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: Ajith D and Bhagirath

Organisation: Malabar Regional Co-operative Milk Producers’ Union Ltd.,
Kozhikode
Reporting Officer: Mr. G. Selvakumar, CEO, Malabar Rural Development Foundation
Faculty Guide: Prof. Prabal K. Sen
Project Title: 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.

ii
 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)

iii
 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

iv
 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

v
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 micro-

enterprises. 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 Co-

operative 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 1996-

2001, 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. 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.

3.2 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 five-

point 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 co-

operatives. 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 co-

operation (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 office-

bearers 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 Co-
operatives. 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 Definitely Generally Slightly

Not Important
Important Important Important 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 Moderately Undecided Moderately Completely

Satisfied Satisfied Dissatisfied Dissatisfied
Savings/Deposits
Completely Moderately  Undecided  Moderately Completely 
Frequency of Collection 
Satisfied Satisfied Dissatisfied Dissatisfied
Receipts
MeetingsSlip (if any)     

Location
Max./Min. Amount          

Attendance
Withdrawal          

Repayment
Interest of     
    
Loan
Credit
Accounts
Timeliness/Speed
Regular entries of Sanctioning     
    

Priority
Accuracy for Credit     
    

Maximum Amount
Transparency     
    

Guarantee/other
Procedure collateral     
    
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
Voluntary & Open Membership

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     

Democratic Member Control

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     

Member Economic Participation

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     
E. Principles of Co-operation (continued)

SA A I D SD
Autonomy and Independence

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     

Education, Training and Information

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

Co-operation among Co-operatives

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

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’

INDEX
SATISFACTION VARIABLES
FUNCTIONAL DEFUNCT
Meetings
Location 97.33 99.33
Attendance 81.33 95.33
Repayment of Loans 100.00 86.67
Accounts
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
Monitoring
Auditing 97.33 47.33
Inspection by facilitators 96.67 52.00
Frequency of checking/updating 78.00 50.00
 APPENDIX IV: SATISFACTION INDICES FOR ‘BENEFITS OF
THRIFT GROUP’

INDEX
SATISFACTION VARIABLES
FUNCTIONAL DEFUNCT
Savings/Deposits
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
Credit
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
Other Benefits
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
APPENDIX V: PROPORTION OF RESPONSES FOR ‘PRINCIPLES OF
CO-OPERATION’

(All figures in percentages)

Statement No. SA A I D SD
F (Functional) 100.00 - - - -
1
D (Defunct) 100.00 - - - -
F 100.00 - - - -
2
D 100.00 - - - -
F 100.00 - - - -
3
D 100.00 - - - -
F 100.00 - - - -
4
D 100.00 - - - -
F 100.00 - - - -
5
D 100.00 - - - -
F 100.00 - - - -
6
D 100.00 - - - -
F 96.67 3.33 - - -
7
D 100.00 - - - -
F 100.00 - - - -
8
D 100.00 - - - -
F 100.00 - - - -
9
D 93.33 6.67 - - -
F 90.00 10.00 - - -
10
D 43.33 43.33 13.33 - -
F 70.00 30.00 - - -
11
D 40.00 60.00 - - -
F 100.00 - - - -
12
D 96.67 3.33 - - -
F 100.00 - - - -
13
D 100.00 - - - -
F 100.00 - - - -
14
D 100.00 - - - -
F 96.67 3.33 - - -
15
D 100.00 - - - -
F 100.00 - - - -
16
D 100.00 - - - -
F 36.67 63.33 - - -
17
D 33.33 66.67 - - -
 APPENDIX V CONTD.

(All figures in percentages)

Statement No. SA A I D SD
F (Functional) 90.00 10.00 - - -
18
D (Defunct) 70.00 30.00 - - -
F 33.33 46.67 - 20.00 -
19
D 46.67 53.33 - - -
F 96.67 3.33 - - -
20
D 66.67 3.33 6.67 23.33 -
F 93.33 6.67 - - -
21
D 66.67 10.00 10.00 13.33 -
F 23.33 63.33 - 13.33 -
22
D - 6.67 26.67 60.00 6.67
F 30.00 33.33 33.33 3.33 -
23
D 3.33 26.67 33.33 36.67 -
F 30.00 20.00 16.67 23.33 10.00
24
D 100.00 - - - -
F 86.67 13.33 - - -
25
D 96.67 3.33 - - -
F 100.00 - - - -
26
D 100.00 - - - -
F 26.67 43.33 3.33 26.67 -
27
D - 6.67 26.67 66.67 -
F 100.00 - - - -
28
D 100.00 - - - -
F 90.00 6.67 3.33 - -
29
D 96.67 3.33 - - -
F 100.00 - - - -
30
D 96.67 3.33 - - -
F 36.67 50.00 13.33 - -
31
D - - 13.33 53.33 33.33
F 100.00 - - - -
32
D 100.00 - - - -
F 20.00 43.33 36.67 - -
33
D 13.33 40.00 46.67 - -

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