SHG Banking in India: The Evolution of a Rural Financial Innovation

This paper documents a study aimed at tracking the inception and evolution of the SHG Banking program in India. It dwells upon:

• The key drivers of growth for this program;
• The role of Deutsche Gesellschaft fur Technische Zusammenarbiet (GTZ) as a technical assistance agency in these stages of evolution;
• Some of the future possibilities, in terms of the function and form of donor support in an advanced developing country like India.

The paper gives a historical perspective of rural banking in India with a comparative view of developments in Germany. It also discusses the:

• Various stages of the evolution of the bank linkage program in India;
• Lead role played by the National Bank for Agriculture and Rural Development (NABARD) in this movement.

The paper covers the key events that led to the growth of SHG banking such as:

• Nanjing Workshop that acted as a trigger;
• The SHG study in India;
• The pilot project;
• The start-up phase;
• Midterm evaluation in 1994;
• Mainstreaming of SHG banking.

The author concludes by highlighting:

• GTZ's role in SHG Banking in India;
• The various stages of collaboration between NABARD and GTZ;
• GTZ's historical and continuing support towards the bank linkage and rural financial systems development in India.