Can credit alone promote livelihoods of the poor without power and all-round development?

The concern for livelihood promotion is not new. What jolted me into writing this paper is the sudden burst in e-mails all stating that ‘livelihoods of the poor is an emerging sector’ and ‘fast growing’. Most of these emails originate from people involved with Microfinance Institutions or engaged as consultants. Let us set the record straight. Programmes to promote livelihoods for the poor ‘emerged’ long ago. The Integrated Rural Development Programme (which was launched in 1976) with its many sister programmes like trysem, dwcra[1], had this objective. The sudden burst of e-mails, therefore, about ‘livelihoods of the poor’ as an ‘emerging’ sector appears to originate from the realm of consultants, internet virtual warriors and microfinance service providers who have not been involved in the development sector till recently. Amongst those who have discovered that livelihood options are emerging are those engaged in major Microfinance Institutions whose driving force, during the past few years, has been growth - but mainly in the loan portfolio and in profits - and who have had little experience of promoting livelihood options at the village level, of helping to reduce risks taken by the poor in investments and of building the skills and confidence of the poor to be able to overcome the obstacles preventing them to access and use these livelihood options to their advantage.

Not only have programmes for livelihoods of the poor emerged on the ground long ago, they have been ‘fast growing’ on the ground for the last 15 years at least. This growth has been fuelled not only by Government or mfis, but mainly by the rapid growth of the economy. One has only to scan the number and scale of livelihood options (especially in the so-called unorganised and ‘grey’ sectors) that have opened up due to overall growth of the economy to realise the latter’s impact on livelihoods - though it may be more significant in certain parts of the country. Whether the majority of the poor are equipped to make use of these opportunities to their advantage and whether they can do so without being exploited, is another matter. There is ample evidence that many are not able to make use of these opportunities, but the causes for this inadequacy, where it occurs, lie elsewhere[2]; they have little to do with credit availability.

2. What are the reasons for this recent bubble of concern regarding the need to promote livelihoods for the poor?

The opinion gaining ground in development circles is that the recent concern for livelihood promotion is coming from: i) a group of mfis for their own organisational reasons, ii) from a project component called ‘livelihood promotion’ which in some cases is the major or core sector in design and in others is added on to Multilateral/Bilateral programmes which primarily focus on management of watersheds and natural resources but which came under criticism for neglecting the landless; hence a major allocation was made for ‘livelihoods’ and, iii) from evidence that credit alone is not sufficient to eradicate/mitigate poverty. Let us consider each of these three.

i. Microfinance Institutions: The group of mfis who are now turning to ‘livelihoods’ is composed largely of those who have focused on ‘growth’ because they have been driven or motivated by:

· Their own organisational demands to cope with increasing defaults. After responding to a quick growth model - in terms of outstanding portfolio and numbers of clients - the mfis have realised that the ‘products’ which they developed and on the basis of which loans were extended were often not manageable by their clients; many of the ‘wise’ clients used part of the loans for their immediate needs which did not figure on the list of ‘livelihood products’ and which in turn reduced the level of investment on the identified product for which the loan was given; defaults increased.

· The pressure from financing institutions, an increasing number of whom are private institutional investors from abroad - to advance larger loans for livelihoods so as to achieve an annual growth targets of up to 170% in some cases, in order to prove that they are eradicating poverty through livelihood promotion and doing it ‘fast’; and finally in order to meet the requirements of the rbi for the level of investment in the priority sector which is largely rural based where these private financial institutions do not have a presence. Once again, this pressure to increase the size of loans and to do it fast increases the risk, lowers the level of appraisals, and is beginning to show up in the decline in repayments.

