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Methods Of Micro Finance SHGS /JLGS / Farmer Clubs

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Methods Of Micro Finance SHGS /JLGS / Farmer Clubs. Credit - Financial Inclusion or Poverty Alleviation??. High transaction costs Lengthy documentation Monitoring costs High defaults Collateralised Lending Leakages of subsidised resources.

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Methods Of Micro Finance

SHGS /JLGS / Farmer Clubs


Credit - Financial Inclusion or

Poverty Alleviation??

  • High transaction costs
  • Lengthy documentation
  • Monitoring costs
  • High defaults
  • Collateralised Lending
  • Leakages of subsidised resources

The Solution … Group Approach

SHG Bank Linkage Programme

  • Encourage thrift- Micro Deposits
  • Use social dynamics / peer pressure as Social Collateral
  • Pool individual needs for Credit
  • Simplify processes for Lending
  • Link with the banking system for synergy

SHG Bank Linkage Programme

  • Aim:
    • Micro-deposits
    • Micro-credit
    • Micro Enterprise
    • Members of SHGs to graduate to Individual A/c holders in banks
the core strategy of shg bank linkage programme
The Core Strategy of SHG-Bank Linkage Programme
  • Basic human feeling of Self Worth at its Core
  • Building financial capabilities and self confidence in the rural poor, through internal savings and lending from the owned funds of the SHGs.
the core strategy of shg bank linkage contd
The Core Strategy of SHG-Bank Linkage (Contd..)
  • Leveraging the strength of the formal banking system and the flexibility of informal Self Help Groups (SHGs) in providing adequate financial services to the rural poor.

Micro finance

SHG Approach

Individual Approach

By Banks

On-lending by MFIs

MFI Bank Linkage Model

SHG Bank Linkage Model

SHGs promoted & Financed by bank

SHGs promoted by MFI

Bulk loan from Bank for

on-lending to SHGs

SHGs promoted by NGO and Financed by banks


who forms shgs












Who Forms SHGs ?

Design features of SHGs

  • Self-selection
  • Focus on women (85% of SHGs)
  • Savings first and credit later
  • Group financed only after 6 months
  • Intra group appraisal systems and prioritization
  • Shorter repayment terms
  • Market rates of interest
  • Progressive lending
  • Maintenance of accounts by SHGs
  • Developing a relationship with Banks

The Self Help Group (SHG). . What is it ?

  • A homogeneous group of about 15 to 20
  • Every member to save a small amount regularly. Pooled savings kept in a savings bank account in SHG’s name
    • transaction costs of both the poor and bank reduced !
  • SHG to use pooled thrift to give interest bearing loans to members – decisions taken in group meetings
    • Every member learns prioritisation and financial discipline. Their capacities to thinkand handle larger resources improves!

The Self Help Group (SHG). . What is it ? (contd..)

  • Depending on the SHG’s maturity, bank gives loan to the SHG as a multiple of the pooled savings. Bank loan added to the SHG kitty.
    • Adequate & sustained access to financial services!

Group Funds


Surplus so generated remains with the group

mode of functioning of shgs
  • Function democratically
  • 2-3 office bearers
  • Rotation of office bearers
  • Periodical meetings
  • Decisions regarding thrifts loans interest rate etc in the meeting
types of credit
  • Term loans in multiple of thrifts mobilized-4 times or more - increasing gradually
  • Repayable in 3 or more years
  • Cash Credit limit/revolving credit limit of 4 times or more of group’s expected savings in 3 years

