Access to credit and indebtedness among women self help group members in Ernakulam district

Abstract

Women-led self-help groups (SHGs) are increasingly being viewed as platforms for delivering development activities. The emergence of SHGs has given the rural women a platform to save, borrow and invest. SHGs are regarded as the right agency to minimize the problem of inadequate access to banking services to the poor and to mobilize considerable quantum of credit from formal financial institutions (Gaonkar, 2008). Access to credit, particularly to women, allows them to expand their business operations, leading to increased production, income generation and job creation. At the same time access to credit and the incidence of indebtedness among rural households remain a matter of intense policy debate. A scientific and empirical understanding of changing rural credit markets and their implications on women SHG members is considered critical to harness the potential of rural credit delivery mechanisms. The present study was carried out with the objectives of analyzing the structure and institutional flow of credit to SHG members; assessing the credit utilization pattern and indebtedness of women SHG members engaged in agri enterprises, examining the repayment status of loans and the challenges faced by the SHG members and the interventions of local institutions, if any, in addressing the indebtedness of SHG members. The study used both primary and secondary data on credit flow to SHG. The primary data was collected from 120 sample respondents from three block panchayats in Ernakulam district having maximum number of SHGs. In addition, 20 other stakeholders including bank officials, Kudumbashree officers etc. were contacted for gathering relevant information. The data were collected through personal interview method using a structured interview schedule. SHG members depended on both institutional and non- institutional sources of credit. The total institutional credit availed by women SHG members in Ernakulam district was ₹2.08 crore and the total amount of non- institutional credit availed was ₹7.45 lakh. The average amount of credit availed per head through institutional and non- institutional sources were amounted to ₹1.73 lakh and ₹0.26 lakh, respectively. Among institutional credit sources commercial bank constitutes to 52 per cent of the total credit availed followed by Kudumbashree and private financial institutions such as NBFCs, small finance banks etc. Majority of the women SHG members were found to have multiple borrowings from various credit sources and 67 per cent of the credit availed was used for consumption purposes, 22 per cent was used for production activities and only 11 per cent of the availed credit was used for investment purposes. The total credit outstanding among the women SHG members was ₹1.29 crore and the average outstanding credit per head was ₹1.07 lakh. The source wise proportion of outstanding amount was highest for PACS followed by RRBs. Indebtedness among the SHG members was analyzed both in objective and subjective analysis. 32 per cent of the respondents were struggling persistently to repay the loan. The debt to income ratio was estimated to measure the indebtedness and found that 53 per cent were over indebted. Binary logistic regression done to measure the effect of different indicators on debt burden indicated that debt to income ratio (DTI), multiple borrowing and default in repayment were having positive and significant effect on indebtedness. However, the effect of annual income on indebtedness was found negative, but significant. Repayment priority towards different credit sources from borrowers’ perspective was ranked and found that the highest priority was given to repay the loans taken from non- institutional sources and private financial institutions compared to formal institutions. The repayment was found proper and regular with non -institutional credit sources, private financial institutions and Kudumbashree. Incidence of default was found more in case of credit taken from commercial banks, cooperative banks and RRBs. Approximately one sixth of the total credit taken were observed as being renewed annually. Interventions of local institutions such as PACS to address the indebtedness of women SHG members were studied in the sample villages. The Palliyakkal Service Cooperative Bank in Paravur is providing credit to women by forming JLG groups to pay off their debt from money lenders and other private financial institutions. ‘Muttathe mulla’ is also an initiative of the Government of Kerala to address the indebtedness of women SHG members. The major challenges faced by the respondents in availing credit through formal institutions were delay in credit disbursement and collateral requirement. Formulating alternate formal channels to provide emergency credit, creating a comprehensive credit information repository at panchayat level and awareness campaigns trainings on financial management and servicing are suggested as policy recommendations.