SPECIAL ARTICLE
Performance of Self-help Groups in India
Pankaj Sinha, Nitin Navin
Since its inception, the performance of the self-help
group programme in the area of rural development and
women’s empowerment has been admirable. But,
although the programme is being implemented in
many parts of the country, its success has been patchy.
This study evaluates its performance during 2011–19. It
focuses on two aspects of the programme’s
performance: its geographical expansion and the
growth of non-performing assets. It shows that the
programme has been more successful in well-off states,
while in the central and north-eastern regions, it faces
severe difficulties. The mounting NPAs in these regions
require immediate intervention.
The authors thank the anonymous reviewer for their valuable comments
and suggestions which helped them improve the paper.
Pankaj Sinha (pankaj-sinha@fms.edu) teaches at the Faculty of
Management Studies, University of Delhi. Nitin Navin (nitin.n_ phd16@
fms.edu) is a research scholar at the Faculty of Management Studies,
University of Delhi, and teaches at Satyawati College (Day),
University of Delhi.
36
W
hat makes the microfinance movement in India
unique is the active involvement of formal financial
institutions in providing essential financial services
to the poor by establishing links with informal groups as clients.
These institutions have supported the self-help group (SHG)
programme,1 innovated and initiated by the National Bank for
Agriculture and Rural Development (NABARD), by providing
microcredit to, and encouraging the habit of making small
savings among, the financially deprived. The SHG scheme is
not just a mechanism of financial intermediation but also a
unique process of socio-economic engineering (Kropp and
Suran 2002). The members of each SHG are given the opportu-
nity to participate as equals in deciding the future course of
action to achieve their desired objectives (Kanitkar 2002;
Tiwari and Fahad 2004). Along with increasing financial access,
the SHG movement also supports women empowerment and
furthers other developmental goals related to education,
health, family planning, and access to land and water.
The programme has achieved many milestones since its
inception (NIRDPR 2019). It has successfully created livelihood
opportunities for the rural poor; this has further attracted the
involvement of many financial players. The SHG movement has
made great strides in the fields of women empowerment and
socio-economic development.2 However, with the expansion
of the programme in different parts of the country, some con-
cerns have also entered the picture. Two major problems for
the movement are regional disparities and the rising share of
non-performing assets (NPAs) in SHG loans in banks.
The current study reviews the performance of the SHG
programme in recent years. It focuses on two aspects of SHG
performance: the expansion of the programme in different
regions of the country and the growth of NPAs against SHG
loans in various regions. It provides an overview of the progress
of the SHG programme from a small trail project to a vast
network of rural bank outlets. Furthermore, the study attempts
to find the underlying factors responsible for the rise in NPAs
and outline policy implications.
Background
Since Indian independence, successive governments have
stressed the need to improve access to finance through welfare
programmes. This intention is reflected in the actions they
took from time to time to reach the poor, primarily located in
rural areas. In the 1950s, a vast network of rural cooperative
banks was established. Then, in 1969, many commercial banks
were nationalised, and branches were opened in rural areas
across the country. This resulted in a significant decrease in
January 30, 2021 vol lVi no 5 EPW Economic & Political Weekly
 SPECIAL ARTICLE

the average number of customers per bank branch (Ansari 2013). Figure 1: Loans Disbursed and Number of SHGs that Availed Loans,
FY 2011–12 to 2018–19
In 1980, the government introduced many subsidised credit
70 30
programmes. However, the provision of rural credit was not 27.0
60 58.3

Loan disbursed (` 000' crore)

22.6 25
very successful. Banks found it challenging to provide credit in 50 47.2

No of SHGs (lakhs)
19.0 20
tiny denominations to individual borrowers. Moreover, the then 40 16.3
18.3
38.8
37.3
institutional structure built to provide rural credit focused more 30 12.2
13.7
27.6
15
11.5 24.0
on the quantity of loans while ignoring vital qualitative aspects 20
20.6 10
16.5
(Misra 2006). They neither served the needs of the poor nor 10 5
were they financially viable, with dismal loan repayment records. 0 0
Then came a significant turnaround when NABARD attempted 2013–14 2011–12
2013-14 2014–15
2014-15 2015–16
2011-12 2012–13
2015-16 2016–17
2016-17 2017–18
2012-13 2017-18 2018–19
2018-19
Financial year
to move beyond the traditional banking system to provide the Loan Disbursed
disbursed No
No. of
of SHGs availed
availingLoans
loans
poor with the opportunity to utilise their potential to over- Source: NABARD (2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019).

come poverty.3 The idea was to bring formal financial institu- Figure 2: Amount of Savings and Number of SHGs with Savings Linkage,
FY 2011–12 to 2018–19
tions in contact with informal groups. The first official attempt
7 120
6.4
to support and finance an informal group happened in 1986–87. 100.1

Savings of SHGs (` '000' crore)

6 100
5.2
NABARD took the bold step of working on an innovative action 5 79.6 79.0 85.8 87.4

