GRADING OF SHGs
Self help group grading are done by
Grading is done in SHGs after the period of six months. In the first grading the assistant project officer verify the group activities in the past six months. Verification is done with help of the NGO staffs. After the verification the is subjected to get Revolving fund from bank. At the time verification the group should submit the followings
The details of group members
The details of group meeting they organized periodically.
Their saving amount
Their details of credit flows
The second phase grading is done after the period of one year.in this grading they verify the repaying capability of the groups.after the second grading the groups are eligible to get the amount of four times of their saving in bank.At the time of second grading the group should submit the project report of the sctivities they are decided to start, the value of the activity should be the worth of Rs 2,000 per month as income generation.
There are 3 categories of groups based on age
The groups are graded A,B,C & D based on the points scored. The category III groups that are 4 years old and above, graded as A, it was felt would have achieved the requisite level for sustainability, and from these groups the TNCDW and the NGO can withdraw.such grading exercise is to be compared with the previous one and all project partners and beneficiaries need to assess how much further we have moved towards reaching the A grade.
Minimum Eligibility Criteria for Credit Rating :
SHG should have been in active existence for over 6 months. (the date of opening of the group’s bank account is taken as the date of SHG establishment)
Size of the SHG should be in the range of 10-20 members. In any case, it should not exceed 20.
SHG meetings should have been conducted at regular interval. (a minimum of 1 meeting per month) with a minimum overall attendance of 75%.
For 6 months or more SHG should not be a defaulter with any institution. The defaults by a few members of SHGs and/or their family members to the financing Bank should not ordinarily come in the way of financing SHGs per-se by banks, provided the SHG is not in default to it. However, a condition may be imposed that the bank loan should not be utilized by the SHG for financing a defaulter member to the bank. This will also help the bank recover its earlier dues, as opposed to a negative approach.
The recovery of internal loans and external loans (both principal and interest due) should not be less than 85%.
Atleast, 50% of group members should have taken internal loans from group fund.
Savings by all members in the group fund should be on a regular basis. The savings amount and frequency of savings are left to the decision of group / members.
The group should have maintained proper books of accounts.
The group must have well-defined rules and regulations approved by proper resolution.
The groups, which pass through the above screening process, by complying with all these 9 essential parameters, should alone be taken up for credit rating. Groups, which have not fulfilled all the 9 parameters, should be rejected in this first phase itself and should not be taken up for rating of groups. Such groups are always free to reapply when they fulfil the minimum criteria.
NEWS LETTER - MUTRAM
An in-house Tamil News letter that reaches out to every Self Help Group, Mutram has played a vital role in communicating experiences shared by various successful SHGs. It has also helped in disseminating Government policy information and Mahalir Thittam messages to both field workers, SHGs and project staff.
Mutram is supported by subscriptions from SHGs, contributors from UNICEF, NABARD, Tamil Nadu AIDS control society(TANSACS) and the state government. The news letter, which has completed nearly 3 years of active communication, is published by MUTRAM Society registered under Registration of Societies Act as Tamil Nadu Membattu Mutram. It is printed at DeW press Sivakasi.
SHG- LOAN FACILITIES
SHGs are provided with Revolving Fund of Rs 25,000-Rs 10,000 from the District Rural Development Agency and Rs 15,000 from bank -- after six months of their formation, and upon qualifying the first grading to kick-start the loaning activity
1.SHG group members are required to save regularly before they can actually get credit. This saving in a way acts as a collateral for the bank.
2.Though the bank gives loan to the group, which in turn is on lent to members, the joint liability clause generates peer pressure, thereby ensuring timely payments. These are the two main reasons for banks to go the whole hog in chasing SHG credit.
As per NABARD figures, 1.16 crore (11.6 million) poor families (approximately 5.80 crore (58 million) people) have been assisted through bank credit as of March-end 2003 and average bank loan per SHG works out to Rs 28,560. After receiving revolving fund, the activities of the group are monitored with regard to the usage of the funds, financial discipline, account keeping and once again graded.
The parameters for the second grading revolve round financial management of the funds provided. After the second grading, the successful groups become eligible for bank financing of economic activities. Bank loan is payable as per the project cost. There is no minimum or maximum limit prescribed. Banks normally charge 8.75 per cent to 9 per cent interest for SHG loans up to Rs 50,000. In fact, the average size of the loans is under Rs 30,000.
Among 504 banks that are active in financing SHGs, State Bank of India, Andhra Bank and Indian Bank have assisted the maximum number of self help groups. Cumulatively, Rs 2,049 crore (Rs 20.49 billion) bank loan has been disbursed to SHGs as of March-end 2003.
Points for attention of Bankers :
For opening of savings bank account of SHG, bankers may get introduction from the NGO/PIU concerned. This should not be mandatory, especially in cases where the SHG is formed on its own without NGO support. Insistence of certificates like nativity certificates, income certificates, etc., may be avoided.
