CMF Working Paper Summary: How do women in mature SHGs save and invest their money?
By Lucie Gadenne and Veena Vasudevan | Lucie and Veena were interns at the CMF this past summer.

The Self-Help Group Bank Linkage Program (SBLP) is by far the dominant model of microfinance in India, in terms of both number of borrowers and loans outstanding.The National Bank of Agriculture and Rural Development (NABARD) estimates that as of March 2006 over 33 million women have been linked to banks for financial services through 2.2 million Self-Help Groups (SHGs). Growth of the program has been spectacular over the past 5 years with the number of members linked to banks having increased nearly tenfold (the NABARD website claims a growth rate of over “400 women per hour”). Given the level of outreach, growth and the huge impact of the program on the members and their communities (both in terms of access to formal credit and the intangible impacts like empowerment), understanding how SHGs function, mature and how they affect the members’ lives is of major importance to both researchers and policy makers. There is, however, still a relative paucity of quality research on the SHG movement in India.Over the summer, CMF interns, Lucie Gadenne and Veena Vasudevan, conducted an in-depth study of 69 mature SHGs managed by the NGOs, MYRADA and Hand in Hand in the districts of Chitradurga (Karnataka) and Kancheepuram (Tamil Nadu) to find out more about loan usage among members of SHGs. Using results from surveys of SHG members and internal SHG records, the authors analyzed how SHG members use their loans and how patterns of loan usage change over time. While the degree to which results may be generalized is limited by several potential biases in the data¹, the study is useful for gaining a better understanding of what actually goes on in the field when it comes to SHGs and may point to potential subjects for future research. Listed below are their key findings from the study. In addition, the full report includes a number of in-depth case studies of individual SHG members and their loan histories so that readers may get a better sense of the ground reality behind the statistics.

• There was no clear shift from consumption to production loans.
Over the past few years, the microfinance community has come to accept that a large portion of microfinance loans are used for consumption purposes. In some corners of the microfinance community, this perception has been replaced by a belief that the share of loans used for consumption purposes gradually declines over time as borrowers spend a greater portion of their loan money for productive purposes. This was not the case for the SHG members we surveyed: there was no clear shift in the purpose of loan use from consumption to production. This result, if found to hold true among a more representative sample of SHGs, suggests that the livelihood programs of SHG promoting NGOs may not be effective in inducing members to spend more of their loan money on productive assets.

• Members value the savings component of SHG membership.
The low levels of voluntary savings among SHG members and the relative insecurity of SHG savings have led some to believe that SHG members save only because they are required to do so in order to receive loans². The SHG members we interviewed overwhelmingly indicated that this was not the case and that they did in fact value the savings component of SHG membership as much as they do the credit component. When asked why they valued the savings component of SHG membership given the obvious disadvantages of SHG savings³, members responded that they would not have been able to gather the motivation to save regularly without the support of the other group members.

• Many groups made financial contributions to their community – but only after some time.
Many of the groups we interviewed had made significant financial contributions to their communities, often in the form of cash donations to schools or for festivals. However, in nearly all cases these contributions were made after the SHG had been in existence for at least three years. If one takes a financial contribution to the community as a sign of the empowerment of the members, this suggests that these empowerment gains take some time to accrue. This result also implies that a strategy which focuses effort on creating high quality SHGs which last for several years may have greater benefits to the community at large than one which focuses on creating many bank-linked SHGs without regard to longevity.

• There was a high level of equity in loan allocation.
In interviews and focus group discussions, all of the groups surveyed reported that all group members have equal access to loan money. Analysis of loan usage data showed little variance in loan amounts across members confirming these claims. Furthermore, econometric analysis of loan and survey data revealed no correlation between members’ personal and socio-economic characteristics and the loan amounts they received. These results are certainly encouraging from the perspective of fairness and group cohesion. However, practitioners should also be aware that there is a potential negative consequence of equity loan allocation. Dividing loans up equally may make it hard for members to take out big loans if amounts are automatically ‘capped’ to avoid too unequal distributions.

• Members continue to use alternative savings and credit options.
In interviews and focus group discussions, SHG members in both districts expressed that they still utilize other savings and credit options. Several SHG members and their respective families utilized outside sources like banks, moneylenders and, less frequently, family and friends when they needed additional credit. Some members also mentioned the use of alternative saving mechanisms. Savings options included chit funds, banks and purchases of gold and livestock.(For full paper, http://ifmr.ac.in/cmf/wp-content/uploads/2007/11/loan_usage_in_mature_shgs.pdf)