Daily News

Simplified - DNS
10 Sep 22
Notes
SL. THE HINDU
TOPICS
NO. PAGE NO.

1 Campaign to expand SHG footprint 10

FM tasks RBI to ‘whitelist’ legal loan apps to protect

2 12
borrowers

1. UPSC Current Affairs: Campaign to expand SHG footprint | Page 10

UPSC Syllabus: Mains: GS paper II: Social issues | Social justice
Sub Theme: SHG | UPSC

Why in the news ?

The Ministry of rural development has announced a Nationwide campaign to expedite the inclusion of women
who are left out of the umbrella of SHG under Deen Dayal Upadhyay National rural livelihood mission. (DDU-
NRLM)

About DDU-NRLM

● Launched in 2011, by the Ministry of Rural Development as a restructured version of Swarna Jayanti
Gram Swarozgar Yojna.
● It is a centrally sponsored scheme.

AIM :
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To eliminate rural poverty by increasing the avenues of livelihood options, promoting financial services and
financial inclusion by reaching out to all poor households across the country.

SALIENT FEATURES :
1. Universal Social Mobilisation ( one woman per household SHG )
2. Participatory Identification of Poor ( poor people are identified by CBO’s and list is confirmed by Gram
sabha)
3. Revolving fund and Community Investment Fund ( to the institution to strengthen them )
4. Financial Literacy ( promote It )
5. Livelihoods ( farm and non-farm sector )

Functioning :

The basic idea involves promotion of the concept of Self-Help, under which it is required to work closely with
community institutions to ensure universal social mobilisation.

This universal social mobilisation is done via organising one woman member from each rural poor household
into a Self Help Group by providing them training and capacity building, facilitating livelihood plans by securing
their access to financial credit.

It is implemented by special purpose vehicle providing dedicated support at national, state and district level
using human resources and continuous long term handholding support

Loans amounting to 1 lakh crore has been disbursed under the scheme and the government plans to take the
scheme to 10cr women.

About SHG :

SHG van be defined as a group of about 20 people from a homogeneous class who come together for addressing
their common problems. They use their pool resources to make small interest-bearing loans to their members.

The groups usually create a common fund by contributing their small savings on a regular basis.

o The pooled savings are then use to make small interest- bearing loans among themselves.

o The process of linkage of the SHG with a bank begins when the bank opens its savings bank account. The
bank lends to the SHG, which in turn, gives loans to its members in accordance with the group’s policy.

o The loan is granted in the name of the SHG and all members of the group are collectively responsible for the
repayment to the bank.

o These loans have no collateral security as group cohesion and peer pressure act as security for the bank loan.

Significance of Self-Help Groups

● Grassroot empowerment: The implicit objective of SHGs is to combat unjust social relationship by
increasing people’s participation through their empowerment.
● Addressing gender equality: Women’s Self-Help Groups are the backbone of poverty alleviation
programmes as currently there are over 60 lakh SHGs across the country mobilizing more than 6 crore
women.
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● Inculcating financial discipline: As per a study, households with self-help group members were 8%
more likely to have formal loans and 9% less likely to have informal loans.
● Rural and Human Resource development: The SHGs also act as a delivery mechanism for various
other services ranging from entrepreneurial training, livelihood promotion activity etc.

Challenges with SHGs

• Stagnant growth: Despite early success, however, the growth of SBLP has slowed in the last few years. Several
factors have contributed to the deceleration such as:
o less than ideal average loan size,

o lack of monitoring and training support by self-help group federations,.

● Wide disparities between states in the growth of SHGs and wide disparities in SHGs’ credit linkage
with banks.
● Governance issues SHGs, are grappling with quality, transparency and irregularity in their functions.
Low levels of literacy among the rural women also pose challenges.
● Dissolution of SHGs: Over time groups are disintegrating on account of coordination issues. Few
members knew how to maintain the group’s required financial documentation, so if those members left,
the groups would also dissolve.

WAY FORWARD

● Handholding and Monitoring: Self-help groups should be regularly monitored, and their promoters
must reinforce structures that ensure the members have the requisite help for at least the first five years.
● Leveraging in financial inclusion: Government should leverage the self-help group platform to expand
the financial inclusion agenda of the country. Using SHG Network for delivering Government services:
Government programs like Social Security schemes etc. can be implemented through SHGs. This will not
only improve the transparency and efficiency but also bring our society closer to Self-Governance as
envisioned by Mahatma Gandhi.
● SHGs as tool for combating Social Problems: The Social capital of SHGs could be an asset for solving
various social issues. This growing social capital can be channelled to iron out existing social menaces.
For example, there are many successful cases where SHG women have come together to close liquor
shops in their village.
● Modernization drive: With the Indian Government’s recent focus on digital financial inclusion, several
efforts are underway to digitize the self-help group platform.

STEPS TAKEN BY GOI TO PROMOTE SHGs IN INDIA

 The idea of galvanizing group of women for their economic development was first tapped
through Aajeevika - National Rural Livelihoods Mission (NRLM) launched in 2011.
 In November 2015, the program was renamed Deendayal Antyodaya Yojana (DAY-NRLM).
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 NRLM with the help of World Bank enabled the rural poor to increase household income through
sustainable livelihood enhancements and improved access to financial services.

 National Rural livelihood Mission is India’s flagship program to reduce poverty by mobilizing
poor rural women into self-help groups and building community institutions of the poor.

