SHG loan application form Samples
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Purpose of SHG Loan
- (i) The purposes for which the group will lend to the members should be left to the common wisdom of the group.
- (ii) Loans to SHGs for group enterprises should be discouraged in the initial stages as they have usually failed. Exemptions should be very carefully examined and supervised.
- (iii) Loans to Self Help Groups are purpose neutral loan. Banks shall embrace concept of Total Financial Inclusion and meet the entire credit requirements of the SHG members namely a) income generation activities, b) social needs like housing, education, marriage etc., and c) debt swapping. Eligible SHGs can be financed directly and also under the following products, which covers the housing needs, income generating activities and also have component for consumption, to fulfil entire credit requirement of SHG members:
- i) Sanction of cash credit limit for 3-5 years based on expected future saving corpus of SHGs.
- ii) Sanction of term loan for project based requirement of SHGs.
- (i) Loans to SHG are provided preferably in the form of cash credit and term loan as per requirement of SHG. Sanction of a cash credit/ overdraft system of lending for SHGs for a longer operational tenure of 3-5 years may therefore be adopted to permit SHGs to have larger loans in tune with increasing pooled savings. This approach will provide considerable flexibility to SHGs in meeting their frequent needs as well as help them in reducing their cost of borrowings.
- (ii) The limit so sanctioned will be reviewed each year and disbursal limit may be increased in the ratio of saving corpus as prescribed by RBI. At the time of annual review, It should also be ensured that all or at least 30% of the principal drawls during the operational year are repaid besides servicing of monthly interest.
- (iii) However, “In those Government Schemes which have back ended subsidy and release of subsidy is contingent on repayment of term loans, the SHGs can be extended term loans. The term loan can also be given to those SHGs in such cases where all the members of the group are engaged in the same activity and the loan from the bank is taken to undertake this activity by the group. The SHGs will get a cash credit limit in all cases other than mentioned above. The SHG members’ inter-se will get a term loan from the group.” repayable in monthly/ quarterly/half yearly instalments in 3-5 years coinciding with cash flow of the activity undertaken by the group.
- Loan Disbursement : Loan amount can be disbursed fully in ‘cash’. All transactions are routed through the Saving Bank Account of the SHG
- Margin and Security Norms : As per operational guidelines issued by NABARD, SHGs may be sanctioned savings linked loans by banks (varying from a saving to loan ratio of 1:1 to 1:4). However, in case of matured SHGs, loans may be given beyond the limit of four times the savings as per the discretion of the bank. Experience has shown that group dynamics and peer pressure have brought in excellent recovery from SHG members. As such no security needs to be obtained for advances to SHGs. As per RBI circular on Micro credit, the flexibility allowed to banks in respect of margin and security norms under the pilot project will continue to be operational beyond pilot phase also.
- Interest Rate : The banks would have the discretion to decide on the interest rates applicable to loans given to Self Help Groups/member beneficiaries. Rate of interest to be charged on loans to SHGs is linked to base rate wef. 01.07.2010, vide our Circular No. RB-NF/MC&FI/BSJ/F-144/489 dated 21st February 2011 and presently linked to one year MCLR w.e.f. 01.04.2016. Effective interest rate on SHG loan are 3.60 % above MCLR i.e. 12.00% p.a. w.e.f.10.07.2019 to be reset after one year and may increase or decrease subject to change in MCLR from time to time.