Mudra Compass

Recently RBI has announced enhancement of collateral free loans to Self Help Group (SHGs) under Day – NRLM from Rs 10 lakh to Rs 20 lakh. The DAY- NRLM broadly known as Deendayal  Antyodaya – Yojana – National Rural livelihoods Mission is the flagship program of the Government of India for supporting the poor, particularly women, and enabling them to access a range of financial services to make their livelihoods easy.

The SHGs and Day-NRLM

A Self Help Group (SHGs) is an informal group of people, especially women, coming together to find ways to improve their livelihood and living conditions. People of similar socio-economic background are connected through help of NGOs and various activities or programs led by the Government to resolve their issues, and improve their living conditions.

DAY-NRLM is focused on building, nurturing and strengthening the institutions of the poor women, including the SHGs and their Federations at village and higher levels. This mission provides continuous support to the SGHs. Women SHGs under DAY-NRLM consist of 10-20 persons. In case of special SHGs i.e. groups in the difficult areas, groups with disabled persons, and groups formed in remote tribal areas, this number may be a minimum of 5 persons.

Financial Assistance to the SHGs

Commercial banks provide loans to SHGs.  The new direction from RBI will bring easy access of loans to SHGs. The other rules and regulations are same and there is no change except the enhancement of loan amount.

Revolving Funds – The Revolving Funds is provided to strengthen SHGs with institutional and financial management capacity and build a good credit history with the group. This is for a minimum period of 3/6 months with a range of Rs  10000 to maximum Rs 15000.

Community Investment Support Fund – This would be used by the Federations, to advance loans to the SHGs and/or to undertake the common/collective socio-economic activities.

There is other financial assistance also provided by the Government to support SHGs.

The eligibility criteria for individual SHG members and the SHGs to avail loans  

• SHGS should be in active status at least since the last 6 months as per the books of account of SHGs and not from the date of opening saving accounts.
• SHGs should be practicing ‘Panchasutras’ i.e.  regular meetings, regular savings, regular inter-loaning, timely repayment and up-to-date books of accounts.
• Qualified as per grading norms fixed by NABARD.
• The existing defunct SHGs are also eligible, but if they are revived and continue to be active for a minimum of 3 months.

Loan Application Amount

SHGs may avail either Term Loans or a Cash Credit Loans or both based on the need.The amount of credit under different facilities is as follow:

Cash Credit limit – The SHGs are eligible for minimum Rs 6 lakh for a period of 3 years with a yearly drawing power.

• DP for First Year: 6 times of the existing corpus or minimum of Rs 1 lakh whichever is higher.
• DP for Second Year: 8 times of the corpus at the time review/enhancement or minimum of Rs 2 lakh, whichever is higher.
• DP for Third Year: Minimum of Rs 3 lakhs based on the Micro credit plan prepared by SHG and appraised by the Federations/Support agency and the previous credit history.
• DP for Fourth Year onwards: Minimum of Rs 5 lakhs based on the Micro credit plan prepared by SHG and appraised by the Federations/Support agency and the previous credit History.

Term Loan – The amount is sanctioned in doses as mentioned below:

• First Dose: 6 times of the existing corpus or minimum of Rs 1 lakh whichever is higher.
• Second Dose: 8 times of the existing corpus or minimum of Rs 2 lakh, whichever is higher.
• Third Dose: Minimum of Rs 3 lakhs based on the Micro credit plan prepared by the SHGs and appraised by the Federations/Support agency and the previous credit history.
• Fourth Dose: Minimum of Rs 5 lakhs based on the Micro credit plan prepared by the SHGs and appraised by the Federations/Support agency and the previous credit History.

“For loans to SHGs up to Rs 10 lakh, no collateral and no margin will be charged. No lien should be marked against savings bank account of SHGs and no deposits should be insisted upon while sanctioning loans,” stated by RBI in Circular.

“For loans to SHGs above Rs 10 lakh and up to Rs 20 lakh, no collateral should be charged and no lien should be marked against savings bank account of SHGs. However, the entire loan (irrespective of the loan outstanding, even if it subsequently goes below Rs 10 lakh) would be eligible for coverage under Credit Guarantee Fund for Micro Units (CGFMU),” it said.

The RBI issued this notification after the Government of India notified the amendments in the Credit Guarantee Fund or Micro Units (CGFMU).