The SHG Revolution: What Next?

I

It is truly a privilege for me to have been invited to deliver this silverjubilee lecture. When Mr. Eswaran asked me whether I would bewilling, I did not think for a moment to say yes. This is because Ipersonally owe much to the three people most closely associated withthe SPWD. It is this debt perhaps that has even forced me into aprepared text, something I almost never do.

I first met Kamala Choudhury in Pittsburgh in February 1976 when Iwas a graduate student in the USA. She helped me land my very firstinternship. I stayed in touch with her and we worked together in theAdvisory Board on Energy during 1983-85. I also used to help herfrom time to time when she took on the chairmanship of the newlycreated National Wastelands Development Board in early 1985.

One of the most amusing incidents in our friendship that I stillvividly recall happened sometime in early 1986 when she called mein a greatly agitated state and told me—"Jairam, I understand that youare one of the few persons in the world who can deal with Seshan. Can youplease help? He is hell-bent on destroying the NWDB!" I told her thatreports of my influence with that redoubtable gentleman weregreatly exaggerated but I did try and help-- to no avail, of course.Lovraj Kumar was my very first mentor, as he was to many others.He was solely responsible for getting me back to India in January1980 when coming home was considered crazy and stupid. I workedwith him in the Bureau of Industrial Costs and Prices, the AdvisoryBoard on Energy and the Ministry of Petroleum.

We used to meet often even after his retirement when he took upresponsibilities at the SPWD and the NCAER. I recall longconversations with him on whether the "W" in SPWD should not bechanged from "wastelands" to "wastedlands", since by the early1990s, I was beginning to get convinced that wastelands, in the truesense of the term, are easy to capture on paper but rare to see inpractice.

Mr. Eswaran was my direct boss for two years at the Advisory Boardon Energy. He was the person who goaded me into coming out withthe Energy Perspective for India up to 2004/05 which remains, till thisday, a widely quoted reference. Like with Kamala Choudhury andLovraj Kumar, my interactions with Mr. Eswaran did not cease whenwe moved on to other pastures—some green and some not so green.Mr. Eswaran, of course, has a double stranglehold on me. He hasbeen my father-in-law’s classmate and friend for 57 years and so hecan really get me to do anything he wants.

II 

The topic of my lecture today is The SHGs Revolution: What Next?SHGs are, as all of you know, womens’ self-help groups that gotdistinctive identity from 1992 onwards thanks to the leadership roleprovided by the RBI and NABARD. Even recognizing that they arecommunity-based organizations of the poor, what have SHGs to dowith the mandate of the SPWD? It might appear that I am straying farafield. Not so.

It is true that SHGs have been seen fundamentally as entities forsavings and borrowings. But as I will go on to show, this may havebeen true of an earlier generation of SHGs. Today, in some parts ofthe country, SHGs are taking on new roles and responsibilities thatlie at the very core of livelihood security for the poor. Indeed, asinstitutions of social capital, they offer great potential for addressingthe concerns that have been the preoccupations of the SPWD over thepast quarter of a century.

While talking of the SHGs only today, I am conscious that I amleaving out another rapidly growing segment in the rural economy,namely that of microfinance or MFI—Microfinance Institution—as ithas come to be known. The MFI model rooted in financialintermediation is quite distinct from the SHG approach anchored insocial mobilisation—the two are structured differently and indeedhave different objectives to begin with.

Some estimates are that there are around 800 MFIs operating in Indiain various forms—trusts, societies, cooperatives, Section 25companies and NBFCs. Some MFIs have earned global encomiumsand a number of leading venture capitalists like Vinod Khosla haveemerged as their backers. These MFIs have also been mired incontroversy at home and some district collectors I have myselfinteracted with in Andhra Pradesh particularly, are skeptical of theirclaims, suspicious of their loan recovery methods and critical of thehigh interest rates they charge. I will not get into the issue of MFIsvis-à-vis SHGs today. I will only mention that Prabhu Ghate hasprepared an excellent comparative analysis in his recent reportMicrofinance in India: A State of the Sector Report, 2006 for Care andFord Foundation.

