Economic empowerment – linking rural women to banks

Rural women’s easy and reliable access to micro-credit is a sine qua non for their economic empowerment. In the context of International Women’s Day on the 8th March 2015, Amrit Patel highlights success factors and shortcomings of the Indian Self-Help-Group-Bank Linkage Programme.

Rural women in India access microcredit through the Self-Help-Group-Bank Linkage Programme (SBLP). The programme was initiated by the country’s leading National Bank for Agriculture and Rural Development (NABARD) in early 1992. Self-Help-Groups (SHGs) are village-based, usually economically and socially homogeneous groups of 15 to 20 women who come together voluntarily to pool their small savings which they use initially for micro-lending among members of the group. Once the members of the group are able to establish and demonstrate group cohesiveness, financial discipline, regular thrift and a credit cycle with a most satisfactory recovery rate, SHGs are linked to banks for accessing institutional credit.

The significant advantage of SHGs has been the building up of credit history of each group member. The purpose of the formation of SHGs has been predominantly perceived as that of sharing financial liability among members. Banks recognise the group as an effective instrument for providing skill development and capacity building training to all group members, enabling them to efficiently use credits (integrated with supplies and services] for development, leading to increased income and the achievement the objectives of women’s economic empowerment through the SBLP.

Enabling measures

In the context of the programme, services offered by NABARD include grants, training and capacity building assistance for self-help promoting institutions such as non-governmental organisations which act as facilitators/intermediaries to nurture SHGs properly before linking them to banks for accessing credit. SHG federations can claim revolving fund assistance. In addition, the Bank has successfully pilot-tested technology based accounting systems for SHGs. A mobile-based book-keeping system helps SHGs maintain their financial transactions electronically in local languages and allows monitoring of the same by all stakeholders. The SHGs can update their transactions and meeting details by sending SMS from their mobile phones, which are loaded with the NABARD-developed software. Assistance is also provided by a tablet PC based accounting system to monitor the SHGs day-to-day transactions and update their management information system on a real-time basis. The field staff of the NGO record the transactions, and the SHGs get copies of the records by paying fees.

What has been achieved?

Today, all public sector banks, including regional rural banks and most private and co-operative banks, provide micro-credit through a credit delivery model. In 1992, in the context of the SBLP, 225 SHGs were linked with banks. From 1992 to 2014, the cumulative number of SHGs was 12,626,660, with a cumulative loan disbursement of Rs.1106.3229 billion. Aggregate performance as on end-March 2014 was as follows:

  • There were 6,251,678 women SHGs with savings of Rs. 801,28.894 million, with banks accounting for 80.96 per cent of the total savings amount.
  • There were 3,406,296 women-SHG borrowers who had Rs.361,515.82 million of loan outstanding, accounting for 84.21 per cent of the total amount.
  • Actual savings mobilised by SHGs were be quite high since much of their savings was used for internal lending. Credit availed by SHGs along with their internal savings is revolved many times within the groups for shorter durations, which makes the multiplier effect larger than the figures reported by banks.

In order to upgrade the skills of the women SHG members with a view to their starting micro-enterprises, NABARD has initiated the Micro-Enterprise Development Programme (MEDP) under which so far, around 297,000 SHG members have been trained.

NABARD’s field studies reveal that the Self-Help-Group Linkage Programme has helped women, especially those from economically and disadvantaged backgrounds, to productively use their traditional and organisational skills and collective power. Women-SHG members have ventured into hitherto unexplored areas and proved that they can deliver when trusted and entrusted. Apart from traditional activities like running canteens, cooking lunch in schools, stitching uniforms for school students, etc., SHGs also manage rural call centres, recycle plastic waste, procure food grains, distribute electricity/utility bills, etc. In each and every case, the women SHGs have lived up to the expectations in delivering services. The documentation of these and other possibilities is expected to develop a strategic partnership between women and State Governments in improving delivery systems while providing livelihood opportunities.

