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MICRO-LEVEL CREDIT REQUIREMENT OF DAIRY FARMERS

Submitted by Ajith D (23003) Bhagirath Iyer (23013)

Faculty Guide: Prof. Prabal K. Sen

MALABAR REGIONAL CO-OPERATIVE MILK PRODUCERS’ UNION LIMITED KOZHIKODE

OTS (PRM 2002-04)

Institute of Rural Management Anand 2003

EXECUTIVE SUMMARY Students’ Name: Organisation: Reporting Officer: Faculty Guide: Project Title:

Ajith D and Bhagirath Malabar Regional Co-operative Milk Producers’ Union Ltd., Kozhikode Mr. G. Selvakumar, CEO, Malabar Rural Development Foundation Prof. Prabal K. Sen Micro level credit requirement of dairy farmers.

In 1998-99, the Malabar Regional Co-operative Milk Producers’ Union (MRCMPU) Ltd. had started some women-centred thrift groups in some of the areas of its operation on an experimental basis. One of the aims of setting up these groups is the redeployment of women trained as promoters under the Women Cattle Care Programme initiated by the Union in the 1990s. While some of the thrift groups are functioning well, some have become defunct.

In 2000, MRCMPU Ltd. set up the Malabar Rural Development Foundation (MRDF) with the main objective being socio-economic development of dairy farmers. The activities related to the thrift groups are to be carried out by MRDF. Objectives: To understand the need for credit of farmers, to understand the structure and functioning of the thrift groups promoted by MRCMPU Ltd., to determine the reasons for the failure of some of the thrift groups and to promote a self-reliant and sustainable model of SHGs. The study was confined to the Kannur district in Kerala. Methodology: The study was conducted in two stages: the first stage was exploratory in nature, wherein discussions were held with key informants such as the women promoters, the thrift group leaders, etc. In the second stage, the members of the thrift groups set up by MRCMPU Ltd. were surveyed based on a questionnaire measuring the perceived importance of credit for various needs, their satisfaction with the functioning of and benefits from the thrift groups, the perceived level of co-operation in the groups and their opinions on certain features of ideal models of SHGs. The members’ responses were recorded on a 5-point scale. Findings: Prima facie, the defunct groups had failed because of alleged mismanagement of funds by the woman promoter. It was found that the funds from all groups were being pooled and the accounts were also aggregated and finalised by the woman promoter. Therefore, the basic feature of SHGs – self-reliance – was not present in these thrift groups. Moreover, the success or failure of all the groups under an APCOS area was dependent on the performance of one person, thereby increasing the risk of failure. Lack of monitoring of the functioning of the groups was another issue that was noted. Recommendations: It is proposed that the groups be made more independent and the management of funds and accounts be handled at the group level by elected Secretaries. A higher level governing body composed of elected Presidents and Secretaries from all groups in an APCOS area must be formed. The accounts of all the groups must be verified on a regular basis by the elected Secretary of the governing body. These will be further audited by MRDF on a regular basis. The woman promoter will be entrusted the role of training the members and office-bearers and also verifying accounts at the governing body. She will also provide training in dairying related activities to the members in order to promote dairying in the region. In the future, member based income generating activities could be introduced to augment the income of farmers and the common funds.

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ACKNOWLEDGEMENTS We are grateful to the Institute of Rural Management Anand (IRMA) for having provided us with the opportunity to conduct this study. We also thank Profs. Prabal K. Sen, H. S. Shylendra and Rajesh Nair for their guidance. We express our gratitude to Dr. K. Ramesha of the National Institute of Bank Management, Pune for his valuable inputs in devising the questionnaire used for the study. We wish to thank the officials of MRCMPU Ltd., Kozhikode and of the P&I sub unit at Kannur Dairy for their inputs and support. Our sincere thanks are due to our reporting officer, Mr. G. Selvakumar, CEO, Malabar Rural Development Foundation for his support in the completion of the study. We also thank the farmer-members, women promoters, APCOS officials, Panchayat and bank officials without whose support and co-operation this study could not have been completed.

Ajith D (23003) Bhagirath Iyer (23013)

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TABLE OF CONTENTS Sr. No.

Page No.

1. Introduction..............................................................................................................1 2. Context...........................................................................................................................3 3. Objectives and Methodology.........................................................................................4 3.1 Objectives................................................................................................................4 3.2 Scope of the Study...................................................................................................4 3.3 Methodology............................................................................................................4 3.4 Limitations...............................................................................................................6 4. Results and Discussions.................................................................................................6 4.1 Need for Credit........................................................................................................6 4.2 Structure of the Thrift Groups..................................................................................7 4.3 Functioning of the Thrift Groups.............................................................................7 4.4 Issues in the Structure and Functioning of the Groups..........................................10 5. Proposed Model and Recommendations......................................................................12 6. Conclusion...................................................................................................................15 References..........................................................................................................................18

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LIST OF ANNEXURES

Sr. No.

Page No.

1. Annexure I: Questionnaire used for the Study..............................................................vi 2. Annexure II: Indices showing ‘Need for Credit’..........................................................xi 3. Annexure III: Satisfaction Indices for Functioning of Thrift Group...........................xii 4. Annexure IV: Satisfaction Indices for ‘Benefits of Thrift Group’.............................xiii 5. Annexure V: Proportion of Responses for ‘Principles of Co-operation’....................xiv

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1.

INTRODUCTION The rural poor face several difficulties in availing credit for their consumption or production needs.

