NABARD’s Initiatives for Promoting Self-Help Groups and Rural Credit Access

In rural India, access to formal credit has long been a distant dream for millions of women – especially those from low-income households with no collateral, no credit history, and limited exposure to banking systems. The National Bank for Agriculture and Rural Development (NABARD) recognized this gap early on and pioneered a model that would go on to become the world’s largest microfinance programme: the Self-Help Group – Bank Linkage Programme (SHG-BLP). What began as a pilot connecting around 500 SHGs with banks in 1992-93 has since grown into a movement covering over 17.75 crore households across India. At the heart of this transformation is NABARD’s structured, ground-up approach to forming, nurturing, and financially integrating women’s self-help groups into the formal economy.

What is the SHG-bank linkage programme? 🔗

A Self-Help Group (SHG) is a small, community-based collective – typically made up of 10 to 20 women – who come together to pool savings, lend to one another, and gradually build a relationship of financial trust. The core idea is simple: when individuals who cannot access credit alone come together as a group, they become creditworthy in the eyes of formal financial institutions.

NABARD’s SHG-BLP works as a bridge between these informal groups and the formal banking system. Once an SHG is formed and demonstrates consistent savings and internal lending activity, it becomes eligible to open a bank account and eventually receive external credit – all without requiring traditional collateral. This savings-led microfinance approach is what sets the Indian model apart from many other global microfinance structures.

As of March 2024, over 83% of all SHGs in the programme are exclusively women’s groups, reinforcing the programme’s role not just as a financial tool, but as a driver of women’s empowerment.

NABARD’s support mechanisms for SHG formation 🔗

NABARD’s role in the SHG ecosystem is multifaceted – it acts as policy advocate, capacity builder, financial backer, and knowledge partner all at once. Here’s how it structures its support:

The Panchsutras: a quality benchmark for SHGs 🔗

NABARD evaluates the health of an SHG through a set of five core principles known as the Panchsutras. These five benchmarks are: holding regular group meetings, maintaining regular savings, practicing internal lending based on members’ needs, ensuring timely loan repayment, and keeping proper books of accounts. Groups that consistently follow these principles are considered high-quality SHGs and are treated as reliable borrowers by banks. This framework gives banks confidence to extend credit and helps SHGs maintain internal discipline.

Self-Help Group Promoting Institutions (SHPIs) 🔗

NABARD does not form SHGs directly. Instead, it works through a network of Self-Help Group Promoting Institutions (SHPIs) – organizations tasked with forming, nurturing, and facilitating the bank linkage of groups at the ground level. SHPIs include NGOs, Regional Rural Banks (RRBs), District Central Cooperative Banks (DCCBs), Primary Agriculture Credit Societies (PACS), Farmers’ Clubs, SHG Federations, and Individual Rural Volunteers (IRVs). NABARD incentivizes these institutions through promotional grant assistance, which has been crucial in scaling the programme to remote and underserved areas.

Promotional grants and refinance support 🔗

NABARD provides financial support to SHPIs for group formation and also refinances banks that lend to SHGs. During 2023-24, NABARD extended refinance of ₹10,099.55 crore to banks, and as on 31 March 2024, the cumulative refinance disbursed for SHG lending stood at ₹1,17,895.32 crore. This massive refinancing support effectively de-risks lending to SHGs for banks, encouraging them to extend credit that would otherwise be considered too risky.

Master circulars and policy guidelines 🔗

Operational consistency across states is maintained through an annual Master Circular jointly issued by RBI and NABARD, which outlines the minimum loan amounts for each SHG and updates implementation guidelines as the programme evolves. This ensures uniformity in how banks engage with SHGs while allowing enough flexibility for ground-level adaptation.

