T. M. Thomas Isaac, Michelle Williams,
Pinaki Chakraborthy, and Binitha V. Thampi

The relatively recent phenomenon of women’s micro-finance self-help groups (SHGs) has received considerable attention from policy makers and social activists around the world. Micro-finance organizations, originally developed by social activists and organizations, have been increasingly incorporated into the policy prescriptions of international development agencies. This appropriation by international development agencies has brought considerable changes to micro-finance organizations in terms of motives, procedures, assessment techniques and policy framework. It has also led to the dramatic acceleration in the creation of micro-finance groups around the world and has placed them at the center of many programs for poverty eradication.

Micro-finance organizations currently cater to 23.5 million clients around the world. The February 1997 World Bank-sponsored "Micro-credit Summit" declared the goal of expanding micro-finance coverage to include 100 million of the poorest of the poor by 2005. At the end of 1997 the United Nations General Assembly adopted a resolution endorsing the declaration and plan of action of the "Micro-credit Summit" and called for the coordinated effort among member countries’ international donors and the UN and World Bank system to include micro-finance as a primary tool for the eradication of poverty. The subsequent years saw unparalleled concerted international activity to revise the traditional framework for poverty alleviation programs, making micro-credit the key link to poverty eradication.

The entry of the world bank into the micro-finance arena, the promotion of the so called "best practices," the emergence of the micro-credit industry, and growing evidence of micro-credit programs as part of the structural adjustment programs have made the left increasingly wary of the micro-finance and self-help group movement. A discussion of the internationalization of micro-finance and the left critique of the World Bank approach is presented in section 2 of the paper. While agreeing with the left critique we wish to emphasize the potential advantages of the micro-finance system for financing the poor, and the inevitability of their inclusion into the development paradigm.

Micro-finance self-help groups are generally seen as an effective local response to poverty alleviation for the world’s poorest of the poor. The common model of micro-finance self-help groups is underpinned by the belief that the lack of access to credit is the primary cause of poverty, and therefore access to credit is the primary solution to eradicating poverty. In addition to seeing access to credit as the primary remedy for poverty eradication, the model espoused by international development agencies conceives of a process that provides a minimal role for the state in poverty alleviation, but instead bypasses state institutions and links micro-finance self-help groups to non-governmental institutions (NGOs).

The traditional poverty alleviation program and targeted lending in India have failed to achieve their objectives. Apart from the problematic design and bureaucratic implementation, the failure to adopt a holistic view of poverty, the absence of democratic decentralized planning, and the existence of a highly iniquitous caste system and agrarian relations are largely responsible for the failure in poverty alleviation. Instead of dismantling the entire anti-poverty program and placing the sole responsibility for poverty alleviation on micro-finance institutions, we argue for a model that joins the two and links them to local-level planning and participatory democratic processes, which we discuss in section 3.

We argue for model based on women’s neighborhood groups (NHGs) which are embedded in the local community and organically linked to local self-governments. The Kerala experience gives compelling reason for a broader conception of development that links women’s micro-finance organizations to women’s empowerment in both the economic and political arenas and places them firmly within a broader development agenda such as the implementation of agrarian reforms, development of social infrastructure, provision of public distribution, and participatory governance. We conclude the paper with a brief discussion of the experiment in Mararikulam, Kerala, which has been at the forefront of the women’s neighborhood group movement in the state.

Credit is vital to the poor for overcoming the inevitable and common disjuncture between income and expenditure. Credit is also crucial to the poor for income generating activities, like investing in their marginal farms or other small-scale self-employment ventures. Their access to formal banking channels, however, is limited due to their low resource base as well as the nature of formal credit institutions. The popularity of the micro-finance self-help groups stems from widespread recognition that formal banking channels are largely ineffective in catering to the credit needs of the poor.

There are a number of disincentives faced by formal lending institutions in loaning to the poor. For example, their transaction costs are high due to difficulties in screening the credit worthiness of the borrowers, in monitoring the utilization of funds, and in enforcing repayment. Tiny savings and loans are therefore an unattractive business proposition for formal banking institutions. In addition to disincentives faced by the banks, there are also problems faced by the poor in accessing loans from formal banking institutions. For example, to minimize risks banks demand collateral security that the average micro-borrower does not possess. Banks also insist on complicated procedures that are too time consuming and often too complicated for the poor and illiterate. Even in the implementation of direct lending programs formal institutions find it difficult to overcome the problem of targeting. The experience is that the rich and powerful typically manage to corner the scarce loanable funds. Thus, formal banking channels remain largely inaccessible to the poor in India. As a result the poor continue to be dependent on informal sector lending, paying exorbitant rates or underselling the product and their labor power to the creditor. It was in response to these limitations in formal banking channels that micro-credit mechanisms were innovated.

The most popular form of modern micro-finance organizations is women’s self-help groups, consisting of a loose group of members who live in close proximity to each other and who meet at regular intervals (most often weekly). The primary focus of women’s self-help groups is savings and loans: the groups collect regular thrift from the members, the amount of which is collectively pre-agreed upon, and provide loans from the thrift fund to members. The groups may also access loanable funds from financial intermediaries, including commercial banks, cooperatives, special government agencies, or non-governmental organizations.

