By IMTFI researcher Rosina Nasir
In the present project, several SHGs were studied which differ in their composition and methods of formation. An attempt is made to determine the degree to which the concept of social capital has penetrated these groups, and its outcome as financial inclusion and development in the microfinance model. Field surveys were conducted in two phases. The first phase was used to identify different SHGs and private players in microfinance in Hyderabad and establish a working relationship with them. After visiting three SHGs, one was selected to pursue further study as it was formed voluntarily two years before its association in 2008 with Roshan Vikas Mutually Aided Cooperative Thrift Society. During the second phase information was collected through interviews and focus group discussions from SHGs – both homogenous and heterogenous – in the Charminar Area of Hyderabad with respect to their caste and religious-based affiliations. There were more than 15 groups, for an approximate sample size of 130 women in total. Photographic and voice-recording techniques were used for informal talks with the SHG team leader, loan officials and other members of the SHGs.
The Concept of Self Help Groups (SHGs) in IndiaThere are numerous types of self-help groups in low-income countries. The group formation may be facilitated by an NGO, by a Microfinance Institution (MFI), by a bank, or it may evolve from a traditional rotating savings and credit group (ROSCA). In the Indian context SHGs are largely referred to the SHG Linkage program initiated by the National Bank of Agriculture and Rural Developments (NABARD) as a pilot project in 1991-92 to promote rural access to banking services and target credit at some specific activities and certain disadvantaged groups. This program emphasises that financial inclusion is crucial for poverty alleviation, gender equality and empowerment. An SHG is an informal organisation of up to 20 people and is supposed to be homogenous with respect to class, caste and status to maintain group solidarity and to prevent clashes. They voluntarily and regularly create a pool of savings. These small savings are accumulated to serve as an internal source for lending to group members at a mutually agreed upon interest rate. This process teaches them financial discipline, organizational skills, and bookkeeping, and enhances their capability of managing their funds adeptly. With a good track record of financial and credit performance, SHGs are provided with loans by banks in response of their savings. Need acts as a magnet which attracts members to form groups, either to smooth their consumptions or to finance investment projects with extremely short gestation period. One may couple the concept of SHG with women and the poor predominantly of low caste as 90% of formed SHGs are composed of such individuals. SHG meetings help to expand trust wherein women engage in conversation with each other thus, strengthen social capital.
|Women gather to attend a weekly SHG meeting. Photo: Kabeer (researcher assistant)|
Case Study: Trust in Social Relations
A SHG was locally organized in 2008 with the efforts of its present leader, Mrs. Saleema, who works as a trainer in a seamster's centre. This group consists of 12 mostly lower-class Muslim women. Before, it comprised 15 members, but three members withdrew to either form or join another SHG. The leader also reported that these former members had not attended monthly meetings or made regular contributions, and thus with the unanimous decision of this group they were removed. However, these three women had been with the group for six months – the minimum period to show sustainability and solidarity and to become eligible for receiving of loan – and yet two months after they had left the group one by one. What were these women’s reasons for leaving? Were they discontented with the functioning of this group? Or was it due to intra-group problems, disputes with loan officers, or non-conducive interest rates on the loan product offered by Roshan Vikas?
Although the leader of the group gave me her explanations for why the women had either dropped out or been forced out, I was still interested in the perspectives and opinions from the other side. I tracked down one of the women who had dropped out named Rehana. After an in-depth investigation I discovered that kinship and social relationships are closely interwoven with the loan approval process. Rehana is the leader’s paternal cross-cousin, and she suspected that her application had been rejected as a repercussion for tensions in the family over financial matters. However, the loan officer explained that her application had been turned down because of her irregular attendance at group meetings and lapses in monthly savings. Rehana was unconvinced. Eventually she came to the conclusion that her loan application would never be entertained, and so she quit the group in disgust. Discussing Rehana’s case in the group leader’s absence, group members supported Rehana’s story that she chose to drop out due to continuous denial of her loan application, but the group leader explained that group members could not always speak their minds out of fear that their relationship with the loan applicant might sour as a result. After many meetings the group leader finally disclosed the truth that Rehana's financial condition was not sound and that lending her credit was a risky proposition that may have imposed a burden on the group if she defaulted. “Moreover,” she continued, “being my relative I would be held responsible for her default.”
|SHG women engaged in papad (papadam) entrepreneurial activities to earn livelihood. Photo: Kabeer (research assistant)|
Trust in financial institutions like banks is comparatively less. The question remains as to why SHG members distrust financial inclusion instruments like banks. Further exploration revealed that social capital in the present study is not constituted simply by trust but rather through ongoing need-based relationships whereby the trusted has substantial incentive to be trustworthy. The essential aspect of this ongoing relationship is instant fulfillment of financial contingencies, if they arise, without any collateral or documentary compulsions. This facility of acknowledging contingencies does not exist in banks. On the contrary, local moneylenders (LML) endure risk by showing trust in people after screening clients' portfolios, and lend money at an exorbitant interest rate. However, LML uses coercive recovery practices for delay in payment.
Trust is invariably associated with an element of risk, and the degree of risk is higher in the informal financial system (IFS) than in the formal one. Does high reliance on the informal financial system demonstrate the risk-taking abilities of people? Why are people keen to take risk particularly when formal financial institutions provide safer products? Can one connect the practice of informal saving to maxims suggesting that wealth and women should be masked as they are prone to get ruined if they come in contact with the evil eye? In other words, do people make use of informal financial system to multiply and hide wealth? I achieved insight regarding this question while researching the social representations of saving. I started with the assumption that the notion of “living for the moment” or the notion that material things can lead to happiness encourages consumption and retards saving behaviour in a society. I cannot deny the impact of this notion in my study. However, I found something otherwise.
Informal saving is predominantly found in nuclear families and does not discriminate as to class. It was found that educated and high income families prefer informal financial system for saving, too. Compulsion to use informal savings in low income families is understandable as they have to accomplish everyday sundry needs and maintain social status. Their purpose to participate in IFS is limited and is practiced to ease out their consumption. On the other hand, there is no such compulsion on high income families. Instead, they rotate money in informal market and multiply it through exorbitant interest rates. Their sole purpose is to accumulate savings and further lend money at high interest. In IFS people lend money at interest rates ranging from 5 to 10 percent per month on every dollar. One may infer that trust facilitates the creation of wealth in informal financial system but with a caveat of risk. Trust should not be seen in isolation. Definitions of trust change with needs. People give priority to their needs and pivot trust around it. Due to this reason, people prioritize the need of making high profit and exhibiting trust around instruments and systems that do so despite of financial insecurity and uncertainty.
Need alters people’s traditional perspective on financial matters. Due to prohibitions on usury, lending and borrowing is forbidden in Islam. However, Muslim SHG members challenged this restriction with an argument about rationality and contextuality. Even though usury exists in many financial instruments, Muslim women are not opposed to using them. According to them, survival and basic needs come first. This research concluded that the source of social capital does not exist in inherent trust cultivated through interaction, but rather in ongoing need-based relationships which shape an environment of trust and thus creates social capital. The concept of social capital in SHGs is interpreted as a medium of financial inclusion and empowerment of women. Real empowerment exists in financial independence and participation in work activities which can assure less instances of default and the sustainability of SHGs.
Thierry van Bastelaer (2000): Imperfect Information, Social Capital and the Poor’s Access to Credit. www.gdrc.org/icm/sk-and-mf.pdf