Ramesh S Arunachalam
Rural Finance Practitioner
Recently, APMAS, a very credible technical support institution in AP, conducted a study in Nellore District, Andhra Pradesh and I post the summary of the findings as shared by APMAS.
I will be making a separate post, with my own analysis using APMAS data, on effective interest rates and multiple borrowing in AP, using data from this study and other APMAS data, collected in April 2010.
Please read the summary of the APMAS study in Nellore given below:
Loans to SHGs
The details of loans taken by the SHGs from private MFIs are presented in the following table
ð It is evident that from the table, out of 54 sample SHGs, 29 SHGs borrowed from MFIs i.e. 53.7% SHGs.
ð In the 29 groups, 65% of members have taken loan from MFIs.
ð One interesting point to be noted is that all the SHGs, which availed loans from MFIs are default SHGs in SHG bank linkages.
Existence of MFIs in the District
ð Based on the interaction with the sample SHGs, it was found that four Private MFIs are lending loans to the SHGs.
ð They are SPANDANA, SHARE, ASHMITHA, SWAYAMKRUSHI
Comments on the Extent of Borrowings
ð 29 SHGs has borrowed loans from MFIs out of 54 SHGs.
ð From 29 SHGs, 172 members has taken MFI loans
ð Each member has taken Rs.10,000 to Rs.80,000 from MFIs
ð Nearly 65 members had taken loans greater than Rs 25,000
ð A separate post will be made on the multiple borrowing aspect using this and other APMAS data, collected in April 2010
Cost of Loan - Interest Rates/Other Charges
ð Interest rate charged by different MFIs vary from 24% to 48% per annum, although there seem to be some outliers (A separate post is being made on the Effective Interest Rates using this and other APMAS data, collected in April 2010)
ð Processing Charges and insurance coverage is 4% to 5%, i.e., 400 to 500 per Rs.10000/- Loan.
ð Monthly/weekly payments.
- All the MFIs have weekly repayments in the case of first dose of lending.
- The MFIs are also encouraging additional loans or midterm loans to the members who repay earlier loans regularly.
- The repayment period for additional loans is typically monthly but could be different
Sources of Funds and How Weekly Payments are Honoured
ð Husband, wife and old-age persons are also going for labour work
ð In some instances, to repay the MFIs loan instalment, the borrowers had mortgaged their valuable things with the pawn brokers
ð Some SHG members are also taking loans from others MFIs to repay the loan to present MFI.
ð Some SHG members are also reducing their food intake to repay the MFI loan installments - E.g. some members said that they stopped taking vegetable and mutton, to save money to repay MFIs.
ð Two women members said that their husbands stopped liquor consumption to repay the loans form MFIs.
It is also important to recollect the comments of Dr C S Reddy of APMAS, to the Dev Finance List Serve (through Prof Hans Dieter Siebel). Dr Reddy had said that:
1. Most MFIs will lend to women if they are members of an SHG.
2. MFIs split the SHG to form the JLGs. MFI field staff would talk negatively about the SHGs and SHG federations.
3. Most MFIs put pressure on women to repay their loans resulting in some of these women defaulting to the SHGs. Once one or two SHG members default to their SHG, other women also stop paying.
4. SHG members are targeted by all the MFIs in a given area. As they borrow from SHG and also from 3 or 4 MFIs, the loan from SHG is at times used to repay the MFI loans.
5. Active SHG / SHG federation members or leaders are lured by the MFIs to become their agents. As a result they neglect their own organizations.
6. The women who are able to access a loan in less than one month from an MFI are wondering why they should be engaged in all the processes related to SHGs and SHG federations.
7. SHGs still have difficulty in opening bank accounts and obtaining loans in many parts of India. MFIs are converting this into their advantage.
8. Over the past 2-3 years, banks seem to be more interested in lending to the MFIs rather than SHGs / SHG federations.
9. The aggressive growth of MFIs and the coercive recovery methods employed by them coupled with their high interest rates result in indebtedness and completely weaken SHGs & their federations that have been developed with significant investments over a period of time."