Microfinance and Self-Help Groups: Financial Inclusion Tool

Introduction

Microfinance refers to the provision of financial services - credit, savings, insurance, remittances - to low-income households and small entrepreneurs who lack access to formal banking. In India, the Self-Help Group (SHG)-Bank Linkage Programme (SBLP) is the predominant microfinance model, complemented by Microfinance Institutions (MFIs). Together, they have emerged as powerful tools for financial inclusion and women's empowerment.

The Microfinance Landscape in India

Models of Microfinance

1. SHG-Bank Linkage Programme (SBLP)

• Pioneer: NABARD launched SBLP in 1992
• Structure: 10-20 women form an SHG; group saves regularly; bank lends to the group
• Group dynamics: Peer pressure ensures repayment (social collateral)
• Scale: Over 140 lakh SHGs with ₹7+ lakh crore savings linked to banks

2. MFI Model

• Structure: Microfinance institutions lend directly to individuals (mostly JLGs - Joint Liability Groups)
• NBFC-MFIs: Regulated by RBI as NBFC-Micro Finance Institutions
• Lending model: Individual liability with JLG guarantees
• Examples: Bandhan, SKS (now Bharat Financial Inclusion), Share Microfin, Ujjivan

3. Other Models

• Cooperative Banks: Farmer cooperatives, primary agricultural credit societies (PACS)
• Regional Rural Banks (RRBs): Channel micro-credit
• Digital micro-lending: FinTech...