The success and sustainability of this pattern of women’s self-help groups stems from the fact that the weekly meetings create a mutual trust and bond among the members, which acts as a form of pressure ensuring regular repayment by the members. The system also caters to the saving needs of the poor through thrift collection. A further advantage of this system is that the group may diversify its activities to other social and economic objectives such as adult education, health education, health care, and micro-enterprise development.

There is no uniformity in the size of women’s self-help groups with the range generally falling between twenty members and 100 members. One factor that has often kept group size small in India is the Company’s Act, which limits the number of people who may associate to undertake profitable activity without registration to twenty members. Natural boundaries and geographical proximity in group formation, on the other hand, has often led to the formation of larger groups. Though there is no uniformity in size, it is generally accepted that smaller groups contribute to better participation in the decision-making process and facilitate greater transparency, greater dissemination of information, and easier management. The larger groups, by contrast, have greater potential for community-based action.

A number of women’s self-help groups often develop within any given region and there are three principal forms of inter-group relations: nuclear, centralized, and federated. First, in the nuclear organizational structure each group is an independent entity with separate bank accounts. Groups based on the nuclear model may be linked to a central institution which provides training and guidance. But it should be stressed that the individual groups are autonomous and independent. While the nuclear model provides the greatest level of autonomy for the group, it often can not take advantage of economies of scale. In contrast, in the centralized model the central institution is the primary decision maker and acts as a financial intermediary for the groups with the banking institutions. The individual group’s decision-making power is limited to things like deciding loan recipients within the group. The centralized system tends to be bureaucratic and delimits group initiatives, but brings the advantage of economies of scale. The federated system attempts to combine the positive aspects of both the nuclear and centralized systems. While each self-help group retains full autonomy and independent bank accounts, they are federated at sub-regional and regional levels with a democratically elected apex body, which carries out the coordinating function, provides training and guidance, and if necessary helps procure external funds.

Thus far we have discussed micro-finance systems based on group models (i.e. groups are the primary entity making loans and administering savings). Another very important system prevalent in the developing world is micro-credit lending directly to individuals (i.e. individuals are not part of any group, but rather seek loans directly from the lending institution). In this model banks are the primary lending institution. This form of lending is very similar to formal bank lending or cooperative credit activity with the primary difference being the small size of loans involved. Repayment is often guaranteed through the practice of agents personally going to individual’s homes.

The various forms of micro-credit systems have proven successful in delivering credit to the poor and ensuring high rate of repayment when compared to the formal channels. Because micro-credit systems have been effective in reaching the poor, many developing countries have set up special financial institutions that either directly provide credit to self-help groups and the facilitating NGOs or help refinance commercial and cooperative banks that provide the credit. These national micro-finance institutions are in turn funded by international agencies as well as the national government.

Chart 1 outlines the different features between formal banking channels and micro-finance channels. In contrast to formal banking, micro-credit is characterized by small size, shorter loan duration, emphasis on thrift, and the absence of collateral security and informal procedures. In the absence of collateral security and formal documents there can be little legal recourse against defaulters. Peer group pressure, however, has proven even more effective than loan repayment mechanisms in the formal banking system. While the banking system is a purely commercial organization the lower tiers in the micro-finance system are social organizations and motivated by non-economic objectives.

Chart 1 Comparison of Micro-finance and Formal Banking

As we noted in the introduction, the World Bank’s entry into the micro-credit arena has led to the rapid expansion of micro-finance organizations around the world. The effort of the World Bank is to integrate the micro-credit movement with the globalization process and to transform it into a complimentary component of its financial sector reforms. We shall now briefly examine the background of this development and then critically discuss the World Bank’s perspective on micro-credit programs.

The intensification of globalization in the 1990s has been accompanied by a significant deceleration of the global economy when compared to the previous decade. A comparison of the per capita income between the 1960-1980 and 1980-1998 reveals that in every region of the world except China, there has been a sharp deceleration of growth in income (UNDP, 2000). This deceleration in world economic growth has also been accompanied by a widening of inequality between the developed and developing countries as well as between the rich and poor within countries. In other words, world poverty has worsened and even the World Bank has not claimed a sharp reduction in poverty during the recent decades.

An important feature of global immiseration is the so-called feminization of poverty, which refers to the fact that the burden of poverty unequally falls on women. Of the 1.3 billion poor in the world 70% are women. The UNDP estimates that during the period 1965-70 to 1985-90 the number of rural poor men increased by 30% while the number of rural poor women increased by 48%. Further, the statistics reveal a significant increase in the number of rural female-headed households, most of which fall below the poverty line. The realization of the feminization of poverty and the growing criticism by a range of groups around the world has led the World Bank to support micro-credit schemes as a form of poverty eradication.

