Financial operations

Sarasu is from Kayathur Village in South Arcot District. She has a long history of domestic and marital problems and experience of extreme poverty, with seven children to bring up and an uncertain income of Rupees 20 a day. When she joined the SHG in her village in 1992, she was at the end of her tether. Yet she still managed to make the minimum savings required by the group and three years later was able to take out a bank loan and purchase two dairy cows. The yield from the two cows averaged fifteen litres per day, which she sold at eight rupees per litre. Thus she had an income of over Rupees 100 per day. In 1996, she took a loan from her group and started a small firewood business. Both loans are repaid and two of her children graduated from university. All this Sarasu has achieved by herself through the support and help of the group and the Indian Bank, which she sees as the central influence in her new life.

The project has successfully introduced informal financial operations, which are built on group-based lending and saving, and also registered a striking achievement in associating the normally non-bankable rural women with formal credit channels. The savings mobilised within groups are first deposited in a bank account in the name of the groups and then transformed into loans to members, and each member on average has benefited from three to four such loans. Recovery rates of such internal group loans are over 90%. After an initial period of such credit operations, individual women were given access to credit from formal sources, depending on their track record. This led to a borrower outreach from 40 320 to 87 539 beneficiaries. In this case, loan recovery rates have been in the 80% range. The former type of loans - sangha (group) loans – have been used to meet the emergency and consumption requirements of women, and have by and large replaced the need for them to resort to moneylenders, who charge exorbitant interest rates. Institutional credit has been useful in establishing small enterprises, and other related activities.

Although the project proved to be highly cost effective, the lender transaction cost could be further reduced if the option of institutional lending to groups for on-lending to individuals, rather than directly to individuals within the groups, is increasingly considered. This is clearly an attractive option for the banks, but in such an eventuality care should be taken with regard to group dynamics, particularly with regard to loan distribution within groups to ensure the poorer women are not marginalised. The Indian Bank, chosen as ‘lead bank' in all five districts, encountered some amount of difficulties in financing in areas such as Ramnathapuram and Madurai, particularly as its branch network in these areas was limited. Although over time the Indian bank deployed additional resources, a recommendation is that a larger number of participating banks are desirable in projects with a wide area coverage. This has been recognised under the Mahalir Thittam, the follow-up phase of the project and more banks are involved. The provision of separate transport arrangements (or allowances) to bank field staff should be included in project design to allow them to carry out the required field work more effectively.

In order to enable group members to make a quantum leap in their incomes and well-being, it is necessary that following a period of sound credit operations during which they illustrate (within the group, to the supporting NGOs and related project staff) proper management and discipline, SHGs linkages with commercial banks are institutionalised, enabling individuals to access bank credit directly. This will establish a relationship between women and banks, and ensure continuity of credit flow to members of SHGs, based on the latter's financial record and not upon the recommendations of NGOs or project staff. With regard to group savings, it is suggested to allow for flexible savings by group members, while at the same time ensuring that internal lending is not linked to the amount saved. Linking internal lending to amount of savings may reduce credit flow to the poorest members of the group. A minimum savings amount may be required, but it may be set at a low level, that all members can afford. This would also ensure that none of the members adopt negative strategies (such as borrowing from moneylenders or cutting down on their own consumption) to meet the rule on savings. Finally, it is recommended that decisions on loan ceilings are best left to the group and their decision based on the integrity of the party and viability of the activity chosen.

While this need not be made a mandatory requirement, it is recommended that groups:
(a) declare dividends (on proportionate basis) to members from out-of-profit earned through on-lending; and (b) pay interest on savings on a regular basis to SHG members. These measures would encourage members to save with the group and reduce savings outside the group, and it would also encourage poor women who feel that they cannot take the risk of availing loans to join the group, and slowly increase their risk-taking capacity. Allowing members to withdraw their savings is likely to encourage more women to participate in group activities.

