SHG Bank Linkage Programme What is a Self-Help Group ?

A Self-Help Group [SHG] is a small, economically homogeneous and affinity group of 15-20 rural poor which comes together to

save small amounts regularly Mutually agree to contribute to a common fund Meet their emergency needs Have collective decision making Resolve conflicts through collective leadership

and mutual discussion Provide collateral free loans on terms decided by the group at market driven rates

SHG Bank Linkage Programme The SHPI trains the members to

maintain simple accounts of the collected thrift and loans given to members.

The regular meetings also provide a platform to discuss and resolve many social and common issues, thus fortifying them together.

A savings bank account is opened with a bank branch and regular thrift collection and loaning to members build up the financial discipline among the members to encourage the bank to provide larger loans to the group.

SHG Bank Linkage Programme

The conceptual thinking behind the SHG philosophy and the Bank Linkage could be summarised as under:

Self Help supplemented with mutual help can be a powerful vehicle for the poors’ effort to socio-economic upward transition

Participative financial services’ management is more efficient and responsive.

Poor can save and are bankable

SHG Bank Linkage Programme Poor not only need credit support but

also savings and other services Small affinity groups of the poor, with

initial outside support, can effectively manage and supervise micro credit among their members

Collective wisdom of the group and peer pressure are valuable collateral substitutes

SHGs could be a pre- microenterprise stage for a majority of rural poor

         

SHG Bank Linkage Programme SHG’s as client, facilitate wider

outreach, lower transaction cost and much lower risk costs and

Empowerment and confidence building of poor, especially of poor women, is a major outcome

The mismatch between the expectations of the poor and capabilities of the formal banking system needs to be minimised

SHG Bank Linkage Programme What makes the SHG approach

succeed ?  At group level : Group formation and nurturing - the

key to successful SHG Group composition - thrust on

affinity and homogeneity Members learn to maintain financial

discipline Members own stake in the group - in

the form of savings

SHG Bank Linkage Programme Collective wisdom in credit decisions The peer pressure enable the group to

minimise the aggregate risks of failures

Savings and credit is a continuing process and not a one-time injection of loans

Freedom of selecting loan purpose to the members, with benefit of peer counseling

SHG Bank Linkage Programme At Bank Level : The group formation and nurturing process

is intensive and should not be rushed through

Emphasis on Grading -Banks grade the SHGs for credit support based on parameters of group dynamics, regularity in savings, internal lending, participation level, etc.

NGOs grade the SHGs before recommending them for bank loan

The weak ones have to wait and overcome weakness

SHG Bank Linkage Programme

Cost effective, operationally simple and low risk strategy for expanding client base and business

Externalising some of the credit functions to SHG

 Bank loans only when initial savings and internal lending has stabilised

Banking with disciplined clients and not beneficiaries

More than 95 % on-time repayment from the poor some of whom were possibly defaulters

SHG Bank Linkage Programme

Heavy investments by NABARD in formation, nurturing of SHGs, building capacities of NGOs,

Training of banks and other stakeholders - as Investment in human capital development

NGOs promote SHGs for deepening the impact of their programmes and furthering their own social agenda

Banks promote / finance them for expanding quality business coverage and

Governments promote them for multiple developmental objectives

SHG Bank Linkage Programme ISSUES in SHG : Regional Imbalances Quality of SHGs Impact of SGSY on SHG-bank

linkage programme Provision of micro-insurance to the

SHG members Micro Enterprise Promotion among

members of Mature SHGs

SHG Bank Linkage Programme Future Strategy Expansion in the Poverty struck and Tribal

areas Massive capacity building efforts by other

stakeholders eg.Banks,NGOs, Govt. Dev. Dept. Banks’ to own the SHG’s linked with them as

their client and nurture them to keep them in good health

Training the SHG members to maintain their books of account themselves or arrange IRVs/Barefoot accoutant/Smart card etc

Federating the SHG’s for future handholding and sustainability

SHG Bank Linkage Programme Graduation of SHG members to

Entrepreneurship Skill development training to improve work

efficiency and develop quality product, Arrangement for raw material and other

inputs Design development and consistancy Marketing of the product Ultimate aim is to make her an

independent and self dependent entrepreneur