by Dr. B. G. Mukhopadhyay
Tuesday, December 13, 2005
Corporate Social Responsibility (CSR) has become an old hat, which has lost its shape as different authors have used it differently in different context. Even though, I do not fully agree with Milton Friedman?s viewpoint on monetary economics, but his views on corporate social responsibility is quite appealing to me and somewhat seductive. He is of the view that the purpose of the business is to make profit and there is no ambiguity in it. One should do one?s business following the rules of the game and the ethics and morality go along with it. Hence, the corporates will make profit in the business is nothing new nor anybody should be ashamed on it. I also hold the same view that the corporates should do the business ethically and obviously the profit should be the bottom-line. In this framework, how does CSR fit into it? And that too in the elimination of poverty. I would like to argue that the corporates need not go with the total altruistic view to serve the rural poor with a philanthropic bent op mind. But they should see rural poor and rural India as a market and they can adequately profit by doing business with them, the way they do with other organised sector, the urban area and metropolis. This is not to argue that altruism and philanthropy do not have any place in this world but it need not be mixed up with hardcore business. I would like to take upon the issue of rural microFinance where we have seen that the banks and the Micro Finance Institutions (MFIs) can provide the financial services like savings, thrift and insurance to the poorest of the poor in a market driven approach without subsidy and directed credit and yet they can make profit out of it. The organization which I belong viz. National Bank for Agriculture and Rural Development (NABARD), has done the phenomenal experiment on providing finance to the rural poor through Self Help Group (SHG) approach and it has been a successful endeavour which is borne out by the fact that today almost 1.6 million SHGs which are linked to the banking system have succeeded in providing savings and credit services to the poorest of the poor women at market rate without any form of subsidies associated with these loans.
It is everybody?s knowledge that credit is required at every moment of our life from cradle to grave i.e. from birth to death and nobody can deny that the formal financial system in our country has not been able to provide financial services to the required amount till date, despite the branch network of commercial banks, cooperatives banks and Regional Rural Banks. It is a matter of great pride that today there are about 60,000 retail credit outlets of the formal banking sector comprising 12,000 branches of District level Cooperative Banks, 14,000 branches of Regional Rural Banks and over 30,000 rural and semi-urban branches of commercial banks besides 90,000 cooperative credit societies at the village level. There is at least one retail credit outlet on average for about 5,000 rural people or every 1000 household. The physical outreach of our institutional banking network is fairly extensive in our country and it can be considered as an achievement. But when we consider providing financial services to the poorest of the poor, this is not adequate.
The poor need financial services to help manage their life and livelihood, which are complex, diverse, dynamic and vulnerable and the poor want their financial services to respond by being reliable, flexible, continuous and convenient. This has been the views of Murdoch and Rutherford, two eminent micro Finance professionals. Taking an estimate of poor households in India as 50 million, the total demand for credit comes to around Rs.150 to 450 billion. The supply of credit, however, has not been commensurate with this demand. It has rather been declining at least from the commercial banks? side. The proportion of bank credit below Rs.25,000 has declined steadily from 18.3% of total scheduled Commercial Bank credit in 1994 to 5.3% by March 2002. The number of borrower accounts has reduced from 55.8 million to 37.3 million. Thus, there is a large-scale gap between the demand and supply position and the formal financial sector has almost failed to reach the unreached section of the rural poor.
The all-India Debt and Investment survey (Government of India), 1992 have indicated that the share of non-institutional agencies (informal sector) in the outstanding cash dues of the rural households was quite high and it was 36%. It was also seen that households in the lower asset groups were more dependent on the non-institutional credit agencies. The share of debt from the non-institutional credit agencies was a whopping 58% in the case of the lowest asset groups of less than Rs.5,000/- as against a low of 19% in the highest asset group of Rs.2.5 lakh and above (as on 30 June 1998).
The main hurdle faced by the banks in financing the very poor was the high transaction cost in reaching out to a large number of borrowers who require credit at small dosses with frequent intervals and they are scattered in the rural area. A single man branch does not have any incentive to serve these scattered borrowers with high transaction cost and the risk that goes with financing the poor. The poor were also totally scared to reach the corridors of organised banking and this created a barrier between the banker and the poor which has increased day by day. In fact, the poor were not considered bankable, creditworthy and there was no trust that they can also repay the loan, just like corporate borrowers.