A potential for improvements

However, one negative aspect is that the percentage of non-performing assets (NPAs) to outstanding loan shot up from 2.94 per cent as on end-March 2010 to 6.83 per cent as on end-March 2014. In order to reverse this trend and not jeopardise the programme’s success, the following measures ought to be taken:

Awareness raising: A time bound programme is required to create awareness among all SHG members for timely repayment of bank credit, collection of dues along with financial education in general banking concepts like voluntary savings and credit products, insurance, e-book keeping for better transparency in SHG accounting, etc.

Group formation: Banks under the SBLP model should assume a proactive role in the group formation process accompanied by requisite resources to help SHG-members better understand the underlying principles of group responsibility, financial discipline, etc., before credit-linking to banks and subsequent repeat loans, which are crucial to recycling credit without interruption. This could help minimise incidence of defaults, over-borrowing and multiple borrowing.

Use of loan for income generation: According to a study in the State of Andhra Pradesh, (2010), SHGs used only 25.4 per cent of total loan for income generation activities. The rest was spent on other items – repayment of old debt (20.4 %), health (18.6 %), home improvement (13.0 %], education [5.7 %] and others. Loans for non-income generation purposes cannot help borrowers repay high-cost loans but add financial burden and increase the rate of delinquency. Most micro-loans should, therefore, be given for income-generating activities to enable borrowers to acquire income-generating assets, and they should be supported by adequate working capital and an adequate moratorium period. Government and all stakeholders should create institutional infrastructure to help micro-credit clients generate income adequate to repay loan and interest and provide some surplus to eke out a reasonable living and ultimately reduce dependence on the money lenders.

Interest subvention: Effective from April 2013, NABARD is implementing the interest subvention scheme under National Rural Livelihood Mission for eligible women SHGs in an identified 150 districts for rural banks and co-operative banks. Under the scheme, the women SHGs in these districts are eligible for interest subvention to avail the credit of up to Rs.3 lakhs at 7 per cent per annum with an additional 3 per cent subvention to SHGs on prompt repayment of loans. This scheme needs to be expanded throughout the country and include commercial banks in order to prevent a heart-burning effect among other honest/industrious SHGs and motivate them for repayment of loans.  
Skill development and training:  Several studies revealed that SHG members, in order to alleviate poverty and improve their livelihoods, demand loan facilities duly accompanied by skill development and training that can help them increase income from their economic activities. Banks can arrange skill development training through Rural Self-Employment Training Institutes (RSETI) established in partnership with banks in each district. Banks can finance SHG members already trained under NABARD’s Micro-enterprise Development Programme and also consider replicating this programme. 

Increased use of Information Technology: The potential of Information Technology should be further harnessed to build operating systems for the identification of borrowers and their financial and non-financial needs. IT can support the collection, compilation and communication of data, etc., in order to reduce over-borrowing, monitor timely recovery, control delinquency and minimise operating cost in the long run.

Establishing a Micro-finance Bank: The Government already established the Bharatiya Mahila Bank (Women’s Bank of India) in 2013 – a public sector bank to lend mostly to women and women-run businesses,  support women SHGs and women’s livelihoods and address gender-related aspects of empowerment and financial inclusion. Nevertheless, it is necessary to establish a Micro-finance Bank in the public sector like the ones already existing in some Asian and African countries.

A NABARD study of 214 SHGs linked to banks before March 2000 in 108 villages of nine districts in four States (Andhra Pradesh, Karnataka, Orissa and Rajasthan) revealed that 50 per cent of the women members of SHGs (for more than seven years or even more] still remained poor, including 13 per cent very poor.  A similar study by an international research institute in Hyderabad reported that the microfinance group Spandana disbursed loans of up to Rs.10,000 in 120 locations in the city. Tracked over five years, the borrowers were not more suitable to own businesses than non-borrowers, and there was no significant difference in consumption and no impact on education, health or female empowerment.

This suggests the need to evaluate SHGs district-wise, completing three/five years on an annual basis, in order to assess poverty penetration and impact in respect of increases in asset creation, average annual net income, savings, employment generated per household, repayment performance, reduction in availing multiple loans and loans from informal sources with higher interest rates, the degree of social empowerment of women in terms of self-confidence, participation in decision-making in matters related to family welfare, economic activities, etc.

Dr Amrit Patel,
Contact: dramritpatel(at)

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