Individual members of self-help groups (SHG) can become eligible for bigger loans from banks only if the credit history of the intra group borrowings is captured, according to the chief of CRIF High Mark Credit Information Services.

As of now, banks report only credit information pertaining to the groups and not of individual members.

An SHG, as defined by the National Bank of Agriculture and Rural Development, is a voluntary association of 10-20 poor people with mutual affinities — same kind of livelihood, similar community, caste — who have a common goal of social and economic empowerment.

Group members save small amounts of money and lend them to each other. On satisfactory functioning of the SHG, it can get loan from the bank.

Kalpana Pandey, CEO and Managing Director, CRIF High Mark, observed that banks are not keeping track of how the money (loan given by banks to SHGs) is actually distributed between the 10-15 members of SHGs.

“So, what is happening on the ground is that if a person is taking a loan from a microfinance institution (MFI) that (data) is getting captured by the credit bureau. “But if I (as a group member) take a loan from a SHG, my data is not going to the credit information bureau because in this case only the SHG-related data is captured. And bank is only bothered about whether the SHG has actually defaulted or not,” said Pandey.

Since the SHG as a single entity makes loan repayment to the bank, group members actually cover up for individual defaults, if any, as they are collectively responsible for the loan. Credit information bureaus function as a repository of credit information — both current and historical data on existing and potential borrowers. According to the central bank, these institutions maintain data base of credit information — both positive and negative — on the borrower which can be accessed by the lending institution. They are facilitators for credit dispensation and help mitigate the credit risk involved in lending.

Pandey said credit information bureaus, with the help of banks, should track the individual level track records within SHGs so that group members can move to the next level (of economic ladder). Otherwise, they can’t individually go to take a loan from the bank.

“So, if you are talking about financial inclusion, we need to help SHG members build their credit history. For this to happen, the data have to get captured by the credit bureau and that is how you can move that population to the next level,” she said.