Progress – 2008-09

  • SHG Savings with Banks : No. of SHGs – 6,121,147, Amount : INR 55.46 billion
  • Bank Loans disbursed to SHGs : No. of SHGs – 1,609,586 Amount : INR 122.53 billion
  • Bank Loans outstanding with SHGs: No. of SHGs – 42,24,338 Amount : INR 226.80 billion
  • Refinance to banks for SHG Financing – INR 26.20 billion
joint liability group
  • Informal group comprising 4-10 individuals.
  • For the purpose of availing bank loan against mutual guarantee.
  • JLG members to engage in similar type of economic activities either in Farm & Non farm sector.
  • Simple management with little or no financial administration within the group.
  • To augument flow of credit to farmers & Micro-entrepreneurs artisans in Farm & Non farm Sector Activities.
  • To serve as collateral substitute for loans.
  • To build mutual trust & confidence between bank & the target group.
  • To minimise the risks in loan portfolio for the bank through group & cluster.
  • To provide food security to vulnerable section by enhanced production, productivity & livelihood promotion through JLG mechanism
criteria for selection of jlg members
Criteria for selection of JLG members
  • Members to be of similar Socio- economic status, background & carrying out same economic activity.
  • Members carrying out either farming or Non Farm activities & agreeing to function as JLG.
  • Members to be from the same village/ area/ neighbourhood & trust each other.
  • Members defaulting to any other formal financial institution, in the past, debarred to be member of Group.
  • Only one member from same family in the same JLG.
size of the jlg 4 to 10 farmers
Size of the JLG – 4 to 10 farmers

Formations of JLGs by

  • Banks, PACS, other Coop., Govt. Depts.
  • NGOs, Panchayati Raj Institutions,
  • KVKs, State Agriculture Univ., Agri. Tech. Management Agency (ATMA)
  • Farmers Clubs, Farmers Associations,
  • Producers Associations, Artisans Guilds, Dept. of SSI/ Agro Industries etc
  • MFIs
savings by jlg
Savings by JLG
  • Primarily to be a credit group.
  • Voluntary savings.
  • JLG members to be encouraged to open “no frills” accounts.
jlg models
JLG Models
  • Model “B”
  • Financing the groups
  • JLG to function as one borrowing unit.
  • JLG eligible for acquiring one loan.
  • If the member want to save, SB A/c can be opened in the name of the JLG.
  • All members to execute one inter-se document making each one jointly & severally liable for repayment.

Model “A”

  • Financing individuals in the group
  • All members to execute one inter-se document making each one jointly & severally liable for repayment.
  • Financing bank to assess credit requirement.
  • Mutual agreement & consensus among member on the quantum of loan
important factors in jlg approach
Important factors in JLG approach
  • Concept depends heavily on mutual trust & peer pressure.
  • Quality of group leadership is important for sustainability of JLG.
purpose of credit
Purpose of credit
  • Flexible credit product.
  • For crop production, consumption, working capital, marketing & other productive purpose both in Farm & Non Farm Sector.
loan limit
Loan limit
  • Maximum loan upto Rs. 50000/- per individual under both model “ A” and model “B”.
rate of interest
Rate of Interest
  • As decided by Banks
  • Incentive for prompt repayment to be considered by banks.
margin security norms
Margin & Security norms
  • No collaterals to be insisted upon.
  • Margins as per usual norms may be applied.
  • Introduction form
  • Application cum appraisal form .
  • Mutual guarantee & DP note.
personal accident insurance
Personal accident Insurance
  • Banks may consider covering JLG member under personal accident insurance.
incentive for promotion of jlgs from nabard
Incentive for Promotion of JLGs from NABARD
  • Grant assistance to eligible institutions @ Rs. 2000/- per JLG over a period of three years.
  • Grant is for formation, nurturing & financing of JLG.
  • Capacity Building programmes & publicity material expenses also supported by NABARD.
monitoring review
Monitoring & Review
  • Banks to monitor at regular intervals.
  • Periodic report to be sent to RBI/ NABARD on half yearly basis (31 March/30 September)
farmer s club programme
Farmer's Club Programme
  • MissionDevelopment in rural areas through credit, technology transfer, awareness and capacity building.
Farmers’ Clubs are grassroot level informal forums of farmers.
  • Such Clubs are organised by rural branches of banks with the support and financial assistance of NABARD.
  • With the enhancement of the programme, other agencies like NGO, VAs, KVKs, etc. are also now included as agencies included in the formation and promotions of FCs.
The Programme was launched by NABARD in November 1982 to propagate the five principles of “Development through Credit”.
The five principles are:
  • Credit must be used in accordance with the most suitable methods of science and technology.
  • The terms and conditions of credit must be fully respected.
  • Work must be done with skill so as to increase production and productivity.
  • A part of the additional income created by credit must be saved.
  • Loan installments must be repaid in time and regularly so as to recycle credit.