No of SHGs (` lakh)
73.2 74.3 77.0 80
research project developed by the Mysore Resettlement and 4
4.1 4.3

Development Agency (MYRADA) titled “Savings and Credit 3 2.7

3.0 60
2.3
Managements of SHGs.” The initial success of the programme 2
1.8 40

allowed it to expand its area of operation to different states 1 20

(Dasgupta 2005). 0 0
2011–12
2014–15
2011-12
2014-15 2015-16 2012–13
2015–16 2016-17
2012-13 2013–14
2016–17 2017-182017–18 2018-19
2013-14 2018–19
In 1991, the Reserve Bank of India (RBI) encouraged commer-
Financial year
cial banks to provide credit to SHGs that came under the NABARD Savings of SHGs No
Noofofofsaving
No. Saving SHGs
savingSHGs
SHGs
project (Dasgupta 2005). Then, in 1993, regional rural banks Source: NABARD (2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019).

(RRBs) also began to support the project. For the first time in
India, mainstream financial institutions were collaborating with
informal groups to provide basic financial facilities and many non-
financial services to empower the weakest sections of society.
NABARD’s strategy rests on two main pillars: first, expanding
the range of formal and informal agencies that promote SHGs,
and second, building up the capacities of stakeholders (Kropp
and Suran 2002). Furthermore, it has solved the problem of
not having physical collateral—one of the major hindrances
that the poor face in obtaining institutional credit—by replac-
ing it with social collateral. In an SHG, all members of a group
take responsibility for a loan that an individual member takes.
This serves as assurance to the lending agency that the loan
repayment will be made on time (Armendáriz and Morduch
2010). Further, it fosters not only financial discipline but also
social empathy among members (Bardhan 1993).
In 1996, the RBI considered support to SHGs as priority sector
lending for commercial banks, which further sped up the
process of linking banks and SHGs and culminated in the SHGs-
Bank Linkage Programme (SBLP). Later, the Government of India
(GoI) adopted the SHG microfinance concept as its primary
anti-poverty, self-employment generation programme. In 1999,
the GoI launched the Swarnajayanti Gram Swarojgar Yojana
(SGSY) to eradicate poverty. The SBLP was linked with the SGSY
to provide self-employment opportunities to the rural poor. In
2011, the government introduced National Rural Livelihood
Mission (NRLM). In 2015, the NRLM was renamed Deendayal
Antyodaya Yojana (DAY-NRLM). Its aim was to recruit a large
number of rural women to join the scheme.
In the 2020 Union Budget, the central government an-
nounced the setting up of storage facilities4 at the village level,
which would be run by women SHGs. Moreover, the government
Economic & Political Weekly EPW January 30, 2021 vol lVi no 5
proposed uplifting the nano-enterprises of women SHGs to the
level of microenterprises and providing more bank credit to
them (Government of India 2020).5
Expansion of the SHG Programme
The SHG programme is one of the foremost modes of micro-
finance in India; it has been quite successful in improving the lives
of the rural poor (NIRDPR 2019; BIRD 2019). The programme has
been growing steadily over the years. Figure 1 shows the total loan
amount that banks have provided under the SHG scheme. Since
2011, the credit disbursement by banks to SHGs has been rising.
In the financial year (FY) 2011–12, banks provided loans amount-
ing to `16.53 thousand crore to 11.48 lakh SHGs. In FY 2018–19,
banks provided loans totalling more than `58.32 thousand crore
to about 27 lakh SHGs. Clearly, more and more SHGs are availing
credit from banks. The recent rise in loan disbursement has
mainly been due to loans provided to SHGs under the NRLM
programme (Misra and Tankha 2018). Still, the total loans dis-
bursed to SHGs remain less than 2% of the advances that finan-
cial agencies have made under public sector lending (PSL).
Figure 2 illustrates the total annual savings and the number
of SHGs contributing to savings. There has been consistent
growth in the amount of savings that SHGs have made since
their inception. On the other hand, the number of saving SHGs
decreased during 2011–19. Since 2014–15, it has been increas-
ing consistently. In 2011–12, 79.6 lakh SHGs contributed `1.83
thousand crore to banks. The annual savings rose to `6.43 thou-
sand crore, to which more than 100 lakh SHGs contributed.
The total savings outstanding by SHGs was about `23.32
thousand crore in FY 2018–19; in 2011–12, it was `6.55 thousand
crore. The increase in savings by SHGs is good, as members of
such SHGs can borrow internally in case of financial need. It
37
SPECIAL ARTICLE
Figure 3: Credit Multipliers of SHGs parts of the country. Tables 1 and 2 show the expansion of the
6 5.5 SHG programme in different regions7 of the country.
Ratio of loan outstanding to

4.8 4.7
5 4.3 The data presented in Table 1 reflect the severe regional dis-
savings with banks

