UPSC Prelims 2023 Q74: Self-Help Groups and Bank Linkage — Explained
Consider the following statements:
1. The Self-Help Group (SHG) programme was originally initiated by the State Bank of India by providing microcredit to the financially deprived.
2. In an SHG, all members of a group take responsibility for a loan that an individual member takes.
3. The Regional Rural Banks and Scheduled Commercial Banks support SHGs.
How many of the above statements are correct?
- Only one
- Only two
- All three
- None
Answer: (b) Only two
Statement-wise explanation
- 1: incorrect — The SHG movement was started by NABARD, not the State Bank of India. NABARD launched the SHG-Bank Linkage Programme (SHG-BLP) in 1992 as a pilot to link 500 SHGs with banks. The Economic Survey 2022-23 calls it the world's largest microfinance programme. SBI is one of many banks that lend to SHGs, but it did not start the programme.
- 2: correct — An SHG works on mutual guarantee, or 'social collateral'. The bank lends to the group as a whole, and the group passes the money on to individual members from its common fund. If one member does not repay, the whole group is answerable to the bank. Peer pressure and shared responsibility take the place of physical collateral.
- 3: correct — Under SHG-BLP, SHGs open savings accounts and take loans from Scheduled Commercial Banks, Regional Rural Banks and Cooperative Banks. Under DAY-NRLM, RBI guidelines tell these banks to lend to SHGs without collateral, margin money or third-party guarantee, up to ₹20 lakh per group.
How to eliminate
Statement 1 is the easiest to settle. SHGs are tied to NABARD, the apex body for rural credit, so naming a commercial bank as the originator should make you suspicious. If you know only that NABARD started SHG-BLP in 1992, statement 1 is false, and that rules out 'All three'. Statement 3 matches basic knowledge: SHG loans come from the multi-agency rural credit system, which includes commercial banks, RRBs and cooperatives. That leaves 'Only one' or 'Only two'. Statement 2 describes the core idea of group lending (shared liability in place of collateral), which every textbook covers. So statements 2 and 3 are correct. The fact to remember: SHG-BLP was started by NABARD in 1992, not by SBI.
Know more
Self-Help Groups (SHGs) are small informal groups of 10–20 people, mostly poor rural women from one neighbourhood. Members save small amounts every month, lend to each other from this pooled fund, and later borrow from banks as a group.
How it developed
- 1980s: NGOs such as MYRADA (Karnataka) organised credit groups among the poor.
- 1992: NABARD started the SHG-Bank Linkage Programme as a pilot of 500 groups. RBI allowed banks to open savings accounts for unregistered SHGs and lend to them.
- 2011: the Ministry of Rural Development launched NRLM (Aajeevika), renamed DAY-NRLM in 2016. It forms SHGs and federates them into Village Organisations and Cluster Level Federations.
Scale: As on 31 March 2022, SHG-BLP covered 14.2 crore families through 119 lakh SHGs. Their savings deposits were ₹47,240.5 crore, and 67 lakh groups had collateral-free loans outstanding of ₹1,51,051.3 crore (Economic Survey 2022-23).
Three models of linkage
| Model | Who forms the SHG | Who lends |
|---|---|---|
| SHG-BLP Model I | Bank itself | Bank, directly |
| SHG-BLP Model II | NGO / govt agency | Bank, directly |
| SHG-BLP Model III | NGO | Bank lends through the NGO/MFI |
Why it works: Bank credit normally needs collateral. In an SHG, joint liability and peer monitoring take its place. Members screen each other, and the group's regular savings record makes it creditworthy.
SHG vs Joint Liability Group (JLG): A JLG has 4–10 members, usually tenant farmers. It borrows mainly for farming, and members guarantee each other's individual loans. An SHG is built around saving first and then credit.
Support under DAY-NRLM: Revolving Fund, Community Investment Fund, interest subvention, and Bank Sakhis (community resource persons) based in bank branches.
In the news
The Economic Survey 2022-23, tabled on 31 January 2023, had a section on SHGs. It said the SHG-Bank Linkage Programme, launched in 1992, had become the world's largest microfinance programme, and gave its coverage figures. 2022 was also the 30th year of NABARD's SHG-BLP.
NCERT Concepts to Revise
- SHG-Bank Linkage Programme: Statement 1 depends on which institution started the SHG-Bank Linkage Programme and when.
- Self-help group: The basic definition of an SHG: pooled savings, internal lending, then bank borrowing. Statement 2 tests this.
- Microcredit: SHG lending is a form of microcredit: small, collateral-free loans, which statement 1 also mentions.
- Multi-agency approach to rural credit: Statement 3 is about which formal rural credit institutions lend to SHGs.
- Deendayal Antyodaya Yojana-National Rural Livelihoods Mission: DAY-NRLM is the government mission that now forms SHGs and links them to bank credit.
Read more
- Self-help groups, micro-credit and the Grameen model
- Building the institutions: social banking and the multi-agency approach
- Rural Credit, Microfinance and Financial Inclusion
- SELF-HELP GROUP UNDER DAY-NRLM
- PIB: ECONOMIC SURVEY 2022-23 UNDERLINES SHGS’ CONTRIBUTION IN CRISIS MANAGEMENT DURING COVID
- PIB: The Union Finance Minister Shri Arun Jaitley to be the Chief Guest on the occasion of 36th Foundation Day of NABARD dedicated to celebrate the Silver Jubilee of SHG Bank Linkage Programme; The Program had a catalytic effect in sourcing collateral free loans to the tune of Rs 61,000 crore to the poor women from the mainstream banking system at the normal rates of interest.