Although rural banks and co-operative banks have been established in many parts of rural India, poor farmers are not able to avail credit from these institutions, mainly because of the requirement of collateral for loans (Shylendra 1999). Therefore, the farmers are forced to approach exploitative local moneylenders (Ibid). Over the years, Self-Help Groups (SHGs) have emerged as useful alternative sources of credit to the rural poor. Generally, these SHGs are an association of poor who contribute their savings, with an aim to borrow from the common funds when in need. The National Bank for Rural Development (NABARD) has defined an SHG as “a homogenous group of rural poor voluntarily formed to save whatever amount they can conveniently save out of their earnings and mutually agree to contribute to a common fund of the group to be lent to the members for meeting their productive and emergent credit needs”. In the Indian context, Non Governmental Organisations (NGOs) and rural financial institutions have been promoting SHGs so as to facilitate easier and cheaper access to credit for the rural poor (Shylendra 1999). Generally directed at women, SHGs also serve as a means for their empowerment. In a study conducted in Tamil Nadu and Karnataka (Ramesha 1996), the author arrived at the conclusion that “while exhibiting the basic characteristics of a co-operative in letter and spirit, SHGs have continued to be functionally effective and flexible. It is in this context that the SHGs deserve to be known as new wave co-operatives.” The main benefits of SHGs are: 1.

Timely and easier access to credit: The SHGs allow the poor to borrow small amounts as and when the need arises. In comparison to a formal credit institution (such as a bank), the formalities and paper work required are minimal. In addition to this, there is no need for any collateral, as the SHGs are based on the concept of joint liability of the group as a whole and peer pressure ensures prompt repayment. Thus, SHGs serve as demand-oriented informal banking systems for the rural poor (Dwaraki et al 1996). Recent legislations also allow SHGs to be linked to banks, whereby the SHG can borrow from the bank and lend the money to its members. Since peer pressure ensures very high recovery rates, the banks are at minimal risk when lending to SHGs.

2.

Cheaper credit: The SHGs reduce the need to approach moneylenders who generally charge very high interest rates.

The SHGs also reduce the transaction cost (search costs,

negotiation costs and contract costs) involved in availing credit. 3.

Inculcation of saving habits: The collection of regular deposits by the SHGs inculcates among the members, the habit of regular saving from their incomes.

4.

Better repayment rates: Peer pressure from within the SHGs acts as an informal monitoring system, ensuring that the borrowers repay their loans promptly. Because of the small size and localised composition of the SHGs, it is easier to screen the borrowers before lending and also monitor them, leading to higher loan recoveries (Shylendra 1999).

5.

Possibilities of income generation through micro-enterprises: Once the SHGs become financially stable, it is possible to start income generating activities through microenterprises. The income from these activities can be ploughed back into the SHGs to supplement their common fund, thus leading to their sustainability.

6.

Empowerment of women: SHGs provide women with an opportunity to handle large sums of common funds and maintain accounts for various transactions. In their dealings with banks and other financial institutions, they get an opportunity to learn about the world outside the domestic walls. The income generating activities undertaken by SHGs provide women, who may not otherwise be a part of the economic mainstream, with their own source of income.

Thus, SHGs overcome the bureaucratic procedures; delayed disbursements and inflexibility associated with formal credit institutions (Roul 1996). Besides providing cheaper and easier credit, they also offer the possibilities of taking up income generating activities.

2.

CONTEXT The Malabar Regional Co-operative Milk Producers’ Union (MRCMPU) Ltd., Kozhikode is one of

the three regional milk unions in Kerala. Since 1990, the organisation has evolved with the support of the North Kerala Dairy Project (NKDP) with assistance from the Swiss Agency for Development and Co-operation and technical inputs from the National Dairy Development Board (NDDB). The number of Anand Pattern Cooperative Societies (APCOS) under the Union has increased from 149 in 1991 to around 750 now. The average procurement of the Union has increased from 56900 litres per day (LPD) in 1991-92 to around 2.5 lakh LPD now. In 1998-99, MRCMPU Ltd. had promoted women-centred thrift groups in some of its areas of operation on an experimental basis. These thrift groups were promoted as an extension to the Women Cattle Care Programme (WCCP), implemented by the Union under the second and third phases (1991-96 and 19962001, respectively) of the NKDP, under which one woman in an APCOS area was identified by the Union and trained as woman promoter. One of the reasons for the formation of these thrift groups was to re-deploy the women promoters. The thrift groups initially composed of the members of the target group (dairy farmers) to whom the women promoters imparted training (6-8 groups per village). The women promoters were appointed the Secretaries of these thrift groups, with the task of maintaining the accounts and the common funds. While some of the groups are functioning well (with substantial deposits, regular disbursement of credit and close to hundred percent repayment rates), some are defunct. In 2000, MRCMPU Ltd. set up the Malabar Rural Development Foundation (MRDF) with a corpus fund of Rs. 50 lakhs from the Swiss Development Corporation, on the lines of Tribhuvandas Foundation, Anand and the Trust at Vaisakh sponsored by the Vaisakh Milk Union. The main objective of MRDF is the socio-economic development of dairy farmers. The activities of the thrift groups are to be brought under the banner of the Foundation. MRDF intends to determine the reasons for failure of the thrift groups and evolve a working model that can be replicated in the future. MRDF also plans to facilitate setting up of micro-enterprises as income generating activities for the farmers, to augment their incomes.

3.

OBJECTIVES AND METHODOLOGY The present study attempts to understand the structure and functioning of thrift groups promoted

by MRCMPU Ltd. and determine the possible reasons for the failure of some of them. While the focus is on the design issues of the thrift groups, the inputs of members, regarding the functioning of the groups have been taken into account.

3.1

Objectives The specific objectives of the study are: 1.

To understand and analyse the need for credit of the members.

2.

To understand the structure and functioning of the thrift groups promoted by MRCMPU Ltd.

3.2

3.

To determine the reasons for the failure of some of the thrift groups.

4.

To propose a self-reliant and sustainable working model of SHGs.

Scope of the Study The study was confined to the Kannur District in the Northern region of Kerala, bordering

Karnataka. The APCOS areas covered were: Paisakkary, Manikkadavu, Kaithapram, Shantipuram, Vijayapuram, Meenpatty, Naduvil and Odenthode. There were 24 thrift groups spread across the above eight APCOS areas. The groups in Shantipuram, Kaithapram, Paisakkary and Naduvil are functioning well and the groups in the other areas are defunct. While the focus was on the thrift groups set up by MRCMPU Ltd., the structure and functioning of SHGs in the region under the Kudumbasree project were also studied to a limited extent as Kudumbasree is one of the successful initiatives in the field of SHGs (The Hindu, 24/07/2003).