· With the rapidly growing default rate, the mfis and Financial Institutions are also increasingly worried about repayments. Hence the concern now to promote ‘livelihoods’ which are viable as investment opportunities for micro finance. This scenario is strikingly familiar. Does it not resemble the sub-prime mortgage fiasco that is unfurling in the usa from where much of the inspiration that drives these local mfis has originated? Aggressive banks pushed loans to clients for purchase of houses. People were able to access loans larger than their credit standing would justify. Ditto in India. They failed to pay back in the US and are failing in India. When prices of houses fell below the threshold in the US, financial institutions were forced to cut back credit not only to the housing sector but to other sectors as well. It all started with ‘greedy’ Bankers who presented their strategy as ‘new and far ahead of its times’.

ii. Livelihoods components in Bilateral/Multilateral funded projects: This pressure to promote livelihoods has also come from a project component in many Bilateral and Multilateral Programmes, which provides significant funds for promotion of ‘livelihoods’ within a given time fame - usually 2-3 years if the livelihood component is an added on or 4-5 years it is the core component in design. The strategy adopted is to start either with engaging consultants to conduct surveys - the output is very similar to the irdp list of products - or to start with training or what is called Enterprise Development Programmes which tend to have five features: i) conduct surveys by contracted organisations to identify potential for enterprises and shortlist them, ii) conduct classroom training programmes in skills for non-farm/on-off farm enterprises for people who are selected by the project staff or who opt to join; there is very little or no exposure to similar enterprises being carried out in the field by individual entrepreneurs or actual field simulation exercises, iii) focus on financial management, iv) provide training to add value and scale - once again in the class room, and v) the training is provided by consultants/ngos who have had no or little experience in actually managing an enterprise. What they end up doing usually is another story which will be discussed later.

iii. Limits of Microfinance: The growing realisation among the band of livelihood experts and service providers that their original much publicised position that microfinance would eradicate/mitigate poverty, when other approaches had failed, was not being justified by the reality on the ground. They were beginning to understand that while microfinance may be a ‘command’ factor (or a trigger) in enabling people - who have skills (human capital), the space (freedom) and opportunities but not adequate credit at low cost - to make use of livelihood options/resources in areas where these are available, it is by no means the case in all areas. In really backward regions, where there is little or no sustainable all-round growth to open up opportunities, where there is poor governance and insecurity, and where traditional or feudal relations which control both resources and the access to them prevail, credit has not proved to be the command factor that enables the poor - who are without skills and the ‘power’ and confidence to access resources and opportunities - to get involved in livelihood options. The poor lack human, political and often physical capital. Their strength lies in a degree of social cohesion among a few families; this social cohesion is based on relations of affinity arising from mutual trust and support - often referred to as traditional social capital. But this affinity among families (which unites the group and is one of the structural features on which their power is based) needs to be identified and built upon in order to enable the poor to acquire the ‘power’, confidence and management skills they need in order to access resources and to remove the hurdles - social economic and political - that obstruct their investment in livelihood options. They also need to be able to invest at their own pace and not under pressure imposed by project periods or by identified ‘products’ and large unit costs.

It is not enough to teach the poor to fish when they cannot reach the river due to the obstacles arising from oppressive power relations, lack of confidence and skills to change them, from ‘prescriptions’ imposed by development projects and major financing institutions or government programmes regarding size of loans and time. Much more, therefore, is required for credit to play a trigger role. I have therefore found it intriguing when some say ‘we have taken microfinance to the remote parts of Bihar where there is acute poverty’... and I presume no or little investment in human and social capital, in all round development, in changing traditional and often oppressive relationships and in providing the minimum security. In such a situation, where livelihood options are limited and people insecure and faced with social, political and economic barriers to access resources and opportunities, micro finance can play a very limited role unless other conditions are in place. What are these conditions?

3. The deeper the poverty - social, economic and political - the less effective is credit as a trigger for livelihoods in the first phase of intervention:

Experience in the field indicates that microfinance can play a crucial role in the following contexts:

· Where all round and infrastructure development has taken off due to investment by the private sector (factories, mines, etc.), by Government (especially roads, power, public sector units), or by market forces in rural areas (in trade centres/mandis, near crossroads where passenger vehicles ply regularly, etc.)

