Women, Microfinance and the State in Neo-liberal India

K. Kalpana

• Publisher: Routledge India
• Year: 2016
• ISBN:
  9781134860043
• Edition: 1
• Topic: Économie
• Subtopic: Microéconomie

This book discusses women-oriented microfinance initiatives in India and their articulation vis-à-vis state developmentalism and contemporary neo-liberal capitalism. It examines how these initiatives encourage economically disadvantaged rural women to make claims upon state-provided microcredit and connect with multiple state institutions and agencies, thereby reshaping their gendered identities. The author shows how Self-Help Group (SHG)-based microfinance institutions mobilise agency and create channels of empowerment for women as well as make them responsible for alleviating poverty for themselves and their families. The book also brings out the importance of factoring in women's dissenting voices when they negotiate developmental projects at the grassroots level.

Rich in empirical data, this volume will be useful to scholars and researchers of development studies, gender studies, economics, especially microeconomics, politics, public policy and governance.

Chapter 1¹

The ascendance of SHG-based microfinance

‘Win–win’ in India

Globally, microfinance appeals to a diverse range of developmental and commercial actors through the ‘win–win’ hypothesis (Mayoux 1998; Morduch 2000), which posits that group-based lending programmes address the developmental concerns of poverty alleviation by financing livelihoods of the poor and the empowerment of women (by channelling a valued productive resource to poor households through their female members), besides offering the prospect of commercial viability and even profitability for the lending agency or the financial service provider. The win–win claims that underpin the microfinance edifice have brought development donor agencies, non-governmental organisations (NGOs), microfinance institutions (MFIs), commercial banks and informal peer groups of the poor into consonant action with each other even as development actors persuade individual savers and borrowers to adopt modes of responsible financial behaviour that meet the viability-related goals of lending agencies.

In this chapter, I trace the ascendance of self-help group (SHG)-based microfinance within national development strategies with a view to uncovering the particular forms that a corresponding win–win discourse has taken in India. I show how the win–win hypothesis may be understood as a case of successful ‘translation’ (Miller and Rose 1990: 10) – the process by which one actor comes to count on a particular way of thinking or acting from another by convincing the other to construe their problems or goals as intrinsically linked, their interests consonant and ‘their fate as in some way bound up with one another’. The adoption of shared vocabularies, theories and explanatory frameworks links various ‘centres of authority’ to the personal projects or the ‘aspirations, judgements and ambitions’ of multiple scattered entities, thereby enabling the former to govern their dispersed subjects at a distance (Miller and Rose 1990; Rose 1999: 48). In this chapter, I trace the processes of translation whereby the centres of calculation (Reserve Bank of India [RBI], National Bank for Agriculture and Rural Development [NABARD] and the Ministry of Rural Development) have aligned the goals of SHG promotion and financing (via subsidised and direct linkage schemes) with the ‘personal projects’ of institutions that include commercial banks, the rural development administration and promoter NGOs. These actors are, in turn, made responsible for the formation and successful functioning of women’s self-managed collectives and their credit linkage to formal financial institutions.

In order to elaborate the precise ways in which this alignment of goals takes place, I also draw on David Mosse’s (2004) argument that development projects seek to maintain themselves as coherent policy ideas by stabilising the interpretation of events or establishing ‘authoritative interpretations’ and having their central goals translated in ways that make possible the recruitment of ‘interpretive communities’ or a range of supporting actors who come to be invested in the interpretive premises that underpin the project. By uncovering the processes of translation (Miller and Rose 1990; Mosse 2004) at work, I contextualise the remarkable growth of SHG-based microfinance from its inception as NABARD’s experimental pilot project in the early 1990s to its emergence, within the span of a decade, as the agent par excellence for (a) financial intermediation between banks and a dispersed rural population, (b) the cost-effective delivery of poverty-alleviation schemes to the poor and (c) mainstreaming women within economic development programmes from which they had been long excluded.

