathanamthitta 105 28 613 164 1032 546 67
Alapuzha 190 96 8685 1487 5950 7430 1255
Kottayam 140 46 658 39 630 207 451
Idukki 71 66 9427 1051 2426 8264 1163
Ernakulam 165 34 370 27 90 171 199
Thrissur 147 106 8042 5322 3060 6400 1534
Palakkad 96 24 829 23 880 314 515
Malappuram 122 30 319 24 102 148 168
Kozhikode 102 31 1209 380 298 669 540
Wayanad 37 29 7080 1407 1025 6194 886
Kannur 126 38 2112 422 803 1735 485
Kasargode 61 19 467 35 94 106 361
Total 1602 658 47548 11785 21126 37013 10535
Source: Ibid

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 The Table clearly brings out the fact only 41.07 per cent of the PACS participated
in the SHG mediated microfinance programme in Kerala. There is wide disparity among
the districts in the participation of the PACS in SHG formation. In Idukki district, about
92.96 per cent of the PACS has participated in the SHG revolution, while in Ernakulam
district, only 20.61 per cent of the PACS were part of it. It points to the fact that the
District Co-operative Banks (DCBs) play a decisive role in the promotion of
microfinance among the PACS. All the DCBs in the state have not come forward in
strengthening the network of SHGs through the PACS.

Disparity also exists across Kerala on a number of other vital aspects of SHG
promotion through the co-operatives. A close perusal of the table reveals that four
districts viz., Alapuzha, Idukki, Thrissur and Wayanad accounted for 65.68 per cent of
the total SHGs formed through the PACS. With regard to the thrift generated through the
SHGs, it is clear that 78.63 per cent of the total deposits of the SHGs are also from theses
four districts. In the case of credit availed by the SHGS, the four districts mentioned
accounted for 59 per cent of the total loan issued to the SHGs. Similarly, 76.43 per cent
of the SHGs working on profits are also hailing from these four districts. These figures
are an indication of the skewed distribution in the central parameters with respect to the
SHGs through the PACS in Kerala. Thus micro finance through self help groups has
emerged as a major hope for the millions of rural poor for dealing ‘poverty with dignity
and development through credit’. In this backdrop, it is interesting to understand the
various dimensions of the SHG financing through the co-operatives and hence this study.
The DCBs are also part of the SHG-Bank Linkage programme in Kerala. The
DCBs through its branches support the SHGs through thrift and credit operations.
However, unlike the PACS, the state level data on their functioning is not available in
published form. Hence, a detailed analysis of its inter-regional and intra-regional
performance can not be attempted here. But, we have collected information about the
DCCB in relation to the SHGs in the study area and are provided in the next section.

SHGs and Co-operatives in Wayanad District

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 Wayanad lies between north latitude 110 27’ and east 750 27’. It is bounded on
the east by Nilggiris and Mysore districts of Tamilndu and Karnataka respectively; on
the north by Coorg district of Karnataka; on the South by Malappuram and on the West
by Kozhikode and Kannur districts. Wayanad district stands on the southern top of the
Deccan plateau and its chief glory is the majestic Western Ghats with lofty ridges
interspersed with dense forest, tangled jungles and deep valleys, the terrain is rugged.
Wayand district came into being on the 1st November 1980.
Wayanad is one of the farming districts in Kerala that has come into focus due to
high frequency of farm suicides, apart from other agricultural issues. The population is
constituted by farming community with large scale farmers and landless laborers, in fact,
perhaps, a strange combination of subsistence activity and market orientation. Wayanad,
of course, has a legacy and tradition of cash crops production for the international market.
The district has earned the reputation for contributing a major share of foreign exchange.
Studies reveal that in respect of industries, services and professions, Wayanad lags
behind the other districts of Kerala. There is the semblance of a vicious circle in
operation in the farming sector of the district asserted by crop loss, low price and heavy
indebtedness. The flow of capital or money was hardly sufficient for the launch of
industrialization in Wayanad. However, the agriculture sector continued to avail loans
from all sources to pull on life and at one time found it hard to meet the repayments.
Cost escalations in farming activity and falling farm prices coupled with the natural
calamities made the situation worse and the farmers find it difficult to cope up with the
pressures from all sides. The result was farm suicides, which came as a rude shock to the
state apparatus, the policy makers and the public as well. The SHG movement is to be
seen in this alarming situation facing the district.
Recently, the tourism sector has emerged as a dynamic activity in the area. A
large number of farm houses, resorts and villas emerged recently in the district to attract
the tourists into the area has opened new opportunities as well as threats to this
agriculturally woven geography of the state.
The NABARD while publishing the guidelines for the pilot project for linking SHGs
with banks, co-operative bank were also included under its purview. The object of the
programme is to provide finance to rural poor through SHGs for meeting the credit

