Loans For Self Help Groups (2024)

Loans For Self Help Groups

Features:

• (i) Loans to SHG are provided preferably in the form of cash credit and term loan as per requirement of SHG. Sanction of a cash credit/ overdraft system of lending for SHGs for a longer operational tenure of 3-5 years may therefore be adopted to permit SHGs to have larger loans in tune with increasing pooled savings. This approach will provide considerable flexibility to SHGs in meeting their frequent needs as well as help them in reducing their cost of borrowings.
• (ii) The limit so sanctioned will be reviewed each year and disbursal limit may be increased in the ratio of saving corpus as prescribed by RBI. At the time of annual review, It should also be ensured that all or at least 30% of the principal drawls during the operational year are repaid besides servicing of monthly interest.
• (iii) However, “In those Government Schemes which have back ended subsidy and release of subsidy is contingent on repayment of term loans, the SHGs can be extended term loans. The term loan can also be given to those SHGs in such cases where all the members of the group are engaged in the same activity and the loan from the bank is taken to undertake this activity by the group. The SHGs will get a cash credit limit in all cases other than mentioned above. The SHG members’ inter-se will get a term loan from the group.” repayable in monthly/ quarterly/half yearly instalments in 3-5 years coinciding with cash flow of the activity undertaken by the group.
• Loan Disbursem*nt : Loan amount can be disbursed fully in ‘cash’. All transactions are routed through the Saving Bank Account of the SHG
• Margin and Security Norms : As per operational guidelines issued by NABARD, SHGs may be sanctioned savings linked loans by banks (varying from a saving to loan ratio of 1:1 to 1:4). However, in case of matured SHGs, loans may be given beyond the limit of four times the savings as per the discretion of the bank. Experience has shown that group dynamics and peer pressure have brought in excellent recovery from SHG members. As such no security needs to be obtained for advances to SHGs. As per RBI circular on Micro credit, the flexibility allowed to banks in respect of margin and security norms under the pilot project will continue to be operational beyond pilot phase also.
• Interest Rate : The banks would have the discretion to decide on the interest rates applicable to loans given to Self Help Groups/member beneficiaries. Rate of interest to be charged on loans to SHGs is linked to base rate wef. 01.07.2010, vide our Circular No. RB-NF/MC&FI/BSJ/F-144/489 dated 21^st February 2011 and presently linked to one year MCLR w.e.f. 01.04.2016. Effective interest rate on SHG loan are 3.60 % above MCLR i.e. 12.00% p.a. w.e.f.10.07.2019 to be reset after one year and may increase or decrease subject to change in MCLR from time to time.

Eligibility :

• (i) The size of the SHG should be preferably between 10 to 20 members to enable effective individual participation in the group’s deliberations. However, in hilly tracks/ regions and tribal dominated areas, where communities are dispersed, the minimum size of SHG can be of 5 members. The SHG shall not consist of more than 20 persons. (Association or partnership consisting of more than 20 persons for the purpose of carrying on any business that has for its object the acquisition or gain by the said association or by the individual members thereof, requires registration under section 11(2) of the Company’s Act).
• (ii) The group should have been in active existence for at least a period of six months. The group may be informal or formal (registered).
• (iii) The group should have successfully undertaken savings and credit operations from its own resources.
• (iv) Democratic working of the group wherein all members feel that they have a say should be evident. The group dynamics of working of the SHGs need neither be regulated nor formal structures imposed or insisted upon.
• (v) The group is maintaining proper accounts / records.
• (vi) The branch should be convinced that the group has not come into existence only for the sake of participation in the project and availing benefits there under. There should be a genuine need to help each other and work together among the members.
• (vii) The SHG members should preferably have hom*ogeneous background and interest.
• (viii) The interest of the NGO or the SHPI concerned, if any, in the group is evident and the agency is helping the SHG by way of training and other support for skill up- gradation and proper functioning.
• (ix) The SHG as well as SHPI/NGO should have a good track record in their functioning.
• (x) The defaults by a few members of SHG and/or their family members to the financing bank should not ordinarily come in the way of financing SHGs per se by banks, provided the SHG is not in default to it. However, the bank loan may not be utilized by the SHG for financing a defaulter member to the Bank.
• (xi) SHG Members should not have multiple memberships in two or more SHGs.
• (xii) Meetings of SHG members should be conducted at regular intervals (at least once in a month) and attendance and participation of members should be satisfactory.

