internal lending were to be used to determinants of creditworthiness. Banks were also hesitant to lend to SHGs because the loans were required to be collateral-free.

Several factors explain the rapid increase in program outreach in recent years. Apart from natural learning process of all actors involved, NABARD’s extensive training programs to all the actors involved played a significant role; it has organized or financed over 2000 programs for bankers and over 250 programs for NGOs and government functionaries (NABARD website). The adoption by the central government of the SHG concept as its primary anti-poverty self-employment program (the Swarnajayanthi Gram Swarozgar Yojana – SGSY) also aided program growth though the sustainability and average quality of SHGs promoted under this program is debatable.<sup>4</sup> Finally, Andhra Pradesh state made SHGs their flagship strategy in rural development resulting in various government agencies forming SHGs.

Nevertheless, the program faces several challenges. Most critical is the issue of sustainability of the SHGs; many are dependent on the promoter organizations for even routine tasks such as maintenance of account books and conducting of meetings where transactions take place. Others operate at a low equilibrium of low savings and low credit that is unlikely to contribute significantly to improving the lives of SHG members. Most importantly, for the financial year ending March 31, 2003, only 102,391 SHGs obtained repeat bank loans. Repeat loans are critical because it indicates that loans to SHGs are not one-time loans as in the case of traditional subsidized loans, but that the banks could be a dependable source of loans for the SHGs. It is only when the number of repeat loans become significant that SHG-based microfinance could be said to be on par with financial services provided by other well-performing Micro Finance Organizations (MFOs). The program also continues to be concentrated predominantly in South India. As of 2002, 78% of total SHGs and 81% of the amount lent was in the four states in South India and 53% of total SHGs and 51 % of the amount lent in the state of Andhra Pradesh alone (NABARD n.d.).

# **Other Member-based Microfinance Organizations**

Thrift cooperatives are the major member-based microfinance organizations in India. However, they have traditionally been urban-based and typically formed among employees within an organization. State or federal laws regulate these cooperatives, and their performance often suffers due to excessive state control and political interference. Two

> 4 SGSY replaced the Integrated Rural Development Program and other poverty eradication programs. Integrated Rural Development Program, the largest anti-poverty program implemented in India, was in place for two decades.  The bank loans under the program, a major component, had a disastrous average repayment rate of less than 40%.  SGSY adopts the SHG concept of group and savings, but provides capital and interest subsidy for investment loans. Unlike the SHG-based microfinance program, SGSY lending by banks is mandatory.  The major change in SGSY from that of Integrated Rural Development Program is that a significant portion of the funds –both loans and grants are to be made available to SHGs rather than individuals. SHGs are supported where they exist and new ones promoted where they do not. Furthermore, though SGSY envisages an increased role for Banks and NGOs, government-owned District Rural Development Agencies that lack the required capacity to administer such programs are the primary implementing agencies. Concerns on SGSY’s potential negative impact on the SHG-bank linkage program have been raised on account of its targeted and subsidy driven approach though hopefully these will not have much impact as the SHG-bank linkage program is well established.

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