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Microfinance India Summit 2013 - SHG Bank Linkage – Optimizing the potential

Overview:  With the large existing pool of SHGs and the expected growth, it is imperative that the role of SHGs is extended beyond (indirect) credit linkage, and strategies are developed to optimize their potential in enabling comprehensive financial inclusion of their members. How can this social capital be leveraged to contribute to the larger financial inclusion agenda? This session seeks to learn from some existing efforts and brainstorm on operational and policy level changes needed to accomplish that

Moderator: Y C Nanda, Chairman, ACCESS ASSIST (Former Chairman NABARD)


• Dr B S Suran, Chief General Manager, MCID, NABARD

• C S Reddy, CEO, APMAS

• D. Narendranath, Program Director, PRADAN

• Avijit Saha, General Manager, Rural Inclusive Banking Group, ICICI Bank


Y.C. Nanda: What more is required to be done and could we have done more?

B.S. Suran
  • We feel the NPAs have gone up because the end of the SGSY program isapproaching and there seems to be a temporary lapse in the amount of credit being pushed out.
  •  The agent model might improve access but if one actually wants to bring effectiveness, the members need to be involved to establish demand-pull. With SHGs there is a certain amount of trust in the institution.
  • We’ve tried our best to build a suitable livelihoods framework. Conventionally, because SHGS involve women, there is a belief that there are only traditional activities that can take place. BUT they have tremendous organizational skills, which can be tapped – such as even providing government services. We need to strengthen financial inclusion, building capacity etc. needs to be done. 
      D. Narendranath
  • What are the internal demographic processes being followed by the groups? Do the members have a plan for using the finances they access from the banks? SHGs are a forum for the women to link with each other and the bank. Bank linkages are just one of the plethora of things they can link to.

C.S. Reddy  
  • What kind of linkages do institutions of the poor require? We must remember that SHG Bank Linkage is not a rural phenomenon. In AP alone, we have 300,000 SHGs that are linked to banks. Now the GOI has announced the NULM (National urban livelihoods mission).
  • There is increasing default in areas where SGSY was operating.
  • Do we also only want government to promote SHGs? Increasingly, the govt. is the only organization doing SHPI activities. This is dangerous because it makes the SHGs a supply channel, instead of being dependent on demand for services.
  • PRADAN has played a pivotal role in SBLP, but the last 5 years there has not been enough of an effort.  For an org. like NABARD, we should make sure there is adequate support for sustainability of SHGs. Emphasis should be on savings as well as credit linkage. Initiatives like ‘Bank Mitra’ etc. should be promoted

     Sarat Yadav
  •  I agree with Narendra’s point on quality. The continuity of the agency that made the SHG is important. It is necessary to have certain specially dedicated SHG bank staff and there needs to be a movement towards maintaining continuity once the credit link is established.    

     Ajay Tankha 
  • My derived understanding from the experiences of others is – I see a commonality between different types of SHGs as they have evolved. I am of the view that the SBLP, which was based on the role of the SHG as a financial intermediary, that role has been diminished over the years. Whether it’s an NGO promoter, thereafter promoting an in house NBFC, whether it be federated structures, in all cases the SHG finds itself being squeezed, due to dependence relationship with the promoting agency.
  • The new middlemen which were the NGOs are dying out, and if we take their example, the NGOs which have in-house MFIs lend to SHGS at a much higher rate than the SBLP.  So which SHGs are we talking about? The ones getting loans at 1%, 0% or 26%?? So SHGs have very different roles depending on the SHPI.
  •  Linked to this is the question of empowerment. That is something I also have a different view-point on. What is viewed as positive by my peers is seen by others, especially the more gender aware of us, as a move by the state to impose gender roles. Instead of herding women into SHGs, there should be individual accounts for the women instead of forcing them to take uncommon types of loans rather than the ones available to everyone else in the country.
  • What are we doing with SHG members when it comes to Financial inclusion? Are they being made to open basic savings accounts?

