SHG-Bank Linkage Programme

Also called: SBLP · Topic: Civil Society, Pressure Groups, NGOs and Self-help Groups · NCERT: Beyond NCERT

Meaning

The SHG-Bank Linkage Programme (SHG-BLP or SBLP) is a NABARD programme that connects self-help groups (SHGs) with formal banks. Through it, SHGs get savings accounts and loans without collateral (collateral means property pledged as security for a loan). NABARD started it as a pilot in 1991-92, in consultation with RBI, and issued operating guidelines on 26 February 1992 [4]. It brought the poorest rural women into formal banking, and it is often called the world's largest microfinance programme.

Explanation

How it works: savings first, credit later

• The group comes first. An SHG is a small group of 10-20 members, mostly poor women from the same area, who meet regularly.
• Members save a small amount on a fixed schedule.

• They lend the pooled savings to each other. This is called internal lending.

• Then the bank comes in. The programme has two stages:

• Savings-linked: the group opens a bank account.

• Credit-linked: once the group has a record of saving and repaying, the bank lends to the whole group as one unit.

• Social collateral replaces property.

• Peer pressure in the group takes the place of property as security.

• Members make sure each person repays, because the whole group's credit depends on it.

• Roots: NGO-led credit groups of MYRADA (Karnataka, 1980s) showed that poor women could save and repay. NABARD built SHG-BLP on this model.

How it developed, step by step

Step	Year	What happened
Pilot	1991-92	NABARD, in consultation with RBI, started a pilot to link about 500 SHGs with banks [4]
Guidelines	26 February 1992	NABARD sent banks detailed operating guidelines by circular letter [4]
Pilot-testing phase	1992-95	The model was tested in the field [4]
Priority sector	1996	RBI made SHG lending a mainstream activity under priority-sector lending, so loans to SHGs count as loans to "weaker sections" [3][4]
Mainstreaming phase	1996-98	The programme became part of normal banking [4]

• Priority-sector lending means the share of bank credit that RBI requires banks to give to sectors such as farming, small firms and weaker sections.

Loan rules under the RBI Master Circular

• Savings-to-loan ratio: banks give savings-linked loans at a ratio of 1:1 to 1:4. Mature groups can get more than four times their savings [3].
• Interest rate: each bank decides the rate on its loans to SHGs [3].
• Security: the flexible margin and security norms of the pilot still apply [3].

Results and limits

• Early results: NABARD's quick studies found [4]:
• bigger loans
• a shift from loans for consumption to loans for production
• nearly 100% repayment

• lower transaction costs

• Tracking: NABARD's yearly Status of Microfinance in India report gives current figures for savings-linked and credit-linked groups.

• Limits:
• Credit alone does not create lasting income. Many loans are still used for consumption.
• Peer pressure can turn into harassment.
• Women may borrow from several lenders at once and become over-indebted.

In the Constitution and practice

• Legal basis: SHG-BLP is not in the Constitution. It is a banking programme run by NABARD, with the rules set by RBI through its Master Circulars on SHG-bank linkage and micro credit [3][4].
• Who runs it:
• NABARD designed it, ran the pilot and issued the guidelines.
• RBI gave it priority-sector status in 1996 and sets the lending norms [3][4].

• Banks open the accounts and give the loans.

• Link with DAY-NRLM:

• NRLM was started by the Ministry of Rural Development (MoRD) in June 2011. It replaced SGSY (1999) and was later renamed DAY-NRLM.
• It forms the SHGs and federates them as SHG → Village Organisation → Cluster-Level Federation. Banks then lend to these groups through the linkage.
• As of 30 June 2024, 10.05 crore women were in 90.86 lakh SHGs [1].
• MoRD figures released in March 2026 show that SHGs have received more than ₹12 lakh crore of bank credit since 2013-14.

• In the village, bank sakhis and BC sakhis (business correspondents, who provide banking services locally) help groups deal with banks.

• Link with panchayats:

• SHG federations prepare Village Poverty Reduction Plans (VPRPs), which feed into Gram Panchayat Development Plans (GPDPs). This connects SHGs to Part IX (Articles 243-243O; 73rd Amendment, 1992).

• Many SHG women later become panchayat representatives, often in seats reserved for women under Article 243D.

• Linked livelihood schemes:

• Lakhpati Didi (announced in 2023): an SHG member whose household income is ₹1 lakh or more a year. The income must be sustained over at least four agricultural seasons or business cycles, with an average monthly income above ₹10,000 [1][2].

• Namo Drone Didi (2023): drones for 15,000 women SHGs. The Centre pays 80% of the drone package cost, up to ₹8 lakh [5].

• Warning case: the 2010 Andhra Pradesh microfinance crisis showed that repayment pressure and borrowing from many lenders can push poor borrowers into debt.

Don't confuse with

• Grameen Bank: Muhammad Yunus founded it in Bangladesh, and he and the bank won the Nobel Peace Prize in 2006. It is a microfinance bank that uses joint liability, meaning small groups of borrowers answer for each other's loans. SHG-BLP is a savings-first model in which an existing bank lends to the whole group as one unit.
• SGSY (1999): an MoRD scheme that gave subsidies to individuals and groups. NRLM replaced it in 2011. SHG-BLP is a NABARD banking programme from 1991-92, not a government subsidy scheme.
• DAY-NRLM: an MoRD Centrally Sponsored Scheme (paid for by the Centre and the states, and run by the states) that forms and federates SHGs. SHG-BLP is the banking link that gives these groups savings accounts and loans.
• Kudumbashree: Kerala's State Poverty Eradication Mission (17 May 1998), organised as NHG → ADS → CDS. It is a state mission, not NABARD's national bank-linkage programme.

Prelims Hooks

• SHG-BLP was started by NABARD, in consultation with RBI, as a pilot in 1991-92 to link about 500 SHGs with banks [4]. Trap: it was not started by RBI, and it is not part of the 1999 SGSY.
• NABARD issued the operating guidelines on 26 February 1992 [4].
• In 1996, RBI made SHG lending a mainstream activity under priority-sector lending, in the "weaker sections" category [3][4].
• Phases: pilot testing 1992-95, then mainstreaming 1996-98 [4].
• RBI Master Circular: savings-to-loan ratio of 1:1 to 1:4, and each bank decides its own interest rate [3].
• Security: SHG loans need no collateral. Group peer pressure ("social collateral") takes the place of property as security.

Mains Points

• Financial inclusion as a base for democracy:
• Bank linkage gives poor women savings, credit and a record with formal banks.
• Women who gain confidence in SHGs often move into panchayat roles under Article 243D, and their federations feed VPRPs into GPDPs.

• This turns the 73rd Amendment's one-third reservation for women into real participation.

• Credit is not empowerment by itself:

• Repayment pressure, borrowing from many lenders (Andhra Pradesh, 2010), elite capture by better-off members and extra unpaid work for women all reduce the gains.

• Possible reforms:

  • judge success by lasting income, as Lakhpati Didi's sustained-income test does, rather than by loan volumes
  • build producer collectives and market links
  • give financial-literacy training
  • rotate leadership posts so that SC/ST and poorer members also lead

• Autonomy or instrumentalisation:

• State-backed linkage through DAY-NRLM reaches about 10 crore women [1].
• But when groups chase scheme and loan targets, they can become delivery arms of the state instead of independent civil-society voices.
• Kudumbashree shows a middle path: groups linked to local bodies but managed by their own elected tiers.

Related concepts

• Self-help group
• Deendayal Antyodaya Yojana-National Rural Livelihoods Mission
• Kudumbashree
• Lakhpati Didi

Read more

• Self-help groups and women's collectives