NABARD’s Role in Supporting Women’s Microcredit Initiatives in India

In rural India, millions of women have historically been shut out of formal financial systems – no bank account, no credit history, no collateral. For decades, the only option was the local moneylender, whose interest rates could be predatory and whose terms offered little room to build lasting economic stability. That reality began to shift in the early 1990s, when the National Bank for Agriculture and Rural Development (NABARD) started experimenting with a model that placed collective savings and peer accountability at the center of rural credit. Today, that model – built around Self-Help Groups – has grown into the largest coordinated financial inclusion programme in the world, and women are at its heart.

NABARD’s microfinance strategy: the big picture 🔗

NABARD was established in 1982 as India’s apex development bank for agriculture and rural development. Its microfinance strategy, shaped over decades, rests on one foundational insight: poor rural women are creditworthy – they just need a system designed for their realities. Rather than pushing individual loans through formal branches, NABARD chose to build from the ground up by organizing women into small, self-governed savings groups, then connecting those groups to mainstream banks.

The strategy operates through the Micro Credit Innovations Department (MCID), which NABARD established in 1998 specifically to mainstream and scale microfinance innovations. The department’s core objective is to facilitate sustained access to financial services for underserved rural populations – not through charity, but through sustainable, cost-effective credit channels. NABARD functions as a facilitator: it sets standards, provides refinance to banks, disburses promotional grants to partner agencies, builds capacity across stakeholders, and monitors outcomes at scale.

Two parallel credit delivery models anchor this strategy: Self-Help Groups (SHGs) and Joint Liability Groups (JLGs). SHGs are the primary vehicle for women’s economic empowerment, while JLGs extend collateral-free credit to small and tenant farmers. Together, SHGs and JLGs now cover more than 50% of Indian households, reaching approximately 10% of the country’s total population.

What is a Self-Help Group? 🔗

A Self-Help Group (SHG) is a small informal collective of ten to twenty members who share a similar socioeconomic background and come together voluntarily to save regularly and lend to one another. According to NABARD’s own definition, the group mobilizes resources for the benefit of its members and functions on principles of mutual trust and collective responsibility.

SHGs are guided by what NABARD calls the Panchsutras – five core practices: regular group meetings, consistent savings, internal lending based on member demand, timely loan repayment, and proper record-keeping. These five practices form the backbone of group discipline and are the reason banks eventually agreed to lend to them. SHG members build a track record of financial behavior within the group before they ever interact with a formal bank, which dramatically reduces lender risk.

The SHG concept was first introduced in India by the NGO MYRADA in 1984-85, drawing inspiration from similar group-lending innovations in Bangladesh. NABARD recognized the model’s potential and ran a formal pilot in 1992 in collaboration with NGOs, linking 500 SHGs to banks to provide formal financial services. What started as a modest experiment has since become a national movement.

The SHG-Bank Linkage Programme 🔗

The SHG-Bank Linkage Programme (SHG-BLP) is the operational mechanism through which NABARD connects self-help groups to the formal banking system. The programme creates a three-way partnership: SHGs (the borrowers), formal banks – including commercial banks, Regional Rural Banks (RRBs), and cooperative banks – and Self-Help Group Promoting Institutions (SHPIs) such as NGOs, government departments, and rural financial institutions that facilitate group formation and credit linkage.

The model works in stages. Women first form a group and begin saving internally, making small loans to one another. After the group demonstrates consistent financial discipline – usually over six months to a year – the SHPI helps them open a savings account with a formal bank. The bank then assesses the group and extends a loan, typically a multiple of the group’s total savings. This loan is managed collectively and repaid through the group’s own internal governance.

NABARD provides 100% refinance to banks at concessional interest rates to enhance ground-level credit flow to SHGs. It also provides promotional grant assistance to SHPIs – including NGOs, RRBs, cooperative banks, farmers’ clubs, and individual rural volunteers – to form and nurture new groups. This grant system is what made it financially viable for civil society organizations to invest time in group formation in remote villages.

