Group Creation: 

This involves process like

enquiring and judging skills, selecting
individuals and assigning people to groups
based on the skill level of each member.
Stages in Capital Creation: A rotating fund system is
adopted for capital generation, and skills are
SHG allowed to develop through experience.
Process
Implementation: Abilities and group skills
are created and developed further as the
process functions at the group’s chosen
speed, limited usually only by level of skill.
 SHG is a neighbourhood affinity informal group of 10-
20 poor persons. In exceptional cases, it can be a
minimum of 5.

Its cohesiveness is on account of homogeneity, i.e. all

having commonality of problems/issues in earning
livelihood.

SHG Either with spontaneity or facilitated by an external

agency, they have volunteered to build common fund
through regular weekly/fortnightly/monthly thrifts.

Amount of regular thrift is uniform for all and

determined as per the capability of the member
belonging to the lowest rung of the group.
SHG
It is a small group of 10 to 20 persons from a homogeneous stratum.

It is formed and groomed by an NGO or a bank branch or a

government agency called a Self Help Promoting Institution (SHPI).

The members are encouraged to collect regular thrift on a weekly or

fortnightly basis and use the pooled thrift to give interest bearing
small loans to needy members.
• The SHPI trains the members to maintain simple accounts of
the collected thrift and loans given to members.
• The regular meetings also provide the platform to discuss and
resolve many social and common issues, thus fortifying their
togetherness.
• A savings bank account is opened with a bank branch and
regular thrift collection and loaning to members build up the
financial discipline among the members to encourage the bank
to provide larger loans to the group.
 • It facilitates evolution of an informal
group of the rural poor with membership
Self Help of 10 to 20, initially to encourage thrift,
learning participative fund management,
Promoting meeting consumption credit needs of the
Institution members in the beginning, learning to
interact with a bank branch with a savings
deposit account followed by borrowing of
small loans from the bank and managing
such credit.
 • identification of poor families and
awareness building;
• forming of groups;
• guiding groups in developing procedures
Role of SHPI and systems in savings and credit
operations;
• helping the groups in maintenance of books
and accounts;
• training the members in group functioning
and management;
• liaison with the banks for linkage of groups.
• The basic principles on which the SHGs
function are:
• the members of the groups should be residents
of the same area and must have an affinity.
• Homogeneity of relationship could be in terms
of caste/occupation/gender or economic status
(which is critical);
• the members mobilize savings first, credit
thereafter;
• SHGs should hold regular meetings;
• SHGs should maintain record of financial and
other transactions;
• they should have norms/rules regarding
membership, meetings, financial operations
etc.;
• group leaders should be elected by members
and rotated periodically;
• transparency in operations of the group and
participatory decision making;
• rates of interest on loans should be decided
by the group;
• group liability and peer pressure to act as
substitutes for traditional collateral
 • SHG uses common fund to meet the emergent
credit needs of the members ranging from pure
consumption to income generation purposes, whom
to give, for what purpose, how much, at what rate
of interest and for what period are as per the
decisions of the Group.
• The SHG-Bank linkages can be
SHGs • (i) bank directly financing SHGs without
intervention/facilitation of any NGO,
• (ii) bank directly financing SHGs with NGOs
acting as facilitator, or
• (ii) financing indirectly to SHGs through on-
lending to NGOs.
 • Loans to SHGs may be given after
assessing its maturity.
• Quantum of loans to start from
matching the group fund to 4

Features
times of the fund. 
• The SHGs are free to decide the

of SHG
purposes.
• Repayment period allowed by

financing bank to SHG may range between 3

and 10 years.
• Repayment periods by members
to SHG may be shorter.
• Banks are to give loans without
any physical collateral.
 Self Help Groups can act as extended
arms of the bank for reaching the
clients.
Benefits It is a very cost effective way of
for covering the excluded populations
and enroll them as business clients.

