Question map
Consider the following statements : 1. The Self-Help Group (SHG) programme was originally initiated by the State Bank of India by providing microcredit to the financially deprived. 2. In an SHG, all members of a group take responsibility for a loan that an individual member takes. 3. The Regional Rural Banks and Scheduled Commercial Banks support SHGs. How many of the above statements are correct?
Explanation
The correct answer is Option 2 (Only two) because statements 2 and 3 are correct, while statement 1 is incorrect.
- Statement 1 is incorrect: The SHG-Bank Linkage Project was not initiated by the State Bank of India. It was launched by NABARD in 1992, following the success of the MYRADA project, to provide formal financial services to the unbanked poor.
- Statement 2 is correct: SHGs operate on the principle of joint liability. While the loan is often given to an individual member for their specific needs, the entire group remains collectively responsible for its repayment. This peer pressure ensures high recovery rates and serves as social collateral.
- Statement 3 is correct: The SHG-Bank Linkage Programme is supported by a wide network of financial institutions, including Commercial Banks, Regional Rural Banks (RRBs), and Cooperative Banks, which provide credit and savings facilities to these groups.
PROVENANCE & STUDY PATTERN
Full viewThis is a classic 'NCERT + Institutional History' mix. Statements 2 and 3 are foundational concepts found directly in Class X NCERT. Statement 1 is a standard 'Agency Swap' trap (swapping NABARD with SBI). If you mastered the NCERT basics and knew the 'father' of rural credit (NABARD), this was a sitter.
This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.
- Statement 1: Was the Self-Help Group (SHG) programme in India originally initiated by the State Bank of India (SBI) to provide microcredit to the financially deprived?
- Statement 2: In Indian Self-Help Groups (SHGs), are all group members jointly responsible for repayment of a loan taken by an individual member (joint liability)?
- Statement 3: Do Regional Rural Banks and Scheduled Commercial Banks in India provide support (credit or linkage) to Self-Help Groups (SHGs)?
- Explicitly states which institution initiated the SHG-BLP and when, naming NABARD as the initiator.
- Directly contradicts the claim that SBI originally initiated the programme by attributing initiation to NABARD in 1992.
- States NABARD introduced the Self-Help Group Bank Linkage Programme as a trial initiative in 1992 and mainstreamed it in 1996.
- Shows the programme linkage was driven by NABARD (not SBI), providing clear attribution of origin.
Describes the SHG model (women organising, pooling savings, small loans from the group) and frames SHGs as a distinct, community-led mechanism for lending to the poor.
A student could use this to check whether SHGs were an internal SBI product or arose as a grassroots/community-driven model later supported by banks like SBI.
Explains SBI's historical expansion by taking over regional/state banks, indicating SBI's growing institutional footprint in rural/regional banking.
One could correlate SBI's enlarged rural presence with the plausibility of SBI initiating rural credit programmes, then seek chronological evidence whether SHGs predate or postdate that expansion.
Notes that even after SBI's creation, banking needs of small-scale/agriculture were insufficiently covered and that policy sought greater bank involvement in development.
A student could infer that central policy pushed banks to support rural credit, so if SHGs originated as a response to unmet rural credit needs, their origin might be linked to broader policy rather than a single bank.
Describes the Lead Bank Scheme (assigning banks responsibilities for districts) as a formal mechanism for banks to promote financial inclusion at local level.
One could use this to assess whether SHG promotion was likely to be a government-led/district-level bank action (e.g., under Lead Bank responsibilities) rather than a sole SBI initiative.
Describes SIDBI (established 1990) as a specialised institution supporting micro/SME credit and promotional activities beyond just lending.
A student might check timelines and roles: if SIDBI or similar institutions promoted SHGs or microcredit around 1990s, it weakens the claim that SHGs were originally an SBI initiative.
- Explicitly assigns responsibility for loan repayment to the group and describes collective follow-up when one member defaults.
- Describes that the group decides loan purpose, amount, interest and repayment schedule, indicating collective governance of lending.
- Links group responsibility to banks' willingness to lend without collateral, implying practical joint-liability function.
- Describes that banks are willing to lend to poor women organised in SHGs and that SHGs help overcome lack of collateral.
- States SHG groups decide loan purpose, amount and repayment and that banks lend to these groups enabling timely loans at reasonable rates.
- Classifies Regional Rural Banks (RRBs) as a category of Scheduled Commercial Banks (SCBs) in India.
- Therefore, references to 'banks' providing loans to SHGs can be linked to SCBs that include RRBs.
- States RRBs were created to provide credit and other facilities for rural development to small and marginal farmers, artisans and small entrepreneurs.
- RRBs are required to direct a large share of lending to priority rural sectors, implying they provide rural credit linkages that can include SHGs.
