Introduction to SHG, JLG

and Other CBMF

Approach
By: Dr. Agyeya Tripathi
 Learning Overview

Economic Profile of Poor

Why Group Lending

Understanding SHG, JLG and Other

CBMF approach
 Economic Profile of Poor

 Indebtedness
 Low and Irregular Income
 Low Capital
 No Assets
 Vulnerable
Vicious Cycle of Low Income

Inadequate
Inadequate
Inadequate
InadequateIncome
Savings
Investments
Capital
Inadequate
Inadequate Income
Inadequate Savings
Investments
Capital
 Individuals Formed Into Group

Group Vs Individual Loan

 Individual Risk > Group Risk
 Individual Guarantee < Group Guarantee
 Cost of transaction is less in group
 Involvement of community is more
 Peer pressure helps in appraisal and repayment
Methodologies For Micro-Finance

 Grameen Methodology
 Self Help Groups
 Joint Liability Groups
 Lending through intermediaries
 Grameen Method

Overview
 Nobel Laurette Professor Muhammad Yunus
developed this model
 This method was evolved in Bangladesh
 The group lending model is a cornerstone of the
Grameen methodology
 Grameen Method

Methodology
 Grameen Method
Detailed Method
 Homogenous, affinity Groups of five members are formed at the village level.
 Eight such groups affiliate together to form a Centre.
 Leaders are appointed for each Group and for the Centre from amongst the
members.
 Centre meets every week, at a defined time. Structured Centre Meeting. Bank
Assistant attends Centre Meeting.
 Every member regularly saves Tk. 10 every week. This is deposited with the
Bank.
 Loan proposals are discussed at the Centre Meeting. Group Leaders put up the
proposal for the consideration of the Centre.
 Only proposals recommended by the Centre Leader are sanctioned and disbursed.
 Disbursement is from the Bank funds and only from the savings of the group.
 Loans are given to the individual borrowers and not the Group or the Centre.
 All loans are repayable in 50 instalments spread over 52 weeks, during weekly
savings in the Centre Meeting.
 Grameen Method
Three significant elements of this method include:
 The process of peer appraisal and monitoring of loans
helped reduce transaction cost, for both the borrower
and the lender.
 The need for collateral security was replaced with the
group processes, which acts as the collateral substitute.
 The savers/ borrowers paid small sums, regularly, in
short intervals and did not have to part with any large
sum at any point of time.
 Understanding SHG
Self-Help Group
Overview
 NABARD, in 1992 launched the SHG - Bank linkage programme with the
policy backup of the RBI
 SHG is a method commonly adopted by many NGOs in India
 SHGs are small groups of poor people.
 SHG members face similar problems and help each other
 SHGs promote small savings among their members.
 The savings are kept with the bank.
 This is the common fund in the name of the SHG.
 The SHG gives small loans to its members from its common fund.

SHG is an informal group and registration under any Societies Act, State cooperative Act or a
SHG is anfirm
partnership informal
is notgroup and registration
mandatory under
vide Circular any Societies
RPCD.No. Act, State-09.22/90-
Plan BC.13/PL cooperative
91 Act or a
dated
partnership firm is not mandatory vide Circular
July 24th, RPCD.No.
1991. Plan BC.13/PL -09.22/90- 91 dated
 SHG
Size, membership & Meetings

Size
 The ideal size of an SHG is 10 to 20 members.
 The group need not be registered.
Membership
 One family, only one person 
 The group normally consists of either only men or of only women.
 Similar social and financial background
Meetings
 Regular meetings (weekly or monthly)
 Compulsory attendance
 Meeting records updated regularly
 SHG
Keeping of Accounts & Major Functions

Keeping of Accounts
 Simple and clear books for all transactions to be maintained. (external
resource can be used)
 All registers and account books should be written during the course of
the meeting.
 Books to be kept by an SHG
 Minutes Book
 Savings and Loan Register
 Weekly /Fortnightly/Monthly Register
 Members’ Passbooks
Functions of SHG
 Savings and Thrift
 Internal lending
 Discussing problems
 Taking bank loan
 Understanding JLG
Joint Liability Group

Overview
 An informal group comprising of 4-10 individuals
 Group is formed to avail loan against mutual guarantee
 Generally, the members of a JLG would engage in a
similar type of economic activity.
 JLG members are expected to provide support to each
other in carrying out occupational and social activities.
 JLG
Membership & Models
Membership Criteria
 Members should belong to similar socio-economic status
 Agree to function as a joint liability group
 Members should reside in same neighbourhood / village
 Default members from other groups can not become a member
 One member from one family only
JLG Model
 Model A
 Financing individuals in JLG
 Model B
 Financing the JLG as a group
 JLG
Credit Appraisal & Monitoring

Credit Appraisal
 Financial Institutions conduct a thorough credit appraisal to avoid
under or over-financing
 Flexible credit product, keeping in view the business requirement
 All norms as per FI needs to be followed
Monitoring and Review
 The JLGs through peer pressure ensure loan utilization and
timely repayment.
 The bank may hold all members liable in case of default.
 Good credit history help JLG to achieve larger benefits
 Employees of FIs need to have harmonious relation with
members to manager risk.
 Difference Between SHG & JLG
Parameters SHG JLG
Used By Banks MFIs
Group size 10-20 members 5-10 members
Structure More formal Just a group
(secretary, treasurer etc.)
Interaction with Only formal representatives All members
FIs
Savings Regular savings deposited in No concept of saving
FI at bank
Loan size Approx 5 times the saving at Depend upon credit
FI appraisal
Lending Group lending Individual lending
Ativity Common activity Different activity
Thank You
Important Questions

 Why group formation is at the core of community based finance?

 Why is saving considered as mandatory parameter for any MFI?
 What is the difference between the three model: Grameen, SHG
and JLG?
 What is financial inclusion, and why it is important?
 How is microfinance helpful in financial inclusion?