-by Pranshu Raghuvanshi
There exists a vast scope of saving in rural areas. The only thing which inhibits these savings is the absence of avenues to save. The potential of savings in unbanked areas can be seen in the form of incomplete houses. Poor people tend to save by building a house in parts. When they have excess money the build an additional wall or a room of the house. Hence, one can see a lot of incomplete houses in rural and semi-urban areas. Poor people do not have enough money to build a complete house.[i] On the other, they cannot save money in other forms to build a house in one go because they lack avenues to save like a bank account. Saving cash in the house too does not work as it is consumed in emergencies or consumed in temptation. When the capital is locked in house bricks, poor looks for alternatives to fulfil the requirements of the emergent situations. Hence, generating avenues for saving can lead to the mobilisation of savings of the poor.
Banks incur administrative costs in the maintenance of accounts. If accounts are unused, have a low balance or show zero transactions, it incurs a cost on the bank. Hence, banks are not interested in maintaining such accounts. These accounts like those in Jan Dhan Yojana are created through special policies of the government and not due to selfless efforts of the banks. However, when women/men come together and create an account in the name of the group, banks are inclined to open such accounts because compared to individuals the SHGs accounts have a larger sum of money as well as adds to goodwill of the bank. Deposit and withdrawals are regular too from these accounts and as a result, the administrative cost of maintaining these accounts is low. A study conducted by the Dupas and Robinson in Kenya, which can be said valid for poor people in villages all over the developing world, suggests that even when free accounts were opened in their name the villagers did not use the same due to several factors. While 40% of women did not make a single deposit, less than 50% of them made it more than once of whom many stopped after a while.
On this parameter, too Self-Help Groups(SHG) is a better, convenient and practical mode of Financial Inclusion. The SHG account has a better transaction rate when compared to individual accounts because not every member of the SHG will behave idle in terms of accessing the bank account. Also, since SHGs save money every month and internal borrowing is a regular feature of SHGs, the possibility of the account being dormant is low. They are a good tool for mobilisation of savings of the poor. Individuals can save in the group, borrow it later to fulfil their long term goals and deposit the same again in the form of savings which can be utilised for further long term goals. Thus, creating a virtuous cycle and coming out of the poverty trap. Members of the group save weekly or monthly, these savings get accumulated which is later utilised to fund their production and other needs. The interest paid by them is again owned by the group and not by any external agency like in case of loans taken from MFIs, banks and other financial institutions. These members slowly come out of their debt trap and poverty because there is no need to borrow money from local moneylenders who charge exorbitant rate of interest, force the farmers to sell their produce right after harvest when market prices are low because of excess supply and farmers are short of cash to repay the loan. The moneylenders, in this case, buy the produce at low prices, hoard the same and sell them in the market when prices rise.
Another problem with farmers, that came out in the research work done by Abhijeet Banerjee and Esther Duflo is that more often than not farmers have enough money to buy fertilizers and good seeds right after harvest but not when the planting season starts. All that is earned after harvest is spent before planting season due to a lack of saving opportunities. Some farmers do buy fertilizers and good quality seeds right after harvest, but these numbers are few. Hence, due to lack of financial inclusion agricultural productivity is also impacted which reduces farm income. The SHGs have the potential to increase agricultural productivity by providing funds to the farmers for buying essential fertilizers (organic or otherwise as per their needs and practice) and good quality seeds before the planting season starts.
A primary study done by me in the Dholpur district of Rajasthan and Barabanki district of Uttar Pradesh reveals that most of the internal lending in SHGs is done for productive purposes which include giving loans for agriculture before the planting season starts. In the Dholpur district of Rajasthan, I contacted several SHGs over two weeks in Madanpura Panchayat of Sir Mathura block. Members of 15 SHGs were interviewed. The most common response was that after the formation of SHGs their income and living standards have increased. It has enabled them to save compulsorily which was not the case earlier. Now women can save up to Rs.100 a month from the same amount of money which they received from their husband for household expenditure. Thus, the argument made by Banerjee and Duflo that the poor can compromise on temptations to save holds empirical ground. SHG model is a successful tool to realise this objective.
As far as agriculture is concerned, the primary study done in several villages of Sidhaur block in Barabanki district tells us that the SHG model can be a satisfactory tool to solve several problems encountered by the farmers. The SHGs in these villages are very young ranging from 6 months to 3 years. Women of 9 SHGs participated in focus group discussions and personal interviews. The members now borrow from the group itself and do not approach local moneylenders who use to charge him an interest rate of 36%. This result of even young SHGs is encouraging. The SHGs have provided them with a relief where they can borrow from the pool of their savings. These loans also offer flexibility. The repayment schedule is made flexible in case of an emergency which was not the case earlier and farmers use to pay in kind to the moneylenders when the prices were low right after harvest. Not only it saves the poor from the clutches of moneylenders but it also gives them the required finances for agriculture and other allied activities at the appropriate time. The majority of the loans given by SHGs in Barabanki too were for the productive purpose among which agriculture stood first followed by loans for the purchase of cattle and those given for emergencies like health.
Saving is key to economic well being. What we save today is translated into an investment which helps in realising increased income tomorrow. Savings in a way improve the economic condition and increases living standards. Where there is no institutional mechanism for savings, SHG can be a good model for compulsory saving because as Banerjee and Duflo correctly argue, savings without any mechanism is hard to achieve as temptation comes into play which leads to wasteful expenditures(Duflo 2011).[ii] SHG is not only a tool for regular saving but can be a panacea for several rural problems. SHGs have the potential to address the issue of poverty through a participatory approach. It is a long-lasting, sustainable and democratic approach to attack poverty. The only challenge which has to be addressed from outside, by the government agencies is that of creating and sustaining homogenous SHGs that can autonomously function for a long term without any external pressure or domination by a single or few members of the groups themselves.
The views are personal.
Image Courtesy: Qrius.
ABOUT THE AUTHOR
Pranshu Raghuvanshi is a currently pursuing Masters of Public Policy from National Law School of India University, Bengaluru. The piece is an excerpt from author’s Postgraduate dissertation.
[i] Duflo, Esther & Abhijeet Banerjee. 2011. Poor Economics. Accessed May 07, 2020. Reluctant Entrepreneur Pg. 269-300
[ii] Ibid at Pg. 301-344