The present age capitalism is also known as financialised capitalism, and micro-finance has emerged as its response to poverty, alongside fueling the efforts of women empowerment and rural development. In 2006, the Nobel Committee, while presenting the Nobel Peace Prize to Professor Muhammad Yunus, asserted, “Microfinance is an important liberating force and an even more important instrument in the struggle against poverty.”
Far from being unimportant at the global scale, the multitude of small-scale transactions that are being organised by the micro-finance systems across the world stand paradigmatically for the shift of rural credit system from the sahukaar-centric (local moneylender) financial institution to a self-sustainable, organised and much more accessible and reliable one. It is a fact that despite having a vast network of formal financial institutions such as banks and NBFCs, there have been severe constraints upon their capacity to make credit available to poor borrowers.
On one hand, bankers perceive the poor as credit risks. The poor, on the other hand, have always perceived banks as alien institutions that exist to serve the needs of the rich. It is in these circumstances that microcredit programmes emerged as a powerful tool to alleviate poverty.
While working in one such well-established micro-finance institution, I am writing this to describe the operational and financial structure of a 30-year-old federation in Kanpur. Boond Bachat Sangh, promoted by Shramik Bharti, is probably the oldest of such organisations in Uttar Pradesh. Their objective is to promote and make possible savings and credit activities among the poor through self-help groups (SHGs) to help and improve economic and social conditions. The other major goal is to undertake community development activities required and demanded by the people.
After visiting a few federations, it came to my knowledge that there is no uniform set of rules and regulations for the functioning of such organisations. A group of people go through a consultative process with SHGs and design an operational strategy suitable to the needs and livelihoods of the community. Having a successful track record and ever-increasing financial capabilities, Boond Bachat Sangh facilitates financial activities of its members. Some of these activities are:
- Annual Deposit/Compulsory Deposit
It was decided by the Board of Trustees (which also includes representatives from member SHGs who elected every five years) that each SHG would deposit Rs. 1,000 per year. They will get loans from the federation in multiples of the annual deposit and on the basis of their grading. Federations will pay 6% interest on the annual deposit. Additionally, the SHG may also deposit any money that’s not being used and earn 6% interest on it, which can be withdrawn as and when required.
- Federation Loan
Federations give loans to SHGs at 12% interest (at reducing balance). The amount is decided as per the grade from two to eight times their annual deposit with the federation. The member in need of a loan submits a written application form. The sanctioned loans are disbursed in group meetings. The principal as well as the interest is repaid in the monthly meeting.
- Community Contribution
The federation receives one-third of the interest received by SHGs in monthly meetings as the group’s contribution towards mentoring services provided by the federation.
At the end of the financial year, 90% of the profits of the federation are redistributed to the member SHGs. I am currently helping Boond Bachat Sangh with complete digitisation of their financial processes.
On asking the women in these collectives about how much this programme has helped them, a woman said, “Pehle toh cycle tak kharidne ki gunjaish nahi thi. Ab ghar le liya, gaadi khareed li, dukaan bhi khol diye (In the beginning, buying even a cycle seemed out of reach. Now, we have bought a house, a car and also a shop).” She has been a member of Boond Bachat Sangh for about 20 years. The federation has helped thousands of such women and helped them and their families to become financially more capable than ever before.
About The Author: Sani Sabale is a 2019 India Fellow, placed with Shramik Bharti in Kanpur, Uttar Pradesh, as a part of his fellowship. He was supporting the team members to strengthen micro-finance systems in villages to ensure better livelihoods in poor and low income groups. Sani loves to binge watch and his laughter is infectious.