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Design Features |
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| What is Unique about the SHGs and Linkage Programme? |
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Decision making |
Members make decisions collectively. SHG concept offers opportunity for participative decision making on conduct of meetings, thrift and credit decisions. The participative process makes the group a responsible borrower. |
Financial services |
SHGs provide the needed financial services to the members at their doorstep. The rural poor needs different types of financial services, viz. Savings, consumption credit, production credit, insurance, remittance facilities etc. The platform of SHG provides the possibility to converge these services. |
Supplementary to formal banking |
SHG linkage does not supplant the existing banking system, but it supplements it thus taking full advantage of the resources and other advantages of the banking system. |
Cutting costs |
SHG linkage cuts costs for both banks and borrowers. In a study sponsored by FDC, Australia, it was observed that the reduction in costs for the bankers is around 40 % as compared to IRDP loans. The poor have a net advantage of 85 % as compared to individual borrowing. Similar finding was also observed in a NABARD study. |
NPA Savvy |
The Linkage mechanism has proved that the repayments are as high as 95% - 100 % |
Peer pressure as collateral |
The SHG linkage emphasises peer pressure within the group as collateral substitute. |
Quality clients |
The SHGs are turning out to be quality clients in view of better credit management, mobilisation of thrift, low transaction costs and near full repayments. |
Client preparation |
The members of the SHGs could over a period of time, very selectively graduate to the stage of micro entrepreneurship and have been prepared with requisite credit discipline. |
Social agenda |
Available statistics indicate dependency of 35%-40% of rural households on non-institutional sources for credit needs. SHG Linkage offers a better way of dealing with the magnitude of social agenda. Many NGOs/ Governments have recognised the SHG as a vehicle for carrying and deepening of their developmental agenda/ delivery of services. |
Exclusive poor focus |
SHGs have exclusive focus on absolute have-nots, who have been bypassed by the banking system. Social banking does not have any meaning if the lowest strata and the unreached are not focused. |
No-subsidy- dependence syndrome |
The programme does not envisage any subsidy support from the government in the matter of credit. The issue is to build capabilities and enterprise of the individual members, blending with group cohesion and solidarity through training provided by a SHPI to set the ball rolling for the SHG. |
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| Design Features of the Product |
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| The product design features combine the collective wisdom of the poor, the organizational capabilities of the social intermediary and the financial strength of the Banks. Its features are... |
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| 1. |
Small and fixed savings at frequent intervals: |
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Small and fixed savings made at regular intervals coupled with conditions like compulsory attendance, penal provisions to ensure timely attendance, saving, repayment etc forms a deterrent for the rich to join the SHG system- thereby enables exclusion of the rich |
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| 2. |
Self-selection: |
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The members select their own members to form groups. The members residing in the same neighborhood ensure better character screening and tend to exclude deviant behaved ones. |
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| 3. |
Focus on women: |
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As regular meetings and savings are compulsory ingredients in the product design, it becomes more suitable for the women clients- as group formation and participatory meetings is a natural ally for the women to follow. |
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| 4. |
Savings first and credit later: |
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The saving first concept enables the poor to gradually understand the importance of saving, appreciate the nuances of credit concept using their own money before seeking external support (credit) for fulfilling future needs. The poor tend to understand and respect the terms of credit better. |
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| 5. |
Intra group appraisal systems and prioritization: |
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Essentials of good credit management like (peer) appraisal for credit needs (checking the antecedents and needs before sanction), (peer) monitoring- end use of credit; (peer sympathy) reschedulement in case of crisis and (peer pressure) collateral in case of wilful non-payment etc all seems to coexist in the system – making its one of the best approaches for providing financial services to the poor. |
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| 6. |
Credit rationing: |
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The approach of prioritization i.e.: meeting critical needs first serves as a useful tool for intra –group lending. This ensures the potential credit takers/users to meticulously follow up credit already dispensed, as future credit disbursals rely on repayments by the existing credit users. |
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| 7. |
Shorter repayment terms: |
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Smaller and shorter repayment schedule ensures faster recycling of funds, greater fiscal prudence in the poor and drives away the slackness and complacency that tends to set-in, in long duration credit cycles. |
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| 8. |
Market rates of interest: |
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Self-determined interest rates are normally market related. Sub-market interest rates could spell doom; distort the use and direction of credit. |
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| 9. |
Progressive lending: |
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The practice of repeat loans and often-higher doses - is followed by SHGs in their intra-group loaning, thereby enticing prompt repayments. |
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| 10. |
A multiple-eyed operation: |
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The operations of the SHG are transacted in group meetings thus enabling high trust levels and openness in the SHG system. SHG members facilitating openness and freedom from unfair practices also generally conduct the banking transactions. |
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| Source: Kropp, E.W and Suran, B.S. 2002: Linking Banks and Self Help Groups in India-An Assessment; Paper presented at the National Seminar on SHG-Bank Linkage, New Delhi |
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