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P. Devarajan

A PILOT project to offer bank funds to small and marginal farmers and village artisans has been recently seeded by Nabard (National Bank for Agriculture and Rural Development), going by the Report on Trend and Progress of Banking in India, 2003-04.

The project, styled Joint Liability Group (JLG), talked over through last year, is now in place.

It is based on a game plan adopted by Bank of Agriculture and Agricultural Co-operatives of Thailand with suitable local corrections.

The group of borrowers need large size loans and quite a large number of them are tenant farmers/oral lessees, who have no collaterals and thus "do not fit into the traditional financing approaches of the banking system," says the RBI report.

The pilot project on financing JLGs aims "to evolve supplementary credit technologies to facilitate smoother flow of quality credit to mid-segment credit takers by assisting establishment and financing JLGs."

It also aims to build mutual trust between bankers and small, nameless clients in the rural areas and is indeed an important financial initiative.

A JLG is an assembly of 5-10 member clients (new or existing) informally recognised by the bank as a group.

Members of JLG offer an undertaking to the bank "that enables them to jointly receive such amounts as deemed eligible by the bank for pursuing individual or joint activities as found suitable by the group."

The project was launched in the later half of 2003-04 in eight regional rural banks (RRBs).

The report contends "the initial results have been quite encouraging" going by the experience of the Pandyan Grama Bank in Tamil Nadu, which extended small loans to over 500 clients for fisheries, agriculture and petty trade by financing 105 JLGs with loans of over Rs 1 crore.

Seemingly, Nabard is impressed and could scale up the programme, which could help the rural folk who have nothing but themselves to offer as collateral.

The JLG is an upgradation of the SHG-bank linkage programme which has caught on with the country's poor and has been doing better than the wasteful subsidies and doles (the poor do not want to live on taxpayers' charity) going by various names.

Some 563 districts in all the States have been covered under this programme, while 560 banks including 48 commercial banks, 196 RRBs and 316 co-operative banks along with 3,024 NGOs are now tuned in.

The number of SHGs linked to banks was 10,79,091 as on March 31, 2004, which translates into an estimated 16.7 million poor families being inducted into banking channels; 90 per cent of the groups are exclusively women groups.

Cumulative disbursement of bank loans to these SHGs stood at Rs 3,904 crore as on March 31, with an average loan per SHG being Rs 36,179 and Rs 2,412 a family.

Three models are at work: SHGs formed and financed by banks, SHGs formed by NGOs/government agencies and financed by banks and SHGs financed by banks using NGOs, formal agencies as financial intermediaries.

Of the three, the second option is most acceptable with the number of SHGs placed at 7,77,326 and the total funding put at Rs 3,164.72 crore.

By its own admission, the RBI report says: "The SHG-bank linkage programme has been positioned in the banking system as a commercial proposition with advantages of lower transaction costs, near zero NPAs and generation of goodwill among the rural clientele for the bank branches leading to other quantifiable benefits in business expansion."

But the bad news is that New Delhi wants to stifle the movement by regulating the experiment when the best thing is to let the movement turn strong on its own.

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Joint Liability Group: A key initiative

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