Our History
Sanghamithra Rural Financial Services (SRFS) was incorporated as a “not-for-profit” company in January 1995, under Sec.25 (currently Sec.8) of the Indian Companies Act, 1956. SRFS was promoted by MYRADA, an NGO, in whose projects the Self-Help Groups (SHGs) emerged in 1984-85. NABARD gave MYRADA a grant of Rs.1 million in 1987 to promote and train SHGs and to extend a grant to them based on their performance. This pilot program provided several insights and resulted in NABARD taking ownership of the initiative as a potential intermediary ecosystem to include poor rural families into the formal financial system.
Policy Changes: To support the objective of integrating the SHGs in the official financial system, RBI and NABARD made three policy changes which structured the intermediary ecosystem and supported a transition strategy : Banks were allowed: i) to extend one bulk loan to the SHGs allowing them to decide on purpose, size and repayment schedules on loans to members; this would cope with the diversity in purposes and sizes of loans required by the rural poor; ii) to extend loans to unregistered SHGs provided they kept records and accounts like Associations of persons; this was in response to a survey of SHG members who refused to be registered, fearing harassment by some petty government officer; and iii) to advance unsecured loans; the major security would be the affinity among the SHG members which was a traditional strength. The SHGs chose its members based on affinity, which arose from traditional relations of trust and mutual support. It was accepted that affinity among members who self-selected themselves would exert sufficient pressure for proper utilisation and recovery. The SHGs saved weekly for several months and deposited their savings in the groups common fund into which the Bank loans (under SHG-Bank Linkage program) were also credited. Hence there was a strong degree of SHG ownership of money in the common fund.
NABARD also provided finance to NGOs to train SHGs in institutional capacity building and to train staff of Banks, Govt., NGOs and other institutions who were partners in implementing the SHG-Bank Linkage program. MYRADA conducted hundreds of training programs for staff from these institutions both in India and abroad. Thanks to the support of RBI and NABARD the SHG movement went to scale; there were about 90 million SHG members by 2010.
The SHG – Bank Linkage Program: Based on the findings of the pilot grant to MYRADA in 1987 and other studies, RBI/NABARD launched the SHG – Bank Linkage program in 1992. This program formed the basis of a transition strategy for SHG members who lived in the informal sector, to have access to the formal financial system – the first step in financial inclusion of the poor. The SHGs deposited their saving in the Banks, accessed loans from Banks and deposited repayments directly in Banks. It was expected that the regular and direct interaction between SHG members and Bankers which the SHG-Bank Linkage program fostered, would increase the confidence of Bankers and of SHG members in one another and build a relationship. Many members opened personal accounts in the Banks after a year or two of being in the SHG. The good performance of the SHGs in repayment raised the respect for the poor among Bank officers. The respect that the poor SHG members received from the Bank officials was a major benefit according to the SHGs.
Sanghamithra’s Programme was integrated with the SHG- Bank linkage model of the RBI & NABARD. MYRADA found that in remote areas where it managed integrated programs, Bank branches did not exist or were too far from SHGs. So, it applied to RBI to start an institution to provide credit to SHGs in these areas. This was the genesis of Sanghamithra. For more information on this, please refer to the book “Sanghamithra, an MFI with a Difference” by A.P. Fernandez.
Though SRFS was incorporated in 1995, lending operations started in February 2000 after completing all the formalities such as putting in place the systems and procedures and obtaining exemption under 12A and 80G of Income Tax Act 1961.
SRFS obtained NBFC-ND-MFI licence from RBI on 14th August 2023.
II. HOW THE MODEL PROGRESSED AND WHY IT CHANGED:
From 2000 to 2005:
In the initial years till 2005 or so, SRFS followed the model of the SHG-Bank linkage program. During this period, it followed a full-fledged partnership model. A large percentage of its clients were from MYRADA’s projects and all were members of SHGs. After involving the people to identify the poor families using Participatory Rural Appraisal tools, and then asking the poor families to self-select their members and form SHGs, MYRADA provided several modules of training in Institutional Capacity Building (ICB). The SHGs proved their credibility by organising regular meetings, keeping records, undergoing several modules of ICB and mobilising regular savings which were deposited in the groups common fund from which loans to members were extended. It was only after this period of preparation which took about 3-4 months, that Banks (and SRFS) were approached to give one bulk loan to the SHGs, allowing them to decide on the size of the loan, purpose, interest, repayment schedule of loans to individual members. The interest levied on the client in this model was around 14-15%. Banks lent to SHGs at 11% and the SHGs added 3% to 4% to loans extended to members.
From 2005 to 2010:
SRFS extended its outreach to SHGs formed by other NGOs which also followed the process of preparation as outlined above, since their staff had been trained by MYRADA. Around 2010 the percentage of SHGs in MYRADA’s project supported by loans from SRFS declined to about 40%. Many of these SHGs were formed under the program of GOK managed by the Department of Women and Child Development. After the SHGs were transferred to the Rural Development and Panchayat Raj Dept., the quality of the SHGs declined, as adequate institutional capacity building training was not provided partly due to lack of resources. This affected the quality of the program and repayment efficiency declined. SRFS had to provide funds from its CSR to MYRADA and other NGOs to form and train SHGs; but these funds were far from adequate. As a result, the partnership model was under stress.
After 2010:
Under pressure from rating agencies and from the dominant model of NBFC-MFIs which adopted the model of the Bangladesh Grameen Bank, the lending model shifted from one bulk loan to the SHG towards extending individual loans to SHG members. This enabled the loan to be tracked from the start immediately when it was disbursed by SRFS. (The SHG Bank Linkage model was able to collect this data only after the SHG decided to extend loans to members. It took time and was a costly and time-consuming exercise. Under the SHG-Bank Linkage program, however, the Banks did not ask for prior information on the purpose and size of loans and the details of the client partly because no subsidies were involved. They were satisfied if the recovery rates were 99% to 100%- which they were). The demands from rating agencies to follow the model adopted by the NBFC-MFIs and which grew rapidly after 2010 forced SRFS to change its original model. The partnership model was re-engineered.
Today SRFS works with partners like NGOs, SHGs, CMRCs (Community Managed Resource Centres which are federations of 60-100 SHGs), but not in the same way as it did under the SHG – Bank Linkage model where it extended one bulk loan to the SHGs allowing them to decide on purpose, size, repayment schedule. Now SRFS extends loans directly to the individual member’s Bank account. The NGOs, SHGs, CMRCs provide supporting services, for which they receive a commission from the interest levied by SRFS.
Another reason for this shift in the SRFS model was because many SHGs were given loans without the initial period of preparation. Speed entered the equation. This resulted in weak SHGs and the emergence of agents and local women who have political/social power; they controlled the bulk loan. The NBFC-MFIs also began to use these agents to collect repayments. Of course, the client had to pay for this in several ways. The decision to credit loans directly to the clients account was expected to remove these intermediaries. In fact, it did not achieve this objective as long as the SHGs were weak.
