Micro-Credit for Agriculture:Issues and Concerns in Financing through Joint Liability Groups

In India, access to affordable credit by the less-privileged sections of the society was always far from satisfactory. SHGBank linkage programme, initiated during 1990s and spearheaded by NABARD, could make good strides in promoting thrift and improving credit access among poor, albeit with smaller amount. Investment credit requirements of the resourceless poor, however, was still eluded from the formal banking system on account of security based lending practices, information asymmetry and widespread moral hazard. The practice of Joint Liability Groups (JLGs), elsewhere in the world, had proved to be effective mode in prevailing over some of the restraints built-in the SHG- bank linkage programme, such as limit in loan amount, minimum waiting period for loan eligibility, etc. Groups formed under JLG by the borrowers themselves, on the basis of self-selection by understanding his/her social integrity, productive capacity and credit worthiness in the same community, enhanced enforcement and minimised repayment defaults. This paper seeks to study the issues and concerns observed while implementing two models of JLG linkage in Kerala (in Pathanamthitta and Alappuzha districts). The study identified prominent push and pull factors associated with JLG based lending and found that the JLG based lending could supplement SHG - bank linkage rather than supplanting it. The study observed that the JLG system is helpful in increasing capital formation, promoting income generation activities among the rural poor, enhancing repayment of loan (especially by women groups) and increased activity specialised groups. The study also offers some important pointers, which need to be addressed for better success of the programme.