The document provides an overview of a study on self-help group (SHG) bank linkage practices in the states of Madhya Pradesh, Bihar and Karnataka in India. It examines the financial and operational performance of SHGs, including their savings, lending, borrowing, bookkeeping and interactions with banks. Some key findings are that compulsory savings contributions and discipline varies significantly across states, internal lending rates are generally higher than bank rates but penalties for defaults are often too low, and most SHGs require further training and support to improve their record keeping. The document concludes with recommendations around savings products, credit policies, default management and bank responsibilities.

1. Self Help Group Bank Linkage: Through the responsible Finance Lens
A study on state of Practice in SHG Bank Linkage in Madhya Pradesh, Bihar and Karnataka
Amulya K Champatiray
Parul Agarwal
Misha Sharma
IFMR Research, Chennai, India

2. Agenda
• Background
• Research Questions
• Methodology and sample
• Financial Performance
• Other Performance Indicators
• Overall Recommendations

3. Background
• SHG-BLP status as of March 2013
– 73.18 lakh savings-linked SHGs with savings balance of over INR 8217.25 cr
– 44.51 lakh credit-linked SHGs with bank loan outstanding of INR 39375.30 cr
– Over 95 million households covered as on 31st March 2013
• In March 2012, NABARD introduced ‘SHG-2’ with number of revisions
in the programme including
– Introduced the concept of ‘voluntary savings’ and
– Joint Liability Group of entrepreneurial-members with the SHG for income
generation activities
• In June 2011, NRLM was introduced that envisions SHGs as a delivery
mechanism of massive poverty alleviation initiative.

4. Research Objectives
• To understand the financial and non-financial interactions of SHG with
external agencies like banks and SHPIs
• To study the internal group dynamics in terms of financial transactions,
decision making, cohesiveness, transparency and acceptance towards
technology and new policy

5. Sample and Methodology
• 200 SHGs each spread across 2-3 districts in the states of
Bihar, Madhya Pradesh and Karnataka
• SHGs ranged in the age group of 1-6 years
• Data Collection Instruments:
– Leader module administered with leader
– Transaction module administered with leader and treasurer
– Members module administered with progressive and not so progressive
members
– Interviews with respective SHPIs

6. Sample Characteristics
State wise distribution of literacy levels among SHG members (%)
Literacy Level
Bihar
MP
Karnataka
Can read and write
16
20
38
Cannot read and write but sign
46
35
39
Can neither read nor write
38
44
22
State wise distribution of occupation among SHG members (%)
Occupation
Bihar
MP
Karnataka
Farm activities
54
81
56
Non-farm activities
41
18
27
Unemployed
5
1
17

7. Financial Performance
Performance and Policy implications on the following
aspects:
• Savings
• Lending and Borrowing
• Book Keeping

8. Savings: Performance
Details of Compulsory Savings
Details
Bihar
MP
Karnataka
9
(weekly)
3
(weekly)
114
(Monthly)
Percentage of groups where all the
members do not contribute to compulsory
savings
15
65
5
Percentage of groups where all the
members' savings are deposited in SHG
bank account
2.5
7.25
97.25
Average number of times a member has
defaulted in the group
4.5
2
0.4
Average number of times when a penalty
is paid for default
0
0.1
0.1
1394
1179
2875
Average Savings Amount per frequency
Average member's savings corpus

9. Savings: Default Management
Penalty and Interest Rate on
Savings
Bihar
MP
Karnataka
Average penalty amount for default
5
2
6
Percentage of groups with no penalty
84
76
60
Average interest rate on savings
0
0
2
100
100
47
Percentage of groups that do not offer
interest on members’ savings

10. Savings: Discipline among Members and Leaders
Leader
Member
Bihar
95.36
93.34
>3 Years
36.49
46.38
31.58
51.4
7.21
3.19
7.41
3.08
<=3 Years
95.83
93.75
% of Members and Leaders Never Defaulted on Savings
Leader
Member
MP
Leader
Member
Karnataka
% of Members Never Defaulted on Savings

11. Risk with SHG savings
Percentage of groups by the risks associated with saving with SHG
Risks
Bihar
MP
Karnataka
4.5
5.5
48
1
7
35.5
1
7.5
38.5
3
18
37
1.5
3.5
36
Loss in case of SHG defaulting a bank/
SHPI loan
Loss in case of default by a group
member for which she guaranteed
Loss in case of defaulting own loan
Utilization of money by SHG for
group activities that are personally not
relevant
Loss of Money due to poor accounting

12. Demand for the additional voluntary savings options
• None of the groups across the study SHGs are practicing the
concept of voluntary deposits
• A small fraction of SHGs faced a situation where some
members in the group wanted to save more than others.
– 4% of groups in Bihar,
– 7% in MP and
– 26% in Karnataka