Like in most things related to economic and social development-- theGang of Four—Andhra Pradesh, Karnataka, Kerala and TamilNadu—lead the country in SHGs. They account for almost 54% ofthe SHGs but more importantly, for almost 75% of the bank credit. Inthe last few years, the SHG movement has picked up in other parts ofthe country and I must mention Orissa, West Bengal and Assam.

There is another dimension of what is happening in the SHGmovement that is worth recalling here. Six years back, almost two-thirds of the SHGs were those promoted by NGOs. Today, a littleover half of the SHGs are promoted by government (which meansmostly state governments), less than a third by the NGOs and thebalance by banks.

Some people may see this as the kiss of death for SHGs. But Idisagree. I actually welcome it since it is only with the involvement ofthe state government directly that you can get scale and activityexpansion, like what has happened in Andhra Pradesh. This is,however, not to deny the path-breaking work being carried out byNGOs like Sewa, the Dhan Foundation, Myrada, Seva Mandir, BAIFand Pradan.

But the difference in scale is striking. SEWA took 35 years to mobilize8 lakh women and the Dhan Foundation took 17 years to reach amembership of 2.6 lakh women. By contrast, in Andhra Pradesh, 80lakh women have been mobilized in just 15 years. Again, take theexample of MFIs. According to Ghate, their estimated portfoliooutstanding is around Rs 1600 crores whereas in Andhra Pradesh, theSHGs accessed Rs 3400 crores in bank loans in 2006/07 and loansoutstanding exceeded Rs 4000 crores.

III

Indeed, Andhra Pradesh is what I want to concentrate on. Not only isit the state that I represent in the Rajya Sabha—a Kannadiga educatedin Uttaranchal, Jharkhand and Maharashtra, married to a Tamilianand representing Andhra Pradesh must make me a member of theendangered species called the "Indian"—but it is also the state wherethe SHG movement has expanded spectacularly.

What makes the Andhra experience unique is not just the numbers.The numbers are impressive no doubt. Six years ago, a staggering40% of the country’s SHGs were in Andhra Pradesh. Now, theproportion is 26%. Further, almost 40% of the loans given by banks toSHGs are in Andhra Pradesh alone. These loans, in turn, constitutesome 6% of all rural credit in the state but 24% as a proportion oflending by RRBs and cooperatives. The existence of strong localcommercial banks like the Andhra Bank and the State Bank ofHyderabad and the presence of healthy RRBs has undoubtedly givena fillip to the SHG movement in Andhra Pradesh.

What gives further distinctiveness to Andhra Pradesh’s endeavoursis the federation structure that has been adopted. There is first a SHGin a village—actually many SHGs. Each SHG has 10-15 women asmembers. These individual SHGs are federated into a VO or villageorganization. VOs are, in turn, federated into Mahila MandalSamakhyas. The Mandal Samakhayas in a district come together toform a Zilla Samakhya. This federation structure is crucial to provideeconomies of scale and to establish institutions of the poor and by thepoor at all the three tiers of administrative hierarchy. Havingappropriate institutions at appropriate levels of governance has alogic that is simple but powerful; yet it does get ignored in practice.Thus, the combination of the federation structure and the principle ofsubsidiarity makes the Andhra SHG movement a trend-setter.

Presently, there are 22 Zilla Samakhyas, 1000 Mandal Samakhyas and29,000 VOs in Andhra Pradesh all registered under the MACS—thelandmark Mutually-Aided Cooperative Societies Act or the MACSAct as it is called that came into being in 1995 when NTR was chiefminister. MACS is a great innovation for it eliminates both politicaland bureaucratic control over cooperatives. Indeed, I have toacknowledge the tremendous contributions that Chandrababu Naidulater made to the growth of the SHG movement in the state eventhough the movement got a fillip after the literacy and anti-arrackcampaigns in Nellore district in the late-80s and early-90s and grewout of the earlier DWCRA groups.

