67

Role of NABARD in Poverty Alleviation through

SHGs

CONTENTS

2.1 Brief Profile of National Bank for Agriculture

and Rural Development (NABARD).

2.2 Self Help Group & SHG Bank Linkage

Programme of NABARD.

2.3 Performance of SHG Bank Linkage

Programme in India.

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2.1 BRIEF PROFILE OF NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (NABARD)

An overview:

Concern for poverty in India has always been universal but after colonial rules,

interest in poverty got momentum at first slowly and then by leaps and bounds. This

was due to the realization that there was nothing divine about poverty, that it was man

made. This realization acted like a catalyst and fused the aspirations of masses (poor

and non-poor) into a definite programme of actions against poverty. During the early

phase of the process of socio economic transformation of Indian society, it was

assumed that economic growth by itself will lead to the reduction in the incidence of

poverty. However, around senetics it was felt that the benefits of growth have shared

inequitably and therefore special efforts need to be made to supplement the growth

process by developing special programmes to cater to the need and development of

identified groups. Formulation of programmes to mitigate poverty essentially requires

knowledge of what are now recognised as enormously complex causes. Empirical

identification of these causes is a formidable task because of the conceptual issues

involved in defining the many dimensions of poverty, the data constraints in

measuring its incidence and econometric problems in estimating the relationships

between the casual factors and poverty levels. (Sarma, 1990)1

After Independence, a major task thrust upon the RBI was to put in place the

necessary institutional mechanism to complement the planning efforts. This was

crucial especially in the context of the weak financial system with an underdeveloped

and evolved commercial banking set up. Organized credit institutions had a negligible

presence in rural India. In this back drop building up a sound and adequate

institutional structure for rural banking and credit was paramount. To supplement the

institutional build up, the RBI also assumed special responsibilities for augmenting

the flow of rural credit. The formulation of agricultural credit policy beginning 1951

The RBI

organized a comprehensive all India rural credit survey under the direction of a

Committee (Chairman: A.D. Gorwala) appointed in 1951. The recommendations of

the Committee set the pace and directions for the subsequent years not only for the

agricultural credit policy but also for the related policies of Central and State

69

Governments and accordingly the Agricultural Credit Department (ACD) was

of other institutions engaged in Agricultural lending. The RBI Act was amended in

1955 to enable it to create two funds: National Agricultural Credit (Long term

operation) Fund and National Agricultural Credit (Stabilisation) Fund. (Bhasin,

2007)2

And thereafter the RBI set up the Agricultural Refinance Development Corporation

(ARDC) in 1963 for extending refinance to cooperative banks for promoting

programmes for agricultural development. However with the implementation of

Integrated Rural Development Programme (IRDP), the need for strengthening the

institutional arrangements for the supply of credit to the rural areas was being felt.

The necessity for augmenting the flow of credit and giving it a proper direction

became all the more imperative to achieve success in rural development. The RBI

appointed a committee known as Committee for Reviving Arrangements for

Institutional Credit for Agricultural and Rural Development (CRAFICARD) to go

into the whole gamut of rural credit and to make recommendations for reorganizing

and strengthening it. The Committee submitted its report in March 1981 and

recommended for setting up of a National Bank for Agriculture and Rural

Development. And accordingly National Bank for Agriculture and Rural

Development (NABARD) was set up in July 1982 by an Act of Parliament to take

over all the agricultural credit functions of RBI as well as the refinance functions of

ARDC. In fact NABARD has been set up with an aim to fulfill the aspirations of the

rural people in general and translates the recommendations made by several

committees for accelerating the process of development of agriculture and rural

industries and allied activities. (Singh, 2001)3

The establishment of NABARD is a milestone in the history of banking in India

which is set up to accelerate the process of development of agriculture, rural

industries and allied activities and more particularly rural development. Inaugurating

the Bank, the then Prime Ministe It would be dynamic

service institution for rural development and the people should regard it as a friend

interested in rural development. (Desai, 2005)4

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The functioning of NABARD can therefore be viewed as a national level apex

refinancing institution in the field of rural credit and as Bank responsible for

institution building in the field of rural credit and rural banking in the country. (Bhat,

1998)5

The NABARD is an apex institution for rural finance just as IDBI is an apex

institution for industrial finance. NABARD provides by way of refinance to banks all

kinds of production and investment credit to agriculture, small scale industries,

artisans, cottage and village industries, handicrafts and other economic activities in an

integrated manner. (Chhabra & Taneja, 1998)6

Management Structure of NABARD

Figure: 2.1 Source: NABARD Profile, 2010

Composition of Board of Directors

of NABARD

Chairman 3 Directors out of the Directors

of RBI

3 Directors from amongst experts in various fields

2 directors with experts in the working of cooperative banks

& 1 of commercial banks

4 Drectors from officials of State

Government

3 Directors from Officials of

Central Government

Managing Director

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The management of the NABARD is entrusted to a Board of Directors to be

appointed by the Government of India in consultation with the Reserve Bank of India.

The Board of Directors of the NABARD comprises the following personnel according

to the provisions of sub-section (1) of the Section 6 of the NABARD Act, 1981:

a) a chairman;

b) three directors from amongst experts in rural economics, rural development,

handicrafts and other rural crafts, village and cottage industries and small scale

industries etc., the special knowledge or professional experience and exposure

useful to the NABARD, as considered by Central Government;

c) three directors out of whom two directors with experience in the working of

cooperative banks and one with experience in the working of commercial

banks;

d) three directors out of the directors of the RBI.

e) 3 directors will be from among the officials of the Government of India;

f) 4 directors will be from among the officials of the State Governments;

g) a managing director. (Shandilya & Prasad, 2006)7

Organisation Structure:

Figure: 2.2

Source: NABARD Profile, 2010

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In order to have a smooth functioning, the Board of Directors (includes a Chairman, a

