CREATING LINKAGES AND

INSTITUTIONS
Institute of Rural Management Anand Cases in Microfinance

SHG-BANK LINKAGE:
A CASE OF ANARDE FOUNDATION 1

The SHG-Bank Linkage Programme

The Self-Help Group (SHG)-Bank Linkage Programme has emerged as a major

approach for the promotion and development of micro-finance sector in India.
Started by National Bank for Agriculture and Rural Development (NABARD) in
1992 as a pilot experiment, it has undergone changes from the pilot phase to
the scaling up phase. The Linkage Programme is based on the simple
preposition that the Non-Government Organisations (NGOs) or banks motivate
the poor to form the groups for mobilising savings and to link them with the
banks for credit support to start income generating activities. There are three
models in the Linkage Programme: i) Banks directly promote the SHGs and
provide credit to them, ii) NGOs promote SHGs and link them with the banks
for credit support, and iii) NGOs promote SHGs and act as intermediaries for
on-lending to the SHGs by taking bulk-lending from financial institutions.

SHG-Bank Linkage Programme of ANARDE Foundation

The ACIL-Navsarjan Rural Development Foundation, Mumbai (ANARDE

Foundation) is one of the leading Self Help Promoting Institutions (SHPI) in India.
The ANARDE Foundation has taken up group linkage in North Gujarat since
1997 with the support of NABARD. The ANARDE Foundation was
established in 1979 under the Bombay Public Trust Act of 1950. It was
established for the purpose of promoting integrated rural development with
financial support provided by Aegis Chemical Industries Ltd. The ANARDE
Foundation has identified a set of programmes as their priorities based
on weightages given in terms of percentage. The weightages given to
different programmes are: economic development programmes - 60%, health
1
. Case prepared by Dr. Naresh Singh, Narsee Monjee Institute of Management Studies, Mumbai
under the aegis of the `Workshop on Developing Cases and Training Material in Microfinance’’
sponsored by SIDBI Foundation for Micro Credit, Lucknow.

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programmes-10%, educational programmes- 10%, environmental programmes-

10%, and social development programmes- 10%. The objectives ofthe ANARDE
Foundation are: i) inculcation of self-help among the rural people, ii) provide
management inputs in the use of natural resources, iii) coordination of the
programmes through grassroots level management team, and iv) create
involvement of beneficiaries to ensure effective participation.

The SHG-Bank Linkage Programme in North Gujarat has been implemented by

the North Gujarat Zone branch of the ANARDE Foundation. The North Gujarat
Zone branch operates and coordinates activities in the seven districts of Gujarat,
namely, Sabarkantha, Banaskantha, Panchmahal, Kheda, Mehsana,
Ahmedabad and Gandhinagar. The districts in the Zone are further desegregated
into 61 talukas encompassing 3000 villages. The Zonal headquarter is located at
Himatnagar in the Sabarkantha district.

The Zonal Co-ordinator, Mr. S.S. Patel, who holds a management post graduate
degree and having work experience in the development sector, realised the need
for streamlining the credit delivery system in the rural areas. His first job was to
ensure intensified flow of credit for economic growth of the rural people and
reduce their dependence on the informal sources of credit. In the initial stages,
he convinced the donors based locally and in Mumbai to allocate funds for
promoting SHGs. In the year 1996-97, NABARD granted a sum of Rs. 5 lakh to
ANARDE Foundation for promoting SHGs. With this support, the ANARDE
Foundation promoted 150 SHGs in the area. NABARD provided a further grant of
Rs. 23 lakh to the ANARDE Foundation during the year 1997-98. By 2000, in all,
ANARDE Foundation promoted 3,216 SHGs in the seven districts of North
Gujarat (see Exhibit 1).

The ANARDE Foundation believes that there are three stakeholders in the SHG-
Bank Linkage Programme. They are: i) primary stakeholders i.e. the rural poor
and the women, ii) secondary stakeholders i.e., the ANARDE Foundation
consisting of project staff, volunteers and other networking NGOs, and iii) tertiary

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stakeholders i.e., the funding agencies, financial institutions and government

agencies. The ANARDE Foundation further believes that an effective Linkage
Programme can be evolved only in the presence of a fruitful association between
the various stakeholders.

The ANARDE Foundation works in four stages for the implementation of the
Linkage Programme. These stages are, forming, storming, norming and
performing. At the forming stage, the field workers of the ANARDE Foundation
concentrate on selling the idea of SHG to the people. Initially it takes a
considerable amount of time to motivate the people. But subsequently the time
required for forming SHGs decreases in the presence of proven information
about the functioning groups. In the norming stage the basic rules for the smooth
operation of the groups are laid down. In the performing stage, groups are left
on their own to hone up their skills of self-help. The grassroot level workers of
the ANARDE Foundation remain in constant touch with the SHGs to ensure the
smooth working of the SHGs.

Working of SHGs

The members of the groups are not eligible for loans for the first six months.
They keep saving and do not borrow. Each SHG has a President and a
Secretary. The SHGs hold meetings at predefined intervals and the President
records the minutes of the meetings. Every member saves per month at least
Rs. 20. The monthly savings per member across groups varies from Rs. 20 to
Rs. 60. But the saving amount is common for all the members in a group. Each
SHG creates a common fund, which is built up from the fee and the members’
contribution by way of regular savings. The interest accrued on internal lending,
fines collected from members are also added to the common fund. After saving
for six months, the group starts internal lending. The common fund becomes a
revolving fund from which the loans are advanced for consumption and
emergency requirements. A box is maintained called dibba to pool the common
fund.

