Significance of Establishing Linkages with Self-Help Groups and Banks


Y.S.Nanda, NBARD, India

Study Report - SHG: Karnataka

Highlights of Findings

I. SHG per se

  1. NGO took 6 months to one year for forming the groups. The process of evolution of SHG was found to be voluntary.
  2. Source of funds to SHG was initially savings and NGO's contribution. Bank credit came later.
  3. The share of loan for income generating activity increased from 22% in the first year to 74% in the third year.
  4. Activities financed by the SHGs were need based and the SHGs were flexible in their approach.
  5. The groups adopted flexible approach in charging interest on loans ranging from 18% to 36%, but the interest was lower that the rate charged by money lenders.
  6. Shorter repayment periods were fixed and the repayments were made from all available resources i.e. by also including other income besides income from activity financed through the SHG loan. The members were therefore able to take more than one loan in a year. The general opinion was that long periods of loan with grace years and infrequent loan instalments lead to overdues as in the case of formal credit delivery system.
  7. Conducting regular weekly meetings was one of the hallmarks of functioning of the groups.
  8. II. SOCIO-ECONOMIC BENEFITS
    1. Income per member had registered a significant increase during the period of last three years of group formation.
    2. Group formation helped the members in attending individual and common problems more effectively.
    3. Some SHGs have started creating common assets owned by all members. These common assets also provide additional income to the group.
    4. Role of NGO/VA is important for group formation, sustenance of SHG, fund support, training and advice. The VA had also helped in providing necessary linkage for economic activities.
    III. BANK LINKAGE
    1. Branch manager extended loan after getting convinced about SHG. Visits to SHG meetings helped in this regard. The average loan amount to SHG was Rs. 9570.
    2. All the SHGs were having savings account with the banks since inception.
    3. After obtaining the loan application, group resolution, sponsorship letter from the VA and membership list, commercial banks sanctioned loans at branch level whereas branches of RRBs forwarded the proposals to their head offices for sanction.
    4. The SHGs were regularly making monthly repayments, and recovery for banks under SHG lending was to the extent of 98%.
    5. The bankers were concerned about sustainability of the groups in the long run. They were also concerned about the groups functioning in the event of withdrawal of the NGO.
    6. Some branch managers have expressed that groups with members having defaulters to the banking system should not be financed.
    7. The cost of lending through SHGs on a rough basis showed a decline of 38% in transaction cost compared to normal lending.
    Go to the next section
    Return to the Table of contents

    Return to the Virtual Library on Microcredit