Managing Directors, and Executive Directors from various disciplines) is supported

by

a) 24 Head Office Departments each under the control of a Chief General Manager

which includes Accounts Department, Business Initiatives Department, Central

Vigilance Cell , Corporate Communications Department , Corporate Planning

Department, Department of Core Banking Solution, Department of Economic

Analysis & Research, Department of Information Technology, Department of

Premises, Security and Procurement , Department of Refinance, Department of

Storage and Marketing, Department of Supervision, Development Policy

Department, Finance Department, Financial Inclusion Department, Human

Resources Management Department, Inspection Department, Institutional

Development Department, Law Department, Micro Credit Innovations

Department, Rajbhasha Prabhag, Secretary's Department, Special Projects Unit-

KCC-ICT, State Projects Department.

b) 30 Regional Offices located in different States and Union Territories under the

control of a Chief General Manager or Officer-in-Charge. And again under the

Regional Offices there is one Sub-office Special Cell at Srinagar under the

control of a Deputy General Manager, 395 District Development Offices under

District Development Managers functioning at district level and 12 Project

Monitoring Units under the control of an Officer-in-Charge at Andhra Pradesh,

Gujarat, Rajasthan, Tamil Nadu, Karnataka, Uttar Pradesh, Maharashtra.

c) Training Establishments at Bolpur, Hyderabad, Mangalore and Lucknow.

Financial Resources

The authorized capital at present is Rs.500 crores with a paid up capital of Rs.100

crores contributed by the Government of India and the Reserve Bank of India @

Rs.50 crores each. The outstanding amounts of National Agricultural Credit (long

term operation) Fund and National Agricultural Credit (stabilisation) Fund of the RBI

were transferred to NABARD. The profits of these two funds for the year 1982-83

73

were also transferred to NABARD. It is also empowered to draw funds from the

Government of India, the World Bank, and the other financial institutions and also

raise funds from open market through the issue of its debentures. (Reddy, 2001)8

Functions of NABARD

Refinance assistance:

The establishment of NABARD is to provide refinance assistance to the State

Cooperative Banks, the Regional Rural Banks or any other financial institutions

approved by the RBI. The refinance assistances by the NABARD are provided to

serve the following purposes:

1) To carry on agricultural operations or marketing of agricultural produce.

2) Marketing and distribution of various agricultural inputs (like improved seeds,

chemical fertilisers, pesticides, etc.) necessary for carrying on agricultural

operations and for agricultural development.

3) To carry on any other activity in the field of or for the development of

agriculture and rural development.

4) For production and marketing activities of rural artisans or for small scale

industries in the tiny and decentralized sector, village and cottage industries

and to those engaged in the field of handicrafts and other rural crafts.

In other words, it can be emphasized that NABARD provides refinance assistance for

rural development in the sphere of agriculture, cottage and tiny industries and

decentralized sector, small scale and handicrafts and various other rural crafts.

Research and Development function:

The NABARD through its Research and Development department promotes research

in various aspects of the problems of agricultural and rural development and render

assistance to NABARD in formulating development programmes and projects to suits

requirements of various regions and areas in the country as also to cover activities

requiring special attention due to one or other reasons.

74

The NABARD undertakes comprehensive training for its own staff and also for the

staff of various financial institutions which seeks financial assistance from the

NABARD. The idea behind is to upgrade the technical skills and competence of the

financial personnel engaged in the task of agricultural and rural development.

The NABARD is entrusted with the task of ensuring proper implementation of the

aided projects and evaluate their performance with a view to improve the quality of

their performance. (Desai, 1990)9

Promotional Roles:

NABARD plays the following promotional roles for the development of Indian Rural

Economy:

1. Training and skill upgradation through Training cum Production centers,

rural entrepreneurship development, training by and of master craftsmen,

market oriented training for rural artisans and training the beneficiaries of

development credit.

2. Development and dissemination of technology, employment oriented

production technology, area planning for rural industrialization.

Participation in Poverty Alleviation Programmes:

Apart from the above functions NABARD also has actively participated in various

other areas of which the prominent ones are discussed below:

Integrated Rural Development Programme (IRDP):

It is a scheme devised by the Government of India for generating self-employment

opportunities in the rural sector and for the economic development of rural areas.

Banks are advised to extend cheap credit facilities to the people group selected under

this scheme. NABARD has accorded high priority to projects envisaged under IRDP

by providing refinance to banks, which accounts for the highest share for the support

provided for poverty alleviation programmes.

75

Swarnajayanti Gram Swarozgar Yojana (SGSY):

It is a scheme under which rural individual poor and group of individuals like the

SHGs may obtain credit facilities to undertake any economic activity which will

generate regular income for the borrowers. The main objective behind this scheme is

to uplift those who are living below poverty line and enable them to get an income of

atleast Rs.2,000 per month. The scheme envisages to lift the poor families within

three years of assistance. NABARD will provide refinance to banks sanctioning loans

under this scheme.

Development of Women and Children in Rural Areas:

NABARD prepared guidelines for promoting group activities under this programme

and provided 100% refinance support.

Training cum Production for Women:

NABARD provides grants to voluntary/ development agencies for setting up of

centres which aim at providing vocational/ entrepreneurship training centres for

women exclusively. Some provide marketing-oriented skills to women for up grading

technical and designing skill.

Self Help Group (SHG):

NABARD has been making efforts to establish linkages between SHG organized by

some voluntary agencies for poor people in rural areas and official credit agencies.

This would augment the flow of credit for production purposes and reduce their

dependence on informal credit sources.

Scheme for Monitoring Evaluation and Research Activities:

NABARD conducts studies on ongoing schemes and completed studies to obtain

feedback on performance on these projects. The NABARD has system of District

Oriented Monitoring studies in which a cross section of schemes sanctioned in a

district to various banks is studied to ascertain the performance of the schemes and to

identify constraints in implementation and for initiating appropriate action to remedy

them. Annually about 100 such studies are conducted. NABARD also provides

76

support to research studies by academic and technical institutions on matters having

bearing on its developmental role. For this purpose it has Research and

Developmental Fund.