The World Bank’s first official declaration on the topic of micro-credit came from its President at the 1995 International Women’s Conference in Beijing. At this Conference micro-credit was put forward as the solution to poverty eradication as well as a form of women’s empowerment. The World Bank then formed the Consultative Group to Assist the Poorest (CGAP), a program within the World Bank, "to systematically increase resources in micro-finance." Though CGAP has a modest budget of 200 million dollars and does not make direct loans, it has emerged as the most influential actor in micro-credit programs through its selective grants, its coordinating role among donors, the funding of studies and research, and the promotion of what it considers "best practices."

The February 1997 World Bank-sponsored "Micro-credit Summit" in Washington DC was supported by a number of international developmental institutions, international NGO’s and multi-national banks like Citicorp, Chase Manhattan, and American Express. The summit launched a global campaign to extend micro-credit to 100 million of the world’s poorest by 2005. This micro-credit campaign especially targeted women of the poorest families and was meant to help initiate self-employment activities. By the end of 1997 the United Nations adopted a resolution endorsing the "Micro-credit Summit" and its plan of action. The UN now accepted micro-credit as a key instrument for poverty reduction and made it mandatory for member countries to coordinate their efforts with the global micro-finance campaign. The claim that micro-finance was the solution to poverty eradication dovetailed nicely with the UN’s declaration that the decade 1997-2006 was the "United Nations Decade for the Eradication of Poverty." With the UN endorsement CGAP formally emerged as the central coordinating mechanism of the worldwide micro-credit program.

To reach 100 million of the poorest of the poor an estimated $12.5 billion would be needed by 2005. By 2025 the projected additional demand for micro-credit was estimated at $90 billion. The scale of projected demand in the micro-finance system can only be appreciated in comparison to the 1995 estimate of actual micro-credit finance of $2.5 billion (CGAP, 1995). To finance such a dramatic increase in micro-finance spending and to ensure this scale of fund flow, international financial markets would have to be tapped, as the resources of aid donors would simply not meet the demand. Moving beyond the resources of aid donors into the international financial market meant that micro-credit had to become a profitable avenue for international commercial lenders. What this effectively meant was that in order for micro-credit to be a viable solution to poverty alleviation it had to become financially self-sufficient and ideally a profitable venture. To ensure this, two options were tabled. First, the cost of micro-credit lending had to be minimized; and second, the income from micro-credit lending (i.e. the interest rate) had to be allowed to rise.

The pursuit of cost reduction has led to promotion of "best practices" that includes institutional efficiency in management, accounting, marketing, servicing, and product designs. NGOs have been identified as the most cost effective method of providing micro-credit, extending the outreach, and ensuring recovery. By using NGOs as the intermediary it is generally believed that heavy overhead costs will be avoided and informal mechanisms more easily utilized. To channel funds to NGOs specialized national and regional institutions would be set up. The NGOs are encouraged to strive for financial self-sufficiency by meeting their expenditures through the margin permitted on the interest rate as well as the service charges collected from the self-help groups.

With regard to the rising interest rate as a means for financing self-help programs, it is the World Bank’s view that the poor can both afford and are willing to pay commercial interest rates. Furthermore, they are more concerned with the timely availability of credit than the rate of interest. Because they believe the poor can afford and are willing to pay commercial interest rates, the World Bank opposes subsidies on interest rates. Thus, in some countries the World Bank has insisted on amendments to national laws on usurious interest rates and stronger debt collection laws.

If micro-credit institutions are to become financially self-sufficient and their scale extended, it is important that the new system should not have subsidized competing alternatives, which should be dismantled. For example, priority sector lending, subsidized credit schemes, and traditional rural credit institutions are among the various subsidized systems that compete with the World Bank’s micro-credit system and, according to the World Bank, ultimately should be dismantled. In addition, the formal financial sector is allowed to withdraw from rural and small-scale sectors, which are to be serviced exclusively through self-help groups and specialized financial institutions. Again, the micro-finance system is thus set up to ensure a profitable return to the international financial markets.

The result is the emergence of "the micro-finance industry." At the international level, there are the multinational banks and other international financial institutions that lend to national-level micro-finance institutions (MFIs) at commercial interest rates. The national-level micro-finance institutions either directly lend to the NGOs or refinance the financial institutions that lend to the NGOs. At the bottom of the pyramid are the women’s self-help groups. The idea is that the spread of the interest rate structure should be such that every level—MFIs, NGOs, and SHGs--are financially self-sufficient and all absorb some of the interest rate costs. Thus, micro-credit programs are rendered a profitable venture for international finance capital, while also ensuring sufficient outreach and sustainability in order to make a dent in poverty. Poverty eradication through women’s self-help groups is therefore made a profitable venture.

The strategy for poverty eradication is bound to fail if it is viewed as a substitute for social sector spending in areas such as education, health care, shelter, drinking water and nutrition. Poverty and solutions to poverty must be addressed in a holistic approach, which includes a role for subsidized credit without which many poor will be priced out of the market. The price and cost of the credit is as important as the availability of credit (or any service) for the poorest of the poor.

