The SHG Bank linkage programme is in operation in the country since last several years. The objective of the programme is to provide Micro Finance to the poor in rural, semi-urban and urban areas for enabling them to improve their living standard by generating income through employment of very small fund in different services and productive activities.

An SHG is a small, economically homogenous group of poor people having a common perception of need and impulse towards collective action, voluntarily formed to save and mutually agreed to contribute to a common fund to be lent to its members as per group decision for meeting the emergent needs of the members, both for productive and consumption purposes to raise their income and improve their living standards. The salient objectives are as follows-

  • To evolve supplementary credit strategies for meeting the credit need of the poor
  • To encourage banking activities- both on thrift as well as a credit portfolio
  • To build mutual trust and confidence amongst the group members as also between the bankers and rural, semi-urban and urban poors/ groups.

Membership-The membership of the group should be restricted between 10 to 20. Registration of group is not obligatory for credit linkage with Banks.

Loan Details:

  • 1) The loan should be sanctioned in the name of the group and not in the name of individual members.
  • The loan amount to be sanctioned to the SHGs should be proportionate to the total savings mobilized by the Group and not just on the credit balance in the Savings A/c. Initially, the savings of the Group to loan ratio may be 1: 1 to 1:2 and subsequently, it may go up to 1:4. Along with the loan amount, SHGs may also utilize the balance in their SB A/c freely.
  • The loan to SHG will be in the form of Medium Term Loan
  • Loans to SHGs can be provided both for productive and consumption purposes. It is advisable to encourage SHGs to use loan amounts on productive purposes rather than for consumption purposes. While doing so, bank officials/NGOs etc are not expected to override the local decision of SHGs.
  • Loan delivery- The loan should be disbursed to the loanee members of the SHG in a meeting of the group where Bank’s representative will remain present. The office bearer of the SHG may also disburse the loan to their members in Bank’s premises in presence of Bank’s officials.
  • RBI has relaxed the security norms and margin for lending to SHGs and hence no guarantee/collateral security/ margin to be insisted by the Banks from SHGs.
  • The rate of interest will be applicable as per H.O Circular issued from time to time.