Vikas Volunteer Vahini Programme:

NABARD has been organizing farmers club in association with voluntary agencies in

rural areas particularly in tribal areas which have proved very helpful for credit

institutions in extending credit to poor farmers. These clubs besides creating

awareness among weaker sections about proper utilization of assets and imparting

modern method of farm technology are involved in educating the tribal people.

External Aid Projects:

NABARD has been implementing various foreign aided projects. The projects are

assisted by World Bank Group, Organisation of Petroleum Exporting Countries Fund

for international development etc. NABARD actively participates in formulation and

implementation of such projects. It also required to monitor the projects and to submit

final report to aid agencies.

Inspection and Supervision of Cooperative banks and Regional Rural Banks:

NBARD has been entrusted with the responsibility of supervision of Cooperative

Banks and Regional Rural Banks. For this purpose it conducts inspection of

Cooperative Banks and Regional Rural Banks. These banks are also to submit

periodical information to NABARD for monitoring purposes. NABARD gives its

recommendations to RBI with the matters relating to licensing of Cooperative Banks

and Regional Rural Banks.

Human Resource Development:

NABARD provides assistance and support for the training of staff and other credit

institutions engaged in credit dispension for agriculture and rural development.

Training facilities are extended at its two training institutions Bankers Institute for

Rural Develoment (BIRD) and Regional Training Centres (RTCs). Some funding of

the courses conducted at the College of Agricultural Banking of RBI and Junior Level

77

Training Centres of SLDBs are also provided. Apart from these NABARD conducts

seminars/ programmes on Non-Farm Centre Business Development, inspection of

banks etc. (Natarajan & Parameswaran, 2002)10

2.2 SELF HELP GROUP & SHG- BANK LINKAGE PROGRAMME OF NABARD

Poverty is regarded as a main stumbling block to social development. All countries of

the world openly admit the existence of poverty in them, and all have shown their

commitment to eradicate it. Poverty was one of the main issues discussed at the

World Summit for Social Development, held in 1995 in Copenhagen. (Choudhury,

2005)11 Poverty is not only about what you need to avoid dying from starvation and

cold, but the condition you need to stay healthy and participate in the society in which

you need to live. Poverty is concerned with social needs as well as physical needs.

(Singh, 2001)12

India lives in villages. This edge which emphasizes the agrarian character of the

Indian economy and to which such pointed attention was drawn by Mahatma Gandhi,

continues to be true to this day inspite of industrial development that has taken place

in the last four decades since independence. The industrialization has not made any

substantial difference to the proportion of population that lives in villages, though the

exodus from villages in recent years has created problems and added to the urban

slums. The importance of rural development, looked at broadly as such is further

intensified by the fact that poverty the alleviation of which is the supreme objective of

all developmental efforts has the widest incidence, and infact its sources in rural

areas. (Yadav & Gurjar, 1997)13 It is well recognised that the avowed objectives of

our social planners immediately after independence of our economy were the ending

of poverty, ignorance and the inequality of opportunities. Of course, there has been an

evolution of policy strategies, from time to time, since independence towards this

direction. But ironically even after the elapse of sixty four years after independence

about one-third of our total population still suffer from abject poverty and a large

section of poverty afflicted people is entangled by the poverty trap i.e. they suffer

from chronic poverty. The incidence as well as intensity of poverty has also been

78

reflected in its various dimensions viz., the social, regional, occupational, ethnical etc.

in both rural and urban areas of our economy albeit with some degree of variations.

Interestingly the Govt. has made changes in the policy strategies towards the objective

of alleviation of poverty depending on the dynamic behaviour of our macro-economic

scenario during the plan period. In fact up to the early 70s we actually followed the

strategy of growth mediated development policies on the basis of the expectation of

the op

growth would automatically percolate amongst all sections of people irrespective of

region, religion and castes etc. But astonishingly the proportion of people lying below

the poverty line remained well above 50% up to mid70s which was followed by a

declining trend thereafter albeit with some degrees of fluctuation. Because of this

pessimistic experience of the failure of trickle down hypothesis, our Government has

made a radical shift of her policy strategy towards the direct attack on poverty by

pursuing various workfare and welfare programmes viz., different employment

generating programmes like IRDP, SJGSY (latter renamed as SGSY) and other social

security programmes like NREG etc. so that the benefits of this programmes could

reach the target group. (Ghosal, 2012)14The development of the concept of Self Help

Group was one of the most prominent poverty alleviation programmes.

Self Help Groups (SHGs) A Brief History:

The history of the SHGs (Self Help Groups) movement, a noble mission was

originated in Bangaldesh under the leadership of Prof. Mohammed Yunus.

(Sadyojathappa, 2011)15However in India the concept of SHGs has been familiar to

people from generations. The structure was informal (sangha), small groups of rural

and urban people hand together to form savings and credit organisations. Self Help

Groups mean small, socially and economically homogeneous group of rural and urban

people, who assembled together for some productive purpose. In the early stages,

NGOs played a pivotal role in innovating the SHG model and in implanting the model

to develop the process fully. In 1987, NABARD took an initiative to serve the low-

income population of the country with financial services in cost effective manner.