Agricultural Diversification: These scenarios also provide opportunities for the poor to trade - HD Kote in Mysore District where Myrada has a major project is an example. With increasing incomes from agricultural diversification, and migration to Mysore for jobs, trading by shg members has flourished; what was a small market 15 years ago is today a bustling and expanding one. As incomes increased in Holalkere, another Myrada project in Chitradurga District, again due to migration and agricultural diversification, the shg members have seized on the demand for higher quality goods. One Community Managed Resource Centre (a federation of 120 shgs and Watershed Associations) has brought in outside expertise to add value and quality to local edible products which resulted in increased sales and profits. All these activities resulted in a higher off take of credit from the SHGs. In Odeyarapalya, Chamarajnagar District, Myrada’s promotion of watershed management and diversified agriculture has resulted in the area becoming one of the largest suppliers of vegetables to the market in Tamil Nadu; this boosted the local economy and increased credit demand.

· Where significant increases in agricultural diversification have occurred with a focus on cash crops and increases in productivity - resulting in a marketable surplus - and where there is an increased cash flow due to remittances from migrant labour. These scenarios generate a flow of capital and attract and support regular market linkages with cities and towns and an increasing demand for various local products which the poor can supply as they have the traditional skills to make these products. Myrada’s experience in areas where diversification and productivity in agriculture has increased is that loans taken by sag members grow in size and in the variety of purposes. In order to increase their value or scale however they need management training, linkages with institutions/people who are involved in providing credit or engaged in similar enterprises (not as consultants but as practitioners and preferably whose interests merge with those of the poor involved) and confidence to change power relations so that they can access resources and opportunities .

· Where the risk of investment by the poor has been significantly lowered: For example, Myrada went into watershed management in a big way when it discovered that a large number of loans taken by sag members were for inputs in dryland agriculture. Myrada then decided that it was its responsibility to lower the risk through watershed management programmes including major inputs to improve the quality of soil; once again credit off take in these areas improved.

· Where people have market linkages for agricultural and forest products but were dependent on traders: here people did not benefit from sale of these products due to their need to borrow from the buyers (middle men) at high rates of interest and to whom they had to sell these forest products. In such cases where shgs are promoted, the loans they provide bring down the rates of interest charged by private moneylenders or forces them to move to larger loans and other clients.

A common thread that runs through these examples and several others is that the poor have been able to circumvent existing powerful groups which have controlled the markets through organised and consistent efforts on a small scale which are not immediately perceived as threats to the powerful. Since these initiatives grow gradually, those who controlled resources have time to readjust without losing face; the unity of people also sends a clear though muted message that people are no longer willing to abide by the rules of the ‘powerful’. They have added value and scale because they could do so at their own pace, assessing their risks as they went along and balancing their new ventures with the demands from their family and from other social constraints, and because they could access credit quickly, easily and at far lower cost than credit provided by moneylenders; they have often been provided with technical support by individuals, socially conscious private companies and civil society institutions including ngos.

Job creation and collaborations with the Private Sector

In off-farm livelihood activities, credit is seldom the trigger or command factor. What is far more critical is the need for marketable skills, and linkages with the private sector to provide design, quality control and marketing. Myrada has all along realised that providing design, quality control and marketing of off farm income generating activities taken up by the poor is best left to the private sector companies which have a corporate social responsibility that is embedded in its core business, and does not take the shape of providing grants for activities which are close to the heart of the ceo. For example in the mid 1990s, Myrada promoted a Company of poor women selected by the shgs from its Project in villages around Hosur and helped the Company to link with and enter into contract directly with Titan Watches. This Company called meadow (Management of Enterprises and Development of Women) Rural Enterprises Pvt. Ltd. has set up units in several villages close to the homes of those employed so that women do not have to go far away from home; they began mainly in assembling watch strap components and gradually took on more processes in manufacture to include pressing, polishing, electroplating, watch movement sub-assembly and final packing of Titan Watches. This is a core activity of Titan and has survived for the past 12 years since it is a business relationship where both sides win; it however required some social commitment on the part of Titan to take the initiative and the risk to start this partnership. Recently meadow has become a ‘Karyagar’ for Tanishq Jewellery and also for precision deburring of parts for the Titan’s aerospace initiative. Incidentally, Myrada did not take the contract with Titan but facilitated the contract between meadow and Titan. Myrada however deputed one senior staff to support meadow on condition that meadow paid his/her salary after three year - which happened. For further information contact Myrada.

