Banking with Self Help Groups: How and Why?

This manual has been prepared for the branch managers of banks which are moving into the microfinance market using the self help group – bank linkage model. It has been written by the National Bank for Agriculture and Rural Development in India and is thus particularly directed at Indian bank managers. However, it provides an excellent description of what self help groups (SHG) are and how they are established, which could be applicable in any environment where this linkage model has been chosen as the means for a commercial bank to engage in microfinance.

The manual describes the role of animators in group formation and the books that an SHG must learn to keep. Specimen pages from savings and loan account registers and a cash book are provided in an annex. The process of linking an SHG to a bank is described in details and a clear simple checklist is provided for a bank manager to use to determine whether an SHG is functioning well and is, therefore, creditworthy. Example values for each criterion in the checklist are given under the heading of very good, good and unsatisfactory.

The final part of the manual explains clearly the advantages of doing business with SHGs and the importance of maintaining close contact with groups in order to maintain the quality of the SHG loan portfolio. Additional annexes provide copies of the agreement that must be executed by group members to authorise certain group members to be signatories for the bank account and a specimen application form and articles of agreement for use by banks while financing SHGs.

This handbook for branch level bankers is complemented by the multimedia presentation “The Luminous Link” which is referenced here in the RFLC and is available from NABARD.

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