Previous Year Question
Consider the following statements:
The Self-Help Group programme was originally initiated by the State Bank of India by providing microcredit to the financially deprived.
In an SHG, all members of a group take responsibility for a loan that an individual member takes.
The Regional Rural Banks and Scheduled Commercial Banks support SHGs.
How many of the above statements are correct?
Only one
Only two
All three
None
Correct Answer: B
Detailed Solution
Statement 1 is incorrect. India’s formal SHG-Bank Linkage Programme was not initiated by the State Bank of India. It was launched by NABARD in 1992 as a pilot project. The initial project aimed to link approximately 500 Self-Help Groups with banks.
Under the SHG-Bank Linkage Model, members first make small and regular savings. The pooled savings are used for internal lending. After the group develops financial discipline and a satisfactory repayment record, it becomes eligible for linkage with formal bank credit.
Statement 2 is correct. In an SHG, group responsibility and social collateral generally substitute for conventional physical collateral. When the group borrows from a bank and provides an internal loan to a member, the group collectively remains responsible to the bank for repayment.
Mutual familiarity, regular meetings, collective decision-making, savings discipline and peer pressure help ensure repayment. This mechanism enables small borrowers to obtain formal credit without conventional collateral.
Statement 3 is correct. Different categories of banks participate in the SHG-Bank Linkage Programme:
Scheduled Commercial Banks;
Regional Rural Banks; and
Cooperative Banks.
These banks open savings accounts for SHGs, evaluate their financial records and extend credit to eligible groups. NABARD supports the mechanism through policy assistance, training, refinancing and capacity building.
A typical SHG generally consists of 10 to 20 members from a broadly similar socio-economic background. It functions through regular savings, internal lending and collective repayment responsibility.