Self-Help Groups (SHGs)
Principles & Practices of Banking | Module B · Chapter 41
Chapter 40 covered major government-sponsored schemes (DAY-NRLM/NULM, PMJDY, MUDRA, PMEGP). This chapter focuses on Self-Help Groups — their definition, need, formation guidelines, and the SHG-Bank Linkage Programme including savings-linked lending ratios, service charge exemptions, and defaulter norms.
📌 Why This Chapter Matters in JAIIB
Expect 3–5 questions from this chapter. Key focus areas: SHG size limits (max 20 members; registration compulsory if more than 20; difficult areas: min 5 members); BPL/APL composition (all BPL; max 20%, exceptionally 30% APL; APL members not office bearers; only BPL eligible for subsidy); SHG-Bank Linkage savings-to-loan ratio (1:1 to 1:4; beyond for matured SHGs); service charge exemption (no service/inspection charges for loans ≤₹25,000 per member on priority sector SHG/JLG loans); defaulter rule (individual member default does not disqualify SHG if SHG itself is not in default).
Key Facts & References — Chapter 41 at a Glance
SHG — Definition & Need
Free41.1 Definition
A Self-Help Group (SHG)is a voluntary association of poor people formed with the common goal of social and economic empowerment. It is described as a 'silent revolutionary concept' that has transformed the credit delivery system. Micro-finance through SHGs offers the best form of credit for reaching the unreached and under-reached sections of society.
41.2 Need for SHGs — Benefits
Individually, poor people are weak in socio-economic terms and lack access to knowledge and information critical to development. In a group, however, they are empowered to overcome many of these weaknesses. SHGs help in the development of the poor through the following benefits:
Resource mobilisation
Mobilising resources of individual members for collective development
Improved living conditions
Uplifting the living conditions of the poor through collective action
Skill sharing
Mobilising individual skills for the group's common interest
Savings habit
Creating a culture of regular savings among members
Mutual financial support
Assisting members financially at the time of need through internal loans
Problem solving
Identifying problems, analysing, and finding solutions collectively in the group
Entrepreneurship
Entrepreneurship development and encouraging self-employment ventures
Skill development
Organising training for skill development among group members
Forming SHGs — Guidelines
Free(a) Number of Members
Members in a group should normally not exceed 20 — registration becomes compulsory if they do. A typical SHG consists of 10–20 members. In difficult areas such as deserts, hills, etc., a group may have as few as 5 members.
(b) Family Income Criteria
Generally, all members should belong to families below the poverty line (BPL). If necessary, a maximum of 20% (and exceptionally up to 30%) of members may be from families marginally above the poverty line (APL), provided they live contiguously with BPL families.
(c) Subsidy Eligibility
Only BPL members will be eligible for subsidy benefits under government schemes.
(d) Management of Group
BPL families must participate in management and decision-making. Management should not be entirely in the hands of APL families. APL members are not to be office bearers.
(h) Loans to Members
The corpus fund of the SHG should be used to advance loans to its members — this forms the internal lending mechanism of the group.
(i) Bank Account
The SHG should maintain a group bank account, preferably in the service area bank branch.
(j) Records
The SHG should maintain simple basic records including: minutes book, attendance register, loan ledger, general ledger, cash book, bank passbook of the group, and individual members' passbooks.
SHG-Bank Linkage Programme
Members OnlyRBI has emphasised linking SHGs with banks. Banks have been advised that they may consider lending to SHGs as part of their mainstream credit operations. Under the SHG-Bank linkage programme, banks are asked to meet the entire credit requirement of SHG members — for income-generation activity, social needs, and debt swapping.
(a) Opening of Savings Bank A/c
SHGs, whether registered or unregistered, that are engaged in promoting savings habits among their members are eligible to open savings bank accounts with banks.
(b) Lending to SHGs — Savings-to-Loan Ratio
Banks may sanction savings-linked loans to SHGs. The savings-to-loan ratio typically ranges from 1:1 to 1:4. For matured SHGs, lending may even go beyond this 1:4 proportion.
