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 boosts 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.

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