Expectedly, there have been cases where their choice of livelihoods has resulted in conflict over the access and use of local resources - a common one being when the sag members borrow for sheep and cows which need grazing spaces that are controlled by powerful families. In such cases the shgs have come together to lobby for their rights and in most cases have succeeded in working out a compromise. Another common thread is that in areas where there is no investment in all round development either by the private sector, by ngos or Government and where there are no products or surplus for sale, credit is not an effective instrument to trigger growth. This realisation is growing among mfis. The poor need ‘power’, confidence and management skills for micro finance to be effective as a trigger. The conclusion therefore is that if credit or micro finance is pursued as a poverty mitigating strategy, there needs to be in the first phase, multiple actors and multiple choices for credit to be an effective instrument in promoting livelihood options and opportunities which the poor can access and use.

4. Recent suggestions for livelihood approaches/strategies have already been tried before - and, to a large extent, unsuccessfully

There is another reason that prompted this paper, though perhaps it deserves a separate one. It is the suggestions emerging in recent emails and presentations regarding how to promote livelihood products among the poor and shg members. Once again these suggestions go back to a strategy adopted by older programmes which provided credit where:

· the focus on lending is to the individual poor

An example of releasing mortgaged assets which are high income earning is the case of a woman who had mortgaged a large tamarind tree against a loan of Rs 2000. The tree earned an average income of Rs 4000 per year. The mortgage was already 4 years old, which makes the moneylenders return total Rs 16,000. The shg granted a loan of Rs 2000 to the woman to redeem the tree. Such ‘products’ find no place in the list of purposes approved by Banks and other Financial Institutions. There are hundreds of similar examples relating to mortgage of small land holdings which have been redeemed by taking loans from shgs.

· the Financial Institution’s role is to identify and design products which it decides the poor can undertake and to work out a credit package that makes investment in these products viable; as a result, the ‘product’ and the size of loan are standardised, leaving little room for each client to opt for new and emerging livelihood options until they are officially ‘passed’; further the ‘products’ are all asset based which closes the door to livelihoods like ‘trading’ which are often the first step on the livelihood ladder which the poor have the confidence to take; the door is also closed to borrowing from the shg to repay high cost loans from moneylenders or to release mortgaged assets. When Government and private sector retire high cost loans, it is good business; different standards are applied where the poor are concerned.

· the size of the loan for viable products is large; this is based on the assessment made by economists that the size of the loans given by shgs is too small to make an impact on the incomes of the poor; this assessment is similar to the assumption under the irdp programme that two large loans are required to get the poor out of poverty.

These were perhaps the major defects in the design of the irdp (though subsidy and corruption captured all the attention) and are being repeated today by the new generation as solutions to the livelihood enigma. This paper will focus on these ‘faults’ as a basis for drawing out some learning. Before moving on to discuss these ‘faults’ in irdp, a short digression to understand the shg and sgsy[3] Programmes is necessary.

5. The emergence of the Shg Bank Linkage Mode in 1992 and the status of groups formed under the sgsy Programme since 2000.

