Financing to Self Help Groups

Financing to Self Help Groups (SHGs)
(Ref HO Circular No. AX1/Credit Priority/SHG /Cir.-93/2018-19 dated 03.12.2018)

Type of Facility

Cash Credit & Term Loan

Purpose

  • The loan amount will be distributed among members based on the Micro Credit Plan (MCP) prepared by the SHGs.
  • The loans may be used by members for meeting social needs, high cost debt swapping, construction or repair of house, construction of toilets and taking up sustainable livelihoods by the individual members within the SHGs or to finance any viable common activity started by the SHGs.
  • In order to facilitate use of loans for augmenting livelihoods of SHG members, it is advised that at least 50% of loans above Rs.2 lakhs and 75% of loans above Rs.4 lakhs be used primarily for income generating productive purposes. Micro Credit Plan (MCP) prepared by SHGs would form the basis for determining the purpose and usage of loans.

Eligibility

  • SHG should be in active existence at least since the last 6 months as per the books of account of SHGs and not from the date of opening of S/B account.
  • SHG should be practicing ‘Panchasutras’ i.e. Regular meetings; Regular savings; Regular inter-loaning; Timely repayment; and Up-to-date books of accounts;
  • Qualified as per grading norms fixed by NABARD. As and when the federations of the SHGs come to an existence, the grading exercise can be done by the Federations to support the Banks.
  • The existing defunct SHGs are also eligible for credit, if they are revived and continue to be active for a minimum period of 3 months.

Limit / Loan Quantum

  • Emphasis is laid on the multiple doses of assistance under DAY­-NRLM. This would mean assisting an SHG over a period of time, through repeat doses of credit, to enable them to access higher amounts of credit for taking up sustainable livelihoods and improve on the quality of life.
  • SHGs can avail either Term Loan (TL) or a Cash Credit Limit (CCL) loan or both based on the need. In case of need, additional loan can be sanctioned even though the previous loan is outstanding.
 

As per RBI guidelines, the amount of credit under different facilities should be as follows:

Cash Credit Limit (CCL):

In case of CCL, branches should sanction minimum loan of Rs.5 lakhs to each eligible SHGs for a period of 5 years with a yearly drawing power (DP). The drawing power may be enhanced annually based on the repayment performance of the SHG. The drawing power may be calculated as follows:

  • DP for First Year: 6 times of the existing corpus or minimum of Rs.1 lakh whichever is higher.
  • DP for Second Year: 8 times of the corpus at the time review/ enhancement or minimum of Rs.2 lakh, whichever is higher
  • DP for Third Year: Minimum Rs.3 lakhs based on the Micro credit plan prepared by SHG and appraised by the Federations /Support agency and the previous credit History.
  • DP for Fourth Year onwards: Minimum Rs.5 lakhs based on the Micro credit plan prepared by SHG and appraised by the Federations /Support agency and the previous credit History.
 

Term Loan:

In case of Term Loan, branches are advised to sanction loan amount in doses as mentioned below:-

  • First Dose: 6 times of the existing corpus or minimum of Rs.1 lakh, whichever is higher.
  • Second Dose: 8 times of the existing corpus or minimum of Rs.2 lakh, whichever is higher
  •  Third Dose: Minimum Rs.3 lakhs based on the Micro credit plan prepared by the SHGs and appraised by the Federations /Support agency and the previous Credit History
  • Fourth Dose: Minimum Rs.5 lakhs based on the Micro credit plan prepared by the SHGs and appraised by the Federations /Support agency and the previous Credit History.

Margin & Security

  • No collateral and no margin will be charged for Loans up to Rs.10.00 lakhs limit to the SHGs. No lien should be marked against savings bank account of SHGs and no deposits should be insisted upon, while sanctioning loans.

Rate of Interest

For Single SHGs              - 1 Year MCLR + BSS @0.50% + 3.25% ; Existing Rate : 11.05%

For Federations / NGOs  - 1 Year MCLR + BSS @0.50% + 2.75% ; Existing Rate : 10.55%

Repayment

  • The First year/ first dose of loan will be repaid in 6-12 months in monthly/ quarterly  instalments
  • The Second year/ Second dose of loan will be repaid in 12-24 months in monthly/ quarterly instalments
  • The Third year/ Third dose of loan will be repaid in 24-36 months in monthly/ quarterly instalments
  • The loan from Fourth year/ Fourth dose onwards has to be repaid between 3- 6 years based on the cash flow in monthly/ quarterly installments.