This chapter also outlines the political-economic compulsions and the institutional infrastructure that facilitated the growth of women’s microfinance SHGs in the Indian states, drawing attention to various state governments’ investment in and ownership of what NABARD (2005: 38) describes as the ‘microfinance movement’ in the country. Subsequently, I show how the key institutional actors involved in SHG promotion, namely., government agencies, civil society actors such as development NGOs and nationalised banks, have been motivated to undertake the demanding tasks of SHG promotion both at the national level and in the specific context of the administrative block in Tamil Nadu – the site of my ethnographic fieldwork.

Situated policy context of SHG-banking: competitive banks and complementary social measures

In the early 1990s, the Indian government embraced ‘root and branch’ liberalisation of the Indian economy in contrast to the ‘reforms by stealth’ that marked the 1980s (Byres 1998: 4). Mooij and Dev (2002) argue that policy planners’ preoccupation with growth as the prime concern of economic policy in the 1990s was accompanied by the pragmatic acceptance that the poor were likely to suffer the consequences of fiscal austerity and falling public expenditure in the short run. Poverty-alleviation measures were perceived as a compensatory mechanism that would contain the inevitable fallout of the economic reforms; this was reflected in the macro-economic policy framework of the Eighth Five-Year Plan (1990–95), which outlined stabilisation and structural adjustment measures as well as complementary social measures (Van Stuijvenberg 1996). During this period, reforms in the Indian banking sector were also undertaken, as a component of the overall financial sector and economic policy reforms, following the recommendations of the first Narasimham Committee on Financial System set up in August 1991. Critics note that the reforms strongly emphasised improvement of the allocative and financial efficiency of the banking sector, with performance evaluation criteria of the banks shifting towards profitability and portfolio quality above other indices (Kohli 1997).

Projects of inclusive banking have thus taken shape in a policy context marked, on the one hand, by the banking sector’s pursuit of institutional viability in a competitive and deregulated environment and, on the other, by the need to direct public planning towards complementing the unfettered market mechanism. Besides, as briefly mentioned in the Introduction, the legacy of social banking had bred both expectations and disappointments in its wake. Some of the key measures of the social and development banking era that were pursued vigorously until the end of the 1980s included the en masse expansion of bank branches in semi-urban and rural areas (following the nationalisation of 14 major commercial banks in 1969), the directed flow of bank credit to state-designated priority sectors,² interest rate capping in order to lower the cost of credit through the Differential Rate of Interest scheme targeted at the eligible poor and the creation of a separate structure of regional rural banks (RRBs) in 1972 to cater exclusively to ‘weaker sections’. And yet these initiatives did not guarantee the credit entitlements of small and marginal cultivator households, nor did they reduce the costs borne by the poor seeking to deal with the formal financial sector (Bhende 1986; Sarap 1991). The land-based lending policies of banks, the non-eligibility of the movable securities the poor possessed and the rigid distinction maintained by banks between production and consumption needs, with the latter being delegitimised, foreclosed the access of the landless and land-poor sections to bank credit (Swaminathan 1991).

Despite a policy thrust that mandated rural financing, the effective disenfranchisement of substantial sections of the rural poor (by the banking sector) on account of their non-ownership of property and the absence of stable incomes and reliable livelihoods speaks of the ‘tenuous’ and ‘ambiguous’ sense in which the inhabitants of ‘political society’ (Chatterjee 2004) are rights-bearing citizens as imagined by the constitution. The NABARD Taskforce on Microfinance attributes the failure of commercial banks in financing large sections of the rural poor to the high transaction costs of doing business with a geographically dispersed population, the ‘urban orientation’ of field staff and the perception of the bank as an ‘alien institution’ inaccessible to the poor (NABARD 1999: 1.7.2). NABARD’s interest in the SHG-bank linkage programme derived from its participation in the mid- to late 1980s in the Asia Pacific Rural and Agricultural Credit Association, set up by the United Nation’s Food and Agricultural Organisation to promote innovation in rural finance. The association transmitted key elements of the (then) ‘new thinking’ on rural finance, promoted by the World Bank and UN agencies, that advocated the promotion of financial linkages between formal financial institutions and the informal sector (Dasgupta 2001).

