Time to synchronize Lending Banks with Self Help Group in India

Basically for eradication of poverty, the self-help group (SHG) is constituted which is a village-based financial intermediary committee usually composed of 10–20 local women or men. It is a mixed group in which members make small regular savings contributions over a few months until there is enough capital in the group to begin lending or do some commercial activities. These funds may then be lent back to the members or to others in the village for any purpose. In India, many SHGs are 'linked' to banks for the delivery of micro-credit. As a matter of fact Indian micro-finance sector, dominated by self help groups (SHGs), addresses issues like actualizing equitable gains from the development and fighting poverty. The national level organisation like NABARD, which is the apex governmental financial institution, provides micro-finance services to the very poor through the existing banking network and NGOs. As per the statistics around 90 per cent of the beneficiaries were women SHGs. Thus its impact evaluation in 2003 states that there was a significant growth in assets (30%) and income levels (23%) of the beneficiaries. Even though there exists non-productive loans and procedural delays, high interest rates and lack of training etc. still SHG are catching the eyes.

FINANCING SELF HELP GROUPS (SHGS) FEATURES

What is Self Help Group(SHG)

Self Help Group is a homogeneous group of micro entrepreneurs with affinity among themselves, voluntarily formed to save whatever amount they can conveniently save out of their earnings and mutually agree to contribute to a common fund of the group from which small loans are given to the members for meeting their productive and emergent credit needs at such rate of interest, period of loan and other terms as the group may decide.


Objective of the Funding of Self Help Group:

To meet the credit needs of the poor by combining flexibility, sensitivity and responsiveness of the informal credit system with the strength of technical and administrative capabilities and financial resources of the formal credit institutions.
To build mutual trust and confidence between the bankers and the rural poor.
To encourage banking activity both on thrift as well as credit side in a segment of the population that the formal financial institutions usually find difficult to cover.

Eligibility for the Funding of Self Help Group:

The group should Be in active existence for at least a period of six months.

Have successfully undertaken savings and credit operations from its own resources.
Maintain proper accounts/records.

Work democratically wherein all members feel that they have a say should be evident.

This may be formed to reflect genuine need to help each other and work together and the Bank should be convinced that the group has come into existence for the sake of participation in the project and availing benefits there under. Have members preferably with homogeneous background and interests.

Linkage Program of the Funding of Self Help Group:

There are two ways of extending bank finance.

Direct to SHG or
Through bulk lending to VAs/NGOs for on-lending to Group.

Extent of Credit of the Funding of Self Help Group

The acceptable proportion of savings to the loan could vary from 1:1 to 1:4 depending on the assessment of the SHG by the Bank.

Rate of Interest & Processing Charges of the Funding of Self Help Group:

It is regulated by Union Government with subsidies.

Security of the Funding of Self Help Group:

Mortgage of assets created out of Bank's finance. No insistence on collateral security

Security Documents of the Funding of Self Help Group:

Inter se Agreement by all members and Articles of Agreement by authorized members.

Repayment of the Funding of Self Help Group

The lending Bank prescribes appropriate repayment period in negotiation with the Group which may range from 3 to 7 years. Repayment may normally be in regular monthly installments or as determined at the time of loaning based on local conditions, activities undertaken by members etc. Loans from SHGs to members could be repaid in appropriate installments which may be daily, weekly or market days fortnightly, monthly etc.

Since the boom of human civilization, Poverty has degraded human lives for centuries. It is one of the greatest achievements in 20th century is the significant reduction in poverty. In the Human Development Report (1997) it was indicated that eradicating of severe poverty in the first decade of the 21st century is feasible. It is not at all an extraordinary ambition, if Self-Help Group resort to self-governed, peer controlled with same socio-economic background and having a desire to collectively perform common purposes. The module is that the poor people will voluntarily come together to save whatever amount they can save conveniently out of their earnings, to mutually agree to contribute to a common fund and to lend to the members for meeting their productive and emergent needs. Particularly in this direction, the grassroots finance assumes great significance as an innovative policy instrument. Internationally, most of the developing nations have been striving to accomplish substantial gains in narrowing down poverty levels by adopting wide range of innovative micro-credit policies. In fact Micro-finance is an innovative credit delivery mechanism that ensures viable financial services to the needy in the developing countries. It has the potential to address issues like actualizing equitable gains from the development on a sustainable basis and fight poverty.