3.3

Methodology The study was conducted in two stages. The first stage of the study was exploratory in nature,

mainly to understand the organisation structure and develop a preliminary understanding of the functioning of the thrift groups set up by MRCMPU Ltd.. This stage of the study involved discussions with women promoters, thrift group Presidents, thrift group leaders, and the Secretary and President of the APCOS of the area.

Discussions were also held with the functionaries in the Procurement and Input (P&I) department and other staff of the MRCMPU Ltd., Kozhikode and employees at Kannur Dairy. The second stage of the study mainly focussed on members’ inputs, obtained through administration of a questionnaire (Appendix I) among the thrift group members. On the basis of the exploratory research, various kinds of credit needs were identified and the members’ responses were measured on a fivepoint Likert-like scale with varying degrees of importance. Indices were developed for each category of need using the formula: (Σwjij)/ (n*imax) where, ‘ij’ is the score given by the respondent where ‘j’ ranges from 1 to 5, ‘wj’ is the number of respondents with i j as their response for a particular need, ‘n’ is the total number of respondents across functional and defunct thrift groups (therefore, n = Σwj) and ‘imax’ is the maximum score possible (i.e., 5). The members’ responses on the functioning of and benefits derived from the thrift groups were scaled on a 5-point Likert-like scale with varying degrees of satisfaction. Indices were developed using the same formula as above, with ‘n’ here being the total number of respondents from either functional or defunct thrift groups. Based on a questionnaire developed by Dr. K. Ramesha of the National Institute of Bank Management, Pune, a set of statements purported to measure the level of co-operation perceived to be present in the thrift groups by the members was Likert-scaled. Apart from measuring the perceived level of co-operation, some statements were also included to measure the extent to which members agree or disagree with certain design possibilities of SHGs. The analysis was based on the number of respondents for each scale point, out of the total number from either functional or defunct thrift groups. Along with the quantitative responses, qualitative information regarding the functioning and structure of the thrift groups were also taken from the members. The sample size for the study was decided as 60, equally divided across members of functional and defunct thrift groups set up by MRCMPU Ltd. Care was taken to ensure that groups from different APCOS areas were given due representation in the sample.

3.4

Limitations The present study was confined to the district of Kannur and the socio-economic background of

the people residing in this area may have implications with respect to generalising the outcomes of the study. The member responses for the defunct thrift groups were based on their recollections. Therefore, the interpretation and conclusions drawn are best seen within these limitations.

4.

RESULTS AND DISCUSSIONS The study reveals that the thrift groups promoted by the MRCMPU Ltd. have been meeting the

need for credit for dairy farmers and others in the areas where they are functioning well. Some of the thrift groups have become defunct because of certain design issues that need to be addressed.

4.1

Need for Credit An important observation was that there was need for an informal credit institution such as the

thrift groups set up by MRCMPU Ltd., as seen by the fact that all the members were of the opinion that they did not have cheap and easy access to credit for their needs before MRCMPU Ltd. set up these thrift groups. The only other informal sources of credit were the credit unions of the Church and the Thalassery Social Service Society operating in some areas. However, presently there are many other credit SHGs operating in the region under the banners of organisations and movements like Kudumbasree, NABARD, INFAM, SNDP, Shreyas apart from the above two. It has also been noticed that many of the beneficiaries of the thrift groups started by MRCMPU Ltd. are also members of other SHGs. Although the thrift groups were initiated by MRCMPU Ltd., all the members surveyed strongly agreed that there was a need for such an informal credit institution (Appendix V, St. No. E.2). While these groups were initially composed of dairy farmers only, other farmers also joined later considering the benefits from these thrift groups. For most farmers in the area of study, dairying is a subsidiary activity, while the primary source of income is agriculture (Source: Ulickal Panchayat). However, the unstable market prices of crops like rubber, coconut, arecanut, cashew, pepper etc., keeps the farmer interested in dairying as there is a stable and assured price for milk.

Dairying remains a subsidiary activity because of the high cost of production owing to high input costs. Due to fragmented landholdings, the farmers prefer to cultivate crops, which have a higher price, and they seldom cultivate green fodder. Moreover, dry fodder, an essential feed for cattle, has to be purchased from neighbouring states and, therefore is costly. The costs of cattle feed and other food supplements are also high because the raw materials have to be purchased from the neighbouring states. Around 82 per cent of the thrift group members surveyed had an average monthly income of Rs. 2500 or less, while the remaining had an average monthly income between Rs. 2500 and Rs, 7500 with the overall mean monthly income of Rs. 2950. The survey revealed that the farmers mainly need credit to repay other loans (mainly agriculture loans from banks). Loans for agriculture and for medical expenses were also given high importance by the members. Loans for education of children and their marriage were perceived to be next in importance. Significantly, the need for credit for expenses associated with dairying (buying cattle, construction of cattle shed, veterinary expenses and buying fodder) was perceived to be relatively less important (Appendix II). The main sources of credit other than local money lenders, small-scale private bankers (where one can borrow after pledging gold) and agricultural development banks (where one can borrow after mortgaging land) are the service co-operative banks, nationalised banks and the Regional Rural Bank. The Regional Rural Bank operating in the area of study is the North Malabar Gramin Bank, which is sponsored by Syndicate Bank. While the local moneylenders and private bankers charge very high rates of interest, the other institutions give loans mainly for agricultural purposes. The need for collateral and the procedural delays involved in availing loans from the latter make it an unfavourable option for the farmers. It may be noted that the service co-operative banks and the North Malabar Gramin Bank lend to SHGs also. The significant advantage is that the banks lend without collateral to SHGs satisfying certain conditions with regard to group size, composition, meetings, attendance at meetings, frequency and utilization of savings, loan recovery, documentation, accumulated savings, knowledge of rules and functioning of the SHGs to the members, functional literacy etc.

