In the post nationalisation era, the banking sector witnessed flow of substantial amount of resources while the banking network underwent an expansion phase without comparables in the world. Credit came to be recognized as a remedy for many of the ills of poverty. Credit packages and programmes were designed based on the perceived needs of the poor. Programmes also underwent qualitative changes based on the experience gained.
NABARD, during the early eighties, conducted a series of research studies in association with MYRADA (a leading NGO from South India) and also independently which showed that despite having a wide network of rural bank branches that implemented specific poverty alleviation programmes and self-employment opportunities through bank credit for almost two decades, a very large number of the poor continued to remain outside the fold of the formal banking system. These studies also showed that the existing banking policies, systems and procedures, and deposit and loan products were perhaps not well suited to meet the most immediate needs of the poor. It also appeared that what the poor really needed was a better access to these services and products, rather than cheap subsidised credit. Against this background, a need was felt for alternative policies, systems and procedures, savings and loan products, other complementary services, and new delivery mechanisms, which would fulfil the requirements of the poorest, especially of the women members of such households.
The launching of its Pilot phase of the SHG (Self Help Group) Bank Linkage programme in February 1992 could be considered as a landmark development in banking with the poor. The SHG-informal thrift and credit groups of poor came to be recognised as bank clients under the Pilot phase.
The strategy involved is simple viz. forming small, cohesive and participative groups of the poor, encouraging them to pool their thrift regularly and using the pooled thrift to make small interest bearing loans to members, and in the process learning the nuances of financial discipline.
Subsequently, bank credit also becomes available to the Group, to augment its resources for lending to its members. It needs to be emphasised that NABARD sees the promotion and bank linking of SHGs not as a credit programme but as part of an overall arrangement for providing financial services to the poor in a sustainable manner and also an empowerment process for the members of these SHGs. NABARD, however, also took a conscious decision to experiment with other successful strategies such as replicating Grameen, wholesaling funds through NGO-MFIs.
