Q.What is the SHG-Bank Linkage Programme? Explain its significance in promoting rural microfinance in India.

The SHG-Bank Linkage Programme is the mechanism through which SHGs move beyond their own small internal fund and access much larger amounts of formal bank credit.

An SHG's own pooled savings can only support small, limited internal loans among its members, but many members eventually need larger amounts of credit than the group's own thrift fund can provide. The SHG-Bank Linkage Programme was developed to bridge exactly this gap by connecting established, well-functioning Self Help Groups directly to the formal banking system. The programme is facilitated at the national level by the National Bank for Agriculture and Rural Development (NABARD), working together with commercial banks, regional rural banks, and cooperative banks.

Under this programme, once an SHG has built a track record of regular savings and disciplined internal repayment over a period of time, a bank opens a savings account in the name of the group and subsequently extends credit directly to it — often for an amount that is a multiple of the group's own accumulated savings. The group then on-lends this bank credit to its individual members on the same collective basis it uses for its own internal funds, while the group as a whole remains responsible to the bank for timely repayment. …

Students sometimes describe only the SHG's own internal lending and forget to mention the bank's role and NABARD's facilitating role — the SHG-Bank Linkage Programme is specifically about connecting t …