banks Further, some of the banks are using

SHGs in their recovery efforts,
deposit mobilization and also in
technology transfer related areas.
 • Linking the SHG with the bank is an
essential pre-requisite for promoting
financial inclusion.
• Unless SHGs access repeat doses of
Importance bank credit, the members will not be
able to meet their consumption and
of SHG-Bank production credit requirements at
Linkage affordable interest rates.
• Bank linkage also promotes the
financial literacy of the members and
contributes to prudent utilization of
funds.
 Steps in promoting SHG-bank linkage

1 2
Opening of SHG Saving Bank Facilitating Credit Linkage of
Account; and SHG.
Advantages of SB A/C for SHG

• The saving bank account provides the

following advantages to the SHGs and its
members:
• Savings bank account gives recognition to
the SHG as a customer of the banking
system and provides potential access to
different financial services;
• SHG can keep surplus cash with the bank
for safe custody, which in turn contributes
to trust building among members;
• An account provides an opportunity
for the SHG to undertake financial
transactions with the bank and
contributes to the financial literacy of
the members; and
• It facilitates introduction of all
individual members of the SHG to the
bank who could eventually become
individual customers of the bank.
• SHG should open a SB
A/c with the nearest
Bank branch, ideally
within two months of
formation of the Group.
Funds under NRLM
• NRLM provides the following funds to capitalize the eligible
community institutions of the poor and to enable them to access
external sources of finance such as bank loans.
• Revolving Fund (RF)
• The Mission provides for a Revolving Fund of Rs.10000 to Rs.15, 000
per eligible SHG to catalyze the process of internal lending and to
enable them to meet the immediate credit needs of the members
Community Investment Fund (CIF)
• The Mission also provides for Community Investment Fund as a
resource in perpetuity to capitalize the institutions of the poor in
three forms
• Seed Capital
• Vulnerability Reduction Fund
• Livelihoods/Layering Fund
 Credit linkage of SHG
SHGs fulfilling the following criteria are eligible for
availing first credit linkage: SHG should be in active
existence at least since the last 6 months as per the books of
account of SHGs and not from the date of opening of S/B
account.
SHG should be practicing ‘Panchasutras’ i.e. Regular
meetings; Regular savings; Regular inter-loaning; Timely
repayment; and Up-to-date books of accounts;
Qualified as per grading norms fixed by NABARD.
The existing defunct SHGs are also eligible for credit if
they are revived and continue to be active for a minimum
period of 3 months
Assessment of self-help groups
The assessment of creditworthiness of a SHG is very different
from that of an individual.

They must be assessed more in terms of certain non-tangible

assets like cohesion, vibrancy, goal oriented action, participation
of members, collective leadership and feeling of empowerment
among members rather than their ability to provide collateral.
Quantum of bank finance- CC Limit(CCL)
In case of CCL, banks are advised to sanction minimum loan of Rs 5 lakhs to
each eligible SHGs for a period of 5 years with a yearly drawing power (DP).

The drawing power may be enhanced annually based on the repayment

performance of the SHG.

The drawing power may be calculated as follows: DP for First Year: 6 times
of the existing corpus or minimum of Rs 1 lakh whichever is higher.

DP for Second Year: 8 times of the corpus at the time review/ enhancement
or minimum of Rs 2 lakh, whichever is higher
 DP for Third Year: Minimum of
Rs 3 lakhs based on the Micro
credit plan prepared by SHG and
appraised by the Federations
/Support agency and the previous
credit History.
DP for Fourth Year onwards:
Minimum of Rs 5 lakhs based on
the Micro credit plan prepared by
SHG and appraised by the
Federations /Support agency and
the previous credit History.
 • In case of Term Loan, banks are advised to
sanction loan amount in doses as mentioned
below:
• First Dose: 6 times of the existing corpus or
Term Loan minimum of Rs 1 lakh whichever is higher. •
• Second Dose: 8 times of the existing corpus
or minimum of Rs 2 lakh, whichever is
higher
• Third Dose: Minimum of Rs 3 lakhs based
on the Micro credit plan prepared by the
SHGs and appraised by the Federations
/Support agency and the previous credit
History

• Fourth Dose: Minimum of Rs 5 lakhs based

on the Micro credit plan prepared by the
SHGs and appraised by the Federations
/Support agency and the previous credit
History