It is further recommended that an interest rate policy with regard to internal SHG lending be instituted. This need not be uniform across all groups. In establishing their interest rates, groups should be aware of the rates charged by moneylenders and commercial banks. Groups may be encouraged to offer differentiated financial products as the SHGs mature (especially for uses not normally covered or less effectively covered through bank loans) with varying interest rates and fees according to loan size, maturity, instalment periods and special services (e.g. doorstep collection). Implementing agencies may monitor the effectiveness of the various loan products both from the group's and the clients' perspective and advise groups accordingly. For instance, one need is to monitor regularly the interest rates charged by SHGs and the repayment rates, including the source of repayment to ensure that group members are not resorting to strategies for repayment that may not be in the overall interest of the individual's welfare. Instead, in such cases groups should be encouraged to revise repayment schedules.

Institutional arrangements and co-operation

"The key to the success of the project was the institutional arrangements and excellent co-operation among the principal project partners, including the Government of Tamil Nadu, the Tamil Nadu Corporation for Women's Development, the Indian Bank and the various NGOs" (Shyam Khadka, IFAD's Country Portfolio Manager for India). "Although the agency responsible for implementing the project (the Tamil Nadu Corporation for Women's Development) was a Government undertaking, it enjoyed a semi-autonomous status in decision-making. This very much facilitated implementation" (Anuradha K. Rajivan, present chairperson and managing director of the Corporation).

The evaluation exercise shares the views of IFAD's Country Portfolio Manager and the Chairperson of the Tamil Nadu Women's Development Corporation. The evaluation concludes that the Tamil Nadu project's institutional arrangements and the close co-operation among the core partners were fundamental attributes of the project.

The Corporation brought legitimacy, resources and overall vision to the project; the Indian Bank brought in resources and helped institutionalise efficient systems; the NGOs brought in their commitment and local knowledge, and contributed by reaching rural women and mobilising them into groups; and the Government played a facilitating role and provided overall moral support. The constructive attitude, co-operation and commitment of all individuals involved was instrumental and should not be underestimated in gauging project success, as it created an environment that allowed for efficient co-ordination and follow-up of activities. The administrative positioning of the implementing agency was also a central factor, as the Corporation was able to benefit from the support of government authorities and line departments while minimising delays and interference.

The Indian Bank's commitment to advance the cause of rural women in Tamil Nadu is praiseworthy. It was the first to take the risk of providing physical-collateral-free bank credit to groups. For a commercial bank, their involvement in a purely development-oriented programme was an illustration of their moral engagement to an initiative that was not based on profit motives, but rather on the desire to contribute to the development process and to become a catalyst in demonstrating to other formal financial institutions that economically poor rural women are banking, provided they are given the required support and opportunities. In fact, in the follow-up phase of the project, various other financial institutions have come forward to participate in the project.

Finally, NGOs played a central role in project activities. Although at project outset only one NGO (MYRADA) was involved, by the end of its implementation around 30 NGOs were co-operating actively with the project. NGOs helped to identify potential beneficiaries, get them involved and provide them training in a variety of areas according to the requirements and priorities of the target group, including social, technical and credit-related topics, as well as in group management and operations. The central role of NGOs in promoting project activities is highlighted by the fact that more than 150 NGOs are involved in the second phase of the project, which is financed by the State Government covering all districts in Tamil Nadu.

Recommendations:

Serious attention should be given to developing the institutional framework in future projects and programmes. Consideration needs to be given to ensuring neutrality and minimising delays and undue interference, not only at the government level, but also when selecting other institutions to be involved in operations, including those working at the grassroots level (NGOs, Community-Based Organisations, etc). In this respect, the positioning of the main implementation agency is a central factor, as demonstrated by the TNWDP. Also, an assessment should be made of the bonafide nature, strengths and previous relations and co-operation among those institutions that are likely to be involved in forthcoming projects and programmes. This would provide an understanding of the context and provide guidance in making more feasible institutional choices. In summary, a thorough institutional analysis is required during the design stage to ensure that institutions with the appropriate technical, financial and human capacity are selected, which would also be the basis for determining the most appropriate institutional set-up.

In the future, only those institutions and people who are able to work in partnership with others and share a deep commitment to the project's objectives should be included. It is also important to build trust, respect and co-operation among the individuals most closely involved in the project from inception, and that each partner be made aware of their respective roles and responsibilities right from the outset.