This led to the development of a relationship between the informal SHGs and the

formal banking system. The bank provides loan to the groups for various financial

activities. Later on, NABARD formally launched the SHG-Bank Linkage Programme

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as a pilot project in 1992 with the support of the Reserve Bank of India. (Das &

Tiwari, 2012)16

This programme envisages organization of the rural poor into SHGs for building their

capacities to manage their own finances and then negotiate bank credit on commercial

terms. The poor are encouraged to voluntarily come together to save small amounts

regularly and extends micro loans among themselves. Once the group attains required

maturity of handling larger resources, the bank credit follows. (Feroze & Chauhan,

2011)17

Self Help Groups are voluntary gatherings of persons who share needs or problems

that are not being addressed by existing organizations, institutions, or other types of

groups. The broad goals of a Self Help Group are to bring about personal and socio-

economic change for its members and society. All of those groups emphasises face to

face interaction among members and stress a set of values or ideology that enhances a

rsonal sense of identity. Self Help Groups (SHG) is a group of rural poor

who have volunteered to organize themselves into a group for eradication of poverty

of the members. They agree to save money regularly and convert their savings into a

common fund known as the group corpus. The members of the group agree to use this

common fund and such other funds that they may receive as a group through a

common management. (Chandrashekar & Lokesh, 2009)18

SHG Definition:

socio-economic background. They come together for the purpose of solving their

common problems through self-help and mutual help. These groups may be registered

or unregistered. The members of these groups save small amounts regularly and

mutually agreeing to contribute to a common fund to meet their emergency needs on

Vasanthakumari, 2011)19

An SHG has an average size of about 15 people from a homogeneous class. They

come together for addressing their common problems. They are encouraged to make

voluntary thrift on regular basis. They use these pooled resources to make small

80

interest bearing loans to their members. The process helps them imbibe the essentials

of financial intermediation including prioritization of needs, setting terms and

conditions and accounts keeping. This gradually builds financial discipline in all of

them. They also learn to handle resources of a size that is much beyond individual

capacities of any of them. The SHG members begin to appreciate that resources are

limited and have a cost. Once the group shows this mature financial behavior, banks

are encouraged to disburse loans to the SHGs in certain multiples of the accumulated

savings of the SHG. The bank loans are given without any collateral and at market

interest rates. The groups continue to decide the terms of loans to their own members.

loans made by the groups to their members, peer pressure ensures timely repayments.

(MCID, NABARD) 20

Self Help Groups (SHGs) formed in rural India, consisting, usually fifteen to twenty

members hailing from a certain locality with similar socio - economic backgrounds.

The unregistered groups operate on the principles of mutual trust, co-operation and

interdependence. Preference in membership is offered to the poorest of the poor,

handicapped, windowed, deserted and dalits. The leaders are selected from members

of the group. The SHGs work through a process of social mobilization to set up a

successful enterprise to earn a sustainable living that helps the beneficiaries to lift

themselves above the poverty line. (Sreedhar, 2012)21

small and informal association of the poor, usually from socio-economically

homogeneous families who are organized around savings and credit activities.

Members of SHGs meet weekly or monthly and discuss common problems and share

information to come out at a solution. Group members make effort to change their

economic and social problems through mutual assistance. (website: Planning

Commission)22

Need and Objectives of SHGs:

Formation of Self Help Groups for rural unemployed, especially women, would

ensure the best satisfaction of the poor. The membership in a group activity gives

81

him/ her a feeling of self esteem, self dependence, cooperation and protection. The

approach towards poverty alleviation is based on the formation of SHGs at the

grassroots level. This brings about the necessity for organizing them in a group by

which they get the benefit of collective perceptions, collective decision making and

collective implementation of programme for common benefits. This organization acts

as an instrument of empowerment of the poor as well as antidote to the helplessness

of this section of the people. The group savings of SHGs serve a wide range of

objectives other than immediate investment. A SHG is usually formed with the

following objectives in mind:

Improve discipline among the group members in developing a saving habit.

Savings enhance self-confidence of the individual as it is a sign of group

encouragement.

Group savings of the poor can demonstrate the strength of unity of members.

With credit becoming available out of collective savings, the members can

start new, viable, economic activities to rid themselves of the scourge of

poverty. (Kapoor, 2013)23

Formation of SHGs:

A reasonably educated helpful local person, may be a retired school teacher or

government employee or an unemployed youth or any NGO, called animator, takes

the lead in mobilizing the poor people to form a group. Such animator or facilitators,

helps the group members develop the habit of thrift and promotes small savings

among them. The group savings are kept in common bank account from which small

loans are given to members.

After six months of the formation, the SHG can approach any bank for availing loan

facility to undertake suitable entrepreneurial activity. The group loan is distributed

among the members to run small business. The loan is repaid out of the profit earned.

Formation Steps:

1st step: Introduction and relationship building with the group

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The animator or facilitator sits with the masses and have first hand knowledge about

the village economic situation, the importance of having the natural resources, to

ascertain the available skills and expected market of the produced product etc.

-At the very outset, to awaken the people, regular visit to the set village should be

made and the importance of building SHG should be propogated there and they

should be made to realize that-

(i) regular savings ensures economic self sufficiency.

(ii) small loans pay early dividends.

(iii) SHG shows the way of financially and socially independent units and caring the

concept in true sense of the term.

(iv) SHGs help the people through small savings and guide them to proceed in the

right direction.

(v) there will be a marked development of literacy, health and social standing, once

their economic condition is improved.

2nd Step: Organisational operation

To become aware of the aim and choose the way.

-To elect the executives and to set forth the rules and regulations of the group.

-The organized group could easily open bank account in its name.

Functioning of SHGs:

1. Size of SHG: Minimum ten members are essential to form a group and the

maximum numbers of members must not exceed 20, as SHGs are informal

groups. Legally, a group of more than 20 members are required to be

registered.

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2. Membership: According to NABARD guidelines:

Only one person from a particular family can join the group as in this

way more family can be included in the movement.

Members are generally from the same locality or village as it helps in

easy communication.

They are from same social and economic background. It helps in good

interaction among the members.

3. Election of group leader: The members of the group elect the group leader

democratically. The leader has the responsibility to organize the group

meetings and chair its proceedings. She or he maintains the group records and

helps to facilitate the process of banking and other economic and social

contracts.

4. Group meetings:

The group meeting is organized weekly or at least monthly. It helps

better.

Attendance in meetings is compulsory for members. Absence may

draw fines according to bylaws of the group.

All the major decisions on saving and lending transaction are taken in

the meeting. They decide on the date and venue of the meetings and

savings of all individuals are collected in the meeting. The member

share and discuss the problems faced by them.