Scale and reach as of 2024 🔗

The numbers tell a striking story. As of 31 March 2024, the SHG-BLP had reached 17.8 crore rural households, making it the largest coordinated financial inclusion programme in the world by client base. Over 144 lakh SHGs have savings linked with banks. During financial year 2023-24 alone, loans worth ₹2,09,285.9 crore were disbursed to 54.8 lakh SHGs – a 44% increase over the previous year.

Critically, more than 83% of all savings-linked SHGs are exclusively women’s groups. This is not incidental – it reflects a deliberate policy choice to center women in the programme from the very beginning. Women’s groups have consistently demonstrated higher repayment rates and stronger internal governance, which has reinforced banks’ willingness to lend to them.

Loans outstanding against SHGs stood at ₹2,59,663.7 crore across 77.4 lakh groups as of March 2024, with non-performing assets declining by 27% compared to the previous year – a sign that credit quality has actually improved even as the programme scaled. The broader microfinance sector reached loans outstanding of ₹4.09 lakh crore, growing at 16% as of March 2024.

The role of partner institutions 🔗

NABARD does not work alone. A key feature of the SHG-BLP is its reliance on an ecosystem of promoting institutions. NGOs were the original SHPIs, playing a crucial role in forming and nurturing groups, particularly in remote areas where banks had no direct reach. Over time, NABARD co-opted RRBs, District Central Cooperative Banks (DCCBs), Primary Agricultural Credit Societies (PACS), SHG federations, and individual rural volunteers as SHPIs, each receiving grant assistance to expand the programme’s geographic reach.

This distributed model is what has allowed the programme to penetrate deep into rural hinterlands. NABARD also supports Village Level Promoters (VLPs) – grassroots agents who facilitate account opening, credit linkage, and loan repayment at the village level. By March 2024, NABARD had cumulatively supported 66,357 VLPs, with 15,794 added in FY2024 alone.

Building livelihoods: MEDP and LEDP 🔗

Access to credit is only part of what poor women need to build sustainable enterprises. Recognizing this, NABARD developed two dedicated programmes to convert SHG members from passive loan recipients into active micro-entrepreneurs.

Micro-Enterprise Development Programme (MEDP) 🔗

The Micro-Enterprise Development Programme (MEDP) was launched by NABARD in March 2006. It provides on-location, short-duration skill development training to members of mature SHGs – groups that already have access to bank credit – with the goal of helping them establish or improve microenterprises in farm and non-farm activities.

Training spans activities ranging from organic farming, goat rearing, beekeeping, and mushroom cultivation, to non-farm trades like tailoring, beauty services, food processing, and handicrafts. Grants are provided to eligible NGOs and SHPIs to conduct these programmes at the community level. Cumulatively, 6.12 lakh SHG members have been trained through 20,822 MEDPs, with thousands going on to establish their own micro-enterprises.

Livelihood and Enterprise Development Programme (LEDP) 🔗

The Livelihood and Enterprise Development Programme (LEDP), launched in December 2015, goes further than the MEDP by providing end-to-end support over two full credit cycles. Rather than isolated training events, LEDP works with clusters of 15 to 30 SHGs in contiguous villages, offering intensive skill building, refresher training, backward and forward market linkages, and sustained handholding.

As of 31 March 2024, 3 lakh SHG members had been supported through 2,449 LEDPs, backed by a grant support of ₹128.41 crore. In 2023-24, NABARD updated the LEDP and MEDP guidelines to include JLG members as participants, add daily stipends for participants, and expand training to cover e-marketing, branding, packaging, and digital commerce platforms including ONDC – reflecting a push to connect rural women producers with online markets.

One innovative pilot under this framework is m-Suwidha, which provides end-to-end livelihood solutions – from identifying local skill gaps to enabling credit and market access – for women SHG members aiming to become micro-entrepreneurs. Another notable initiative uses the LEDP channel to support women in producing and marketing low-cost sanitary pads, simultaneously addressing rural livelihoods and menstrual hygiene.