 

Empowerment and self-help groups

Ms Indirani became the animator of a Self-Help Group (SHG) of Maruthagam Village in 1994. Following her stint as group animator,
Ms Indirani decided to contest the Panchayat (grassroots level committee) Presidential elections in 1996. The members of local SHGs campaigned energetically on her behalf, and she won a handsome victory. As Panchayat President, she has been responsible for major development initiatives, including the asphalting of local roads, the construction of a wedding hall, the drilling of numerous water boreholes, the setting-up of "ration" shops in villages where none previously existed, curbing the sale of alcohol, and various other important measures that have contributed to improving the well-being of rural women in Tamil Nadu.

Ms Suguna of Kasimapatti village in Dharmapuri District joined a SHG in 1995 and took a course in photography the same year. She then obtained a bank loan of Rupees 10 500 for the purchase of a camera and set herself up as a photographer. In the years which followed, she has become well-known in her neighbourhood and also works much further afield, in Hosur and Bangalore, covering private functions such as birthdays and marriages. She repaid her loan within two years, makes a significant contribution to household income and enjoys the support of her husband.

The stories of Ms Indirani and Ms Suguna reflect the achievements of the project in the technical, economic, social and political empowerment of women participating in the project. The project demonstrates that women's empowerment can be seen as the extent to which members exercise control over their labour, mobility, interaction, resources, decision-making processes and identity. The project made inroads in all these areas, and has increased opportunities for disadvantaged women to come out of their homes and interact with institutions and people, including NGOs, loan officers, local authorities and others. Women's mobility has increased, and they now are able to travel independently of their spouse. Many women who were unskilled wage labourers at the outset of the project have become partly/fully self-employed, and have learnt new skills and strengthened existing ones. Men have seen tangible benefits of the involvement of their spouses in SHGs, and have started helping their wives in domestic tasks by fetching water, gathering fuel, and taking care of children. Progress has been made, however, more needs to be achieved in this respect. The access to and control over resources is another area where the project has made a positive contribution, with women's status being enhanced. Although gender division in decision-making still persists, there is an increase in the intra-household decision-making powers of women, who are more prominent in the areas of deciding on credit activities, children's education, health care of family members, and use of household assets.

The project illustrates that empowerment based on the SHG model can have far-reaching results, and the institutionalisation of SHGs as a village institution of development was apparent in many districts. The Government of India, Government of Tamil Nadu, the World Bank and others have acknowledged this by using the SHG model as the core of various new programmes and activities aimed at women's development. SHGs provide an effective instrument through which women can build self-reliance, solidarity and confidence, as well as contribute to the overall development of their families and societies. Belonging to a group provides women with a sense of identity, status and security, and also provides them access to credit and institutional support services which they otherwise would not have had as individuals. SHGs enhance women's bargaining power and their ability to make major decisions for their development.

Group formation and sustainability

Three groups were formed under the auspices of the local NGO in the Metholodai village under the project. These groups are stable and cohesive, as reflected in their appearance and behaviour. Group members wear smart uniforms and frequently appear together in public. The local perception of the groups soon became one of respect and interest, and women unable to join these groups (as they were already fully subscribed) formed two more groups on their own initiative. The animators of these new groups have learned the process of savings management and bookkeeping from animators of the existing groups. The new groups meet twice a month and have already started credit operations, providing loans to individuals of up to approximately Rupees 20 000.

More than 5 000 groups were formed under the project, which provides us with ample information on group formation and allows us to identify factors that are critical for effective group operations and sustainability.

Primarily, a steady pace in the formation of groups is an important factor for efficient functioning. In the initial years of group formation, especially in new areas, there is an important stage of learning and adaptation that may be inhibited or even derailed by over-ambitious or strictly applied physical and financial targets. The evaluation analysis concluded that a flexible and gradual approach is required, with both targets and regulations kept to a workable minimum. The crucial factor for group cohesion is that before receiving institutional loans, there should be a period of one to two years during which the groups systematically save money and rotate their funds in the form of petty loans for production, consumption and social purposes. This process creates solidarity and self reliance. It may also play a very important role in group sustainability by showing women that through group discipline they can accomplish a lot. Other dimensions for effective group operations include optimal group size, rotation of leadership responsibilities, economic homogeneity of group members, continuity of members in groups, and rules governing group operations. The project also illustrates that pro-poor, equitable and transparent savings and lending practices contribute to group functioning and cohesion, as well as group engagement in collective action such as welfare activities, building of community infrastructure and lobbying with government for electricity and other facilities.

