Microfinance has come of age

As the number of clients grow, so will microfinance in India

Microfinance has been playing a very important role in driving financial inclusion in India. The gross loan portfolio (GLP) in this sector, including the Joint liability Model (JLG) and Self-Help Group (SHG), has increased to Rs 3.9 trillion. The JLG model constitutes 70% of the microfinance industry, whereas SHG makes up the balance 30%. The JLG model gained prominence because of its better assetquality performance compared to SHG. GLP growth under JLG has been robust; 36% CAGR between March 2015 and December 2020

The JLG model gained prominence because of its better asset-quality performance compared to SHG

Joint liability model: Joint Liability Group (JLG) is an informal group comprising usually of 4-10 individuals. They come together for the purpose of availingbank loans, either individually, or through the group mechanism, against a mutual guarantee. The group is
mostly engaged in similar economic activities in the farm or non-farm sectors and offers a joint undertaking to the lender that enables them to avail of loans.

Self-help group (SHG): NABARD
initiated this programme in 1992,
with an aim to link the unorganised
sector with the formal banking
sector. Under this, banks can
open savings accounts for SHGs,
which are registered/unregistered
entities, usually with 15-20
members from very low-income families, usually women. The banks mobilize savings from members and use the pooled funds to give loans to needy members. Under this programme, banks provide loans to SHGs against a group guarantee, and the quantum of loans can be
several times the deposits placed by the SHGs with thbanks. Banks cater to the entire credit requirements of SHG members, namely income generation activities,
social needs (like housing, education, marriage, etc.),
and debt swapping.