What changed
RBI issued a Master Circular consolidating all existing guidelines on the SHG-Bank Linkage Programme up to June 30, 2011. This replaces earlier individual circulars with a single reference document for banks.
What it means for you
Banks now have a unified set of instructions to streamline SHG lending, which is expected to lower transaction costs and improve recovery rates. The circular reinforces that SHG linkage is a cost-effective way to reach rural poor, especially women, and should be treated as a business opportunity.
What you must do
- Review and implement the consolidated SHG-Bank Linkage guidelines from the Master Circular.
- Design area-specific loan packages for SHGs based on local needs and potential.
- Prioritize lending to women-led SHGs, as they form 85% of linked groups.
- Treat SHG linkage as a business opportunity to reduce transaction costs and improve recovery.
Who it affects
All Scheduled Commercial Banks, Rural branches and microfinance departments, SHG promoting agencies like NGOs and NABARD
What is the main purpose of this Master Circular?
It consolidates all existing RBI guidelines on the SHG-Bank Linkage Programme into one document, making it easier for banks to access and implement the rules.
Why does RBI emphasize SHG lending?
SHG linkage reduces transaction costs for banks and borrowers, improves loan recovery (nearly 100%), and helps reach rural poor, especially women, who are often excluded from formal credit.
What should banks do differently after this circular?
Banks should treat SHG lending as a business opportunity, design customized loan packages for local needs, and focus on women-led groups, which make up the majority of linked SHGs.