The SHG Bank Linkage has been proved to be successful in providing access to financial services from the formal Banking Sector to the poorest of the poor. In order to develop effective credit products for small / marginal / tenant farmers, oral lessees and share croppers, as also entrepreneurs engaged in various non-farm activities, the scheme for Joint Liability Groups was launched.
Objectives of the scheme:
- To augment flow of credit to farmers, especially small, marginal, tenant farmers, oral lessees, share croppers / individuals taking up farm activities.
- To serve as collateral substitute for loans to be provided to the target group.
- To build mutual trust and confidence between bank and the target group.
- To minimize the risks in the loan portfolio for the banks through group approach, cluster, approach, peer education and credit discipline.
- To provide food security to vulnerable sections by enhanced agriculture production, productivity and livelihood promotion through JLG mechanism.
General Features of JLG
A Joint Liability Group (JLG) is an informal group comprising of 4-10 individuals coming together for the purpose of availing bank loan on individual basis or through group mechanism against mutual guarantee. Generally, the members of a JLG would engage in a similar type of economic activity in the Agriculture /Allied /Non – Farm Sector. The members would offer a joint undertaking to the bank that enables them to avail loans.JLG members are expected to provide support to each other in carrying out occupational and social activities.
Criteria for membership
- Members should belong to similar socio-economic status, background and environment carrying out farming and Allied activities and who agree to function as a Joint Liability group. This way the groups would be homogeneous and organized by likeminded farmers/individuals and develop mutual trust and respect.
- The members should residing in the same village /area/ neighborhood and should know and trust each other well enough to take up Joint Liability for group/ individual Loans.
- Members who have defaulted to any other formal financial Institution, in the past ,are barred from the Group Membership.
- More than one person from the same family should not be included the same JLG.
- All members of all the JLG should be active enough to assume leadership of the group to ensure the activities of the JLG. The selection of an effective/able/active leader for the JLG is the essential as this will ultimately benefit all the JLG members. The leader fosters a sense of unity, oversees and maintains discipline, shares information and facilitates repayments. For the bank, he is the focal point for group activities.
- The JLG should hold regular meetings which must be attended by all the members regularly to discuss issues mutual interests.
- The principles of self-help and group strength need to be emphasized. Group cohesion has to be ensured. Adequate emphasis should be placed on the roles, expectations and functions of the group/ members & the benefits of group dynamics.
- The JLG can easily serve as a conduit for technology transfer, facilitating common access to market information, for training and technology dissemination in activities like soil testing, training and assessing input requirements.
- The JLGs for specific activity, e.g. production of pulses/vegetables/fruits or weaving may be federated at village/ block level for development of the product.
- The JLGs in the clusters on their stabilization could come one together in the form of cluster federation or producers’ companies with a view to contributing the entire value chain and thereby achieving economics of scale in procurement, processing and marketing of the produce.
- The JLGs and evolving JLG structures are expected to build up empathy and understanding and create responsive lending mechanisms leading to greater introduction and interdependence between the members of JLGs.
Who can form JLGs
Business Facilitators, NGOs, Farmers Clubs, Farmers Associations, Panchayat Raj Institutions (PRIs), Krishi Vikas Kendras (KVKs), State Agriculture Universities (SAUs), Agriculture Technology Management Agency (ATMA), Bank branches, PACS, other cooperatives, Govt. Depts., Individuals, Input dealers, and Document writers (in cooperative banks), MFIs / MFOs, etc.
JLG members need to be encouraged to save regularly. Bank may open savings account by the JLG/ individual members of the JLG to ensure regular savings and thrift habit amongst them. However the quantum of loan to be given to the groups should be related to the credit needs of the enterprise and not to the quantum of savings.
Banks can finance JLGs by adopting any of the two models:
- Model A- financing individuals in the JLG
Each member of the JLG should be provided an individual KCC / GCC or term loan. The financing bank could assess the credit requirement, based on the crop to be cultivated, available cultivable land /activity to be undertaken and the credit absorption capacity of the individual. Similar assessment of credit need would be done in case of off-farm activities like dairy, poultry, etc. and nonfarm activities. All members would jointly execute a loan document, making each one jointly and severally liable for repayment of all loans taken by all individuals belonging to the group.
The mutual agreement needs to ensure consensus among all members about the amount of individual debt liability that will be created including liability created out of the individual KCC. Any member opting out of group or joining the group, will necessitate a new loan agreement, to be kept on record in the bank branch.
- Model B – financing the JLG
The JLG functions, operationally as one borrowing unit in this model. The group would be eligible for accessing one loan, which could be combined credit requirement of all its members. The credit assessment of the group could be based on the available cultivable area of each member of the JLG/ activity to be undertaken for farm sector, off-farm sector or non-farm sector. All members would jointly execute the document and own the debt liability jointly and severally.
The mutual agreement needs to ensure consensus among all members about the amount of individual debt liability that will be created. Any change in composition of the group, will lead to a new document being registered by the bank branch.
Credit to JLG s form normal business activity under Priority Sector
Provision of credit and other financial services of very small amounts not exceeding 50,000 per borrower, either directly or indirectly through or in directly through a SHG/JLG mechanism will constitute micro credit-a category under priority sector as per RBI guidelines.
Incentive for promotion of JLGS
To facilitate promotion of JLGs, banks are eligible for grant assistance from NABARD. Grant assistance will be extended to banks/other institutions for formation, nurturing and financing of JLGs over a period of 3 years @ Rs: 2000 per JLG.
The first installment of Rs. 1000/- would be released to the Bank/ other institutions after sanction of loan by the bank. The 2nd and 3rd installment would be released, based on certification from the banks about prompt repayment by all members of the group.
Banks may undertake capacity building measures like conduct of training programmes for stakeholders, awareness and sensitization of JLG concept both for bank’s own staff as well as the target group. The bank’s operating staff should be familiar with the concept, benefits for the banks and clients under the programme. NABARD would consider supporting capacity building programmes for Bank’s staff and other publicity measures, such as publication of pamphlets/ leaflets, use of media (print as well as others), etc. for greater awareness and orientation.
NABARD will provide 100% refinance assistance to all banks in respect of their leading to JLGs.
Bankwise Progress As of September 2019