MICROCAPITAL BRIEF: Reserve Bank of India (RBI) to Allow Urban Cooperative Banks to Lend to Self-Help Groups (SHGs), Joint Liability Groups (JLGs) in Effort to Increase Microfinance Activities

The Reserve Bank of India (RBI), the country’s central banking authority, has recently begun permitting urban cooperative banks (UCBs), commonly known as credit unions, to lend directly to self-help groups (SHGs) and joint-liability groups (JLGs) in an effort to facilitate financial inclusion by increasing the availability of microfinance in India. SHGs and JLGs have historically been served by microfinance institutions (MFIs), but the latest development allows UCBs access to this large population as part of their normal business activities [1].

SHGs are bodies of 10 to 20 individuals who pool their savings, can apply for loans as a group and may lend to their members. Under the new regulation, SHGs can apply for loans worth up to four times the value of their pooled savings. JLGs are groups of 4 to 5 individuals who apply for loans under an assumption of both individual and joint liability for the group’s interest and loan payments. JLGs will not have to maintain deposits with the UCBs and will be eligible for credit based on the bank’s assessment of their needs and ability to repay [1].

By Rohan Trivedi, Research Associate

About Reserve Bank of India (RBI):
Established in 1935, the Reserve Bank of India undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While all microfinance institutions (MFIs) and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5 percent stake in the outfit, RBI owns a one-percent stake in NABARD as of 2011.

Sources and Additional Resources:

[1] Indian Cooperative: “SHG could avail loan from Urban Coop Banks”, http://indiancooperative.com/banks/shg-could-avail-loan-from-urban-coop-banks/

MicroCapital.org story, May 20, 2011: “MICROCAPITAL BRIEF: Details Emerge on “Microfinance Bank” Proposed by Government of Andhra Pradesh, Government of India, Several Banks”, https://www.microcapital.org/microcapital-brief-details-emerge-on-“microfinance-bank”-proposed-by-government-of-andhra-pradesh-government-of-india-several-banks/

MicroCapital.org story, May 18, 2011: “MICROCAPITAL BRIEF: Credit Rating and Information Services of India Limited (CRISIL) Predicts Reserve Bank of India Guidelines Will Spur Bank Lending to Microfinance Institution (MFIs), Trigger Consolidation”, https://www.microcapital.org/microcapital-brief-credit-rating-and-information-services-of-india-limited-crisil-predicts-reserve-bank-of-india-guidelines-will-spur-bank-lending-to-microfinance-institutions-mfis-trigger-conso/

MicroCapital.org story, May 5, 2011: “MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Enacts Most of Microfinance Guidelines Proposed by Malegam Committee”, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-enacts-most-of-microfinance-guidelines-proposed-by-malegam-committee/

MicroCapital.org story, November 23, 2009: “MICROCAPITAL BRIEF: Reserve Bank of India Recommends Formation of Umbrella Organizations for Credit Unions”, https://www.microcapital.org/microcapitalorg-brief-reserve-bank-of-india-recommends-formation-of-umbrella-organizations-for-credit-unions/

MicroCapital Universe Profile: Reserve Bank of India (RBI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29

Browse the MicroCapital Universe and add you entry to the wiki at https://www.microcapital.org/microfinanceuniverse/

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