National Rural Livelihoods Mission (NRLM): Will it deliver the promise? – Part II

Like most poverty alleviation programs rolled out by the government, the NRLM has all the buzz words viz development of employable skills, training and placement of poor and needy and the involvement of the SHG Federations, banking correspondents, low-cost loans. The program is modeled on the Swaranjayanti Gram Swarojgar Yojana- (SGSY) ( with the additional innovations being the involvement of the SHG’s, Business Correspondents[1] and the state and central government machinery. A look at some of the performance parameters of the SGSY are as follows[2]:

  • 3.5 million SHG groups were mobilized between 1999-2009.Of these groups 2.3 million groups graduated into Grade I while 1.1 million groups were in Grade II
  • Livelihood generation activities were adopted only by 0.8 million members out of the total 3.5 million.
  • Out of the total funds available from 1999 to 2008 only 74 percent were utilized. (i.e. Indian Rupees119.60 million out of the total 161.88 million).65.4 percent of the funds were utilized for subsidies while only 6.18 percent of the funds were used for training and capacity building efforts.
  • Even in Andhra Pradesh which is the ‘model state’ and the origin of the IKP on which the NRLM has been modeled-had an average income figure of Indian Rupees 1228 per month/per participant.

If the past (SGSY) is any indication of what the future (NRLM) is going to look like then one has to be a real optimist to believe that design and delivery flaws will be taken care of before our officials/ bureaucrats hit the streets with this poverty eradication tool. The NRLM plans to use the SHG federation model but the details of the exact role to be played by the federations is not clear at this stage. There is a mention of usage of the BC (Banking Correspondents) as a channel for subsidy disbursal thereby adding to the possibility of confusion. The SHG federation(s) themselves can act as delivery channels since they have the knowledge and the access to the membership base!

The SHG federation concept has many advantages such as:

  • Membership strength (numbers) can be utilized to avail of economies of scale particularly while accessing medical/life insurance services.
  •  Standardization of operational procedures and practices
  • Creation of an environment that helps in building leadership qualities and to that extent foster continuity. Newer members are able to observe and participate in the activities of their SHG as well as get an exposure of operations and procedures vis-a-vis a bigger canvas (cluster/federation).
  • Access to formal sources of credit (such as bank loans/OD’s)since most federations are registered bodies and therefore access to books of accounts and documents , audited records etc is possible

In contrast, most stand alone SHG groups falter because of lack of good leadership or tend to crumble once a dynamic leader is lost of moves away. The small size of stand alone SHG groups, typically leads to a ‘frog in the well’ syndrome. Larger credit needs of members access to training is usually not possible and groups can only access the kitty of intragroup-savings Access to formal sources of credit depends mainly upon the dynamism and tenacity of the group leaders in tapping banks. These groups may get formed with a short-term perspective in mind- typically to avail of a government subsidy or grant. Record keeping, timely attendance by members at meetings usually are problem areas.

The flip side of the federation model is the ‘McDonald effect[3]’: everything maybe/is pretty much decided by the federation and hence the federations may decide on the rate of interest to be charged, fees, fines penalties thereby diluting the decision-making powers/skills  of the grassroot SHG’s. Also it’s possible that federation leaders may be perceived as authoritarian by some of the members.

The NRLM also has a subsidy angle in its design-low cost loans @ 7 percent to be given to members. However how this disbursal is to actually be done (i.e. delivery mechanism) is not clearly spelt out. The danger with subsidies is that the beneficiaries may perceive the money to be their own (apna paisa-as in government funds) and may consider it a benefit –theirs to keep. They may also use the subsidy by dividing it among themselves rather than exercising their discretion in making a choice based upon the urgency, prior record of the requesting member etc

The other major concern is the vitiating effect that the subsidies can have on the whole SHG spirit itself. In course of my field level research I have found that the carrot of low-cost money can unite many unlikely team-mates. Infact one of the biggest dampener to the entire SHG concept can be the subsidy element. The whole agenda and focus shifts in doing everything that is required to get the subsidy and dissolve the group after the benefit has been availed rather than to work towards the long-term benefits of fostering a strong SHG spirit and structure.

Another important aspect of a federation model is the time (gestation period) and cost required for covering various stages of the SHG groups/clusters life cycle: viz identification of potential groups, initial counseling and training, group formation, linkage, monitoring, providing value added services ( like health/life insurance etc) for the members. At present these activities are met mainly through grants by SHPI’s (self-help promoting institutions). The SHPI’s generally have the flexibility to apportion the grant funds into various ‘need buckets’ ( as mentioned above) as long as they are able to account for them. The NRLM design (as is available in public domain) have budgets for various activities: for eg: 15 percent for skill development and placement (of which 7.5 percent is to be held back by the state for various multi state projects), 5 percent for innovations etc. The support structures that are to guide various project implementation institutions are supposed to be autonomous and professionally manned. However relevant experience is key since it’s only that perspective which will help in ensuring effective execution. How that is planned to be achieved under the NRLM is not yet known

A major stumbling block of most poverty alleviation programs (including various SHG/microfinance models) continues to be the lack of appropriate market linkage for the participants. Timely credit and relevant training can be helpful if it’s ultimately able to generate self-reliance through revenues-for participants. Else the entire purpose of mainstreaming the marginalized is lost. Organizations like BAIF have successfully introduced various livelihood initiatives which provide a 360 degree solution for livelihoods[4] Without end to end solutions, poverty alleviation programs usually loose steam and become vehicles of ‘dole-outs’ [5] useful more to politicians and the promoters/directors . The recent Andhra Pradesh microfinance crisis is a proof of that more damage than good can be caused by a poor program design, weak governance structure and greed

[2] Source: Srinivasan N.V Microfinance India – State of the Sector Report : 2011.