4.2
3.8 3.9 3.7
4 parities in the expansion of the programme. In 2018–19, the
3 share of the southern region was about 40% of all SHGs in op-
2 eration. In the southern and eastern regions, a higher propor-
1 tion of SHGs received credit. However, in other regions, a
0 smaller proportion of SHGs managed to get bank loans, while
2011–12 2012–13
2014–15 2013–14
2015–16 2016–17 2017–18 2018–19
Financial year in the north-eastern region, the number of SHGs that got bank
Source: NABARD (2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019). loans declined considerably.
Figure 4: SHGs that Availed Institutional Credit (% of total SHGs) In terms of the financial resources of SHGs, the southern
region dominates (Table 2). In 2011–12, its share in the total
SHGs availed Institutional credit

30
25.9 26.9
21.1
23.2 22.1 loans distributed was 76.58%, which further increased to a
(% of total SHGs)

20 16.7
18.4 little more than 80% in 2015–16. In 2018–19, 73.50% of the
14.4
total loans were given to SHGs in the south. In the case of
10 annual savings generated by SHGs, more than 55% comes from
the southern region alone. A remarkable expansion of the
0
2011–12
2011-12 2012–13
2012-13 2013–14
2013-14 2014–15
2014-15 2015–16
2015-16 2016–17
2016-17 2017–18
2017-18 2018–19
2018-19 programme is also evident in the eastern region. In 2018–19,
Financial year 21% of total loans were distributed in this region, which
Source: NABARD (2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019).
accounted for less than 10% in the past. In terms of savings,
also indicates that SHGs are maturing. In the same period, the 25% of the total was generated by the SHGs from the eastern
total loans outstanding against SHGs rose from `43.54 thousand region. Credit provided to SHGs in the southern and eastern
crore to `87.1 thousand crore. The increasing gap between regions together comprised about 94% of the total loans dis-
loans disbursed and savings indicates that the financial needs bursed to SHGs. The spatial concentration of SHG operations in
of SHG members are much higher than their accumulated these regions is quite visible.
savings. Furthermore, SHGs often cannot access their group The share of the rest of the regions in total savings generated
savings, which are kept in SHG savings bank accounts—an and loans disbursed to SHGs has decreased. Most astonishing
informal practice by banks as a risk mitigation strategy (APMAS is the severe decline in the central and north-eastern regions.
2017). However, holding group savings as collateral is against In 2011–12, SHGs in the central region received 4.29% of the
both the letter and spirit of the linkage programme. As such, total credit disbursed to SHGs, which further reduced to only
for small loans, members of SHGs are often compelled to 1.24% in 2018–19. Moreover, a consistent decline was regis-
borrow from sources that charge high rates of interest. tered in the region’s share in total savings 2011 onwards. The
We calculated the credit multiplier6 for SHGs; it is presented share of the north-eastern region in total loans disbursed,
in Figure 3. The figure depicts the consistent decline in credit declined from 2.73% in 2011–12 to barely 0.5% in 2018–19. Its
multipliers during 2011–19; from 5.5 in 2011–12, it fell to 3.73 in share in total savings generated by SHGs also reduced.
2018–19. The decline in this ratio was mainly due of the Table 1: Distribution of SHGs among Different Regions
increase in SHGs’ savings with banks and the relatively slow Region 2011–12 2015–16 2018–19
Total SHGs that Total SHGs that Total SHGs that
growth in loan disbursements to these groups. The rise in SHGs Received SHGs Received SHGs Received
banks’ savings was primarily due to the boost in savings by Loans (%) Loans (%) Loans (%)
SHG members and the money provided to them in the form of Central 8,12,767 7.19 8,15,653 10.33 10,62,759 8.01
revolving funds under the NRLM. Eastern 16,25,714 12.38 17,00,106 24.27 26,54,358 34.26
Figure 4 depicts the percentage of all SHGs that received North-eastern 3,66,718 13.91 4,29,823 6.06 5,23,469 5.17
Northern 4,09,326 7.51 3,93,475 9.68 5,48,624 10.19
bank credit at least once in their lifetime. The consistent rise in
Southern 36,83,737 19.15 35,45,896 32.68 38,36,418 38.43
the number of SHGs receiving institutional credit indicates that
Western 10,62,087 9.51 10,18,049 11.05 13,88,615 10.56
more SHGs are attaining maturity in their life cycle. However,
All India 79,60,349 14.42 79,03,002 23.19 1,00,14,243 26.95
the actual credit requirements among SHG members are still Source: NABARD (2012, 2016, 2019).
relatively high and largely unmet. Table 2: SHG Credit and Savings among Different Regions (%)
In 2018–19, only 27% of all SHGs received institutional credit. Region Share in Total Loans Disbursed to SHGs Share in Total Savings of SHGs
Furthermore, most SHGs received credit only once and are un- 2011–12 2015–16 2018–19 2011–12 2015–16 2018–19
Central 4.29 3.19 1.24 9.37 6.14 5.71
likely to receive subsequent loans. They also face problems re-
Eastern 9.82 9.37 20.53 14.46 18.14 25.77
lated to the variety and size of loans (BIRD 2019; NIRDPR 2019).
North-eastern 2.73 0.59 0.50 2.33 1.39 1.73
Northern 2.03 1.30 1.07 3.86 3.29 2.68
Spatial Distribution of the SHG Movement
Southern 76.58 80.49 73.50 56.68 63.32 55.30
Since its inception, the SHG programme has enjoyed signifi- Western 4.55 5.06 3.16 13.31 7.72 8.80
cant success in the southern states of India (Bansal 2003; All India 100 100 100 100 100 100
Fouillet and Augsburg 2007). It was later introduced in other Source: NABARD (2012, 2016, 2019).

