Collective in India Extends More Than Credit

MHASWAD, India (WOMENSENEWS)–Not long after Chetna Gala Sinha came to this drought-stricken region to marry a farmer and prominent local social activist she began putting her university degree in finance into action.

Local women, she had observed, were wearing themselves out in subsistence livelihoods such as growing grapes or selling vegetables.

In 1992 Sinha, who grew up in a middle-class family in Mumbai, began organizing the women into self-help and savings groups that helped them share technical knowledge, lower their costs through bulk buying and learn the rudiments of managing their money.

She quickly realized that the women also needed business loans, even though their low incomes didn’t qualify them for conventional banks.

So she applied for a license to run a bank on behalf of 500 rural women in 1994.

But the Reserve Bank of India, the country’s top regulator, rejected the application. Except for Sinha all the women identified themselves with a thumb print. Directors of a bank had to know how to read and write, an official at the central bank told her.

So Sinha set up literacy classes that wound up going beyond simple word recognition.

“Thanks to their keen interest they were also taught how to calculate interest on principal,” recalls Sinha, who is in her mid-40s, “We gave the proposal again three years later and at the office the women boasted that they could calculate the interest of any principal amount without calculator and challenged the officer to do the same.”

An Underlying Premise

The experience forged what has turned out to be the bank’s underlying premise: If rural women with little-to-no education are to break the cycle of poverty they need more than a few small loans.

The Mann Deshi Mahila Sahakari Bank–the Mann Land Women’s Cooperative Bank–started with 500 women and $15,000 in investments savings to form their credit pool.

“Today we have 58,000 clients, deposits of $3 million and the payment default rate is only 2.3 percent,” says Rekha Kulkarni, the bank’s chief executive officer.

The bank is entirely managed by rural women. It has three branches and one extension counter, all in Satara district in Western Maharashtra, where the heavily agricultural economy produces mainly millet, onions and cotton.

The bank charges a hefty interest rate of 15 percent. But not only is that far lower than the rates charged by local loan sharks–and on the low end for microfinance institutions–the bank plows its earnings back into the community in a variety of ways, including a low-fee trade school and low-cost insurance programs.

Fostering Trade Groups

It also sustains the same kind of self-help groups among low-income female borrowers in related enterprises–dairy vending, tailoring, grape growing–that led to the bank’s formation.

One of the bank’s major functions is to act as a buyers’ collective for these groups, in order to help lower costs. Bank employees or members of the voluntary board of directors monitor the groups and help them get projects–such as dairies for milk vendors that guarantee members a better price–off the ground.

Mann Deshi started a school in January 2007 that caters to rural illiterate women by offering courses in their areas of work. Students–vegetable vendors, milk vendors, casual laborers–are eligible for loans from the bank and have used the money to establish or expand their businesses.

India doesn’t offer a social-security plan to its older citizens. To make up for this bank officials say they are planning to offer depositors some type of savings program but were unwilling to discuss details because the project is still preliminary.

Financing an Umbrella

The average loan size of the bank is between $200 and $300 and is repaid over five years in weekly or monthly installments. Some loans, however, are as small as $5 and get repaid in a day. A woman might go to the bank to finance the purchase of an umbrella to shelter her wares at market or food-storage containers.

While some microfinance institutions in India have run into scandal for mismanagement and fraud, Sinha says the bank is scrupulous about accountability, with internal audits every three months, a yearly audit by the government’s cooperative department and an inspection by the central bank every four years.

The bank routinely earns official commendations, with one depositor winning from the prime minister the equivalent of its 2006 “Woman of the Year” award. The recipient used a loan to start a tiny paper-cup-making business that today supports her family of 19. In addition to running her own business she now helps train other female entrepreneurs.

One of the bank’s clients, Aruna Gaikwad, shows how a small loan from the bank can send a borrower a long way.

Three years ago, as a laborer in other people’s fields, Gaikwad used to earn less than 50 cents a day. Then Gaikwad arranged a loan of about $2,000 to start her own vegetable retail business. Her daily income doubled immediately and today she makes almost $9 a day.

Gaikwad says she had tried to get a loan from conventional banks but they turned her down because she had no property to serve as collateral. “When I finally got the loan, it was the first time that I had ever seen such a big amount and I haven’t spent a single rupee unproductively.”

In 2005 Gaikwad began to serve as a co-guarantor on Mann Deshi loans for 15 other vegetable vendors and has taken responsibility for collecting and delivering their weekly payments.

Now Gaikwad looks to the future of her 13-year-old daughter. “I would like my daughter to get a job where she can sit on a chair,” she says, “and not squat on the road vending.”

Gagandeep Kaur is a freelance journalist whose work appears in such publications as The Times of India, Business Standard and India Times.