Women Self Help Groups (SHGs) Loan Schemes Across Indian States

Policy Update
Karnavi Shende

BACKGROUND

Self-Help Groups (SHGs) emerged in India during the early 1980s as a response to the persistent exclusion of rural poor, particularly women, from formal financial systems. Traditional banking institutions required collateral and formal documentation that marginalized communities lacked, forcing them to depend on informal moneylenders who charged exorbitant interest rates. The SHG model drew inspiration from Muhammad Yunus’s Grameen Bank in Bangladesh, which demonstrated that group-based lending without collateral could achieve high repayment rates through peer monitoring and social pressure. Self-Help Groups have, therefore, emerged as one of India’s most transformative instruments for women’s financial inclusion and economic empowerment. This represents one of the world’s largest community-based financial inclusion initiatives.

SHG financing in India has evolved through distinct phases. The initial phase during the 1980s-1990s saw SHGs emerge as informal groups influenced by the Grameen Bank model from Bangladesh, focusing on mutual savings and small internal loans. The formalization phase from 1992 to 2012 began with the National Bank for Agriculture and Rural Development (NABARD) SHG-Bank Linkage Programme in 1992, enabling SHGs to access formal credit from banks without collateral. The current phase from 2012 onwards witnessed a paradigm shift with the launch of Deendayal Antyodaya Yojana-National Rural Livelihoods Mission (DAY-NRLM) in 2012, followed by the Lakhpati Didi Scheme in 2023, aiming to enable 3 crore women SHG members to earn at least ₹1 lakh per year by 2026 (Press Information Bureau, 2026).

SHG financing extends far beyond basic credit access. These networks form a multi-layered financial architecture integrating central mandates, state-level subvention programs, and commercial bank linkages. Under Deendayal Antodaya Yojana-National Rural Livelihoods Mission (DAY-NRLM), the SHG-Bank Linkage ecosystem has scaled to an active outstanding credit portfolio exceeding ₹3 lakh crore. Crucially, the model maintains excellent asset quality with repayment rates above 95%, consistently outperforming commercial loan portfolios. This low non-performing asset rate proves that community-led peer monitoring effectively drives credit discipline among economically vulnerable populations (Sa-Dhan, 2025).

The emergence of state-specific SHG loan schemes was driven by recognition that central schemes alone were insufficient to meet diverse regional needs. States like Odisha, Telangana, and Kerala pioneered interest subvention models that reduced effective interest rates to 0%, making credit virtually free for women SHG members (Odisha Mission Shakti, 2026).

Figure 1: Evolution of SHG Financing in India since 1980s

Source: Compiled by the author from official government sources from National Bank for Agriculture and Rural Development (NABARD) and Ministry of Rural Development.

FUNCTIONING

Central Government Schemes

The Deendayal Antyodaya Yojana-National Rural Livelihoods Mission (DAY-NRLM), launched in 2011, operates through State Rural Livelihoods Missions across all states and Union Territories. Banks must provide collateral-free credit up to ₹20 lakh per Self-Help Group without margin money or third-party guarantees. Loans up to ₹3 lakh are extended at 7% interest, with an additional 3% subvention for prompt repayment, reducing the effective rate to 4%. This ensures economically vulnerable women access formal banking at affordable rates, breaking dependence on moneylenders charging exorbitant rates (Reserve Bank of India, 2025).

The Lakhpati Didi Initiative represents strategic evolution from basic credit access to comprehensive livelihood enhancement. Targeting 3 crore women SHG members to achieve ₹1 lakh+ annual household income, it functions as a convergence mission rather than individual credit instrument. It facilitates credit access of ₹1-5 lakh per entrepreneur through community investment funds and enterprise promotion, coupled with skill development in non-traditional sectors like drone operations, solar technology, and agri-logistics, while converging with MGNREGA, Pradhan Mantri Awas Yojana (PMAY), and Pradhan Mantri Kaushal Vikas Yojana (PMKVY). This recognizes that micro-credit must be paired with skills, market linkages, and support ecosystems to transform loans into sustainable income (PIB, 2025).