38 January 30, 2021 vol lVi no 5 EPW Economic & Political Weekly
 SPECIAL ARTICLE

The primary objective of the innovative SHG movement was Figure 5: Loans Disbursed to SHGs Located in UP, 2011–12 to 2018–19
to eradicate rural poverty. This study attempts to track the 800

Loan disbursed to SHGs in UP

658.2
growth of the SHG movement and the prevalence of rural 600
445.4 451.0
poverty in different parts of the country. Here, it is imperative

(` crore)
344.9
400 294.4
to keep in mind that there are other factors, along with the SHG
200 133.7 122.9 141.0
programme, which play a vital role in eradicating rural poverty.
Table 3 depicts the growth in loans disbursed to SHGs and the 0
2011–12 2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 2018–19
rural poverty level in the country for 2004–05 and 2011–12. Financial year
Table 3: Growth in Loans Disbursed to SHGs and Rural Poverty Level (%) Source: NABARD, various years.
Rise in Loans Disbursed to SHGs Rural Poverty Level
Region From 2004–05 From 2011–12 2004–05 2011–12* Figure 6: Average Loan Disbursed to SHGs (` lakh)
to 2011–12 to 2018–19 4

Avergae loan disbursed to SHGs

2011–12
Central 41 2 46 32
3
Eastern 213 637 51 32 2015–16
North-eastern 343 -36 34 31 2
2018–19
Northern 40 87 33 15
Southern 142 239 45 23 1

Western 155 145 29 13

0
All India 140 253 42 26 Central
North–estern Northern Eastern Southern Western All India
* The population, as on 1 March 2012, has been used for estimating the number of persons Region
below the poverty line (Census 2011). Source: NABARD (2012, 2016, 2019).
Source: Rajya Sabha (2019); RBI (2020).
Figure 7: Average Savings Made by SHGs (` lakh)
In 2004–05, 42% of the country’s rural population was be- 0.4
low the poverty line (BPL). Indeed, in three regions—eastern, 2011–12
Average savings per SHGs

central, and southern—the rural poverty rate was higher than 0.3
2015–16
the national level. In the eastern region, which includes Bihar 2018–19
0.2
and Odisha, more than half of the rural population was BPL.
From 2004–05 to 2011–12, the total loans disbursed to SHGs 0.1

increased by 140%. In 2011–12, rural poverty in India had

dropped to 26%. Among the various regions, in the north-east,
the loan amount to SHGs increased by 300%. However, the
rural poverty level in the region had dropped only by 3%. In
the eastern, western, and southern regions, the total loan
amount disbursed to SHGs showed a significant hike. These
three regions had also successfully reduced their rural poverty
levels. In the northern and central regions, the growth in loan
disbursements to SHGs was moderate. But the northern region
still managed to reduce rural poverty from 33% to 15%.
Between 2011–12 and 2018–19, shocking trends in loan amounts
disbursed to SHGs emerged. Though the total loan amount pro-
vided to SHGs increased by 253%, there was considerable dis-
parity across regions. In the north-eastern region, where rural
poverty is still above the national level, the total loans provid-
ed to SHGs reduced by 36%. In the central region, where about
35% of the total rural population of the country resides, only a
2% increase was registered in loan amounts provided to SHGs.
However, there was an enormous increase of 637% in funds
disbursed to SHGs in the eastern region. In the southern region,
the funds directed to SHGs increased by 239%. These figures
indicate that in some regions, especially the north-eastern and
central regions, the SHG programme is facing difficulties.
The case of UP is worth mentioning here. It has the highest
population of rural poor, contributing more than 22% to the
Indian total. However, the performance of the SHG-linked
scheme in providing credit there is dismal. As shown in Figure 5,
in 2011–12, the total loan amount disbursed to SHGs located in UP
was `445.41 crore; this reached about `658.21 crore in 2014–15.
Since then, there has been a steep fall in loan size. In 2017–18,
Economic & Political Weekly EPW January 30, 2021
0
Central
North–estern Northern Eastern Southern Western All India
Region
Source: NABARD (2012, 2016, 2019).
the figure reached its lowest point, at about `123 crore, and it
increased by 15% in 2018–19. Apparently, RRBs and commercial
banks have substantially reduced their loan exposure in the state.
There are also severe disparities in loan size per SHG and
the average savings that SHGs make among regions.8 Figures 6
and 7 depict the average loan amount disbursed to an SHG
and average savings in banks by SHGs, respectively. While the
average loan amount per SHG in five regions has increased
since 2011–12, there was a drastic decrease in loan size in the
central region in the same period. In 2018–19, the average loan
per SHG in the southern region was about `2.91 lakh, which
was more than the national average of `2.16 lakh per SHG. The
average loan amount provided to SHGs in the central region
was only `84,805, the lowest among all the regions.
While SHGs in the southern region contribute the highest
average savings of `33,623 each in 2018–19, SHGs in the north-
eastern region contribute only `7,719. This indicates that there
is not much in the way of capacity building in the north-eastern
region. Low savings by SHGs reduces security for banks against
the credit provided to them. This further lowers the confi-
dence of banks to issue bigger loans.
Non-performing Assets in SHGs
One of the most popular features of microfinance is its high
repayment rates, which have attracted formal financial insti-
tutions to participate in the sector. However, with the swift
vol lVi no 5 39
SPECIAL ARTICLE
Figure 8: NPAs in Banks from SHG Loans, 2011–12 to 2018–19 Figure 10: Regional Spread of NPAs (% of the total loan outstanding)
5,000 40

