Report 3 of 4: Credit Projects in India: Maharashtra and Mewat

Access to credit has long been considered a major poverty alleviation strategy in India. Although various credit programmes have been introduced in the country, their impact has proved ineffective. Much of this failure was due to a lack of involvement with the people during any stage of the implementation of the programmes. However some recent schemes, as shown below, have proved to work.

Maharashtra Rural Credit Project (MRCP)

Introduction

Before becoming involved in the Maharashtra Rural Credit Project many people in the Indian State of Maharashtra were living below the poverty line. Now as entrepreneurs they are benefiting from an initiative which brings the banks closer to poorer people, particularly women, by making credit more widely available.

The project has been co-ordinated by India’s national bank working, supported by fieldwork carried out by IFAD (International Fund for Agricultural Development). It aims to improve financial services to the rural poor and to promote savings as the basis for lending through the creation and operation of Self-Help Groups (SHGs)

A key feature of the project is its emphasis on community involvement. Initially, field workers participate in village social events, meet with key people living in the community and discuss the village needs with them. The scheme starts by bringing together small groups of women, around 20 members, into self-help groups (SHGs). The groups act as mini credit unions where the women put small amounts of money aside each week.

Women from different groups deposit the group savings in the local bank branch. A group leader is then trained in bookkeeping, and monitors the small business loans. The project provides training programmes and field officers who work closely with the villagers. This has encouraged women to save, borrow and plan their own businesses.

Business Growth

The first loans women take out are to meet basic needs; their second loans are often for starting up business activities. Once the businesses are established they then request bigger loans from the banks through village development councils (VDCs) who put them forward. A range of activities have been supported by these loans – from noodle making, tailoring, vegetable farming, grocery and general stores. One activity involved making pottery making. After becoming a member in 1997, Shakuntala Kumbhar took out a loan of Rs.1000 to enable her to make earthen pots and utensils – now she earns a monthly income of Rs.2000 from the business.

Due to the success of the SHGs more women have been elected to VDCs. This has enabled them to become involved with important decision making within their communities, which until now has been traditionally a male preserve. Now a range of social and economic issues are discussed within the councils, such as sanitation, pensions for the elderly, and health issues.

Development

Since its launch in 1994, the project is now being implemented in 1,480 villages in 12 districts of Maharashtra state, involving 677 bank branches.

Significant improvements have been achieved in the attitude of banks to rural financial services. The success has led to a perception that the poor, particularly poor women, are not only credit-worthy, but also reliable partners in development.

Indicators of Success

Quantitative Indicators of the success of the schemes:

• Repayment rates of loans to the poor have gone up from 30% to over 75%

• Proper use of the loans have increased from 40% to 90%

• SHGs Loan repayment rates to banks is 100%, and internal loans of SHGs is 95%

• Increase in the income of the poor by over 40%

• Participants encouraged and learn to save

• Improved access by women and poor to credit & savings

• Selection of appropriate business activities

• Access to social and support services

• Positive change of attitude by banks towards the poor

• Improved confidence and self-esteem among women for addressing gender issues

• Contributed to village development

Introduction

The Mewat region in the Indian state of Haryana is predominantly rural, the population of 800 000 inhabit nearly 500 villages and 5 towns. Economic livelihood is dependent on agriculture or agro-based activities.

Despite is proximity to the capital, and the relative wealth of the rest of Haryana, Mewat has lagged behind in almost every area of development – the average family size is 7.5, 62% of households are living below the poverty line, and the literacy rate is around 25% - even lower for women at only 10%.

Mewat Area Development Project (MADP)

In 1980 the Government of Haryana set up the Mewat Development Board, which works through its field agency to combat the effects of poverty, unemployment and the economic and social backwardness of the region.

The Agency has made tremendous efforts and successfully implemented schemes for income generation and social development. However, people’s participation remained low. So in 1995 they collaborated with the International Fund for Agricultural Development (IFAD) on an innovative project which placed special emphasis on the active participation of the community.

Its objectives were:

• To improve the economic and social well being of the Mewat community

• Promote gender self-reliance on a sustainable basis, and

• Broaden the range of economic opportunities available to the community.

One of the most important activities undertaken by the NGOs was in assisting in the formation of self-help groups (SHGs), comprised mainly of women. The SHGs provide a forum for women to interact with each other, understand their common problems, channel their savings and encourage the education of girls.

The groups act as credit unions for savings, and provide loans to group members. The group members are involved in hearing the loan applications, and then applying to the banks for a lump sum. The group leaders are encouraged to learn about book-keeping from trainers who keep in close contact with the groups.

