SHGs – BANK LINKAGE PROGRAM

[Mr. M. GOVINDARAJAN]

Self Help Groups (SHGs)

To alleviate the poverty and to empower the women, the micro-finance has emerged as a powerful instrument in the new economy. With availability of micro-finance, self-help groups (SHGs) and credit management groups have started in India.  The Self Help Groups (SHGs) are created small and homogeneous groups to reap economic benefits for members out of mutual savings, solidarity and joint responsibility through peer monitoring. The main advantage to banks of their links with the SHGs is the externalization of a part of work items of credit cycle such as assessment of credit needs, appraisals, disbursal supervision and repayment, reduction in the formal paper work and transaction costs.

Self-Help Groups (SHGs) are the thrift and credit groups formed informal way whose members pool savings and relend within the group on rotational or needs basis. These groups have operated on co-operative principles and do collective actions. They succeeded in performing/providing banking services to their members door steps without any defaults. They are formed for addressing their common problems. They make regular savings habit and use the pooled savings for the benefit of their members through a structured process of essential financial intermediation like prioritization of needs, setting self-determined terms for repayment and keeping records. It builds financial discipline and credit history that then encourages banks to lend to them in certain multiples of their own savings and without any demand for collateral security.

Characteristics of SHG

The following are the categories of SHG:

• The ideal size of an SHG is 10 to 20 members;
• The group need not be registered;
• From one family, only one member;
• The group consists of either only men or of only women;
• Women’s groups are generally found to perform better.
• Members have the same social and financial background.
• The group should meet regularly

SHG – Bank Linkage program

A sizeable share of population in India continues to remain outside the formal banking system despite considerable expansion in branch network. Alternative models are being experimented with to meet the objective of financial inclusion. The SHG-Bank linkage model is the indigenous model of micro-credit evolved in India and has been widely acclaimed as a successful model. SHG-Bank linkage programme is considered a promising approach to reach the poor and has since its inception made rapid strides exhibiting considerable democratic functioning and group dynamism. The SHG-Bank linkage model was introduced in 1991-92 with a pilot project of linking 500 SHGs with banks.   Banking network have a significant influence on the spread of SHG-Bank linkage programme in the States and regions.   The SHG-Bank linkage programme augurs well for the tasks of financial inclusion, financial equity as well as efficiency.

This program, developed and managed by NABARD, allows SHGs to obtain loans from banks – commercial, rural, and cooperative banks. The banks lend to the SHGs and are eligible for NABARD refinance for these loans at a subsidized interest rate.  The program, started in 1992 as a pilot project and upgraded to a regular banking program in 1996, has expanded rapidly since then. NABARD’s refinance has however been falling in proportion – possibly because of the prevailing low interest rates, high level of liquidity in banks, and not the least, because of the banks starting to see the program as a profitable proposition   A Microfinance Development Fund, created at NABARD with a start up fund of ₹ 1 billion (US$21 million) using contributions from the Reserve Bank of India, NABARD and other commercial banks, is to be used to consolidate and further expand the program. The growth of the program was slow during the initial years for several reasons.  Unlike other subsidized lending programs supported by the government, the program is not mandatory for the banks.

SHG-Bank linkage Programme has brought out the traditional skills, organizational skills and collective power of women, especially, from economically disadvantaged background to the forefront. The women SHG members have ventured into hitherto unexplored areas and proved that they can deliver when trusted and entrusted.

Objectives

The following are the objectives of SHG Bank linkage program:

• To develop mutual faith and confidence between the rural poor and bankers.
• To combine sensitivity, flexibility and responses of the informal credit system with the strength of administration capabilities, technical strength and the financial resources of the formal financial institutions.
• To expand credit flow/ financial services to the rural poor with less transaction costs.
• To alleviate poverty and empower the women.