The Mahila Samriddhi Yojana targets Socially and Educationally Backward Classes, Scheduled Castes, Scheduled Tribes, and minority women below poverty line. Administered through National Backward Classes Finance and Development Corporation (NBCFDC) and tribal finance bodies, it routes microfinance through State Channelizing Agencies. It provides loans up to ₹15 lakh per Self-Help Group (₹1.25 lakh per member cap) at 4% interest. This ensures marginalized women with intersecting economic and social barriers possess dedicated, subsidized credit pathways for income-generating enterprises (NBCFDC, 2026).

State-Specific Innovations

States have introduced diverse models based on fiscal capacity, political priorities, and local economic conditions. The zero-interest models represent the most generous approach, with states bearing the entire interest burden. Odisha’s Mission Shakti Loan, evolved from its 2013 subvention launch to a comprehensive 0% interest-free model, expanded the interest-free credit ceiling to ₹10 lakh for qualifying groups. This encompasses over 70 lakh women in 7 lakh SHGs, demonstrating how regional subventions drive grassroots economic transformation (Odisha Mission Shakti, 2026).

In Telangana, the government doubled the interest-free loan ceiling (Vaddi Leni Runalu) from ₹5 lakh to ₹10 lakh, with the state bearing the entire interest burden to support over 63 lakh mobilized women (The Hindu, 2026).

In Kerala, the Kudumbashree Mission, launched in 1998, mobilizes nearly 48 lakh women across approximately 3 lakh Neighborhood Groups. Beyond micro-enterprise loan subvention of ₹1-5 lakh, it has evolved into a comprehensive system advancing health, local governance, and disaster resilience (Kudumbashree Mission, Government of Kerala). Gujarat’s Mukhyamantri Mahila Utkarsh Yojana (MMUY), launched in 2020, enables Joint Liability and Earning Groups (JLEGs) of 10 women to secure interest-free credit lines up to ₹1 lakh per group, covering bank interest from the state budget to incentivize women’s entrepreneurship.

The low-interest models balance affordability with fiscal sustainability by linking concessional pricing to group performance. Maharashtra’s UMED scheme enables mature SHGs with minimum two-year track record to access bank-linked credit up to ₹20 lakh at 4% interest, incentivizing transition from micro-consumption to enterprise expansion (MSRLM, Government of Maharashtra). West Bengal’s Swanirbhar Sahayak Prakalpa caps net effective interest at 2% on institutional loans up to ₹3 lakh, with the state absorbing remaining interest burden (WBSCL, Government of West Bengal). Tamil Nadu routes subvention through TNSRLM to lower commercial bank interest rates on collective group-level credit lines (TNSRLM, Government of Tamil Nadu).

Institutional models in resource-constrained regions demonstrate that financial barriers can be overcome through social mobilization. Bihar’s Jeevika program, spearheaded by BRLPS since 2006, governs a massive community architecture encompassing over 1.3 crore women in more than 10.4 lakh active SHGs, replacing informal money-lending with structured banking (BRLPS, Government of Bihar). Rajasthan’s Mahila Nidhi, a state-level women’s cooperative credit federation, uses 8% state interest subsidy to drive effective borrowing rates down to 1.5% per annum. Backed by NCDC financing, this digital lending model delivers rapid credit turnarounds for micro-enterprises (Rajasthan Mahila Nidhi, Government of Rajasthan).

Implementation of these schemes follows a standardized process across states as outlined in the NRLM Handbook on Community Capacity Building (NRLM Handbook on Community Capacity Building (Ministry of Rural Development, Ministry of Rural Development):

Step 1: SHG Formation (3-6 months)
10-20 women form an SHG with weekly/bi-weekly meetings and mandatory savings of ₹100-500 per member monthly, followed by internal lending to build credit discipline.

