SHG-Bank Linkage Programme

The SHG-Bank Linkage Programme (SHG-BLP) is India's system for connecting small groups of poor people, called Self-Help Groups, with formal banks. A Self-Help Group is a small group, usually of 10 to 20 women from similar backgrounds, who save a little money regularly and lend it to each other. Under SHG-BLP, a bank opens a savings account in the group's name and later gives the group a loan, without asking for any property as security. Started by NABARD in 1992, it has grown into the world's largest microfinance programme, reaching about 17 crore households.

Why does it exist?

Poor rural families often need small loans: for a buffalo, seeds, a sewing machine or a hospital bill. But banks did not lend to them. Each loan was too small to be worth the paperwork, and the poor had no land or gold to offer as security. So families went to the village moneylender, who often charged very high interest and trapped them in debt.

SHG-BLP solves this by letting the group act as one customer. The group saves together, checks each member's need, and takes collective responsibility for repayment. The bank deals with one account instead of twenty tiny ones.

Where did it come from?

• In the 1980s, the non-government organisation MYRADA in Karnataka found that poor women who saved and lent within small groups repaid very reliably. In 1987, NABARD gave MYRADA a grant for action research on this idea.
• In 1991-92, NABARD, in consultation with the Reserve Bank of India (RBI), launched a pilot project to link about 500 SHGs with banks. NABARD issued detailed operational guidelines to banks on 26 February 1992. The RBI allowed banks to open savings accounts for informal (unregistered) groups, which was a big step, because normally only registered bodies could open such accounts.
• In 1996, the RBI made lending to SHGs a mainstream activity of banks and counted it as priority sector lending (lending to sectors the government wants banks to support, such as farming and weaker sections).
• In 2011, the National Rural Livelihoods Mission was launched. It took on the job of forming and nurturing SHGs on a large scale across the country, which hugely expanded the number of groups that banks could link to.
• In 2015, NABARD launched E-Shakti, a pilot to digitise SHG account books so that banks can see a group's savings and repayment record online.

How does it work, step by step?

Think of it like a ladder that a group climbs one step at a time.

1. Forming the group. 10 to 20 women from the same village and similar economic condition come together. Often a helper agency (an NGO, a government mission or a bank) helps them form the group.
2. Saving and internal lending. Members save a fixed small amount, say ₹100 a month, and meet regularly. They lend this pooled money to members in need, at an interest rate they decide themselves. This builds habits of saving, repaying and keeping accounts.
3. Savings linkage. The group opens a savings bank account in its own name. This is called being "savings-linked".
4. Grading. After about six months of good functioning, the bank checks the group: Do they meet regularly? Is repayment on time? Are the books kept properly?
5. Credit linkage. The bank gives the group a loan, usually several times its savings, without collateral. The group decides how to divide the loan among members. This is called being "credit-linked".
6. Repeat and grow. If the group repays well, it gets bigger loans in later rounds (second, third and further "doses" of credit), which can fund larger businesses.

The three linkage models

Over time, three ways of linking groups to banks developed:

• Model I: A helper agency (an NGO or government body) forms and trains the group, and the bank lends directly to the group. This is the most common model.
• Model II: The bank itself forms and trains the group and then lends to it, or the group forms on its own without any helper agency.
• Model III: The NGO acts as a middleman. It borrows from the bank and lends on to the groups, and it takes responsibility for repayment to the bank.

Key parts and facts

• Loans without collateral: Under DAY-NRLM, banks give SHGs loans up to ₹20 lakh without any collateral. The RBI raised this limit from ₹10 lakh to ₹20 lakh in August 2021. Up to ₹10 lakh, no margin money is taken and no lien is marked on the group's savings account.
• Interest subvention: Under DAY-NRLM, women SHGs can get loans up to ₹3 lakh at 7% a year, with the government paying part of the interest to the bank. In some backward districts, groups that repay on time get an extra subsidy that lowers the cost further.
• Credit guarantee: SHG loans under DAY-NRLM are covered by the Credit Guarantee Fund for Micro Units (CGFMU), which protects banks if a loan goes bad.
• Scale, as of 31 March 2025: about 143 lakh SHGs were savings-linked; about 85 lakh SHGs had bank loans outstanding, worth about ₹3.04 lakh crore. In 2024-25, banks disbursed about ₹2.08 lakh crore to about 55.6 lakh SHGs.
• Repayment quality: the gross non-performing asset (NPA) ratio on SHG bank loans fell to about 1.74% by March 2025 (from 2.8% in March 2023 and 3.8% in March 2022). Regional Rural Banks show the best repayment, and the Central region the weakest.

