Guidelines For Financing Self-Help Groups

Guidelines For Financing Self-Help Groups

(Checklist for assessment of self-help credit management groups before linking with banks and other financial institutions)

This checklist has been developed by MYRADA based on its experience of working with self-help credit management groups and promoting the direct linkage of self-help groups with banks.

Bankers who have had little or no prior experience of working with self-help groups often ask us what they should be looking for in assessing the creditworthiness of a group before lending to them; this checklist is intended to provide them with a few of the guidelines that they are looking for.

1. The Self-Help Group should have had credit transactions (i.e. lending to and recovering from its members) with its own Common Fund for atleast 6 months prior to application for external finance/bank loan.

2. The groups internal overdues of principal and interest on loans taken by members from its own Common Fund – prior to application for external finance/bank loan – must not be more than 15% of its total outstanding loan amount. The length of such delayed payments must not have exceeded 12 months at the time of applying for external finance/bank loans.

3.Atleast 80% of the group members should have taken loans from the group’s own Common Fund prior to application for external finance/bank loans (i.e. all loans should not have been cornered by a few members only).

4. The trend of borrowing within the group should be in favour of production activities (atleast a ratio of 1 : 1 between production and consumption loans).

5. There should be evidence of regular savings by all members (i.e. a steady growth in savings), and per capita savings of atleast Rs.300/- prior to application for external finance/bank loans.

6. The Group’s Minutes Books and Books of Accounts should be properly and independently maintained (assistance of a literate person can be hired, if necessary, and paid for by the group out of its own funds).

7. There should be evidence of regular meetings as per the norms established by the group, with minimum 80% attendance at any given meeting.

8. The Group’s Common Fund should be in regular circulation as evidenced through minimum bank balances in the group’s bank account (an average of less than 15% of the group’s Common Fund over the preceding 12 months).

Other points :

· The banker should have attended more than one regular meeting of the group that has applied for the loan.
· The banker should ask for and study the Audit Report of the group for the preceding year (the Audit need not necessarily be done by a Chartered Accountant).
· The loan cheque should be handed over to the group in the presence of as many members as possible.
· The banker must also play an active role in ensuring that the loan is repaid as per the terms of the Agreement.