BY SHEIKH NISSAR
By the beginning of 2021, we expect world would witness a vaccine that would liberate people from the fear of the befallen pandemic. It has been more than eight months since the crisis broke out and right in front of our eyes, pandemic took more than one million lives, collapsed our economy and disturbed our routine life. The coronavirus and grinding lockdown caused massive disruption to economic activities also, and experts fear it may put India into the recession if the GDP contraction would happen in second successive quarter. In this situation, a fiscal stimulus is needed to deal properly with the pandemic fallout, and support for business in view of covid-19 pandemic. It is also considered that the coronavirus freeze is latest headwind in a multi-year storm that declined consumption and is challenging India to nab its crown as the world’s fastest growing major economy. In this situation of economic chaos, the liabilities of the governments become liabilities of the financial institutions. The institutions irrespective of how effective or deteriorative announced packages turn out for the upliftment of the economy be, the financial institutions are bound to implement, thus exerting much stress over the banking sector. Instead of all the odds, India is not ready to surrender the crown of the fastest growing major economy; rather India is devising and reviving old models to defend title of fastest growing economy. Government of India minted many schemes and rejuvenated number of old ones to overcome the inconvenience caused by the covid-19 induced lockdown.
The pandemic with it brought huge job cuts all over the world. Millions of people lost jobs. There is huge challenge before all the major economies of the world like America, India, China, etc. To compensate the loss incurred during pandemic and make post-pandemic period good fortune to create huge number of jobs, India has many existing schemes that can prove very fruitful in post-pandemic era if people’s approach would be honest and professional. One of the existing schemes for eliminating economic disparity in rural areas that can prove fruitful in the pandemic as well as post-pandemic era is Joint Liability Group (JLG) credit scheme. The scheme has been rolled out in year 2014 by the rural development agency NABARD to provide institutional credit to agriculture (like croppers, oral lessees, agricultural labourers)/allied sector/non-Farm sector. Generally, the members of a JLG would be engaged in a similar type of activity in agriculture/allied/non-Farm sector. JLG is on the similar pattern of Self-Help Group (SHG) where NARBARD provide refinance facility to banks for providing loans to small and marginal farmers.
What is a Joint Liability Group? A JLG is an informal group comprising of 4-10 individuals coming together for the purpose of availing the bank loan on individual basis or through the group mechanism against mutual guarantee. The people living in rural areas generally lack hard collateral and hence, the groups are formed in peer pressure acts as social collateral. The members of JLG should belong to homogenous socio-economic status, like minded with mutual trust and respect. Homogeneity of socio-economic status or activity is foremost requirement for sound foundation of the group. The heterogeneity of the group, socio-economic or status, may spill the purpose of the group. All the members of the group should belong to same village/locality and should bear enough trust on each other to take up joint liability for group/individual loans. Before forming a group, the members of the group should themselves enquire the credibility of the member because those persons who have defaulted to any other formal financial institute, in past, are debarred from the membership of the group. A group should not allow more than one member of the same family.
What are the objectives of the Joint Liability Group? The main objective of forming Joint Liability Group is to alleviate poor through the process of financial inclusion by forming the group. It is an easiest and hassle-free loan to earn livelihood. Some of the objectives highlighted in the scheme are as:
•To augment flow of credit to landless farmers cultivating land as tenant farmers, oral lessees or share croppers and small/marginal farmers as well as other poor individuals taking up farm activities, off-farm activities and non-farm activities.
•To serve as collateral substitute for loans to be provided to the target group.
•To build mutual trust and confidence between bank and the target group.
•To minimize the risks in the loan portfolio for the banks through group approach, cluster approach, peer education and credit discipline.
•To provide food security to vulnerable section through enhanced agriculture production, productivity and livelihood promotion through joint farming and cluster approach.
What is difference between SHG and JLG? Both SHG and JLG schemes are channels for financial inclusion for poor. Members in the group are generally from the neighborhood with mutual understanding and trust and want to work together for poverty alleviation. There are few differences in the formation and functioning of SHGs and JLGs which are as:
1)SHGs have group size of 10-20 members while JLG have smaller group size of 4-10 members.
2)The SHGs have a formal structure (President, Secretary and Treasurer) where three group leaders act as an interface between the bank and the group but all the members of JLG are in direct contact with the bank.
3)The lending to an SHG is based on regular saving and deposit where loan amount is five times the amount of saving but JLG is mainly used for lending irrespective of savings.
4)In case of SHG lending is done on the name of SHG not individuals i.e. group lending is done while in case of JLGs lending is done to individual members though all members are guarantor of each other. SHG members generally undertake same activity and work together while JLG members invest loan amount for different purposes.
Conclusion:
Government of India and state governments roll out schemes so that people get benefitted. The schemes rolled out cover both educated as well as illiterate people of the country. Like MNREGA which guarantees a one-hundred-day employment unemployed. Undoubtedly, the schemes provide employment but it can prove a good instrument for development also once employed in a genuine way. Similarly, SHG and JLG are schemes for eliminating economic disparity but it is responsibility of the member group and monitoring institute to guide the group members to channelize credit in a better way. The loan availed should yield both equated monthly installment as well as the livelihood for them. Instead of making it a liability up on them, it should become an asset. When governments roll out schemes, then it is responsibility of the general public to make these schemes fruitful, instead of misapply.
Opinions expressed are personal not of the institute.
Sheikh Nissar can be reashed at sheikhnissar@outlook.com
