Commercial Aspects of Self-Help Group Banking in India: a Study of Bank Transaction Costs
Siebel, H.D. & Dave, H. R.
Publication Date: 25 Nov 2002
Published by: National Bank for Agriculture and Rural Development - NABARD
Document Type: Paper (Microsoft Word)
Is the SHG-bank linkage program in India successful?
The National Bank of Agriculture and Rural Development (NABARD) bank linkage program in India, has two outstanding aspects:
- It has achieved an outreach of 500 000 SHGs and a population of 40 million poor,
- The lending rate at 7% is amongst the lowest.
The results, based on a study of seven branches in three banks, reveal the following:
- Non-performing loans to SHGs were zero percent indicating the effectiveness of group lending to the very poor.
- Returns on average assets of SHG banking ranged from 1.4 percent to 7.5 percent.
- The operational self-sufficiency of SHG banking ranged from 110 percent to 165 percent.
- Self reliance of the SHGs were growing rapidly based on their savings and retained earnings.
The study indicates that five factors are essential for the future sustainability of the SHGs:
- A sound self-supporting institutional framework,
- Restructing of the rural banks which have not performed well,
- Increase in the deposit reserves of SHGs,
- Effective supervision of SHGs.
After considering the findings of this study, the authors highlight some of the areas of further study on SHG bank linkages:
- Pricing financial products in rural financial institutions,
- Extending SHG banking to the middle poor,
- Delegated supervision for SHGs and cooperatives,
- Collateral for larger loans within SHGs,
- Loan protection through life insurance,
- Options for individual performance incentives in banks and cooperatives.
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