While micro-credit programs have certainly proven successful in reaching the poor, the effectiveness of micro-enterprises as the chief agency in poverty alleviation has yet to be proven. Thus far we have focused on the structure of the World Bank-sponsored micro-finance institutions. An understanding of the aspirations and desires of the poor will be crucial for effectively developing a long-term poverty eradication program. For example, do people want to be in micro-enterprise production, or rather are their aspirations to become wageworkers? Indeed a major portion of the poor hails from the wage laborer class. Appreciating the desires and aspirations of the group targeted should not be underestimated in the long-term viability of any program.

In addition to poverty eradication, it is further argued that women’s self-help groups empower women through the availability to credit, employment, and higher income. The extent to which micro-credit organizations actually help to empower is unclear at best. Many argue that women’s role in these organizations merely translates into them becoming a conduit for credit to the family where the loan is appropriated and controlled by men. While the men control the funds within the home, the women bear the responsibility of loan repayment. It is further argued that many of the self-employment activities of these groups reinforce traditional female roles and the gender division of labor, while at the same time often contribute to an increase in the burden and workload of the women as their responsibilities in the home have not lessened with their involvement in women’s self-help groups. Such arguments tend to highlight the importance of a holistic approach to poverty eradication and women’s empowerment.

 Evolution of Kudumbashree Neighborhood Groups

The evolution of poverty alleviation programs and micro-credit in India has been characterized by certain distinctive features that are in contrast to the current international trends we discussed in the previous section. First, in India there has been an emphasis on social banking in the provision of credit to the poor. Second, a large number of state-designed and implemented poverty alleviation schemes have been part of the five-year plans. And third, an extensive network of nationwide administrative infrastructure has been developed in order to implement the poverty alleviation schemes. We shall briefly review these three features before we discuss the experience of Kerala State.

Debt bondage was an important ingredient of the semi-feudal system that existed at the time of independence and a major cause of poverty and agrarian stagnation. In 1951, 92.8% of credit to rural households in India was being met by the informal sector, mostly at ruinous usurious interest rates. Informal moneylenders supplied 46% and rich farmers, landlords and merchants supplied 34% of rural credit. Therefore, the development strategy during the initial plan periods laid considerable emphasis on the spread of co-operative networks in the rural areas. By 1971 the share of co-operatives in the rural credit had risen to 20% (see Table 1). In 1969 the leading banks were nationalized and public ownership was utilized to extend bank credit to the rural sector by rapidly expanding the rural bank branches and directing lending to priority sectors. As a result between 1971 and 1991 the share of the commercial banks on rural credit increased from 2.2% to 33.7%.

Table 1 Distribution of Rural Credit by Source

The 1970s witnessed rapid expansion of targeted poverty alleviation programs attempting to increase the self-employment opportunities and wage employment for the poor. The most ambitious of them was the Integrated Rural Development Program (IRDP), a credit based self-employment program with substantial backend subsidy. In 1982-83 Development of Women and Children in Rural Areas (DWCRA) was launched as a sub-scheme of IRDP, which facilitated women taking up self-employment in groups. Larger loans and subsidies were provided so that economically viable non-farm enterprises could be started through group activity. Special schemes for providing training and tools for the self-employed were also launched. During the latter half of the 1990’s the IRDP and related schemes were integrated into a more holistic program of Swarnjayanthi Grama Swarozgar Yojana (SGSY), where the emphasis is on self-help groups of rural poor. In addition, promotional social security measures such as shelter, drinking water, mother and childcare, sanitation, primary education have also been given emphasis in the rural development programs.

The Community Development Blocks that had been introduced during the second five-year plan became the focal point for implementing the rural poverty alleviation programs. Another important administrative network was the Aganavadi (Mother and Child Care Centers) through the ICDS program. In addition to these programs targeting rural poverty, there are 90,000 primary agricultural co-operative societies and nearly 60,000 commercial and rural banks catering to the rural population throughout India.

Despite the above efforts, it remains doubtful to what extent poverty has been alleviated. Indeed, it appears that rural poverty persists without a viable solution. Though a significant transformation in the credit profile of the rural sector has been achieved, as is evident from Table 1, the majority of the rural poor still remain outside the reach of formal credit channels. One estimate is that only 20% of the 60 million households falling below or marginally above the poverty line have access to formal credit channels. As per the rural credit and debt survey the share of non-institutional credit sources was 58% in the case of the poorest group (owning less than rupees 5,000 in assets) as against 19% among the highest asset group (owning more than rupees 2 lakh in assets). A host of studies have shown the poor performance of IRDP in terms of targeting, improvement of skills and earnings, and financial viability. Given this background there has been a growing emphasis on schemes of micro-credit and the promotion of self-help group mechanisms. There is a growing danger that in the new international environment, the micro-credit schemes will replace the traditional programs and institutions and be championed as the only solution to rural poverty. It is in this context that the experience of Kerala assumes significance.