NPA-to-Total Loan Outstanding (%)

4,628.1 4,524.0 33.1
3,686.2 4,002.2 30.6
4,000 3,814.7 30
Total NPAs
Total NPAs (in crore)

2,932.7 20.7
2,786.9 19.1
3,000 20
16.5 15.7
2,212.7 13.2 13.2 12.4 12.7
2,000 9.2 6.5
10
5.2 6.9 7.3 5.2 5.0 4.1 3.5 6.1 5.2

1,000 0
North–estern
North-Eastern Northern Central Western Eastern Southern All India
0 2011–12
2011-12 2015–16
2015-16 2018–19
2018-19
2011–12 2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 2018–19 Source: NABARD (2012, 2016, 2019) .
Source: NABARD (2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019).
Figure 11: Regional Spread of NPA by Different Agencies, 2018–19
Figure 9: NPAs to Total Loans Outstanding of Banks from SHG Loans, (% of loans outstanding)
2011–12 to 2018–19

NPAs as % of Loan Outstanding

50

42.0

41.3
8

38.8
7.1 7.4
NPA-to-total loan outstanding (%)

6.8 40
6.5 6.5

31.3
30.9

30.7
28.6
6.1 6.1
30

24.6
6 5.2

21.8

20.1
16.3
20

11.8

6.7
6.9

5.4
4

5.7
4.5
6.8
10

4.7
3.6
3.5

3.0
4.5

4.1

4.9
1.9
1.4

1.4
0
2 North–estern
North Eastern Northern Central Region Western Eastern Southern All India
Public sectorBanks
Public sector banks Private sectorBanks
Private sector banks RRB Cooperative
Coop. Banks banks
Source: NABARD (2019).
0
2011–12
2014–15 2012–13
2015–16 2013–14
2016–17 2017–18 2018–19
Financial year that agencies associated with the SHG movement have failed to
Source: NABARD (2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019).
redesign their strategies in these regions even when it was in-
expansion of the SHG programme, there has been a rapid dicated quite early.
increase in loan defaults, transforming several SHG loans Table 4 depicts NPA levels in the six states where NPAs are
into NPAs (BIRD 2019). The situation is worse when we consider rising at an alarming rate. Among them, three states are from
the fact that banks substantially under-report default rates the central region. In absolute terms, the NPAs in different
(Puhazhendhi 2012). banks from SHGs in UP is substantial (about 12% of the total
Figure 8 illustrates the gross NPA s in banks from SHGs NPAs in 2018–19). In UP, more than 44% of the total loan
during 2011 to 2019. The total NPA amount rose from `2,212.73 amount was converted to NPAs in 2018–19. Assam is another
crore in 2011–12 to `4,524.01 crore in 2018–19. During this pe- state where the rise in the NPA level is concerning. In 2018–19,
riod, while the total loans outstanding grew by about 140%, about 33% of the total loan amount was converted into NPAs in
NPA s registered a growth of 104%. In 2017–18, the total NPA the state.
amount reached its all-time high of `4,628.06 crore. As shown Table 4: NPA Levels in Selected Indian States
in Figure 9, in relative terms, there has been a declining trend State Region Gross Amount of NPAs NPAs as Percentage of the
against SHGs (` crore) Loans Outstanding
in the ratio of gross NPA s to total loans outstanding for SHGs 2011–12 2015–16 2018–19 2011–12 2015–16 2018–19
since 2015. UP Central 254.25 306.88 435.88 12.51 20.11 44.45
While further reviewing the performance of SHGs on the MP Central 92.94 99.90 111.63 22.45 10.27 21.32
issue of NPA s, stark variations across regions become visible. Uttarakhand Central 9.34 19.96 19.42 7.08 20.18 32.47
Figure 10 portrays the level of NPAs as a proportion of the loans Assam North-eastern 28.93 87.23 226.75 4.59 13.21 33.33
outstanding in different regions. Overall, there has been a Tripura North-eastern 6.42 45.76 39.15 2.79 34.07 44.81
decrease in the NPA level relative to the loans outstanding. For Haryana Northern 12.92 28.25 68.57 6.28 13.77 50.12
Source: Status of Microfinance in India, NABARD (2011–12, 2015–16, 2018–19).
the southern region, the percentage is less than that of the
whole of India. However, this might be because of a massive In Haryana, half of the outstanding loans were converted
write-off for SHG loans in Telangana and Andhra Pradesh and into NPAs in 2018–19; this was just 6.28% of the loans out-
the conversion of term loans to credit limits (Sriram 2016). standing in 2011–12. In Madhya Pradesh (MP), the level of NPAs
There was a significant decrease in NPA-to-loan outstanding in has rapidly increased in recent years (Table 4). In Uttarakhand
the eastern region during recent years. In the northern region, and Tripura, the absolute NPA figure is fairly low, but this is
there was a moderate rise in the NPA level from 2015–16 to mainly because of a decline in the disbursement of fresh loans.
2018–19. It seems that regions that have attained maturity in SHG opera-
In the north-eastern and central regions, the percentage of tions—reflected by the size of operations and high average
NPAs to loans outstanding has risen rapidly since 2011–12, and loan size—are able to ensure high repayments rates in com-
since 2015–16, the situation has worsened. Poor loan repay- parison to regions where SHGs are relatively new.
ment performance in these regions has has led to a steep fall in Figure 11 shows region-wise NPA levels of different financial
loan disbursements to SHGs here. This indicates that due to ris- institutions for the financial year 2018–19. These mainly in-
ing NPAs, banks have slowed down their lending. This shows clude cooperative banks and RRBs which were largely unable
40 January 30, 2021 vol lVi no 5 EPW Economic & Political Weekly