Special schemes for backward and LWE districts 🔗

Recognizing that not all regions are equally served, NABARD runs a special scheme for Women SHGs in backward and Left Wing Extremism (LWE)-affected districts. Announced in the Union Budget 2011-12, the scheme operates across 150 backward and LWE-affected districts and works through anchor agencies that form SHGs, facilitate bank credit, provide continuous handholding support, and take responsibility for loan repayments. This targeted approach ensures that even the most marginalized women in conflict-affected regions are not left out of the financial inclusion agenda.

Livelihood and Enterprise Development Programme (LEDP) 🔗

NABARD understands that access to credit alone doesn’t create sustainable livelihoods. To bridge the gap between financial access and income generation, it launched the Livelihood and Enterprise Development Programme (LEDP) in December 2015. LEDP covers skill-building training, refresher sessions, backward-forward market linkages, and handholding support for SHG members – implemented in clusters of 15 to 30 SHGs across contiguous villages. The programme covers both agri-allied and rural off-farm sectors, ensuring members can actually translate credit into income.

Advantages of NABARD’s linkage programme 🔗

The SHG-BLP model has delivered measurable benefits – both financial and social – across India’s rural landscape. Here are the most significant advantages:

Reduced transaction costs for banks 🔗

One of the biggest reasons traditional banks stayed away from rural microfinance was the high cost of serving small, dispersed borrowers individually. The SHG model solves this by aggregating demand. Banks deal with one SHG account rather than 15 or 20 individual accounts, making the process dramatically more cost-effective. This is why NABARD describes the SHG-BLP as a cost-effective mechanism for providing financial services to the unreached and underserved poor.

Improved loan recovery rates 🔗

Peer pressure within a group – where members are mutually accountable for each other’s repayments – has proven to be a powerful driver of loan recovery. The Non-Performing Asset (NPA) rates for SHG loans are significantly lower compared to individual rural lending. Southern states like Andhra Pradesh, Telangana, and Karnataka maintain NPA levels below 5%, reflecting the strong internal accountability mechanisms within SHGs.

Increased savings mobilization 🔗

Regular savings is both a precondition for bank linkage and a lasting habit the SHG model cultivates. Over 7 crore women participate in SHGs across India, with cumulative group savings exceeding ₹30,000 crore. For many members, this is the first time they have ever saved money formally – a foundational shift in financial behavior.

Reduction in dependence on informal moneylenders 🔗

Before SHGs, rural women often borrowed from local moneylenders at exploitative interest rates, sometimes as high as 36-48% annually. The SHG-BLP provided an alternative. A 2019 impact evaluation study conducted across 27,000 households in 9 states found that households participating in the programme saw a 20% decline in the share of informal loans – a concrete indicator that formal credit was reaching those who needed it most.

Better financial literacy and banking access 🔗

NABARD and its partner missions have invested in financial literacy alongside credit. Trained Financial Literacy Community Resource Persons (FLCRPs) operate at the village level, while over 45,746 Bank Sakhis – SHG members trained to act as banking intermediaries – are currently positioned in rural bank branches to help SHG members navigate transactions, applications, and loan processes. This human infrastructure makes the banking system truly accessible, not just technically available.

Increased income and economic participation 🔗

The same 2019 impact evaluation found a 19% increase in household income and a 28% increase in savings among programme beneficiaries. Women’s participation in secondary occupations also improved, indicating that access to credit was enabling economic diversification – not just consumption.

Case studies and success stories 🔗

Numbers tell one part of the story. The lived experiences of women who have moved from economic vulnerability to self-sufficiency through SHGs tell the rest.

The Birbhum sal leaf enterprise, West Bengal 🔗

In Birbhum district – an important sal tree belt in West Bengal – NABARD-backed SHGs have been engaged in sal leaf plate and bowl making, a traditional rural industry that was previously unorganized and low-income. By channeling microfinance and market linkages through SHGs, the programme gave women consistent access to working capital, helping them move from casual labor to running small enterprises. The shift from irregular income to stable earnings from a structured enterprise has made a measurable difference in household economic stability for these women.

