AUROVILLE VILLAGE ACTION GROUP Concept note: Micro credit corpus expansion

Irumbai, June 2011

www.villageaction.in avagoffice@auroville.org.in Ph (0413)267-8871

The implementing organization:

Founded in 1983, Auroville Village Action Group (AVAG) is an NGO committed to grass roots community development in the villages neighboring Auroville a pioneering social experiment in Villipuram district, rural Tamil Nadu, South India, which aims to realize human unity. Since its inception, AVAG has developed into a solid and reputable organisation for positive social change that fosters the integral development of civil society, democracy building and social advocacy, including gender equity and caste equality the foundation stones for building a sustainable and healthy co-operative Indian society. AVAGs activities are all designed to empower the rural communities to organize themselves for their own personal and communal empowerment. Some examples of AVAG activities: Micro projects to improve village infrastructure. Inter-caste and inter-gender exchange meetings for caste and gender integration and sensitization. Capacity building through trainings and seminars for villagers on various topics such as: livelihood trainings and social enterprise development; expansion of legal access for women and children confronted with human rights abuses; global warming and environmental degradation awareness. Psychological and physical health initiatives through counseling services, health camps and referrals and trainings. Environmental initiatives through home and community gardens, tree plantation and making the eco friendly products accessible to the communities. Mirofinance see below.

In 1995 the first women's SHG was formed and since then, this network of SHGs has expanded steadily. In 2000 a federation for women SHGs and in 2007a federation for men were formed to share responsibility and for collective decision-making. They give AVAG feedback and suggestions pertaining to the planning and implementation of the programs of AVAG. The federations and AVAG have developed a symbiotic relationship with guidance and advice freely exchanged. AVAG is maintaining a formal oversight over the federations.

The Micro-finance programme: The central aim of the micro finance programme is: To free the poor from the clutches of the money lenders who charge prohibitively high interest (sometimes as high as 90% per year!) To increase livelihood possibilities for SHG members To inculcate the habit of savings among the villagers To teach villagers the concept of self help To give a sense of cooperation and mutual help among the women and men To help SHG members to get recognition from their families and from society at large.

Year Members 1995-1996 68 1996-1997 188 1997-1998 327 1998-1999 435 1999-2000 614 2000-2001 1101 2001-2002 1600 2002-2003 1741 2003-2004 1800 2004-2005 1950 2005-2006 2000 2006-2007 2334 2007-2008 3245 2008-2009 3466 2009-2010 3478 2010-2011 3726

4000 3500 3000 2500 2000 1500 1000 500 0 1997-1998 2001-2002 2005-2006 2009-2010 1995-1996 1999-2000 2003-2004 2007-2008

Udhayam Women Federation Members Progress Micro Finance Activity (As of 1st April 2011): AVAG works with 3,726 women organised in 197 SHGs, and 701 men organised in 42 SHGs. Rs. 20,830,771 is the total amount saved collected by SHGs. Rs. 55,552,350 is circulating among the groups as loans. Repayment is through fixed installments. Loans are offered for business development, agriculture, education, housing, consumption, family functions, and health, at an annual interest rate of 18%-- which is far lower than the rates from the usual village sources. So far finance has been facilitated from the following sources: savings generated by SHGs, corpus fund of AVAG, Government Funds and Indian and Pallavan Grameen Banks through SHG linkage.

The ratio between SHGs to AVAG field staff is 35/1, which allows effective monitoring. AVAG collects copies of all receipts and invoices and monitors each transaction. Loan repayment rate is virtually 100%: only two people have defaulted over the past 15 years of AVAG microfinance activity.

What is special about the AVAG micro-funding programme? The Micro-funding programme is the backbone of AVAGs integral rural development activities. Capacity building is of prime importance, so SHG members receive constant training and education. The SHG Federations have a core position in AVAGs decision making process, in the microfinance programme as well as in other AVAG activities, which is a key factor in the successful performance of the ongoing SHG programme. To avoid that any one individual would monopolize SHG dynamics, and to make sure that each member takes up responsibility, AVAG encourages regular change in SHG leadership. Empowering lending policies as mentioned below: Loan amounts are awarded gradually, increasing as each member proves his/her capacity for repayment. Loans are offered for a wide variety of needs. AVAG experience has shown that purpose dependent loans drives people to cheat and would weaken the trust and relationship between AVAG and its SHGs. Members can easily access loans as long as they are supported by the SHG, funds are available, and the SHG is confident of the members repayment capacity. Group members are encouraged to give priority to each members financing needs, rather than dividing the borrowed amount into equal shares. Re-lending does not depend on the completion of a previous loan, but rather is encouraged only when there is a genuine need. This system ensures group members will not compulsively reapply for a loan immediately after the previous loan has ended.

To be member of a SHG, a person should: be aged from 18 to 55 years be a resident of the village where the group is based not be a member of any other SHG of any organisation.

To make sure that there is no misuse of funds, AVAG keeps track of all the financial transactions of the SHGs, a monitoring activity that is unique to AVAG. AVAG liaises between banks and SHG members which helps the banks to understand the SHG member needs. As AVAG has established close relationships with the banks, it helps the SHGs in getting their needs met. The SHGs have a double aim, micro-funding activities and debate and action about community development, human rights and other issues.