The best political tribute to the SHGs came in 2004 when the newly-installed Congress government in Andhra Pradesh reaffirmed itscommitment to Velugu, the state government programme launchedby Naidu with World Bank support in 2000 for promoting andoperating SHGs, by giving it an expanded role with a new nameIndira Kranthi Patham(IKP). IKP is managed by an independentSociety for the Elimination of Rural Poverty (SERP) which is agovernment agency with all the flexibility that a society structureprovides especially for hiring of professionals. SERP employs some2200 such professionals across the State who provide administrativeand managerial support to the entire SHG network.

Since 2004, I have been intimately associated with the IKP and haveseen for myself the dramatic changes that are taking place in the livesof lakhs of women. I am not the only one who has been impressed. Itis not exactly an advertisement these days but Paul Wolfowitz was sotaken up by what he saw in August 2005 that he reportedly urgedPresident Bush to include Hyderabad in his India itinerary in March2006. Less controversially, the management guru C.K. Prahalad hasbecome an ardent advocate after his exposure and sees in theseSHGs, economic entities that exemplify his BOP – the Bottom of thePyramid - paradigm.

The most recent and perhaps unusual tribute has come from ShoaibSultan Khan who runs the Aga Khan Rural Support Programme inPakistan. I still recall his words to me a few weeks back— "JairamSaab, aap log Yunus ke peeche kyon bhag rahe hain. Andhra mein jo ho rahahai, woh Grameen se kuch kam nahi hai. Main dus saal se dekh raha hoonaur Andhra mein asli kranti aayi hai". Many people wouldn’t know ofShoaib Saab in India. Lucknow-born and educated, civil servant, aMagsaysay award winner for his rural development contributions, hewas a member of UNDP’s SAPAP---South Asian Poverty AlleviationProgramme—team that along with people like K.R. Venugopal andB.N. Yugandhar triggered the massive Andhra SHG initiative in thelate 1990s.

Apart from Shoaib Sultan Khan, the fact that Bihar - at the highestlevels of government - is showing great interest in the Andhraexperience and is taking steps to replicate it is of significance.Learning from each other is something we rarely do and that is whyBihar’s enthusiasm is particularly noteworthy even though theinvolvement of the World Bank has kept the enthusiasm going, nodoubt. A caveat though is in order here. Programmes can be easilyreplicated but people matter most. What has given Andhra the SHGedge is that there has been virtually the same team in place for almosta decade, a team with a shared vision and values.

IV

The SHG network in Andhra has gone beyond credit and assumedresponsibilities which can only be called non-traditional. Four areworthy of mention here.

First, it has taken up marketing of commodities like maize, neem,soybean, coffee, lac and red gram. Last year, the value ofprocurement was in the region of Rs 130 crores. The big challengehere is to go beyond traditional marketing and get into value-addition in meaningful measure and develop linkages with exportersand processors directly.

Second, it is being used to distribute old-age pensions—in 2006/07,over Rs 700 crores was distributed to around 3 million beneficiariesthrough the SHGs. Timely disbursement of pensions anddisbursements without a "consideration" are the hallmark of theSHG involvement.

Third, the elements of a community-based food security system arebeing put in place. At the moment, it consists almost entirely of a ricecredit line but the goal seems to be paddy purchase and milling bythe SHG network at the village and mandal level itself.

Fourth, dairy interventions have started with livestock beingpurchased through SHG-bank linkages and with the SHG networksetting up bulk milk coolers and milk procurement centres. My owninvolvement has been to try and ensure that there are linksestablished between the network of SHGs and the traditional NDDBprocurement network. Dairying is very important as an income-augmenting occupation to crop agriculture.

There is one more somewhat unusual intervention through the SHGnetwork. This relates to non-pesticide management in agriculture,particularly cotton. As is well known, cotton consumes 50-60% of thepesticide consumption in India; in Andhra Pradesh, the proportion is55%. Cotton lies at the heart of the suicide tragedies that have stalkedthe State over the past decade and so this particular initiative hasgreat significance. So far, something like 2 lakh acres have beencovered and by the end of the decade about 10% of the net sown areain the State will be covered.