SHG-banking, which began as a pilot project linking 500 SHGs to commercial banks in 1991–92, was modelled on a three-year experimental project between the NGO MYRADA and NABARD in the late 1980s. In the project, MYRADA promoted women’s SHGs that were financed by NABARD. Mainstreamed as part of routine banking business in 1996,³ SHG-banking offered non-collateralised credit, which the poor (organised into SHGs) could use for any purpose, including household consumption. The quantum of credit was linked to the volume of group savings (in a ratio of 4:1) and provided in a relatively de-bureaucratised manner. The bank could directly make a loan to an SHG (which had functioned for a minimum period of six months) or to a promoter NGO/MFI which would on-lend to the SHGs it promoted. Having built ‘financial discipline’ and ‘credit history’ and displayed ‘mature financial behaviour’ through the rotation of ‘their own hard-earned money’ or ‘warm money’, the SHGs were permitted and encouraged to secure ‘cold (outside) money’ from the bank (NABARD 2006: 2).

Aligning ‘the fate’ of SHGs and banks: constructing consonant interests

The SHG-bank linkage scheme is striking for the extent of operational autonomy that it has allowed commercial banks in order to foster their participation in the scheme. The banks that financed SHGs were permitted to make ‘deviations’ with respect to the conventional viability norms that governed bank lending such as margin requirements, the scale of finance, unit costs and security ‘where deemed necessary’. The bank was allowed to decide upon and prescribe simple documentation that it judged an SHG capable of providing. The repayment period on the linkage loan was to be decided by the bank after negotiation with the SHG. The NABARD exhorted banks to delegate adequate powers to branch-level managers to undertake ‘autonomous’ decision-making for the purpose of this scheme, where they did not have such powers usually (NABARD 1992, 1996). In 1999, the RBI deregulated interest rates on all loans made by banks to MFIs and NGOs. In 2000, banks were encouraged to formulate their own model or choose any conduit/intermediary for extending microcredit. Correspondingly, all microcredit extended by banks to individual borrowers, whether directly or through an intermediary, was designated as priority sector lending (RBI 2000). These measures further enhanced the operational autonomy of banks, seeking thereby to incentivise bank lending to SHGs as well as other actors in the emerging microfinance sector in the country.

While the RBI and the NABARD vigorously promoted SHG-banking (through measures such as incorporating SHG lending within priority sector lending and NABARD’s refinance of bank loans to SHGs), they did not set annual targets or quotas mandating the volume of credit flow from banks to SHGs through the linkage scheme. It might be posited, therefore, that the operational autonomy allowed to banks was intended to steer them of their own volition towards SHG financing, a project that was discursively constituted in ways that established a clear departure from the erstwhile ‘poverty lending’ associated with the social banking era. In other words, the banks were to be freed of operational constraints, to be autonomised in ways by which the state may divest itself of direct responsibility for their actions and calculations (Rose and Miller 1992) so that they would ‘choose’ SHG-banking. The operational principles of SHG-banking, in turn, resonated with the efficiency considerations of recovery performance, institutional viability and transaction costs reduction. These concerns had grown increasingly salient since the inception of the banking sector reforms (Ramachandran and Swaminathan 2002). As a former governor of the RBI put it, the SHG-bank linkage programme evolved in a macro-policy environment dominated by the concerns of revitalising Rural Financial Institutions (RFIs) damaged by the ‘twin problems of non-viability and poor recovery performance’ (RBI 1997: 70).

The policy documents of RBI and NABARD advocating the SHG-bank linkage project and the public speeches of their officials have unequivocally voiced these concerns, seeking validation for the ‘policy idea’ (Mosse 2004) of SHG-banking by anchoring it firmly to the dilemmas and predicaments of a key ‘supporting actor’ – the financing banks. In particular, they underscore the ‘user participation’ advantages that SHGs offer banks by freeing them from direct responsibility for the financial decision-making of numerous individual savers and borrowers, who will be governed instead by their own autonomised and responsibilised grassroots collectives. The first NABARD circular on the linkage scheme outlines the potential of SHGs to enable ‘externalisation of a part of the work items of the credit cycle, … a reduction in the formal paper work involved and a consequent reduction in the transaction costs’ (NABARD 1992).