16
requirement of poor people in rural areas, for building up mutual trust and confidence
between bankers and rural poor and for encouraging banking activities both in thrift as well
as credit. However, as the District Co-operative Bank does not lend directly to individuals,
they had no provision to lend through SHGs as per their bye-laws. In order to facilitate the
co-operatives to lend to the SHGs, the Government of Kerala exempted Section 59 of the
Kerala Co-operative Societies Act 1969 so as to permit the PACS to enroll the SHGs as
members and to finance the groups directly or through NGOs in 1997. As per this order the
PACS alone come under this line to finance SHGs, but later the DCBs were also covered
under this order.

In 2002, the NABARD has issued a circular to consider co-operative banks as Self
Help Promoting Institutions (SHPIs). Its objective was to encourage DCCBs for functioning
as SHPI in the promotion and linkage of SHGs either through their branches or associated
PACS. In the light of these developments, the Wayanad District Co-operative Bank
(WDCB) “resolved to take up SHG financing as the best business opportunity for improving
not only the credit disbursement of the Bank, but also helping capital formation in the area
served by the Bank so as to ensure improving living standard of rural people” on 2 nd February
2004. Since then, the WDCB in association with the PACS have taken concerted efforts to
strengthen SHGs in its area of operation.

Several efforts were taken by the Wayanad District Co-operative Central Bank to
improve the quality of the SHGs nursed by it. In 2004, a 16 member group consisting of the
Vice President, Directors, General Manager and Senior Officers of the WDCB conducted a
three day exposure visit to SHGs promoted by Bidar District Central Co-operative Bank.
During the same year, the officials of the Bank participated in a three day workshop at
MYRADA in Karnataka. Considering the initiatives of the Bank, the WDCB has got the
Performance Award from the NABARD, Kerala Regional Office, in recognition of the
appreciable contribution to the SHG Bank Linkage programme through formation and credit
linkage of SHGS as an SHPI in 2007. In this juncture, let us examine the status of SHGs
promoted by the co-operatives in Wayanad district.
In the sphere of SHG promotion, the co-operative sector makes rapid strides.
Both the District Co-operative Bank and the PACS are active in the promotion of SHGs
in the district. Actually, the branches of the WDCB and the PACS are on a productive

17
competitive path to enlist the support of the SHGs to enhance their business. The latest
statistics shows that both the segments of the co-operative sector have been playing an
active role in promoting the SHG-bank linkage in the district.

Table 7: Status of SHGs promoted by the Co-operatives in Wayanad District

Sl.No. Particulars WDCB PACS Total

1 No. of SHGs formed 9956 8723 18679
2 No. of Members 159296 118947 278243
3 Amount of Savings (Rs.Lakhs) 425.74 480.94 906.68
4 Loan Outstanding (Rs. Lakhs) 578.51 935.60 1514.11
Out of total SHGs, Exclusive Women SHGs
1 No. of SHGs formed 9458 6911 16369
2 No. of Members 151328 104022 255350
3 Amount of Savings (Rs.Lakhs) 404.45 432.15 836.60
4 Loan Outstanding (Rs. Lakhs) 496.32 746.69 1243.01
Out of the total SHGs, SGSY SHGs
1 No. of SHGs formed 259 490 749
2 No. of Members 4144 8980 13124
3 Amount of Savings (Rs.Lakhs) 31.81 49.93 81.74
4 Loan Outstanding (Rs. Lakhs) 24.28 110.49 134.77
Source: Wayanad District Co-operative Bank, Annual report 2010-11

