Twenty Years of SHG Banking in India and the Road Ahead

Abstract

The Self Help Group-Bank Linkage Programme was launched in India by the National Bank for Agriculture and Rural Development as a pilot programme aimed at linking just 500 Self-Help Groups (SHGs) with branches of six banks in the year 1992. Though the programme began on a modest scale, the idea caught the imagination of people and has grown exponentially over the past twenty years to become the largest microfinance outreach programme in the world. At end-March 2011, a staggering 4.8 million SHGs were credit-linked with banks and 7.5 million SHGs maintained savings accounts with banks. Key challenges, however, lie in increasing the geographical spread of SHGs across the country, improving the quality of SHGs, increasing financial literacy among SHG members, sustaining interest of banks in lending to SHGs and encouraging innovation in products and services offered to SHGs. This paper, therefore, takes stock of the SHG model and the SHG-Bank Linkage Programme and reflects on their achievements and shortcomings. It also suggests improvements in the product design and offers suggestions to make the SHG movement more effective. The paper draws from insights from the author‟s field visits to villages in the states of Andhra Pradesh and Tamil Nadu, the two states leading the SHG movement in India. The field visits featured discussions with SHG clients, rural bankers and officials of SHG federations. Insights gleaned from the ground level functioning of SHGs and the bank linkage programme are also presented. The paper suggests improvements to address the weaknesses in the SHG model and the bank linkage programme by redesigning them with the clients‟ needs at the centre. This is expected to lead to better quality SHGs, expansion of the SHG movement across the country and banks providing SHG clients a variety of innovative products and services.