UNIT - 24

MICRO FINANCE INSTITUTIONS

■ Microfinance Institutions (MFIs): As per NABARD, MFIs are
defined as 'those which provide thrift, credit and other financial
services and products of very small amounts, mainly to the poor in
rural, semiurban or urban areas, for enabling them to raise their income
level and improve living standards."
■ A variety of MFIs that cater to the needs of poor exist in India, and
there are around 900 MFIs, with different legal forms, according to
which, MFIs can be categorised under three types:
• Not for profit MFIs - These are societies registered under the Societies
Registration Act, 1860, or similar Acts. They also include trusts set up, under the
Indian Trust Act, 1882 and "Not for Profit companies' established under Section
25 of the Companies Act, 1956 (now section 8 of the Companies Act, 2013).
• Mutual benefit MFIs - These include State and National Cooperatives and
Mutually Aided Cooperative societies, set up under the Mutually Aided
Cooperative Societies Act, which was enacted by the Government of Andhra
Pradesh, in the year 1955.
• For profit MFIs (NBFC-MFIs) - These are non-banking financial companies
(NBFCs), which are registered under the Companies Act and regulated by the
RBI. Most of the microfinance in India are through MFIs that fall in this
category. They form the largest category of MFIs.
 ■ SHG - BANK LINKAGE PROGRAMME
Bank linkages for SHGs involve, both, opening savings accounts and lending to
SHGS.
Linkage for Saving
■ The SHGs which are engaged in promoting savings habits among their members
are eligible to open savings bank accounts with banks. These SHGs need not
necessarily have already availed of credit facilities from banks, before opening
savings bank accounts, and the account will be opened in the name of the SHG.
■ Self Help Groups (SHGs), Customer Due Diligence (CDD) of all the members of
SHG are not required while opening the savings bank account of the SHG.
■ CDD of all the members shall be necessary at the time of credit linking of SHGs
 ■ Linkage for Borrowing
■ As per guidelines issued by NABARD, SHGS may be sanctioned savings
linked loans by banks (varying from a saving to loan ratio of 1:1 to 1:4).
■ However, in case of matured SHGs, loans may be given beyond the limit of
four times the savings, as per the discretion of the bank.
■ The loan would be in the name of the SHG and it is the SHG which is
responsible for repayment of the loan, Loan may be granted by the SHG for
various purposes to its members. The bank does not decide the purposes for
which the SHG gives loans to its members.
■ The purpose can be emergency needs like illness in the family, marriage, etc.,
or buying of assets for income generation acquisition of assets. Defaults by a
few members of SHGs and/or their family members to the financing bank
should not ordinarily come in the way of financing SHGs perse by banks,
provided the SHG is not in default.
■ No loan related and ad hoc service charges/inspection charges should be
levied on priority sector loans up to Rs 25,000. In the case of eligible priority
sector loans to SHGs/ JLGs, this limit will be applicable per member and not
to the group as a whole.
 ■ Linkage for Borrowing
■ RBI/NABARD guidelines stipulate that no collateral security should be taken
from SHGs, by banks.
■ Lending to SHGs constitute part of priority sector lending of banks and such
advances should be included as part of their lending to the weaker sections.
■ Financing to SHGs by banks are refinanced 100% by NABARD.
■ The SHG-bank borrowing linkage programme operates three models, which are:
■ Model I: NABARD-Bank-SHG. Under this model, SHGs are formed and
directly financed by banks. There is no NGO intervention.
■ Model II: NABARD-Bank-SHG (with NGO as a facilitating agency). Under this
model, the NGOs will promote SHGs and link them with banks. SHGs formed
by NGOs are also directly financed by banks. This is the most popular model and
a majority of the SHGs were financed by banks under Model II.
■ Model III: NABARD-Bank-NGO-SHG (with NGO as the financial
intermediary). Funds flow from banks to NGOs, and the SHGs are, thereafter,
financed by banks through the NGOs.
■ JOINT LIABILITY GROUPS (JLGs)
■ A Joint Liability Group (JLG) is a group of 4-10 people of same village/locality
of homogenous nature and of same socio-economic background who mutually
come together to form a group, for the purpose of availing loan from a bank,
without any collateral.
■ A few members of SHGs may graduate faster to start or expand economic
activities, requiring much higher levels of loans than other SHG members. In
such cases, other members may not like to stand mutual guarantee for large
sized loans for these members, and in such cases, a "Joint Liability Group
(JLG)" may be created consisting of such members of one or more SHGs.
■ The members of JLG will continue to remain members of the SHGs
and continue to participate in the activities of SHGs as earlier.
■ There may be certain deserving Small Farmers (SF)/Marginal Farmers
(MF)/Tenant Farmers/Oral Lessees/Share Croppers/Micro
Entrepreneurs/Artisans who have not yet been covered by SHGs, who
may also need bank loan for taking up livelihood/ farming activities.
■ The JLG formed of such members may also be provided with
adequate credit support by banks. Banks can use their own
assessment techniques, for determining terms and conditions
for lending to JLGs.
■ However, NABARD has developed a model assessment method
which banks can adopt, at their choice. Financing to JLGs by
banks are refinanced by NABARD to the full extent of the loans
provided by the banks to the JLGs.