Impact on women’s agency and social standing 🔗

The changes SHGs drive are not limited to income. A study by IFMR Research on SHGs as Agents of Change found that over 62% of participants reported upward economic mobility after joining SHGs. Equally significant were the social outcomes: more than 99% of women SHG members became aware of their property rights, and over 98% knew about government insurance and pension schemes they were entitled to. More than 80% of members said they actively voiced opinions against social evils like domestic violence, child marriage, and alcoholism – within their households. Participation in SHG meetings was giving women not just money, but a voice.

Pramila Bisoyi – from SHG leader to Parliament 🔗

Perhaps the most striking illustration of what SHG participation can unlock is the journey of Pramila Bisoyi. After spending over 18 years in the SHG movement under Odisha’s Mission Shakti programme, she leveraged the leadership and organizational skills developed at the grassroots level and was elected as a Member of Parliament in 2019. Her story represents a trajectory that NABARD’s framework makes possible – starting with a savings group and ending in national-level decision-making.

The household-level transformation: what the data says 🔗

NABARD’s own impact research paints a detailed picture of change at the household level. A comprehensive NABARD study found that 90% of SHG-member households reported an improvement in household income, 55% saw improvement in children’s education, and 47% noted improvement in health outcomes. About 27% were able to repay high-cost informal loans using SHG credit, directly reducing financial vulnerability. These figures consistently show that the SHG-BLP’s impact radiates beyond individual members to reshape entire household economies.

All-women SHGs outperform mixed groups 🔗

Research published in Contemporary South Asia analyzed data from 4,791 SHG households and 900 SHGs across six states and found that households belonging to all-female SHGs consistently outperformed those in mixed-gender groups across economic indicators – including income from self-employment and livestock. This finding has reinforced NABARD’s strategic emphasis on promoting women-only SHGs as the preferred model.

Challenges that remain 🔗

Despite its scale and success, the SHG-BLP is not without challenges. NPA levels remain high in some northern and northeastern states. Many SHGs in newer districts struggle to graduate from savings groups to viable lending entities. Digital and technological literacy gaps mean that a significant proportion of SHGs are unable to benefit from recent technology platforms or acquire new skills aligned with evolving markets. NABARD’s ongoing digital initiatives – including real-time banking solutions for SHGs and onboarding support for e-commerce platforms like ONDC – aim to address these gaps, but bridging them fully will require sustained effort.

What NABARD has built through the SHG-BLP is not just a credit delivery system – it’s an institutional architecture that transforms how rural women relate to money, to banks, and to each other. The programme’s longevity and scale are proof that when financial inclusion is designed with women’s lived realities at its center, it works.

What do you think? Given that all-women SHGs consistently outperform mixed-gender groups economically, should financial inclusion policies be designed specifically around women’s groups rather than gender-neutral frameworks? And as digital platforms like ONDC expand, can NABARD’s SHG model effectively make the leap into digital commerce – or will new forms of exclusion emerge?

References

1. https://www.nabard.org/content.aspx?id=477
2. https://www.nabard.org/content1.aspx?id=652&catid=8&mid=8
3. https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=1985779
4. https://www.nabard.org/auth/writereaddata/File/SHGBLP%20in%20India%20-Final%20Report.pdf
5. https://www.cdpp.co.in/articles/cooperatives-shgs-and-fpos-success-stories-and-limitations-of-collective-action-models-for-rural-women-
6. https://www.nabard.org/auth/writereaddata/tender/pub_1010241128371162.pdf
7. https://www.nabard.org/demo/auth/writereaddata/tender/2009161457SHGasAgentsofChangeIFMRReport.pdf
8. https://www.tandfonline.com/doi/abs/10.1080/09584935.2012.737306
9. https://www.researchgate.net/publication/263103648_The_impact_of_NABARD's_Self_Help_Group-Bank_Linkage_Programme_on_poverty_and_empowerment_in_India