A NABARD handbook on SHG-banking for branch-level bankers identifies the banks’ benefits as being the cost-saving advantages (‘only one account is needed for 20 members’), the transfer of appraisal and monitoring costs from the bank to the group (‘the moral authority of group members … means supervision of effective utilisation and repayment’), the anticipated increase in the deposit base as ‘SHG financing will become big business over a period of time’ and the prospective increase in the ‘social base’ of the bank in the rural areas by earning ‘social recognition’ and ‘commanding the good will of the people’ (NABARD n.d. 1). The NABARD Task Force on Microfinance anticipates that an impending transformation of SHG members into ‘micro-entrepreneurs’ and their ‘eventual graduation into bank customers’ providing an ‘ever-increasing volume of business for banks’ will ensure that SHG linkage emerges as one of the more important means to secure the long-term sustainability of RFIs such as RRBs (NABARD 1999).

The inception of the linkage scheme is thus co-terminus with the valorising of the SHG and its constituency as ideal bank clientele and customers. SHG-banking is discursively constituted as a profitable avenue that enables beleaguered bankers⁴ to adhere to the commercial principles of banking even as they fulfil the developmental mandates of a welfare state. We see therefore that the RBI and the NABARD have attempted to shape SHG-banking in keeping with some of the constitutive principles of financial liberalisation. However, the SHG-based microfinance landscape in India has also been shaped by the agenda of the Ministry of Rural Development and the competing pulls of delivering subsidy-bearing poverty-alleviation schemes to targeted poor households.

The SGSY: re-assertion of poverty lending?

In April 1999, the central government introduced a nationally implemented poverty-alleviation programme, namely the SwarnJayanti Gram Swarozgar Yojana (SGSY), that used SHGs as organisational channels to deliver financial assistance to targeted beneficiaries below the official poverty line in order to set up self-employment activities and thereby cross the poverty line. In contrast to the direct linkage scheme, the SGSY tied the use of the loans to the financing of enterprise activity, contained a subsidy component and specified ‘below poverty line’ status for loan recipients. The amount of capital disbursed as loan finance was not linked to the quantum of women’s savings (as in the case of the linkage scheme) but was determined instead by the financial requirements of the enterprise activity proposed by the SHG. Being a targeted intervention (unlike the linkage scheme), the SGSY aimed to cover 30% of families living below the official poverty line in an administrative block within a five-year period. It mandated sub-quotas for the scheduled castes (SCs) and scheduled tribes (STs) (50% of beneficiaries), women (40%) and the disabled (3%) and prescribed that at least 50% of the SHGs formed under the scheme in an administrative block be women’s SHGs (GOI n.d. 2).

Not surprisingly perhaps, the SGSY provoked the ire of microfinance practitioners and analysts for its violation of the ‘essential’ features of microfinance. Commentators on the microfinance sector expressed their disappointment that the SGSY reflected the continuing ‘obsession of the Indian planning environment with old style socialist thinking despite ten years of economic reforms’ (Sinha 2000). The SGSY was believed to pose the long-term risk of corrupting a more sustainable microfinance system by introducing subsidies and generating the expectation of loan waivers (Malhotra 2000). The non-linkage between group-gen...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of tables
• Preface
• Acknowledgements
• Abbreviations
• Introduction. The paradox of SHG-banking: microfinance and neo-liberal governmentalities
• 1 The ascendance of SHG-based microfinance: ‘win–win’ in India
• 2 Becoming micro-banks: generating capital, building discipline
• 3 Evaluating the self: distributing resources, containing risks
• 4 Managing micro-banks: how much autonomy? Whose responsibility?
• 5 The ‘imperfect translation’ of SHG-banking: autonomised bankers, ‘vulnerable’ women
• 6 Female entrepreneurship and the SGSY: subverting policy, surviving poverty
• 7 Learning about the state: a pedagogic reversal
• Conclusion
• Annexure
• Bibliography
• Index