Withdrawals from SHG account will be through pay-order or cheque. The banker may verify the group resolution recorded in the minutes book to this effect in case of doubt.
Bankers may grant cheque facility to SHGs over one year for ease of SHG working.
SHGs have to produce their internal rules and regulations and photos of authorised signatories to the bank.
Bankers may permit change of animators/representatives once a year. This is absolutely essential to ensure democratic and sustainable growth. The change of any of the authorised signatories of the account should be duly intimated to the bank through a group resolution.
SHG members are actively encouraged to go to banks by rotation to deposit their weekly savings. Bankers may support this so that there is overall development of each SHG member and avoiding domination by the animator or representative. There will be greater transparency in SHG operations as each SHG member would come to know of SHG transactions and drastically reduce potential for misappropriation by animator or representative.
The guidelines for selection of SHG over 2 years old for a bank loan are as under :
SHG, scoring 70 marks and more, can be considered for a credit limit, not less than 4 times of its savings.
SHG, scoring 50 - 69 marks, need not be considered for credit, at present. The SHG shall be motivated to improve its performance, keeping the current rating as the base; on improving the performance to the expected level, the group may be re-evaluated for selection at any time.
SHG, scoring less than 50 marks, should not be considered for credit assistance, now. The group may approach for re-evaluation, after a period of 6 months, on fulfillment of performance norms, as per rating chart.
However, while scrutinizing credit proposal of groups, following important aspects have to be taken into account.
Repayment of external loans: Some of the groups, irrespective of their age, may not have got the opportunity to avail of or may not have opted to avail of external loans. In such a case, the group shall be given the same marks for repayment of external loan, as that obtained by the group for repayment of its internal loans. This has to be done, to avoid any under-estimation of group’s performance. On the contrary, if such groups have taken loans from any external agency, eligible marks for repayment of external loans shall be given, as per the credit rating index.
From field testing, it is understood that, it is not possible for new groups, say, 6m-2 years old groups, to fulfill the following conditions.
a. Adequacy of group reserve fund. (5 marks)
b. Auditing of group accounts. (5 marks)
The total maximum scores allotted for these two parameters is 10, ie., 5 each. After deleting these two parameters, the maximum score for 6m-2 years old groups is fixed at 85 marks.
The guidelines for selection of 6m-2 years old SHG for bank loan are as under:
SHG, scoring 60 marks and more, can be considered for a credit limit, not less than 4 times of its savings.
SHG, scoring 35 - 59 marks, need not be considered for credit, at present. The SHG shall be motivated to improve its performance, keeping the current rating as the base; on improving the performance to the expected level, the group may be re-evaluated for selection at any time.
SHG, scoring less than 35 marks, should not be considered for credit assistance, now. The group may approach for re-evaluation, after a minimum period of 6 months, on fulfillment of performance norms, as per rating chart.
However, a performing 6 months -2 years old group, might have created group reserve fund and have audited their books. In such cases, the eligible marks shall be given to this group, as bonus marks and be evaluated.
The decision of the committee either to consider or reject the credit proposal is taken on the spot and committee members will record their recommendation on the application itself. The financing bank will have the final say in the matter based on the recommendations of the Joint Credit Rating Committee.
Lending power is left to the discretion of individual banks. However, it is desirable that all branch managers of all banks shall be given powers to sanction SHG loan, irrespective of limits, since SHG lending is a National Programme. This will facilitate quick processing of credit proposals.
Purpose of a loan is left to the discretion of group. Banker shall not compel the group to utilise loan proceeds for any particular purpose. It may be used for a common / group activity or specific enterprise by individual members. Number of members to whom the loan is to be distributed is also left to group’s decision. The loan may be utilised for productive purposes or consumption purpose or both. Experience shows that, initially, groups require more loans for consumption. As groups grow, consumption needs decline and more credit will be required for productive purposes.
Type of Loan :
Since most members will utilise SHG loans for rural farm and non-farm activities, which generate income at regular intervals, loans for Mahalir Thittam groups can be sanctioned as term loans. Bank may consider sanction of a second or subsequent loan to Self Help Groups, in consultation with the NGO and PIU, based on performance and prompt repayment of the earlier loan.
SHGs can receive revolving credit also from banks. Cash credit will avoid opening of many loan accounts in the name of same group in the long run. More the turnover (by way of larger and frequent credit) in the account, higher will be the total loans availed by SHG from the account, by way of any number of withdrawals by the SHG to meet members’ loan needs, upto the limit sanctioned. Based on the performance of revolving credit account and functioning of SHG, enhancement of the CC limit can be considered by bank at the end of every year. However, operational limit can be fixed on the basis of the savings ratio of the group during that year.