Types of loans by source and purpose: Internal Lending: Individual SHG members can take loans from savings accumulated within his/her SHG group. AVAG Loan: SHG members can also apply for an AVAG loan by submitting an application through his/her SHG to AVAG. These requests must be processed and approved by Federation members before they can be sanctioned by AVAG. Government Lending: AVAG evaluates SHG requests and recommend them for access to Government schemes such as Revolving Fund1, Economic Assistance (E.A)2, Toilet Scheme, Housing Scheme, etc.) Direct Lending: SHGs can apply directly to banks for loans. Groups can get up to Rs. 5,00,000.

Loan Repayment Housing Function Agriculture Education Business Medical Others

Purpose of loans M&W SHGs

Federation and Self Help Group Decision-making At present there are 25 Womens Federation members and 15 Mens Federation members, each elected to represent an average of 8 womens SHGs and 3 mens SHGs for a period of two years. In addition to regular Federation meetings, Federation members also attend AVAGs regular seminars and trainings in order to build capacity and skills. The formation of the Womens and Mens Federations marks a crucial step in handing over responsibility and decision making to the local beneficiaries of AVAGs programs. Since decisions are taken collectively, they take every single step to make it a success.

Under this scheme, each group can sign up for an amount of Rs. 60,000 out of which Rs. 10,000 is subsidy and Rs. 50,000 is loan to be repaid in monthly installments. This scheme has a subsidy component of Rs. 1,25,000 sanctioned by the government to commence agricultural or business activities.

Micro finance and the UWC (Udhayam Womens Center): A major function of the Federations is to transfer micro finance loan administration from AVAG to local people. By investing authority and decision making responsibility in their hands, AVAG engages beneficiaries as active participants in the successful outcome of the micro finance program, a mechanism which has significant implications both for technical loan management and personal empowerment. At the moment the Mens Federation work mainly with the internal lendings of every group plus the links provided by AVAG with the commercial banks and the Governmental credit schemes. SHG Group formation and day to day work. Each group can have 12-20 members. The group has to choose its own leaders i.e. an animator and two representatives. The position must be renewed every 2 years, in order to give the opportunity to everybody to grow in capacities. The group meets at least twice a month. The first meeting of the month is to deposit the savings, to pay back the loans and to decide upon the new loans. The second meeting is allotted to discuss about the issues, projects, participation in the seminars and meetings, report about the trainings and meetings etc. When a group is accepted by AVAG, it is asked to join the federation and pay the annual subscription which is Rs.50 per member. The group receives from the federation a set of registers to maintain the groups accounts.

Each SHG decides on a monthly savings amount Federation members are (usually between Rs. 50-100 per month and per responsible for loan member) which is deposited in the name of the club application review. While most in the bank of AVAGs staff live in the With the introduction of AVAG, each SHG opens organizations target area and a bank account to deposit the monthly savings. have extensive knowledge of conditions on the ground, the Once a year every group participates in the Federations have an even cluster meeting, with other SHG groups of the better check on the pulse of same panchayat (local government). In these village life. By employing meetings participants discuss the community beneficiaries in the micro development activities undertaken during the last finance process, AVAG can be year (fixing the road, distribution of food in health confident that financing is centers...), and share community problems facing being used for pertinent village SHG's in an attempt to arrive to a collective action needs. AVAGs role is more to solve them. advisory than controlling, although the organization does hold veto power over any decisions to avoid incidents of abuse and prevent corruption.

The impact that an AVAG micro funding corpus increase would have: Based on field assessment of need, there is a pressure to significantly increase the number of new SHGs. Furthermore, with existing groups, there is an ever increasing demand to access more credit which AVAG is no longer able to extend as its reserves are saturated. Our estimations show that if we want to be able to substitute the most expensive source of lending of the SHG members, which are the money lenders (who usually charge 60-120% interest per year), we would need to immediately increase the AVAG corpus by at least one crore rupees. (One crore = 100 lakh = 10 million rupees). With this amount we would also be able to enlarge to some extent the number of women and men SHGs. Capacity building and livelihood impact: The increase efficiency in the use of our staff will allow AVAG to implement more capacity building activities. More credit will provide the possibility for the creation of new social enterprises and conventional businesses. Farmers will have increased loan possibility for agriculture. The access to credit and the participation in AVAG programmes also allow men and women to get skills in leadership, accounting, team building, social analysis. Community impact: Currently the 239 SHGs undertake several activities every year for the benefit of the community like maintenance of school building and distribution of food in the health centres. Extra funds would allow us to increase the number of SHGs so the integration of the community will receive another impulse. The participation in SHG makes villagers feel supported and they start to help each other. Educational impact: Children from families who have an SHG member among them are more likely to attend school and higher education (girls in particular), partially because of access to loans and also due to awareness. An increase in the number of SHGs would mean a significant increase of students including many girls who have access to higher education due to the availability of loan for education. Other impacts: More villagers would have access to loans in times of needs and crisis. Women SHG members are more likely to take finance-related decisions in the household even though tradition denies them this right. More SHGs will mean more women empowered to participate in family finance decision-making. More villagers will get the access to banks and government funds that SHG membership affords them. Housing conditions will improve through increased loans. More women will own assets. An increase in SHGs will mean overall improved cooperation among members and by extension among villagers. An increase in leadership capabilities among women and men.