Our Microcredit Principles
We primarily utilize a village centered, group lending model called the Self Help Group (SHG) model, to provide unsecured loans to our members. The SHG model has been growing and received policy support from the government of India since the 1980s. It is the dominant form of Microfinance along with the MFI model of lending to JLGs.
The SHG model has helped in bringing discipline, support and a practical and effective mechanism for the poorer sections of society, especially the women to get access to finance. With access to finance as well as the support of the group, they can identify opportunities and grow existing income generating activities such as running local retail shops, fishing, increasing agricultural production like growing of jasmine flowers, providing tailoring and other assorted trades and services, raising livestock, cottage production such as candle making, basket making etc. Access to basic financial services can significantly increase economic opportunities for poor families and in turn help improve their lives. It also helps in building confidence in women and transforming the socio-economic status of women in the family, in turn positively impacting the entire family.
This model ensures credit discipline through mutual support and peer pressure within the group to ensure individual members are prudent in conducting their financial affairs and are prompt in repaying their loans. Failure by an individual member to make timely loan payments will prevent other group members from being able to borrow from us in the future; therefore the group will typically make the payment on behalf of a defaulting member or, in the case of willful default, will use peer pressure to encourage the delinquent member to make timely payments, effectively providing an informal joint guarantee on the member’s loan.
Our microfinance lending model follows certain key principles as described below.
– Focus on Women. From prior experience, we have determined that women are more disciplined and better suited for lending. Women can positively influence loan repayment in their household because they are generally more risk averse, cooperate better in groups, and are more accessible than their working husbands and can meet regularly to handle the repayment of their loans. As a policy, we lend exclusively to women of, even if loan proceeds are used in the household business that is run by the family, including the husband. Providing women with access to capital in this manner increases their decision making stature in the household thereby impacting the entire family positively as women are more likely to utilize the increase in income for nutrition, education and other positive uses.
– Formation of self help groups. We appoint local field officers who are responsible for a specified village or set of villages. These field officers conduct various meetings to explain the concept and benefits for women to organize themselves into self help groups. The field officers ensure that the women are enthusiastic and interested and identify women who can form a cohesive group and become part of an SHG. The company provides necessary registers, books and documents necessary to conduct group meetings and maintain accounts. All help is provided in opening up bank accounts and setting up easy processes within the group to handle the finances.
– Member Training. We spend a lot of time and energy in training the women in being part of a group and helping them understand the basics of finance, savings and lending. We take a disciplined approach of first forming the SHGs and encouraging the women to save a fixed sum in their weekly or monthly meetings over the next 1 year period and conduct meetings and lend to the members from their own savings. We provide training to the members in managing the accounts, recording minutes of their meetings and handling the bank pass-book and check books. Only after the group has been stable and worked harmoniously for at least a year, we provide additional loans from the microfinance institution. We also at times link the groups with the banks and help them obtain credit directly from the bank where they qualify for these loans.