to ensure repayment of the loans granted to SHGs, especially in
the north-eastern and central regions. Indeed, public sector
banks also failed to control loan defaults.
Private sector banks have successfully kept their loan
defaults low all over India. These banks have low exposure to
SHGs, which is also reflected in their meagre share in NPAs
from SHGs (less than 3% in 2018–19). They are more interested
in the MFI (microfinance institution) segment, offering bulk
loans and many hybrid financial services to MFIs and even en-
tering the segment9 (Sriram 2017). The low participation of
private sector banks in SHG operations raises reasonable doubt
as to the commercial viability of the SHG movement. Rising
NPAs, especially in states where SHGs were introduced more
recently, with frequent loan waivers further increase this risk.
Factors Responsible for the Rise in NPAs from SHG Loans
The share of NPAs in SHG loans might be small for banks in
comparison to those related to their primary commercial
lending.10 Still, the very existence of NPA s is worrisome, as the
programme was intended as a “zero non-performing asset
movement” (NIRDPR 2019). This can demotivate new financial
institutions from engaging in such projects and make existing
ones overcautious, hurting the growth of the whole move-
ment. For instance, it appears that banks are lending to ma-
ture SHGs located in leading states while limiting their credit
exposure in regions where SHG NPAs have piled up. This trend
will further delay the financial inclusion of these regions.
There is an urgent need to look into the reasons for the rise in
NPAs from SHG lending. This will help programme implementers
take corrective action before the situation becomes a catastro-
phe. In this regard, the current study reviewed various reports
and studies conducted on delinquencies in SHGs, including the
latest report of the Bankers Institute of Rural Development
(BIRD) on NPAs from SHGs conducted in 2019 (BIRD 2019).
The factors responsible, as indicated by these reports, are
categorised into five levels and presented in Table 5. The idea
is to understand the root cause of the problems and identify
the responsible agencies.
Table 5: Key Factors Responsible for the Rise in Loan Defaults from SBLP
Member Level Group Level
(1) Poor repayment capacity (1) Poor group formation
(economic conditions)
(2) Unfortunate incidents (2) Misappropriation of funds
(deaths in the family, illness, by the group
crop failure, etc); non-receipt
of an insurance claim
(3) Small loan sizes (3) Negative peer pressure
(4) Migration (4) Low awareness about repayment (4) Target-oriented approach
instalments and due dates; lack of (issuing loans without doing
repayment culture
(5) Power imbalance in the group
(6) Poor record-keeping
SHPI = Self-help group promoting institution.
Source: Authors’ compilation from BIRD (2019); NIRDPR (2019).
Economic & Political Weekly EPW January 30, 2021 vol lVi no 5
SPECIAL ARTICLE
Almost all the reports highlight the poor formation of groups
in the SBLP programme. The formation of SHGs is process orient-
ed. While forming a group, it is necessary to have an in-depth
understanding of the socio-economic situations, occupations,
and skills of the members as well as of the local markets. This
is the “pre-formation” stage. Such initiatives by related agen-
cies were almost missing. In regions where SHGs were intro-
duced later, agencies associated with SHGs had not done
enough groundwork to attain the objectives of the programme
(Puhazhendhi 2012). For example, in the north-eastern region,
agencies involved in the SHG movement failed to follow the
basic tenets of SHG management, which include regular group
meetings, ensuring member attendance at the meetings, regu-
lar savings, and proper maintenance of an accounts book with
delinquency rates (Sharma 2011).
Multiple government programmes like SGSY, Integrated
Child Development Services (ICDS), Pudhu Vaazhvu Project
(PVP), and Mahalir Thittam (MT) being run in the same location
is mainly responsible for the steep rise in NPAs (Sriram 2017;
BIRD 2019). Furthermore, such government-sponsored pro-
grammes adopt a targets-based approach to credit disburse-
ment. As such, the process of group formation and money
transfer happens rapidly to achieve targets (NABARD 2014–15),
ignoring other critical issues before and after group formation.
Often, people form groups only to get the institutional loan
and avail of the subsidy. After receiving the loan, group
members stop sharing their contributary savings and become
dormant.11 In addition, SHG members are mobilised for political
purposes. In such cases, authorities do not do the proper
groundwork at the time of group formation.
For SHGs to mature, it is crucial that groups gradually move
through a four-stage progression—forming, storming, norming,
and performing—to develop internal synergy and discipline.
However, this process happened quickly in many states and
the steps involved in organic growth were skipped (Sriram
2016, 2017). Target chasing in government programmes often
leads to the formation of groups that are bound to fail (Mani and
Sudheer 2012). For instance, the SGSY scheme, launched in 1999,
SHPI Level Institutional Level External Reasons
(1) Inadequate monitoring (1) Poor monitoring of loans due (1) Multiple lending by MFIs
of the group to high work pressure
(2) Poor handholding; (2) Lack of dedication to (2) Absence of credit data
increasing technical defaults SHG lending sharing
(3) Misappropriation of funds (3) Less attention to SHG schemes (3) Absence of credit data
by SHPI staff due to small loan sizes sharing
(4) The basic appraisal system of (4) Multiple SBLP schemes
SHG lending is ignored running in the same area
the proper groundwork)
(5) Absence of proper grading, (5) Promises of loan waivers
resulting in giving loans to by political parties
ineligible SHGs
(6) Delays in loan disbursement; (6) Dubious role of subsidy
lack of proper follow up for loan
repayment
41
SPECIAL ARTICLE