4.2

Structure of the Thrift Groups In the thrift initiatives of MRCMPU Ltd., there are groups of women at the grassroots level. These

groups are headed by leaders chosen by the members. These groups are federated to form a governing body

attached to the APCOS of the area. From among the leaders of various thrift groups under each APCOS, a President for the governing body is elected either through a general body meeting (of all members) or through elections among the leaders. The President together with other leaders and the woman-promoter trained under the WCCP Programme form the governing body. The woman-promoter is appointed the Secretary of the body.

4.3

Functioning of the Thrift Groups The meetings of the thrift groups are held either weekly or fortnightly.

The meetings are

generally convened at the residences of different members on a rotational basis. The satisfaction index for the location of the meetings was close to 100 per cent for functional as well as defunct thrift groups (Appendix III). The meeting of the governing body is held once in a month. The general body meeting is held annually. It was found that the satisfaction index for the attendance in the group meetings was close to 100 per cent for the defunct thrift groups, but 81.33 per cent for the functional thrift groups (Appendix III). Each member of the group owns a share of face value Rs. 20/-. A new entrant to the group has to pay an entry fee fixed by the respective governing body. Deposits are collected from the members in every meeting. However, the members surveyed said that not all the members of a group deposit money in every meeting, but if they fail to deposit in a meeting, they do deposit in the next (Appendix V, St. No. E.17). It was found that in some groups, no minimum deposit amount is fixed while in others it is fixed as decided by the members of the groups. There is no restriction on the maximum amount of deposits. Except when repayment of loan is not complete, the members are allowed to withdraw a significant portion of their deposits freely. The satisfaction indices for frequency of collection of deposits, minimum/maximum amount of deposits and withdrawal of deposits were close to or equal to 100 per cent for both functional and defunct groups (Appendix IV). The groups were paying an interest of 10.8 per cent p.a. on deposits in Naduvil and 6 per cent p.a. in other areas. The satisfaction index for interest on deposits was close to 87 per cent for both functional and defunct groups (Appendix IV). Although the interest rate on deposits paid by the groups is higher than that in banks and Kudumbasree groups do not pay any interest on deposits (the interest on loans is distributed equally among all the members as profit earned by the SHGs), the relatively lower level of satisfaction could be because the members look at the interest on deposits in relation to the much higher rate of interest on loans. While the members were aware that profit of the groups (the difference between the interest rates on loans and deposits) is added to the common fund so as to facilitate more credit disbursals, they were dissatisfied, as it does not translate into immediate monetary returns.

The loan applications are considered at the group level during the meetings. The loans are disbursed to the selected applicants once or twice in a month, mostly on the basis of priority of need as decided by the group. The satisfaction index for timeliness/speed of sanctioning was 90.67 per cent for functional thrift groups and 78 per cent for defunct thrift groups and that for priority for credit was 98 per cent for the functional groups and 85.33 per cent for the defunct thrift groups (Appendix IV). In some groups, it is compulsory for any member availing a loan to arrange for two other members as guarantors. In most groups, the guarantors can withdraw their deposits and apply for loans only if the member for whom they have stood as guarantors has repaid 50-75 per cent of the loan. The satisfaction index for the rules relating to guarantee were 100 per cent for functional groups and 86.67 per cent for defunct groups (Appendix IV). The interest on loan charged by the groups is 18-24 per cent p.a. The satisfaction index for interest on loan is 100 per cent for the functional groups and 86.67 per cent for the defunct groups (Appendix IV). The satisfaction indices for the variables relating to credit (timeliness, priority, maximum amount, guarantee, interest and repayment) are relatively lower for defunct groups because the members surveyed in one of the defunct groups (Manikkadavu) said that they had never received loans and only a few members of the group received loans during the period in which it was functioning. The maximum loan amount to be disbursed to each member is fixed at 2-4 times her deposit amount or Rs. 5000-15000, whichever is lower. The satisfaction index for the maximum amount of loan was 90.67 per cent in the functional groups and 85.33 per cent in the defunct groups (Appendix IV). The index for functional groups was relatively lower because in Paisakkary, one of the functional groups, the maximum amount of loan had been recently reduced from Rs. 10000 to Rs. 6000. However, the loan amount of Rs. 6000 is still relatively higher than the maximum amount sanctioned in Kudumbasree units. Generally, a particular date according to the convenience of the members is fixed for the repayment of the loans. The time for repayment of loans is generally ten months. The defaulters are penalised at the rate of Re. 1 per Rs. 100 of default. All the members of functional and defunct groups (except Manikkadavu group) were completely satisfied with the repayment rate of loans (Appendix III). The groups make profits from the difference in interest rates on deposit and for loans. Most of the groups have capitalised their profits. The common funds of all the groups are pooled and maintained by the woman promoter who is the Secretary of the governing body. The accounts are maintained in rough at the group level. The accounts are

aggregated for all the groups and finalised by the woman promoter. The accounts are then presented for auditing, to the respective APCOS of the area. The accounts are also verified at random by the field supervisors of the Procurement and Input sub-unit at the Kannur Dairy of MRCMPU Ltd.

4.4

Issues in the Structure and Functioning of the Groups While studying the structure and functioning of the thrift groups promoted by the Union and

the members’ perception regarding certain important variables related to the same, some important design issues and problems in functioning have emerged. As mentioned above, Dr. K. Ramesha had arrived at the conclusion that SHGs are new wave cooperatives. The same conclusion holds good to a certain extent in the thrift groups set up by MRCMPU Ltd. as well, as indicated by the fact that most of the members surveyed, agreed that most of the principles of cooperation (voluntary and open membership, one-woman-one-vote, member economic participation, autonomy and independence, co-operative education and co-operation among the groups) are/were being followed in both the functional and defunct groups (Appendix V, Section E). However, there are issues relating to some of the principles that need to be addressed. The three essential elements of any co-operative organisation are the member-users, the governance structure and the operating system and the design of co-operatives is essentially concerned with the architecture of the three elements taken together and the interrelationships between them (Shah 1996). The governance structure includes the chairperson and the members of the board or other governing body that is responsible for laying down the policies and norms that govern the working of the operating system (Mishra and Shah 1992). The operating system includes the management of the co-operative that is concerned with the routine operations of the co-operative (Ibid). The main services availed of by the members from the co-operative is known as their ‘patronage’ of the co-operative. The extent to which the governance structure is ‘patronage cohesive’, is indicated by the effectiveness with which it is able to represent the members’ concerns and interests with regard specifically to their patronage with the co-operative (Mishra and Shah 1992). The governing structure exercises control over the operating system through a system of positive and negative rewards (Shah 1996). It also motivates and supports them with high performance demands and matching performance-linked support (Ibid). The extent to