Sustainability of groups may also be enhanced by the formation of cluster-level federations of groups. Such federations can eventually take over the motivating role played by Non-Governmental Organisations (NGOs). In the project, more than half the groups have been formed into cluster-level federations, which are slowly taking over some of the functions of NGOs. The existence of effective federations may serve as an important aid to sustainability, as that would lessen the need for NGO involvement, provide a higher authority to take on issues that cannot be resolved at the group level and involve women in projects relating to longer-term issues of broader significance. Cluster-level federations can contribute to improving savings and loan recoveries, resolving conflicts and cases of financial mismanagement in groups, mobilising government programmes, and addressing the common social and economic needs of  villages in the cluster. In some cases they could even act as financial intermediaries for mobilising capital from some groups and channelling it to others. Federation membership also gives groups a sense of belonging to a larger organisation. In short, federations contribute not only to the sustainability of groups, but also assist in reducing overall transaction costs.

Recommendations:

Income-generating activities

In Sivakamipuram village of Tamil Nadu, a traditional income-generating activity among women is the collection of seaweed, which is in high demand from the agar and alginate industries. Seaweed collection requires that they hire a boat for up to twelve hours a day, which was both expensive and problematic, since boats were not always available when climatic conditions were suitable. Bank loans of Rupees 5 000 given to group members have enabled six members of the group to purchase a boat of their own. With their own boat, the women can harvest four kilograms of seaweed in a day and make a useful earning each.

In 1987, when she was 26, Ms Rajamani's husband abandoned her and their two small children. She had a tiny bicycle rental business and from this she had to support herself and her children. She was introduced to the Mettala Mahalir Munnetra Group in 1992 and was soon advanced three group loans with which she purchased cycle spare parts and tools. She continued renting the only bicycle she had. Later, she was the first of the group to take out a bank loan. With
Rupees 7 000 loan, she acquired two new bicycles and repaid the loan with the proceeds from her rental business. Then there was a second loan and four more bicycles. She can even afford to send her two children to boarding school in Chennai. There was a time when the local money lender would not lend her even a small amount of money and now the same people are prepared to advance her as much as Rupees 10 000. Her relatives used to look at her askance, but they now treat her with respect.

The above are just a few examples of the income-generating opportunities the project created. The evaluation's analysis established that around 50% of the households engaged in the project reported a significant improvement in their income, while a mere 7% of non-member households from the same village had done so.

Apart from animal husbandry, other income- generating activities included such diverse activities as bee-keeping, cultivation of jasmine, mangoes, betel, grapes and coconut seedlings, rope making, fishnet production and repair, mat weaving, tailoring and pottery. Loans enabled women to manage their activities independently and to have more control over their assets and income. The assumption that women would generally make wise choices because their expertise and knowledge of local market conditions was sound, and the good repayment rates are proof that their choices were generally sensible.

Contrary to expectations at appraisal that most of the loans would be used for crop improvement purposes, more than half went towards livestock activities (purchase of dairy cows, goats and ewes) that provided landless and smallholder women a daily income. It was foreseen at appraisal that income-generating activities promoted by the project would be primarily land-based and that increased agricultural and horticultural productivity in project areas would be a central aim. Integrated packages of soil and water conservation measures were also envisaged. Instead, the great majority of income-generating activities have focused on animal husbandry and village industries.

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This completion point reflects an understanding among the core partners in the evaluation process of the Tamil Nadu Women's Development Project (TNWDP) to adopt and use the lessons learned and recommendations from this evaluation exercise, not only in the future implementation of this project, but also in designing new projects and programmes aimed towards ameliorating the overall livelihood of rural women. The core partners included the Government of Tamil Nadu (represented by the Tamil Nadu Women's Development Corporation), the Indian Bank and IFAD (represented by the Asia and Pacific Division and the Office of Evaluation and Studies).