Creditworthiness Of Self-Help Groups: A Study Of Uttar Pradesh

Abstract

Financial Inclusion in India has always been a priority for the Indian banking sector. Numerous schemes like Lead Bank Scheme, opening branches in unbanked areas, Pradhan Mantri Jan Dhan Yojana and others have been launched to achieve the objective of universal banking and provide everyone (Sarvodaya), till the last mile (Antyodaya), with formal credit facilities. The biggest bottleneck in realising this objective is the want of collaterals for loans. The poor rural population do not have enough land and other assets to mortgage them for formal credit. The Self-Help Group Bank Linkage Programme(SHGBLP) aims to provide loans to the Self-Help Groups (SHG) without collateral requirements. Those who are not eligible for formal credit can avail the same. The government along with NABARD and RBI is promoting this mechanism of credit flow. However, there exist wide regional disparity when it comes to the promotion of such schemes. One of the reasons for such disparity is the high default rate in the states like Uttar Pradesh. The high default rate by the SHGs inhibits the growth of SHGBLP in the state. This study aims to study the reasons for such defaults and its effect on the SHGBLP. The policy recommendations that flow from this study tries to eliminate these reasons by changing the design and strategy of the programme suitably.