which the operating system is responsive to the needs of the members is known as the ‘patronage responsiveness’ of the operating system (Mishra and Shah 1992). In the case of the thrift groups set up by MRCMPU Ltd., the woman promoter who is appointed as the Secretary of the group is entrusted with the responsibility of finalisation of accounts of all the groups under an APCOS area in aggregate. She also manages the common funds pooled together from all the groups. Though the decisions regarding priority of loan applicants is made at the group level, the woman promoter makes the actual disbursement of loans. Therefore, she is the main member of the operating structure of the thrift groups. She is paid an honorarium as decided by the groups, from the common fund. The group leaders of individual groups who maintain the accounts in rough, apart from collecting deposits and repayment of loans are also a part of the operating structure. While the members choose the group leaders, the woman promoter is not chosen by the members but appointed by MRCMPU Ltd. In the present system, therefore, the governance system (i.e. the governing body composed of leaders from various groups) may not have adequate control over the operating system, and hence the patronage responsiveness of the latter is questionable. A large proportion of the members surveyed, particularly in defunct groups, were of the view that members are not free to question the officebearers and that they are not accountable to the members (Appendix V, St. Nos. E.10 and E.11). In the present system, since the entire responsibility of maintaining the accounts and managing the common funds of the all the groups in aggregate is upon the woman promoter, the success or failure of the thrift groups is contingent, to a large extent, on the competence and integrity of the woman promoter. The satisfaction indices for variables relating to maintenance of accounts (regular entries, accuracy and transparency) were 100 per cent in functional groups but 98.67, 64.67 and 80.67 per cent (respectively) for the defunct groups (Appendix III). The members surveyed in defunct groups were of the opinion that the major reason for the failure of the groups was mismanagement of accounts and funds. As noted earlier, the satisfaction index for attendance in meetings was relatively higher for defunct thrift groups (which have stopped functioning), as compared to that for functional groups. This could be because the members are losing interest in the functioning of the thrift groups. Another important issue noted was that no statutory monitoring system for verification of accounts is in place, in the present arrangement. In areas where the thrift groups are functioning well, the accounts are properly and regularly audited by the Secretary of the respective APCOS. However, in the areas where the thrift groups have become defunct, this was not done. The satisfaction indices for the variables associated with

monitoring (auditing and inspection by facilitators) were close to 97 per cent for functional groups and around 50 per cent for defunct groups (Appendix III). It may also be noted that the satisfaction index for frequency of checking/updating of accounts was relatively lower for both functional and defunct groups (Appendix III), as the members were of the view that auditing should be performed twice a year. In Manikkadavu, one of the defunct groups, it was reported by the members and the woman promoter that there was interference by the APCOS at the time of election of the President of the governing body of the thrift group. This goes against ‘autonomy and independence’, one of the principles of co-operation. Adequate measures must be taken to ensure that external interference in the functioning of the groups, such as in the case above, are minimised. One of the essential elements of the SHG experiment is self-reliance (Sen). Under the present arrangement, with the woman promoter managing the accounts and common funds of the groups in aggregate, the groups as such are not self-reliant and independent. This is one of the important issues that need to be addressed.

5.

PROPOSED MODEL AND RECOMMENDATIONS To address the design issues discussed above, the following model for the SHGs is proposed: From

each group, a President and Secretary must be chosen by the members. The Presidents and Secretaries of all the groups under an APCOS will form a governing committee. From among the Presidents and Secretaries of each of these groups, a President and Secretary respectively for the governing committee will be chosen by a general body (i.e., all the members of the groups). The group level office-bearers and therefore, the governing committee will have a fixed tenure (preferably, one year). The woman promoter will work in association with the governing body, but her responsibilities will be different, which must be clearly delineated. The Secretaries of the individual groups will be responsible for proper and complete maintenance of accounts and management of funds at the group level. This would imply that the funds from all the groups would not be pooled. The group will hold regular meetings as before. It may be noted that the Kudumbasree model for SHGs is also similar to the one proposed above. However, the Kudumbasree SHG structure has three levels – the groups, each with one President and one Secretary at the grass-roots level; an Area Development Society (ADS) composed of the Presidents and

Secretaries of all the SHGs in a ward; and, a Community Development Society (CDS) composed of the members of the ADSs from all the wards under a Panchayat. The governing body will meet every month, where the Secretaries from all the groups must present the finalised group-level accounts, which will be verified and aggregated by the Secretary of the governing body, along with the woman promoter. These accounts must be presented to the APCOS Secretary on a regular basis (preferably twice a year). The accounts will then be audited on a regular basis (preferably twice a year) by a competent field officer of the Malabar Rural Development Foundation. In the survey, the members were of the view that the training provided to them in the activities of the thrift groups was not adequate. The satisfaction index for training was considerably low for both functional and defunct thrift groups (Appendix IV). Therefore, the woman promoter will also have the important responsibility of providing training regarding the activities of the SHGs, to the members as and when required. The woman promoter will also have the additional responsibility of imparting training and education on other activities (such as cattle care, clean milk production, health and sanitation, water management, income generating activities etc.). The satisfaction index for education was relatively low for functional as well as defunct groups (Appendix IV). In case it is required to link the groups with banks, the woman promoter will provide guidance to the SHGs in ensuring compliance with the guidelines and norms insisted upon by banks for lending to such groups, and also in carrying out the transactions with the banks. The woman promoter will be paid an honorarium from the funds of the individual groups based on her performance, as judged by the members of the groups. During the member survey, it was observed that the thrift groups set up by MRCMPU Ltd. are/were preferred by the farmers over the SHGs under other agencies, since the former allowed ten months for repayment while in the case of other SHGs, the repayment was to be made in lumpsum or less than ten months. The other benefits are that the thrift groups set up by MRCMPU Ltd. offer interest on deposits and there is no limit on the maximum amount of deposit. These features should be continued. The other recommendations are as follows: 1.

