Community-based microfinance: the potential and challenges of self-reliant, self-help group cooperatives

Abstract

Microfinance services in India are delivered through many channels: self-help and joint liability groups, banks, non-banking financial companies, cooperatives, and post offices. Cooperatives had lost ground but the introduction of new laws allows self-financed cooperatives to operate free of government interference. Using this law, self-help promoting institutions (SHPIs) have federated self-help groups (SHGs) into self-reliant cooperatives. This paper uses a case study of cooperatives in Karnataka State, India, to consider questions about enabling and limiting factors in promoting self-reliant cooperatives. The lessons show that when financial and managerial sustainability is achieved, member-owned institutions give the best financial returns to members from microfinance operations, besides giving decision-making power, and improving the positioning of women-owned organizations vis-à-vis formal financial institutions. Setting up governance and financial systems can, however, be constrained by low incomes and low literacy of members, and attitudes and rules of government and banks.