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) (http://angul.nic.in/sgsy.htm) with the additional innovations being the involvement of the SHG’s, Business Correspondents and the state and central government machinery. A look at some of the performance parameters of the SGSY are as follows:
- 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’: 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 Without end to end solutions, poverty alleviation programs usually loose steam and become vehicles of ‘dole-outs’  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
 Source: Srinivasan N.V Microfinance India – State of the Sector Report : 2011.
 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.
 ( please see my piece on BAIF’s Wadi Program dated Jan 15 2012 available by viewing the home page of this blog)
 ( pl refer to my piece titled the ‘The Turmoil in the Indian Microfinance Sector-Part I) dated Jan 4 2012 for details)