Progress of SHG-Bank Linkages in India: An Assessment of Key Issues

The Self help groups (SHG)-Bank linkage programme has emerged as the largest micro credit programme in the world. At the grassroots level, the program is being implemented by the commercial banks, cooperatives, and regional rural banks. The SHG-Bank linkage program was conceived with the objectives of developing supplementary credit delivery services for the unreached poor, building mutual trust and confidence between the bankers and the poor and encouraging banking activity both on thrift as well as credit and sustaining a simple and formal mechanism of banking with the poor. SHG-Banking linkage (SBL) programme for credit has been able to reduce transaction costs. It has enabled the banks to achieve better loan recovery and mobilize low cost deposits. The SHG-Bank linkage programme in which SHGs are linked to banks in a gradual way-initially through savings and later through loan products- is considered to be an effective strategy to ensure financial inclusion. The SBLP has changed the attitude of the banking system- that the poor are not bankable and that commercial principles cannot be applied in lending to the poor.