5. Keeping accounts by the SHG: Simple and clear accounts are kept for all

transactions. If none of the members of the group is able to maintain the

account, the group takes help from outside the group. He or she may be

rewarded for the same. Sometimes the animators or the NGO personnel help

the group to maintain different records. To avoid any confusion and mistrust

all the transactions are recorded during the group meeting only.

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6. Books kept by a SHG:

Minutes book: The names of the members, rule and regulations,

proceedings of the meetings etc., are recorded in this book.

Savings and loan register: Individual savings as well as group

savings are recorded in this book. Individual loans, repayments,

interest collected, balance etc., are entered here.

Weekly/ fortnightly/ monthly register: Summary of receipts and

payments are kept in this book.

Individual savings and loan balance outstanding

is regularly entered here.

7. Savings and lending mechanism:

a) Savings and Thrift: The group members start saving a small amount

Credit

members and they become disciplined in financial matters which will help

them while handling bank loans.

b) Bank accounts: Soon after one or two meetings, the SHG passes a

resolution in the group meeting, signed by all the members to open a

saving bank account in the name of the SHG. The SHG authorizes at least

three members, any two of whom, to jointly operate the account. The

resolution along with the filled in application form and a copy of the rule

and regulations of the SHG is filed with the bank. Then saving bank

account pass book is issued to the SHG.

c) Internal lending: After saving for a minimum period of two or three

months, the group starts lending to its members at a pre-decided interest

rate from the common savings fund. The terms and condition for

advancement of loans are pre-decided. Generally, intra-group loans are

available for production as well as consumption purposes and interest rates

vary between two to three percent per month.

d) External credit: After six months when the members show a saving habit

and learns to manage, utilize and repay their loans, the SHG seeks external

credit from the bank. The bank assess the performance of the group based

85

on certain parameters (16 in number) such as group size, regularity of

meetings, saving collection within the group, utilization of savings, loan

recoveries etc. After being satisfied about the viability of the group, the

bank issues a loan in the name of the SHG. The quantum of loan generally

varies between one to four times of the savings amount of the group but it

may be more than that provided the bank becomes satisfied about the

health of the SHG.

e) Further lending activity: Further loan is given to the group members.

They decide on the candidature of loan applicant on the basis of need and

purpose of spending. The purpose can vary from buying of assets for

income generating activities to emergency needs like illness, marriage etc.

The interest earned is deposited in the account as a part of group fund.

f) Repayment of loan: The group remains collectively responsible for

repayment of the external loan. A small and regular repayment schedule is

finalized with the SHG. Peer pressure, peer support, peer monitoring

discourages willful default. Every member is made to realize that the

money belongs not only to him but other members of the group also. The

group may have common income generating activities for which the

promoting institutions may arrange training programmes.

SHG-Bank Linkage Programme Models:

The SHG-bank linkage programme has its origin in a GTZ-sponsored project in

Indonesia. Launched in 1992 in India, early results achieved by SHGs promoted by

NGOs such as MYRADA (Mysore Resettlement and Development Agency), led

NABARD to offer refinance to banks for collateral free loans to groups. The collateral

free loans increase progressively to up to four times th

banks able to access funds from the formal banking

system.

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The programme encompasses three broad models of linkage:

Source: NABARD Website

SHGs formed and financed by banks.

In this model, the bank itself takes up the work of forming and nurturing the groups,

opening their bank accounts and providing them with bank loans after satisfying itself

as to their maturity to absorb credit. Here, the bank acts as the SHPI.

Source: NABARD Website

BANK SHG

MEMBERS

Figure 2.3: SHG BANK LINKAGE MODEL - I

FORMING AND NURTURING

CREDIT LINKED TO SAVINGS

SAVINGS

BANK

NGO, GO,

SHG

MEMBERS

Figure 2.4: SHG BANK LINKAGE MODEL - II

FORMING, NURTURING & MONITORING

CREDIT LINKED TO SAVINGS

SAVINGS

87

SHGs formed by NGOs and formal organizations but directly financed by the

banks.

In this model, groups are formed by NGOs (in most cases) or by government

agencies. The groups are nurtured and trained by the agencies. The bank then

provides credit directly to the SHGs after observing their operations and maturity to

absorb credit. While the bank provides loans to the groups directly, the facilitating

agencies continue their interactions with the SHGs. Most linkage experiences begin

with this model, where NGOs play a major role. The model has also been popular

with and more acceptable to banks, since some of the difficult functions of social

dynamics are externalized. Around 75 percent of the total numbers of SHGs are

financed under this model.

Source: NABARD Website

SHGs financed by banks using NGOs and other agencies as financial

intermediaries.

For various reasons, banks in some areas are not in a position even to finance SHGs

promoted and nurtured by other agencies. In such cases, the NGOs act as both

BANK

NGO, Federation

of SHGs

SHG

MEMBERS

Figure 2.5: SHG BANK LINKAGE MODEL -III

WHOLESALE CREDIT

FORMING, NURTURING,

MONITORING

SAVINGS?

CREDIT

SAVINGS?

88

facilitators and microfinance intermediaries. First, they promote the groups, nurture

and train them and then they approach banks for bulk loans for onlending to SHGs.

2.3 PERFORMANCE OF SHG BANK LINKAGE

PROGRAMME IN INDIA

The initiative of NABARD with support from RBI in 1992 to make traditional and

formal banks to extend financial services to deprived sections through informal SHGs

has now blossomed into a monolith microfinance initiatives and now it has been

recognised as a decentralised, cost effective and fastest growing microfinance

initiative in the world which enabled the poor households access to a variety of

sustainable financial services from the banking system. The linkage with banks has

provided the members of the group the facility of not only pooling their thrift/ savings

access credit from banking system but also created a platform through they would

launch a number of livelihood initiatives and also facilitate the empowerment process.

