The Hindu Business Line : Turning SHGs into sustainable business enterprises

THERE is a surfeit of Self-Help Groups (SHGs) in the country. According to the National Bank for Agriculture and Rural Development (NABARD), up until March Rs 6,898 crore had been advanced to these groups, benefiting about three crore persons.

But the micro-finance strategy has problems that need to be addressed if the SHGs are to be sustainable. SHGs try to increase the output of labour-intensive products such as baskets, milk and textiles. But the increase in supply leads to lower prices, thus benefiting the urban consumer, while the SHG members continue to get the same daily wages.

Consider the case of a group of micro-entrepreneurs in a slum in Bangalore, who made kerosene pumps out of tin sheets.

Previously they bought tin sheets from local dealers who in turn bought rejected sheets from a canister-making factory. A well-meaning college lecturer suggested that the slum-dwellers form an SHG and buy the sheets directly from the canister factory. On doing so the entrepreneurs were able to buy the sheets at Rs 110 instead of Rs 130 and as a result, their margins increased. But within two weeks the price of the pump in the market declined from Rs 15 to Rs 13. It so happened that a member of the SHG asked the trader for an advance.

The latter agreed but on the condition that the SHG supplied the pump to him at Rs 13. This news spread to other dealers and the price of the pumps declined across the board.

Consider another example, where an NGO in Phalodi, Rajasthan, helped form a cooperative of weavers. The NGO supplied the weavers with yarn and designs. The NGO had taken a loan at subsidised rates of interest and also some grants to cover its operational costs.

The market was tight and the cooperative was facing difficulties in selling its goods. But it managed because it had access to subsidies. The NGO was able to sell the sheets at prices lower than the weavers. The increased supply of sheets by the NGO lowered the price in the market and the earnings of the weavers remained flat. The beneficiary of the subsidy was the urban consumer.

Worse, the weavers were deprived of their livelihood. Till a few years ago there were many weavers who were making these particular sheets that Phalodi was famous for. At the time of the survey, which was conducted in 2001, only two or three persons were engaged in the trade. Enquiries revealed that the daily earnings had declined from Rs 100 to Rs 70 leading to many abandoning the trade. So, ultimately, the subsidy provided by the donor robbed the weavers of their livelihood. Subsidy-led production killed the self-dependent producer.

It is, therefore, important to first increase the demand for labour-intensive products before increasing the supply.

Another problem is to do with capability of the key person in the SHG. The slum dwellers of Bangalore were paying an interest of Rs 1.25 per week on a loan of Rs 20, which works out to 325 per cent per annum.

Following a difference of opinion between the borrowers and the moneylender, the lecturer suggested that they create their own money-lending SHG.

The members contributed Rs 500 and the lecturer gave a matching grant. The loan taken from the moneylender was repaid and the SHG started to give loans. The rate of interest reduced to 80 paise a week.

Within six months the capital of the SHG swelled to Rs 2,500. Every Sunday the lecturer would write the accounts for the SHG, ensure collection of dues, and allocate the capital among different claimants.

Prof Ravi Matthai of the Indian Institute of Management, Ahmedabad, initiated a rural development project in the Jawaja block of Beawar district of Rajasthan in the 1970s.

His team started cultivation of tomatoes in the area. Some former students were recruited in the project. They tied up with the National Agricultural Cooperative Marketing Federation of India in New Delhi for the sale of tomatoes and the project took off well. But after the IIM graduate left, on getting another job, the person who replaced him was not able to manage the project. That was the end of the SHG.

For an SHG to succeed, it is vital that it is headed by a person with good social and business abilities. He should be able to handle inter-personal relationships and have the business acumen. NABARD should, therefore, make two changes in its strategy.

sOne, it should work with the government to increase the demand for labour-intensive goods made by the SHGs. The increased demand will lead to higher prices and incomes for the workers.

Two, it should work with individual micro-entrepreneurs who have the business ability and it should not place the burden of social management on the SHG members.

The SHGs are likely to survive only as long as social management support is provided through donor support.

(The author is a New Delhi-based freelance writer. Feedback may be sent to bharatj@nda.vsnl.net.in)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Farm output concerns

How much should a 3G licence cost?

Ensuring equal opportunity — It is all in quality schools

Boosting fee-based income — Allow banks to hard-sell priced services

Economics of demography

Turning SHGs into sustainable business enterprises

`If stocks had moved from pitheads, there would not have been shortage' — Mr Shashi Kumar, Coal India Chairman

Disaster management in shallow waters

Credit card guidelines