Models of Linkage between Banks and Self-Help Groups

    • BANK = Commercial Bank
    • NABARD = National Bank for Agriculture and Rural Development
    • SHG = Self Help Group (or community groups, people's organizations)
    • SHPI = Self Help Promotion Institution (or NGOs)
Three distinct model can be observed in linkage programmes between banks and low-income groups.

MODEL I: Bank-SHG with active support of SHPI
The most common linkage model in India is where the banks deal directly with individual SHGs. In case of most of these SHGs, the SHPI had provided the intial training, guidance to rural poor in organizing themselves into thrift and credit groups. In many cases, the SHPI had also provided some initial support to these SHGs to sugment their resources. (In case of of an NGO, MYRADA, it became possible for it to provide such financial assistance to SHGs from an initial support of Rs. 1 million by NABARD before the Pilot Project was started). The SHPI also keeps a watch and ensures satisfactory functioning of the SHGs even after the linkage. While linkage of the banks is direct with the SHGs, the SHPI has an important role in pre- as well as post-linkage stages.

A slight variant to Model 1 is where Banks have provided financial support to SHGs which had grown almost spontaneously without any intervention of any SHPI. The SHGs were initially on the basis of acommon activity, problem and took up thrift and credit activities. The cases of such linkages are of course not very common.


In this model, the SHPI have taken the role of a financial intermediary between the banks and a number of SHGs. Again, the SHPIs take up such responsibilities only in respect of the groups promoted/nurtured by them and nopt for other groups. The SHPI accepts the contractural responsibility for repayment of the loan to the bank. In this respect it is indirect linkage support to the SHGs. This model is quite common.

Another model that has emerged ... is a combination of SHG linkage concept and credit programmes where loan assistance is given to the individual members of the group and not to the group. It is also not directly connected to the savings of the group. The loans in these cases were given only for income generating investment credit activities. The SHG and SHPI help the bank in identification, preperation of loan application, monitoring, supervision and recovery of loans.

Y.C. Nanda, Country Report - India. APRACA-GTZ Regional Workshop on the Linkage Programme: Focus on Implementation Issues, 26-28 October 1994.

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