And as a result the SHG Bank linkage programme of NABARD has now become a

well known tool for bankers, development agencies and even for corporate houses.

SHGs in many ways has now gone beyond the means of delivering the financial

services as a channel and turned out to be focal point for purveying various services to

the poor. This programme over a period, has therefore become the common vehicle in

the development process. With a small beginning of linking 500 SHGs to banks in

1992 the programme has reached 8 million SHGs by March, 2012, out of which 4.4

million SHGs are regularly availing credit facilities from the banks. (Status of

Microfinance in India, 2011-12)24

Detailed analysis of the SHG Bank linkage programme across the geographical

spread of the country and across the financial agencies is being presented in this

Bank linkage programme can be analysed.

89

Table 2.1: Savings of SHGs with Banks (Agency-wise all India Position from 2006-07 to 2012-13)

Agency As on

31st March

Savings of SHGs with Banks

No. of SHGs %

Growth

Amount of

Savings

(Rs. in lakhs)

%

Growth

Commercial

Banks

2007 2293771 - 189241.44 -

2008 2810750 22.54 207773.45 9.79

2009 3549509 26.28 277298.94 33.46

2010 4052915 14.18 367389.24 32.49

2011 4323473 6.67 423006.42 15.14

2012 4618086 6.81 415298.04 (1.82)

2013 4076986 (11.72) 553257.05 33.22

Regional

Rural Banks

2007 1183065 - 115829.39 -

2008 1386838 17.22 116648.83 0.70

2009 1628588 17.43 198975.08 70.58

2010 1820870 11.81 129937.49 (34.70)

2011 1155076 (36.56) 135084.19 3.96

2012 2127368 84.18 130013.93 (3.75)

2013 2038008 (4.20) 152710.20 17.46

Co operative

Banks

2007 683748 - 46199.96 -

2008 812206 18.79 54116.67 17.14

2009 943050 16.11 78287.80 44.66

2010 1079465 14.47 122544.16 56.53

2011 1983397 83.73 143539.67 17.13

2012 1214895 (38.75) 109829.49 (23.48)

2013 1202557 (1.02) 115758.22 0.05

Total 2007 4160584 - 351270.79 -

2008 5009994 20.42 378538.94 7.76

2009 6121147 22.17 554561.82 46.50

2010 6953250 13.59 619870.89 11.78

2011 7461946 7.32 701630.28 13.19

2012 7960349 6.68 655141.46 (6.63)

2013 7317551 (8.07) 821725.47 25.43

Source: Status of Microfinance NABARD 2006-07 to 2012-13

90

Fig: 2.6

No. of SHGs Savings with Banks (All India Position)

Fig: 2.7 No. of SHGs Savings with Banks (Agency-wise all India Position)

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

9000000

2007 2008 2009 2010 2011 2012 2013

No.

of S

HG

s

Year (As on 31st March)

No. of SHGs

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

4500000

5000000

2007 2008 2009 2010 2011 2012 2013

No.

of S

HGs

Year (As on 31st March)

Commercial Banks

Regional Rural Banks

Co operative Banks

91

Fig: 2.8 Savings Amount of SHGs with Banks (All India Position)

Fig: 2.9

Savings Amount of SHGs with Banks (Agency-wise all India Position)

One of the priority features of the formation of SHG is to inculcate the habit of

savings among the members of SHG, i.e., savings first credit next. Table 2.1; figure

2.6, 2.7, 2.8 & 2.9 shows the progress of microfinance in India with respect to the

savings of SHGs with banks during the period 2006-07 to 2012-13. Under the SHG

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

2007 2008 2009 2010 2011 2012 2013

Rs. i

n La

khs

Year (As on 31st March)

Amount of savings ofSHGs

0

100000

200000

300000

400000

500000

600000

2007 2008 2009 2010 2011 2012 2013

Rs. i

n La

khs

Year (As on 31st March)

Commercial Banks

Regional Rural Banks

Co operative Banks

92

Bank Linkage Programme, a total of 50,09,994 SHGs were savings linked with banks

with a savings amount of Rs.3,78,538.94 lakh during the year ended 31st March 2008

as against 41,60,584 SHGs savings linked with banks with a savings amount of

Rs.3,51,270.79 during 2006-07 thereby having a growth rate of 20.42% and 7.76%

respectively.

Again, during the year ended 31st March 2009 a total of 61,21,147 SHGs were having

savings bank account with banking sector with a savings amount of Rs.5,54,561.82

lakhs and if compared during 2007-08 it registered a growth rate of 22.17% and

46.50% respectively.

Likewise, during the year ended 31st March 2010 a total of 69,53,250 SHGs were

having savings bank account with banking sector with a savings amount of

Rs.619870.89 lakhs and if compared with 2008-09 it registered a growth rate of

13.59% and 11.78% respectively and during the year ended 31st March 2011 a total of

74,61,946 SHGs were having savings bank account with banking sector with a

savings amount of Rs.7,01,630.28 lakhs and if compared with 2009-10 it registered a

growth rate of 7.32% and 13.19% respectively.

Similarly, during the year ended 31st March 2012 a total of 79,60,346 SHGs were

having savings bank account with banking sector with a savings amount of

Rs.6,55,141.46 lakhs and if compared with 2009-10 it registered a growth rate of

6.68% in terms of number of SHGs having savings bank account with banks but there

is a decline in the savings amount by 6.63%.

And during the year ended 31st March 2013 a total of 73,17,551 SHGs were having

savings bank account with banking sector with a savings amount of Rs.8,21,725.47

lakhs. From the above facts it can be said that there has been a constant decline in the

savings of SHGs with banks both in number of SHGs and in the savings amount. The

reason may be either due to increasing awareness at the SHG level about the

advantage of using the savings for internal loaning or due to less awareness at the

SHG level regarding development of savings habit.