(c) Interest Rates
Banks can decide the interest rates applicable to SHG loans as per the regulatory guidelines issued by RBI from time to time.
(d) Service / Processing Charges
No service charges or inspection charges should be levied on loans up to ₹25,000 per member, in the case of eligible priority sector loans extended to SHGs and Joint Liability Groups (JLGs).
(e) Presence of Defaulters in SHG
If the SHG itself is not in default, the presence of some individual members who happen to be defaulters should not detract from the bank financing the SHG. The SHG's collective repayment record is what matters.
(f) Capacity Building and Training
Banks should internalise the SHG linkage project and organise exclusive short-duration training programmes for field-level functionaries to improve SHG management and linkage quality.
(g) Monitoring and Review
Monitoring of the SHG-Bank Linkage Programme should be discussed regularly at the State Level Bankers' Committee (SLBC) and District Coordination Committee (DCC) meetings.
(h) Reporting to CICs
Credit information reporting for SHG loans should be done as prescribed by the Credit Information Companies (CICs) framework.
Joint Liability Group (JLG) — Brief Note
A Joint Liability Group (JLG) is an informal group of 4–10 individuals who come together for the purpose of availing bank loans either individually or through the group mechanism, against mutual guarantee. JLGs are primarily formed among tenant farmers, oral lessees, and share croppers. Like SHGs, JLG loans up to ₹25,000 per member are exempt from service/inspection charges under priority sector guidelines.
Chapter Summary & Flashcards
Members OnlyChapter 41 in 4 Lines
- SHG = voluntary association of poor for social and economic empowerment; typically 10–20 members; registration compulsory if more than 20; in difficult areas (deserts/hills) minimum 5 members; all members ideally BPL; max 20% (exceptionally 30%) APL members; APL members not office bearers; only BPL eligible for subsidy.
- SHG practices Panchasutras: regular meetings, regular savings, regular inter-loaning, timely repayment, up-to-date books; corpus fund used for internal loans to members; group bank account maintained preferably at service area branch; simple records: minutes, attendance, loan ledger, general ledger, cash book, passbooks.
- SHG-Bank Linkage: registered or unregistered SHGs may open savings accounts; savings-linked loans from 1:1 to 1:4 (matured SHGs: beyond); interest rates at bank discretion per RBI guidelines; no service/inspection charges for loans ≤₹25,000 per member on eligible priority sector SHG/JLG loans.
- Defaulter rule: if the SHG itself is not in default, individual member defaulters should not prevent financing; capacity building via short training programmes; monitoring at SLBC and DCC; credit information reported to CICs; full credit need covered — income generation, social needs, and debt swapping.
Flashcards — Chapter 41
1. What is the definition of a Self-Help Group (SHG)?▼
2. What is the maximum number of members in an SHG, and when does registration become compulsory?▼
3. What is the minimum number of members allowed in an SHG in difficult areas?▼
4. What is the income criterion for SHG members, and what percentage of APL members is allowed?▼
5. Can APL members be office bearers in an SHG?▼
6. Who is eligible for subsidy benefits in an SHG?▼
7. What are the Panchasutras that an SHG must practice?▼
8. What records must an SHG maintain?▼
9. Are unregistered SHGs eligible to open bank accounts?▼
10. What is the savings-to-loan ratio under the SHG-Bank Linkage Programme?▼
11. Are banks free to set their own interest rates on SHG loans?▼
12. What is the service charge exemption for SHG and JLG loans?▼
13. If individual members of an SHG are loan defaulters with another bank, can the bank refuse to finance the SHG?▼
14. At which forums is the SHG-Bank Linkage Programme monitored and reviewed?▼
15. What types of credit needs should be covered under the SHG-Bank linkage programme?▼
16. What is a Joint Liability Group (JLG)?▼
Discussion
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