SHG-Bank Linkage Program in India: An Overview
The formal financial institutions in India have ventured into microfinance in a massive way by adopting the self help group (SHG)-bank linkage model. This paper reviews the performance of the program in different states of India, across three major institutions - commercial banks, cooperatives, and the regional rural banks (RRBs).
The author states that since its initiation, the program has shown severe spatial preferences, predominating in certain states, namely Andhra Pradesh, Uttar Pradesh, Tamil Nadu, and Karnataka; Andhra Pradesh, alone, accounts for 40% of the program's outreach. The author identifies the following reasons for the program's success in Andhra Pradesh:
- Special project sponsored by UNDP called South Asia Poverty Alleviation Program promoted 2700 groups in the state;
- Credit movement in South India led to the evolution of community based development finance institutions, which comprised of SHGs promoted by NGOs or by district rural development agencies;
- District collectors, NABARD district development managers and lead bank managers supported the SHG-bank linkage program in the state;
- Leading NGOs in the microfinance sector in India also worked in Andhra Pradesh;
- About 40% of the SHGs that were credit-linked under Development of Women and Children in Rural Areas (DWCRA) were concentrated in Andhra Pradesh alone.
The author makes the following observations on institutional involvement in the linkage program:
- Commercial banks were predominant in relatively better off states;
- RRBs were more dominant in poorer states and were more successful while acting as Self-help Group Promoting Institutions (SHPIs);
- Cooperatives in India have yet not ventured into SHG financing in a significant manner.