Impact on women’s economic empowerment 🔗

The numbers behind NABARD’s microfinance strategy are substantial, but the deeper impact shows up in changes to women’s lives beyond bank balances. NABARD’s 2021 impact data indicates that access to formal credit among female SHG members increased from 9% before joining a group to 71% after two years of membership. Independent income generation rose from 22% to 58% over the same period, and women’s participation in household financial decision-making climbed from 18% to 62%.

These are not just economic shifts – they translate into changes in social standing, bargaining power within families, and confidence in community spaces. SHG-BLP has been linked to broader development outcomes including improved education access, better health outcomes, and increased grassroots political participation among women members.

NABARD has also been training stakeholders at scale. Cumulatively, 50.2 lakh participants under the Financial Inclusion Fund and 5.2 lakh participants under the Women SHG programme have been trained as of March 2024, building a vast network of skilled implementers across banks, NGOs, government departments, and SHG federations.

Persistent challenges 🔗

Despite its scale, NABARD’s microfinance strategy faces real gaps. A credit linkage gap of 46% remains a concern, even after a 44% increase in loan disbursements in FY2023-24. Regional imbalances persist, with the North Eastern region significantly lagging in both savings and credit linkage. Financial literacy and digital access gaps in remote areas continue to limit the programme’s last-mile effectiveness.

NABARD has responded with new initiatives. The Graduated Rural Income Generation Programme (GRIP) targets the ultra-poor through a returnable grant model, aiming to give the most marginalized women a foothold in the formal financial system before expecting them to take on debt. The government’s Lakhpati Didi Scheme, which targets matured SHG women for higher income-generating support, further complements NABARD’s push toward sustainable, women-led rural development.

NABARD’s broader microfinance ecosystem 🔗

Beyond the SHG-BLP, NABARD has built out a wider architecture of microfinance support. NABFINS (NABARD Financial Services Limited), established in 2009, functions as a model microfinance institution extending loans to SHGs and federations through trained business correspondents, with an emphasis on transparency and moderate interest rates. NABARD is its majority shareholder.

The Joint Liability Group (JLG) model, mainstreamed in 2006, extends collateral-free credit to small and tenant farmers who lack formal land titles. JLG accounts have grown at a compound annual growth rate of 43.76% over the past five years, demonstrating rapidly expanding demand for group-based credit among rural communities beyond the SHG model.

NABARD has also formalized a strategic partnership with DAY-NRLM (Deendayal Antyodaya Yojana – National Rural Livelihoods Mission) through a formal MOU. This collaboration covers physical and online marketing support, graduation of SHG clusters into Producer Organizations, climate-resilient agriculture promotion for women SHGs, and livelihood interventions in NABARD’s watershed development project areas – aligning both institutions’ resources toward a common goal of sustainable rural women’s empowerment.

The expansion of SHG-bank linkage from ₹58,070 crore in 2020-21 to ₹2,09,285 crore in 2023-24 illustrates how dramatically this model has scaled in just a few years, driven by a combination of policy support, institutional capacity, and demonstrably strong repayment behavior among women-led groups.

What do you think? NABARD’s SHG-Bank Linkage Programme is now over three decades old and has reached hundreds of millions of households – yet a 46% credit linkage gap remains. What structural barriers do you think still prevent rural women from fully accessing formal credit, and how might microfinance strategy evolve to close that gap? And as SHG members increasingly move into digital commerce and online markets, what new skills or support systems will they need to compete effectively?

References

1. https://www.nabard.org/content.aspx?id=477
2. https://www.nabard.org/irreport2023-24/empowering-every-citizen-bridging-gaps-through-financial-inclusion.html
3. https://academic.oup.com/cdj/article/58/2/283/6374653
4. https://www.nabard.org/pdf/2024/towards-inclusive-development.pdf
5. https://www.nabard.org/auth/writereaddata/tender/0808244223NABARD-SOMFI%20%20%20%20%20%20%20%2020232024%20%20%20%20%20%2030072024.pdf
6. https://www.nabard.org/content1.aspx?id=688&catid=8&mid=8
7. https://www.jisem-journal.com/download/81_Microfinance_and_Rural.pdf
8. https://www.thevoiceofcreativeresearch.com/index.php/vcr/article/view/223