- [THE VERDICT]: Manageable Trap. Statements 2 & 3 are direct lifts from **Class X NCERT (Money and Credit)**. Statement 1 is a historical fact check (NABARD vs SBI).
- [THE CONCEPTUAL TRIGGER]: **Financial Inclusion & Rural Credit Architecture**. Specifically, the evolution of the SHG-Bank Linkage Programme (SBLP).
- [THE HORIZONTAL EXPANSION]: **Must-Know Sibling Facts**: 1. **NABARD (1992)** launched the SHG-Bank Linkage Project. 2. **Kudumbashree (Kerala)** is one of the largest women's SHG networks (1998). 3. **Priority Sector Lending (PSL)**: Loans to SHGs qualify as PSL. 4. **E-Shakti**: NABARD's project to digitize SHG books. 5. **JLG (Joint Liability Group)**: Distinct from SHG; usually 4-10 members, credit-focused (MFIs), unlike SHGs which are savings-led.
- [THE STRATEGIC METACOGNITION]: When studying major developmental schemes, always memorize the **Nodal Agency** and **Genesis Year**. UPSC loves swapping the *initiator*. If a statement attributes a national structural reform to a single commercial bank (SBI) rather than a regulator/DFI (NABARD/RBI), apply high skepticism.
SHGs are small neighbourhood groups that pool savings and provide internal small loans to members, typically targeting rural poor and women.
High-yield for questions on rural microcredit and grassroots financial mechanisms: helps distinguish community-driven credit (SHGs) from formal bank-led schemes, and frames policy debates on microfinance design and targeting.
- Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > 50 UNDERSTANDING ECONOMIC DEVELOPMENT > p. 50
Banks have been formally assigned district-level roles to promote financial inclusion through the Lead Bank Scheme and nationalisation initiatives.
Important for questions on institutional responsibilities in financial inclusion: clarifies how commercial/public banks are mobilised for outreach, links to banking nationalisation and policy instruments used to expand rural credit.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 8: Financial Market > M India's Efforts for Financial Inclusion > p. 239
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > 3.1 History of Indian Banking and Reforms > p. 125
SIDBI was established to promote and support micro, small and medium enterprises including through credit and non-credit developmental measures.
Useful for differentiating specialised development finance institutions from commercial banks when analysing origins and delivery channels of small-scale credit; aids in answering questions on institutional architecture for MSME and microfinance support.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Small Industries Development Bank of India > p. 182
SHGs place repayment responsibility on the group, making members collectively accountable for an individual member's loan.
High-yield for questions on microfinance and rural credit: explains how social collateral substitutes for physical collateral and why banks lend to SHGs. Links to topics on credit delivery mechanisms, financial inclusion, and institution design.
- Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > 50 UNDERSTANDING ECONOMIC DEVELOPMENT > p. 50
SHG members jointly determine loan purpose, amount, interest and repayment schedules, reflecting collective decision-making.
Important for understanding operational functioning of grassroots financial institutions; helps answer questions on decentralised credit, group-based lending models, and community oversight mechanisms.
- Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > 50 UNDERSTANDING ECONOMIC DEVELOPMENT > p. 50
Group responsibility and peer monitoring enable banks to lend to poor women who lack traditional collateral.
Crucial for topics on access to credit and financial inclusion; explains policy rationale for promoting SHGs and informs comparative analysis of formal vs informal credit sources.
- Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > 50 UNDERSTANDING ECONOMIC DEVELOPMENT > p. 50
Organised SHGs enable banks to extend collateral-free loans to poor women by relying on group responsibility and repayment norms.
High-yield for questions on rural credit and microfinance: explains why formal banks finance grassroots groups, links to poverty alleviation and financial inclusion policies, and helps answer questions on mechanisms of rural lending and SHG-Bank Linkage Programme.
- Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > 50 UNDERSTANDING ECONOMIC DEVELOPMENT > p. 50
The **Joint Liability Group (JLG)** model. While SHGs are 10-20 members primarily for savings + internal lending, JLGs are smaller (4-10) groups formed specifically to avail loans from banks/MFIs without necessarily having a savings history. Expect a question swapping SHG features with JLG features.
**The 'Commercial vs. Developmental' Heuristic**: Statement 1 claims a *commercial bank* (SBI) originally initiated a national welfare programme. In India, structural programmes are almost always initiated by **Development Finance Institutions (DFIs)** like NABARD, SIDBI, or the Govt/RBI. Commercial banks *implement*, they rarely *invent* national policy. This makes SBI a highly suspicious candidate for the 'originator' role.
Link to **GS Mains Paper 2 (Social Justice/Governance)**: SHGs are not just financial tools; they are **'Social Capital'**. Cite Robert Putnam's theory. They act as pressure groups for local governance (e.g., alcohol bans in Andhra/Bihar). In GS3, frame SHGs as the bridge between 'Formal Banking' and the 'Last Mile'.