Issues

federation

in

Financial

Intermediation

through

SHG

SHG groups are usually composed of 10-20 women and it works on a lending
practice where small groups borrow collectively and motivate each other to pay.
These groups try to provide financial support to the underprivileged part of the
society. Typically, borrowings are at 12% per annum under the bank linkage scheme
and on lending to members at 2% per month flat rate. Advantages of SHG are:

Poor people can avail loans without the need of collateral.

Transaction costs are reduced for both lenders and borrowers.
Lenders need to handle only a single SHG account instead of a large number
of small-sized individual accounts while for borrower , travel expenses (to &
from the branch and other places) for completing paper work and on the loss
of workdays in canvassing for loans are reduced.

In India-Andhra Pradesh, Tamil Nadu, Kerala and Karnataka accounts for 57% of the
SHG credits. Over 33 million people take loans under the NABARDs SHG linkage
program. There are around 2.2 million SHG groups in India. Apart from NABARD, the
Small Industries Development Bank of India (SIDBI), Rashtriya Mahila Kosh (RMK),
Housing and Urban Development Corporation (HUDCO), Housing Development
Finance Corporation (HDFC) and Friends of Womens World Banking (FWWB). Donors
and banks, including Rabobank, also provide grants and loans to microfinance
institutions(MFIs) for on-lending to SHGs and federations of SHGs.
Issues:

The leadership and management of most SHG federations and cooperatives

are in the hands of NGO staff. The development of the capacity of these
institutions for self-management is an important issue.
The limitation on the quantum of loans available through SHG bank linkage
was a major concern. This has been prevalent so in the southern states where
SHG demand for loans is generally higher. Further, the availability of funds
from local banks is often determined by the degree of interest shown by the
bank manager in the bank linkage program. In the past there have been
many instances of new managers failing to provide loans to SHGs supported
earlier by their predecessors. This creates uncertainty about availability of
the bank linkage facility over time.
The quality of SHGs promoted has become a serious issue in the case of
SHGs promoted under the DWCRA, and other state initiatives, especially in
Andhra Pradesh where limited and improper facilitation has led to a large
proportion of SHGs becoming defunct. The revival of these SHGs is part of the
activities of the CASHE project, APMAS and the ASP.