The Hindu Business Line : Even innovative micro-financing schemes may need re-engineering

A SPRINKLING of rain over the past few days has covered Vidarbha in a deceptive green that is mostly stunted seedlings of jowar, soyabean and moong struggling for traces of water in the parched earth beneath.

A pleasant air hides the desperation of impoverished farmers of this rain-shadow region, which in a large measure helps Maharashtra contribute every fourth bale of cotton produced and two of every three oranges grown in the country.

Indebted farmers committing suicide is desolately regular news here. The level of their indebtedness is near impossible to fathom because of their heavy dependence on informal but expensive local borrowing systems that require urgent overhaul.

The three-tier co-operative funding mechanism that was to bring down the cost of money for the farmer has only helped him earn the reputation of a dubious borrower. Even innovative micro-financing schemes that have seen success may need to be re-engineered.

Consider this. One in three farmers in Amravati district is a direct borrower of the Amravati District Central Co-operative Bank (ADCCB). It has 1.08 lakh loan accounts. The loan recovery rate is 10 per cent. All the 668 primary agriculture co-operative societies (PACS) through which it lends are in default. The network reaches nearly every farmer in the district.

ADCCB also runs the Nabard-backed self-help group (SHG) scheme, a small savings and loan system begun about five years ago and micro-managed by local members. The bank has nearly 4,000 SHGs with some 60,000 members. The loan recovery rate is 82 per cent.

According to Mr S.S. Bhokse, Chief Officer of ADCCB, the dichotomy is such that several SHG members are good borrowers in that scheme but defaulters on other loans.

"They are regular with their instalments under the SHG scheme. They are aware that prompt repayment will enhance their credit record and get them a higher loan entitlement. So they keep the system going," he said.

He has even managed to recover loans outside the SHG scheme by putting pressure on borrowers through their fellow SHG members.

However, twists await the credit story flowing well so far. The SHG system is showing signs of being afflicted by complacency and local rivalries and politics, scourges that struck well-run PACS in the early 90s and are ultimately proving to be their nemesis.

Manpur is one of the several villages in Yavatmal district that has seen at least one farmer kill himself, unable to face recovery officer.

According to sarpanch Mr Gnaneswar Umre, there were five SHGs in the village.

"Four are defunct now. One is on the verge of defaulting. The last one standing has about 10 members. Four members are unhappy that the others got loans and they did not. So they do not want to deposit money any more. Anyway, no one has any money to save," he said.

The SHG scheme appears to be working well when the groups are small and easy to monitor. Many successful SHGs in Andhra Pradesh, which pioneered the scheme, are said to be in trouble.

Mr Vivek Rahatkar, a grameen bank branch manager in Yavatmal, said: "When instalments are small, defaults are rare. We are detecting fault-lines in SHGs that have grown in size and which have taken large loans. Where monitoring is lax, we could have a situation where SHGs may grow big enough to borrow a few lakhs from banks and then default."

Though one region or village may not be representative of the entire country, undoubtedly the SHG system is in an adolescence where each group has to be monitored well and nurtured with care.

If left to drift now, it would not be long before sporadic cases become endemic and banks such as ADCCB begin reporting abysmal recovery rate in the SHG scheme too.

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