SHG Banking in India: The Developing World's Largest and Fastest-Growing Microfinance Program - Recent Developments 2005

This paper argues that Self-Help Group (SHG) banking, or linking banking and SHGs in India, is the largest and fastest growing microfinance program in the developing world.The paper states that this program has drawn on three kinds of capital:

• India's social capital: Includes a wide array of institutional resources like:
  • The National Bank for Agriculture and Rural Development (NABARD);
  • Governmental and non-governmental agencies;
  • The National Reserve Bank of India;
  • Political leadership at state and union levels.

• Human capital:
  • Competent staff of participating agencies;
  • The willingness and ability of people from the lowest classes to establish a documented track record of financial intermediation within the group.
• Financial capital:
  • Steadily increasing internal resources of the group;
  • High profitability of SHG banking as a financial product of the banks.

The paper discusses the impacts of the program:

• On women: They save, borrow, invest and repay; manage their own SHG affairs; enter banks for financial transactions; contribute to the household economy; send their children to school; improve their standing in the family.
• At the institutional level:
  • Formation of SHG federations and associations;
  • A new legal status for financial cooperatives, free from governmental interference.

• At the policy level: Central bank's authorization of financial transactions by banks with informal groups of lowest financial standing.

The paper concludes by listing the challenges that still remain:

• Increasing outreach;
• Ensuring adequate financial accounting, reporting and control at SHG level;
• Providing profitable microenterprise opportunities;
• Making SHG financial services sustainable.