Self-help group members encouraged to open individual accounts

Growth in the rural economy and enhanced capacity to save has led the National Bank for Agriculture and Rural Development to overhaul the guidelines for its ground-breaking financial inclusion programme. As a result, self-help group (SHG) members are being encouraged to open individual bank accounts/ revive their ‘no-frill accounts' by depositing the surplus they generate. This move is aimed at helping SHG members steadily graduate from community banking to individual banking.

A SHG typically comprises 10-20 individuals, predominantly women, who save with a bank for six months before becoming eligible for credit. Banks are expected to meet the credit requirements of SHG members for (a) income generation activities, (b) social needs like housing, education, marriage and (c) debt swapping.

Capacity to save

Nabard has said growth in the rural economy and schemes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme have positively influenced the SHGs and their members' capacities to save.

“It has been observed that the savings capacity and potential varies across members. Therefore, the concept of voluntary savings by members over and above the compulsory savings provides an opportunity (to mobilise deposits and lend) for banks,” says the apex development bank.

Until the SHG members graduate to the level of opening and maintaining individual bank accounts, Nabard suggests that those with greater savings potential may be allowed to park their surplus funds within the group in the form of voluntary savings. This voluntary saving could be reckoned in two ways — they may either form part of the SHG's corpus (and also be taken into account for assessing the quantum of loan to the group from the bank) and utilised for intra group lending or they may not form part of the group corpus.

In its new guidelines to banks on the SHG-Bank Linkage Programme, Nabard says it is desirable that the additional savings by group members does not entitle the concerned members to seek proportionately higher dosage of credit for themselves. The SHGs should be free to decide whether voluntary savings by members of the group are eligible for a proportionate share in the interest income or dividend from the group.

Cash Credit/ Overdraft

Nabard says sanction of a cash credit/ overdraft system of lending for SHGs for a longer operational tenure (3 to 5 years) could be adopted to overcome issues such as non-sanction of repeat loans to SHGs. To tackle cases of limiting need based credit, the apex development bank said banks could permit SHGs to have larger loans in tune with increasing pooled savings.

In the case of mature SHGs that have been supported with a few cycles of credit, the requirement of credit for purchase of capital assets would increase. This would necessitate that banks approve a different type of credit accommodation like term loans to these groups in addition to the cash credit limit.

New guidelines

The overhaul of the SHG-BLP guidelines needs to be seen in the context of the microfinance institutions led model of financial inclusion, especially in Andhra Pradesh, coming in for widespread criticism.

Before the AP Government passed a stringent law in 2010 reining in their functioning, many MFIs in AP used to charge usurious rate of interest, indulged in multiple lending, and employed strong-arm recovery tactics, causing borrowers grief.

The SHG-BLP is the mainstay of the financial inclusion programme in India with 74 lakh SHGs (covering over 10 crore households) saving with the formal banking system with savings bank balance of over Rs 7,000 crore as on March 31, 2011. About 49 lakh of these SHGs have also accessed bank credit and have over Rs 31,000 crore as outstanding credit from the banking system.

>kram@thehindu.co.in

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