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All the terms and conditions are documented in the byelaws of the SHGs. The
different books to be maintained by the SHGs are: admissions register,
attendance register, resolution register, visitor’s book, meetings register, receipt
book, voucher book and loan register. A record of the monthly savings and
receipts is maintained. Irregular attendance of meetings, irregular saving and
irregular repayment of loan, each entails a fine of Rs. 5/-. The fines, interest,
donations are all equally distributed among the members of the group once in a
year.

After completing one year of operations, a group is linked to a bank for

borrowing purpose. The bank linkage is the most vital part of the credit
intensification mechanism. The bank linkage helps a SHG to avail loans after
saving regularly for a minimum of six months. The ANARDE Foundation’s
approach comes under the second model of linkage of NABARD mentioned
above. After linking of a SHG by the NGO, the bank provides credit directly to
the group. The group in turn would undertake lending to its members on terms
agreed upon mutually by the members as per the byelaws. The quantum of
credit given to a group is in proportion to the savings mobilized by the group.
The savings-credit ratio varies from 1:1 to 1:4 depending upon the assessment
of the capabilities of a SHG by the bank. The rate of interest on the bank loan
to the SHG is 12 percent per annum. The SHGs are, however, free to decide on
the rate of interest to be charged on the loans given to their members. The
SHGs normally charge between 24 to 36 percent per annum. The repayment
period from members to the SHG is one year; while the bank lends to the SHGs
for 3 to 5 years. The SHGs are following one year repayment period for the
members with the purpose of using a single bank loan to lend to a large number
of members.

The Strategy of ANARDE Foundation

As evident from the Exhibits given at the end, the ANARDE Foundation
undertook the SHG-Bank Linkage Programme in a big way in North-Gujarat

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The North-Gujarat Zone is headed by a Zonal Co-ordinator. At the district level

there are District Co-ordinators in each district who directly report to the Zonal
Co-ordinator. At the taluka level there are Taluka Co-ordinators in each taluka
who report to the District Co-ordinator. Below the Taluka Co-ordinators, there
are Supervisors who implement the projects at village level. Each Supervisor
overseas the work of a cluster comprising 5 to 10 villages.

Before launching the project of SHG-Bank Linkage, the ANARDE Foundation

provided training to its District and Taluka Co-ordinators on Microcredit Delivery
System at Entrepreneurship Development Institute of India (EDI), Ahmedabad.
Subsequently, the District and Taluka Co-ordinators developed the teaching
material in Gujarati language to train in turn the Supervisors. They also designed
credit records and other information systems for the SHGs in Gujarati language.
The Supervisors started implementing the SHG-Bank Linkage Programme. To
provide mouth-to-mouth publicity to the project and to develop confidence
among the people about the SHGs, the ANARDE Foundation organized
exposure visits of the potential SHG members to other villages where SHGs
are working. The Supervisors also provided training to the SHG leaders.

Mr. S. S. Patel realised that to speed up the Linkage Programme it is beneficial

to involve the leading banks in the region as they can easily understand the
socio-economic needs of local people. The ANARDE Foundation started
motivating officials of the Bank of Baroda, a major bank in several districts of
North Gujarat, by organizing a series of two-day orientation programmes on the
SHG-Bank Linkage Programme. The staff members of the ANARDE Foundation
because of their good relations with the people in villages also started helping
the bank officials in the recovery of delayed loans of the banks. These two
initiatives, brought the ANARDE Foundation and the Bank of Baroda closer to
each other. The Bank of Baroda showed considerable interest in the SHG-Bank
Linkage Programme of the ANARDE Foundation. Besides organising orientation
programmes for the leaders of the SHGs and the bank officials, ANARDE

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Foundation also organised a series of one-day interface workshops of bankers

and members of the SHGs to bring mutual confidence and trust between them.

In all from 1995 to March 2000, the ANARDE Foundation formed 3,216 SHGs in
seven districts of North Gujarat. The total membership of these SHGs is 39,649,
On an average there are 12 members per SHG. The SHGs accounted for a
cumulative savings of Rs. 26.06 million with the average savings per group and
per member, respectively, being Rs. 8,104 and Rs. 657. Out of the 3,216 SHGs,
2,167 SHGs (67.4 percent) are linked with the banks for credit support. About
22.3 percent of the members (8,843) have borrowed bank loan from their SHGs.
A total loan amount of Rs. 26.03 million has been disbursed to these 2,167
SHGs by the banks during the above period. The average loan amount per
SHG and per member, respectively, comes to Rs. 12,011 and Rs. 2,943.

Along with establishing the linkage, the ANARDE Foundation conducted a

series of Rural Entrepreneurship Development Programmes (REDP) for the
selected SHGs so that members of the SHGs can start their micro-enterprise
activities. These REDPs were conducted in collaboration with EDI, Ahmedabad
and were supported by Khadi and Village Industries Commission (KVIC),
NABARD and Small Industries Development Bank of India (SIDBI). Later on, the
ANARDE Foundation started conducting REDPs independently with the support
of NABARD as it was having a cadre of REDP Trainers trained at EDI.

The ANARDE Foundation is now not implementing the SHG-Bank Linkage

Programme in North Gujarat. The Programme was closed, once the duration of
the NABARD supported grant was over. There are no records available either on
the recovery of the loans from the SHGs or on the impact of the Programme in
helping the poor to improve their economic conditions. The association with the
Bank of Baroda also seems to be not working as cases of default or poor
recovery have surfaced.

