SHG–Bank Linkage Programme (SHG-BLP)

The Self-Help Group–Bank Linkage Programme (SHG-BLP) is one of the most influential and large-scale financial inclusion initiatives in India. It provides a structured framework through which Self-Help Groups (SHGs), mainly comprising economically weaker sections of society, are connected with the formal banking system for savings, credit, and other financial services. The programme has played a transformative role in expanding institutional credit to rural and semi-urban areas, strengthening grassroots financial intermediation, and promoting inclusive economic development in the Indian economy.
SHG-BLP represents a model where social capital and collective responsibility are integrated with formal banking, thereby addressing long-standing challenges of access to finance faced by low-income households.

Concept and Meaning of SHG-BLP

The SHG–Bank Linkage Programme refers to a nationwide initiative under which banks provide savings and credit facilities to Self-Help Groups as a single unit, rather than to individual members. An SHG is typically a small, voluntary group of 10–20 members who pool regular savings, lend internally, and maintain basic financial records.
Under SHG-BLP, once a group demonstrates financial discipline and stability, it is linked to a bank which opens a savings account and subsequently extends credit. The programme relies on group-based lending, mutual trust, and peer pressure as substitutes for conventional collateral, thereby reducing credit risk and transaction costs.
Core elements of SHG-BLP include:

• Regular savings mobilisation by SHGs.
• Internal lending prior to bank linkage.
• Bank credit without collateral.
• Collective responsibility for repayment.

Evolution and Institutional Framework

The SHG-BLP was formally launched in 1992 as a pilot initiative and gradually expanded into a national programme. The programme is spearheaded by the National Bank for Agriculture and Rural Development, which acts as the nodal agency for promotion, refinancing, and capacity building.
Policy and regulatory support has been provided by the Reserve Bank of India, which encouraged commercial banks, regional rural banks, and cooperative banks to actively participate in the programme. Lending to SHGs has been recognised as part of priority sector lending, giving further impetus to bank involvement.
In addition to banks, non-governmental organisations, self-help promoting institutions, and state governments play a vital role in nurturing SHGs and facilitating their linkage with formal financial institutions.

Operational Structure of the Programme

The SHG-BLP follows a phased operational structure. In the initial phase, SHG members save small amounts regularly and use the pooled savings for internal lending. This stage helps in building credit discipline, leadership, and financial management skills.
After establishing a satisfactory track record, the SHG is linked to a bank. A savings account is opened in the name of the group, and based on its performance, the bank provides loans, usually as a multiple of the group’s savings. The credit is then distributed among members according to group decisions.
Repayment is the collective responsibility of the SHG, and the group mechanism ensures high repayment rates. This structure significantly lowers default risk and administrative costs for banks.

Role in Banking and Financial Inclusion

The SHG-BLP has fundamentally altered the approach of banks towards lending to the poor. Traditional banking systems often found it difficult to serve small borrowers due to lack of collateral, irregular income, and high transaction costs. The SHG-based approach overcomes these constraints through aggregation and social monitoring.
For banks, the programme:

• Expands outreach to unbanked and underbanked populations.
• Mobilises small savings into the formal system.
• Reduces non-performing assets through peer pressure.
• Helps achieve priority sector lending obligations.

For households, SHG-BLP provides access to affordable institutional credit, safe savings avenues, and a formal banking relationship, thereby deepening financial inclusion.

Contribution to Rural Credit and Microfinance

The SHG-BLP has become the backbone of India’s rural credit and microfinance ecosystem. It has significantly reduced dependence on informal moneylenders by providing timely and reasonably priced credit to rural households.
Loans under the programme are used for a variety of purposes, including agriculture, allied activities, micro-enterprises, consumption smoothing, education, and health expenses. By supporting income-generating activities, the programme enhances livelihood security and rural economic resilience.
Unlike purely commercial microfinance models, SHG-BLP emphasises community participation and long-term sustainability.

Women Empowerment and Social Dimensions

A defining feature of the SHG-BLP is its strong focus on women. The vast majority of SHGs linked under the programme are women-led, making it a powerful tool for gender empowerment.
Participation in SHGs improves women’s access to financial resources, strengthens decision-making capabilities, and enhances social status within households and communities. Over time, women members develop leadership skills, financial literacy, and collective bargaining power.
The programme also fosters social cohesion, mutual support, and awareness on issues such as health, education, and social welfare.

Impact on the Indian Economy

At the macroeconomic level, the SHG-BLP contributes to inclusive and sustainable economic growth. By mobilising small savings and channelling them into productive investments, it strengthens domestic resource mobilisation.
The programme:

• Promotes micro-entrepreneurship and self-employment.
• Generates rural income and employment.
• Enhances credit flow to priority and underserved sectors.
• Reduces regional and social inequalities.