“VVV Programme” was rechristened as “Farmers’ Club Programme” in 2005 by revisiting its earlier mission.


The broad functions of the Farmers’ Clubs as envisaged are as follows  :

  • Coordinate with banks to ensure credit flow among its members and enhance better bank borrower relationship,
  • Organise minimum one meeting per month and depending upon the need, there would be 2-3 meetings per month. Non-members can also be invited to attend the meetings,
  • Interface with subject matter specialists in the various fields of agriculture and allied activities etc., extension personnel of Agriculture Universities, Development Departments and other related agencies for technical know how upgradation.
  • For guest lectures, even experienced farmers who are non members from the village/ neighbouring villages could be invited,
functions contd
Functions (contd..)
  • Liaison with Corporate input suppliers to purchase bulk inputs on behalf of members,
  • Organise/facilitate joint activities like value addition, processing, collective purchase of inputs and farm produce marketing, etc.; for the benefit of members. They can also sponsor / organise SHGs,
  • Undertake socio-economic developmental activities like community works, education, health, environment and natural resource management etc.
  • Market rural produce and products
nabard s support to farmer clubs
NABARD’s support to Farmer Clubs
  • NABARD’s policy support for Farmers’ Club Programme lays stress on linking technologies with farmers’ club members and also facilitating market access through the following mechanism:
    • Capacity building of members of Farmers’ Clubs including leadership training.
    • Linkage with technology/markets
    • Self Help Groups (SHGs)/Joint Liability Groups (JLGs) formation
    • Forming Federations of Farmers’ Clubs/Producers’ Groups/Companies
benefits of farmers club to bank branch
Benefits of Farmers' Club to Bank Branch

The formation of Farmers’ Club lead to better Banker-Borrower relationship in the area. An Evaluation study of Farmers’ Club Programme (FCP) carried out by IIM, Lucknow has brought out the following advantages of FCs to bank branches:

  • Increase in deposits.
  • Increase in the credit flow and diversification of lending.
  • Generation of new business avenues.
  • Increase in the recoveries and decline in the non-performing assets.
  • Reduction in the transaction costs of financial institutions/ Banks.

Other Benefits

  • Socio economic development of the village
  • A win-win situation both for the banker and borrower
  • Besides benefit to banks, the Farmers’ Club has also been instrumental in certain social welfare measures like free eye check-up camp, Animal Health Care Camp, Mass vaccination camp, community works like road, check-dams, afforestation, etc.
  • Enhancement in bargaining power for bulk purchase of inputs and marketing of their produce
who can form farmers clubs
Who can form Farmers' Clubs

All Institutional Agencies (Commercial Banks, Cooperative Banks and Regional Rural Banks) and all grassroot level organisations (NGOs, PRIs, State Agricultural Universities, KVKs, Post Offices etc.) are eligible to form Farmers’ Clubs

the set up
The Set Up
  • Farmers’ Club is an informal forum in villages.
  • Can be promoted in a village / cluster of villages, generally in the Operational Area of a Bank.
  • It should have minimum of 10 members, no upper limit in the membership is envisaged.
  • Every Club would have three office bearers - One Chief Coordinator/Volunteer/ President, the other Associate Coordinator/Volunteer/ Vice President and a cashier.
  • The office bearers would be elected by Club Members on a democratic basis for a term to be decided by the Club.
  • Office bearers should be residents of the area of the operation of the club. No NGO/FC promoting agency representative can be office bearer of the club.
functions of the office bearers
Functions of the Office bearers

