About SKS and Microfinance

Swayam Krishi Sangam and Microfinance

PROUT Editor's note: Swayam Krishi Sangam is an excellent non-governmental organization (NGO) working in the poverty-stricken region of Telangana in Andhra Pradesh, India. They have modeled their organization after Professor Muhammad Yunus' Grameen Bank in Bangladesh. They go into villages and conduct surveys of the people's economic status. They follow this up by offering loans to groups of five. Only the poorest of the poor are offered loans, so that they have money to invest in a small business with which they can support themselves and survive in dignity. Presently, those poorest people are forced to borrow from moneylenders at exploitative interest rates of 120-150%. SKS provides small micro-loans at interest rates of just 15%. The SKS has essentially established a bank which is owned and managed by the borrowers - by the poorest of the poor. It is modeled after the Grameen Bank, which is probably the most revolutionary economic step taken in this century to help the poor help themselves. Due to the unbounded success of the Grameen Bank in Bangladesh (99.5% repayment of all loans), there are now Grameen Bank replicators around the world. The SKS is an example of a Grameen Bank replicator. There is no reason why other organizations cannot replicate the strategies and methods of the Grameen Bank all over India, including the beautiful, ancient land of Rahr and Ananda Nagar, in Purulia, West Bengal, where the poorest of the poor in those villages are asking, who will uplift them from their poverty and their sufferings!

Questions and Answers about Swayam Krishi Sangam

What does "Swayam Krishi Sangam" mean?

Swayam means Self, Krishi means Effort, and Sangam means a collective or cooperative. This is in the regional language of "Telugu" where SKS works.

What is the average loan size at SKS?

In the first year, members may secure a maximum of Rs. 10,000 ($204) in income-generating loans. Loan eligibility increases by an additional Rs. 3,000 ($61) each subsequent year, provided neither the member nor the group has defaulted on any loan. Continuous credit is available only to those SKS members who demonstrate a perfect repayment and credit history as well as credit discipline.

Does SKS lend money to individuals?

No. SKS is based on a group lending model. Members must form groups of five to be officially recognized, qualifying them to then apply for a loan. These groups collectively guarantee each others loans. As a result no collateral is required.

What are the typical businesses operated by SKS members?

Typical businesses operated by SKS members are farming, fishing, paddy husking, weaving and garment sewing, and selling milk from water buffaloes and cows.

Do you charge the borrower's interest on the loans?

Yes; SKS charges 15% interest. This interest rate is necessary to cover the cost of delivery and to allow SKS to become sustainable. Sustainability is a necessary precursor to reaching greater numbers of clients. Providing financial services to the doorsteps of the poorest of the poor people can be quite expensive, especially in relation to the size of the transactions involved. This is one of the most important reasons why other banks don't make small loans. SKS clients willingly pay the 15% interest rates because they understand that the alternatives will not assure them long-term access to credit.

What is the impact of SKS?

A recent study released by the World Bank ("Fighting Poverty With Microcredit: Experience in Bangladesh," 1998) found that profits from Grameen-modeled microfinance businesses were increasing borrower's consumption by 18% per year, and that the percentage of poverty was reduced by 70% within a few years of joining.

SKS has helped the poor to increase income, build viable businesses, and reduce their vulnerability to external shocks. By providing access to financial services, SKS plays an important role in the fight against the many aspects of poverty. For instance, income generation from a business helps not only the business activity expand, but also contributes to family and community development, children's education, health, etc.

Who funds SKS?

The organization was initially supported by individuals and various institutions such as The Ravi & Pratibha Reddy Foundation; The Echoing Green Foundation; The i2 Foundation; The Maharashtra Foundation; The Sarode Foundation; and the India Development Service. Additional funding comes from private donors. Currently SKS borrows from various banks and other financial institutions at market rates.

How can I know more about Microfinance?

Some suggested readings:-

Banker To The Poor, by Muhammad Yunus with Alan Jolis (Public Affairs, 1999)

Banking on the Rural Poor, by David S. Gibbons & Sukor Kasim (reprinted by Grameen Bank, 1991)

Cloning Grameen Bank: Replicating a Poverty Reduction Model in India, Nepal and Vietnam, Edited by Helen Todd (IT. Publications, 1996)

Empowering Rural Women: The Impact of Grameen Bank In Bangladesh, by Rahnuma Shehabuddin (Grameen Bank, 1991)

Give Us Credit: How Muhammed Yunus's Micro-Lending Revolution is Empowering Women from Bangladesh to Chicago, by Alex Counts (Times Books/Random House, 1996)

Grameen Reader, Edited by David S. Gibbons (Grameen Bank, 1995)

In Quest of Empowerment, by Ainon Nahor Mizan (University Press Ltd., 1994)

Managing to Empower: The Grameen Bank's Experience of Poverty Alleviation, by Susan Holcombe (UPL Press & Zed Books, 1995)

Participation As Process: Process As Growth, What We Can Learn from Grameen Bank Bangladesh, by Andreas Fuglesang & Dale Chandler (Grameen Bank, 1995)

The Price of a Dream: The Story of the Grameen Bank and the Idea that is Helping the Poor to Change Their Lives, by David Bornstein (Simon & Schuster, 1996)

Voices from the Field: Interviews with Microcredit Practitioners for the Poor, Edited by Alex Counts (CASHPOR, 1997)

Women at the Center: Grameen Borrowers After One Decade, by Helen Todd (Westview Press, 1996)