13. Savings: Policy Implications
• Needs and implications of flexibility in saving product/s?
– Is it required across states/regions and SHGs? given the scenario
where a substantial number of members are not participating in the
compulsory savings
– What benefit member will gain apart-from creating capital? There
is no interest offered by SHG on member savings apart from few
exceptions (in Karnataka)
– Will it lead to conflict where majority of SHGs have a practice of
not depositing the member savings at bank account (with the
experience of poor bookkeeping)

14. Lending and Borrowing: Performance
Percentage of groups
Borrowing and lending practices of groups
98%
96%
91%
Groups that lend internally
42%
Groups that have borrowed
from bank in the last six
months
20%
9%
Bihar
MP
States
Karnataka

15. Internal Lending: Performance
Details of Internal Lending Policy
Details
Bihar
Average percentage of members/per SHG with loan
33%
outstanding as of 30th June 2013
Average loan size (minimum and maximum / in INR)
98 -5595
Average loan repayment period (min-Max in month)
% of groups where interest rates differ for different loans
% of groups where loan repayment period differs for
different loans
% of groups where members are penalized for defaulting on
repayment
Average minimum and maximum penalty rate for single
term default
MP
Karnataka
41%
38%
105 –
3210
5118 17850
1 - 12
1-6
9 - 13
1
5
8
52
79
18
7
22
17
6 – 13
4-7
15 - 17

17. Borrowing from bank and SHPI
Details regarding external
borrowings
Bihar
MP
Karnataka
BANK
SHPI
BANK
SHPI
BANK
SHPI
Percentage of SHGs whose loan
application has been rejected at
least once
12%
95%
7%
2%
19%
14%
Percentage of SHGs who have
taken more than one loan
2%
2%
21%
no
data
55%
4%
Average number of days taken to
process the loan
59
64
40
no
data
28
22
434254210
no
data
51231230270
47875398880
Average min and max amount
borrowed per SHG (in INR)
Average annual interest rate
charged
Average repayment period
(months)
Percentage of loans linked to
SHG corpus
21705- 3917154536 50374
13
13
12
0
14
10
23
41
-
0
22
18
23%
68%
26%
0%
48%
32%

18. Discipline among Members and Leaders in External
Loan Repayment
% of Members and Leaders Never Defaulted on External
Loan Repayment
Leader
Member
Bihar
Leader
Member
MP
Leader
67.02
13.83
62.5
no obs.
16.67
96.23
>3
100
87.5
97.39
93.66
97.78
91.94
<=3
Member
Karnataka

19. Loan default management
• Internal Lending
– A better system of penalizing the members need to be in place. Current
analysis shows that the penalty amount charged is not sufficient enough
to incentivize members not to default indicating a scope of raising the
penalty fee to control defaults further.
• Lending by Banks
– Considering the loan size and default rates, amount disbursed to SHGs
need to be checked which might currently be too high for MP and
Karnataka and a little low for Bihar.

20. Cost on bank loan
•
Interest rate on bank loans is charged at 12% to 14%
•
Opportunity cost during the loan process: Rs. 100 - 140 per member per day.
•
Average total transportation cost per SHG in processing bank loan
– Bihar 111
– MP 518 and
– Karnataka 1,803
•
Processing fees being charged on their bank loans,
– MP 268
– Karnataka 610 and
– Bihar - not reported
•
Loan account maintenance
– MP 500
– Karnataka 313 and
– Bihar – not reported
•
Insurance contribution i.e. linked to their loan: Karnataka Rs. 8,736

21. SHG Interaction with Bank
The average time taken during interaction with bank to facilitate regular
transaction of deposit and withdrawal:
• about 60 minutes in the case of Bihar and MP,
• 30-45 minutes in the case of Karnataka
Percentage of groups by the type of assistance provided by the bank in the loan
application process
Type of assistance
Bihar
MP
Karnataka
Filling loan application
Guidance and information on required documents
for loan
17
54
78
15
51
75
Promptly conducting due-diligence (rating)
3
23
75
Providing assistance/guidance in making SHG
eligible for loan
4
40
69

22. Lending and Borrowing: Policy Implications
• Without proper mechanism of default management among substantial
number of SHGs – would the soft loan / revolving fund be beneficial or
will it create conflicts?
• What should be the priority for SHG and SHPI – to offer more credit
products or timely sanction of existing credit product?
• Are banks prepared to take on more responsibility of managing funds
that will come up with the structural and functional changes
introduced?