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The ANARDE Foundation did not make any plan for sustainability and for
withdrawal before closing the project in North Gujarat.

Response from the Banks and NABARD

The SHG-Bank Linkage Programme had offered a great opportunity for a closer
interaction between the banks and group members. In most of the cases, the
branch managers were visiting the groups before initiating the linkage process.
The bankers had relied mainly on the strength and reputation of the ANARDE
Foundation in extending their services to the SHGs. The bankers were happy
with the performance of the grassroot level workers of the ANARDE Foundation.
But this relationship could not be continued as there was no clear plan for
sustainability and withdrawl from the project once the grant was over.

NABARD is concerned about the sustainability of the Programme implemented

by the ANARDE Foundation as the experience in other parts of India has shown
that SHGs may disintegrate after the withdrawal of NGO. According to NABARD
officials, the ANARDE Foundation should emphasis on the sustainability of the
SHGs by imparting training to the group members. The ANARDE Foundation
should think about a gradual withdrawal by forming alternative arrangements for
backup support to the SHGs. Otherwise the whole concept of the SHG may get
diluted. The other suggestion by NABARD is that the ANARDE Foundation
should avoid geographical expansion in diverse areas. As the strategies of
success are not generic, the expansion may dilute the resources the ANARDE
Foundation currently possesses.

The ANARDE Foundation is implementing the SHG-Bank Linkage Programme in

13 states covering 49 districts with the financial support from apex agencies like
NABARD, Rastriya Mahila Kosh (RMK), SIDBI and Swa-Shakti Project. The
states covered are Gujarat, Madhya Pradesh, Maharashtra, Tamilnadu, Andhra
Pradesh, Haryana, Himachal Pradesh, Rajasthan, Uttara Pradesh, Bihar, West
Bengal, Orissa and Jharkhand. It has also taken a bulk loan of Rs. 10 million

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from SIDBI for on lending to the SHGs. As per the records of the ANARDE
Foundation as of March 2002 they have formed 13,170 SHGs with a total
membership of 1,95,955. These SHGs have mobilized a total savings of Rs.
149.61 million. These figures also include the SHGs that are formed by the
network of NGOs supported by the ANARDE Foundation in different states.

Exhibit 1: Progress of SHGs of ANARDE Foundation (1994-2000)

Sr. District / Year 1994- 1995- 1996- 1997- 1998- 1999- Total
No. 1995 1996 1997 1998 1999 2000
1. Sabarkantha - 22 141 286 98 55 602
2. Banaskantha 1 13 52 271 170 163 670
3. Mehsana - 18 48 213 253 105 637
4. Kheda 1 15 63 168 70 45 362
5. Ahmedabad - - 23 134 106 55 318
6. Panchmahal - 10 95 242 155 117 619
7. Gandhinagar - - 4 4 - - 8
Total 2 78 426 1318 852 540 3216

Exhibit 2: Membership and Savings Details of SHGs of ANARDE Foundation

(2000)

Sr. District / Year Total no. Total Cumulative Average Average saving Average
No. of SHGs Members Savings Member per per member Savings per
(Rs.) SHG (Rs.) group (Rs.)
1. Sabarkantha 602 7223 4671404 12 647 7760
2. Banaskantha 670 7840 4504821 12 575 6724
3. Mehsana 637 7796 5287650 12 678 8301
4. Kheda 362 5242 3522142 14 672 9730
5. Ahmedabad 318 4289 2649437 13 618 8332
6. Panchmahal 619 7121 5266699 12 740 8508
7. Gandhinagar 8 138 161833 17 1173 20229
Total 3216 39649 26063986 12 657 8104

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Exhibit 3 : Bank Linkage Details of SHGs

Sr. District / Year Total Total SHGs Total Cumulative Average Average
No. no. of Members linked members Loan Amount loan Amt loan Amt
SHGs with with bank (Rs.) per group per
banks loans (Rs.) member
(Rs.)
1. Sabarkantha 602 7223 430 1715 3548100 8251 2069
2. Banaskantha 670 7840 435 1387 4989100 11469 3597
3. Mehsana 637 7796 382 965 5123280 13412 5309
4. Kheda 362 5242 271 1062 3619500 13356 3408
5. Ahmedabad 318 4289 242 1000 2714600 11217 2715
6. Panchmahal 619 7121 401 2694 5974000 14898 2217
7. Gandhinagar 8 138 6 20 60000 10000 3000
Total 3216 39649 2167 8843 26028580 12011 2943

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THE NANDIPET SHG FEDERATION 1

GRAM

Gram Abhyudaya Mandali (GRAM) is a non-profit rural development

organization registered under the Andhra Pradesh Public Societies Act. GRAM
which is working since 1980 has been focussing on resolving the issues
affecting the Dalit community. It is currently operating in fifteen mandals (an
administrative unit comprising of 20-30 villages) in Nizamabad district and four
in Adilabad district in Andhra Pradesh.

GRAM’s initial approach was to organise its target groups into informal village
level institutions called sanghas to resolve common socio-economic problems.
However, as it moved into agricultural initiatives, the approach seemed to shift in
the direction of service delivery and facilitation. Since the beginning of 1990s,
GRAM has moved strongly in the direction of forming Self-Help Groups (SHGs)
to promote savings and credit and federate them as larger institutions at mandal
and district levels. The federation, in turn, would provide a platform to its target
group for articulating their needs and creating an armour for shielding them from
offensive practices of dominant socio-economic groups.