Both these programmes focus on promoting livelihoods for the poor. The former is promoted by nabard and the Banks - the Cooperatives have also joined in; the latter by the Ministry of Rural Development. During the past 20 years, a parallel unofficial financial system has gained strength - namely the shg movement. It emerged in 1984-1985, gained the support of nabard in 1986-87 with a grant of Rs 1 million to Myrada from nabard, and with the championing of nabard and hundreds of ngos, spread all over the country. It was officially institutionalised in 1992 in the shg-Bank Linkage Programme. Much later, in 1999-2000, the shg concept was also adopted by the Government (Ministry of Rural Development, Government of India) in the sgsy programme, the successor of the irdp and sister programmes; but, as with the irdp, its implementation is poor as far as targeting and use of credit is concerned. The sgsy programme includes a subsidy for the ‘product’ which has to be a physical asset; the shg-Bank Linkage does not provide a subsidy or require that the assets should be ‘physical’. The sgsy programme not only continues to subsidise the asset, it continues to provide different subsidies for SCs and STs who in many cases are in the same shg formed on the basis of affinity. This result in efforts by Government staff in the field to break up a group bound by affinity into separate Schedule Caste and Schedule Tribe groups. (This author has had the exhilarating experience of several shgs with SC and ST members linked by affinity, refusing to break up even when enticed with the large subsidy under sgsy). Both programmes provide funds for institutional capacity building of shgs. But in the sgsy programme this amount has been largely used for purposes other than training the shgs to manage their affairs and grow their institutional capacity. Grants for training under the shg bank Linkage programme were largely provided by nabard and private donors mainly to ngos and properly monitored. The sgsy programme, therefore, projects different messages when it runs alongside the shg-Bank Linkage Programme.

Many of the shgs formed under the sgsy programme are weak due to the following reasons:

i. There was pressure to achieve targets in all states and to transfer loans/subsidies to SHGs resulting in no institutional capacity building and large amounts of money in the hands of poorly functioning groups

ii. The groups were not homogeneous - economically - in many States; they included one of two women from well to do and powerful families. This was because the task of forming the groups was left to Panchayat Secretaries in some states, who chose the easiest way - they approached a few women from the Gram Panchayat who were the wives or daughters of the president and members of the Gram Panchayat and asked them to form a group

iii. In many States the irdp pattern of lending to individuals continued, though groups were formed

iv. Though planned and budgeted for in the sgsy design, no institutional capacity building was provided; instead this fund was spent to organise large gatherings of women who were addressed by politicians or given to government sponsored training centres which did little training in the field for each shg.

v. No assessment of the groups was carried out, though the sgsy required it to be done. In the first few years there was no clear strategy regarding who and how this assessment would be carried out. Later some States which were proactive engaged several ngos and other institutions to carry out this assessment. Where Banks did assessment prior to lending, the entire focus was on bookkeeping related to accounts and, later on -

Because of the poor performance of the shgs which had not been given adequate support and as a result do not function poorly, the image of shgs as organisations which only advanced small loans for ‘consumption smoothening’ is gaining ground among development experts. There is evidence that the weak groups under sgsy have had little impact on livelihoods and much less on changing oppressive power relations. However, there are also examples of these groups, which have been trained by experienced ngos and even by staff recruited by Government with some experience in community development, where the results in livelihood promotion are good.

vi. Focus was on recovery performance since the banks gave this feature priority. The Bank reported on performance of the shg-Bank linkage programme entirely on the position of recoveries. Where the shgs were controlled by a few powerful women, there are several cases where they availed of a loan from the Bank, lent money outside the group at high interest rates (which they pocketed) and returned the loan to the Bank. Bank records therefore show 100% recovery; visits to the group show that a few women only accessed loans. In the kbk region of Orissa, these untrained and un-assessed groups have received loans from banks which lie unused in their bank accounts, while the targets for credit disbursements for the area seem achieved. Yet these groups have all been called shgs[4].

6. SHGs which emerged in Myrada’s projects did not start with the objective of providing credit for livelihoods:

The Self-help Affinity Groups which emerged in Myrada’s programme in 1984-85 when the cooperatives broke down, or Myrada saw that they did not support the poor who decided - with some persuasion from Myrada - to form their own groups, did not start with the objective of providing credit for livelihoods. The members came together to discuss the problems they faced from the powerful members in the traditional cooperatives and decided to set up their own groups to discuss their problems and to assist one another to solve them. Myrada suggested that they begin to save regularly in order to cultivate a habit of thrift and to provide the group with capital if the members required borrowing for any purpose - which records show was initially was for immediate needs like food and clothes[5]. It was only as the shgs grew in confidence and skills that they emerged as institutions which provided the support and the space for members to opt for livelihoods. This did not happen overnight.