In my capacity as Minister of State of Commerce, I am particularlyinterested in exports of spices. Today, about 25% of the $ 600 millionof spice exports is accounted for by chillies that are grownpredominantly in Andhra Pradesh. We have discovered that chillieswithout pesticide residue command a premium in world markets. Iwill distinguish here between non-pesticide agriculture wherefertilizers are still used and organic farming where yields may turnout to be lower but net returns to farmers could actually increase.NPM agriculture is, in my view, the first step to organic farming thathas relevance in certain situations and niche regions.

I want to mention another important initiative taken up by the SHGnetwork that has the most direct bearing on the SPWD’s own agenda.About 2 million ha. of government land has been assigned to thelandless poor in Andhra Pradesh over the past decades. But as is wellknown, productivity of these assigned lands is very low—perhaps,that is why they were "assigned" in the first place. Against thisbackground, the state government has launched a comprehensiveland development project that takes up about 10% of this area to bebrought under productive use in four years time.

The route to productivity enhancement includes (i) traditional landdevelopment itself; (ii) soil and moisture conservation works; and (iii)horticulture and raising of nurseries and agro-forestry plantations.95% of the funds come from the RIDF window of NABARD as loanto the state and the state contributes the balance 5%. The entirefinancial assistance goes as grant to the assignees. What is ofparticular significance is that it does not entail what might be calledthe "unit-cost" approach to land restoration. This affords flexibilityand enables works to be taken up depending on the quality of theassigned land and what the assignee sees as the priority as part ofupgradation.

The Andhra SHG story has undoubtedly been government-driven.Perhaps that is one reason why it has not drawn attention as much asthat received by some MFIs operating at vastly smaller scales andvastly lower scope. What it shows is that government can innovate,that government can demonstrate commitment and concern.Efficiency is not the monopoly of the private sector nor is sensitivitythe preserve of civil society. Within the government system, there arepeople who are motivated and who, given political support, can andwill deliver.

There is also a strong element of subsidy in the Andhra SHG story.The state government provides an interest subsidy to SHGs of 75% ofthe interest paid by them to banks. I do not think that subsidy isnecessarily bad. If it can be targeted, if it can be made transparent inthe budget, if it can be afforded and if an overwhelming socialpurpose is being served, I see no reason why we should decrysubsidies. In 2006/07, the interest rate subsidy scheme—called pavalavaddi—cost the state exchequer Rs 75 crores. Actually, this subsidy isperformance-linked. Only SHGs that repay bank loans regularly areeligible. Loan accounts classified as "overdue" in the books of banksat the time of half-yearly closing and as "NPAs" at year-end closingare ineligible for the subsidy. And this is indeed as it should be.

To be sure, over time, the SHG network must become self-sustaining.Indeed, that is the true test of whether the government has succeededor not. When will this happen? I have been asking this question ofmy colleagues in Andhra Pradesh and the answer they have come upis the following. A Mandal Samakhya will have the capacity to be onits own feet when it has a monthly net income of Rs 50,000. Today,while a detailed financial analysis is still being done, it appears thatof the 1000 Mandal Samakhyas, perhaps just about 10-15% meet thiscriteria. Clearly, there is a long way to go yet. Further, even in these100-odd Mandal Samakhyas, bulk of the monthly income—aroundthree-fourths—is really interest income. This proportion has toreduce.

This is why it is critical to see SHGs not as just networks forconfidence-building and empowerment but also as networks thatmust have access to new economic opportunities. One of theinitiatives taken by the Ministry of Commerce in recent months is tolink Export Promotion Councils with SHGs so that the benefits ofexport expansion can accrue directly to the poor where they haveskills. A beginning has been made in leather in Tamil Nadu and inshellac in Andhra Pradesh. The Export Promotion Councils areworking with SHGs to provide design and marketing assistance,while the SHGs are responsible for production.