From the above discussion, it is beyond doubt that the co-operative sector is more
dynamic and vibrant in the case of SHG financing. Contrary to the general belief, the
DCCBs are also an integral part of the movement. Earlier, only the PACS were expected
to be part of the SHG scheme. In the study area, the DCB has promoted more number of
SHGs than the PACS. In terms of membership also, the DCB performed better than their
counterpart. However, in the case of amount of savings and outstanding loans to the
SHGs, the PACS played better than the DCB. Another important fact is that, of the total
SHGs promoted by the co-operatives, majority of them are exclusively women SHGs.

Analysis and Discussion

We make an attempt here to examine the impact of the co-operative microfinance

activities in the study area.
At the very outset it is to be noted that there exists some distinctions between
SHGs and NHGs3 in the context of Kerala. The SHGs are the groups organized by the
NGOs, Community organizations, Religious institutions, Banks etc. The NHGs are the

18
groups organized under the Kudumbashree Mission of Government of Kerala. While
NHGs have a federal structure, most of the SHGs do not have such a federation. The
distribution of the groups attached with the co-operative sector shows that the NHGs
outnumber the SHGs. In the selected banks, about 65 per cent of the groups belong to
NHGs of the Kudumbashree. While PACS have taken efforts to form its own SHGs, the
DCB has not turned to form its own SHGs. The DCB has exclusively focused on linking
the SHGs/NHGs formed by other organizations.
As far as the credit consumption of the SHGs are concerned, about 90 per cent of
the SHGs of the PACS have availed loan, while in the case of DCB, 80 per cent of the
SHGs have found availed the loan facility. The average loan per SHG ranges between
1 to 3 lakhs in about 90 per cent of the cases. This figure comes around 80 per cent in the
case of DCB. For providing the second loan to the SHGs, the banks do the grading by
themselves. Nearly 65 per cent of the SHG groups have availed second loan within four
years after its formation. In the case of recovery of loan, in both the cases, 97 to 99 per
cent recovery is reported. Accordingly, the NPA with respect to the SHG linked loan is
on an average 2 per cent in both the institutions.
Training is an important aspect in the case of SHG promotion. In this connection,
it is understood that both the PACS and the DCB arrange training programes for the
SHGs of its own only during the initial stages of SHG formation. During the training, the
members were exposed to deal with the accounting practices, micro enterprise
development etc. However, they recommend SHGs to participate in the district level
training programmes organized by sister institutions. But, it is to be noted that in the case
of NHGs, frequent training is provided by the Kudumbashree Mission.
One of the essential ingredient of the SHG programme is starting of micro
enterprises or income generating activities. The composition of micro enterprises among
the SHGs promoted by the co-operatives revealed that agriculture and allied activities
predominate in the area. Group farming, horticulture, processing units, dairy units and
goat rearing have been found largely conducted. Other Activity based groups take up
pottery, auto rickshaw, tailoring etc. The NHGs are found to be increasingly taking up
micro enterprises than the SHGs. This is mainly due to the consistent support and
training extended by the SHPI namely the Kudumbashree Mission.

19
 Monitoring the activity of the SHG is of paramount importance in its
sustainability. When asked about the practice followed by the selected institutions, it is
understood that the DCB does not conduct any post-linkage follow-up, except in cases of
project based funding. However, in the PACS, some of the branches entrust one staff
member to the follow-up and monitoring of SHG functioning.

