Self Help Group potential can boost rural production and consumption

By Hari Hara Mishra

In the last Rs 1.76 lakh crore stimulus package announced by the union finance minister to fight COVID 19, one of the announcements included doubling collateral free loans to women Self Help Groups (SHGs) from Rs 10 lakh to Rs 20 lakh. This will help 63 lakh SHGs covering 7 crore families, as per the announcement. The measure announced has the potential to have a substantial impact on the rural economy. The following example will indicate how a well-supported SHG framework can be a game changer.

Face masks, the first shield against current COVID 19 is in short supply. As per report of ministry of rural development, more than 132 lakh masks have been produced by 14,522 SHGs involving 65,936 members in 399 districts, spread across 24 states of India, in just a period of 15 days from March 15 to March 30, 2020. Further, as these are being produced at decentralised way in various centres across all the states of India in 399 districts, i.e. more than half of all districts across India. The masks will reach intended target group faster, without much logistics and transportation issue. This is the power of SHGs which can play a significant role in India.

For those who are not familiar with SHG, it is a voluntary group of 10-20 people having similar socio-economic background in small contiguous area who operate on the principles of self-help, solidarity and mutual interest. They pool their little savings and manage their credit needs. There are three distinct characteristics, which are unique in SHG, different from traditional lending.

  • Acceptance of these informal groups both for accepting deposits and credit delivery
  • Lending without specification of purpose, activity or project
  • All loans are collateral free.

Normally loans are given as a ratio of 1:4 (deposit:loan), i.e. loans generally are 4 times to savings, which may go up after successful track records. As per NABARD report, as on March 31, 2019, there were almost one crore SHGs in India covering 12 crore families with deposits of Rs 23,324 crore. Out of this 50% SHGs (50.77 lacs) had availed credit with loans with outstanding of Rs 87,098 crore.

Now, let us have a look at Women only SHGs, for which this announcement of Rs 20 lakh collateral free loan has been announced by the Finance Minister.

There are 44.61 lac women SHGs as on March 2019, and had loan outstanding of Rs 79,232 crore. Out of this portfolio, only Rs 3,605 crore is Non-Performing Assets(NPA). So, women SHGs have a gross NPA ratio of 4.5%. This is less than half of Gross NPA %, in Indian banking system as a whole. as on last fiscal.

As per data above, the average loan ticket size comes to around Rs 1.80 lakh. No data is available, how many of those loans are in the threshold bracket of around Rs 10 lakh and who will be immediate beneficiary in respect of the current announcement. But hopefully, bankers will not only go by the letters, but by the underlying spirit. They will have a liberalised approach to this social inclusion loan product with least default, to give a boost to rural demand and consumption. These loans, as mentioned above are purpose neutral, i.e. can be both for production as well as consumption.

Post lockdown, there is an imperative need for economic revival and reconstruction. Each SHG loan sanctioned or enhanced, will either facilitate spending or investment- the twin engines for driving an economy. These small loans with much lower default than industry average, encompassing 12 crore families, have the potential to bring in huge socio-economic transformation.

(The writer is an ex-banker. Views personal)

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