SHG-Bank Linkage Loan for Women Self Help Groups
SHG-Bank Linkage Loan: Financing Women Self Help Groups
SHG-bank linkage loans provide credit to women’s Self Help Groups engaged in agricultural and non-agricultural activities. This is one of India’s most successful microfinance schemes, helping women become financially independent. SHG loans are disbursed at concessional rates with government backing, making credit accessible to rural women.
Understanding SHG-Bank Linkage Loans
SHG-bank linkage is a scheme where banks extend credit to formally recognized Self Help Groups (SHGs) composed of 5 to 20 members, usually women. Groups manage funds collectively and lend to members based on group decisions. This democratic approach ensures responsible borrowing and high repayment rates. SHGs can engage in agriculture, livestock, or non-agricultural activities.
NABARD pioneered SHG-bank linkage. Banks across India offer these loans with government interest subsidies and credit guarantee schemes specifically designed for SHGs.
Interest Rates
SHG loans feature very affordable interest rates:
- Floating rates: 5% to 7% per annum (lower than most loans)
- Interest subsidy schemes: reduce rates to 2% to 3% or even 0%
- Credit guarantee: government backing for loans up to limits
- No processing fees: usually waived for SHGs
The government’s commitment to women’s financial inclusion means substantial support for SHG loans.
Who Can Join?
Eligibility for SHG-bank linkage:
- Women (minimum 5 in a group, maximum 20)
- Age: 18 to 65 years
- Located in rural areas or semi-urban areas
- Willing to save regularly (even small amounts)
- No previous default on bank loans
- Below a certain income level (varies by state)
SHGs are inclusive and welcome all women willing to save and work together.
Documents Needed
SHG-bank linkage requires minimal documentation:
- SHG registration certificate from authorities
- SHG bylaws or constitution
- List of all members with Aadhar and PAN
- SHG bank account statement (at least 6 months saving history)
- Proof of regular savings by members
- Minutes of SHG meetings approving loan
- Minutes showing loan amount approval and use
- Simple project or activity proposal
Documentation is minimal, making the process accessible to women with limited literacy.
How SHGs Get Bank Loans
The process for SHG-bank linkage:
- Form or Join SHG: Women organize as an SHG if not already formed
- Regular Saving: Group members save regularly (typically 100-500 per month)
- Bank Account: Open group bank account and maintain savings
- Build Trust: Accumulate 6 to 12 months of savings history
- Bank Visit: Meet bank officer with group documents
- Loan Application: Group applies for bank linkage loan
- Group Meeting: Bank meets group to understand needs
- Loan Approval: Bank disburses to group account
- Member Lending: SHG lends to individual members based on needs
The entire process from SHG formation to loan can take 6 to 12 months.
Frequently Asked Questions
Q: How much can an SHG borrow?
Bank linkage loans typically range from 5,000 to 1,00,000 rupees per group depending on group strength and bank policies.
Q: How much can I as an individual borrow from my SHG?
Typically 50,000 to 1,00,000 rupees per member depending on group funds and member’s need.
Q: What if I can’t repay my SHG loan?
The group collectively manages repayment. Social pressure ensures members repay, but groups support members facing genuine hardship.
Q: Can I use SHG loan for any purpose?
Yes, loans can be used for income-generating activities (agriculture, business, livestock) or consumption needs based on group’s decision.