Step 2: Registration and Grading (1-2 months)
SHGs register with State Rural Livelihoods Missions and undergo grading into A, B, or C categories based on savings, repayment history, and meeting regularity. Only A and B graded SHGs qualify for bank linkage.

Step 3: Bank Linkage (2-3 months)
SHGs approach Regional Rural Banks, public sector banks, or cooperative banks. Banks verify minimum 6 months of internal lending and Panchasutras practice. Loan sanction is based on grading: A grade SHGs eligible for up to ₹10 lakh, B grade for up to ₹5 lakh, with no margin or collateral required up to ₹10 lakh.

Step 4: Disbursement and Monitoring (Ongoing)
Loans are transferred through Direct Benefit Transfer to SHG accounts. SHGs lend to members based on individual needs. Monthly repayment tracking occurs through meetings, with quarterly interest subvention reimbursement to banks.

Step 5: Graduation (12-36 months)
Successful SHGs graduate from petty trade to manufacturing/services, access larger loans through SHG federations or producer companies, and receive market linkage support. As of 2026, 62% of SHGs have achieved bank linkage with ₹3.12 lakh crore cumulative disbursements. However, only 40% are classified as active.

PERFORMANCE

The SHG-Bank Linkage Programme has achieved remarkable scale since 1992, with 90.9 lakh SHGs mobilizing 10.05 crore rural households and cumulative disbursements of ₹13.28 lakh crore as of July 2026 (Press Information Bureau, 2026). However, only 19.83 lakh SHGs (22%) remain operational, revealing a significant gap between formation and sustained functionality that warrants policy attention.

The programme’s 1.66% NPA rate substantially outperforms commercial banking portfolios (typically 5-7%), demonstrating that community-led peer monitoring effectively drives credit discipline among economically vulnerable populations (Chandrakar & Kumar, 2026; Sa-Dhan, 2025). This challenges conventional banking assumptions that collateral-free lending to the poor entails high risk, validating the SHG model’s social collateral mechanism.

State-level disparities persist, with southern and western states achieving higher linkage rates than northern and eastern regions, reflecting variations in institutional capacity, banking infrastructure, and political prioritization (NABARD, 2025). Despite 143.30 lakh SHGs having savings-linked accounts (₹71,433 crore deposits), only 62% achieved credit linkage, indicating that savings mobilization has outpaced credit access (NABARD, 2025). The deployment of 50,548 Bank Sakhis has facilitated ₹12.18 lakh crore in women’s credit access since 2013-14, yet the gap between savings-linked and credit-linked SHGs suggests bottlenecks in bank willingness or SHG creditworthiness (Press Information Bureau, 2026).

With 60% of India’s rural population reached, SHGs represent the world’s largest microfinance delivery mechanism (World Bank, 2020). However, the transition from financial inclusion to sustainable livelihood enhancement remains uneven, as evidenced by the Lakhpati Didi scheme’s focus on income generation rather than mere credit access (Press Information Bureau, 2025)

IMPACT

SHG loan schemes have demonstrated significant multi-dimensional impacts, though evidence suggests heterogeneous outcomes across economic, social, and empowerment dimensions. The 3ie impact evaluation (27,000 respondents across 9 states) found that 2.5 years of SHG membership increased household income by 19% (₹11,000 annually), reduced dependence on informal loans by 20%, and increased savings by 28% (3ie, 2023). However, the modest 4% increase in female labour force participation indicates that while SHGs improve financial access, transformative employment effects remain limited without complementary livelihood support.

The programme’s impact on women’s empowerment presents a nuanced picture. SHG members demonstrate significantly higher financial literacy and decision-making power within households compared to non-members (Arjun & Subramanian, 2025; Deore, 2025). Yet research identifies an “agency gap”: while women gain mobility and financial access, patriarchal norms often prevent them from exercising decision-making power over loan utilization or income allocation within households (IJCRT, 2025). This suggests that financial inclusion alone is insufficient for gender transformation without addressing deeper socio-cultural constraints.

