SHG Bank Linkage Programme Explained for Rural Women

The two linkages people confuse

A group opens a savings account in month two and thinks it is linked. Then nothing happens for a year and members lose interest.

Savings linkage means the group has a bank account in the group's name, and the group's savings sit in it. This should happen within about two months of forming.

Credit linkage means the bank has sanctioned a loan to the group. This comes later, after the group has proved it can handle money.

Both are needed. As on 31 March 2024, 144.22 lakh SHGs were savings-linked with Rs 65,089 crore in savings, but only 77.42 lakh had loans outstanding. So roughly half the groups with bank accounts had not reached credit linkage. Knowing which stage you are at, and what closes the gap, is the practical value of understanding this programme.

The steps, in the order they actually happen

Form the group. Ten to twenty women from similar economic backgrounds. In difficult areas, remote tribal areas, and groups including women with disabilities, five members is enough. Members from very different income levels tend to want very different loan sizes, which strains the group later.

Agree the rules in the first meeting. How much each member saves, which day the meeting is held, what the fine is for missing it, and who keeps the register. Write it down.

Save without breaking the rhythm. Regularity matters more than the amount. Rs 20 a week saved for a year is worth more to your grading than Rs 500 saved twice.

Start internal lending. Lend the group's own money to members who need it, charge the interest the group agreed, and record every transaction. This is the single strongest piece of evidence a bank looks at, because it shows the group can assess and recover a loan.

Open the group's savings account within about two months. Take the group's resolution, the members' KYC documents and the register. Under RBI rules a group can open this account whether or not it is registered.

Follow the Panchasutras. These five are the whole grading test: regular meetings, regular savings, internal lending on demand, timely repayment, and proper books of account. Nothing else weighs as much.

Get graded after six months of active existence. Grading is done against NABARD's parameters, usually by the bank or by the institution that promoted the group.

Apply for credit linkage. Take the Micro Credit Plan showing what each member wants the money for.

Realistically this takes six to nine months from formation to first loan. A group that is told it will get a loan in two months has been told wrong.

What grading checks

Grading is not a written exam and there is no secret score. The person doing it opens your registers and looks for the same things every time.

Are meetings held on the fixed day, and do most members attend. Does the savings entry appear for every member for every period, or are there gaps. Has the group lent internally, and has it recovered what it lent. Are the loans recorded with dates, amounts and repayments. Is the cash in hand equal to what the register says it should be. Do the members know how much the group has, or does only the leader know.

That last one matters more than groups expect. A group where only one woman understands the accounts is treated as a weak group, because it collapses when she moves away.

How much your group can get

The bank sanctions a cash credit limit to the group, and the drawing power is reset each year against the group's corpus, which is savings plus interest earned on internal lending.

Under DAY-NRLM the cash credit limit itself is sanctioned for three years with a minimum of Rs 6 lakh, and reviewed annually.

The collateral position has two levels, and both numbers are correct.

Up to Rs 10 lakh there is no collateral and no margin, and the bank cannot mark a lien on the group's savings account. Between Rs 10 lakh and Rs 20 lakh there is still no collateral, but the bank may take a margin of up to 10 per cent of the amount above Rs 10 lakh.

So Rs 20 lakh is the collateral-free ceiling, and Rs 10 lakh is the no-collateral-and-no-margin ceiling. Individual banks may set lower internal caps than the RBI ceiling, so ask your branch what their limit is.

Under DAY-NRLM a women's SHG pays 7 per cent a year on loans up to Rs 3 lakh, and between Rs 3 lakh and Rs 5 lakh the bank's one year MCLR or 10 per cent, whichever is lower. The subvention scope covers public sector banks, private sector banks and small finance banks. Regional rural banks and cooperative banks are not on that list in the current circular, so if your group banks with an RRB, ask what rate you will be charged.

Additional loans can be sanctioned even while a previous loan is outstanding, based on repayment record. Groups often do not know this and wait unnecessarily.

Money that arrives before the bank loan

Revolving Fund of Rs 20,000 to Rs 30,000 comes to the group after three to six months of good functioning, provided it has not received it before. Community Investment Fund of up to Rs 2.5 lakh per SHG is routed through the Cluster Level Federation. Every member with a Jan Dhan account can get an overdraft of Rs 5,000, and one woman per SHG can take a Mudra loan of up to Rs 1 lakh.

Cumulative capitalisation support released under DAY-NRLM reached Rs 62,340 crore, with Rs 12,670 crore released during 2025.

What to do if the branch refuses

This is the most common real problem and no page addresses it, so here is what actually works.

Ask what specifically is missing. Refusals are usually about a document or a form, not about the group. Get the reason named.

Take your promoting institution with you. The NGO, the block mission staff, or the bank sakhi attached to your area. As of December 2025 there were 50,548 bank sakhis deployed, and their job is exactly this.

Ask the branch manager, not the counter clerk. Account opening for an unregistered group is a decision many clerks are unsure about, and RBI's position allows it.

Go to the district level. Every district has a Lead District Manager and a district level bankers' committee where SHG linkage targets are reviewed. Your block mission office knows how to raise it there.

Try another branch. Branches differ enormously in how much SHG work they do. A branch with an existing SHG portfolio will process your file in a fraction of the time.

What the programme looks like today

As on 31 March 2024, NABARD recorded 144.22 lakh SHGs savings-linked with Rs 65,089 crore in savings, and 77.42 lakh groups with loans outstanding of Rs 2.6 lakh crore. Exclusive women's groups were 83.5 per cent of savings-linked SHGs. Average loan outstanding per group was Rs 3.82 lakh, and the programme covered 17.75 crore households.

On the DAY-NRLM side, 10.05 crore rural households have been mobilised into 90.90 lakh SHGs, and Rs 12.18 lakh crore of institutional credit has been accessed since 2013-14, with a repayment rate above 98 per cent and non-performing assets around 1.8 per cent.

That repayment rate is worth reading twice. It is the reason banks lend to groups without collateral at all.

Where to go from here

If you are in a new group, the priority is the register and the rhythm, not the loan. The loan follows the record.

If your group is already linked and you want to use the credit for farming, what is allowed and how repayment fits a harvest cycle is set out in self help group loan for agriculture activities.

If you are a woman farming without land in your name, SHG loan for women farmers covers how much one member actually receives and why land papers are not required.

If your group has outgrown what group credit can do and the real problem is the price you get for your produce, read SHG vs FPO: which is better for farmers before registering anything.