T
his year marks the completion of 35 years since NABARD
was set up. It also coincides with the completion of 25
years of the Self Help Group movement. Inheriting a
rich legacy from RBI, NABARD has moved forward to
strengthen the rural credit system in our country. The SHG – Bank
linkage movement has also emerged as a powerful intervention
to extend the frontiers of organised financial system to cover the
small borrowers. The essence of the movement is the substitution
of paper based collaterals by social collaterals.
When the SHG movement started, there were questions of how
such an unregistered organisation like SHG could be given credit
by banks. I took a decision and a circular was issued on April 2,
1996 which said, “it has been decided to extend the SHGs linkage
programme beyond the pilot phase as a normal business activity
of banks to improve the coverage of the rural poor by the banking
sector. Accordingly, the banks may consider lending to SHGs as
part of their mainstream credit operations. This was followed up
by a similar circular by NABARD.
The Committee on Financial Inclusion (2008) of which I was
Chairman, had recommended technology led financial inclusion
in rural areas. The SHG movement must move strongly from
being consumption credit based to production credit based. It
must also enter into areas like agricultural production to bring
together farmers in small groups to gain scale benefits. It is
equally important that the movement remains apolitical. The
history of cooperatives should not repeat itself.
Dr C Rangarajan
Former Governor, Reserve Bank of India
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