Money and Credit
Self-help groups and Grameen Bank
Explain how self-help groups bring cheap credit to the poor.
Why the poor cannot get bank loans. Many villages in India have no bank nearby. And where there is one, a bank loan needs proper documents and collateral, as Megha's did. Lack of collateral is a major reason the poor are turned away. Moneylenders know borrowers personally and lend without collateral, even to people who have not repaid earlier loans. But they charge very high interest, keep no records and harass poor borrowers.
Self-help groups (SHGs). A newer idea: organise the rural poor, especially women, into small Self Help Groups that pool their savings.
- An SHG usually has 15-20 members living in one neighbourhood, who meet and save regularly: each puts in anywhere between Rs 25 and Rs 100, or more if they can.
- Any member who needs money can borrow a small loan from the group. The group charges interest, but less than a moneylender.
From savings to a bank loan. After a year or two of regular saving, the group can get a loan from the bank, in the group's name. The group itself decides who gets a loan, for what purpose, how much, at what interest and how it will be repaid. And the group is responsible for repayment: if any member fails to repay, the others follow it up seriously. Because of this, banks are willing to lend to poor women in SHGs even without collateral.
What SHG loans are used for. Loans help members earn a living:
- releasing land that was mortgaged to a moneylender;
- working capital: seeds and fertilisers, or raw materials such as cloth and bamboo;
- housing materials;
- assets like a sewing machine, handloom or cattle.
SHGs are building blocks for organising the rural poor. They help women become financially self-reliant, and their meetings are a place to discuss and act on health, nutrition, domestic violence and other issues.
Grameen Bank of Bangladesh. A great success at giving the poor credit at reasonable rates. It began as a small project in the 1970s; by 2018 its members numbered over 9 million, in about 81,600 villages across Bangladesh. Almost all borrowers are women from the poorest sections. They have shown that poor women are reliable borrowers and can run small businesses successfully. Its founder, Professor Muhammad Yunus, received the 2006 Nobel Prize for Peace. He believed that fair credit for millions of poor people could add up to the 'biggest development wonder'.
Practise this lesson
Questions that get harder as you improve, a Tutor that helps without giving the answer away, and progress you can see. Free for every learner.
No account, no email address. Opens the real product.