Self Help Groups and SGSY Scheme
The SGYS scheme has
become into operation from 01-04-1999 replacing all other schemes like IRDP,
TRYSEM, DWCRA, SITRA, GKJ, MWS etc. The objective of the scheme is to bring
poor people above poverty line within 3 years. For this purpose, an emphasis
is laid on Group Financing and Group Activities taking into account the
natural resources available in the area and the activities suitable to that
area. The scheme envisages supplementary doses of credit if necessary to the
participants. Preference will be given to well functioning SHGs in the
villages both under group finance and individual finance.
practices in SHGs
Thrift collection could
commence from first meeting itself.
Periodicity and quantum
of thrift be decided by members themselves.
compulsory thrift to be made by all members.
against thrift not allowed.
Groups must insist on
on-time contribution from members.
of thrift during meetings only.
Thrift to be used for
internal lending and must not stay idle.
Penal provisions like
fines and penalties for late payment.
contribution must not be received outside the meetings.
may be disciplined by penalties.
to members withdrawing for genuine reasons
No discontinuance of
thrift due to fund infusion like subsidy/grant.
SHGs normally offered
small short-term loans.
must commence from first pooling.
Group must have
system of priorities based on loan purpose.
Best member borrower
attends meeting regularly and pay timely.
Overall credit need
evaluation should be need based.
Credit decisions at
should be rationale.
SHGs may be allowed
freedom in fixing collaterals from members.
loans may be
Loans are to be
disbursed in the presence of all group members.
Group must be taught to
monitor end use of loan.
penalized and timely repayment rewarded.
to continue even after receipt of grant/subsidy
consists of thrift, interest on internal loans, fines and penalties, loans
and grants received, margin and interest payable to bank.
Groups are not
expected to discriminate between the source of fund for meeting loan
are a drag on the group and should be watched carefully at every meeting.
in Cash Management will ensure (i) Transparency (ii) reduce load on
leaders (iii) Enhance fund management (iv) Competence of all members.
of bank accounts and group’s records.
Members should take
turns in depositing collections and also accompany leaders to bank for
Encourage short-term loans ranging from 3-12 months. Installments must be
weekly to monthly.
Above measures will
increase Loan velocity and Fund Recycling.
Groups must adopt
market-linked policy for interest rates.
Group must not
reduce interest rates in the short run upon receipt of grant or bank
loan. Interest charged on loans is a source for raising additional capital
to fund the Corpus base.
to meet emergent situations must be encouraged but too big an amount held
for long periods constitutes idle funds.
SHGs upon maturity
incur higher amounts for book keeping honorarium and bank
transactions. Member contributions may be suitably enhanced.
Investing entire corpus
in a single activity will block internal lending, reduce access of
households and enhance risks.
Groups must ensure
responsibility and members must share tasks.
must ensure recognition of accounts structure.
must necessarily focus on contents of books.
In case of
non-availability of literate members SHGs must be encouraged to hire
services of professional book-keepers/literate boys/girls.
SHGs must inculcate the
habit of paying for book-keeping.
Book writer must read
out noting in meetings and updations must be acknowledged by group
Some SHPIs are
concerned about audit. At federation meetings peer-audit by other
SHG leaders must be encouraged.
The practice of keeping
books with SHPI staff or in the NGO office should be discouraged.
Cost of books and
be met by SHGs.
In the long run
all members must be encouraged to read and write.
System of confirming
entries in member pass-book by 2 other members must be encouraged.
As far as possible try
to open SB A/c in service Area Branch.
Regular operation in
Savings Account will help build healthy relationship.
Although banks must not
insist on stating loan purpose, where large loans are concerned,
preparation of micro-credit plan will enthuse banker. Discussion at
appraisal stage with banker is a must to earn confidence.
Terms and conditions of
credit including concept of joint and several liability must be taught to
members by SHPI.
Group must assimilate
bank loans with Corpus and meet needs of members who could not avail loans
earlier. Hence there should be no deviation from norms viz; quantum,
repayment, interest rate etc.
Banks must be reminded
to go for higher and repeat finance where timely repayments are observed.
Groups must square up
default amount of any borrower and meet repayment obligations with bank.
Insurance of assets
etc. have to be verified by groups.
Banks must be
encouraged to open SB A/c even if photographs etc are not available. It is
required for credit linkage only.
Opening of Saving Bank Accounts
The savings bank A/c
should be preferably opened immediately after the first meeting of the SHG.
If the SHG is perceived to be loosely knit by the banker, then a period of
1-2 months maximum may be allowed to lapse. The bank may count the
stipulated period of maturity i.e. 6 months from the date of opening of SB
A/c. however, maturity may be counted from the first meeting and the
activity profile of the SHG also.
SB A/c can be opened in
the name of the Self Help Group only.
The group should submit
a resolution authorizing the functionaries to open/operate the Saving Bank
Account on behalf of the SHG. Banks may generally not insist for
photograph of office bearers of SHGs. The copy of the first meeting of the
SHG as written in the register is also to be given to the Banks. If a
photograph is required a combined photograph of the office bearers may be
The SHGs may meet at
the Local Panchayat Office, the Mahila Mandal, any house convenient to all
members or the house of any member as per consensus.
Office bearers shall
normally work only on honorary basis. Any payment for their services has
to be SHGs consensus decision, but to be discouraged. However, they should
be trained for their work (by the NGO). If the group decides collectively
then the prescribed amount may be held in cash for emergency requirement.
The inter-se agreement
should be taken at the time of credit linkage only (i.e. grant of
Minimum installment for
savings can be as low as Rs. 10/- a month and may go up to Rs. 50/- or Rs.