[3] Term used by the author to denote the standardization that may occur in SHG groups linked to a particular federation-much like the McDonalds burger which has a standard recipe across various outlets.

[4] ( please see my piece on BAIF’s Wadi Program dated Jan 15 2012 available by viewing the home page of this blog)

[5] ( pl refer to my piece titled the ‘The Turmoil in the Indian Microfinance Sector-Part I) dated Jan 4 2012 for details)


National Rural Livelihoods Mission (NRLM): Will it deliver the promise? – Part 1

(Source: Google Images)

The NRLM has been modeled on the current poverty alleviation program being implemented in the state of Andhra Pradesh called Indira Kranthi Patham (IKP[1]).The main idea of the programme is to use the Self Help Group (SHG) mechanism to mobilize the rural poor and to facilitate financial inclusion. The three tier structure will have the SHG’s as the grassroots unit which will be federated into village level and ‘mandal’[2] level entities(clusters). The federation therefore is the apex level body in this hierarchy . To help understand the concept, some of the definitions of various terms are given as follows:

  1. SHG Groups: Concept & Operation:

SHG’s are informal and homogenous groups of 10-20 (maximum 20 members). They can be formed by SHPA’s[3] (can be either by NGO/Development agencies, banks) or can be self initiated. After formation, the members elect their leaders and finalize certain basic requirements such as the amount of monthly saving, meeting date and time, rate of interest, rules and requirements for borrowing, fines and penalties if applicable etc. Bank accounts are opened in the name of the SHG and its members after completing the necessary documentation process. Once formed, the members start collecting a fixed amount of saving every month from each member. The discipline and punctuality regarding the payment of the monthly savings is the key in ensuring that the SHG group is able to build a kitty that can be used for intra group lending at the rate of interest decided by the group. The interest earned becomes an income for the group as do the fines, late fees etc. Members generally manage their own record keeping and banking transactions. This helps the members get familiar with financial intermediation, book-keeping and prioritization of needs. Once the group has reached a level of ‘stability’ [4]it is able to access bank credit ( also referred to as linkage) provided the bank is satisfied about the genuineness of the demand for credit, repayment capacity ,credit handling ability and the record keeping ability of the group.

2.      Self Help Promoting Institutions (SHPI’s): Self Help Group Federation

A SHG Federation is the apex SHG unit / mother organization that spawns the grassroots level SHG’s and nurtures them by making resources in terms of funds, counselling and guidance available to them.  It is a community based institution which is owned and managed by members of the SHG’s. .The main advantages of the federation SHG model  are the ease of access to formal banking channel, savings mobilization, reduction in banking transaction costs and extension of value added services like the health/medical etc

3.      SHG Cluster:

Is a group of 10-15 homogenous SHG’s that is promoted and affiliated to a federation. The SHG’s from the same locality or village typically form a cluster. The size of the cluster depends upon the number of SHG’s in that cluster.

Under the aegis of the Indira Gandhi Patham (IKP) program, the staff of the SHG federations is assisted by the state level NGO called SERP- Society for Elimination of Rural Poverty. SERP was constituted to help the federations in getting access to capacity building training, bank linkages, placement services, government sponsored heath insurance and subsidized loans to groups at an effective rate of 3 per cent per annum.

The NRLM has the following key initiatives[5]:

  • Social mobilization of the poverty line families and women
  • Promoting institutions that help the poor to capitalize upon the strength in numbers .Eg: clusters of SHG’s, agricultural co-operatives, producer co-operatives etc
  • Helping in the capacity and skill building of the rural poor
  • Provision of a revolving fund and capital subsidy in those SHG groups where 70 percent or more members are below the poverty line(BPL)[6]
  • Helping SHG’s in getting linked with banks for fostering the savings habit and to get access to formal sources of credit and with insurance companies for managing the life risks
  • A subsidized interest rate not exceeding 7 per cent to be made available to SHG’s
  • Study and facilitate existing livelihood options of the rural poor and help in diversifying these options.

NRLM therefore has the potential to act as a comprehensive solution to most needs of the rural poor. The programme has a mandate to reach out to 70 million below poverty line households in 600 districts of the country covering 0.25 million gram pachayats. The central government will provide 75 percent of the funds while the state government is to fork out the balance 25 percent. In case of the North East States- they need to mobilize only 10 percent of the funds while the Central Government will bear the balance 10 percent…..                    (to be continued in Part 2)

[2] Mandal is an Indian term for clusters of SHG’s. For eg: 10 to 15 SHG groups can be clubbed to form a village cluster. A bunch of such village clusters get linked to a district / block and then are eventually linked to a mother federation

[3] SHPA’s: Self Help promoting Agencies

[4] A group generally takes 3-6 months to stabilize with respect to members, attendance at meetings etc. The interim time also helps them to appreciate the mechanics of money management and get comfortable in handling  larger amounts

[5] Srinivasan N : Microfinance India-State of the Sector Report 2011

[6] For the definition of the Poverty Line ( Govt of India) pl see