It is essential that a systematic auditing and monitoring mechanism as mentioned above is put in place, so as to ensure that any inaccuracy in the accounts and mismanagement of

funds is detected and corrected promptly. MRDF would play an important role in this, as outlined above. 2.

The members as well as the women promoters were of the opinion that the training in maintenance of accounts imparted to them was inadequate (Appendix V, St. No. E.27). Therefore, MRDF must ensure that adequate training in managing the financial affairs of the groups is provided to them. It is also essential that the women promoters receive adequate training and education in other activities like dairying, health and hygiene issues, water management etc. and social issues.

3.

MRDF must ensure that there is no interference in the functioning of the SHGs by any outside agencies, particularly at the time of formation of the governing body. This can be achieved by ensuring that the elections of the President and Secretary of the governing body are supervised by MRDF officials, and by maintaining regular contact with the heads of the governing body and the woman promoter. The governing body elections may be held through secret ballot where problems of interference are likely to occur.

4.

In case any of the groups are required to be linked to banks, this must be facilitated by MRDF, by inspiring confidence in the banks, with the goodwill of MRCMPU Ltd.

The main advantages of the proposed model for the SHGs are as follows: 1.

The most important advantage of the proposed model would be restoration of the urge for self-reliance, which is one of the essential elements of the concept of Self-Help Groups (Sen).

2.

As the operating structure (the President and Secretary of each group who will handle all the affairs of their respective groups) is constituted from among the members themselves, it is likely to be more patronage responsive than in the earlier system. Moreover, the responsibility of the woman promoter in the existing system will, in the new model, be shared among the Secretaries of the individual groups. Therefore, the success or failure of the SHG will not be contingent on a single person.

3.

Since the funds and accounts of each group are managed independently at the group-level (the funds are not pooled), the possibility of linkage with banks for higher loan amounts is created. This would not have been possible in the earlier system (Sen).

4.

With a proper monitoring system in place, the likelihood of financial mismanagement or mistakes is minimised. It would also act as a check on the office-bearers.

5.

Since the responsibility of managing the accounts and funds of the groups is rotated, every member will get an opportunity to actively participate in the functioning of the SHG. This, in addition to the training and education on various activities/issues being provided by the woman promoter, would increase the interest of members in the activities of the SHG and would thus address the issue of falling attendance in group meetings.

6.

Active participation in the activities of the SHG would also lead to skill enhancement of the members. Some activities, which could be pursued by the SHGs, are wholesale purchase and sale of grocery and domestic items, vanilla cultivation, mushroom cultivation etc.

6.

CONCLUSION The study is of significance in the context that need for credit of farmers is not being fully

addressed by the formal institutions. Under these circumstances, the Self-Help Group interventions, as an alternate source of credit, have been able to effectively provide cheaper and easier access to credit to farmers. This is substantiated in the present study also, as all the members of the thrift groups set up by MRCMPU Ltd. strongly agreed that there was a need for such an intervention and also said that such initiatives have significantly improved the availability of credit. Although SHGs promoted by many other agencies are functioning in the area of study, the need for such an intervention is still present. This is shown by the fact that repayment of other loans (mainly agricultural loans from banks) emerged as the most important need for credit, in the member survey. It is also to be noted that the members surveyed were also members of other SHGs functioning in the area. While some of the thrift groups promoted by MRCMPU Ltd. have become defunct, it is because of certain issues in their design and functioning, which have been indicated in the study.

It is imperative that the thrift groups are made more independent in their operations. The funds and accounts of each group must be maintained at the group level. This will make the groups more self-reliant, which is the essential feature of self-help organisations. This will also enable the groups to be linked to banks, for additional credit as and when required. A systematic monitoring mechanism as stated in the proposed model above would ensure that financial inaccuracies are minimised and the funds are managed properly. MRDF must recruit a competent field officer to audit the accounts of the SHGs, twice in a year. Besides salary from MRDF, the SHGs would pay an audit fee to the MRDF official. While the proposed model may be followed for SHGs to be set up in the areas where they have become defunct or in new areas, it is important that the changes suggested are not forced upon the existing thrift groups. Although all the members surveyed from defunct groups strongly agreed that each group should manage their own funds and maintain their records, only 50 per cent of the members surveyed from functional groups agreed/strongly agreed to this proposal, while 33.33 per cent disagreed/strongly disagreed. While 86.67 per cent of the members surveyed from functional groups agreed/strongly agreed that the funds should be pooled centrally, the same proportion from defunct groups disagreed/strongly disagreed to the proposition (Appendix V, St. Nos. E.24 and E.31). This is because the members from the functional groups were of the view that the maximum amount of loan granted would have to be reduced if the funds are not pooled. However, a group of 20 members depositing Rs. 20 once a week would have enough funds to give loans upto Rs. 6000 (which is the maximum amount granted in most of the groups) to three members in a year (assuming that the time for returning the loans is 10 months), if the gestation period (the period during which no loans are given) is one year. Moreover, it was observed that loans of Rs. 6000 were required to be given to the members occasionally. It may be noted that all the members surveyed across functional as well as defunct groups strongly agreed that each group should have its own elected office-bearers (President, Secretary, Treasurer etc.) (Appendix V, St. No. E.13). Therefore, in the functional groups, the proposed model may be introduced steadily and in stages. For example, one individual group could be motivated to elect a President and Secretary from among the members. In the next stage, the group could be made more independent in managing the accounts and funds, at the group level. Similarly, the changes proposed may be introduced in the other groups. The woman promoter would play the important role of motivating and guiding the group members and office-bearers throughout the transition period.