No margin is necessary, irrespective of loan amount. Group savings should not be blocked for meeting the margin money. Subsidy is not being contemplated under this scheme by DeW. However, other schemes, like TAHDCO and NBCFDC micro-credit schemes, will be dovetailed with MT and made available to SHGs, with the same minimum eligibility criteria and credit rating system.
Rate of Interest :
The present interest rate structure, as stipulated by RBI/NABARD at different levels under SHG-Bank linkage programme, is given below:
| NABARD to Banks (Refinance)
|Banks to Self Help Groups
||Deregulated (Banks are free to fix them as per RBI norms)
|Self Help Group to members
||As per SHG’s decision.
(* - Subject to revision from time to time as per RBI/NABARD guidelines.)
All group members are jointly and severally responsible for prompt repayment of loans. No collateral security will be insisted upon. Under no circumstances, group savings should be blocked of as security.
Loan will be released in one lump sum or in stages, as requested by group to the credit of group’s savings account. As per group’s resolution, group will draw the amount and sanction loans to needy members.
Term Loan : There is no holiday for repayment. No fixed repayment period can be prescribed. Repayment period may be decided by bank and SHG, jointly. The repayment schedule and instalment sizes may preferably take into account the seasonality of earnings of SHG members and should be reasonable.
Cash Credit : It will be allowed to continue as running account. However, the turnover in the account, (credit summations during the year) should not be less than the limit sanctioned. At the end of every year, the account has to be reviewed and renewed by the bank after studying the group’s performance. Credit limits may also be enhanced if the branch manager feels satisfied by performance and if the SHG is willing.
However, interest charged by the bank for both term loan and revolving credit has to be paid by the groups promptly. In case of SGSY or TAHDCO loans to MaThi SHGs, the methodology followed in these guidelines may be adopted with regard to credit rating as decided at the State level DeW review Committee in 1999.
Role of NABARD :
Assisting in formulation of credit guidelines.
Assisting in creation of SHG-friendly banking environment in districts and State.
Solving all field-level bank-related problems of SHGs through prompt intervention.
Providing refinance support to SHG credit to banks.
Ensuring inclusion of SHG credit outlay under District Annual Credit Plan and disaggregation into branch-wise credit.
Promotional assistance to NGOs/SHGs for their capacity building.
Providing training opportunities to banks, NGOs, and development agencies on SHG related aspects.
Assist through funding some of the training programmes
ALTERNATE CREDIT SOURCES
Besides bank credit, the NGOs may facilitate arrangement of SHG loans from other institutional sources. However, it should be ensured that SHGs avail of credit from only one source at a time, thus avoiding dual financing. Under exceptional cases, where bank is unable to meet all the credit requirements of a group, NGOs and others can lend to SHGs, during the currency of bank loan, for other activities, without affecting bank loan repayment. In such cases, priority shall be given for repayment of bank loans. PIU and Bank should be consulted by NGO/other financial agencies before extending second/subsequent credit to the same group which still has bank loan outstanding.
It is always better to allow the group to decide, independently, whether it is willing to avail credit either from bank or other sources. Similarly, groups and individual members can be given access to credit from suitable subsidy-oriented schemes from Government agencies like DRDA (SGSY), TAHDCO, KVIB, TABCEDCO, etc., without in any way diluting or violating existing credit guidelines.
While arranging credit from alternate sources the interest rates must also be on par with bank rates, or else it would be unjust and a burden on SHGs. The SHG must be made aware of the interest rates, term of the loan, instalment size and other conditions attached ab initio by the banker, PIU and NGO concerned. Or else, we will be doing injustice.
SHG – Bank linkage programme :
SHG are linked with banks for saving and credit operation. It’s a mandatory that all nationalized banks should provide finance assistance toSHGs. Apart from commercial banks shg can operate their account in primary co-operative banks also.
The SHG movement added a very significant dimension as it was to be linked with the micro finance. Micro Finance (MF) has now been widely accepted as an effective intervention strategy for poverty alleviation, which is easily accessible to the poor, reduces transaction cost and where repayments are designed to fit cash flow for the borrowers. Micro finance includes thrift, credit and other financial services and products of very small amount.
There may be various medium of micro finance; however, the most prominent among them has been the medium of SHGs. In 1992, national bank (NABARD) gave a fillip to the movement when it started the SHG-Bank linkage programme. This was the first major attempt to link the mainstream financial institutions with the informal groups, thereby, linking them with the market. Till then, the role of financial markets in poverty alleviation and its implications of developing an NGO constituency in financial service landscape had remained a grossly under-explored area in policy research.
Estimated 7000 mFIs are operating around the developing world of which around 1600 are in India. Out of these, 720 are involved in NABARD’s NGO-SHG-Bank Linkage Programme, 20 are partners of Grameen Trusts, there are 860 MACs, 3 NBFCs and section 25 company.