GRAM entered the Nandipet mandal in 1994 and started promoting sanghas.
After several rounds of discussions with the women in the villages, it took about
four months to form the sanghas. Initially the sanghas have taken help from
GRAM’s staff for record keeping and to conduct meetings. GRAM facilitated
each sangha to open its bank account with a sangha representative and a
GRAM’s staff as joint signatories. After one year GRAM provided Rs 5,000 as
revolving fund to these sanghas to increase their resources. The sanghas
appointed GRAM trained book-keepers by paying a small honorarium.

1
. Case prepared by Ms. S. Rama Lakshmi, Mahila Abhivrudhi Society, Andhra Pradesh
(APMAS), Hyderabad under the aegis of the `Workshop on Developing Cases and Training
Material in Microfinance’, sponsored by SIDBI Foundation for Micro Credit, Lucknow.

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Apex Body

After implementing its programme in ten villages, GRAM found it difficult to

expand further into new villages. To resolve the expansion problem and also to
promote the idea of forming an apex institution comprising all the sanghas,
GRAM organized meetings of the representatives from village sanghas. An
Apex body came to be formed for the purpose. The Apex body in turn formed a
sub-committee of 5 members to promote sanghas in new villages. The Apex
body also took up issues like untouchability and anti-arrack movement. After one
year, a cultural team was formed to mobilize more women with the help of
GRAM. GRAM gave Rs.100/- as incentive under the `Intideepam’ scheme for
those women who came forward to join the sanghas. The practice continued for
18 months and led to high expectations among the women. The members of the
Apex body were trained by GRAM on their roles and responsibilities. The
members of the Apex body decided to meet once in six months to discuss the
common issues facing the sanghas.

In 1997, in order to meet the norms stipulated by National Bank for Agricultural
and Rural Development (NABARD) for bank linkage, the village sanghas were
split into smaller SHGs with 10 to 20 members. All the SHGs in a village were
brought together under the sangha, which acted as an advisory body. The Apex
body at the mandal level continued to address the common socio-economic and
political issues. The Apex body along with GRAM also started gaining
credibility and reputation with the government departments and financial
institutions.

Creation of MACS

Meanwhile, GRAM started envisioning the promotion of sustainable and self-

reliant community based financial institutions. The purpose of such institutions

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was both to provide financial services and to take up livelihood promotion and
community development activities.

Towards this, GRAM organized workshops for members of the Apex body and
village level SHGs. The idea was to form a federation having the legal status of
a Mutually Aided Co-operative Society (MACS) under the MACS Act. The
members of the Apex body were taken on exposure visits to similar institutions
functioning successfully in other places. The core staff of GRAM met several
times to get clarity on the concept of incorporation and for preparation of a model
byelaws for the co-operative.

The Apex body was formally registered on May 6, 2000 as the Nandipet
Intideepam Mutually Aided Co-operative Thrift and Credit Society Limited. The
Nandipet MACS was constituted and capitalised initially by taking SHG members
as shareholders. The membership in MACS is allowed only for individual
members of SHGs. MACS thus became a parallel membership-based structure
along with the existing SHGs.

The process of enrolling all the SHG members in MACS took two years. Initially
resistance for enrolment came from the old SHGs. They were not willing to part
with their funds to be deposited in MACS. GRAM staff and the board members
of MACS jointly conducted village level meetings with such SHGs to encourage
them to join MACS.

Governing Structure and Functions of MACS

The governing structure of MACS consists of a 32 member Representative

General Body (RGB) of 32 village sanghas, and an 11 member Board of
Directors (BoD) elected from the RGB (Diagram 1). One director is elected for
every cluster consisting of 3 or 4 villages. The BoD is elected once in three
years with one-third of the members rotated every year as per the byelaws.

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The BoD meets once in a month and takes decisions on various matters
including loan appraisal and sanctioning. Each Director is responsible for
supervising a cluster. When problems like bad debt arise, they are brought to the
notice of the entire Board for discussion and appropriate action.

Table 1: Progress of SHGs

Year SHGs Members SHG borrowings from

banks during the year
No. of SHGs Amount
(Rs.)
1997 97 1541 1 15,000
1998 114 1763 12 2,20,000
1999 129 2002 17 4,10,000
2000 183 2809 94 16,15,000
2001 222 3291 106 25,74,000
2002 239 3491 128 28,25,000

The services of MACS include providing loans for both production and
consumption purposes, mobilising savings, disbursing relief under Death
Relief Assurance Scheme (DRAS) and providing training to the leaders of the
SHGs. The idea of DRAS was introduced after an exposure visit to a successful
MACS. The members have to save compulsorily Rs.30 per month with their
SHGs. The SHGs in turn will deposit annually Rs. 120 per member with MACS.
MACS pays 6 per cent interest on members savings. The members and the
SHGs are also depositing their excess cash with the MACS in their savings
account on which MACS pays 4 percent interest. MACS has recently introduced
voluntary savings scheme both for the members and the SHGs.

In the initial stages, the group members saved and lent out small amounts among
themselves. With a rise in their credit requirements, the SHGs started mobilising
loans from the financial institutions with the help of GRAM in the beginning and
then with MACS. MACS claims 2 percent margin from the SHGs as its service
fee for linking them to the banks. Previously, GRAM used to recommend such

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Diagram 1: Structure and Governance of Nandipet MACS

Board of Directors
(One from each cluster)

MACS
Representative General Body
(One from each sangha)

I
N
D Vill. Vill.
S I Sangha Sangha
H V
A I
R D
E U
H A
O L Vill.
L L Sangha (One representative from each
D E
E N group)
R D
S I
N
G

SHG SHG SHG SHG

10-20 members 10-20 members 10-20 members 10-20 members

applications of the SHGs to the banks for loan. The rate of interest charged by
different banks to SHGs varies from 12 to 13 percent per annum. Nearly 87
percent of the SHGs are now linked to banks under the SHG-Bank Linkage
programme. 27 SHGs are linked to BASIX, a microfinance institution working in
AP.

