Master Circular on Micro Credit

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....ours faithfully (Deepali Pant Joshi) Chief General Manager in-Charge Encl: As above Master Circular on Micro Credit 1. Micro Credit Micro Credit has been defined as the provision of thrift, credit and other financial services and products of very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve their living standards. Micro Credit Institutions are those, which provide these facilities. 2. The Self Help Group (SHG)- Bank Linkage Programme Despite the vast expansion of the formal credit system in the country, the dependence of the rural poor on moneylenders continues in many areas, especially for meeting emergent requirements. Such dependence is pronounced in the case of marginal farmers, landless labourers, petty traders and rural artisans belonging to socially and economically backward classes and tribes whose propensity to save is limited or too small to be mopped up by the banks. For various reasons, credit to these sections of the population has not been institutionalized. The studies conducted by NABARD, APRACA and ILO on the informal groups promoted by ....

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....he Chairmanship of Shri S.K. Kalia, the then Managing Director, NABARD. As a follow up of the recommendations of the Working Group, banks were advised in April 1996 as under: a) SHG Lending as Normal Lending Activity The SHGs linkage programme would be treated as a normal business activity of banks. Accordingly, the banks were advised that they may consider lending to SHGs as part of their mainstream credit operations both at policy and implementation level. They may include SHG linkage in their corporate strategy/plan, training curriculum of their officers and staff and implement it as a regular business activity and monitor and review it periodically. b) Separate Segment under priority sector In order to enable the banks to report their SHG lending without difficulty, it was decided that the banks should report their lending to SHGs and/or to NGOs for on-lending to SHGs/members of SHGs/discrete individuals or small groups which are in the process of forming into SHGs under the new segment, viz. 'Advances to SHGs' irrespective of the purposes for which the members of SHGs have been disbursed loans. Lending to SHGS should be included ....

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....owers, the banks may prescribe simple documentation for lending to SHGs. g) Presence of defaulters in SHGs The 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 per se by banks provided 4 the SHG is not in default to it. However, the bank loan may not be utilized by the SHG for financing a defaulter member to the bank. h) Training An important step in the Linkage Programme would be the training of the field level officials and sensitization of the controlling and other senior officials of the bank. Considering the need and magnitude of training requirements of bank officers/staff both at field level and controlling office level, the banks may initiate suitable steps to internalize the SHGs linkage project and organize exclusive short duration programmes for the field level functionaries. In addition, suitable awareness/sensitization programmes may be conducted for their middle level controlling officers as well as senior officers. i) Monitoring and Review of SHG Lending Having regard to the emerging potential of the SHGs and the relative no....

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....Monetary and Credit Policy for the year 1999- 2000. In the meantime, a Task Force on Supportive Policy and Regulatory Framework for Micro Credit was also set up by NABARD. On the basis of their recommendations, banks were advised to follow the under noted guidelines for mainstreaming micro credit and enhancing the outreach of micro credit providers: (i) (ii) (iii) The banks may formulate their own model(s) or choose any conduit/ intermediary for extending micro credit. They may choose suitable branches/pockets/areas where micro credit programmes can be implemented. It will be useful to start with a selected small area and concentrate fully on the poor in that area and thereafter with the experience gained replicate the arrangement in other selected areas. Micro Credit extended by banks to individual borrowers directly or through any intermediary would be reckoned as part of their priority sector lending. The criteria for selection of micro credit organisations are not prescribed. It may, however, be desirable for banks to deal with micro credit organisations having proper credentials, track record, system of maintaining accounts....

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....ynamics of working of the SHGs may be left to themselves and need neither be regulated nor formal structures imposed or insisted upon. (iii) The approach to micro-financing of SHGs should be totally hassle-free and may include consumption expenditures. 7. Financing of MFIs by banks 7 A joint fact-finding study on microfinance conducted by Reserve Bank and a few major banks made the following observations: (i) Some of the microfinance institutions (MFIs) financed by banks or acting as their intermediaries/partners appear to be focussing on relatively better banked areas, including areas covered by the SHG-Bank linkage programme. Competing MFIs were operating in the same area, and trying to reach out to the same set of poor, resulting in multiple lending and overburdening of rural households. (ii) (iii) Many MFIs supported by banks were not engaging themselves in capacity building and empowerment of the groups to the desired extent. The MFIs were disbursing loans to the newly formed groups within 10-15 days of their formation, in contrast to the practice obtaining in the SHG Bank linkage programme which takes about 6-7 mo....

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..... Plan. BC.42/04.09.22/2003-04 10 RPCD.No. Plan. BC.61/04.09.22/2003-04 11 RBI/385/2004-05, RPCD.No.Plan. BC. 84/04.09.22/2004-05 12 RBI 2006-07/185 RPCD.CO.Plan. BC. No.34/ 04.09.22/2006 2006-07 13 RBI/2006-07/441 RPCD.CO.MFFI.BC.No.103/12.01.01/2006- June 20, 2007 progress reports January 13, 2000 Amendments to NBFC Regulations February 18, 2000 Micro Credit November 2003 3, Micro finance January 9, 2004 March 3, 2005 November Credit flow to unorganized sector Submitting progress report under micro credit 22, Microfinance Joint fact- finding study with the banks Microfinance-Submission of 07 14 RBI/282/2007-08 April 15, 2008 RPCD.MFFI.BC. No. 56/12.01.001/2007-08 Total Financial Inclusion and Credit Requirement of SHGS 9 Name of the bank Micro Finance Progress Report As at the end of March/ Sept. State - Part 'A' SHG Bank Linkage Program 1. SHGs maintaining Savings A/c in the Bank No. of SHGs a. Total no. of SHGS b. Of which under SGSY & other Govt. sponsored schemes c. Exclusive Women SHGS [Out of (a) above] d.....