Creative Credits for the Poor: India’s Microfinance Movement (contd.)

Self-help groups, otherwise known as SHGs, are the basic units in a microfinance market. These groups of poor individuals pool their savings together into one account and borrow from it whenever they need money. In complex models of micro-lending, banks or cooperative societies provide loans to the groups based upon their savings. NGOs play an intermediary role between the banks and the SHGs. In case of SPANDANA, for example, the loans are offered by the banks at an interest rate of 8-18% per annum while SPANDANA further extends these loans to the groups at a slightly higher rate of interest. The difference in the interest rate is the income of the organization that makes it sustainable. But the most interesting part of the whole operation is SPANDANA’s professional inputs in the process. It has a well-structured governance system and a highly trained staff working upon an accurate accounting system. The staff identifies groups of poor women in need of credit. After the identification process, SPANDANA organizes an intensive training process for these groups that educates them about group liabilities, member responsibilities, repayment rules and the nature of products and services offered. The preconditions of providing the loan, besides ensuring that all the beneficiaries are economically active, are that the loans are given only those who are members of SHGs, and not individuals, and the whole group is liable if any one of its members turned out to be loan defaulter. A tradition of social peer pressure acts upon the members of the group – the beneficiary wants to compete with her co-member to pay back the loan on time. SPANDANA has recorded repayment rates of up to 99.8%.