MACS has started direct lending to those members whose loan applications
are recommended by the SHGs. The members of an SHG can get loans both
from their SHG and also directly from MACS. To meet direct loan demand of
members, MACS borrows from commercial banks and BASIX.

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MACS has received a loan of Rs. 11 lakh from BASIX at 18 percent interest
per annum on which it has received 2 percent rebate for prompt repayment.
MACS also has got a loan of Rs. 5 lakh from the Indian Overseas Bank (IOB) at
10.5 percent per annum.

Table 2: Particulars of MACS (March 2002)

1 No. of Staff 7
2 Total Savings Rs.36, 91,950
3 No. of Groups Linked to Banks 209
4 Cumulative Bank Loan Rs. 77,69,000
5 No. of Groups Linked with BASIX 27
6 No. of Members Taken Loan from 1006
MACS
7 Total Loans Taken from MACS Rs.63, 39,000

MACS initially released loans to its members after they fulfilled the criteria of
minimum period of membership and credit worthiness based on their savings. A
member gets a loan at 1:8 ratio of her savings. In case of lending to members of
a new SHG, MACS keeps the particular SHG under scrutiny for 3 months to test
its creditworthiness and then starts lending out small loans. The second loan to a
member is sanctioned only after she clears the outstanding loan with MACS.
MACS lends directly to the members at 24 percent interest per annum. The
members repay their loans through their SHG. Out of the 24 percent interest
paid by members on their loans, the SHGs retain 3 percent with them and the
remaining 21 percent goes to MACS.

MACS adopts a stringent recovery method to keep default low.

In case a member is not able to repay her loan on time, it becomes the group’s
responsibility to recover the loan and repay to MACS. Cumulatively, MACS has
been able to recover 99 percent of the loan amount due. The recovery rate of
the current loan amount due comes to 93.85 percent.

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Challenges before MACS

The vision and objectives of MACS are widely shared by the Board and the staff.
The Board members are adequately aware of all the operational aspects of
MACS and have good exposure to microfinance. Their involvement during the
Board meetings is good. There is active participation during agenda setting and
decision-making. However, a major role in decision making is played by old
Board members and staff of GRAM, as one third get newly elected every year.
The Board of MACS is trying to evolve its operational strategy through a process
of experimentation. For ex. DRAS became a loss-making product due to
unexpected death of four members within a year. The members feel that there
was no clarity about the age requirement (18 to 55 years ) prescribed for
DRAS. Several aged members are now demanding that they also be covered
under the scheme.

GRAM has deputed a manager and field staff to MACS. The staff have also
been trained by GRAM in accounting system and record maintenance. GRAM is
of the view that MACS will succeed only when the staff become accountable to
MACS and its members. There were many challenges and difficulties during this
transformation. In the first year MACS found it difficult to manage book-keepers
for each SHG because of high expectation and exploitation. To resolve this
problem, GRAM with the approval of the Board of Directors of MACS selected
four candidates and appointed them as Community Based Workers (CBW) to
manage the SHGs,

Being currently dependent on GRAM for technical and financial support, MACS
would like to attain self-sufficiency. GRAM is bearing the salary of all the staff.
Only recently MACS started paying the salaries of two CBWs. Though during
2001-02, MACS has earned profit (see Exhibit 1), it is yet to achieve operational
self-sufficiency fully. MACS is unable to meet all its operational costs out of its
operational income. Including salaries and travel expenses of the staff which
are met by GRAM, MACS is able to cover only 77.7 percent of its operational

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costs. The operations at MACS are not generating enough income to cover all
their costs.

MACS has attempted to test its business skills to generate some surplus income.
It has started a fair price shop and saris trading for the purpose. The Manager
of MACS looks after these two activities. However, the Manager has found it
difficult to allot full time to manage them along with the primary activities of
MACS.

MACS is trying to forge links with external agencies for availing various
benefits. Since MACS is emerging as a direct lender, the focus of the financial
institutions is getting diverted more towards MACS than SHGs to reduce their
transaction costs. The lending relationship of MACS remains only with the
individual members through SHGs which are able to access funds from various
sources. MACS provides training to the Board members about their role. But
training has to be provided frequently as one-third of the directors get elected
newly every year. There is high level of commitment and involvement by the
staff. The records are fairly well maintained and regularly updated though the
information flow between the SHGs and MACS is inadequate. MACS also
wants to emerge as a livelihood promoter and a facilitator for community
development though the SHGs perceive it as a financial intermediary.
Pursuing members to borrow for various income generating activities has been
a major challenge to MACS. MACS is trying to play only a passive role in
resolving any caste-based conflicts within the community.

The idea of promoting a district level federation of all the 14 MACS promoted by
GRAM has been mooted in the Board on which the SHGs are yet be taken into
confidence.

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SHGs’ view points

There is a feeling among the SHGs that the formation of a federation like MACS
should take place only after two years of SHGs’ formation. GRAM management
feels that the formation of federation can be taken up when the SHGs are at
least one year old and have been given intensive training for capacity building.
The SHGs which were hither to mainly borrowing from the banks are now
looking towards MACS for the purpose. In a participatory assessment exercise
carried out, 12 SHGs gave highest rank to MACS as compared to other
institutions like the District Rural Development Agency (DRDA), banks, BASIX,
GRAM and the Scheduled Caste (SC) Corporation both on the basis of
importance they attach and the frequency with which they interact with these
institutions. Both the old and the new SHGs gave similar kind of ranking in the
exercise.

