In the Indian state of Karnataka self-help groups created by non-governmental organisations have used microcredit to substantially raise the incomes of poor participants. This model of NGO-mediated community mobilisation, microfinance provision and forging links between the poor and local banks could be replicated elsewhere.

A paper from the University of Agricultural Sciences, in Dharwad, India, and Bangor University, in the UK, describes a study of self-help groups (SHGs) established by two non-governmental organisations (NGOs) among the poor in six villages located around the twin city of Hubli–Dharwad. The NGOs are India Development Service and BAIF Research and Development.

Initially, villagers were suspicious about the need for SHGs. To improve the level of trust, the NGOs arranged events of common benefit – such as vaccinating livestock – before taking some villagers to nearby villages where SHGs had raised income levels. Eventually, 45 SHGs were set up, recruiting 600 members. Where there was no literate member, a literate person (usually a relative) was identified to act as recorder and bookkeeper.

Each group acted as a Rotating Savings and Credit Association (ROSCA). At weekly meetings each member would pay a subscription – usually ten rupees (approximately UK£ 0.13) – which was then deposited in a savings account in a local bank. Each member took turns to go to the bank – a new experience for many women. Once the members had built up enough capital, they could take out loans at a low interest rate set by the group, usually two percent per month. Due to internal group social pressure, very few failed to repay loans.

Despite deliberate targeting of poor and very poor people, their representation in SHGs was no different from their proportions in the populations of the villages. However targeting of women was successful, with 64 percent of members being female.

Each SHG recorded details of saving deposits, withdrawals, repayments, purposes of the loans taken and members’ livelihoods strategies. Examination of this evidence and interviews with a sample of members showed:

• Poor and very poor people were more actively involved in microcredit than other villagers.
• Over the life of the project, poor people moved above the state poverty level and their household savings increased by 647 percent.
• Nearly 77 percent of funds mobilised came from SHG subscriptions, with 14 percent from banks.
• Almost half of all loans were for ‘non-productive’ purposes – such as food, weddings, school fees, medical bills and house improvements.

Researchers identified the key reasons for programme success:

• Because the villages were peri-urban, with excellent bus services to urban centres, villagers were able to identify and establish enterprises relatively easily.
• The NGOs played a central role, posting community officers to live in the villages to help persuade very poor people to commit to SHGs.
• New enterprises built upon the existing agricultural expertise of microentrepreneurs – creating new poultry, goat and dairy enterprises.
• Wealthier and better-educated members in SHGs assisted the poorer members.
• Banks realised that lending to a properly constituted SHG was a worthwhile risk.
• So-called ‘non-productive’ loans were permitted – unlike in many microcredit programmes.

Source(s):
‘Microfinance for community development, poverty alleviation and natural resource, management in Peri-urban Hubli-Dharwad, India’, International Institute for Environment and Development, Environment and Urbanization 20; 149, pp149-163 , by Robert M Brook, Karen J Hillyer and G Bhuvaneshwari, 2008 Full document.

Funded by: UK Department for International Development (R7959 and R8084)

id21 Research Highlight: 29 June 2008

Further Information:
Robert M Brook
School of the Environment and Natural Resources
Bangor University
Bangor, Gwynedd LL57 2UW
UK

Tel: +44 1248 382281
Fax: +44 1248 354997
Contact the contributor: r.m.brook@bangor.ac.uk

School of the Environment and Natural Resources, Bangor University, UK

Karen J Hillyer
CAZS Natural Resources
Bangor University, Bangor,
Gwynedd, LL57 2UW
UK

Tel: +44 1248 382346
Fax: +44 1248 364717
Contact the contributor: s.a.hughes@bangor.ac.uk

CAZS Natural Resources, Bangor University, UK

G Bhuvaneshwari Krishi
ARS Campus
Vigyana Kendra College
Gangavati, Koppal District,
Karnataka
India

Contact the contributor: bvndwd@yahoo.co.in

ARS Campus, Vigyana Kendra College, Gangavati, Koppal District, Karnataka, India

Other related links:
'Self-help groups in India: Taking microfinance beyond just money'

'Testing the impacts of microfinance on women'

'Microfinance reduces poverty and vulnerability in India'