Achievements and Challenges of SHG-Bank Linkage Program in India: The Result of Village Surveys in Andhra Pradesh and Maharashtra

Abstract

The SHG-Bank Linkage Program (the SHG Program) initiated by National Bank for Agriculture and Rural Development (NABARD) is the major form of MF in present India. It is also considered to be the largest MF program in the world now. However, the degree of development and performance of the SHG Program varies greatly across India due to different policies undertaken by respective states. Among them, Andhra Pradesh State shows the most distinguishing performance in this program. This chapter seeks to clarify the achievements and the challenges of this program based on the household level survey in two villages, one in Andhra Pradesh State and one in Maharashtra State which is chosen as a control village. By comparing the two villages, the authors examine how and to what extent the SHG Program can change villagers’ life and what measures are required to develop the SHG Program further. The results of the study are as follows. (1) Due to a strong initiative and elaborate support of the state government, the SHG Program has spread to every corner of rural area and majority of rural households are now involved in this program in AP State. (2) For the beneficiaries, this program provides not only cheap loan but also other various services like savings facility, pension scheme, subsidized gas, and scholarship for children’s education. (3) The interest rate of the loan from this program is much lower than the loans from money lenders and friends and relatives. (4) Thus, most of SHG members feel the SHG Program to be beneficial to them. (5) However, the amount and frequency of SHG loans are far less than their credit need, which even now drives majority of villagers go for other loan sources including usurious money lenders etc. (6) Moreover, many poor households are still excluded from the SHG Program due to extreme poverty (lack of saving capacity). (7) In Maharashtra State where another study village is situated, the SHG Program is much less active than AP State, although most of SHG members appreciate the benefit of this program to some extent. (8) Lack or inadequate support system for the management of SHGs seems to be the essential cause of inactivity and unpopularity of this program in Maharashtra. In conclusion, (9) the SHG Program can be a more effective tool for delivering various financial services to the rural poor and effective poverty alleviation. (10) The most crucial factor for success of this program is the firm and well-functioning SHGs as financial intermediary institutions. (11) In order to strengthen the function of SHGs, they need to be more sufficiently and strongly supported by banks/NGOs/government institutions especially with respect to capacity building of their management.