93

Table 2.2: Bank Loan Disbursed to SHGs (Agency-wise all India Position from 2006-07 to 2012-13)

Agency Year Bank Loan Disbursed to SHGs

No. of SHGs % Growth

Bank Loan Disbursed

% Growth

Commercial Banks

2006-07 571636 - 391894.32 -

2007-08 735119 28.60 540390.35 37.89 2008-09 1004587 36.65 806053.10 49.16

2009-10 977521 (2.69) 978018.55 21.33 2010-11 669741 (31.49) 972455.27 (0.57)

2011-12 600807 (10.29) 994204.49 2.24 2012-13 735577 22.43 1338500.70 34.63

Regional Rural Banks

2006-07 381199 - 205273.10 -

2007-08 327650 (14.05) 265184.14 29.19 2008-09 405569 23.78 319349.01 20.43

2009-10 376797 (7.05) 333320.06 4.37 2010-11 229620 (39.09) 162556.33 (51.23)

2011-12 304809 32.74 502605.15 209.19 2012-13 312010 2.36 562652.22 11.95

Co operative Banks

2006-07 152914 - 59871.43 -

2007-08 165001 7.91 79351.75 32.54 2008-09 199430 20.87 99949.28 25.96

2009-10 232504 16.58 133991.75 34.06 2010-11 296773 27.64 319761.59 138.64

2011-12 242262 (18.37) 156667.23 (51) 2012-13 172234 (28.91) 157383.52 0.46

Total 2006-07 1105749 - 657038.85 -

2007-08 1227770 11.04 884926.24 34.68 2008-09 1609586 31.10 1225351.39 38.47

2009-10 1586822 (1.41) 1445330.36 17.95 2010-11 1196134 (24.62) 1454773.19 0.65

2011-12 1147878 (4.03) 1653476.87 13.66

2012-13 1219821 6.27 2058536.44 24.50 Source: Status of Microfinance NABARD 2006-07 to 2012-13

94

FIGURE: 2.10 No. of SHGs Disbursed with Bank Loan (All India Position)

FIGURE: 2.11 No. of SHGs Disbursed with Bank Loan (Agency-wise all India Position)

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

No.

of S

HG

s

Year

No. of SHGs

0

200000

400000

600000

800000

1000000

1200000

No.

of S

HG

s

Year

Commercial Banks

Regional Rural Banks

Cooperative Banks

95

FIGURE: 2.12 Amount of Bank Loan Disbursed to SHGs (All India Position)

FIGURE: 2.13 Amount of Bank Loan Disbursed to SHGs (Agency-wise all India Position)

Table 2.2; Figure 2.10, 2.11, 2.12 & 2.13 shows the progress regarding the bank loan

disbursed to SHGs with during the period 2006-07 to 2012-13. A total of 12,27,770

0

500000

1000000

1500000

2000000

2500000

Rs.

in L

akhs

Year

Amount of loandisbursed to SHGs

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

Rs.

in L

akhs

Year

Commercial Banks

Regional Rural Banks

Cooperative Banks

96

SHGs had access to direct credit facilities from the bank with a total bank loan of Rs.

8,84,926.24 lakhs during 2007-08 as against 11,05,749 SHGs with a total bank loan of

Rs.6,57,038.85 lakhs during 2007-07 which registered a growth rate of 11.04% for

number of SHGs and 34.68% with respect to the amount of bank loan disbursed. And

total of 16,09,586 SHGs had access to direct credit facilities from the bank with a

total bank loan of Rs.12,25,351.39 lakhs during 2008-09 and comparing with the that

of 2007-08 it recorded a growth rate of 31.10% for number of SHGs and 38.47%

with respect to the amount of bank loan.

Again during the year 2009-10 the bank financed 15,86,822 SHGs with a bank loan of

Rs.14,45,330.36 lakhs and if compared with 2008-09 it witnessed a decline of 1.41%

regarding number of SHGs forwarded credit facilities but a growth rate of 17.95%

with respect to the amount of loan forwarded. And again during the year 2010-11 the

bank financed 11,96,134 SHGs with a bank loan of Rs.14,54,773.19 lakhs and

likewise during the year 2011-12 the bank financed 11,47,878 SHGs with a bank loan

of Rs.16,53,476.87 lakhs. And during the year 2012-13 the bank financed 12,19,821

SHGs with a bank loan of Rs.20,58,536.44 lakhs recording a growth rate of 6.27%

with respect to number of SHGs having bank financed and 24.50% with respect to

the amount of bank loan disbursed to SHGs.

Considering these it can be rightly remarked that there is a continuous flow of finance

from banks for the development of SHGs which indicates an increase in interest from

inducement of such SHGs to develop. At the same time it is also a motivating factor

from SHGs point of view.

97

TABLE: 2.3 Bank Loan Outstanding against SHGs (Agency-wise all India Position from 2006-07 to 2012-13)

Agency As on 31st March

Bank Loan Outstanding against SHGs

No. of SHGs % Growth

Bank Loan Outstanding

% Growth

Commercial Banks

2007 1893016 - 876037.81 -

2008 2378847 25.66 1147546.99 30.88

2009 2831374 19.02 1614942.80 40.85

2010 3237263 14.33 2016471.21 24.86

2011 3053472 (5.68) 2188325.67 8.52

2012 2617199 (14.29) 2581028.86 17.95

2013 2643971 1.02 2663944.38 3.21

Regional Rural Banks

2007 729255 - 280176.15 -

2008 875716 20.08 442104.54 57.80

2009 977834 11.66 522441.61 18.17

2010 1103980 12.90 614458.24 17.61

2011 451798 (59.08) 190785.65 (68.95)

2012 1293809 186.36 861357.81 351.47

2013 1327367 2.59 1052122.91 22.15

Co operative Banks

2007 272234 - 80435.43 -

2008 371378 36.42 110339.13 37.18

2009 415130 11.78 130599.84 18.36

2010 510113 22.88 172898.62 32.38

2011 1281493 151.22 743005.23 329.73

2012 443434 (65.38) 191613.51 (74.21)

