The total amount is distributed as loans amongst themselves. So the loan from the bank or the MFI is to the SHG as an entity and not to an individual member. That is the big difference between the SHG methodology and the Grameen Bank methodology.
In case of the Grameen Bank, the loan actually goes to the individual customer. It just so happens that five of them are grouped as a joint liability group, and eight such groups meet simultaneously in what’s called as a centre. It is not much of a group in terms of interaction among the customers. The SHG is in the first place, an affinity group and provides a lot of opportunities for social interactions and the transactions are incidental.

The Issue of Regulation
If it is just a matter of the MFIs borrowing from banks and other institutions and lending in retail, then the lender’s discipline alone can handle it without the worries of having to regulate. But the fact is that the customer needs a composite set of services. They need access to savings services, they need insurance, they need credit, and several of them also need money transfer services. If that composite is to be provided, then the entity should also be able to provide saving services, which means deposit taking. One has to ensure that it is done by reasonably reliable actors otherwise there looms the fear of embezzlement.
Our regulators will not allow deposit taking by any entity other than a bank because of the risk factors. Over the last several years, the RBI has been coming down heavily. Considering the safety of the depositor it is a good decision. But 80 per cent of our population does not have access to saving services in spite of having a high density of financial outlet network. Between regional rural banks and cooperative societies we have roughly one outlet for every two villages.

Yet, we are not able to provide basic financial service to our citizens, which is a simple bank account. If you are not able to do that then, the possibility of them participating in the growing economy is extremely limited. They can only do things on a cash basis. It is very exclusionary. We have to find a way to hold a regulator to account, not only on the basis of their macro economic stability but also on what percentage of their citizens have access to safe, affordable, minimal, financial services.

The Road Ahead
As of March 2006, India has 2.2 million SHGs. That’s about 32 million women. The total amount of money that has gone through this channel is about 3 billion dollars. Also, there exists MFIs working on the lines of Grameen Bank- three of the biggest ones are headquartered in Hyderabad – Spandana, Share and SKS. We don’t however follow the Grameen Bank methodology. We believe that there is a need to have a channel to directly deal with customers rather than through the bank linkage programme. In case of the SHG bank linkage programme, one still has to depend on the mood swings of particular branch manager and whether he likes the idea or not.. Thus an alternative channel called the MFI channel has grown as a substantial channel. It has probably disbursed a cumulative of a billion dollars, maybe a little more. The MFI channels are about a third in size of the SHG model in terms of disbursement, still less in terms of people touched. Microfinance should not be confused with microfinance institutions. While microfinance is vital for a vast majority of our citizens, MFIs are trivial. Whether they exist or not is a blip on the screen. Our future role is really to keep drawing attention to the fact that there is a gap in the system which can be fulfilled more innovatively, more creatively and more cost effectively.