India's position and Indian examples

• Most SHG members are women, so SHG-BLP is also India's largest tool for women's financial inclusion. Many women opened their first bank account through their group.
• Southern states such as Andhra Pradesh, Telangana, Tamil Nadu, Karnataka and Kerala have the densest SHG networks and the largest loan volumes. Northern and Central states lag behind.
• Kerala's Kudumbashree (launched in 1998) runs a state-wide network of women's neighbourhood groups that also take bank loans.
• SHGs have become the base for many government programmes: Lakhpati Didi, Namo Drone Didi, SHG-run canteens, and women farmer groups. SHG members also work as Bank Sakhis and Business Correspondents, helping villagers use banking services.

Commonly confused concepts

• SHG vs Joint Liability Group (JLG): An SHG is savings-led. Members save first, and the loan size depends on the group's savings and record. A JLG is credit-led. It is a small group, usually 4 to 10 people doing similar work (such as tenant farmers), formed mainly to get a bank loan. All JLG members jointly promise to repay, and there is no common savings fund.
• SHG-BLP vs Microfinance Institutions (MFIs): In SHG-BLP, a bank lends to the group, usually at lower interest. An MFI is a separate company (often a non-banking finance company, NBFC-MFI) that lends directly to poor borrowers, often weekly, at higher interest. Both are part of "microfinance", but they are different channels.
• SHG-BLP vs Grameen Bank model: The Grameen Bank of Bangladesh (founded by Muhammad Yunus, a bank since 1983; Nobel Peace Prize 2006) lends to small groups of borrowers through its own staff. India's SHG-BLP instead uses the existing network of commercial, regional rural and cooperative banks.
• Savings-linked vs credit-linked: A savings-linked SHG only has a bank savings account. A credit-linked SHG has also taken a bank loan. The two numbers are reported separately, and the credit-linked number is always smaller.
• NABARD vs DAY-NRLM: NABARD (the National Bank for Agriculture and Rural Development) created SHG-BLP and still monitors and reports on it. DAY-NRLM, run by the Ministry of Rural Development, forms and trains SHGs and pays interest subvention. One builds the bridge to banks; the other builds the groups.

Issues, criticism and the way forward

• Uneven spread: SHG density and loan size are far higher in the south than in the north, centre and north-east. More effort is needed in weaker regions.
• Small loans, small businesses: Many SHG loans fund consumption or very small activities. Women often stay in low-earning work instead of growing into real enterprises. Experts suggest bigger individual enterprise loans for mature members and better links to markets.
• Multiple borrowing: Some women borrow from an SHG, an MFI and a moneylender at the same time, which can lead to over-indebtedness. The Andhra Pradesh microfinance crisis of 2010 showed how harmful this can be. RBI's 2022 microfinance rules set a household income limit of ₹3 lakh for such loans and cap repayments at 50% of household income.
• Weak record-keeping and quality of groups: Some groups exist mainly on paper or have poorly kept books. Digitisation (E-Shakti, the mission's online records) aims to fix this.
• Way forward: Grade and strengthen federations; link SHGs to farmer producer organisations (FPOs) and online marketplaces; offer insurance and pensions through groups; and train members in branding, packaging and digital sales.

Concepts to Know

• NABARD: The National Bank for Agriculture and Rural Development, set up in 1982. It is the top development bank for farming and rural areas, and it guides and refinances banks that lend in villages.
• Microfinance: Very small loans, savings and insurance services for poor people who cannot use normal banking.
• Collateral: Property such as land, gold or a house that a borrower pledges to the bank. If the loan is not repaid, the bank can take it.
• Margin money and lien: Margin money is the part of a loan the borrower must pay from their own pocket. A lien is a hold the bank puts on a deposit so that the money cannot be withdrawn until the loan is repaid.
• Interest subvention: When the government pays part of the interest on a loan, so the borrower pays a lower rate.
• Non-performing asset (NPA): A loan on which the borrower has stopped paying interest or principal for 90 days or more. A low NPA ratio means borrowers are repaying well.
• Priority sector lending: RBI rules that require banks to give a fixed share of their loans to sectors such as agriculture, small businesses and weaker sections.
• Regional Rural Banks (RRBs): Banks set up from 1975 to serve rural areas, jointly owned by the Centre, a state government and a sponsor bank.