Myrada’s studies indicated that in the first two years the number of loans for food and clothes constituted about 40-60% of the total number of loans though the amount lent for these purposes was about 20-25% of the total. This indicated that the loans are comparatively small. The other purposes are largely related to agriculture. But as the group went into year two and three, the number of loans for food and clothes declined. However, the number of loans for trading, repaying high cost loans to moneylenders, for animal husbandry and non-farm activities began increasing. But still the amount was not large, averaging Rs. 2000-Rs. 5000. By the fourth year the size of the loans began increasing to Rs 10,000-Rs 20,000. After 6-7 years the amount were touching Rs 25,000 and after that many loans are over Rs 30,000. Overall Myrada’s experience shows that on a average, during a period of 7-8 years a member takes a total loan amount of Rs 80,000-Rs.100,000 through 7-10 loans for several purposes. One must however factor in the investment Myrada and other institutions - Government and private - made in promoting all round development in its project areas which increased the options and opportunities for livelihoods. Besides, when Myrada found that a large number of loans were for dryland agriculture, Myrada invested heavily in watershed management in order to reduce the risk of investment in this sector. Moreover, many of the project areas also benefited from Government investment especially in roads, electricity, telecommunication and storage.

7. The design faults in irdp/sgsy:

The Ministry of Rural Development, Government of India, is concerned about some of these faults in the design of the sgsy and is currently engaged in an exercise to restructure this programme.

It will be useful to describe in further detail what has emerged as the design faults in irdp/sgsy which have had an impact on promoting livelihoods for the poor since this provides a good base to analyse whether the livelihood strategy to promote livelihoods which emerged from the shgs addresses them; it will also throw some light on the relevance of recent initiatives to promote livelihoods adopted by emerging micro finance institutions.

The irdp was the first major livelihoods programme for the poor in recent recall. It has been analysed threadbare. If it is brought up here, it is not because it needs to be analysed again, but because it provides a good base of experience from which learning can be drawn and incorporated in new strategies for livelihood promotion. Unfortunately this has not happened adequately, and even more unfortunately, the faults in the design of the irdp which the sgsy sought to remove (unsuccessfully, in most cases, as it transpired), are being reintroduced in many of the programme designs adopted by the emerging mfis who are growing rapidly. This also presents a suitable occasion to compare the shg strategy with the irdp/sgsy and to see whether the livelihood strategy that emerged from the shg strategy has been able to address these faults in the irdp/sgsy.

Some faults in design of irdp have been amply documented. However, five of the ‘faults’ in the design which have not been given adequate attention (and therefore in a way continue to re-appear in similar programmes recently designed) are the following:

A. The loan was given to the individual poor person- in fact this has hardly ever been raised as a design fault and is repeated in the sgsy

B. It was decided and structured from the top as regards - purpose or product - which had to be for identified assets; the sgsy programme continues with this feature even though it requires a group to be formed.

C. Size - unit sizes for each loan were worked out which were considered viable. The assumption was made that substantial (one or two large ‘viable’) loans for assets/ enterprises would eradicate poverty; the sgsy continues with this feature.

D. The assumption that the Banks or Government Departments would supervise the use of the loan.

Let us consider each of these in further detail.

A. Loan to the individual poor person: very little attention has been given to the practice of giving a loan to the poor individual as a design fault, though I consider it to be one of the major ‘faults’ in design to provide a livelihood base to the poor person. She/he is not only in need of assets but more in need of ‘power’ or ‘political capital’ to access and use these assets. There has been a focus on providing skills; though provision of skills in necessary, it is not enough. It is not enough to teach people the skill to fish when they cannot each the river; the hurdles on the way are based on oppressive ‘power’ relations (in the social, economic and political spheres - which often reinforce each other). The loan model to the individual poor does not address these hurdles.

