PMF Individual task-1

Name: Saurabh hirekhan

Roll no: p39049

Question 1: In view of the above, pl work out the differences between the norms and
systems of SHGs guidelines and financing norms as issued by NABARD in 1992 and 2012
(SHG 2).
ANSWER:

The special features of the SHG-2 which brings out the desired difference are as follows:

1) Creating the provision for voluntary savings: As income levels of SHG members
improved, the tendency to save increased. Obligatory savings have increased, but in view
of the large rise in their income rates, the scale of this has been marginal for some
Members. This sparked the concept of voluntary savings.
2) Potential for multiple loans by SHG members but related to repayment capacity
and meeting higher living credit requirements: While SHGs are unified groups; few
members could graduate more quickly to start or expand economic activities requiring
much higher credit levels than other Group members. For a few large loans, the other
SHG members may not like to hold shared guarantee. In such circumstances, a smaller
"Joint Liability Group (JLG)" may be promoted from members of an SHG
3) Cash credit as preferred financing alternative: This facility is supposed to give SHGs
agility in fulfilling their constant and minor needs, as well as allow them to reduce their
borrowing costs. The loan cap was permitted based on the savings for a term of 3-5 years.
4) Aid for development activities to SHG federations: The Federations will be demand-
based rather than supply-driven in the long run. SHG federation will evolve according to
SHG needs
5) The best way to offer support services to SHGs is for leaders of well-functioning or
active affiliates of SHGs and NGOs or other organizations interested in supporting SHGs.
Banks may engage such entities as Business Facilitators to assist the bank in monitoring
the functioning of SHGs and in taking corrective action
In order to improving the banker’s comfort and confidence in financing of SHGs, a few risk
mitigation mechanisms, viz; self-rating tools by SHGs, conduct of audits at SHG level, etc are
recommended. The self-rating mechanism by SHGs is intended to educate SHG members of
their strengths and areas of concern in SHG’s functioning for initiating corrective steps. Audit in
SHGs is a third party assessment of SHGs’ operations while keeping SHGs’ own functioning
free and flexible
Following is also a brief table to work out with some differences:

Basic Structure The groups should be Group membership could be

preferably between 10 and 25 between 10-20 members.
members. Smaller groups with less than
10 people are also
provisioned

Type of savings Compulsory savings Voluntary savings

Purpose of lending
It would be necessary that the
group prepares a credit plan
for its members and an
aggregate of that is submitted
to the bank.
Loan granted by the bank to
the SHG is purpose neutral as
the group decides the purpose
for
which loan can be given to its
members

Interest Rates The rate of interest on the The banks would have the
bank loan to the SHG would discretion to decide on the
be 11.5% pa. interest rates applicable to
loans given to Self Help
Groups/member beneficiaries.

Awareness programs for The National Bank will help
Branch Managers
Considering the magnitude of
in organizing exposure and training requirements of bank
awareness program for officers both at field level and
Participating branch controlling office level, banks
managers and field staff as may initiate suitable steps
also for senior officers of the through their training
banks. Such programs could establishments.
be organized with the help of NABARD would be keen to
NGOs/SHPIs who have support and organize
undertaken SHG
activities on a significant
scale
 Question 2: Also assess whether is there any impact of savings norms modified in 2012
by doing a brief analysis based on 2ndary data (Microfinance in India 2012-13 and
2018-19) and any published data. The analysis may show whether any
decreasing/increasing trend of deposits of SHGs and credit provided to them as per
both the guidelines.
ANSWER:
The correlation between the two is supposed to lead to different benefits for both systems.
Under the linkage scheme, the key benefit for banks will be the outsourcing of part of the work
items of the credit cycle-appraisal of credit requirements, appraisal, disbursement, supervision
and repayment-reduction in the structured paper work, which would also lead to wider coverage
of the target community in the margins. Equally beneficial would be a bigger mobilization of
small savings. The advantages for the groups are access to a larger quantity of capital compared
to their limited thrift-generated corpus, access to better technology and skill-up gradation
through various banking sector schemes, and a general improvement in the nature and scale of
operations that would speed up development. SHGs are currently investing fixed sums in weekly
/ fortnightly / monthly meetings as mandatory savings. Development in rural economy and
incentives such as MNREGS and other schemes have positively affected the saving capacities of
the SHGs and their members. While many SHGs and their members have increased the amount
of needed savings over the years1; mandatory savings in SHGs are always restricted to a
member's lowest savings capacity. It has been observed that the ability and potential for savings
differ across members. Consequently, the idea of voluntary savings by members over and
beyond mandatory savings gives banks a chance.

Nonetheless, before SHG members graduate to the level of opening and maintaining individual
bank accounts, a suitable alternative structure within the community is required. SHG members
with greater savings capacity may be allowed to park their surplus fund within the group in the
form of voluntary savings in excess of the group's required savings and a suitable accounting
scheme may be introduced in the SHG for this reason. Voluntary savings can be done in two ways:

1) As component of group corpus and used for intra-group loans. In the case of (2), the
quantity of loan to the party from the bank will also be dealt with. However, it is
desirable that additional savings by group members do not entitle the members concerned
to seek in themselves a proportionately higher dosage of credit.
2) Not being the component of the group corpus.