It is against this background, NABARD started the experiment in the form of action research to reach those unreached section in the form of Self Help Group ? Bank Linkage Programme in 1989 in selected pilot districts. The basic idea of SHG approach was to form a group of 10 to 15 members who come from the poorest strata of the society and they are organised around a common interest, which is shared, by each one of the members in a group. The members of the group are homogeneous, from the same socio-economic strata of the society and they have similar experience of poverty, living condition, same kind of livelihood and belonging to the same community and the place of origin. Through holding meetings in the groups through dialogues and discourse, the group develops cohesiveness and they form a platform to bring their small savings and thrift in the form of a small amount and they devise their own norms to give it to the most needy person in order of priority with a particular rate of interest and repayment reschedule. When the group becomes sufficiently mature in about 5 or 6 months, they are linked up with the banks in the form of small Savings Accounts in the Group?s name and once they become eligible from the bank as per NABARD?s norms, they borrow from the banking institution for their different consumption and production requirements. The Groups frame their own rules as regards common agreement on when to meet, decision on time and place of meeting, agreed penalties for non-attendance, agreement on amount of saving, giving small loans to each others and taking loans from banks and repayment habits. The Groups are helped through an NGO or a facilitator as to how they should hold the meeting, their record keeping, transacting with the banks, keeping the registers, members? passbooks and helping them in solving their problems. This experiment, which started in 1989, was reviewed in 1992 and the findings led to setting up of the pilot project for promoting SHG-Bank Linkage Programme, which was extended throughout the country later on. The basic conceptual thinking behind the SHG philosophy and the Bank Linkage could be summarised as under:
? Self Help supplemented with mutual help can be a powerful vehicle for the poor?s effort towards socio-economic upward transition
? Participative financial services management is more efficient and responsive.
? Poor can save and are bankable
? The mismatch between the expectations of the poor and capabilities of the formal banking system needs to be minimised
? Poor need not only credit support but also savings and other services
? Small affinity groups of the poor, with initial outside support, can effectively manage and supervise micro credit among their members
? Collective wisdom of the group and peer pressure are valuable collateral substitutes
? SHGs could be a pr-micro enterprise stage for a majority of rural poor
? SHGs as client facilitate wider outreach, lower transaction cost and much lower risk costs and
? Empowerment of poor especially of poor women, is a major outcome.
The programme has come a long way from the piliot stage of financing 500 SHGs to 1.6 million SHGs as of date. It has been linked to 35000 odd bank branches in 563 districts across 29 States of the Indian union. Cumulatively, they have so far accessed credit worth of Rs.6.86 billion. About 24 million poor households have gained access to the formal banking system through the programme.
Leaving aside the quantative achievement, microFinance through Self Help Groups has reduced the incidence of poverty through increase in income, enable the poor to build up their assets and reduce their vulnerability.
? It has helped in empowering the poor rural woman and reduced the dropouts of children in the school.
? It has contributed in increasing household income and the assets of the members.
? In certain areas, it has reduced child mortality, improved maternal health and the ability of the poor to combat disease through better nutrition, housing and health, especially among women and children. It has reduced dependency on informal moneylenders and other non-institutional sources.
? It has facilitated in widening the access of financial services for the poor
? And to top it all, it has all been achieved without subsidy and charity.
Even the banks, which have financed SHGs as against the branches, which have not financed SHGs, there is a significant differences between return on assets, Non-Performing Assets and recovery rate between the SHG branch and non-SHG branch, which can be seen from the following table:
Particulars Traditional product SHGs
Type of population covered Mix of clients Unbanked poor
No. of clients reached 201,000 (in 20 years) 98,500 (in 4 Years)
Recovery rates 68% 96%
NPAs 10.01% Zero
Return on Assets -1.7% 2.5%
Product Credit per se Savings linked
Other Intangibles Limited Many
The study has clearly confirmed the ability of SHG product to enhance its outreach with good Return to Asset Ratio. It has also improved the profitability of the branches, developed a good customer relationship and the benefits at village level include spreading of thrift and financial self-reliance and an excellent repayment ethic.
The key learning from this experiment of providing financial services to the poor through SHG-Bank Linkage Programme is that the poor are bankable and they are as ethical in repayment as the good corporate borrowers. They are not dependent on subsidies or charities here but the bank has recognised them as clients and they are responding to this initiative as a true client and it has helped in alleviation of poverty where the outreach of the programme is extensive. The main point is that we must look at the rural poor as market and we must do everything to integrate them to wider national and international market. It is profitable, a good business proposition and it would be a sound strategy by any corporate to look into the rural India in the same outlook. But you have to make a choice. Are you making this fundamental choice by shifting your paradigm to look to the poor and rural as your partner not as the passive recipients of your doles and subsidies. They don?t need it i.e. the storyline of our SHG-Bank Linkage experiment of banking with the poor.