Models of SHG Bank Linkage Program

The following are the models of SHG Bank Linkage program:

1. SHGs formed and financed by banks
2. SHGs formed by NGOs and formal organizations but directly financed by the banks I
3. SHGs financed by banks using NGOs and other agencies as financial intermediaries

Training program

Several factors explain the rapid increase in program outreach in recent years. Apart from natural learning process of all actors involved, NABARD’s extensive training programs to all the actors involved played a significant role.  The program faces several challenges. Most critical is the issue of sustainability of the SHGs; many are dependent on the promoter organizations for even routine tasks such as maintenance of account books and conducting of meetings where transactions take place. Others operate at a low equilibrium of low savings and low credit that is unlikely to contribute significantly to improving the lives of SHG members

Keeping in view the expansion of SHG Bank Linkage Programme, changing needs, policies, priorities, etc., NABARD undertook a comprehensive Training Need Assessment (TNA) with the assistance of GIZ. A National Level Training Consultation Meet on SHG-bank Linkage training was also organized and findings of the study were deliberated upon with all stakeholders. Based on the recommendations made at the consultation meet, the existing training modules were revised and a revised handbook on Training Programmes under SHG-Bank Linkage was forwarded to all scheduled commercial banks and RRBs.

Grant of Assistance

The Government grants assistance to the formation and development of SHGs.   The following table shows the cumulative sanction made by the Government as on 31.03.2014 to various agencies and also the disbursement of grant up to 31.03.2014 to such agencies.

Grant of assistance granted to partners of SHG – BLP

(as on 31.03.2014)

Rs. In lakh

Agency	Cumulative sanction up to 31.03.2014		Disbursement  upto 31.03.2014
	Amount	SHG (No.)	Amount	SHG (No.)
NGOs	23,375.14	574866	7229.16	378890
RRBs	764.24	49800	195.81	46164
Co-op banks	1416.98	83069	369.97	52501
IRVs	460.12	26883	82.27	11228
Farmer’s club	40.63	2544	20.40	9832
SHG Federation	28.61	250	1.85	46
PACs	394.45	8533	4.28	85
Total	26283.37	745945	7903.74	498746

Source: NABARD – Annual Report 2013 – 14

SHG – Bank Linkage progress

The following table shows the savings of the SHGs, loans disbursed to such groups and the outstanding of loan by these groups:

SHG-Bank Linkage - Highlights

In Rs. crore

Year	Savings Balance	Loans disbursed	Loans outstanding
2010 – 11	6551.41	16534.77	36340
2011 – 12	8214.15	20585.36	39375.30
2012 - 13	9897.42	24017.36	42972.52

Source: NABARD- Status of Microfinance – 2013-14

The above table witnesses that the savings in respect of SHG is on the increase.  The loan got by them is also in the increase.   But the loan outstanding is on the increase which is not good for the development of SHGs.

Non Performing Assets

The following tables the details of nonperforming assets in respect of SHGs as on 31.03.2012, 31.03.2013 and 31.03.2014, the first table agency wise and the second table region wise.

Agency-wise NPAs of Bank Loans to SHGs

Rs. In crore

Agency	Loan outstanding against SHGs – Position as on			Amount of NPAs as on			Percentage of NPAs to loan outstanding as on
	31.03.12	31.03.13	31.03.14	31.03.12	31.03.13	31.03.14	31.03.12	31.03.13	31.03.14
CB (Public sector)	24406.57	25371.18	28000.99	1581.05	2129.23	1966	6.48	8.39	7.02
CB (Pvt. sector)	1403.72	1268 26	1387.42	74.37	46.75	58.56	5.30	3.69	4.22
RRBs	8613.58	10521.13	11048.95	426.34	430.88	691.89	4.95	4.10	6.26
Co-op banks	1916 14	2214.63	2490.16	130.97	180.06	215.85	6.84	8.13	8.67
Total	36340	39375.30	42927.52	2212.73	2786.92	2932.67	6.09	7.08	6.83

Source: NABARD- Status of Microfinance – 2013-14

Region wise NPAs of Bank Loans to SHGs

Rs.in crore

Region	Loan outstanding against SHGs – Position as on			Amount of NPAs as on			Percentage of NPAs to loan outstanding as on
	31.03.12	31.03.13	31.03.14	31.03.12	31.03.13	31.03.14	31.03.12	31.03.13	31.03.14
North	1178.28	1160.68	1100.64	81.55	129.87	150.46	6.92	11.19	13.67
NE Region	993.27	796.76	753.80	51.33	68.23	66.96	5.17	8.56	8.88
Eastern	4629.80	5538.13	4944.63	337.08	570.56	547.42	7.28	10.30	11.07
Central	2780.29	2776.85	2696.66	367.03	479.76	508.98	13.20	17.28	18.87
Western	1363.78	1467.52	1640.46	112.14	126.57	182.26	8.22	8.63	11.11
Southern	25394.59	27635.36	31791.33	1263.59	1411.93	1476.57	4.98	5.11	4.64
Total	36340	39375.30	42927.52	2212.73	2786.92	2932.67	6.09	7.08	6.83