Through the proposed model, a self-reliant and sustainable alternate source of credit for rural farmers is envisaged. However, credit is not the only benefit from these SHGs, as they also serve as a means for the empowerment of women through capacity building and by providing opportunities for leadership. SHGs are also one of the most cost-effective means of forming local associations of people. These local associations would be a means to promote dairying among the members and in the area as such. The woman promoter would play an important role in this, by providing education and training related to dairying activities. MRCMPU Ltd. could also promote dairying through MRDF and the SHGs by providing grants for construction of cattle shed, purchase of cattle etc. to the members interested in dairying. As the SHGs grow in terms of membership and total funds, they would become resourceful economic organisations. These economic organisations could be the bases for introduction of area-specific and member-based income generating activities, a part of the income from which could be ploughed back into the common funds of the SHGs, thereby building their financial sustainability. It is important to note that the income generating activities initiated in some of the SHGs promoted by Kudumbasree have failed because of the absence of a market. Under the activities initiated, home-based products such as chips, pickles, soap etc. were manufactured and the individual groups (units) were to market the products themselves. However, these activities could not be sustained as they could be sold only in the local market because of the lack of marketing support. In the local market also, the products could not compete with similar products of established players. To ensure that income-generating activities started by the groups are successful and sustainable, an in-depth and exhaustive market study must be made to estimate the volumes and patterns of consumption of various products/produce in the area and in neighbouring areas. Once the demand for various products/produce is estimated, this must be matched with the resources available in the area, so as to determine the products/produce that must be considered for the income generating activities to be initiated. The income generating activities ideally must be a mix of several products/produce. MRDF must play the important role of providing marketing and technical support to the groups, for the products/produce from these groups. A part of the income from the sale of these products/produce may be retained by MRDF to build its own funds, which could be used to promote more SHGs and income generating activities.

REFERENCES Dwaraki, B. R., N. Narayanaswamy and R. Ramesh (1996) Towards Creating a Participatory Self-Help Credit Co-operative. In R. Rajagopalan (ed.) (1996) ‘Rediscovering Co-operation Volume II: Strategies for the Models of Tomorrow’. Anand: Institute of Rural Management Anand (IRMA) publication. Mishra, Debi Prasad and Tushaar Shah (1992) Analysing Organisational Performance in Village Cooperatives. Small Enterprise Development Volume III, No. I (March 1992). Ramesha, K. (1996) Self-Help Groups: Emerging Co-operatives. In R. Rajagopalan (ed.) (1996) ‘Rediscovering Co-operation Volume II: Strategies for the Models of Tomorrow’. Anand: Institute of Rural Management Anand (IRMA) publication. Roul, Suryamani (1996) Self-Help Groups as an Alternative Model. In R. Rajagopalan (ed.) (1996) ‘Rediscovering Co-operation Volume II: Strategies for the Models of Tomorrow’. Anand: Institute of Rural Management Anand (IRMA) publication. Sen, Prabal K. (2003) Bank of Baroda Chair Professor, Institute of Rural Management Anand (IRMA). Personal communication. Shah, Tushaar (1996) Catalysing Co-operation: Design of Self-governing Organisations. New Delhi: Sage Publications India Pvt. Ltd.. Shylendra, H. S. (1999) Micro-Finance and Self-Help Groups (SHGs): A Study of the Experience of Two Leading NGOs, SEWA and AKRSP in Gujarat (India). Anand: Institute of Rural Management Anand (IRMA) research paper No. 16.

APPENDIX I: QUESTIONNAIRE USED FOR THE STUDY A. Preliminary Information Name: Name of Thrift Group: Location of Thrift Group: Position in Thrift Group: Joined in (year): Principal occupation: Subsidiary occupation (if any): Monthly Income (Rs.):

< 2500





2500 – 7500



≥ 7500

B. Need for Credit This section helps us to know your credit needs and how important each need is. Please tick as applicable. Extremely Important

Definitely Important

Generally Important

Slightly Important

Not Important

Medical Expenditure











Education of children











Marriages











Repay other loans











Buying cattle











Veterinary expenses











Construction of cattle shed











Buying fodder











Construction of house











Agriculture











Domestic needs











C. Functioning of SHG This section helps us understand to what extent you are satisfied with the functioning of the SHGs.

D. Benefits of SHGs Completely Satisfied

Moderately Satisfied

Undecided

Moderately Dissatisfied

Completely Dissatisfied

Savings/Deposits Frequency of Collection

Completely Satisfied

Receipts MeetingsSlip (if any)

Moderately  Satisfied

 Undecided 





Moderately Dissatisfied

Completely  Dissatisfied







Location Max./Min. Amount





















Attendance Withdrawal





















Repayment of Interest Loan Credit Accounts





Timeliness/Speed Regular entries of Sanctioning 



Priority for Credit Accuracy





Maximum Amount Transparency



Guarantee/other collateral Procedure security Outside help Interest Monitoring Other Benefits Auditing Training Inspection by facilitators Discussion on Social Issues



Frequency Education of checking/updating Income Generating Activities



 







    



   



 





  



    



   



 





  



    



   



 





  



    



   



 





  

 



  