     Y.C. Nanda 
  •  We go on loading programs on the SHG model. Social investment is not being done and quality is not being maintained as we are simply chasing numbers. Right now, the financial inclusion case is that neither MFIs not SHGs contribute to direct benefit transfers (DBTs). Maybe in 5-10 years when we are really talking about real financial inclusion – maybe that will facilitate them. Right now, the focus is on DBTs and if you do not fall into DBT, you are out of the picture.
  • Twenty years ago there were the same branches for SHPIs and now they’re the same but they have been given additional tasks like NREGA payments etc. without giving them additional manpower. Suran, do you think SHG2 is achieving what you were expecting from the model?

    B.S. Suran 
  •  Some of the issues which have surfaced over the last 20 years, like banks not understanding that this is a client development program, continue to happen.
  • Many programs like NREGS have triggered the possibility of SHGs increasing savings. We decided to bring voluntary savings beyond being compulsory. Quite a few people could save much higher. The beauty of dealing with the poor is recognizing the heterogeneity of everyone’s abilities to save etc.
  • Initially, there was the attitude of giving one vanilla product – a term loan. All SHG members do not move in the same fashion. Their desire to invest is varied. So there could be a possibility of a JLG WITHIN an SHG. So without breaking the SHG, they could take an increased loan. 25% growth has happened in SHGs.
  •   Same is the case with savings. I’m not saying this is due to voluntary savings in the SHG2 model. This might be due to the ability of the agents to tell SHGs to increase savings in the corpus or in individual accounts. The idea was to stop pushing them into debt and now SHGs are looking at increasing their minimum savings, which is pegged by the lowest denominator/member who can contribute the least.
  • Majority of banks have switched to cash-credit which lowers interest liability, registration etc. we believe to a certain extent we have made the model more client centric.
Y.C. Nanda - As a supervisor of the SHG system , why is it that credit is larger than savings?

B.S. Suran – 44 lakh SHGs are availing credit whereas 75 lakh are doing savings.

Y.C. Nanda – How do you see SHGs contributing to livelihoods and are they doing something for gender empowerment – what more is required? Does PRADAN have suggestion for NABARD?

D. Narendranath
  • As I said earlier, one needs to work with groups on a long-term basis. Groups require some sort of hand holding.
  • Limiting the SHGS to SBLP is a sub-optimal use of the group. These groups are concerned about multiple issues in their life and not just credit. If the poor are not mobilized properly and are not strong – they cannot become a passive credit bearer for the state. Groups should emerge as local political entities that demand rights, fulfillment of govt. guarantees and then credit becomes a component only in the larger structure. Each SHG becomes a project in that case.
  • This is an entirely different attitude we expect from the bank – if the group can provide a structured plan – how does the credit institution converge into the larger picture? This needs handholding for the credit institutions as well!

      C.S. Reddy 
  • Questions I have received are, have SHGs lost their sheen due to FI? And does that mean NRLM investment is a waste? Answer – with SHG2s we are changing the attitude. If the groups can open individual + group accounts then an interaction can happen. If there is a deliberate strategy then maybe something can take place. The beauty of the model is that it can fail and take off in different places.
  • The second question is, what is the life cycle of a group? We have to agree that there are issues in the system. The main problem is that we DON’T HAVE THE DATA. We are unable to understand how many groups are defunct or discontinued so we don’t know the mortality rate of the group.
  • Over the next year – we want atleast 500 blocks which should be NGO SHPI formed SHGs. The way to go for NRLM is to have at least 5-10 NGO partners to see more focus on innovation and capacity building.
  •  NRLM – NABARD connection – I feel both have to work in tandem with each other. Maybe there’s a small difference of opinion at the state level. Alone, either cannot make a significant change happen. 

      Ajay Tankha 
  • I see a very limited role for SHGs in financial inclusion and using them as CSPs for banks. And this will further continue the gender biases currently present in the model.


  1. It is nice discussion. I did not understand the question if shgs lost sheen due to fi. Shg programmes tag line used to be reaching the uneached. It is the mechanism for fi. I feel mf and fI are least understood and most over exploited concepts in the country. Did people count in the whole process?


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