Assessment of Credit/Quantum of Loan

• (i) NABARD has issued revised guidelines which state that “With the increased capability of mature SHGs to handle higher quantum of funds, shift of SHGs from consumption to micro-enterprise and improved banker borrower relationship, it is felt that banks would be able to transcend the precautionary condition of financing SHGs in multiples of 1 to 4 times their savings which was prescribed in the pilot phase of the SHG-Bank Linkage Programme.
• Bank may consider higher quantum of loans beyond four times of the group’s corpus to SHGs availing repeat loan from banks after taking into consideration factors such as quality of SHG as reflected in its rating score, credit absorption capacity, managerial ability to handle income generating projects entailing higher outlay, risk taking ability, etc., up to a limit of Rs.50,000 per SHG member as defined by Reserve Bank of India (Ref. RBI Master Direction FIDD.CO.Plan.1/04.09.01/2016-17 dated 7^th July 2016).
• (ii) Group Corpus: Group corpus comprises of the i) Balance in savings account of SHG with the bank, ii) Amount utilized in internal lending by the SHGs and iii) cash balance with the SHG.

Credit delivery

• (i) If possible, credit delivery to SHGs and members should be simultaneous and in public,i.e., during the regular meetings of the SHG. This is considered essential with a view to safeguarding / preventing the possibility of misappropriation of funds by the office bearers of the SHG of intermediaries. If this is not possible, credit delivery to a SHG should always be in the presence of several office-bearers of the SHG and selected members, at least one or two of the borrowers. The loan amount must not be handed over, in any case, to a single representative of the group.
• (ii) To ensure hassle free delivery of credit to SHG members and decongest the branches, bank has enabled Kiosk Banking Channel for the SHG transactions at our BCs to transact/transfer funds directly to the members through BC / CSP outlet near to the place of work without going to the branch office (Ref. Cir. RABG/RB-I/12012-13 dated 07th July 2012)

KYC Norms and Account Opening

• KYC verification of all the members of SHG need not be done while opening the savings bank account of the SHG and KYC verification of all the office bearers would suffice. As regards KYC verification at the time of credit linking of SHGs, it is clarified that since KYC would have already been verified while opening the savings bank account and the account continues to be in operation and is to be used for credit linkage, no separate KYC verification of the members or office bearers is necessary (e-Circular NBG/BODKYC/1/2013 – 14, April 06, 2013.

Service/inspection/Processing Charges

• No loan related and ad hoc service charges/inspection charges should be levied on priority sector loans up to ₹ 25,000. In the case of eligible priority sector loans to SHGs/ JLGs, this limit will be applicable per member and not to the group as a whole.

Documentation Required

• (i) Application for loans assistance by SHG
• (ii) Arrangement Letter
• (iii) Articles of Agreement for financing SHGs – executed by Authorized Representatives
• (iv) Inter-se Agreement to be executed by all members of SHG
• (v) Demand promissory note and take delivery letter
• (vi) In case of applications of SHGs sponsored by NGOs/SHPIs, a sponsorship letter is to be submitted to the branch.

Other considerations for selection of SHGs for linkage

• (i) Village Panchayat leaders should not normally be the office bearers or leaders of the SHG.
• (ii) There should not be any interference from local authority.
• (iii) Before considering any credit assistance, it should be ensured that the SHG has the necessary capability to participate in the project. If required, branch may provide training /guidance to members of SHG in book-keeping, financial management, income generating activities, etc., with the help of an NGO.
• (iv) The group should have satisfactory internal savings and credit activity for at least six months.