E. Principles of Co-operation SA

A

I

D

SD

1. The membership in the SHG is completely voluntary











2. Needs is the only criterion for membership to the SHG











3. The SHG is open to women of all castes, classes, religion and political affiliation











4. The size of the SHG should be limited (as per registration rules and/or other directives or as decided by members)











5. Maximum size decided/permitted is a criterion for rejection of new applications for membership











6. Any member is free to leave the SHG whenever she wishes to











7. Participation of all members is encouraged in decision making











8. One-woman-one-vote is practiced at the group and/or at the higher level











9. Voting is not related to savings/deposits











10. The members are allowed to question the office-bearers











11. The office-bearers are accountable to the members











12. The members should be allowed to elect all the office-bearers











13. Each group should have elected office-bearers (President, Secty., Treasurer etc.)











14. The members should be allowed to impeach the office-bearers











15. All members should be allowed to contest for office-bearers’ post











16. The office-bearers should have a fixed tenure











17. The members regularly deposit money with the group











18. The common fund (including profit) is used for the common benefit of all members











19. All members understand the financial operations and records of the SHG











Voluntary & Open Membership

Democratic Member Control

Member Economic Participation

E. Principles of Co-operation (continued) SA

A

I

D

SD

20. The decisions taken are not influenced by external agencies











21. The SHGs are free to conduct their affairs without external interference











22. The SHGs are free to frame and amend their own rules and regulations











23. The honorarium for office-bearers should be decided by the SHGs and paid from common funds











24. Each group manage their own funds and maintain the records











25. The members are aware of the rules and regulations and general functioning of the SHG











26. All members should be educated and informed about the financial transactions of the SHGs











27. The office-bearers are adequately trained in managing the financial affairs (including book-keeping) of the SHGs











28. The members should be educated/trained on agriculture, dairying, health etc.











29. Money from common funds should be apportioned for education of members











30. The groups share each others’ funds when required











31. The funds may be pooled centrally, to facilitate inter-group transfers











32. The groups help each other with respect to education and training needs of members and/or office-bearers











33. The formation of a federation of all SHGs would be beneficial for the members











Autonomy and Independence

Education, Training and Information

Co-operation among Co-operatives

SA: Strongly Agree A: Agree I: Indifferent D: Disagree SD: Strongly Disagree

APPENDIX II: INDICES SHOWING ‘NEED FOR CREDIT’

NEED FOR CREDIT

INDEX

Repay other loans

96.67

Agriculture

88.33

Medical expenditure

85.67

Construction of house

83.00

Education of children

77.67

Marriages

77.00

Buying cattle

64.33

Domestic needs

63.33

Construction of cattle shed

63.00

Veterinary expenses

53.33

Buying fodder

46.00

APPENDIX III: SATISFACTION INDICES FOR ‘FUNCTIONING OF THRIFT GROUP’ SATISFACTION VARIABLES

INDEX FUNCTIONAL

DEFUNCT

Location

97.33

99.33

Attendance

81.33

95.33

Repayment of Loans

100.00

86.67

Regular Entries

100.00

98.67

Accuracy

100.00

64.67

Transparency

100.00

80.67

Procedure (easily understood or not)

100.00

96.67

Auditing

97.33

47.33

Inspection by facilitators

96.67

52.00

Frequency of checking/updating

78.00

50.00

Meetings

Accounts

Monitoring

APPENDIX IV: SATISFACTION INDICES FOR ‘BENEFITS OF THRIFT GROUP’ SATISFACTION VARIABLES

INDEX FUNCTIONAL

DEFUNCT

Frequency of Collection

100.00

100.00

Receipts Slip (if any)

100.00

100.00

Max./Min Amount

100.00

100.00

Withdrawal

99.33

99.33

Interest

87.33

86.00

Timeliness/Speed of Sanctioning

90.67

78.00

Priority for Credit

98.00

85.33

Maximum Amount

90.67

85.33

Guarantee/other collateral security

100.00

86.67

Interest

100.00

86.67

Training

62.00

42.00

Discussion on Social Issues

90.67

75.33

Education

65.33

50.00

Income Generating Activities

52.67

34.00

Savings/Deposits

Credit

Other Benefits

APPENDIX V: PROPORTION OF RESPONSES FOR ‘PRINCIPLES OF CO-OPERATION’ Statement No. 1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

(All figures in percentages) D SD

SA

A

I

F (Functional)

100.00

-

-

-

-

D (Defunct)

100.00

-

-

-

-

F

100.00

-

-

-

-

D

100.00

-

-

-

-

F

100.00

-

-

-

-

D

100.00

-

-

-

-

F

100.00

-

-

-

-

D

100.00

-

-

-

-

F

100.00

-

-

-

-

D

100.00

-

-

-

-

F

100.00

-

-

-

-

D

100.00

-

-

-

-

F

96.67

3.33

-

-

-

D

100.00

-

-

-

-

F

100.00

-

-

-

-

D

100.00

-

-

-

-

F

100.00

-

-

-

-

D

93.33

6.67

-

-

-

F

90.00

10.00

-

-

-

D

43.33

43.33

13.33

-

-

F

70.00

30.00

-

-

-

D

40.00

60.00

-

-

-

F

100.00

-

-

-

-

D

96.67

3.33

-

-

-

F

100.00

-

-

-

-

D

100.00

-

-

-

-

F

100.00

-

-

-

-

D

100.00

-

-

-

-

F

96.67

3.33

-

-

-

D

100.00

-

-

-

-

F

100.00

-

-

-

-

D

100.00

-

-

-

-

F

36.67

63.33

-

-

-

D

33.33

66.67

-

-

-

APPENDIX V CONTD. Statement No. 18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

(All figures in percentages) D SD

SA

A

I

F (Functional)

90.00

10.00

-

-

-

D (Defunct)

70.00

30.00

-

-

-

F

33.33

46.67

-

20.00

-

D

46.67

53.33

-

-

-

F

96.67

3.33

-

-

-

D

66.67

3.33

6.67

23.33

-

F

93.33

6.67

-

-

-

D

66.67

10.00

10.00

13.33

-

F

23.33

63.33

-

13.33

-

D

-

6.67

26.67

60.00

6.67

F

30.00

33.33

33.33

3.33

-

D

3.33

26.67

33.33

36.67

-

F

30.00

20.00

16.67

23.33

10.00

D

100.00

-

-

-

-

F

86.67

13.33

-

-

-

D

96.67

3.33

-

-

-

F

100.00

-

-

-

-

D

100.00

-

-

-

-

F

26.67

43.33

3.33

26.67

-

D

-

6.67

26.67

66.67

-

F

100.00

-

-

-

-

D

100.00

-

-

-

-

F

90.00

6.67

3.33

-

-

D

96.67

3.33

-

-

-

F

100.00

-

-

-

-

D

96.67

3.33

-

-

-

F

36.67

50.00

13.33

-

-

D

-

-

13.33

53.33

33.33

F

100.00

-

-

-

-

D

100.00

-

-

-

-

F

20.00

43.33

36.67

-

-

D

13.33

40.00

46.67

-

-

Note: For details of statement numbers, refer to Section E of Appendix I.