Procedure of getting loans from Bank start from linking
of SHGS to Banks
The following six steps are
involved in the process of linkage of an SHG to Bank:
- Opening of savings Bank Account
- Internal lending by the SHG
- Assessment of the SHG
- Checklist for assessment of SHG
- Sanction of credit to the SHG
- Repayment of loans by the SHG
Step-1-
Opening of SB Account for SHG
Check list for opening SB A/c
in the name of an SHG-
Official
instructions: The Reserve Bank of India has issued instructions permitting banks to
open SB A/c of registered or unregistered SHGs. . SB A/c in the name of an SHG can be opened after obtaining from
the group the following documents:
- Resolution from the SHG: The SHG has to pass a resolution in the group meeting, signed by
all members, indicating their decision to open SB A/c with the bank. This
resolution should be filed with the bank.
- Authorization from the SHG: The SHG should authorize at least three members, any two of whom,
to jointly operate upon their account. The resolution along with the
filled in application form duly introduced by the promoter may be filed
with the bank branch.
- Copy of the rules and regulations of the SHG: This is not a must. If the group has not formulated any such
rules or regulations, loans can be sanctioned without them. A savings bank
account passbook may be issued to the SHG. This should be in the name of
the SHG and not in the name of any individual(s).
Step-2-
Conduct of internal lending by SHG
- After saving for a minimum period of 2 to 3 months,
the common savings fund should be used by the SHG for lending to its own
members.
- The purpose, terms and conditions for lending to its
members, rate of interest etc. may be decided by the group through discussions
during its meetings (RBI and NABARD have permitted the members to decide
on these aspects). The interest is usually kept as 2 0r 3 rupees per
hundred rupees per month. Please remember that interest per month is
better understood in villages, than annual interest).
- Simple and clear books of account of savings and
lending should be kept by the SHG.
Step-3-Assessment
of SHG
We need to know whether the
SHG has been functioning well. The checklist given herein after will help us to
assess each SHG in a simple, but effective manner.
|
Sl No.
|
Factors to be Checked
|
Very good
|
Good
|
Unsatisfactory
|
|
1
|
Group size
|
15 to 20
|
10 to 15
|
Less than 10
|
|
2
|
Type of members
|
Only very poor members
|
2 or 3 not very poor members
|
Many not poor members
|
|
3
|
Number of things
|
Four meetings in a month
|
Two meetings in a month
|
Less than two meetings in a
month
|
|
4
|
Timing of meetings
|
Night or after 6 p.m.
|
Morning between 7 and 9 a.m.
|
Other timings
|
|
5
|
Attendance of members
|
More than 90%
|
70 to 90%
|
Less than 70%
|
|
6
|
Participation of members
|
Very high level of
participation
|
Medium level of
participation
|
Low level of participation
|
|
7
|
Savings collection within
the group
|
Four times a month
|
Three times a month
|
Less than three times a
month
|
|
8
|
Amount to be saved
|
Fixed amount
|
Varying amounts
|
………………………
|
|
9
|
Interest on internal loan
|
Depending upon the purpose
|
2 or 3 rupees per hundred
per month
|
More than 3 rupees per
hundred per month
|
|
10
|
Utilization of savings
amount by
|
Fully used for loaning to
members
|
Partly used for loaning
|
Poor utilization
|
|
11
|
Loan recoveries
|
More than 90%
|
70 to 90%
|
Less than 70%
|
|
12
|
Maintenance of books
|
All books are regularly
maintained and updated
|
Most important registers
(minutes, savings, loans etc.) are updated
|
Irregular in maintaining and
updating books
|
|
13
|
Accumulated savings
|
More than Rs. 5,000
|
Rs. 3,000 to 5,000
|
Less than Rs. 3,000
|
|
14
|
Knowledge of the rules of
the SHG
|
Known to all
|
Many members know the rules.
Some have little knowledge of it.
|
Most of the members do not
know the rules
|
|
15
|
Education level
|
More than 30% of members can
read and write
|
20 to 30% members can read
and write
|
Less than 20 members know to
read and write
|
|
16
|
Knowledge of Govt. programs
|
All are aware of Govt.
programs
|
Many members know about Govt
programs
|
Most of the members do not
know about the Govt. programs.
|
Important:
1.
SHGs with 12 to 16 “very good” factors may be granted loans immediately.
2.
SHGs with 10 to 12 “very good” factors – may be given 3 to 6 months time to
improve, before loan is given.
3.
SHGs with rating of less than 10 “very good” factors need not be considered
for loan.
Points
to be remembered while selecting economic activities:
1.
Any income generating programme for SHG, should be based on traditional
knowledge/skills and aspirations of the group members.
2.
Traditional handloom and handicraft and existing artisan activities in a
locality may be more successful than taking up altogether new activities.
3.
The groups may be encouraged to adhere to the quality norms and diversify
their product range.
4.
The raw material required for the selected activity should be available
locally or can be transported to the work site at a low cost.
5.
Those activities should be chosen which require modest investment to begin
with.
6.
Simple and labour saving technologies may be introduced to facilitate SHGs
work. For instance, if an SHG is engaged in rope making activity, the arduous
task of beating the fibre manually may be substituted with some easy to use
mechanical devices.
7.
Selected activities should be such that these can be pursued at home or at
the village. Moreover, existing workload and availability of time must be
considered carefully. There is no need to move into factory type production.
8.
Persons working in isolation due to certain social and cultural factors
should be encouraged to form organizations like SHGs and helped to take up
economic activities so as to realize the value of their labour at
non-exploitative rates.
9.
The selected activities should be as far as possible, be such which are of
short gestation period and can provide immediate and perennial income. However,
when high wages are available during sowing or harvesting season, the members
of the group should be allowed to decide on their priorities.