Kerala is one state which has been successful in achieving a perceptible reduction in poverty (official statistics show it to have achieved the sharpest reduction in the proportion of households below poverty line during the recent decades). The success of Kerala has been realized through a holistic approach emphasizing structural changes such as land reforms, public provisions of health, education, and other social infrastructure, a universal public distribution system and, more recently, community participation through decentralized planning.

The challenge is to link the micro-credit program with the structural changes in the rural areas, the emerging Panchayat Raj Institutions, and participatory local-level planning. Self-help groups are not a substitute for, but a complimentary part of, other poverty alleviation and social security programs. The Kudumbashree neighborhood groups (NHGs) introduced during the late 1990s was a conscious attempt to develop such links and deepen the democratic potential in the micro-credit programs.

The genealogy of Kudumbashree takes us to the Community Development Society (CDS) innovated in Alappuzha Municipality in 1993 while implementing UNICEF assisted Urban Basic Services for the Poor (UBSP) and Community Based Nutrition Program (CBNP). The poverty index on the basis of simple exclusion criteria was evolved to identify the poor through a participatory process. High risk (poverty) is defined as the presence in a family of four or more of the following nine risk factors:

1. Family belonging to Schedule Caste/Schedule Tribes,
2. Five with children under five years old,
3. Family having even one illiterate adult,
4. Family with only one or no adult employed,
5. Family living in Kutcha house,
6. Family without a household latrine,
7. Family with no access to safe drinking water,
8. Family consuming only two or less meals per day, and
9. Family with an alcoholic or drug addict.

Families with four or more of any of the above risk factors were identified as poor, and subsequently organized into neighborhood groups. The neighborhood groups were federated at the ward level as Area Development Society (ADS) and at Municipal level as Community Development Society (CDS). The risk index analysis gave a picture of the multiple needs of poor families, which then was used for planning purposes and transparent criteria for prioritization during implementation. The micro-plans at the neighborhood group level are consolidated at the ward level and then integrated to form an Action Plan of the CDS. In addition to micro-credit, health, nutrition, education and women’s status were built into the program. A volunteer from each NHG facilitates each sector.

Another important development was the extension of the CDS scheme to the whole of Malappuram district. The enthusiasm of the literacy campaigners was harnessed to identify the poor and organize the CDS structure at the panchayat and municipal levels. Based on the success of Malappuram, the program was extended to the entire state and a committee was constituted with representation of NABARD, Department of Local Administration, and the State Planning Board. On the recommendations of the committee, the Kudumbashree Poverty Eradication Mission was constituted and the CDS program in the Malappuram district and urban municipalities was brought under the mission.

At the same time the People’s Plan Campaign was launched, which was a statewide campaign that included devolving 35% to 40% of state funds to local self-government institutions (LSGIs). Many of the functions related to the provisioning of basic needs, employment and income-generating activities in agriculture and other small-scale sectors were devolved to the local self-governments. A mass campaign, similar to the total literacy campaign of the late 1980s, was launched in order to empower the LSGIs to prepare the local plans in a participatory and transparent manner. The success of the democratic decentralization process had significant implications for the anti-poverty program in the state. With the LSGIs spending Rupees 500 to 600 crores annually for programs targeting the poor, it was evident that the Kudumbashree neighborhood group system would have to be closely integrated to the local plans. People’s Plan Campaigners saw the potential for neighborhood groups becoming a powerful mechanism for ensuring sustained participation in plan formulation and implementation.

The objective of the People’s Plan Campaign was not to reproduce miniature versions of the bureaucratic centre and state governments. The attempt was to create a new participatory model of local-level governance. The existing constitutional mechanism, the grama sabhas, proved to have too many limitations in the context of Kerala. They were too large and their boundaries purely administrative. Therefore, neighborhood groups of 20 to 50 families were formed below the grama sabha with each family having a male and female member in the group. The ward-level committee of the NHGs acted as the Executive Committee of the grama sabha in many cases. A panchayat-level development council was also formed. The neighborhood groups were delegated many of the powers of the grama sabhas and invariably met before the grama sabhas were convened. This system of NHGs as a sub-structure of the grama sabha was innovated in Kalliyasserri Panchayat under the People’s Science Movement (KSSP) action research program. The model spread to around 200 panchayats under the People’s Plan Campaign with varying degrees of effectiveness. The sustainability of participation in these local participatory bodies was a serious concern of People’s Plan Campaign.

A simultaneous development was the rapid spread of women’s self-help groups. In most cases, the general neighborhood groups took initiative in the formation of women’s self-help groups engaged in micro-savings and credit activity. Many women’s self-help groups were also formed independently of the general NHGs. Part of the enthusiasm for the women’s self-help groups stemmed from the special focus placed on gender in the People’s Plan Campaign.

Ten percent of the plan outlay of the local plan was set apart for projects that were directly beneficial to women and, most importantly, directly managed by women. These projects were to constitute the Women Component Plan (WCP) and the women’s self-help groups came to be accepted as an ideal organizational form of management for the WCP’s projects. In addition, the plan guidelines also permitted financial assistance to women’s self-help groups.