2013 480096 8.27 221462.43 15.58

Total 2007 2894505 - 1236649.39 -

2008 3625941 25.27 1699990.66 37.47

2009 4224338 16.50 2267984.25 33.41

2010 4851356 14.84 2803828.07 23.62

2011 4786763 (1.33) 3122116.55 11.35

2012 4354442 (9.03) 3634000.18 16.39

2013 4451434 2.28 3937529.72 8.35 Source: Status of Microfinance NABARD 2006-07 to 2012-13

98

FIGURE: 2.14 No. of SHGs having Bank Loan Outstanding (All India Position)

FIGURE: 2.15 No. of SHGs having Bank Loan Outstanding (Agency-wise all India Position)

0

1000000

2000000

3000000

4000000

5000000

6000000

2007200820092010201120122013

No.

of S

HGs

Year (As on 31st March)

No. of SHGs havingOutstanding Bank Loan

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

2007 2008 2009 2010 2011 2012 2013

No.

of S

HG

s

Year (As on 31st March)

Commercial Banks

Regional Rural Banks

Co operative Banks

99

FIGURE: 2.16 Amount of Bank Loan Outstanding against SHGs (All India Position)

FIGURE: 2.17 Amount of Bank Loan Outstanding against SHGs (Agency-wise all India Position)

Table 2.3; Figure 2.14, 2.15, 2.16 & 2.17 shows the position of banks with respect to

the bank loan outstanding with SHGs during the period 2006-07 to 2012-13. A total

of 36,25,941 SHGs had an outstanding bank loan Rs.16,99,990.66 lakhs during the

year ended 31st March 2008 as against 28,94,505 SHGs with a total bank loan

outstanding of Rs.1236649.39 lakhs during 2006-07 which revealed that the bank loan

outstanding increased registering a growth rate of 25.27% for number of SHGs and

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

4500000

2007200820092010201120122013

Rs. i

n La

khs

Year (As on 31st March)

Amount ofOutstanding Bank Loanagainst SHGs

0

500000

1000000

1500000

2000000

2500000

3000000

2007 2008 2009 2010 2011 2012 2013

Rs. i

n La

khs

Year (As on 31st March)

Commercial Banks

Regional Rural Banks

Co operative Banks

100

37.47% with respect to the amount of bank loan outstanding. And a total of

42,24,338 SHGs had an outstanding bank loan Rs.22,67,984.25 lakhs during ended

31st March 2009 which reported a growth rate of 16.50% for number of SHGs and

33.41% with respect to the amount of bank loan outstanding, if compared with that of

the previous year 2007-08.

Again during the year ended 31st March 2010 48,51,356 SHGs maintained a bank

loan outstanding of Rs.28,03,828.07 lakhs and if compared with 2008-09 it was

increased by 14.84% regarding number of SHGs maintained bank loan outstanding

and a growth rate of 23.62% with respect to the amount of loan outstanding. And

again during the year ended 31st March 2011, 47,86,763 SHGs maintained a bank loan

outstanding of Rs.31,22,116.55 lakhs and likewise during the year ended 31st March

2012 the 43,54,442 SHGs maintained a bank loan outstanding of Rs.36,34,000.18

lakhs.

And again during the year ended 31st March 2013, 44,51,434 SHGs maintained a bank

loan outstanding of Rs.39,37,529.72 lakhs and after comparing with that of the year

2011-12 it shows a growth rate of 2.28% and 8.35% with respect to number of SHGs

having outstanding bank loan and the amount of outstanding bank loan against SHGs

respectively.

Considering these it can be rightly remarked that there is a continuous increase of

bank loan outstanding year after year which indicates that bank is still favoring SHGs

with bank loan with considering the increase in the amount of bank loan outstanding.

However, with respect to SHG maintaining bank loan outstanding, it shows a

decreasing trend.

The progress of SHG members to take up micro enterprise involves intensive training

and hand holding on various aspects including understanding market, potential

mapping and ultimately fine tuning skills and entrepreneurship to manage the

enterprise. Hence

NABARD in 2006. This involves organizing short duration, location specific

101

programmes on skill upgradation / development for sustainable livelihoods / venturing

micro-enterprises by matured SHG members. It is a supplemental effort to upgrade/

develop skill and preliminary business acumen of SHG members in order to enable

them to cope up with the issues in relation to run a successful enterprise for income

generation/ livelihood. Table 2.4 shows the performance of Micro Enterprise

Development Programme (MCID).

Table: 2.4 Progress of Micro Enterprise Development Programme: India Position

Year No. of participants (SHG members)

Current Year figures

No. of participants (SHG members)

Cumulative figures

2006-07 7579 7579

2007-08 13985 21564

2008-09 41405 62969

2009-10 38313 101282

2010-11 60160 161442

2011-12 56292 217734

2012-13 52875 270609

Source: Status of Microfinance NABARD 2006-07 to 2012-13

Figure: 2.18 No. of SHG Members Participating in Micro Enterprise Development Programme

0

10000

20000

30000

40000

50000

60000

70000

No.

of S

HG

s

Year

No. of participants(SHG members)

102

From the table above, it can be reported that during the year 2007-08 a total of 13,985

SHG members participated in the Micro Enterprise Development Programme as

against 7,579 in the year 2006-07 which shows a growth rate of 85% in the

participation by SHG members in this programme. Again during the year 2008-09 a

total of 41,405 SHG members participated in the MEDP and if compared with

previous year 20007-08 it registered a growth of almost 200%. And it continued

during the next successive years and by the end of 2012-13 from the year 2006-07 a

total of 2,70,609 SHG members were trained through this programme by the end of

2012-13. From this it can be briefed that the programme proved to be pretty

successful.

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15. Sadyojathappa. S (2011); Self Help Group- (SHG) Bank Linkage System In Microfinance; Zenith International Journal of Business Economics & Management Research Vol.1 Issue 2, Nov 2011.

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