Questions for Discussion

1. What is the approach followed by GRAM in forming the federation?

2. What is the organisational and governance structure of the federation?
3. How is the Nandipet MACS performing as a federation?
4. Whether GRAM was right in promoting the SHG federation?
5. How to make the Federation self-reliant ?

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Exhibit 1: MACs’ Income and Expenditure Statement for the

Year Ending 31.03.2002

EXPENDITURE AMOUNT INCOME AMOUNT

Registration/Administration/ 3,300.00 Membership fee 13,725.00
visiting fee
Stationery expenses 15,210.00 Documentation fee 14,675.00
Board of Directors TA/DA 43,271.00 Interest on Loans 328,211.00
Documentation/Bank charges 7,380.00 Interest on SB 4,713.00
Account
Meeting expenses 11,839.00 Contribution/ 5,850.00
Visitors fee
Office maintenance/ 20,778.00 SHG bank linkage 45,980.00
Telephone sponsorship fee
Audit fees 1,000.00
Training to SHG leaders 2,616.00
Interest on loans 32,781.00
Incentive paid to members 2,400.00
Interest on deposits 54,612.00
DRAS Fund 56,060.00
CBWs Honorarium 4,793.00
Excess of income over 157,114.00
expenditure (surplus)
Total 413,154.00 Total 413,154.00

Exhibit 2: Sources and Uses of Funds of MACS

PARTICULARS As on
31.03.2002
SOURCES OF FUNDS:
Authorised Share Capital 450,000.00
Issued & Subscribed Capital 346,300.00
Reserves 40,535.00
Administrative Self-reliance/ Deficit Cover Fund 364,810.00
Loan from Financial Institutions 1,863,673.00
Total 2,615,318.00
APPLICATION OF FUNDS:
Fixed Assets 12,547.00
Deposits 268,000.00
Income Generation Programme 29,655.00
Debtors (Loans to members) 2,295,589.00
Cash in hand & Bank 9,527.00
Total 2,615,318.00

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THE `BANK’ 1

The Name of NGO Disappears

“The name of our organization as promoter has been removed from the two
name boards of the Co-operative `Bank.’ This has been done by the `Bank’ at
the insistence of the office of the district registrar of co-operative societies,”
remarked Mr. Kunal of the NR Foundation who worked as an Extension Agent in
the International Labour Organisation (ILO) sponsored Project under which the
`Bank’ was promoted.

The disappearance of the name of the Non-Governmental Organisation (NGO)

from the board appeared symbolic of the real separation that has taken place
between the `Bank’ and the NGO. As remarked by the Director of the NGO,
“We have no links with the `Bank’.” They are working on their own. We cannot
support them any more.”

The separation that has taken place between the NGO and the Co-operative
`Bank’ seemed to be a touchy issue. The NGO is known for its capacity to build
strong village level co-operatives and maintain a long-standing relation with them
through continued support and guidance. The NR Foundation is a non-profit
organization working since 1974 in Western part of India for the upliftment of the
tribal community. The main thrust of NR Foundation is to improve the capacity of
the local natural resource base for supporting livelihoods on a sustainable basis.
In order to attain its objective, the NR Foundation takes up interventions like lift
irrigation schemes, construction of checkdams, watershed development, forestry
and income generating programmes in the villages of its jurisdiction. The NR
Foundation also promotes savings and credit self-help groups (SHGs) mainly for
1
. Case prepared by Dr. H.S. Shylendra, Institute of Rural Management, Anand, under the
aegis of the `Workshop on Developing Cases and Training Material in Microfinance,’
sponsored by SIDBI Foundation for Micro Credit, Lucknow.

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the women in the intervention villages. The formation of co-operatives to be

managed by the participants is the major strategy adopted by the NR Foundation
for attaining success and sustainability of its various interventions. In all the co-
operatives, the NR Foundation formally maintains ex-officio representation on the
executive committee in order to provide the necessary guidance and support. Till
March 2002, the NR Foundation has promoted over 260 village level co-
operatives under various interventions.

The `Bank’

“It is actually a co-operative credit society. But all of us have been calling it a
`Bank’ as it was visualized that the co-operative society would emerge as a major
women’s bank in the area,” narrated the Director of the NR Foundation referring
to the vision they had for the Co-operative.

The `Bank’ which is actually known as the Adivasi Mahila Savings and Credit Co-
operative Ltd., was established in March, 1999. The establishment of the `Bank’
was the culmination of the efforts to hand over 24 women’s SHGs formed since
1994 to a local co-operative managed by the members. These SHGs had been
formed under an ILO supported Project implemented by the NR Foundation
during 1994-99. The Project aimed at promoting self-reliance among the tribal
community through co-operatives and self-help organizations. The Project was
implemented in nine villages of one taluka where the NR Foundation had already
made interventions through lift irrigation schemes and checkdams. Besides the
formation of the SHGs, the ILO Project also supported the formation of four
women’s dairy co-operatives, capacity building of the lift irrigation co-operatives
through training, implementation of income generating schemes and promoting
non-formal education.

