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Banking and Insurance

Notes delegated with full powers. In Govt. sponsored programmes, as well as general scheme of
SHGs where assets are created, the incumbent can utilize their powers as per extant
guidelines in Power Chart circulated from time to time.
17. Should the SHG be registered under any Act.
Ans. No.

9.12 Micro Credit: A Lifeline for the Poor

1. What is Micro Credit?
Ans. Micro Credit is defined as provision of thrift, credit and other financial services and
products of very small amount to the poor in rural, semi-urban and urban areas for
enabling them to raise their income levels and improve living standards. Micro Credit
Institutions are those which provide these facilities.
2. What are the interest rates applicable?

Ans. The reform of the interest rate regime has constituted an integral part of the financial
sector reforms initiated in our country in 1991. In consonance with this reform process,
interest rates applicable to loans given by banks to micro credit organizations or by the
micro credit organizations to Self-Help Groups/member-beneficiaries has been left to
their discretion. The interest rate ceiling applicable to direct small loans given by banks to
individual borrowers, however, continues to remain in force.
3. What are the terms and conditions for accessing micro credit?

Ans. Banks have been given freedom to formulate their own lending norms keeping in view
ground realities. They have been asked to devise appropriate loan and savings products
and the related terms and conditions including size of the loan, unit cost, unit size, maturity
period, grace period, margins, etc. Such credit covers not only consumption and production
loans for various farm and non-farm activities of the poor but also include their other
credit needs such as housing and shelter improvements.
4. What is a Self-Help Group (SHG)?

Ans. A Self-Help Group (SHG) is a registered or unregistered group of micro entrepreneurs
having homogenous social and economic background voluntarily, coming together to
save small amounts regularly, to mutually agree to contribute to a common fund and to
meet their emergency needs on mutual help basis. The group members use collective
wisdom and peer pressure to ensure proper end-use of credit and timely repayment
thereof. In fact, peer pressure has been recognized as an effective substitute for collaterals.
5. What are the advantages of financing through SHGs?

Ans. An economically poor individual gain strength as part of a group. Besides, financing
through SHGs reduces transaction costs for both lenders and borrowers. While lenders
have to handle only a single SHG account instead of a large number of small-sized
individual accounts, borrowers as part of a SHG cut down expenses on travel (to and from
the branch and other places) for completing paper work and on the loss of workdays in
canvassing for loans.
6. What role does a Non-Governmental Organisation (NGO) play in provision of Micro
Credit?
Ans. A Non-Governmental Organisation (NGO) is a voluntary organization established to
undertake social intermediation like organizing SHGs of micro entrepreneurs and

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