We feature a collborative post by Parul Agarwal, Amulya Champatiray & Misha Sharma on the results from their recently concluded research study, ‘Self Help Group Bank Linkage: Through the Responsible Finance Lens’.

The self-help group (SHG) program, which began as a women’s empowerment initiative through financial inclusion in the 1980’s added a significant component in 1992, when a NABARD initiative linked a small number of SHGs with banks. Today, there are over 73.18 lakh savings-linked SHGs and 44.51 lakh credit linked SHGs in India, covering approximately 95 million households[1]. SHGs are more than just a conduit for credit - they also act as a delivery mechanism for various other services, ranging from entrepreneurial training to savings deposits and now with changing paradigms, a channel to deliver community level development programmes.  

Despite the success of  the SHG model, the impact of SHG programs on the lives of the poor has been limited. There are several reasons for …

Interest rates may be important, but that doesn’t make them easy to measure.
Interest rates have long been a concern for policymakers and households alike. Indian States began regulating the interest rates charged by moneylenders as early as the 1940 Bengal Moneylenders Act, which placed strict upper limits on the interest rates that lenders could charge.[1] Interest rates are also limited for more formal lenders; the Reserve Bank of India may have removed the cap of 26% interest rates on microfinance loans, but MFIs are still regulated in what they are allowed to charge.[2]
Regulations regarding interest rates come out of concerns that households are being taken advantage of by lenders. Without caps on the market, households may be too desperate - or may not understand finances well enough - and ultimately pay a steep price for funds. Conversely, lenders argue that particularly in areas where lending is risky, the cost of doing business is so high that capping interest rates prevents t…