was restructured as the NRLM in 2011. On the closure of the
earlier scheme, existing members of the SGSY assumed that
they did not have to repay their loans. In the absence of proper
handholding and follow-up for recovery, all the loans turned
into NPAs (BIRD 2019). In many cases, loans were taken for in-
come-generating activities but were actually used for con-
sumption purposes, thus leading to loan defaults (BIRD 2019).
Studies have found that loans are often diverted for social
needs, health expenses of family members, children’s education,
and marriages (APMAS 2017).
Small loan sizes also increase the chances of loan defaults
(BIRD 2019). Such loans are often not enough to start any
sustainable business activity and, therefore, mostly get con-
sumed (NIRDPR 2019). SHG members also share loans equally
(APMAS 2017; Misra and Tankha 2018). This practice further
diminishes the ability of group members to initiate any sub-
stantial income-generating activity.
Another astonishing fact this study revealed is that members of
SHGs have different attitudes towards the payment of internal
loans and bank loans (BIRD 2019). Their repayment performance
for internal loans is far better than that for bank loans. Moreover,
SHG members availing loans from MFIs repay them on time but
default on bank loans to SHGs (BIRD 2019). The reason for this
is that MFIs provide much better services.12 Frequent write-offs
and interest subventions on bank loans further deteriorate the
financial discipline of SHG members (Sriram 2016; NIRDPR 2019).
Moreover, due to the lack of capacity building, a sense of owner-
ship among SHG members is absent (Misra and Tankha 2018).
Conclusions and Policy Implications
On analysing the expansion of SHG operations and NPAs from
SHG loans, many critical insights have emerged. Though the
SHG programme has spread rapidly to many parts of the country,
its success has been uneven. The programme remains heavily
skewed in favour of the southern states, where the programme
has a better recovery performance. States in the eastern region
have also significantly improved their performance in the last
eight years. But the programme is struggling in the central and
north-eastern regions.
In terms of loan defaults, SHGs are facing a challenging
situation in the wake of mounting NPAs in some regions, which
requires immediate intervention. It is not just the gross NPA
amount that is worrisome, but also the diminishing trustworthi-
ness of poor clients whom the programme targets. Among the
several reasons mentioned in various reports for the rise in loan
defaults by SHGs, the most serious is wilful default. Such defaults
hamper the whole developmental programme. They plant the
seeds of corruption in the minds of the poor and, as such, prevent
the end objective of the SHG movement from being achieved.
As a policy implication, it is essential to first build processes
before pumping financial resources from the exchequer. This
requires that agencies involved in SHG projects pay attention
to the internal dynamics of the group during group formation.
Sensitive issues such as gender and caste should be kept in
mind as they greatly influence the success of the group. While
interacting with an SHG with members from different socio-
economic13 strata, it is imperative to ensure a balance between
business activity and the social dimensions within the group
(Kanitkar 2002).
Programmes can easily be replicated, but people matter
most (Ramesh 2007). Therefore, there is a need for state-level
studies in the regions where SHGs are struggling. Such studies
will help policymakers identify and remove the obstacles
to the successful implementation of the SHG programme in
different regions of the country.
It is also crucial for banks to develop and share credit infor-
mation from a complete database of clients, including portfolios
and financial behaviour. This involves tracking loans taken
from informal sources as well. Here, IT solutions can be benefi-
cial. Banks should refrain from distributing loans only to
achieve the government’s loan targets. They should also track
loans and incentivise SHGs to make timely repayments. Fur-
thermore, SHPIs and banks should monitor loan defaults on a
case-to-case basis. Evidently, groups tend to expel the poorer
members who default on their loans but refrain from taking
action against defaulters who hold influential positions (EDA
Rural Systems and APMAS 2006).
The basic foundation of SHGs lies in the word “self,” which
should be protected in the real sense. All plans and strategies
should be designed to encourage, guide, and nudge people to
move towards achieving financial and social independence.
The “self” in SHGs should not be replaced by “state”—focused
on achieving targets or fulfilling political or bureaucratic
interests (Kanitkar 2002).