One of the pertinent issues facing the SHGs is the marketing of their products. In
this connection, the co-operatives are no better than other agencies. However, there are
some practices exclusively carried out by the co-operatives. The Bank provides space for
the SHG products during its festive markets. The co-operative banks in Kerala arrange
festive markets extending to one week during Christmas, Onam and Ramzan for the
benefit of both the producers and consumers. In these events, the Bank allots some
pavilion exclusively for the SHGs.
Some of the PACS in the study area have been credited with some innovative
practices in lending through the SHGs. For example, The Thariod Service Co-operative
Bank revolutionized its internal lending to the SHGs through several novel practices.
Over and above its linkage loan, the bank introduced some scheme loans exclusively to
its SHG members. Under this scheme, for example, the bank provided 120 gas
connections in 2003 in association with the Grama Panchayat and Bharat Gas agency.
During festive occasions, the bank sanctions hire purchase loans to the SHG members to
possess consumer durables. Every year during the school opening, the bank provides
each member in each group education loan amounting to Rs.5000/- repayable in
convenient installments. Through these measures the SHGs are sanctioned multiple loans
through the co-operatives. Thus the co-operatives in Kerala, apart from accepting deposits
and giving loans to the SHGs have followed an integrated approach of providing financial
services to the poor.
On the question of the benefit of SHG financing to the co-operative banks, the
opinion of the bankers is on the affirmative. First of all, the impact of SHG repayment
culture has affected the repayment of other loans taken by the SHG family also. The
conscience of repayment for recycling the loan created in the SHG movement has in a big
way reduced the overdue of other loans availed by the SHG member families. During the

20
exposure meeting with the bankers, the bankers educate the SHGs that they are also doing a
sort of banking business. Similar to the factors necessary for the success of the SHG
business, such meetings inculcate banking consciousness among its members. This has
created self discipline among the borrowers and with out the peer pressure, the members
repay their loan in time. Secondly, the campaign for financial inclusion has opened new
business to the bank. In this process, the SHGs have played a vital role. Now, 60 per cent of
the customers of the banks are women. These women members are found increasingly
present in every functions organized by the banks. In other words, the success of the public
functions organized by the co-operative banks and Grama Panchayats in Kerala is now
conditioned up on the co-operation of the SHG members.

The average age of the SHGs studied is 7 years. Most of them have taken three loans
during their period of operation. The amount of loan progresses step by step. The group
members generally follow equal distribution of the loan availed from the bank except in cases
of project based loan. Most of the SHGs reported to have formed with about 20 members.
But, in due course some of them have dropped out and now the average membership in the
SHGs is 11. The dropout of members is more in SHGs than in NHGs. The small number of
members in the group helped the members to avail high amount of loan. The average amount
of loan accessed by the members averaged Rs.20, 000. The saving to loan ratio of the
selected SHGs was 1:3. Inadequacy of loan was not generally reported by the SHGs. This
may be mainly due to the lack of high profiled micro enterprises under the SHGs.

The socio-economic conditions of the SHG members revealed that most of them are
from low level of education and economic base. This is especially true in the case of NHGs,
where its bye-laws are specifically adhered to it. The average age of the SHG members are
found to be 34 years. It is a clear indication of the fact that they belong to the productive age
group.

The purpose wise utilization of the SHG loans revealed that agriculture and allied
activities are mostly taken up by the members. The major crops cultivated are annual crops
like ginger, banana, vegetables, and tapioca. Some of the members have utilized the loan for
purchasing agricultural machineries. It was also found that some of the members had used
the amount of loan for providing for the health and education of their wards and themselves.

21
It has been opined that the role of non-institutional agencies like money lenders have been
dramatically reduced by the operation of SHGs.

The basic assumption underlying the provision of micro credit is that the
investment made with the credit would generate income adequate to contribute
significantly to family earnings. The impact of co-operative financial support for SHGs
on the income base of the members was not that much high. Since most of the activities
taken up by the SHGs were primary sector related, it gives only annual incomes. On an
average, each member is able to earn Rs.15,000/ per annum through these activities. The
low earning profile of the SHG members is mainly due to the lack of diversification in
their income generating activities. Even the JLGs are also doing the same activities
done by the SHGs.
Lack of training has crippled the SHGs contribution in ensuring a reasonable return
on their investment, both time and money. Except in the case of NHGs, the SHGs were not
reported to be part of any training programmes. Even the banks, as SHPIs, failed to provide
timely training to their SHG borrowers. The members when asked about their willingness
in attending training programmes, if any, organized by the SHPIs opined that they are not
able to attend such training arranged away from their village. Actually women SHG
members are over burdened and as such find only limited time to spare for SHG related
activities.