The shg strategy, on the other hand, invests primarily in the first two years in building the institutional capacity of the groups. This is done by:

a. Providing institutional capacity building training for the whole group - Myrada published a training manual[6] in the year 2000 with 24 modules, which were used for several years prior to 2000 and which has since been translated into several languages and adapted to local situations.

The importance of the dynamics in an shg was brought out recently in a meeting with nabard Bangalore. Mr. M.V. Patro the General Manager recalled an experience which this author had forgotten. He recalled the first training for Bankers in 1992 conducted by Myrada in our Dharmapuri project. A visit to a shg was organised in the evening. The feedback next day was good; the bankers were impressed with the books recording the decisions taken and the accounts related to savings and loans. Mr. Patro raised a dissenting voice. He said that he had come to see how a shg functioned, how they conducted a meeting, what were the dynamics of the meeting. During the visit on the previous evening, the Bankers had interviewed the shg members, scrutinised their books; in general the Bankers conducted the interaction in order to meet with their concerns. This did not convince him. This author then suggested that another meeting be arranged with an shg. This time the Bankers would visit a group on its scheduled meeting day. It would not be a ‘staged’ meeting for the visitors. Secondly, the Bankers would sit outside the shg circle and listen in silence throughout the meeting. They would not interrupt the meeting. Their questions would be answered at the end. Mr. Patro was so impressed with the dynamics of the meeting, with the level of local knowledge the members exhibited regarding the requests for loans and with their problem solving approach that he became a convert to the shg concept.

b. Promoting an organisational structure which ensures that all decisions are taken within the group. The major features of this organisational structure are i) the members are linked by affinity - based on relations of mutual trust and support and, ii) they are economically homogeneous. iii) The group members self select themselves; they are not selected on the basis of external designed criteria. However having the right organisational structure is not enough; it is also necessary to support the shgs to develop adequate organisational and financial systems and the capability to manage them. These features are required because they are taking on new functions-like savings and lending - which require more than the affinity of the members to support. These systems are required so that the governance of the shg is transparent and participatory. Hence all decisions regarding savings and loans including recoveries, regarding sanctions (not only for failing to repay loans on time but for any activity that goes against the group’s decision relating to their lives) need to be recorded. The experience of taking these decisions and being involved in activities that influence their lives is itself an ‘empowering’ process. The very dynamics of the group - in which all the members are involved in building and managing these systems and taking these decisions - generates ‘confidence’, ‘power’ and ‘management skills’. However, for these dynamics to function effectively and to generate power, the three structural features of the group mentioned above have to be ensured and adequate institutional capacity building has to be provided (24 modules which can be compressed into 14) to the entire group. Unfortunately in Government programmes, which require groups to be formed, both these structural features as well as the capacity building required are either absent or carried out in a minimal manner if at all.

For example, institutional capacity building in sgsy is often done for a large number of groups at a time or only for the leaders of several groups. Myrada insists that the institutional capacity building training is for the whole group and not just for a few members. It advises the group to rotate the Chairpersons’ role in every meeting and to change the group’s representatives[7] every year. The dynamics generated in meetings of a well functioning shg provides the individual poor with the institutional space to grow in confidence and to acquire management and conflict resolution skills required to take livelihood risks and to change relations in the family, and - together with several shgs - to exert pressure to change oppressive relations and hurdles that keep them from reaching the river. Since this is a major issue, it will be discussed at greater length later in this paper.

