SHG Banking: A Financial Technology for Very Poor Microentrerpreneurs

Publication Date: 2002
Published by: Giordano Dell'Amore Foundation
Document Type: Journal Article (Microsoft Word)

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Is the self-help-group - banking model worthy of replication?

This paper argues that the National Bank for Agricultural and Rural Development (NABARD) in India, has succeeded in providing adequate financial services to very poor rural micro-entrepreneurs through its Self-Help-Group (SHG) banking program.

The paper discusses:

• NABARD’s role in rural finance;
• Poverty in India;
• Poor’s access to financial services;
• SHGs as financial intermediaries owned by the poor;
• The two-pronged approach of NABARD, which involves combining the principles of self-help and self-reliance with access to external human and financial resources;
• NABARD’s efforts to target the poorest;
• Women’s role in SHGs;
• The following features of the SHG program:
  • Focus on savings,
  • Institutional autonomy,
  • Flexibility of terms,
  • Providing support to non-financial development.

The paper also discusses:

• The use of banks, non-government organizations and government organizations as facilitating and implementing agencies;
• The cost of SHG banking;
• The profitability to banks;
• Institutional upgrading;
• The mainstreaming of SHGs through Cooperatives of the People (MACS).

It lists the following issues that SHGs face:

• Sustainability;
• Commercial viability;
• Policy dialogue;
• Growth and dissemination.

The paper concludes by discussing the role that donors can play in the expansion of SHG banking.