The women’s self-help groups were much more self-sustaining and regular in their activities than the general NHGs. This led to the question of whether the two, neighborhood groups and women self-help groups, could be integrated. It was decided that the women’s self-help groups could be formed as sub-sets of the general NHGs. The women’s self-help groups would function on a regular and continuous basis, while the general NHG could be convened when occasions warranted. It was felt that the integration of the two groups offered one solution to the problem of sustained participation.

In the first phase of extending the Kudumbashree self-help groups to the rural areas an additional problem emerged with regard to a family’s status on the poverty index. In almost all the panchayats the women’s self-help groups were composite groups of families below poverty line (BPL) and above poverty line (APL). The question arose as to whether women from APL families should be excluded from the self-help groups.

There were three primary arguments in favor of excluding women from the APL families. First, composite groups may undermine the objective of targeting the poor as some funds were specifically earmarked for BPL families. If women from APL families were included the exclusive focus on poverty eradication would be diluted. Second, the presence of APL families could undermine opportunities of the BPL, which ultimately could adversely affect the social sustainability of the group. Third, the groups upon which the model was derived (i.e. groups in the urban area and Malappuram district) were exclusively BPL families.

A compelling reason to include women from the APL families in the women’s groups is that it is precisely from the lower-middle class strata that the grassroots-level leadership in Kerala hails. Depriving the self-help groups of this leadership is likely to exacerbate any tendencies toward bureaucratic and patronage control as well as the control by men. Furthermore, excluding women from APL families reduces the potential of women’s self-help groups acting as general community fora. The alternate suggestion of having separate self-help groups for BPL and APL families can be socially divisive.

The different arguments for and against including APL families stems from the different understanding of the role of women’s self-help groups. One view sees women’s self-help groups as an instrument for the implementation of governmental program, while the other sees them also as part of a larger social and democratic process. A poverty line in terms of income level or deprivation, however defined, cannot be the basis of social classification. In other words, the dividing line between families below the poverty line and those above the poverty line is vague. A more nuanced understanding would recognize that most of the families are likely to belong to social classes of marginal farmers, artisans or wageworkers. Recognizing the arbitrariness of such demarcations, does not deny the necessity for a clear demarcation of the poor for the implementation of government programs. Therefore, from the perspective of social development it would be better to evolve such demarcation through participatory processes as well as develop strict mechanisms to guarantee against the leakage of funds. The transparency and the social consensus in the selection of poor would be a stronger guarantee than any bureaucratic procedure against the misuse of funds. For many activities like micro-savings and credit operations all members can participate, and for those subsidized programs, like micro-enterprises, only individuals from BPL families will be eligible.

Some argue that the presence of APL families will render women’s NHGs too heterogeneous, while others counter this with the argument that gender and community (all are from the same neighborhood) render adequate cohesion. An additional fear raised was that upper and middle class families would dominate the groups, which again was largely found to be an exaggerated claim as women from such social strata are normally not interested in micro-savings and credit. Furthermore, the strict enforcement of rotating the weekly meetings among every household proved a sufficient deterrent against such elite strata. It is the poor families, those below and just above the poverty line, who are eager to participate in women’s self-help groups.

It is also important to note that the dramatic reduction of poverty in Kerala has not been due to a targeted poverty alleviation program, but rather due to larger social processes. The democratic decentralization process aims at a fundamental transformation of the economy of the society. Through participatory local-level planning it offers an opportunity for another round of dramatic reduction in the poverty level in the state.

After extensive discussions, a few modifications were made when the Kudumbashree scheme was extended to other panchayats. While the existing groups under Kudumbashree are exclusively for BPL families, the newly-joined panchayats have included membership open to APL families. The new groups are called Kudumbashree Neighborhood Groups. Another change was the decision to not have any federating structure above the panchayat in order to discourage unhealthy tendencies of the vertical programs. Specifications were also made to ensure that Kudumbashree NHGs are organically linked to the local self-governments and the local plans. Subsequently in the revised guidelines issued while extending the coverage of Kudumbashree to the rest of the rural areas of the state, the official position has reverted back to exclusive membership to BPL families.

We identified the potential for Kudumbashree women’s Neighborhood Groups as a genuine alternative to the mainstream models of women’s self-help groups espoused by the World Bank in their profit-oriented and NGO-led model as well as the state-managed traditional Indian model. The challenge is to develop an effective network of women’s NHGs with organic linkages to both local self-governments and broader neighborhood groups of the local community. In addition to the role they play as micro-credit and micro-enterprise organizations, women’s NHGs are an effective instrument for women’s empowerment more generally as they directly link women to political and economic structures in the community and help provide a basis from which women can actively participate in the public realm.

The panchayats in the Mararikulam experiment provide some of the best terrain in the state to take up this challenge. The panchayats in this region have been in the forefront of the People’s Plan Campaign in terms of physical outcome, quality of participation, transparency, and innovativeness. Kanjikuzhy panchayat has been twice adjudged the best panchayat in the state and three others the best in the district.

