SHG Bank Linkage Programme

1. 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

2. 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.

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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