What changed
This master circular supersedes the July 2006 version, consolidating all RBI instructions on micro credit issued up to June 30, 2007. It retains the definition of micro credit, SHG-bank linkage criteria, and NBFC micro-financing guidelines. No new policy changes were introduced; it is a compilation exercise.
What it means for you
Banks must continue treating SHG advances as priority sector lending to weaker sections, with flexibility on margin and security norms. The circular reinforces the SHG-bank linkage model as a key channel for rural credit, emphasizing women's groups (about 85% of linked groups are formed exclusively by women). Lenders should expect continued NABARD support and refinance for SHG programs.
What you must do
- Update internal policy manuals to reference this master circular as the governing instruction for micro credit.
- Ensure SHG lending adheres to NABARD's selection criteria: groups existing at least six months, with 10-25 members and active savings habits.
- Maintain priority sector classification for SHG advances to weaker sections, applying relaxed margin and security norms where needed.
- Monitor recovery performance and transaction costs, leveraging nearly 100% recovery performance observed in SHG linkage studies.
Who it affects
All scheduled commercial banks, NABARD, Self-Help Groups (SHGs), Non-Banking Financial Companies (NBFCs) engaged in micro-financing, Non-Governmental Organizations (NGOs) promoting SHGs
What is the definition of micro credit under this 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 income and living standards.
Are SHG loans still treated as priority sector advances?
Yes, advances to SHGs are treated as advances to 'weaker sections' under priority sector, with banks allowed flexibility on margin and security norms.
What are the key criteria for SHGs to be eligible for bank linkage?
SHGs must be in existence for at least six months, actively promote savings, have 10-25 members, and can be formal or informal. NABARD provides detailed operational guidelines.