Micro Credit / SHG

Micro Credit is defined as provision of thrift, credit and other financial services and products of very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve living standards. Banks have discretion to devise appropriate loan and savings products and the related terms and conditions including size of the loan, unit cost, unit size, maturity period, grace period, margins, etc. Such credit covers not only consumption and production loans for various farm and non-farm activities of the poor but also include their other credit needs such as housing and shelter improvements. Banks, NBFCs, NGOs and other institutions/organizations are allowed to undertake activities relating to Micro Credit in India. The introduction of the ‘Self Help Groups (SHG)’ format and the nationalized banks’ lending system helped accentuate the importance of the same.

SHG is a registered or unregistered group of micro entrepreneurs having homogenous social and economic background voluntarily, coming together to save small amounts regularly, to mutually agree to contribute to a common fund and to meet their emergency needs on mutual help basis. The group members use collective wisdom and peer pressure to ensure proper end-use of credit and timely repayment thereof. It is aimed to inculcate saving habit and encourage thrift to undertake lending among the members. In the process, it boost the confidence to carry out the activities with ease and paves the way for self-reliance. The membership of the group could be between 10 to 25 members. If more than 20 members are there, the group should be registered.

Pre-requisites for financing: Groups with 6 months of savings, regular meetings, regular thrift habit and habituated internal lending and ‘A’ or ‘B’ rating as per Critical Rating Index are eligible for bank finance.

Dose Period Regular loan Debt Swapping Housing
First Having regular
savings at least for
6 Months
4 times of savings /
corpus or Rs.50000/-
whichever is higher
Minimum Rs.25000/- or
50% regular loan
limit whichever is
higher subject to
extent of debt.
subject to
per group
Second Minimum of 12
Months from the
date of availment
of first dose of
Rural SHGs: 10 times
of savings / corpus or
Rs.100000/- whichever
is higher. In case of
Urban SHGs, the
eligibility is 1.50 lakh.
Minimum Rs.50000/-
for rural SHGs and
Rs.75000/- for urban
SHGs or 50% regular
loan limit whichever
is higher subject to
extent of debt.
Third &
Minimum of 18
months from the
date of availment
of Second dose of
Eligibility as per Micro
Credit Plan (MCP)
40% of MCP or to the
extent of debt
whichever is lower
subject to maximum
of Rs.200000/-
Note: Minimum savings of the group should not be less than 10% of the loan amount.

Corpus includes Balance amount in SB account, Amount held as cash with authorized persons, Amount lent internally among members, Amount received as interest on loans from members, any other contribution received by the group like Grants, Donations and fund provided by Government

Debt Swapping: Financing to the group members for repayment of loans availed by them from non-institutional lenders i.e. Private Money lenders. It is only one time measure.

However, for Rural SHGs – the maximum amount allowed to each SHG Group is Rs.1.75 lakhs, Rs.2.50 lakhs and Rs.5 lakhs under First, Second and third dose respectively; and for Urban SHGs, the maximum amount allowed to each SHG Group is Rs.1.75 lakhs, Rs.3.25 lakhs and Rs.5 lakhs under First, Second and third dose respectively. Recently, the upper ceiling limit is increased from Rs.5 lakh to Rs.10 lakh without collateral security for the groups undertaking income generation activities under agriculture/allied activities. Credit facility to SHGs up to Rs.7.50 lakhs (with less than 36 months) and up to Rs.10 lakh (Above 60 months) in other cases are classified under SME category. (Cir no.453 Ref 19/46 dated 06.02.2013)

In order to mitigate the hardships faced by SHGs with regard to documentation, Banks are advised to extend finance (renewals/fresh) by way of Cash Credit facility only. Further, they advised to convert all outstanding term loan accounts into Cash Credit immediately. The validity period of the limit is 5 years subject to annual review. No cheque book is issued to this account. No excess drawals and adhoc limits are allowed in these accounts.

Interest Rate: The applicable interest rate for SHGs is Base Rate + 3.25% irrespective of the amount of finance. AP State Government has introduced “Vaddi Leni Runalu (VLR)” scheme where the state Government reimburse the full interest for the SHG loans who repay the loans promptly and the reimbursement will be done to the group at half yearly intervals. However, this facility is limited to the loans upto Rs.5 lakh only. The reimbursement is to be credited to group’s savings bank account, but not to the SHG loan account.

Mandal Mahila Samakhyas consists of maximum 500 SHGs as members covering 20 to 30 Village Organisations (VOs) operating in a mandal. Vos/SHG Federation/MMS are to be registered under AP Mutually Aided Cooperative Societies Act 1995 to avail finance from Banks subject to Minimum two years of existence with audited balance sheet; “A” rating by External Agency i.e. Chartered Accountant; The maximum eligible amount is 10 times of the Networth of VOs (savings contributed by each SHG to VOs on monthly basis, interest earned on savings and internal lending, revolving fund if any) or 80% of Micro Credit Plan (MCP) whichever is lower subject to borrowing clause incorporated in the byelaws.

Society for Elimination of Rural Poverty (SERP): The introduction of SERP is aimed at strengthening of SHG Bank Linkage program and to augment credit flow in orderly manner in the State of Andhra Pradesh. Our Bank entered MOU with SERP to undertake initiatives such as capacity building, rating of SHGs, preparation of Micro Credit Plan, activating community based recovery mechanism, imparting training to improve book keeping etc. (Cir.no.268 Ref 19/15 dated 25.10.2010)