80/- a month, in general.
Linkage of Group
Linkage indicates only
credit linkage i.e. where SHGs have been financed by banks.
Instead of depositing
entire savings in the bank, the group should use the amount for inter
loaning among members from beginning itself so that the group understands
credit management before linkage.
No, the period of six
months should be counted from the date of regular savings by the group.
However, the group may open the account with the bank as soon as the group
The amount received on
account of savings made by an erstwhile group should be taken into account
for linkage of newly formed groups.
The groups have the
freedom to decide the purpose of loan (consumption and productive).
RBI circular dated 02
April 1996 permits SHG to be linked by branches other than service area
branch. Group may be linked to bank branch other than service are also.
The amount of
subsidy/grant/donation money etc. which is not saving of the group should
be excluded for the purpose of considering savings.
Savings of SHG include
amount used for inter-loaning, cash balance with group and balance in bank
account. In other words, entire savings mobilized by SHG members should be
taken into account. Expenses made by group for purchase of register etc.
should not be excluded from savings.
The defaults by a
member of SHGs and their family members to the financing bank should not
come in the way of financing the ‘SHG’. However, finance from the bank
should not be mobilized by the SHG to finance a member who is defaulter to
No maximum limit of
loan for the SHG has been prescribed. Savings to credit ratio may be from
1:2 to 1:4 depending upon the maturity level and absorption capacity of
the SHG as assessed by the bank.
A member of SHG may
take a direct loan from the bank or under any sponsored scheme with the
consent of group.
The SHGs before
approaching the bank for credit may assess the credit requirement of
individual members, keeping in view the purpose for which the loan is
needed and submit to the bank the consolidated proposal. The bank,
therefore, should not apprise the individual borrower member of a SHG.
It is suggested that
SHGs may be persuaded to charge interest ranging from 18% to 24% p.a. from
members on their borrowings from SHG as an unduly high interest rate
discourages members from borrowing and retards the growth of SHG.
A person who has
already availed loan can become member of a SHG.
RBI/NABARD has not
prescribed any sets of register to be maintained by SHGs. The groups may
maintain simple and basic registers to maintain records of membership,
proceedings of meetings, deposits, internal loaning, accounting etc.
There are many examples
of successful group productive activities. As such bank should not insist
while financing that the SHG should take up group productive activities.
Let the initiative come from the SHG. Further the bank should not deny
loans to an eligible SHG simply because the stated purposes of loans of
SHG members are consumption and non productive. The idea is that meeting
the urgent needs by SHGs of members builds confidence among all the
SHG concept is based on
the principle of flexibility and there is no hard and fast rule to fix
monthly/quarterly/half yearly installments of principal or interest.
However, a bank may fix the repayment schedule in consultation with the
Bank branches may take
steps to speed up process of extending loan to SHGs. Usually; it should
not take more than 15 days in the scrutiny and disbursement of loan to
Credit linkage is
allowed normally after 6 months.The period builds group cohesiveness,
develops confidence amongst one another and in the use of credit.
Other Related Issues
All members of the SHG
are jointly responsible to the bank for any group default. If the default
is genuine the member may be accommodated by allowing to pay interest on
the loan installment subsequently. Peer pressure has proved a potent force
in ensuring the repayment to the SHGs.
SHG should not finance
individuals outside the group. All lending should be within the SHGs.
Bankers Related Issues (Frequently asked questions)
The credit is extended
by a bank branch to a SHG and not to the individual. Hence, this may be
allowed at branch level.
It is clarified that
bank may not deprive a SHG of credit just because of the presence of a
defaulter. If the SHG passes a resolution that the defaulter shall not be
extended credit through bank funds, the branch shall extend the credit.
This is to be avoided.
The minimum balance, say Rs.500/- may be kept in the S B A/c and the
amount collected by monthly contribution shall be circulated among members
as internal loaning so as to facilitate the learning process in the use of
credit and its repayment.
Continuous touch with
NGO/SHPI apprises the banker about functioning of SHGs and their maturity
regularly thus building confidence between NGO/Bankers/SHPIs. Further, the
NGO facilitates the documentation process and guides SHGs for up scaling.
So it is a mutual confidence building exercise and coordination is a
Advances granted to SHGs
for the purpose of on lending to group members are collateral free clean
advances and quantum of loan limit is linked to group savings, subject to
maximum credit limit of 1:4 under SHG-Bank linkage programme. These advances
are treated as unsecured clean advances irrespective of the credit limit.
Advances are granted to
groups formed under the SGSY for the whole group to pursue selected economic
key activity(ies). Loans under SGSY are granted for taking up income
generating activities. As tangible assets are created out of funds lent to
the groups under SGSY, these loans will be governed by the security norms as
For group loans upto Rs.
5 lacs, the assets created out of the bank loan would be hypothecated to
the bank as primary security. In case where movable assets are not
created, mortgage of land may be obtained. Where mortgage of land is not
possible, suitable third party guarantee may be obtained at the discretion
of sanctioning authority.
For group loans above
Rs. 5 lacs, in addition to primary security such as hypothecation/mortgage
of land or third party guarantee as the case may be, suitable margin
money/other collateral security in the form of “insurance policy,
marketable security/deeds of other property etc. may be obtained. The
upper ceiling of Rs. 5 lacs is irrespective of the size of the group or
pro-rata per capita loan to the group”.
Thus, while advances
granted to groups under SHG-Bank linkage programme will be clean loans,
advances granted to groups under SGSY will be treated as secured loans.