Notes
1 According to NABARD, SHGs are small, eco-
nomically homogeneous affinity groups, usually
comprising of the rural poor, who have volun-
tarily formed to save and mutually contribute to a
common fund to be lent to its members as per
the group members’ decisions (Adolph 2003).
2 As per a survey by the National Institute of Rural
Development and Panchayati Raj (NIRDPR),
many respondents, after joining the Self-help
Group-Bank Linkage Programme (SBLP), started
sending their children to school; this reflects
positive socio-economic development (NIRDPR
2019).
3 In contrast with the individual- and activity-
oriented lending that bankers had so far been
involved in, NABARD started working on a
new innovative approach to SHG lending—
organisation-based lending—which integrates
formal and informal institutions.
4 As part of the Creation of Backward and Forward
Linkages (CBFL) under the Pradhan Mantri
Kisan SAMPADA Yojana (PMKSY).
5 The government announced that all women
SHGs, supported by Mudra schemes and
NABARD, will act as “Dhaanya Lakshmi” (the
goddess of wealth) in villages.
6 The credit multiplier is the ratio of the SHG loans
outstanding to banks against SHG savings in
banks. It reflects the confidence of banks in SHGs.
7 The latest NABARD report, for 2018–19, on
microfinance in India divides the states of the
country into six regions. The regions (along
with states) are as follows:
Central region: Chhattisgarh, Madhya Pradesh,
Uttarakhand, and Uttar Pradesh (UP).
Eastern region: Andaman and Nicobar, Bihar,
Jharkhand, Odisha, and West Bengal.
North-eastern region: Arunachal Pradesh, Assam,
Manipur, Meghalaya, Mizoram, Nagaland, Sikkim,
and Tripura.
Northern region: Chandigarh, Haryana, Himachal
Pradesh, Jammu and Kashmir, New Delhi, Punjab,
and Rajasthan.
Southern region: Andhra Pradesh, Karnataka,
Kerala, Lakshadweep, Puducherry, Tamil Nadu,
and Telangana.
Western region: Daman and Diu, Dadra and
Nagar Haveli, Goa, Gujarat, and Maharashtra.
8 Here, it is important to mention the prevalence
of income inequality in the country. For exam-
ple, Dholakia et al (2014) estimate a serious
disparity in the rural per capita incomes
between states. For example, for 2011–12, they

42 January 30, 2021 vol lVi no 5 EPW Economic & Political Weekly

estimated that while the highest rural per capita
income in Haryana was `87,614, in Bihar it
was just `20,800.
9 Many private banks have taken over NBFC
(non-banking financial company)-MFIs in
recent times. Furthermore, they have started
serving the customers in this segment as bank-
ing correspondents through MFIs.
10 The NPAs against 80 lakh women in SHGs is less
than the default of one commercial defaulter,
Lloyds Steel, which is second on the corporate
NPA list (Agarwal 2016).
11 With the digitisation of the SHG scheme, it be-
came apparent that only 60%–70% of SHGs
that were ever granted credit are active (Misra
and Tankha 2018).
12 This includes doorstep service for lending and
recovery for customers, shifts in decisions on
issuing loans, provision of multiple loan prod-
ucts, and assurance of further loans on timely
repayment.
13 A peculiar problem came into the limelight,
mainly in Odisha, where there was a conflict
among members on the issue of poverty level.
While some members of the group were below
the poverty line (BPL), others were declared
above the poverty line (APL). Therefore, the
subsidy portion of the total credit was only
shared among BPL members. The agitated APL
members retaliated by not repaying their
loans. In some cases, they took internal loans
equal to the subsidy amount and did not repay
them (Mani and Sudheer 2012).
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