Characteristics%20of%20working%20of%20SHGs

1
Characteristics of working of SHGs

• The groups generate a common fund where each
  member contribute his/her savings on a regular
  basis
• The groups meet periodically to discuss about
  their transactions
• Borrowers are decided by consensus
• The loans covers a variety of purposes including
  the non-traditional ones also
• The loan amounts are small and for short duration
• Loan procedure is very simple and flexible
• The defaults are negligible.

2
Direct Linkage
Savings
Savings
Bank
Member
SHG
Credit
Credit
3
Indirect Linkage
Savings
Savings
Bank
Member
SHG
Credit
Credit
SHPI
4
Linking SHGs with Banks Advantage for Rural Poor

• Access to banks both for credit and savings
• Money is available in time and for all purposes
• Significant reduction in transaction cost of
  borrowing
• Loan is available without any tangible collateral
• Procedure is very simple and flexible

5
Linking SHGs with Banks Advantage for Banks

• Reduction in transaction cost of lending
• Some part of transaction cost transferred to
  group (loan appraisal, follow up, and recovery)
• Access to clients
• Recovery of loan
• Increased turnover with a higher margin

6
Features of Linkage Scheme

• Savings first, credit second
• No credit without savings
• Group pressure as a substitute for collateral
• Interest rate and other terms and conditions for
  loan are to be decided by the group, and not by
  the bank
• Initially small loan, however, increased amount
  over time based on good repayment record.

7
Assessment of SHGs by Banks

• Should SHGs be assessed by banks? If yes than
  how?
• - Banks are doing business with the groups
• - Groups should be treated as potential clients
• - Groups are informal
• - No physical collateral in loan transaction
• - Loan involves joint rather than individual
  liability
• - Purpose of loan is also not known to banks
• Principles of sound credit proposal like rate of
  return, cost benefit ratio, or repayment capacity
  can not be applied

8
Assessment of SHGs by Banks

• Norms of the group
• - Meeting (periodicity and time)
• - Savings (periodicity and amount)
• - Credit (borrower prioritization and terms)
• - Fines (system to deal with default)
• - Leadership (selection)
• Ensure that
• - The norms have been designed with consensus
• - All the members are satisfied with the norms

9
Assessment of SHGs by Banks

• Functioning of the group
• 1. Meeting
• - Whether the group is regular in conducting its
  meeting or not?
• 2. Member participation
• - Per cent attendance of the members in each of
  the meeting
• 3. Savings
• - Whether the members are regular in making
  their savings contribution or not?

10
Assessment of SHGs by Banks

• 4. Credit transactions
• - Ensure that group should be involved in
  lending its own fund among the members
• - Recovery rate from members to group?
• 5. Fine system
• - How the group deal with the members who
  default with respect to
• - Making their savings contribution
• - Repaying the loan to group
• - Remain absent in the meetings

11
Assessment of SHGs by Banks

• 6. Leadership
• - How the leaders are chosen?
• - What is the tenure of leadership?
• - whether the same members are in a particular
  position over time?
• - Ensure the democratic functioning of the group
• 7. Maintenance of books and records
• - Activities of the group should be transparent
  to each and every member
• - minutes books of the meeting
• - savings and loan register

12
Assessment of SHGs by Banks

• 8. Dependence on external agent
• - Whether the group can take decisions
  independently?
• - Whether the loan should be made directly to
  the group or through SHPI?