7. Road to Sustainable SHG-Bank Linkage Programme: Formulating Strategies for Managing Credit Risk with Respect to Rural Bengal

Abstract

To alleviate poverty and unemployment in villages and to include rural India under a structured financial system, the government, through institutions like National Bank for Agriculture and Rural Development, has been trying to promote Self Help Groups (SHGs) by financing their projects. These rural SHGs have been financed mostly by the semi-urban bank branches, rural bank branches, Regional Rural Banks, microfinance institutions and regional cooperative banks. However, the financial institutions are burdened with huge losses due to non-repayment of loans availed by the SHGs which leads to accumulation of Non-performing Assets. Moreover, the bank managers are held responsible in case of such default, their superannuation benefits being either curtailed or delayed. This has made them all the more reluctant to further finance the SHGs. This situation adversely affects the birth of new SHGs and the existing groups are forced to embrace local moneylenders at an exorbitant rate of interest. Hence, the government’s effort to financially reach out to the poor through SHGs seems to be a rather difficult task. This article focuses on formulation of strategies for managing credit risk of SHG as an effort to make the SHG-Bank linkage programme sustainable. It is framed from the viewpoint of the banks, concentrating on their approach towards financing SHG projects.