Self-Help Groups

The RBI has allowed urban cooperative banks (UCBs) to give loans to selfhelp groups (SHGs). This decision by the RBI is definitely going to promote financial inclusion in the nation in addition to expand the scope of UCBs. If the reach of the UCBs is expanded, it will result in promoting financial inclusion. According to the latest guidelines of the RBI, lending to SHGs and JLGs (Joint Liability Groups) would be considered as normal business activity of the bank. UCBs will be required to frame a comprehensive policy on lending to SHGs and JLGs. The maximum amount of loan to SHGs should not exceed four times of the savings of the group. With regard to loans given to JLGs, the guidelines stated that the JLGs were not obliged to keep deposits with the bank and hence the amount of loan granted to them would be based on their credit needs and the bank’s assessment of the credit requirement.
Definition of Self-Help Group:
A Self-Help Group is a small voluntary association of poor people preferably from the same socio-economic back drop. The micro-credit given to them makes hem enterprising; it can be all women group, all-men group or even a mixed group. However, it has been the experience that women’s groups perform better in all the important activities of SHGs. In other words we can define the SHGs as a group of micro entrepreneurs with homogeneous social and economic background who voluntarily come together to save small amounts regularly and mutually agree to contribute to a common fund to meet their emergency needs.
Defining Joint Liability Groups:
A Joint Liability Group (JLG) is an informal group comprising preferably of 4 to 10 individuals coming together for the purposes of availing bank loan either singly or through the group mechanism against mutual guarantee. The JLG members are expected to engage in similar type of economic activities. The management of the JLG is to be kept simple with little or no financial administration within the group. JLGs can be formed primarily consisting of tenant farmers and small farmers cultivating land without possessing proper title of their land.