The region has a strong tradition of NHGs. On the eve of the People’s Plan Campaign the Kanjikuzhy panchayat launched a highly successful People’s Vegetable Cultivation Program with neighborhood groups as the key organizational network. After the initiation of the People’s Plan these neighborhood groups began to function as general community micro-organizational subsets of the grama sabhas. Based on the success of the Kanjikuzhy neighborhood groups, similar neighborhood groups were organized in other panchayats with varying degrees of effectiveness.

Women’s micro-credit self-help groups linked to the general NHGs also began to emerge, the most notable of which was in Muhamma panchayat. Voluntary organizations relating to church, Gandhi Smaraka Nidhi, and the environmental movement played an important role in the spread of self-help groups. The panchayat representatives and People’s Plan activists from the area played an active role in the NHG groups convention organized in Thiruvananthapuram in 1999 and subsequent deliberations of linking self-groups to local self-governments, which we have already discussed in the previous section.

It was because of this rich experience in self-help groups in the area that six out of the eight panchayats were selected in the first batch of panchayats for the Kudumbashree program in 2000. The Kudumbashree pattern was adopted by the other two panchayats, which have since been included in the scheme. At present there are nearly 1,500 Kudumbashree Women’s NHGs with nearly 31,000 families as members. This constitutes around 50,000 of the households of the region. The date distribution of the NHGs shows that only around 7% of them were in existence during June 2000 and 40% formed between June and December 2000, immediately after the panchayats were included in the Kudumbashree program. Another 27% formed between January and June 2001. The rest have been formed during the last year since June 2001. It is expected that the coverage of women’s NHGs would continue to increase rapidly in the course of the current year so that around 75-80% of the households will be represented in NHGs.

What motivated the group formation process? Table 1 presents the results of responses of NHG office bearers to a questionnaire canvassed during the last quarter of 2001. It is seen that non-economic motives have been equally important as economic motives in the formation of NHGs. The respondents were asked to give three important reasons for the formation of the group. The answers had been classified into broad groups and their distribution has been tabulated. 30% of the respondents identified poverty eradication as the primary motive for forming the group. Nearly another 12% responded that the motivation was "area development." Another 11% thought that the NHG would further their employment prospects. Surprisingly, only 7% identified credit or escaping from the clutches of moneylenders as the primary motivation for NHG formation. It is true that the number of respondents who identified credit as the second and third most important reason was considerably higher. Nonetheless the data definitely points to the fact that the economic expectations of the NHG members are much larger than narrowly defined credit.

Table 1: Distribution of NHGs by the motivation for group formation

The empowerment of women was the primary motive of 10% of the respondents and for another 30% it was the second and third most important motive. Women’s empowerment has been used as a catch all phrase for various expressions denoting improving status of women, strengthening women’s collective function, and resisting violence against women. Nearly 17% stated the desire for greater cooperation among women as the most important reason for forming the group.

The groups consist of one woman per family in the neighborhood. What are the characteristics of the women in the groups? They are predominantly younger female members of the households—27% are below the age of 30, and 43% are between the age of 31 and 40. Less than 6% are above the age of 50. The educational level of the members is also fairly high: 55% have school-leaving certificates, 13% have pre-degrees, 7% graduate degrees, and about 1% have post-graduate degrees. There were hardly any members (less than 1%) who were illiterate, and those who were came almost exclusively from the older generation.

The socio-economic characteristics of the members broadly reflect the regional socio-economic pattern with the notable absence of middle and upper class women. In the women’s NHGs 70% of the members come from the BPL category. As can be seen from Table 2, 38% of the NHGs consist of more than 90% of the BPL. Equally significant is the fact that in 31% of the NHGs BPL members are a minority (i.e. below 50%). This situation underlines the importance of prioritizing the NHGs by the incidence of BPL families so that preference is given to NHGs with a higher percentage of BPL families.

Table 2: Distribution of NHGs by Proportion of BPL Families

Even though under the guidelines of the Kudumbashree scheme the size of the group could be as large as 40 members, the majority (54%) of the NHGs had less than 20 members. Another 27% had membership between 20 and 25 (see Table 3). As mentioned above, there are certain advantages of small-sized groups such as fostering a sense of solidarity and greater cohesion within the group.

Table 3: Distribution of NHGs by Number of Members    

Table 4 presents the reasons for loan requests of members. In 75% of the NHG medical costs ranked as the most important reason for requesting a loan. The medical expenses pushing the poor into debt is a revealing comment on the priority given to health care and also an equally telling comment on the status of the public health care system. Loans for educational purposes ranked as the second most important reason for loan requests. This indicates that free tuition for public schools does not imply free education. Almost all families are forced to borrow in order to meet the extraneous educational expenditures at the beginning of every school year. The distribution of priorities narrowed significantly by the third most important reason for loan requests (weddings ranked as the third most important reason). Loans for production purposes are subsumed in the category "others" and did not rank as a high priority.