 India’s SHG movement has evolved from small savings and credit groups that sought to empower
poor rural women, into one of the world’s largest institutional platforms of the poor.
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2. UPSC Current Affairs: FM tasks RBI to ‘whitelist’ legal loan apps to protect borrowers | Pg 12
UPSC Syllabus: Mains: GS paper III: Indian Economy
Sub Theme: Loan apps | UPSC

Recently, the RBI has come out with guidelines for the regulation of Digital Lending. The new
regulations have been issued in the wake of rising number of illegal apps through which loans are
disbursed in India. The rise of such illegal apps has hurt consumers in form of higher interest rates,
unethical recovery practices etc. Further, unregulated and unchecked growth of such apps could
undermine financial stability of Banks and NBFCs.
 
Digital Lending Ecosystem in India

Digital lending refers to the online disbursal of loans where all processes such as credit assessment,
including loan approval and recovery, take place remotely, typically through mobile apps.
The digital lending eco-system is dominated by Banks, NBFCs and loan service providers. The loan
service providers may be categorised into two types:
 Entities regulated by the financial sector regulators such as credit information companies,
NBFC-Peer to Peer Lending Platform (NBFC-P2P) regulated by RBI; and credit rating agencies
regulated by SEBI.
 Entities not specifically regulated by any financial sector regulator
 
Present Legal Regime for lending in India

Banking Regulation (BR) Act, 1949: All banks (public and private sector) including small finance
banks, regional rural banks and co-operative banks are required to get themselves registered with
the RBI for undertaking digital lending.
Reserve Bank of India (RBI) Act, 1934: NBFCs involved in digital lending are required to be
registered with RBI as per provisions of RBI Act. 
Companies Act, 2013: Companies registered under companies act, 2013 can also undertake lending.
For example, Nidhi Companies are registered and regulated by Ministry of Corporate Affairs.
Chit Funds Act, 1982: Chit Fund companies are regulated under the Chit Funds Act, 1982, which is a
Central Act, and is implemented by the State Governments. 
 
Models of Digital Lending

Balance sheet lending (BSL)  Model: Lend from their own balance sheets and hence carry credit risk.
Examples include Banks and NBFCs.
Market place lending (MPL) Model: Do not lend their own money and hence do not carry credit risk.
Examples include:
 P2P lending platforms which bring together lenders and lenders through an online platform.
Ex: Faircent, Lendenclub, Cashkumar etc.
 Fintech companies which enter into partnership with Banks and NBFCs to extend loans.
 
Present status of Digital Lending in India

Exponential increase: The loans disbursed through digital mode has increased by 12 times between
2017 and 2020.
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Dominant entities: Private sector banks and NBFCs with 55 per cent and 30 per cent share
respectively are the dominant entities in digital lending ecosystem

Nature of loans: Major products disbursed digitally by banks are personal loans followed by loans to
MSMEs.
Mode of Disbursal: While public sector banks largely depend on their own apps/ websites for
disbursal of digital loans, the dependency of private sector banks on outsourced/ third-party apps is
significantly higher.
 
Need for regulation of Digital Lending

Rise in illegal apps: According to RBI's working group, there are approximately 1100 lending apps
available for Indian Android users out of which around 600 apps are illegal since they are
unregistered and are operating without any regulation or approval from the RBI. Ex: Rupee Day, Real
Rupee, First cash etc.
Against Consumer interests: The digital lending apps have resorted to unfair business conduct,
charging of exorbitant interest rates, and unethical recovery practices
Risk to financial sector: Indiscriminate lending through digital apps without proper verification and
due credit appraisal process could affect stability of financial sector.
Breaches/ Data Leaks: Since lending apps collect users’ financial data and other sensitive
information, they are prime targets for cyber attacks.
 

RBI's Regulations for Digital lending

The RBI has identified digital lenders is classified into three groups –
1. Entities regulated by the RBI and permitted to carry out lending business;
2. Entities authorized to carry out lending as per other statutory/regulatory provisions but not
regulated by RBI;
3. Entities lending outside the purview of any statutory/ regulatory provisions.
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As of now, the RBI's regulations are applicable only to the entities regulated by it. However, for the
second category, the RBI has asked concerned regulators to formulate necessary guidelines.
Similarly, for the third category, the RBI has recommended that formulation of separate law by the
Central Government to curb the illegitimate lending activity.

Customer Protection and Conduct Issues

Reducing role of Loan Service Providers (LSPs): Banks and NBFCs can continue to rely on the Loan
service providers for identification and extension of loans to the customers. However, the loan
amount should be directly transferred by the Banks and NBFCs into the customers' account rather
than transferring it into account of LSPs.
Fees for the LSPs: Any fees, charges, etc., payable to LSPs in the credit intermediation process shall
be paid directly by RE and not by the borrower.
Prevent exploitation: All-inclusive cost of digital loans in the form of Annual Percentage Rate (APR) is
required to be disclosed to the borrowers. This is to ensure that customers are not exploited through
hidden costs and charges.
Grievance Redressal: Suitable nodal grievance redressal officer to deal with FinTech/ digital lending
related complaints.

Regulatory Framework

Credit worthiness: Banks and NBFCs should capture the economic profile of borrower and assess the
borrower’s creditworthiness in an auditable way.
Mandatory disclosures: Loan provided through Digital lending apps should be mandatorily reported
to Credit Information Companies (CICs).