ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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One Step Forward or Two Steps Back?

The proposed amendment to the National Bank for Agriculture and Rural Development Act, 1981 that seeks to provide a formal framework for the microfinance sector does not take a gender or empowerment perspective, but rather, a supply dominated view of microfinance.

One Step Forward orTwo Steps Back?


Economic and Political WeeklyMarch 24, 20071007to engage in provision of bankingservices?– What would be the impact of the pro-visions of this bill on women’s empow-erment?To begin with, we need to ask whethertheRBI’s norms are the problem, or whetherit is the ability of these organisations tocomply? If the norms are acceptable forthe regular citizens of India, whyshouldthey be diluted for the poor (readilliterate,poor, women), who are to beserved bythese NGOs? Why shouldthepoor be subjectto a lower level ofprotection for theirmeagre savings?[Premchander 2007].The next logical question is why thosewho seek to promote microfinancial ser-vices do not invest in improving the qualityand number of already existinginstitutions:e g, commercial and regional rural banks,cooperatives and NBFCs? If there is aproblem with the outreach of existinginstitutions, it may be good to examinethese, rather than introduce a new type ofinstitution, which is not a banking insti-tution at all, to provide banking services.Even if the argument for the initiation ofsuch a move may have been the lowoutreach of banking organisations to therural poor, we may do well to rememberthat there is now widespread recognitionof the fact that the microfinance servicesdo not always reach the poor [Tripathi2006; Kalpana 2005]. Also, the amend-ment fails to recognise the fact that publicsector banks and regional rural banks haveextended outreach to women’s SHGs tre-mendously over the past few years [Ghosh2005], making the SHG-bank linkageprogramme of India the largest in theworld,having provided loans to over onemillionSHGs so far. This is evidenced inthe table.Table : SHGs Provided with Bank LoansBankCumulativeCumulativeNo of SHGsNo of SHGsProvided withProvided withBank LoansBank Loansup to Marchup to March20012004Public sector bank118855516697Private sector bank539121725Regional rural bank84775405998Cooperatives12773134671Total2217941079091Source: NABARD cited in Ghosh (2005).When we have achieved singular suc-cess in reaching poor women through ourregular banking institutions, and when theyare beginning to recognise poor women’sgroups as an important market, when wehave institutions that follow prudentialnorms, what is the compulsion to intro-duce a new law, dilute the safety of publicdeposits, and allow hitherto charitableorganisations and trusts to engage withbanking operations when we have in Indiaone of the most diverse banking structuresin the world?Creating MFOs orDisempowering Women?Currently, NGOs are facilitators ofSHGs; they help to form, train, and linkthem to banks. Typically, NGOs are theself-help promoting institutions (SHPIs)and banks are the providers of finance.While many bank officers have from timeto time engaged with group formation, thedominant pattern is that NGOs facilitate,while banks extend financial services, bothsavings and loans. NGOs facilitate thelinkages even with insurance services, andthey play an important role in helpingSHGsto gain information and evaluate differentservices offered by financial organisations.The separation of facilitator and bankingroles has so far worked to the advantageof women, especially when they are poorand illiterate.Currently, NGOs typically facilitategroup formation and bank linkages.Women’s SHGs deposit their money inbank accounts, and/or rotate it as loansamong themselves. This scenario willchange when NGOs themselves are autho-rised to take women’s savings as deposits.First, banks grade groups according totheir financial management, and extendloans, without appropriating women’ssavings. This allows the women to usetheirown money for their priority needs, e g,education, medical treatment, food pur-chases, etc. When NGOs take the savings,and extend loans instead, all the moneywill be spent on purposes approved by thelender, which is often limited to business:and cash income generating activities.Women will lose control over the spendingof their own money.Second, currently women return theseloans when other women need the money,or when they have cash to repay (forinstance in harvest time, or when the sonreturns from migration). Many SHGsextend a three-year repayment period. Boththese features allow the loans to stay inrotation on which the SHG can continueto earn interest. Now, with the loans fromthe new MFOs, the dominant repaymentpattern will be the one borrowed from theGrameen Bank model – of returning theloans within one year. This will putpressureon the women during the lean agriculturalseason when most cannot find work in dry,poor and remote regions. The poorest then,will continue to be untouched by the MFOsdriven by profit motives, as they are now.Finally, presently, women capitalise alltheir interest earnings. They often chargethemselves 6 to 12 per cent per annum overand above the bank interest rate (usuallybetween 9 and 14 per cent pa). They sharethis money during the lean months, orrotate it further as loans. Enter the newMFOs; the interest earning will go to theMFO instead of the SHG. Women’s money,their own capital, will be used by theMFOs to make money!What irony thatthese would be registered as charitabletrusts and societies! Both control and accessto savings will become difficult. Empow-ering processes will stop and dependencewill begin.In the current scenario, only banks andNBFCs can take public deposits; there issome space for women’s SHGs and women-owned organisations like cooperatives tooperate. With the entry of new MFOs thosewho do not have either the competence orthe capital base to manage deposits (trusts,charitable societies, with Rs five lakh asminimum capital) will compete for poorwomen’s meagre savings, and endangertheir safety. Women may lose out both onempowering processes and theircapital!The advances made in rural banking willbe undermined, and women’s empower-ment will now take a backseat. The in-tended step forward, towards greater sup-ply of financial services through non-banking institutions, may indeed mean twosteps backwards, in terms of the safety ofsmall deposits and the empowerment ofpoor women.Some Critical QuestionsWe may like to consider that the regu-latory constraints that prevent NGOs fromtaking public deposits may in fact be wellplaced to protect small savings, and poorwomen’s savings, even if they are called‘thrift’ as per the new bill, may deservethesame protection. Therefore, it is necessaryto recognise that banking is a specialisedjob, and those NGOs who have both thecapital and the capability, and thereforequalify for credit rating as NBFCs, couldindeed be allowed to transform. For therest,it may be wiser to let themcontinue asNGOsand as facilitators of women’s groups.

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