The 24 women SHGs had been promoted with the main purpose of encouraging
savings and credit for attaining self-reliance. The SHGs with nearly 500
members had started initially with a monthly savings of Rs. 10 per member. By

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1999, some of the SHGs had increased their monthly savings instalment to as
much as Rs. 50. Being able to mobilise capital through members’ savings, the
SHGs went in for internal lending utilising their own funds. The members’
savings were supplemented by additional capital provided to each SHG from the
revolving loan fund created under the Project. All the SHGs were recording 100
per cent recovery of the loans lent to the members. The members and the
leaders of the SHGs were trained by the NR Foundation in various aspects of
SHG management. While the SHGs were making impressive progress, the ILO
Project was approaching its end by 1999. It was visualised under the Project that
the SHGs would be taken over by a co-operative to be formed for the purpose.
The exploration for creating such a local institution had started much before the
termination of the Project.

The members of the SHGs were taken on exposure visits to two organizations
which had created women’s’ credit co-operatives. Inspired by the exposure visit,
the members decided to go in for the creation of a co-operative by pooling the
savings of all the 24 SHGs from nine villages. The effort which started in
November 1998 finally ended with the registration of a co-operative credit society
in March 1999. The office of the Co-operative was located in a nearby town
called Simdi. Ms. Savitaben and Ms. Kantaben were selected by the members
as the Chairperson and the Secretary of the Co-operative. These two leaders
were found to be quite articulate and talented by the SHG members. Before the
creation of the Co-operative, the SHG members used to meet every month at the
NR Foundation to discuss their progress and problems.

Ms. Savitaben who has been the Chairperson of the `Bank’ since its inception
remarked, “We decided to form a co-operative based on the idea we got during
the exposure visit. Our purpose was to meet our members’ need for loans by
pooling the savings of the SHGs and mobilizing funds through borrowing. Though
our SHGs had savings accounts with a commercial bank, the bank would not
give us any loan.”

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While the Co-operative came to be established, some of the plans the NR

Foundation had for the Co-operative did not materialize. As Mr. Kunal said, “The
SHGs were functioning only in nine villages. Our idea was to form a co-operative
which can have jurisdiction over a large area. However, this required taking no
objection certificates from a large number of credit co-operatives in the area.
The district registrar of co-operative societies limited the area of the co-operative
only to the nine villages. At the same time, the district registrar refused
permission for ex-officio representation of the NR Foundation on the executive
committee of the co-operative. The reason given to us was that the Co-operative
is for the adivasi (tribal) women and the NR Foundation does not have the status
of an adivasi person.”

“The refusal for the ex-officio representation was surprising as the NR

Foundation is represented on the committees of all the co-operatives promoted
by us in the tribal areas”, said the Director of the NR Foundation. He further said:
“We could have insisted with the district registrar for our representation, but some
how we did not pursue it.” As Ms. Savitaben, Chairperson of the Co-operative
said, “Even we wanted the NR Foundation to be on our committee but the
registrar refused it.”

There was all-round enthusiasm when the `Bank’ started functioning. The NR
Foundation staff and the women leaders wanted to take the Co-operative to new
heights through their joint efforts. Though the ILO Project came to an end and
staff were withdrawn from the Project, the NR Foundation decided to continue
with its support for the Co-operative as per the `continuation strategy’ followed
with respect to all its interventions.

The staff working under other projects continued to interact with the ‘Bank’ on a
regular basis. The NR Foundation was reimbursing the Co-operative’s monthly
rent for the building and the honorarium for the staff. Ms. Sujatha, a social work
post-graduate who had joined as the Project Manager of a new government

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project was entrusted with the task of co-ordinating with the Co-operative. Ms.
Sujatha remarked, “The leaders of the `Bank’ were regularly approaching us for
help and guidance on various issues; we actively helped in getting a site allotted
to the Co-operative for the construction of a building.”

The NR Foundation also sanctioned a sum of Rs. 2.5 lakh to the Co-operative
from the revolving loan fund (RLF) of the ILO Project for meeting its additional
working capital needs. The ILO Project had visualised that the RLF would be
finally transferred to the local institutions created. The cash transactions of the
Co-operative were carried out through a joint account held with a commercial
bank in the name of the Co-operative and the NR Foundation.

The Separation

The collaboration between the `Bank’ and the NR Foundation which was going
quite smoothly took a `U-turn’ within a year. The leaders of the `Bank’ refused to
take any honorarium for their staff from the NR Foundation and decided to be on
their own. The long partnership which had started with the formation of the SHGs
came to an end as many differences cropped up between the leaders of the
`Bank’ and the staff of the NR Foundation. By July 2002, the `Bank’ and the
Foundation had totally lost touch with each other. As Ms. Parameet, a Senior
Programme Executive of the NR Foundation remarked, “It had even become
difficult for us to obtain the annual balance sheet of the `Bank.’ We had to argue
with the district registrar to get a copy of the recent balance sheet.”

How is the `Bank’ doing?

To Ms. Parameet, “Going by the balance sheet there seems to be some problem
with the `Bank.’” She further elaborated, “Most of the loans of the Co-operative
seem to have gone only to two villages from where the Chairperson and the
Secretary of the Co-operative come. Also there seems to be some internal
conflict and the leaders have come under local influence. The overdues are also
growing. It is not good if the `Bank’ gets derailed.”

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Mr. Kunal said, “When we were supporting it, the `Bank’ was nicely managed.
Now even the premises is not well kept”. The Director of the NR Foundation said,
“I am not sure whether they would be able to get the government funding for
constructing their building. We would have given them the necessary support.
But if the co-operative is able to function well on its own, we are happy. Our
ultimate purpose is to create an institution which can become really
autonomous.”

