In 1992, Self Help Groups (SHGs) promoted by NABARD as a Pilot Programme came as a boon for women who did not have access to credit. In Kanyakumari (Tamilnadu), the experience of Mahalir Association for Literacy Awareness and Rights (MALAR) was that the women took their first loan of Rs. 500 to redeem their Ration Card issued by the Public Distribution Systems which were pledged by them with money lenders. Today the same women have access to credit upto Rs. 1 lakh. The SHG model was well-appreciated, even though there were many more in south India as compared to other parts of the country.

Enter the World Bank, who through a paper considered small loans as lucrative business. Micro-Financing was proposed to become a profitable industry instead of a service. This changed the entire orientation from small loans at a nominal rate of interest, being a service to the poor, to the creation of huge micro-finance institutions (MFIs).

Before, many Non-Governmental Organisations helped women through SHGs which encouraged a culture of saving and provided small loans at a nominal rate of interest as a service to the poor. Suddenly the World Bank changed the whole orientation. Savings was ignored. Credits were given with Group Guarantee and repayment methods were worse than money lenders. It also led to suicides.

Many people in the then Andra Pradesh Government intervened to help its people and many MFIs shifted or closed shop. The Government’s Velugu programme was successful.

But MFIs formed their own network and not only survived but spread with huge profit. The Government of India closed the Rashtriya Mahila Khosh which was giving handholding support to SHG Federations. Rating agencies like M-Cril came up to rate MFIs. MFIs became Non-Banking Financial companies, or could also be known as the ‘modern day money lenders’.

There are more than 10,000 MFIs in India. RBI has banned more than 5,000 for malpractices but encouraged banks to lend to NBFCs. They could give credit at 8.5% interest but they charge upto 24% interest. This has led to immense suffering for the poor. Money lending has once again become a profitable business the rules that regulated SHGs are no longer being followed.

Few SHG Federations have survived, continue to give services to the poor and encourage micro enterprises. But Bandan Micro-Finance became a Universal Bank and Esaf Micro-Finance became a Payment Bank.

During the Covid lockdown, all good SHG Federations like MALAR did not charge additional interest or force recovery but MFIs continued to put pressure. Court cases by women organizations have not yielded results.
What is needed is a ‘U’ turn. NABARD and Banks should stop lending to Non Banking Finance companies and provide credit to SHGs and SHG Federations.

Study Velugu Programme, Kudumbashree Programme – Kerala, MALAR-Kannikumari etc and the Govt should support SHGs through Credit, handholding, training and marketing for Micro enterprises and provide common facility centres which was the original concept of Self Helf Group Programme.

Thomas Franco is former General Secretary of All India Bank Officers’ Confederation.

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