SCHOOL OF ECONOMICS DAVV, INDORE ASSIGNMENT ON SHG- BANK LINKAGE PROGRAMME

BY: MUKESH RAJAK SARVESH PANDEY KAMLESH KUMAR SINGH ADITYA NANDAN MBA (F.S) (BATCH OF 2010-12)

INTRODUCTION

Under the SHG-bank linkage program, NGOs and banks interact with the poor, especially women, to form small homogenous groups. These small groups are encouraged to meet frequently and collect small thrift amounts from their members. They are taught simple accounting methods to enable them to maintain their accounts. Although individually these poor could never have enough savings to open a bank account, the pooled savings enable them to open a formal bank account in the name of the group.

This is the first step in establishing links with the formal banking system.

Groups then, meet often and use the pooled thrift to impart small loans to members for meeting their small emergent needs.
This saves them from usurious debt traps and thus begins their empowerment through group dynamics, decisionmaking, and funds management.

FUNCTIONING OF SHG BANK

The SHPI trains the members to maintain simple accounts of the collected thrift and loans given to members.

The regular meetings also provide a platform to discuss and resolve many social and common issues, thus fortifying them together.

A savings bank account is opened with a bank branch and regular thrift collection and loaning to members build up the financial discipline among the members to encourage the bank to provide larger loans to the group

The conceptual thinking behind the SHG philosophy and the Bank Linkage could be summarised as under:
Self Help supplemented with mutual help can be a powerful vehicle for the poor's effort to socio-economic upward transition
Participative financial services management is more efficient and responsive. Poor can save and are bankable Poor not only need credit support but also savings and other services Small affinity groups of the poor, with initial outside support, can effectively manage and supervise micro credit among their members

Collective wisdom of the group and peer pressure are valuable collateral substitutes

SHGs could be a pre- microenterprise stage for a majority of rural poor

SHGs as client, facilitate wider outreach, lower transaction cost and much lower risk costs and

Empowerment and confidence building of poor, especially of poor women, is a major outcome

The mismatch between the expectations of the poor and capabilities of the formal banking system needs to be minimised

What makes the SHG approach succeed ?

At group level :

Group formation and nurturing - the key to successful SHG

Group composition - thrust on affinity and homogeneity

Members learn to maintain financial discipline

Members own stake in the group - in the form of savings

Collective wisdom in credit decisions

The peer pressure enable the group to minimize the aggregate risks of failures

Savings and credit is a continuing process and not a onetime injection of loans

Freedom of selecting loan purpose to the members, with benefit of peer counseling

AT BANK LEVEL :

The group formation and nurturing process is intensive and should not be rushed through.

Emphasis on Grading -Banks grade the SHGs for credit support based on parameters of group dynamics, regularity in savings, internal lending, participation level, etc.
NGOs grade the SHGs before recommending them for bank loan. The weak ones have to wait and overcome weakness Cost effective, operationally simple and low risk strategy for expanding client base and business.

Externalizing some of the credit functions to SHG.

Bank loans only when initial savings and internal lending has stabilized. Banking with disciplined clients and not beneficiaries

More than 95 % on-time repayment from the poor some of whom were possibly defaulters.
Heavy investments by NABARD in formation, nurturing of SHGs, building capacities of NGOs,

Training of banks and other stakeholders - as Investment in human capital development. NGOs promote SHGs for deepening the impact of their programmes and furthering their own social agenda. Banks promote / finance them for expanding quality business coverage Governments promote them for multiple developmental objectives

ISSUES IN SHG :
Regional Imbalances

Quality of SHGs
Impact of SGSY on SHG-bank linkage programme

Provision of micro-insurance to the SHG members

Micro Enterprise Promotion among members of Mature SHGs

FUTURE STRATEGY

Expansion in the Poverty struck and Tribal areas Massive capacity building efforts by other stakeholders e.g. Banks, NGOs, Govt. Dev. Dept Banks to own the SHGs linked with them as their client and nurture them to keep them in good health

Training the SHG members to maintain their books of account themselves or arrange IRVs/Barefoot accountant/Smart card etc
Federating the SHGs for future handholding and sustainability Graduation of SHG members to Entrepreneurship Skill development training to improve work efficiency and develop quality product,

Arrangement for raw material and other inputs

Design development and consistency

Marketing of the product

Ultimate aim is to make her an independent and self dependent entrepreneur

THANK YOU