SHG Bank Linkage Programme (SBLP)

Background of SHG Bank Linkage Programme (SBLP)

The Self-Help Group Bank Linkage Programme (SBLP) was introduced in 1992 by NABARD in collaboration with the Reserve Bank of India (RBI). It emerged as a response to the challenges faced by the rural poor, especially women, in accessing formal financial services.

Pre-SBLP Scenario

• Before the 1990s, the rural population largely relied on informal moneylenders, who charged exorbitant interest rates.
• Institutional credit often did not reach the poorest because of collateral requirements, cumbersome procedures, and the high cost of servicing small loans.
• Microfinance initiatives were introduced to bridge this credit gap, but they remained limited in scope.

To address this, NABARD piloted the SBLP as a new, innovative way to bridge the gap between formal banking institutions and the poor.

Key Objectives

• Empowerment:
  • Encourage women’s socio-economic empowerment through entrepreneurship and group activities.
• Financial Inclusion:
  • Bring low-income households, especially women, into the formal banking system.
• Credit Accessibility:
  • Provide low-cost credit to marginalized communities.

Salient Features

• Group Savings:
  • SHGs are formed, typically comprising 10-20 members.
  • Members save regularly and build a group corpus.
• Internal Lending:
  • SHGs initially lend to members from their pooled savings at mutually agreed terms.
  • This helps build lending habits and trust.
• Bank Linkage:
  • Banks open savings accounts for SHGs and provide credit.
  • Credit is disbursed based on the group’s financial discipline and savings.

Types of Bank Linkages

• SHGs through NGOs:
  • NGOs act as intermediaries between SHGs and banks, helping with group formation and training.
• SHGs with Bank as Facilitators:
  • SHGs are directly linked to banks for loans.

Loan Mechanism

• First Loan:
  • Typically 1-4 times the group’s savings.
• Repayment:
  • Regular repayment enhances the group’s credibility for further loans.
• Revolving Credit:
  • Allows groups to take additional loans after repaying previous amounts.

Benefits

• Credit Discipline:
  • Members develop habits of regular savings and loan repayments.
• Empowerment:
  • SHGs have led to the financial and social empowerment of women.
• Poverty Reduction:
  • Loans help in generating income through small businesses or livelihood activities.
• Social Development:
  • SHGs often promote health, education, and social awareness.

Key Milestones in SBLP’s Evolution

1. 1980s – Pilot Phase:
   • NABARD supported some NGOs to form SHGs and experimented with linking them to banks.
2. 1992 – Formal Launch:
   • The SBLP was officially launched with a policy framework by RBI to enable banks to lend to SHGs without collateral.
3. 1996 – Mainstreaming:
   • The RBI directed commercial and regional rural banks (RRBs) to treat SHG lending as a regular activity.
4. 2000s – Rapid Growth:
   • The government started promoting SHGs as a tool for rural poverty alleviation, and SHG formation gained momentum.
5. Present:
   • SBLP has become the largest microfinance initiative globally, with millions of SHGs linked to the formal financial system.

Core Concept of SBLP

The central idea of SBLP is to empower marginalized communities through group savings and credit. It works on the principle of “mutual trust, peer pressure, and joint liability.”

• SHGs are formed by voluntary groups of 10-20 individuals (mainly women).
• They save regularly, and after building a small corpus, they are linked to banks to access formal credit.

Why SBLP Was Necessary ?

1. Lack of Collateral:
   The rural poor often lacked assets to offer as collateral for formal loans.
2. High Transaction Costs:
   It was expensive for banks to serve small clients. SHGs reduced costs by pooling credit demand.
3. Limited Financial Literacy:
   SBLP also emphasized financial education and capacity building, making rural borrowers more confident in dealing with banks.

Policy Support

• The RBI’s policy framework under SBLP allowed collateral-free loans and flexible repayment terms for SHGs.
• Government subsidies and schemes, such as those under the Ministry of Rural Development, have also played a critical role in scaling up SHGs.

Current Status of SBLP

As of recent statistics:

• Over 12 million SHGs are linked to banks.
• More than 100 million rural households are covered under this program.
• It has played a critical role in empowering women, reducing poverty, and enhancing livelihoods in rural areas.

Way Forward

• Strengthening partnerships between banks, NGOs, and SHGs to ensure sustainable growth.
• Enhanced capacity building and skill training for SHGs.
• Increased digitization to improve access to financial services.