SELF HELP GROUP (SHG)
- To evolve supplementary credit strategies for meeting the credit needs of the poor by combining the 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 bankers and the rural poor. To encourage banking activity, both on the thrift as well as credit sides, in a segment of the population that the formal financial institutions usually find difficult to cover.
IDENTIFICATION OF SHG
It It is important that Branch Officials visit the potential clusters for selection of the group or seek the help of the NGO, if any, in the area for identification of the groups.
SIZE OF GROUP
The Group could consist of 10-20 members.
CRITERIA FOR SELECTION OF SHG FOR FINANCING
The following criteria would be broadly adopted for selecting SHGs:
- The Group should have been in active existence for at least a period of 6 months.
- The Group should have successfully undertaken savings and credit activity from its own resources for at least 6 months.
- Groups could be formal (registered) or informal (unregistered).
- Democratic working of the Group wherein all members feel that they have a say should be evident. Therefore Village Panchayat leaders should not normally be the office bearers or leaders of SHG. There should not be any interference from local authorities.
- The Group should be maintaining proper accounts/records for savings and lending.
- The banker should be convinced that the group has not come into existence only for the sake of participation in the project and availing benefits hereunder. There should be a genuine need to help each other and work together among the members.
- Members of the Group should preferably have homogeneous background and interest, though there is no restriction of caste, creed or sex.
- The members should be like-minded who can influence one another to ensure discipline through peer group pressure.Women group should have female members.
- The interest of the NGO or the Self-Help Promoting Institution (SHPI) concerned, if any, in the group should be evident and the agency is helping the SHG by way of training and other support for skill upgradation and proper functioning.
- If any of these criteria are not met, steps should be taken to improve the situation by training, by arranging visits to SHGs working well etc. if necessary, with the assistance of NGOs.
- It would be prudent to select SHGs only from a smaller geographical area so as to provide effective guidance and exercise proper supervision.
- No credit to SHG without training or before ensuring that it has the necessary capability to participate in project be provided.
- Not more than two members of same family will be the member of same group.
PURPOSE / USE OF LOAN
- The purpose for which loans are to be given by SHG should be determined by the SHG and its members.
- The loans may be used for meeting social needs, high cost debt swapping and taking up sustainable livelihoods by the individual members within the SHGs or to finance any viable common activity started by the SHGs.
- SHG should be strongly encouraged to use loans for productive purposes. Loans should normally not be used for non-productive purposes.
The savings of the Group may be treated as margin.
The SHG would not be in a position to offer any security other than the group savings; as such the advance may be treated as clean advance/ unsecured advance.
An appropriate period for repayment of Term loan to SHG may be prescribed after negotiation with the group. However, at the time of fixing repayment periods the following points may be kept in mind:
- They are easier to handle and thus less risky.
- They permit a more dynamic growth of the loan portfolio.
- The SHG would be free to prescribe appropriate repayment period and terms of loans to members as determined by the group.
Insist on timely repayment
- Banks, NGOs and SHGs must insist on timely repayment. This is to be strongly emphasized at the time of lending, during discussions prior to lending and in training programme.
- Loans from bank or NGOs to SHGs and SHGs to members must be repaid in regular instalments.
- If there is default in repayment by members to SHG, the SHG is expected to meet its repayment obligation to the bank from its own sources.
Loan repayment instalments
- Loans from banks to SHGs could be repaid normally in regular monthly instalments or as determined at the time of loaning based on local conditions, activities undertaken by members etc.
- Loans from SHGs to members should be repaid in appropriate installment, which may be daily, weekly on market days, fortnightly, monthly etc.
Cash Credit will normally be sanction for a period of 5 year subject to annual review by the branches