The main functions would be

  • to convene meetings,
  • to arrange meetings with experts,
  • maintenance of Books of Accounts,
  • coordination with Bank, Line Deptts. of the State Governments,
  • maintaining proper liaison with all concerned.
  • All villagers except willful defaulters can become members of the club.
  • The club must make endeavour to raise their own resources by way of contribution from members,
  • undertaking certain business services such as bulk procurement of inputs and collective marketing of agricultural produce,
  • agents for insurance and other services etc.
steps in the formation of farmers clubs
Steps in the formation of  Farmers’ Clubs
  • Bank branch can promote the clubs directly or engage Farmers’ Club promoting agencies like Krishi Vigyan Kendras (KVKs), Agriculture Universities, NGOs, Corporates, etc.
  • All grassroot level organisations (NGOs, PRIs, State Agricultural Universities, KVKs, ATMA, Post Offices etc.) are eligible to form Farmers’ Clubs
  • Select a village/ cluster of villages suitable for launching Clubs in the operational area of the bank branch.
  • Identify a few progressive farmers and borrowers with good track record of proper loan utilisation, aptitude and capacity for team work. (Success of the Club hinges on the right choice of members).
steps in the formation of farmers clubs contd
Steps in the formation of  Farmers’ Clubs(contd..)
  • Encourage the members to select a Chief Coordinator/Volunteer/President and an Associate Coordinator/Volunteer/Vice President and a Cashier. This will ensure collective leadership and continuance of the Club.
  • Provide orientation training to them with the help of NABARD (Regional Office / DDM or trained officers from the bank) before launching.
  • Encourage members to convene monthly meeting regularly, guide them to have meaningful discussion and take necessary follow up action.
  • Motivate members them to identify credit and non-credit needs (training, socio-economic, village infrastructure, etc.), prepare a plan of action and accordingly arrange for expert talks, counselling, need-based activities, etc. with the help of Government Departments and other agencies concerned.
steps in the formation of farmers clubs contd1
Steps in the formation of  Farmers’ Clubs (contd..)
  • Ensure that the members maintain Membership Register, Meeting Register, Minutes Book and Books of accounts .
  • Evolve a performance parameter and measure the Clubs’ contribution annually.
  • Use Club as a tool in aid of branch not only in the matter of credit and recovery but also in facilitating promotion of SHGs, micro credit, Financial Inclusion and convergence of services.
rating of farmers clubs
Rating of Farmers Clubs
  • To facilitate the graduation of farmers’ Clubs into Federations of Farmers’ Clubs or Producers’ Groups/ Companies, it would be desirable for the sponsoring agencies to rate the Farmers’ Clubs as per prescribed parameters.

Awards to Best Working Clubs:

  • Awards would be given to be provided to best working clubs at the district, state and national levels, based on the rating norms.

Capacity Building for Adoption of Technology (CAT):

  • NABARD’s Capacity Building for Adoption of Technology (CAT) programme may be used for the benefit of farmers’ club members for training and exposure visits within and outside the State.
financial support from nabard
Financial Support from NABARD

NABARD assistance to all agencies will uniformly be @Rs.10,000/- per club per year for a period of 3 years whether they are institutional or other agencies and the region concerned. Assistance will be towards the following minimum & mandatory expenses:

  • Formation & Maintenance Expenses 2,000/-
  • Base Level Orientation Training 5,000/-

Programme (BLOTP)

  • Meet with Experts (2 Programmes 3,000/-

in a year)

  • Total 10,000/-
NGOs/KVKs will be provided with an incentive of Rs.2,000/- per club out of the total assistance of Rs.10,000/- per club per annum.
  • NGOs/KVKs who are operating in hilly/remote/naxal affected areas, will be provided with additional incentive of Rs.3,000/- per club for a period of  3 years over and above Rs.10,000/- referred to above.
revival package of assistance for dormant clubs
Revival Package of Assistance for Dormant Clubs
  • In order to revive the dormant/defunct FCs, NABARD has introduced a revival package.
  • The assistance may be used towards meeting the revival cost including arranging exposure visits for members of such dormant clubs as well as concerned branch managers.
  • Package of assistance may be extended to NGOs/VAs for revival of clubs promoted by banks.