SHG banking: a financial technology for reaching marginal areas and the very poor : NABARD's program of promoting local financial intermediaries owned and manages by the rural poor in India

Reaching 100 million of India's rural poor with savings and credit by 2008: This is NABARD's goal through its SHG banking program, leveraging the strength of the formal banking system and the flexibility of informal self-help groups in providing adequate financial services to the rural poor. Through NGOs, government agencies and banks, vast numbers of self-help groups have been established in recent years: as selfreliant autonomous local financial intermediaries. 85% of the members are women; they have proven to be the better savers, borrowers and investors. Most of them are from the lowest castes and other disadvantaged groups. The SHGs mobilize their own savings, transform them into loans to members and plow their earnings from interest income back into equity. On that basis, SHGs and banks enter into commercial relations of mutual benefit, with low bank and client transaction costs and negligible risks. In the absence of interest rate restrictions and with repayment rates >99%, SHG banking is highly profitable a message that has convinced hesitant bank managers in increasing numbers. SHGs are now forming local networks with their own cooperative financial institutions...