B. The Purpose of loans in sgsy has to be for identified/approved assets: This restriction, regarding assets only and identified assets at that, does not take into account:

i) The immediate credit needs of people for education, health, socio religious ceremonies - for which they borrow from private money lenders at high interest rates; these are often the main reasons why they continue to remain in debt.

ii) Trading: this is an activity in which a large number of poor families are engaged; our people are traders, and trading is an activity into which they enter easily and often as a first step in diversification of their livelihood based. For example, a person will borrow Rs 4000 from an shg on Wednesday, buy sheep or goats in the rural area and walk them to the nearest town or city and sell them on Saturday for a good profit. The only source of credit for such activities was the moneylender before the shgs came in. A similar situation occurs with those who collect forest produce; they have to sell these products to a moneylender at below market prices since they borrowed from him; the shg once again rescued them. The shgs provide loans for any activity that helps to raise or increase capital/income in the hands of its members. The assumption that only assets can repay the loan is not borne out by Myrada’s experience; the poor have several small and often temporary livelihood activities, which assure them of a cash flow. Case studies of repayments in over 75% of loans showed that 60% of this repayment did not come from income earned through the asset but from other sources like labour or trading.

iii) The need to repay high cost loans from money lenders and to redeem productive and mortgaged assets (like tamarind trees and agricultural land). The shg provide loans for these purposes which increases the capital in the hands of the poor; even more it releases them for a dependency relationship with large farmers from whom they have borrowed money and have to repay not only in cash but through their labour which becomes captive.

In the following page are a few examples which show the diversity of loan purposes and sizes which respond to an individuals need and to their time schedule and which do not conform to prescribed list of products under government programmes and even to the products promoted recently by mfis.

In conclusion therefore it can be stated that the restriction under irdp and sgsy, that the loan purpose should be for assets, and only for those assets that are listed as approved does not take into consideration the diversity in soils, rainfall patterns, markets, livelihoods already undertaken, market integration, local resources and customs, differences in the pace of adoption and people’s ability to innovate. This diversity extends beyond livelihood options to include the cash flow to repay loans. The incoming cash flow of a rural poor person is not a regular monthly income, ‘it is lumpy’; whereas the irdp/sgsy pattern requires regular repayments, as if an irdp/sgsy cow produces the same amount of milk every month. Hence the credit system has to provide for this diversity, which can only be done at the local level. A credit management system is required which takes the diversity of needs and situations as well into account. The shgs once again responds to this diversity not only in purposes but also in repayment schedules

Shree Sitara shg Chikkajajur, Holalkere Taluk, Chitradurga District

(1) Shanthamma*				(2) Sakamma
Date of Borrowing	Amount (Rs.)		Purpose	Date of Borrowing		Amount (Rs.)	Purpose
1996	500		Household expenses	1996		500	Education
1996	1,000		Cow Purchase	1996		100	Medical expenses
1996	2,000		Education	1996		445	Medical expenses
1996	3,000		Cow purchase	1996		1,000	Education
1997	3,000		Agriculture inputs	1996		2,000	House repair
1997	3,000		Education	1997		2,000	Agriculture inputs
1997	4,000		Education	1997		2,000	Education
1998	5,000		Education	1997		2,500	Education
1998	6,000		Agriculture land purpose	1998		4,000	Education
1999	8,000		Education	1998		5,000	Agriculture land purchase
2000	11,000		For job in Railways	1999		7,000	Agriculture inputs
2000	15,000		Business	1999		10,000	House repair
2000	325		To purchase SHG uniform	2000		325	To purchase SHG uniform
2001	20,000		For telephone booth	2001		15,000	House site purchase
2003	8,325		Sewing machine (SGSY)	2003		8,325	Sewing machine (SGSY)
2004	35,000		Education	2003		22,000	House site purchase
2004	2,300		LPG for home use	2004		2,300	LPG for home use
2005	1,000		Jewellery loan	2004		40,000	Agriculture land purchase
2006	45,000		Agriculture land purchase	2005		1,000	Jewellery loan
2006	2,000		Jewellery loan	2006		2,000	Jewellery loan
Total	175,450			Total		127,495
* Note: Her husband was a sweeper in the railways. After he died in service, the family spent considerable money to see if one of the sons could get appointment in the railways.				Note:
(3) Kausar Banu				*(4) Nagarathnamma
1996		1,000	Trading	1997	2,000		Education
1996		3,000	Trading	1997	500		Education
1997