What changed
RBI issued a Master Circular consolidating all existing guidelines/instructions/directives on Micro Credit issued up to June 30, 2005. It reaffirms the definition of micro credit and the SHG-Bank Linkage Programme criteria, including group existence of at least six months, savings habit, membership of 10-25 persons, and treatment as weaker section advances under priority sector.
What it means for you
Banks now have a single reference document for micro credit norms, reducing compliance ambiguity. The circular reinforces that SHG advances qualify as priority sector lending to weaker sections, with relaxed margin and security norms. This encourages banks to expand SHG lending, leveraging high recovery rates and lower transaction costs observed in the programme.
What you must do
- Update internal policy manuals to reference this Master Circular as the single source for micro credit guidelines.
- Ensure SHG lending meets the eligibility criteria: group existence ≥6 months, active savings, membership 10-25, and treat as weaker section advances.
- Apply relaxed margin and security norms for SHG loans under the pilot project framework.
- Monitor SHG loan portfolio for priority sector classification and recovery performance.
Who it affects
All scheduled commercial banks, NABARD, Self Help Groups (SHGs), Non-Governmental Organizations (NGOs) facilitating SHGs, Rural poor, marginal farmers, landless labourers, petty traders, artisans
What is the definition of Micro Credit as per this Master Circular?
Micro Credit is the provision of thrift, credit, and other financial services of very small amounts to the poor in rural, semi-urban, and urban areas to help raise their income and living standards.
What are the key eligibility criteria for an SHG to be linked with a bank?
The SHG must be in existence for at least six months, actively promote savings, have membership between 10 and 25 persons, and can be formal (registered) or informal (unregistered).
How are SHG advances treated for priority sector purposes?
Advances given by banks to SHGs are treated as advances to 'weaker sections' under the priority sector, with relaxed margin and security norms as per the pilot project guidelines.