Trainers work with the SHGs through various participation exercises. They organise and support a range of training initiatives – book-keeping, literacy, self-employment, etc.

One of the activities promoted was training youths to stage puppet shows, street plays and folk songs. These activities raised awareness in the community on issues like health and nutrition, education, and women’s empowerment. So now the initial resentment of the traditional leadership against such activities is vanishing, and there is much more involvement of people in all the activities of the Mewat Development Agency.

Nearly 500 SHGs have been set up in the last two years. Many of the groups have started to use their savings to provide loans to their members. Now other financial institutions, such as the Gurgaon Gramin Bank, are coming forward to provide support to the SHGs.

Village Development Groups

Empowered by this support Village Development Groups (VDGs) have been established which consider social and economic issues. These range from water user associations, business activity groups, to soil and water conservation committees. Once these groups were established they developed links with various development agencies.

Through this collaborative way of working between the government agency, IFAD, the banks and the community, improvements are taking place on a wide range of social and economic issues.

For further information, please contact:
 

Communications and Public Affairs Unit IFAD Via del Serafico, 107 Rome 00142 Italy Tel: +39 06 5459 2215 Fax: +39 06 5459 2143 / +39 06 5043 463 Website: http://www.ifad.org/

ITDG would like to thank Farhana Haque Rahman for providing the original material on IFAD’s Development Projects in India.

This document is an output from a project funded by the UK Department for International Development (DFID) for the benefit of developing countries. The views expressed are not necessarily those of the DFID.
 

Further reading available from ITDG Development Bookshop

Susan Johnson and Ben Rogaly
Microfinance and Poverty Reduction
The provision of credit and other financial services has become increasingly seen as the answer to the problems facing poor people. This book considers various types of microfinance schemes and compares the effectiveness of different approaches in aiding poverty reduction
£9.95 Oxfam 1997 ISBN 0855983698

Malcolm Harper et al
The New Middlewomen: Profitable banking through on-lending groups
This book describes a unique approach to the delivery of financial services to poor people, which can enable any existing commercial bank profitably to mobilise poor people’s savings and provide loans to them, without the need for special systems or new institutions. It is the result of extensive research funded by the DFID and the Ford Foundation in Kenya and India and will be essential reading for bankers who wish to support the poor profitable and effectively, and for all those with an interest in micro-finance issues.
£12.95 ITP PB 1998 ISBN 1853394319

Louise Dignard & Jose Havet
Women in Micro- and Small-scale Enterprise Development
This book brings together contributions from both practitioners and researchers in the field of women in micro- and small-scale enterprises (WMSEs), in order to provide a detailed analysis of current knowledge, and guidelines towards improved practice. Women’s role in enterprise development is now acknowledged as crucial, and a sense of urgency seems to beset all practitioners in the field. However, this eagerness in the sphere has not been matched by equal efforts in research, also there is a danger that entrenched positions on good practice are adopted without research being available to support them. Policy prescriptions and programme implementations may therefore be based on narrow and partial evidence. The book presents the complexity of women’s situations in WMSE’s, and the importance of the issues being addressed and will be useful to all those working in the field of small enterprise development.
£17.50 ITP PB 1995 ISBN 1853392847

Lucy Creevey
Changing Women’s Lives and Work: An analysis of the impacts of eight microenterprise projects
An in-depth analysis of eight micro-enterprise projects undertaken by three agencies in India, Bangladesh, Thailand, Peru, Guatemala, Honduras, Ghana and Tanzania. Its unique highly detailed presentation of such varied individual projects enables comparisons to be tightly drawn between them. The study has generated some significant and controversial results, including analysis of both unidimensional and multidimensional projects. Looked at from the point of view of the women involved, this book attempts to describe the impact of the different projects on their lives. It is designed for planners, practitioners, students and others interested in the results of the micro-enterprise programmes now popular throughout the developing world.
£17.50 ITP PB 1996 ISBN 1853393193

Martha Alter Chen (Ed)
Beyond Credit: A subsector approach to promoting women’s enterprises
As the title suggests, this book explores interventions to promote the enterprises of low-income women in the Third World which go beyond providing credit or financial services. A growing number of micro-credit programmes in the Third World have successfully targeted low-income women. The success of these programmes has served to highlight that women living in poverty not only are credit-worthy but also are engaged in a variety of economic activities that are critical to the livelihoods of their families. However, only a few of these programmes have systematically addressed the non-credit constraints faced by women workers.
£19.95 Aga Khan Foundation PB 1996 ISBN 0969966202
 

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