Ms. Savitaben and Ms. Kantaben assessed the performance of their co-operative
in the following way:

“We have expanded our area of operation recently to six more villages to admit
300 more members. The Co-operative has got a cash credit loan of Rs. 50,000
from the District Central Co-operative Bank (DCCB), the limit of which has now
been enhanced to Rs. 80,000. We use both the members’ savings and the loan
from the DCCB. We sanction loans on a yearly basis as we are a co-operative.
A member is given a loan up to Rs. 10,000 based on the purpose and her
savings with the Co-operative. The members have to apply directly to the Co-
operative for loans with two guarantors. The loan is approved by the Executive
Committee. The members save and repay through their SHGs. Different SHGs
have different savings rate. Many members have been able to take up dairying
and other income generating activities through the loan support received from the
Co-operative.”

“The same Executive Committee is continuing for the second time. The Co-
operative has implemented a government housing scheme for some of the
members. A watershed scheme also has been sanctioned to the Co-operative.
We will recruit new staff for the watershed project. Currently, we have six staff
members and pay a monthly rent of Rs. 800 for the building. The Co-operative
has made profit every year. The auditor has given a `B’ grade to the Co-operative

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(meaning doing reasonably well). We have sanctioned loans for 400 members
this year. The co-operative has a total outstanding loan of Rs.7.14 lakh at the
end of March 2002. The loan recovery which was 100 per cent in the earlier
years has come down to 70 per cent during 2001-02 because of the drought.
Some of the staff of the NR foundation have also instigated our members in a
village not to repay the loan of the Co-operative.”

Table 1: Progress of the Co-operative

(Amount in Rs.)
Particulars 1998-99 1999-00 2000-01 2001-02
Share Capital 11,900 11,900 1,38,520 NA
Reserve Fund 595 595 595 NA
Revolving Loan 3,79,228 2,36,828 NA NA
Members Savings 3,25,749 3,89,597 2,83,669 2,90,544
Loan Outstanding 4,27,201 5,50,915 6,54,698 7,14,198

Why the Separation?

“We have received so much support and help from the NR Foundation,”
acknowledged Ms. Savitaben, who is the Chairperson of the co-operative since
inception. Continuing further she said, “But we got separated because we had
so many problems with the staff of the NR Foundation who were dealing with us.
After our Co-operative was registered, the staff of the NR Foundation started
telling us that we have to follow only their suggestions and systems. The district
registrar was telling us that we must follow the co-operative procedures. They
were not able to understand our problems. We had to change all our ledgers and
make new entries. We opened our own savings account with the DCCB. All
these steps were questioned by the NR Foundation staff. We felt insulted.”

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“We made a complaint to the NR Foundation to change the staff. A meeting was
held at the NR Foundation to thrash out the differences. But nothing changed
despite the promise. Hence we decided to part company.”

Currently, the Co-operative has changed the bye-laws to suit the co-operative
system. The original bye-laws were framed by the staff of the NR foundation. The
auditor has made a suggestion to close the savings account jointly held with the
NR Foundation. The leaders are now taking guidance from the DCCB and the
district registrar.

The reasons given from the side of the NR Foundation for the separation are as
follows:

Ms. Sujatha, the Programme Manager of a Government Project who was co-
ordinating with the Co-operative disagreed with the views expressed by the
leaders. She said, “All the things have been pre-planned, be it the changeover
into the co-operative system or opening a savings account with the DCCB only in
the name of the Chairperson and the Secretary of the Co-operative. The
revolving fund given to the Co-operative and the SHGs has to be repaid. They
were not repaying it. By insisting that it has to be repaid, I was only doing my
duty, though I was new. The two leaders never changed and they started
dominating the whole ‘Bank’. Moreover, the staff of the NR Foundation, the
‘Bank’ leaders and the registrar never held any joint meeting while framing the
rules. Hence there is also lack of some clarity and consensus.”

The Co-Director of the NR Foundation said, “The women leaders seem to have
come under some local influence. They are not interacting with us probably
because they have not repaid the revolving loan fund to us. They must be
thinking that we will insist on repaying that money.”

To Ms. Parameet, the Senior Programme Executive, the reasons for the
separation are two-fold: First, there were frequent changes in staff of the NR

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Foundation dealing with the Co-operative. The new staff were not able to deal
with the Co-operative. Differences came up between the Project staff and the
leaders. Secondly, the leaders must have been influenced by some local
elements. The current Chairperson has become very powerful. She has also
become a member of the District Rural Development Agency (DRDA).

The Director of the NR Foundation summed up the whole episode in the

following way: “To be fair to everybody, our staff have not handled the
relationship well. There was frequent change of staff. The ILO Project had
stopped, we could not continue with all the staff. We wanted to support them as
our own institution. We wanted it to expand to cover larger area. Some local
people and politicians would have influenced the women leaders by telling them
that it is an adivasi institution and hence they would get all the government
support. Moreover, the women leaders must have thought that they may lose
control over the Co-operative, if the area of operation is expanded as planned by
us.”

New MFI

The NR Foundation has now promoted a large number of SHGs under various
programmes. They are planning to promote a new microfinance institution (MFI)
to serve all the SHGs in the entire district. They are exploring whether it should
be a co-operative institution or a Non-Banking Financial Company (NBFC).

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Questions for Discussion:

1. What seems to have gone wrong between the NGO and the MFI (Co-
operative)?

2. Who is to be blamed?

3. How to sort out the difference and re-establish the relationship between the
MFI and the NGO?

4. What precautions the NGO needs to take if they launch a new MFI?

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