Self-Help Groups in India: Meaning, SHG-Bank Linkage, DAY-NRLM, Kudumbashree, Lakhpati Didi and Challenges (UPSC Notes + PYQs)

Background: from Grameen to Indian SHGs

In 1976 Muhammad Yunus began lending to poor women in Jobra, Bangladesh, which became the Grameen Bank (1983). India took a different route: instead of a lender forming groups, it encouraged groups to form, save, and then link with existing banks. NGOs like MYRADA (Karnataka) and PRADAN (Jharkhand, Madhya Pradesh) built the early groups. In 1992 NABARD, with RBI support, began the SHG-Bank Linkage Programme, and the RBI allowed banks to lend to unregistered groups. That decision turned a few pilot groups into a national movement.

How an SHG works

Members meet weekly or monthly, save a fixed small sum, and keep books. After a few months of regular saving and internal lending, the group is graded and a bank opens a savings account and then extends credit, often several times its savings, without collateral. The Panchasutra under NRLM: regular meetings, regular savings, regular internal lending, timely repayment, and up-to-date books. Groups federate into village organisations and cluster-level federations.

Milestones

• Early work by MYRADA in Karnataka in the 1980s.
• 1992: NABARD pilot of SHG-Bank Linkage with 500 groups.
• 1998: Kerala’s Kudumbashree, a women’s network linked to panchayats.
• 1999: Swarnjayanti Gram Swarozgar Yojana.
• 2011: National Rural Livelihoods Mission (Aajeevika), renamed DAY-NRLM in 2016; DAY-NULM for towns.
• 2023-24: Lakhpati Didi, a target of 3 crore SHG women earning at least ₹1 lakh a year.

Why they matter

SHGs gave poor women credit, a bank account, a public voice and a training ground for leadership; many SHG members later won panchayat seats. They run community kitchens, make masks (as during COVID-19), act as Banking Correspondent Sakhis and drone operators under Namo Drone Didi. Loan repayment rates have generally been high.

From SHG to enterprise: Lakhpati Didi

The next step for SHGs is to move members from saving and small loans to steady livelihoods. The Lakhpati Didi initiative, announced in 2023, aims to help three crore SHG women earn at least ₹1 lakh a year on a sustained basis through farm and non-farm enterprises, using skill training, enterprise loans and market links. By 2025 the Government reported over 1.5 crore women had crossed that mark. The Start-up Village Entrepreneurship Programme funds small rural businesses run by SHG members, and SHG products are sold through the Government e-Marketplace (GeM), the Saras fairs and e-commerce platforms. Namo Drone Didi (2023) gives drones to SHGs to provide fertiliser and pesticide spraying services to farmers. Bank Sakhis and Business Correspondent Sakhis, drawn from SHGs, take banking to villages.

Kerala’s Kudumbashree and Andhra’s model

Kudumbashree (1998), Kerala’s State poverty eradication mission, organises women in neighbourhood groups linked to local governments; it runs canteens, farming groups and microenterprises, and works closely with panchayats. Andhra Pradesh built the largest SHG federation network through its Society for Elimination of Rural Poverty, which became a model for DAY-NRLM. Both show that SHGs succeed when they are federated at village, block and district level, have access to bank credit, and work with local government rather than parallel to it.

SHGs beyond money

Studies of DAY-NRLM, including by the International Initiative for Impact Evaluation, find gains in women’s savings, access to credit and say in household decisions. SHGs also act as platforms for health and nutrition campaigns, community kitchens during COVID-19, mask-making, sanitation drives and local politics: many women panchayat members began their public life in an SHG. The risk is that groups get loaded with too many Government tasks without pay, turning a self-help movement into unpaid outreach.

Credit linkage and repayment

Under the SHG-Bank Linkage Programme, a group that has saved regularly for about six months and kept good books can borrow from a bank, at first a few times its savings and later much more, without collateral. DAY-NRLM gives a revolving fund and community investment fund, and interest subvention brings the rate on loans up to ₹3 lakh down to 7%, with a further 3% off for prompt repayment in many districts. Bank data show SHG non-performing assets are lower than the average for priority sector lending, though higher in some States. Women repay because the group, not a single borrower, carries the loan, and peer pressure works. Group members also vet each other’s needs before a loan is shared out, which keeps lending close to real uses.

Problems

• Uneven spread: the South has far more mature groups than central and eastern India.
• Small loans used for consumption rather than enterprise; weak market links for products.
• Overlap with microfinance lenders and over-indebtedness, as in the Andhra Pradesh crisis of 2010.
• Elite capture and dropout of the poorest.

Key data

Figures are from the Ministry of Rural Development and NABARD’s annual Status of Microfinance reports; check the latest edition before quoting.

Committees and policy

• NABARD working groups in the 1990s laid down SHG lending norms.
• Radhakrishna Committee (2009) helped design NRLM after SGSY fell short.
• Malegam Committee (2011) after the Andhra microfinance crisis led to RBI rules for NBFC-MFIs (caps on loans per borrower, number of lenders).
• RBI’s 2022 microfinance framework set a common household-income limit for all lenders.

Way forward

Move from credit to enterprise: market links (Saras fairs, GeM and e-commerce listings), producer companies for SHG federations, insurance and pensions for members, digital bookkeeping, and gender-sensitive training. In lagging States, invest in community resource persons, the backbone of NRLM.

PYQ trend

Prelims asked how NRLM improves livelihoods (2012) and SHGs in inclusive growth (2011). Mains GS-II includes “role of SHGs” in the syllabus; prepare one answer with Kudumbashree and Jeevika (Bihar) as examples.

Self Help Groups: UPSC angle

Self Help Groups UPSC PYQs (Prelims)

Questions UPSC has actually asked, from the official papers. Pick an option to check yourself.

Mains PYQs on this topic

No UPSC Mains question from 2023-2026 is directly on this topic. Older papers (2013-2022) will be added as the Mains bank grows.

Quick quiz

FAQs

Study next: Financial inclusion · Women empowerment · Pressure groups

Spotted an error? Tell us. We correct within 48 hours.

Image: Pondicherry17, Wikimedia Commons, CC BY-SA 4.0