UNITED NATIONS CAPITAL DEVELOPMENT FUND    Microfinance

Issue 13 / June 2005

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By Harishchandra Sukhdeve, Chairman, Marathwada Gramin Bank

An expert on rainwater harvesting addressing SHG members during a Workshop of the Moneylender-Free Villages Project

Can we ever free villagers in India from the clutches of the moneylender? The answer is an emphatic "yes"! In fact this is already happening in under the Moneylender-free Village (MLFV) pilot project of the Marathwada Gramin Bank (MGB) in the Nanded district of Maharashtra State. Introduced in April 2004, nine villages were selected on the basis of Self Help Group (SHG) penetration. The main objective of the project is to replace the non-institutional, usurious, exploitative rural credit mechanism of private lending with lending through SHGs and direct lending by the MGB.

The Reality

The concepts of social control on banks were introduced to the Indian banking sector with a view to extend credit to all, particularly poor people, at affordable costs and to reduce the nuisance of private money lending. In 1977, the Regional Rural Banks were established with the sole aim of strengthening the rural credit delivery system so as to substantially reduce, if not completely eradicate, the reliance on private borrowing by farmers and other villagers.

But after 28 years, when we look back, we find that the situation has not changed much. Villagers continue to reel under indebtedness from institutional as well as non institutional financers. Farmers are becoming increasingly ineligible for institutional credit because of a plethora of rules. As a result they are driven to private moneylenders who exploit them to the hilt.

The Concept

The concept of MLFV is simple. Under this initiative, SHGs act as an extension of the MGB to reach out to villagers in even the remotest locations. One of the main reasons why banks have not been able to reach more villagers is physical limitations and the cost of operations to maintain small accounts. The SHGs offer a most powerful, cost effective and yet democratic and transparent model for rural financing, by serving as intermediaries between banks and farmers to extend rural credit and replace the private moneylender.

The Methodology

The MGB has adopted a simple strategy for strengthening the SHGs. First it nurtured the SHGs to become strong through their own contributions. This is followed by offering them a small line of credit for internal lending, and enlisting volunteers, especially women, to promote the SHGs. Later, the MGB increases lines of credit available to more SHGs, and encourages them to lend to villagers for urgent needs, when bank formalities would normally cause them to seek the services of moneylenders. The MGB prepares a village credit plan for institutional lending to villagers where banks are available, continuously monitors the functioning of SHGs through meetings, orientation camps, and experience sharing workshops, and arranges for vocational training and exposure to NGOs. Throughout this process, progress is periodically reviewed. The first such review took place on 17th September, 2004 in a joint workshop for all the leaders of the SHGs, volunteers from the local farmers club, NGOs and experts in social engineering. In addition, the Chairman holds meetings in the respective villages to get ground level feedback from the villagers.

The Success Story

Thanks to the SHGs and a motivated village volunteer, Smt. Vijaya Dhurandhare, one of the villages under pilot project, Sathewadi, declared itself free from moneylenders on 18th October, 2004. The entire village participates in SHGs; at least one person from each family is a member. There are now 28 SHGs in this tiny village of 1,500 people. They have so far mobilized over Rs.480,000 (US$11,000) in savings. The MGB has extended more than Rs. one million (US$23,000) to the SHGs. The village women and youth borrow from the SHGs to pursue their vocations, businesses and agricultural operations, and no longer rely on private moneylenders for any financial requirements. It is now a moneylender-free village.

The Potential

The MLFV project can be extended to make villages self reliant in terms of employment, the economy and infrastructure by:

• Establishing forward and backward linkages for the production and marketing of products which do not require high-end technology and heavy investments; there are many products which have a huge rural market and which can be produced in the villages with little training, such as cloth, stationery items, and simple household goods of daily use. Different SHGs from the same village or cluster of villages can undertake a particular group activity so that they do not have to rely on outside agencies to supply raw material or market their finished goods.
• Offering vocational training for self employment within the villages. For example, the youth and male workers from Sathewadi village did not have to harvest sugar cane crops this year because of employment availability due to increased economic activity within their own village.
• Encouraging collective farming through SHGs to achieve the scales of economy and to ensure better utilization of natural resources, especially water and land; water management and social forestry as a collective village scheme.
• Involving more partners from social engineering groups to train village health workers in sanitation, hygiene and first aid.

The Scope

The MLFV project has immense potential for replication because the SHG movement has grown strong in India. India's National Bank for Agriculture and Rural Development (NABARD) is extending excellent support to several agencies, and there are some 3,024 partners involved in this silent yet powerful revolution.

Today, there are about 60,000 rural, semi-urban and urban branches of scheduled commercial banks of which only 35,500 branches actually participate in the SHG-Bank Linkage programme. If these 60,000 bank branches participated, the results would be tremendous. There are about 600,000 villages in India. If each branch adopted one village a year for four years, all 600,000 villages could be reached. Thus all the rural households of India could be brought under the umbrella of the banking sector and relieved of the curse of private borrowing.