Access to finance by the rural poor and vulnerable groups is an essential pre-requisite for poverty reduction and sustainable development. The Government of India has implemented several policies such as Nationalization of Banks, Lead Bank Scheme, Regional Rural Banks, Service Area Approach and financing of SHGs, for promoting the access of the rural poor to institutional finance.
However, the share of the rural poor in the bank credit continues to be very low. Lending the rural poor continues to be considered as risky by the banks. One of the important reasons for this situation is the lack of an effective credit delivery mechanism for the poor, besides limited outreach and coverage. It is in this context that the National Rural Livelihoods Mission (NRLM) has taken up the task of promoting financial inclusion of the rural poor. Financial inclusion of the rural poor implies delivery of financial services at an affordable cost. The various financial services include credit, savings, insurance and payments and remittance facilities. NRLM has been implementing various interventions to facilitate the access of the rural poor to these services. Important among these services are:
- Opening of saving bank accounts for the SHGs of the poor;
- Facilitating SHGs to access adequate bank credit to meet both consumption and production
- needs; and
- Provision of insurance services.
- Pension products
Importance of SHG-Bank Linkage
Linking the SHG with the bank is an essential pre-requisite for promoting financial inclusion. Unless SHGs access repeat doses of bank credit, the members will not be able to meet their consumption and production credit requirements at affordable interest rates. Apart from providing access to credit, bank linkage enables SHGs to utilize other services such as remittances of Mission and other government funds such as interest subvention and insurance services. Bank linkage also promotes the financial literacy of the members and contributes to prudent utilization of funds.
The two key steps in promoting SHG-bank linkage are:
- Opening of SHG Saving Bank Account; and
- Facilitating Credit Linkage of SHG.
The two key steps in promoting SHG-bank linkage are:
The following processes should be adopted in facilitating opening of bank accounts and credit linkage of SHGs. Opening of Savings Bank account for SHG 6.3 Opening of savings bank account is the first step towards financial inclusion of SHG. The saving bank account provides the following advantages to the SHGs and its members:
- Savings bank account gives recognition to the SHG as a customer of the banking system and provides potential access to different financial services;
- SHG can keep surplus cash with the bank for safe custody, which in turn contributes to trust building among members;
- An account provides an opportunity for the SHG to undertake financial transactions with the bank and contributes to the financial literacy of the members; and
- It facilitates introduction of all individual members of the SHG to the bank who could eventually become individual customers of the bank. SHG should open a SB A/c with the nearest Bank branch, ideally within two months of formation of the Group.
Bank Linkage DAY – NRLM Credit Linkage of SHGs Importance of Credit Linkage
The Mission funds in the form of RF and CIF to the SHGs and their federations are intended only to provide initial capitalization support required by them. These funds are expected to create the necessary financial discipline for the SHGs to access bank credit in repeat doses to meet both consumption and production credit requirements. However, the SHGs need to be carefully guided, supported and monitored closely to enable them to access the required credit. The objective of the Mission is to ensure that each SHG mobilizes about Rs.10.00 lakh in repeat doses over a period of 5 to 8 years, such that the members undertake sustainable livelihoods. Preparation for credit linkage of SHG should ideally start in the fifth month of formation of the SHG Eligibility Criteria 6.16 SHGs fulfilling the following criteria are eligible for availing first credit linkage: SHG should be in active existence at least since the last 6 months as per the books of account of SHGs and not from the date of opening of S/B account.
- SHG should be practicing ‘Panchasutras’ i.e. Regular meetings; Regular savings; Regular inter-loaning; Timely repayment; and Up-to-date books of accounts;
- Qualified as per grading norms fixed by NABARD. As and when the federations of the SHGs come to existence, the grading exercise can be done by the Federations to support the Banks.
- The existing defunct SHGs are also eligible for credit if they are revived and continue to be active for a minimum period of 3 months. (Refer RBI Master Circular on NRLM – 01 Jun 2017) Documents Required for Credit Linkage 6.17
The following steps need to be adopted for preparing the documents required for SHG credit linkage:
Step-1: Verify annual SHG-bank linkage target and identify SHGs which need to be graded
Step-2: Facilitate grading of SHGs as per the suggested process
Step-3: For SHGs graded ‘A’, ascertain credit requirements from recently prepared MCP. In case MCP for the SHG has not been prepared, facilitate conduct of SHG meetings to determine their credit requirement of members Step-4: Facilitate passage of resolution authorizing sending of application for bank loan. (Resolution to be signed by all members). Step-5: Guide the SHG to prepare loan application, signed by office bearers (Refer sample application). Step-6: Facilitate preparation of ‘inter-se agreement’ and ‘loan agreement form’ by the SHG (Refer sample application). Step-7: Ensure that all signatories/ office bearers have their photographs (color and passport size-3 copies each) and a seal for the SHG is available. Step-8: Guide the SHGs to visit the bank branch for completion of documentation formalities (only signatories/ office bearers are required to visit the bank branch with necessary books of accounts,