Project Report of Research Study on Loan default by SHGs

Paper
Date Published: 
Jan 2010
Author: 
Singh, J. & Singh, A

Analyzing reasons for loan defaults among self-help groups

This study examines reasons for self-help group (SHG) loan defaults in Rajasthan, India. Repayment rates of bank loans among SHGs have decreased over the last few years. The study uses qualitative and quantitative research to identify reasons for this phenomenon and develop an early warning system to avoid defaults. It highlights several reasons for default. They include:

  • SHGs have departed from formation norms such as area selection, wealth ranking and members with the same socioeconomic condition;
  • SHGs have been coming together mainly for credit and subsidies, instead of for savings;
  • SHG leaders and members do not understand the group concept;
  • SHGs exhibit a progressive erosion in quality in terms of maintenance of attendance registers, cash books and ledgers;
  • SHG members do not fully utilize group funds;
  • Paucity of funds and personnel, force small NGOs that support SHGs to leave the community;
  • Pressure on banks to disburse subsidized loans disturbs the normal process of SHG growth and maturation;
  • Group leaders often take the largest share of bank loans.

The study concludes by outlining major opportunities and issues for scaling up the SHG movement in Rajasthan.

Type: 
Paper
Region: 
South Asia
Country: 
India