Self Help Group – Bank Linkage Programme

NABARD conducted a survey in selected states to evaluate the impact of linkage programme between the banks and the Self Help Groups (SHGs) and the end result of it was positive and advantageous for both the banks and the borrowers. Thus, the Reserve Bank of India has issued a Master Circular on 30th June 2019 to implement the Self Help Group-Bank Linkage Programme to merge the banks and the rural poor for a shared benefit. The programme was launched to increase the loan volume of the SHGs, modify their money lending pattern from non-income generating activities to production-based activities.

Benefits of the SHG-BLP

SHGs are the major beneficiaries under the program, and they are liable for the following assistance,

• NABARD grants the stakeholders to take up the sponsorship of SHGs by way of promotional grant assistance.
• The savings led microfinance model to become the leading organised financial annexation programme in the world, covering about 100 million households in the country.
• The programme has so far provided the much-needed support for the women empowerment, as more than 85% of the Self Help Groups are operated by women groups.
• Banks are encouraged to embrace the concept of Total Financial Inclusion.
• The programme can benefit both the banks and the borrowers in cutting down the transaction charges and
• Doubling up the income of the SHGs.

Moreover, the Government demands all the scheduled commercial banks to adhere to the standard set by the public sector banks and meet the entire credit requirements of SHG members as follows,

• Income generation activities that lead to the initiation of small-scale help organisation
• Income utilised for Social needs like housing, education and marriage
• Debt switching, the process of exchanging the debts between two entities of their commercial papers of the Stakeholders.

Guidance for the Linkage of SHG-BLP

The Monetary Policy Statements by the Reserve bank of India and Union Budget statements accentuates on the linkages of SHG with the banks and issues guidelines to the banks for its effective implementation. They are as follows,

• Banks must provide ample incentive in aiding the Self-Help Groups (SHGs) and set up linkages with them.
• Banks should simplify its procedure in obtaining the incentives simple and easy for SHGs.
• Banks should have the financing that doesn’t pinch any problems and has detailed consumption expenditures.
• All the SHGs should be guided with a templated approach, as any additional rules can be neither be formulated nor official structures enforced or claimed upon.

The following guidelines and the activities should be adhered to enable effective linkage of SHGs with the banking sector.

Opening Savings Bank Account

• All the SHGs irrespective to its registration that are engaged in promoting the habits of savings among their members are qualified to open savings bank accounts with banks.
• The SHGs can avail the credit facilities from the banks even before starting the savings bank accounts.
• The guidelines of the Department of Banking Regulation in the Master Direction – Know Your Customer (KYC) Direction, 2016 be relevant to SHG members must be adhered while finalising the Customer Due Diligence (CDD) process.
• Streamlined norms for Self Help Groups (SHGs) states that CDD members of SHG are not required for opening the savings bank account of the SHG.
• CDD of all the office bearers is reportedly adequate for the account opening.
• No distinct CDD of the members or office bearers is needed at the time of credit linking of SHGs.

Stages Involved in the Process

The following are the stages of the SHG-SLP process,

• Product level alterations like permitting the intended savings in the group.
• Endorsing of the cash credit or overdraft system of lending to SHGs
• Permitting a prescribed structure of Joint Liability Groups (JLGs) within SHGs,
• Enhancing risk mitigation systems to make the lending system safer within SHGs
• Developing second-tier institutions of SHGs, for further value addition, etc.

All these are regularly brought then and there to address the functioning issues evolving from time to time. NABARD has been conducting Micro-Enterprise Development Programmes (MEDPs) and Livelihood and Enterprise Development Programmes (LEDPs) to enhance the capability of the SHG members and to take part in the livelihood activities.

Offering Loans to SHGs

• Banks that are offering loans to the Self Help Groups (SHGs) are included in the credit plan of the respective branches, block credit plan, district and state credit plan of the respective banks.
• As per the guidelines released by NABARD, SHGs are offered savings linked loans by banks for the ratio of 1:1 to 1:4. For the advanced SHGs, loans are provided four times beyond the limit of their savings or as per the decision of the bank.
• Documentation methodologies for the processing of credit facilities to SHGs are simplified, and sanctioning loan authorities are designated to the respective branch managers.
• Loan application procedure, forms and documents are made simple to offer quick and easy credits to SHGs.

Rate of Interest

Banks has the authority to decide upon the interest rates pertinent to the loans offered to SHGs/ member beneficiaries.

Loan Processing Charges

For the loans obtained up to Rs.25,000, nil processing charges are imposed on the sector but in case of eligibility loans claimed by the SHGs/JLGs the ad hoc service charges are levied on the applicable member.

Establishment of Individual Sectors

Separate divisions are established by the banks to report their lending to SHGs under the category, Advances to SHGs, regardless of the purpose of the loan sanctioned to the SHGs.

Skill Development Training for SHGs

As per the circular FIDD.FLC.BC.No.22/12.01.018/2016-17 dated March 02, 2017 issued on Financial Literacy by FLCs and rural branches, banks should conduct tailored programs to strengthen and support the SHGs. Banks instigate the necessary measures to represent the linkage projects of the SHGs and conduct short term programmes for their bank officials to target on the capacity building and training for the SHGs. Banks monitor the progress of the SHGs at regular intervals and work towards enhancing the potential of the SHGS. To encourage the SHG bank linkage program and monitor the credit flow to the unorganised sector, banks include the linkage programme as a regular and mandatory discussion schedule at the SLBC and DCC meetings and reviewed at the highest corporate level on a quarterly basis.

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