Table 4: Distribution of the NHGs by Reasons for Loan Requests

Even though most of NHGs were relatively young in age and only 6% were bank-linkage grade, most were systematic in their functioning (e.g., weekly meetings and maintenance of registers). The bookkeeping and registers were an important aspect of their functioning: 99.9% of the NHGs had minutes books and 81% claimed to have maintained detailed minutes; 91% of the NHGs had proper financial registers and 94% had membership registers; and 90% maintained separate loan registers. Within a short period of existence the NHGs had taken to systematic functioning, regular savings, and circulation of savings through micro-loans to members.

What are the challenges to the women NHGs in Mararikulum during the coming years in order realize their potential as an alternative to the models outlined above?

First, the outreach of the NHG network has to extend coverage from the present 60% of the households in the region to 80% to 90% of the households. Only then can the NHGs become truly micro-level organizations representing the community at large, and thus act as the grassroots tier of local governments and an instrument for sustainable participation. It is in this context that a controversy between the NGO-led self-help groups and the panchayat-coordinated women’s NHGs assumes significance. As against 1,500 Kudumbashree women’s NHGs there are nearly 500 self-help groups organized by the church, voluntary organizations, and caste groups. Most of these self-help groups were formed much earlier than the introduction of the Kudumbashree scheme in the area. In addition, there are nearly 300 SGSY self-help groups formed by the Rural Development Department as well as savings groups formed by the fisheries department as part of the lean season insurance scheme. All these micro-organizations from different agencies will eventually have to be integrated with the Kudumbashree groups in order to avoid duplication and also to ensure universal coverage of Kudumbashree groups. The departmental schemes have proven to be as resilient to change as the NGO-led self-help groups. There has been severe resistance to efforts at integration from different quarters.

With respect to the Rural Development Department self-help groups, an understanding has been reached that no new groups will be formed and the existing ones will be integrated in the long-run with the Kudumbashree NHGs. Such a solution has thus far not been reached with the NGO-led self-help groups. The broad approach for integration revolves around three principles: a) the coordinating role of the panchayat, b) the neighborhood as the unit of organization, and c) the autonomy of the NHG.

The self-help groups presently under NGOs are free to affiliate with the panchayat-level society of the Kudumbashree NHGs. Such affiliated units can continue to have their special relationship with the NGOs or even have them as their formal facilitators, because each self-help group would remain autonomous. However, the federating structures at the panchayat and ward levels will be the prerogative of the panchayat as the coordinating mechanism. The affiliated groups can take their own time to change over to the standards of Kudumbashree NHGs. In the long-run they would have to open the membership to anyone in the neighborhood who would like to join them.

Based on the above principles there is no reason for a controversy if the NGO is open to understanding the implications of democratic decentralization and the transformation that has been brought about by the People’s Plan Campaign. It is also true that the elective representatives must also change their mindsets to more transparent and participatory governance systems. The major challenge for the Mararikualm experiment in the coming years is to bring about such attitudinal changes and integration of the various types of neighborhood groups and self-help groups.

Second, the women’s NHGs as composite groups of BPL and APL families is important to devise mechanisms to ensure priority for the BPL families and to guarantee that the subsidies for the poor are effectively targeted. This is an issue we discussed at length in the previous section. In Mararikulam the following strategy is proposed: a) the NHGs will be ranked and prioritized by the proportion of BPL families; b) exclusive self-reliance groups of BPL families will be created as subsets of the NHGs for micro-enterprise programs; and c) the group members will be extended individual support and credit under SGSY so that the subsidy component is not shared with APL families.

Third, so far the NHGs have been confined to micro-saving and credit operations. The challenge now is to move towards large clusters of micro-enterprise with strong backward linkages in the local resource base and assured adequate market linkages for the products.

Fourth, the issue of transforming the women’s NHGs into genuine instruments of women’s empowerment must be addressed. As we have already noted in section 2, neither micro-credit nor micro-enterprise by themselves will necessarily lead to the empowerment of women. Empowerment requires a conscious intervention for which the economic activities play a facilitative role. The challenge is to design and implement a gender awareness program for women and men that is linked to their daily life experience.

Fifth, the potential of converting the women’s NHGs into neighborhood community fora of both men and women will need to be developed. The possibility for such conversion has been demonstrated by the anniversary celebrations of the NHGs, which in most cases were day-long events in which members from the entire community, including both men and women, participated. If this experience could be generalized we can have general NHGs as an expanded form of women’s NHGs. This would provide an ideal solution to a major problem of sustainability of popular participation.

United Nations Development Program, Human Development Report 2000

Weisbrot, Mark; Baker, Dean; Naiman, Robert; and Neta, Gila, (2000); "Growth May be Good for the poor- But are IMF and World Bank Policies Good for Growth?" http://www.cepr.net/response_to_dollar_kraay.htm

Dawkins, Nan (2000); "The World Banks consultative Group to assist the Poorest: Opportunity or Liability for the Worlds Poorest Women?" http://www.seen.org/cgapxsm.html