10. Training
and other technical inputs should be easily available for the selected
activities. However, if needed, training and skill development for members
should be designed to facilitate the work already undertaken by them making it
more productive and profitable.
11. When
the activity selected is nontraditional in nature, it may be difficult to find
a local market for the products. In such circumstances it may be necessary to
localize such activities by way of increasing the number of groups carrying out
such non-traditional activities in the same area so that the total production
in a given area can be increased. This will help in finding the market for the
products.
12. Programmes
designed for members should be based on the concept of self-help and
sustainability. The dependency syndrome i.e. awaiting governmental or other
assistance for everything will make all these programmes short-lived and
eventually dormant.
13. While
planning the activities, care should be taken to meet the infrastructural
requirements such as worksheds and godowns etc.
14. Childcare
should be planned along with group formation. Members of the group can take
turns in looking after children. Even childcare can be taken up by one member
of the group as an activity.
Step-4-Sanction
of Credit Facility to SHG
Methods
of lending
Direct
lending to SHGs: After satisfying about the functioning of the groups, branch may sanction
loan directly in the name of the SHG (not in the name of individual members),
which in turn will lend internally to its members.
Indirect
lending to SHGs through NGOs/SHPIs: If branch is not fully confident
of lending to SHG directly, or where the SHG for various reasons, is not
interested in taking loans from the Bank, the branch can extend credit
facilities to the NGO/SHPI for on lending to SHGs promoted by them. Where bulk
financing to NGO is resorted to, the branch should closely observe the working
of SHGs by attending to their meetings etc., so that branch may develop
necessary confidence in the SHGs for linking them directly at the end of bulk
financing arrangement with NGO/SHPI. Branch should also verify the track record
and financial position of NGOs/SHPI before extending such bulk finance.
Quantum
of loan
The amount of loan to the SHG
can be to the tune of 1 to 4 times of its savings.
What
constitutes the savings of the group?
- The group’s balance in the SB A/c.
- Amount held as cash with the authorized persons.
- Amount internally lent amongst the members.
- Amount received as interest on the loans.
- Any other contributions received by the group like
grants, donation, etc.
Purpose
of loan
Sanction of loans to SHGs by
banks is based on the quantum of savings mobilized by the SHGs, but not for any
specific purpose unlike in case of other schematic lending. Loan may be granted
by the SHG for various purposes to its members. The bank does not decide the
purpose for which the SHG gives loans to its members. The purpose can be
emergency needs like illness in the family, marriage, etc. or buying of assets
for income generation. The group will discuss and decide about the purpose for
which loans are to be given to its individual members by the SHG. Loans to SHGs
for group enterprises should be discouraged in initial stages.
Assessment
of credit
SHG should prepare a credit
plan for its members. Aggregate of this credit plan has to be submitted to the branch,
on the basis of which, the branch will assess the credit requirement of the
group.
Repayment
The SHG makes the repayment to
the bank. (The group is collectively responsible for the repayment of the
loan).
Security
- RBI/NABARD rules stipulate that no collateral
security should be taken from SHGs. Collateral security is not necessary
for the loans sanctioned to SHGs because:
- The members of SHGs know that the bank loan is their
own money like savings.
- They are aware that they are jointly responsible for
the repayment.
- Therefore, they exert moral pressure on the
borrowing members for repayment.
- Because of this, the bank gets a much better
repayment from the SHG.
Can
the bank hold the SB A/c balance of the SHG as a security?
No. this will prevent the SHG
from lending from its internal savings.
Direct
finance to SHG
1.
Inter-se Agreement to be executed by all the members of the Self Help
Group. (This is an agreement by the members with the bank, authorizing a
minimum of three members to operate the group’s account with the bank). (To be
stamped as General Power of Attorney)
2.
Application to be submitted by SHG to bank branch while applying for loan
assistance. (This includes details of the purposes for which the SHG gives loan
to its members. (To be stamped as Indemnity).
3.
Articles
of Agreement for use by the bank while financing SHGs. (This contains the duly
stamped agreement between the bank and the SHG wherein both the parties agree
to abide the terms and condition set thereon). (To be stamped as an Agreement)
4.
Sponsorship
letter from NGO/SHPI if sponsored by them.
The loan amount should not be
handed over to the single representative of the group. Credit delivery to a
group should always be in the presence of several office bearers of SHG and
selected members. At least one of them should be a borrower so as to safeguard/prevent
possibility of misappropriation of funds by the office bearers.
Indirect
finance to SHGs through NGOs.
1.
Application to be submitted by the NGO to branch while applying for loan
assistance for on lending to SHGs (purposes for lending to SHGs will be listed
in this).
2.
Articles of Agreement for use by the bank while financing the NGO. (This
contains the duly stamped agreement between the bank and the NGO wherein both
the parties agree to abide by the terms and condition set thereon).(All the
above formats are given as annexure to this book).
Other
conditions of indirect finance to SHGs through NGOs.
1. NGO should be registered under Society/Company/Partnership/Co-operative
act.
2. Audited Balance Sheet for 3 years analyzed.
3. Provision in by-law of NGO to borrow for SHG activities.
4. Resolution to borrow from bank.
5. A statement of credit required by SHGs.
Step-5-
Repayment of loan by SHG
- A repayment schedules is drawn up with the SHG, and
the loan is to be repaid regularly. Small and frequent installments will
be better than large installments covering a long period.
- What about defaults? The group using their
collective authority discourages defaults. Every member is made to realize
that the money belongs not only to him, but also to the other members of
the Group. The group members are collectively responsible for the
repayment of loans to the bank. It has been experiencing of bankers who
lend to SHGs that the repayments from SHGs are far better when compared to
individual accounts.