23. Book-Keeping: Performance
Status of Book-Keeping
States
% of SHGs NOT
Recording of
maintaining books
meeting (minutes)
of accounts
regularly
Training on bookkeeping
99%
(recorded after the
meeting)
93%
7%
44% SHGs received training
90% demand for more training
MP
(recorded during
the meeting)
87%
3%
20% SHGs received training
90% demand for more training
Karnataka
(10% of SHGs do
not maintain
meeting minutes)
2%
32% SHGs received training
78% demand for more training
Bihar

24. Book-Keeping: Quality (accuracy, clear and timely update):
Karnataka
MP
Bihar
Overall
observation
Majority of the SHGs were maintaining high standard of business records
A smaller fraction of SHGs face difficulty in updating passbooks due to
increase in migration of group members
Most of the groups are depending on the SHPI/s for maintaining their
records
Groups in MP are performing second best after Karnataka.
A small section of SHGs (5% to 10%) in MP reported of problems with
record keeping
Most of the groups are depending on the SHPI/s for maintaining their
records
Though books were updated but there are concerns of clarity and accuracy
in their records
A large section of SHGs are lagging behind due to lack of timely
availability of required stationaries
• Technology: None of the sample SHGs use any form of technology for their
record keeping
• A lack of proper quality control mechanism in place

25. Book Keeping: Policy Implications
• With the current standard of book-keeping
– it will be difficult to manage voluntary savings – it might lead to
group conflict
– Managing soft-loan and revolving fund will be difficult and
specifically JLG loan management will be a challenge
– Groups’ involvement in community development work will be
difficult to check and track

26. Other Indicators: Transparency
Members’ awareness on group policy:
For a meagre 1.17% of the groups
Karnataka
•
Awareness regarding bank's
lending policy
across the SHGs under study were the
members not well versed with the
68
64
~Prog
Interest rate
at which
group have
borrowed
from bank
81
79
Prog
group’s policies.
15
15
MP
15
16
Prog
Sharing of financial status with members
States
~Prog
in every meeting
98% in Bihar,
•
87% in MP
•
84.21% in Karnataka
–
11.58% SHGs in Karnataka share it
only when a member asks for it
59
~Prog
20
Bihar
•
Total amount
of bank loan
outstanding
61
Prog
25
0
50
Percentage of groups
100

27. Information sharing and use of technology
•
About 90% of the sample SHGs
believes technology can help in
improving the standards of bookkeeping (regular and accurate
updating of records).
•
A significant number of SHGs across
study states (18.95% in
Karnataka, 25.63% in MP and 28% in
Bihar) expressed their willingness to
adopt technology.
•
SHGs are willing to pay a range of
Rs. 3000 to Rs. 10000

28. Other Indicators: Social Performance
Percentage of groups by the topics and frequency of discussion
Financial
Social (Comm.
Based)
Political
Development
of the village
48
1
81
18
1
1
43
56
23
69
8
52
42
6
3
23
74
8
53
39
12
43
45
2
40
58
29
64
7
32
47
21
Never
51
When
needed
Regular
1
Never
98
When
needed
1
Never
Regular
Karnataka
When
needed
Topics
MP
Regular
Bihar

29. Other Indicators: Social Performance
Percentage of groups
Group activities performed for the community
120
100
27
80
60
40
20
0
75
47
23
9
27
7
15
7
15
29
38
60
6
15
48
20
10
3
SHG Activities performed for the community
58
3
Karnataka
MP
Bihar

30. Other Indicators: Member dropouts

31. Other Indicators: Perception on SHGs capacity
SHPIs’ perception on social performance of
SHGs
•
Participation of SHGs in community
development activities:
–
•
about 60% SHGs looks for assistance from
SHPIs across study states
SHGs’ capacity of adopting SHG 2 and
Livelihoods promotion program:
–
SHPIs in Karnataka and Bihar believe that a
large section of SHGs are capable of
adopting the revisions
40
30
20
10
17
47
35
33
32
Whenever
Scheduled
29
22
18
44
44
42
Whenever
Possible
33
23
14
12
0
Bihar
MP
States
~ Progressive
Dealing with External Agencies:
49
Progressive
•
SHPIs believe SHGs have limitations in
addressing the community level issues on
their own – they look at the SHPIs for support
55
51
~ Progressive
–
50
Progressive
Addressing community level issues:
~ Progressive
•
60
Progressive
–
SHPIs in Karnataka and Bihar rated high on
performance of SHGs
SHGs performance in MP is moderate
Percentage of groups
–
Frequency of participation in
SHPI activities (%)
Karnataka
Never

32. Overall Recommendations
•
•
•
•
•
Fund and Default Management
Transparency and Accountability
Engagement of External Institutions
Conflict Resolution
Community Level Sensitization

33. Thank you
For further questions and discussion please write to the researchers at:
amulyakrishna.champatiray@ifmr.ac.in
parul.agarwal@ifmr.ac.in
misha.sharma@ifmr.ac.in