Why do loans taken by self-help groups (SHGs) turn non-performing assets? A study conducted by NIRDPR found that poor economic conditions, non-cooperation, expenses towards marriages and social ceremonies, and medical emergencies are the main reasons.

Expectations of loan waiver from the government is also found to be a major reason for the poor financial health of SHGs.

The National Institute of Rural Development and Panchayati Raj (NIRDPR) has conducted a research study on ‘An Evaluation of the Self-Help Group-Bank Linkage Programme (SHG-BLP) with special reference to its Loan Portfolio and Asset Quality’ in Andhra Pradesh, Madhya Pradesh and Odisha.

The primary objective of the study was to find the main reasons behind the growing level of NPAs in the SHG-BLP. Initiated by the Nabard in the early 1990s, the SHG-BLP programme offered an aggregate collateral-free loans to the tune of ₹87,098 crore to 50.77 lakh SHGs as on March 31, 2019.

Loan defaults decline

“Started as a bank outreach programme in the early 1990s, SHG-BLP evolved into a holistic programme for building human, social, economic, and technological capital in rural areas. We thought there is a need to assess the performance after 30 years of its launch,” said WR Reddy, Director-General of NIRDPR. Commissioned by the National Bank for Agriculture and Rural Development (Nabard), the study covered over 660 members of SHGs in the three States.

“Though the SHG-BLP was witnessing lower loan defaults by its members in its earlier years, bad loans have been mounting up in the recent past due to various reasons,” said M Srikanth, Head of Centre for Financial Inclusion and Entrepreneurship at NIRDPR.

“NPAs have been a cause for great concern for the banks in the country. In the SHG-BLP segment, NPAs have peaked to a record high of 7.4 per cent in the 2014-15 and later came down to 5.19 per cent as on March 31, 2019,” he said.

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