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The SHG-Bank Linkage Programme is the flagship microFinance intervention of NABARD. The launching of Pilot phase of the programme in 1992 could be considered as a landmark development in the banking with the poor. The informal thrift and credit groups of poor came to be recognised as bank clients under the Pilot phase. The Pilot phase was followed by setting up of a Working Group on NGOs and SHGs by the Reserve Bank of India in 1994, which came out with wide ranging recommendations on internalisation of the SHG concept as a potential intervention tool in the area of banking with the poor. The Reserve Bank of India accepted most of the major recommendations and advised the banks to consider lending to the SHGs as part of their mainstream rural credit operations.

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The basic Principles on which SHG works:-

• The members of the groups should be residents of the same area and must have an affinity. Homogeneity of relationship could be in terms of caste/occupation/gender or economic status (which is critical).
• Savings first, credit thereafter
• SHGs should hold regular meetings
• SHGs should maintain record of financial and other transactions
• They should have norms regarding membership, meetings etc.
• Group leaders should be elected by members and rotated periodically
• Transparency in operations of the group and participatory decision making
• Rates of interest on loans should be decided by the group
• Group liability and peer pressure to act as substitutes for traditional collateral.

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