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Self Help Groups (SHGs) as lenders to farmer members of Farmer Producer Organisations (FPOs)

Author: Mr. Emanuel Murray (Senior Advisor Caspian Impact Investment)

At a recent workshop on the theme ‘Enhancing the credit flow to FPOs’, an idea was thrown up for discussion; SHGs becoming lenders to farmer members of FPO. And mind you, this was not a creative idea generated by a researcher, but something they had seen at work on the ground in one of the hill states during the course of their research work, and thought was worth replicating. My initial reaction, (as with anyone with years of work in this space, and having an arrogant sense of being an expert on the subject) was dismissive of the idea, but on second thoughts, felt; let’s examine the suggestion and give a fair chance for consideration and evaluation.

The idea both amazed and amused me.

First let me explain my amazement: 

Having worked in NABARD and involved in some ways in setting-up the SHG infrastructure in India foundation up, our hypothesis even while conceiving the program was that the poor, irrespective of their income levels had the propensity to save (knowing that they would have emergencies and aware that they are not credit worthy) and save they do, in different ways, in non-financial forms like gold, livestock etc. and were waiting for the right financial savings vehicle. SHGs have been able to be make that happen.

The long-held notion that the poor are “born in debt, live in debt and die in debt” has been proving wrong, as SHGs are turning net financial surplus entities. This is both a cause to celebrate as a matter of concern. The concern is whether the entrepreneurial spirit or the opportunities are inadequate, or the environment unfavourable for the poor to have bigger dreams and plans for deploying financial resources? 

Coming to amusement,

SHG being an informal, unregistered entity, it becoming a lender to a company is unbelievable. Putting it in a little exaggerated way, it is like a landlord taking a loan from his servant. But it has already happened, is happening. 

As long as the money being lent is from the savings of the members of the SHG, I see no issue in on-lending, if it is done after meeting in full the credit needs of the group members, and with the informed consensus of all the members. It is money that belongs to the poor, and this lending is exposing money to high risk. 

However, in case the SHG is receiving concessional funding with any form of support from the government in the nature of subvention, it is intended for the exclusive use of the SHG and its members, and on-lending is prohibited. If such a fact comes to light, it will bar them from such benefits in future.

The real reason for a point like this coming up in the first place is the failure of the institutional credit delivery system. It is like saying since the bank pays 3 to 5% per annum interest on my deposits with them, and on-lends my money to my friend or neighbor at 15% per annum, why can’t we just transact directly and let the earnings stay with us? 

India has followed the multi-agency approach to lending, and if all the agencies put together are unable to extend credit for genuine needs for agricultural operations of farmers, it presents a sad commentary. SHGs financing farmer members of FPOs is one of those ‘jugad’ solutions that is going to take us nowhere.

For more on this subject with thoughts from practitioners, experts and thinkers, please look-up my LinkedIn post on the subject at: https://www.linkedin.com/feed/update/urn:li:activity:6790669120393375744/

Self Help Group as Lenders-