SHG Bank Linkage Programme

The Self-Help Group (SHG)–Bank Linkage Programme (SBLP) is one of India’s most significant financial inclusion initiatives, designed to provide formal banking services to rural and low-income populations through collective self-help mechanisms. Introduced in the early 1990s, the programme integrates microfinance with institutional banking, enabling poor households—particularly women—to access credit, savings, and other financial services in a sustainable manner.

Background and Genesis

The SHG–Bank Linkage Programme emerged from India’s efforts to promote inclusive rural development and address the limitations of traditional banking systems in reaching the poor.

• During the 1970s and 1980s, rural credit schemes such as the Integrated Rural Development Programme (IRDP) faced problems of high default rates and poor targeting.
• The National Bank for Agriculture and Rural Development (NABARD), established in 1982, began exploring alternative models for microfinance.
• In 1986–87, NABARD initiated pilot projects to link informal Self-Help Groups (SHGs) with banks, allowing them to collectively access credit without collateral.
• Encouraged by the success of these pilot initiatives, NABARD formally launched the SHG–Bank Linkage Programme in 1992, in collaboration with the Reserve Bank of India (RBI) and commercial banks.

This initiative marked a paradigm shift from individual lending to group-based microfinance, aligning financial inclusion with community empowerment.

Objectives of the Programme

The primary objectives of the SHG–Bank Linkage Programme are to:

• Provide easy access to institutional credit for the rural poor.
• Encourage thrift, savings, and financial discipline among SHG members.
• Promote self-reliance and entrepreneurship through micro-credit.
• Empower women and marginalised communities socially and economically.
• Strengthen the link between banks, NGOs, and rural communities.
• Integrate informal financial systems with the formal banking structure.

Structure and Mechanism of the Programme

The SHG–Bank Linkage Programme is based on the principle that the poor are bankable and capable of managing credit responsibly if provided with appropriate institutional support.
1. Formation of SHGs

• A Self-Help Group typically consists of 10–20 members (mainly women) from similar socio-economic backgrounds.
• Members contribute small savings regularly, which are pooled into a group fund.
• The group maintains records, elects leaders, and meets periodically to discuss social and financial matters.

2. Role of Promoting Institutions

• SHGs are usually promoted and supported by NGOs, community-based organisations (CBOs), or government agencies.
• These institutions provide training in record-keeping, group management, and financial literacy.

3. Bank Linkage ProcessOnce the SHG matures—typically after 6 months of regular savings and meetings—it becomes eligible for bank linkage. The process involves three progressive models:

In each case, the SHG maintains a savings account with the bank, and after demonstrating stability, it becomes eligible for credit linkage in multiples of its savings.

Financial Features

• Savings Linkage: SHGs deposit their savings in bank accounts, building a financial history.
• Credit Linkage: Loans are provided based on the group’s performance and repayment record.
• Collateral-Free Loans: SHGs access credit without collateral, relying on group guarantees and peer pressure for repayment.
• Revolving Fund: NABARD and government programmes often provide a revolving fund to enhance credit capacity.

Role of NABARD and RBI

NABARD is the principal coordinating and refinancing agency for the programme. Its major functions include:

• Providing refinance support to banks for lending to SHGs.
• Developing policy guidelines and training materials.
• Conducting capacity-building programmes for bank staff, NGOs, and SHG members.
• Monitoring and evaluating the implementation of the programme.

The Reserve Bank of India (RBI) supports the programme by:

• Issuing regulatory directions to banks for SHG financing.
• Encouraging simplified procedures for lending without collateral or formal documentation.
• Promoting the inclusion of microfinance under priority sector lending norms.

Growth and Progress

Since its inception, the SHG–Bank Linkage Programme has expanded rapidly and become the world’s largest microfinance initiative.

• In 1992–93, only 500 SHGs were linked to banks.
• By March 2023, over 12 million SHGs had been credit-linked across India.
• The total loan outstanding under the programme exceeded ₹1.5 lakh crore.
• Women’s groups constitute nearly 90% of all SHGs, highlighting its role in gender empowerment.

The programme operates under the Deendayal Antyodaya Yojana – National Rural Livelihoods Mission (DAY-NRLM), launched in 2011, which further strengthens SHG networks and federations at the village, block, and district levels.

Socio-Economic Impact

The SHG–Bank Linkage Programme has had a transformative impact on rural India:
1. Women’s Empowerment:

• Enhanced decision-making power and social status of women.
• Participation in local governance and collective action.

2. Poverty Reduction:

• Improved access to credit for income-generating activities such as agriculture, handicrafts, livestock, and small businesses.
• Reduction in dependence on moneylenders and informal credit sources.

3. Financial Inclusion:

• Integration of millions of rural households into the formal banking system.
• Development of financial literacy and savings culture.

4. Social Cohesion:

• Strengthened community bonds through collective self-help.
• Platform for addressing social issues such as health, education, and sanitation.

5. Economic Resilience:

• Diversified livelihoods and enhanced household income.
• Encouraged entrepreneurship among rural women.

Challenges and Limitations

Despite its achievements, the SHG–Bank Linkage Programme faces several challenges:

• Regional Imbalances: Concentration of SHGs in southern states such as Andhra Pradesh, Tamil Nadu, and Kerala, while northern and northeastern regions lag behind.
• Quality of SHGs: Rapid expansion has sometimes compromised group cohesion and financial discipline.
• Over-Indebtedness: Multiple borrowings from different institutions can lead to repayment stress.
• Limited Financial Literacy: Many members lack adequate knowledge of banking procedures.
• Dependence on External Support: Some SHGs remain reliant on NGOs or government schemes rather than becoming self-sustaining.

Government and Policy Support

To strengthen the SHG–Bank Linkage Programme, various initiatives have been undertaken:

• Deendayal Antyodaya Yojana – National Rural Livelihoods Mission (DAY-NRLM): Focuses on federating SHGs into higher-level institutions (Village Organisations and Cluster-Level Federations) for capacity building and market linkage.
• Interest Subvention Schemes: Provide subsidised interest rates on loans to eligible women SHGs.
• Digitisation Initiatives: Programmes like e-Shakti (by NABARD) aim to digitise SHG data for transparency and efficiency.
• Financial Literacy and Skill Development: Training programmes help members manage credit and plan businesses effectively.

Comparison with Other Microfinance Models

The SHG–Bank Linkage Programme thus remains more community-oriented and developmental, whereas MFIs follow a business-driven model.