Commercial Aspects of Self-Help Group Banking in India: A Study of Bank Transaction Costs
The National Bank of Agriculture and Rural Development (NABARD) bank linkage program in India, has two outstanding aspects:
- It has achieved an outreach of 500 000 SHGs and a population of 40 million poor;
- The lending rate at 7% is amongst the lowest.
The results, based on a study of seven branches in three banks, reveal the following:
- Non-performing loans to SHGs were zero percent indicating the effectiveness of group lending to the very poor;
- Returns on average assets of SHG banking ranged from 1.4% to 7.5%;
- The operational self-sufficiency of SHG banking ranged from 110% to 165%;
- Self reliance of the SHGs were growing rapidly based on their savings and retained earnings.
The study indicates that five factors are essential for the future sustainability of the SHGs:
- Sound self-supporting institutional framework;
- Restructing of the rural banks which have not performed well;
- Increase in the deposit reserves of SHGs;
- Effective supervision of SHGs.
After considering the findings of this study, the paper highlights some of the areas of further study on SHG bank linkages:
- Pricing financial products in rural financial institutions;
- Extending SHG banking to the middle poor;
- Delegated supervision for SHGs and cooperatives;
- Collateral for larger loans within SHGs;
- Loan protection through life insurance;
- Options for individual performance incentives in banks and cooperatives.