Despite the weak economic impact of the SHG movement in the area of study,
majority of the members are proud of its social impact. Now, the members of the SHGs are
able to handle the things by their own. Some sort of confidence has been generated among
them. They are found to be well versed with the banking operations. They are experts in
filling the pay-in slips to remit and draw money from banks with out the help of the bankers.
One of the selected branch manager said that 60 per cent of their customers are women. Also
women attend the events organized by the banks, Grama Panchayats and other public
functions in the area. Actually one of the success factors of even any government functions
in Kerala are conditioned up on the presence of the SHG members.

Suggestions for Policy formulations

22
 From this study, a number of suggestions have emerged which can be considered for
streamlining the SHG movement through the co-operatives.
1. Lack of enterprising ventures, especially self employment ventures cripples the
sustainability of SHG activities.
2. Most of the current activities through the SHGs are only livelihood mechanisms
and not commercially driven. So professionalisation of the SHG activities need
utmost consideration.
3. In the context of Kerala, the SHGs are struggling hard to sustain due to low
revolving fund and lack of government support. In the State only the NHGs get
the subsidy as well as revolving fund.
4. Similarly, the JLG is not functioning under the SHGs in Kerala. Since it is an
interest free programme, the benefits of which are exclusively available to NHGs
only.
5. Monitoring of the SHGs need careful attention. Though the NHGs are properly
monitored by the Kudumbashree Mission, such a support is not available for
SHGs. So, efforts should be taken by the Banks to monitor SHGs.
6. It is understood that the SHG refinancing from the NABARD is not readily
available to PACS in Kerala. In this case, only those banks with surplus funds are
able to scale up SHG financing extensively.
7. One of the pertinent issues in the case of co-operatives in micro financing is that
while the commercial banks directly get the refinance from the NABARD, the
lower tier of the co-operatives gets it through the State Co-operative Banks and
DCBs. Hence, the margin in lending gets reduced by the time it reaches the
PACS for onward lending to the ultimate customers.
8. Efforts should be made by the co-operatives to promote men SHGs and mixed
SHGs also for undertaking sun rise micro enterprises for the development of local
economy.
9. It is desirable to think of some sort of producer co-operatives utilizing the
principle of co-operation for the exclusive production and marketing of SHG
products at the state level.

23
 10. Promotion of group activity through SHG programme need proper orientation as
individual activities are more in both the NHG and SHG programmes.
11. Finally, one of the weak links in the SHG-Bank liaison is inadequate training.
Presently training is only a piecemeal event. Instead, continuous training should
be part of the system. For this, a permanent training centre for strengthening
SHGs exclusively at the state level can be thought of.

Notes and References

1. Kudumbashree is a multi faceted women based participatory poverty eradication

Programme jointly initiated by Government of Kerala and NABARD. It is implemented
by Community Based Organizations(CBOs) of Poor women in co-operation with Local
Self Government Institutions. The mission of the Kudumbashree is “to eradicate absolute
poverty in ten years through concerted community action under the leadership of Local
Governments, by facilitating organisation of poor for combining self help with demand
led convergence of available services and resources to tackle the multiple dimensions and
manifestation of poverty holistically”.
2. People's Plan Campaign (PPC), held in 1996 in Kerala State, was a remarkable
experiment in decentralisation of powers to local governments with focus on local
planning. In the beginning of the Ninth Five Year Plan, the Government of Kerala took a
bold decision to devolve 35 per cent of the state development budget down from a
centralized bureaucracy to local governments where local people could determine and
implement their own development priorities under the PPC.
3. The main difference between SHG and NHG is that SHGs are non-CDS, non-
governmental, and informal organisational structures promoted by voluntary agencies.
CDS is sponsored by the government for the uplift of the poor especially women by
bringing together the activities of various development departments. NHG members are
from families facing high risks i.e., usually those belonging to below poverty line (BPL),
identified on the basis of the nine point non-economic criteria. SHG members need not be
from the high-risk families but are basically poor and marginalized who find it to difficult
to have access to the formal credit system.

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