Self-help groups (SHGs) play a major role in providing microfinance in India. But they do not work alone. State institutions are also a big part of the microfinance landscape. They promote and finance SHGs, and also interact directly with them. This paper considers how this kind of 'institutionalised co-production' in service delivery works in practice. The research shows that the relationships are not symmetrical. When they seek access to bank credit, women's groups are in a dependent relationship, and are subject to, and tarnished by, the institutional imperatives, systemic corruption and political compulsions that shape the behaviour of rural development bureaucracies and banks. Part of the problem lies in a legacy of bank staff mistrusting borrowers due to arrears from previous credit granted under a different set of public schemes. Banks still try to recover old loans, and sometimes grant new loans to womens' SHGs conditional on repayments by their male relatives. Women consider the ways in which bank officials assess credit-worthiness of SHGs as sometimes being discriminatory and suggestive of caste-profiling. Since banks, as institutions, are not very sensitive to the realities of their SHG borrowers, the quality of the relationship often depends on the attitude of the bank's branch manager. Success in accessing loans is often contingent on how SHGs, bank staff, government officers and non-government organisations collude to subvert the official objective of the loan programme - enterprise-promotion. Manufacturing evidence about non-existent enterprises involves substantial costs and risks for SHGs. Providing financial services in rural India is now a profitable venture and is attracting private financing institutions, including transnational banks. It is suggested that we need to enquire further into the power dynamics that underlie relationships between the poor people using the financial services and their providers.
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IDS Working Paper No.303, Brighton, UK, 46 pp.