Types of MFIs in India – Joint Liability Group (JLG), Rural cooperatives, Self Help Group (SHG) – Objectives and Features

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What are the types of MFIs in India?

MFIs operate in a number of forms and shapes in India. Though each of them have different formation and work nature, they all provide financial help to the needy section of the society in the form of loans and other financial products.

Here are the details of the various types of MFIs in India.

(i) Joint Liability Group (JLG)

(ii) Rural cooperatives

(iii) Self Help Group (SHG)

(i) Joint Liability Group (JLG):

Joint Liability Group is a concept established in India in 2014 by the Rural Development Agency, The National Bank for Agriculture and Rural Development (NABARD) to provide institutional credit to small farmers.

Features of JLG

☆It is a group of 4-10 people of same village / locality of homogenous nature and of same socio-economic background.

☆Only one member of a family can become a member of JLGs

☆Member should not be a defaulter of bank loan

☆Member should hold regular meetings.

Purpose of JLG

☆Providing collateral free loans to groups

☆Building confidence between groups and banks

☆Providing self-employment and increase production of agricultural products.

Who can promote JLGS?

(ii) Rural Cooperatives

Cooperative societies play a vital role in ensuring that the nation’s economic progress confirms to the requirements of democratic planning. The institution of a cooperative society provides support and sustainability to rural economic activities.

Financial support

The financial support to the rural sector is provided through National Bank for Agriculture and Rural Development (NABARD).

Functions of Rural Co-operative Banks

☆It mainly fianance agricultural based activities.

☆They also provide finance to the self employed individuals and small scale industries of rural India.

(iii) Self Help Group (SHG)

In India NABARD initiated Self Help Group in 1986-87. SHG are formed under the Swarna Jayanthi Swarojgar Yojana (SGSY) Programme.

The absence of institutional credits available in the rural area has led to the establishment of SHGs.

What is a Self Help Group?

A Self Help Group (SHG) is a voluntary association of men or women in similar economic conditions.

They come together for the purpose of solving the common problems through self help and mutual help.The SHG promotes small savings among its members.The savings are kept with a bank.

Features of SHG

☆The group should be formed by 15-20 number of members.

☆T he group should not consist of more than one member from the same family.

☆A person should not be a member of more than one group.

☆The group should devise a code of conduct (Group management norms) to bind itself.

☆This should be in the form of regular meetings (weekly or fortnightly) functioning in a democratic manner allowing free exchange of views, participation by the members in the decision making process.

☆The group should be able to draw up an agenda for each meeting and take up discussions as per the agenda.

☆The group should be able to collect the minimum voluntary saving amount from all the members regularly in the group meetings. This is called as corpus fund.

☆This fund should be used to advance loans to the members.

☆The group should develop financial management norms covering the loan sanction procedure, repayment schedule and interest rates.

☆T he group should operate a group account preferably in their service area bank branch, so as to deposit the balance amount after disbursing loans.

Government of India and the Reserve Bank, realizing the importance of microcredit in the development programmes, have taken up many steps for the linkage of SHGs with formal financial institutions. The basic purpose of linkage is to strengthen the financial health of SHGs by ensuring adequate flow of bank credit to them.

There are three main credit needs of the SHG members.

Social Needs: Food, marriage, birth and death, festivals, family events, education and housing.

Production Needs: Agriculture and Microentrepreneurship etc.

Emergency Needs: Medical, fire, theft, flood, earth quake, cyclone and drought

Objectives of SHG

☆To inculcate the savings and banking habits among members.

☆To secure them from financial, technical and moral strengths.

☆To enable availing of loan for productive process.

☆ To gain economic prosperity through loan / credit

☆To gain collective wisdom in organising and managing their own finance and distributing the benefits among themselves.

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