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Smita Premchander’s first application to open bank accounts on behalf of poor, rural women organized into self-help groups in Karnataka’s Koppal district was rejected.

Bank officials complained about the hassle of opening accounts for small amounts and questioned who would administrate them. Five years later, it’s a different story.

“Then, we weren’t even asking for loans," says Premchander, secretary of Sampark, a not-for-profit that currently oversees and provides training to 170 groups comprising 3,000 members.

“We were just asking for accounts. It took a lot of convincing, but eventually they gave in. Now, bankers have realized that well-formed and mature self-help groups represent a good credit risk and customer base. They want this business," she adds.

The financial success of self-help groups, which constitute nearly 6% of 19 million working-age Indians, the majority of whom have no formal schooling, now have bank accounts and 15% save through the post office, according to the Invest India Incomes and Savings Survey 2007 by IIMS Dataworks, a Noida-based retail finance research firm.

Though access to financial services, including credit, is improving in rural and remote areas, it remains dismal in many other regions of the country, according to those who track the microfinance industry.

Savings facilities help the poor cope with emergencies and credit can sometimes give them start-up capital for their own businesses, although loans are often used to bridge the gap when income lapses due to illness or emergency.

Self-help groups have mobilized a total of Rs2,500 crores in savings from their members over the past year, according to the IIMS survey. The average member saves about Rs40-50 per week, say experts.

Sa-Dhan, the main association representing India’s community development finance institutions that is headquartered in New Delhi, says its 180 members had Rs2,600 crore of credit outstanding as of 31 March 2006, and that the number has grown since then.

“Self-help groups have moved from a democratic body with primarily development purposes in India to a vehicle of inclusion in financial services," says V. Satyamurti, chief executive of the All India Association for Microenterprise Development, a non-profit that provides training to non governmental organizations (NGOs) around the country that administrate groups. In Thigari, a village in Koppal, Karnataka, where Sampark administrates several groups, Khajabi, who only goes by her first name, joined a group after her husband’s suicide. She lost the family provision shop and couldn’t pay back a Rs60,000 bank loan taken out in her husband’s name.

The group lent her Rs10,000 to reopen the business, which is now thriving.

Khajabi, who can’t read, hasn’t missed a single payment on her loan, and now saves in her own bank account and sends her children to school. She is also delivering kerosene to neighbouring villages and has paid off her husband’s loan, according to Sampark.

With the goal to boost financial inclusion, a government proposal to regulate microfinance institutions and enforce formal accounting standards among those who provide savings and credit services to the poor is currently before the parliamentary standing committee on finance. The legislation would also allow NGOs and other microfinance institutions to accept public deposits—a move some critics have said dilutes banking norms and puts the money of the poor at risk.

Rural and urban dwellers alike remain without access to credit and rely on moneylenders, who charge rates of interest that can climb past one-third to three-fourths of the balance a year.

Self-help groups are typically absent from cities, with nine in 10 members in rural areas.

“In the South, this is well-developed," says Satyamurti. “You have a lot of mature groups and the number of bank linkages have grown very much. In the North, the banks often can’t find the right NGOs who know how to help a group grow, so it is ready for a bank linkage."

Most group members are daily-wage labourers who are engaged in primary sector production such as running small businesses—some based on a single buffalo or vegetable cart—according to the IIMS survey.

The groups mainly target women, with many experts estimating that as many as nine in 10 members are women.

“In some of these villages, women work 365 days a year and the men work 40, but it’s the women who aren’t counted as part of the workforce,"says Premchander, a former banker with the Industrial Development Bank of India.

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