SHG Banking: A Financial Technology for Reaching Marginal Areas and The Very Poor
The paper states that deepening the quantity and quality of financial services as well as disseminating the NABARD's approach, is crucial for realising the goal of expanding the outreach of self help groups (SHGs) savings and credit to millions of rural poor. It discusses the workings of NABARD - a SHG program owned and managed by the rural poor in India, aimed at promoting local financial intermediaries. Looking at the growth strategies, it says with 364,000 SHGs established within a short period of time, there is a real chance of expanding the outreach of the program to one million SHGs and 100 million household members by 2008. The paper argues that since SHGs are established as local financial intermediaries with their own internal savings and credit business, and access to bank refinancing, their sustainability relies on:
- Effective implementation of freedom from interest rate restrictions, and;
- The auditing and supervision of SHGs by auditing services.
The paper also explores:
- Business development services of SHGs;
- Institutional upgrading and mainstreaming of SHGs;
- SHGs growth and dissemination strategies;
- Profitability of SHG banking to banks;
- Challenges of SHGs;
- Role of donors in the success of SHGs and policy issues.
The paper says the key success factors of NABARD are two-pronged: combining the principles of self-help and self-reliance with access to external human and financial resources; and targeting the poorest of the rural poor. It concludes that in the absence of interest rate restrictions and with repayment rates greater than 99%, SHG banking is highly profitable.
