SHG-Bank Linkage Programme

The Self-Help Group – Bank Linkage Programme (SHG-BLP) is a microfinance initiative launched by NABARD (National Bank for Agriculture and Rural Development) in 1992 as a pilot, subsequently scaled up as the world's largest microfinance programme. It works by linking informal savings-and-credit groups (Self-Help Groups or SHGs) of poor rural households — predominantly women — directly to commercial banks, regional rural banks (RRBs), and cooperative banks. How it works: An SHG is a small voluntary group of 10–20 members (typically women from similar socioeconomic backgrounds) who save regularly, pool their savings, and lend internally to members at group-decided interest rates. After 6 months of satisfactory functioning, the group becomes eligible for a bank loan — typically 4–8 times the group's corpus (savings). The bank treats the SHG as a single borrower (joint liability), which eliminates the need for individual collateral. Model variants: Model I — NGO acts as financial intermediary (SHG → NGO → Bank); Model II — Bank lends directly to SHGs (most common); Model III — NGO acts as financial intermediary using bulk loan from bank. Scale and impact: By 2024, over 12 million SHGs are credit-linked to banks in India, covering approximately 142 million women. Outstanding bank credit to SHGs has crossed ₹2 lakh crore. States like Andhra Pradesh, Telangana, Tamil Nadu, Kerala, and Odisha have the highest SHG penetration. Key linkages: Deendayal Antyodaya Yojana – National Rural Livelihoods Mission (DAY-NRLM) — government's flagship programme to universalise SHG formation; Beti Bachao Beti Padhao; PM Awas Yojana — SHG members are priority beneficiaries. MUDRA loans complement SHG lending for micro-enterprise financing. SHGs serve as important vehicles for women's financial inclusion, empowerment, and social capital — functioning as entry points to banking, insurance, and government scheme benefits.

• 1 SHG-BLP: NABARD initiative launched 1992; world's largest microfinance programme
• 2 SHGs: 10-20 members (mostly women), regular savings, internal lending, joint liability to bank
• 3 Bank loan eligibility: after 6 months of functioning; typically 4-8x group corpus
• 4 Scale: 12 million+ credit-linked SHGs; 142 million+ women covered; ₹2 lakh crore+ outstanding bank credit
• 5 Model II (direct bank-SHG linkage) is most common in practice
• 6 DAY-NRLM: flagship government mission for universal SHG formation in rural India
• 7 High penetration states: Andhra Pradesh, Telangana, Tamil Nadu, Kerala, Odisha
• 8 Serves as gateway to financial inclusion, insurance, and government scheme delivery

During COVID-19, SHGs played a critical role in last-mile distribution of masks, sanitary kits, and food rations in remote villages. The government also provided emergency MUDRA loans through SHG networks. This demonstrated how SHGs are not merely financial entities but community institutions — precisely why UPSC asks about them in governance and social capital contexts.