Source: NABARD- Status of Microfinance – 2013-14                      

The overall NPA percentage of loans to SHGs has come down marginally from 7.08% as on 31.3.2013 to 6.83% as on 31.03.2014 thereby reversing upward swing in NPA observed during the last few years. However, the level of NPA is still alarmingly high compared to position 5 years back (2.9% as on 31.3.2010). Moreover, the decline in the NPA percentage has been reported only in the Southern Region with high progress, while all other regions have continued with the upward swing in NPAs during the year.    As efforts are being made to spread the reach of SHG-BLP to the resource poor regions, the continued upsurge in NPAs in these regions needs to be viewed quite seriously.                      

Recent Developments

Annual Report 2013-14 of NABARD says that financing of SHGs by banks has undergone a paradigm shift with the spread of the SHG Bank linkage programme, substantial increase in quantum of credit disbursed and adoption of cash credit system of lending which has also led to increasing delinquencies in SHG financing. Developing appropriate norms for selection of SHGs is critical for mitigating credit risks and ensuring the quality of financing done by banks. Accordingly, norms were developed for assessing SHGs for credit linkage and the same was circulated to all the banks. These norms can be followed by the financing banks at the time of first credit linkage of SHGs and also for repeat linkage of mature SHGs including cases where higher quantum of credit is requested (i.e. credit in excess of four times of the group corpus). Similar norms were also suggested to enable banks to take up appraisal of JLGs for financing.

Mobile based accounting system for SHGs

 A mobile based book keeping system which helps SHGs to maintain their financial transaction electronically in their local language and allows monitoring of the same by all stakeholders was implemented for 100 SHGs in Dharampuri district of Tamil Nadu. Under this system, SHGs update their transactions, meeting details by sending SMS from their mobile phones which is loaded with the software developed by NABARD. After the success of the pilot to the satisfaction of all stakeholders, the project has been upscaled for 10,000 SHGs. The SHGs will be charged ₹ 35.00 per month for the services. NABARD has sanctioned ₹ 12.00 lakh as grant for bearing a part of SHGs monthly charges for first two years.

Tablet PC based accounting system for SHGs

 Another pilot project was designed to monitor the day to day transactions of SHGs and updation of MIS on a real time basis by entering data in tablet PC. The field staff of NGO records the transactions and the SHGs get a copy of the records by paying fees. The pilot was successfully completed in January 2013 in 100 SHGs of Nandurbar district of Maharashtra. The project has now been upscaled for 50,000 SHGs where NABARD will give grant assistance up to ₹ 60 lakh to bear part of the monthly charges of SHGs during the first two years. The SHGs will pay a flat rate of ₹ 40 per month for the services for next three years.

 Suggestions

The following are the suggestions for the improvement of SHG – Bank linkage program:

• To encourage banks to take keen interest in furthering the SHG movement, perhaps a scheme of performance-linked incentive could be considered
• The performance indicator for the banks may be with reference to the credit disbursed under the SHG-Bank linkage programme in the lagging regions
• Specific funds may be created to address the regional imbalances in the programme.
• As observed by the Committee on Financial Inclusion (Chairman: Dr. C. Rangarajan), in several cases, bankers show unenthusiastic attitude in promoting SHGs. Occasionally, they point out reasons like shortage of staff, time, etc. Special training and awareness programme about the model is needed for the branch officials.
• The spread of SHGs in North, Eastern and North-Eastern Region is poor. One of the reasons for this is the weak banking network and social backwardness and less NGO activity. There is a need to evolve SHG models suited to the local context.
• Banks, with the help of NABARD, should evolve a common checklist for all SHGs with very simple record keeping.
• In the ever changing technology there is good scope for ICT tools to reduce cost of financial inclusion. This needs to be sufficiently explored for the benefit of both banks and rural SHG members.

References:

1. www.rbi.org
2. www.microfinancegateway.org
3. Annual Report 2013 – 14 of NABARD
4. International journal of trade and commerce, July – December 2012, Vol I
5. NABARD – Status of Microfinance – 2013 -14