The reduction in dependence on informal moneylenders (charging 24-60% annually) represents one of the programme’s most significant welfare gains, effectively transferring ₹15,000-20,000 annually per household from moneylenders to SHG members (NABARD, 2025; World Bank, 2020). SHG federations have also enabled collective bargaining for agricultural produce and market access, though these benefits remain concentrated among mature SHGs with strong institutional capacity (Singh, 2025). The linkage to government schemes (PMJDY, MGNREGA, health insurance) demonstrates SHGs’ role as platforms for broader development convergence, though utilization varies significantly across states (Global Alliance Against Hunger and Poverty, 2026).

EMERGING ISSUES

Despite significant progress, SHG loan schemes face several persistent challenges.

Delayed and Inadequate Credit Access: Bureaucratic processes, excessive documentation requirements, and delays in loan disbursement constrain timely credit access, with 96% of SHG members reporting inadequate and untimely access to credit (Extension Journal, 2025; ICSSR, 2025). Banks remain hesitant to sanction fresh loans in some regions due to perceived risks and historical NPA concerns, particularly in poorer northern states (NABARD, 2024).

Limited Post-Loan Support and Market Linkages: SHG members receive minimal mentorship, professional guidance, or market access support after loan disbursement, limiting enterprise development and income growth (RJWAVE, 2026; IJFMR, 2026). Weak monitoring mechanisms and restricted access to government schemes beyond credit constrain long-term sustainability and scalability of SHG-led livelihoods (Sachetas, 2025).

Low Financial and Digital Literacy: Limited financial literacy among members and the digital divide, with low smartphone penetration and digital illiteracy, restrict adoption of paperless onboarding and digital financial services in rural areas (World Bank, 2020; IJSAT, 2025).

Institutional and Infrastructural Constraints: Limited banking infrastructure in remote areas, inadequate institutional capacity at state and district levels, and delays in fund release from state treasuries affect the pace of mission implementation (Ministry of Rural Development, 2024; World Bank, 2020).

Socio-Cultural Barriers: Lack of family support for women’s participation (reported by 91.66% of members), educational constraints, and time poverty due to household responsibilities limit effective SHG engagement (Extension Journal, 2025).

Uneven Transition to Enterprise Financing: The transition from savings-linked SHGs to credit-linked enterprises remains uneven, with only 62% achieving bank linkage and significant inter-state disparities in performance (Kronika, 2025). The sector faces regulatory constraints aimed at preventing over-indebtedness while needing to transition from traditional group-based lending to individual enterprise financing (Pahal Horizon, 2025).

WAY FORWARD

Gender-Sensitive Lending: Establish dedicated “Women Entrepreneur Credit Desks” in rural bank branches with simplified documentation, flexible repayment schedules linked to seasonal income, and collateral-free loans up to ₹10 lakh for women-led enterprises. Also establish collective production, marketing, and export facilitation centres for SHG women, linking them with local incubators, state business support centres, and e-commerce platforms to enable transition from subsistence to growth-oriented enterprises.

Digital SHG Credit Rating System: Introduce a digital credit rating mechanism for women SHGs using alternative data sources (bank statements, UPI transactions, utility payments) to supplement traditional underwriting, reducing turnaround time and expanding access for informal enterprises.

Mandatory Financial Literacy & Skill Building: Integrate compulsory financial education, business management training, and digital literacy modules into SHG programmes before loan sanctioning, linked with Pradhan Mantri Dakshta Aur Kushalta Sampann Hitgrah (PM-DAKSH), Skill India, and PMKVY for entrepreneurship development.

Expanded Credit Guarantee Schemes: Strengthen and expand guarantee mechanisms (such as CGTMSE) specifically for women-led SHG enterprises to reduce institutional risk and enable larger loan amounts with lower interest rates.

Community-Led Distribution Partners: Leverage women’s collectives (CBOs) under NRLM as distribution partners to strengthen trust, reduce documentation barriers, and provide enterprise-readiness support including mentorship from experienced entrepreneurs.

Real-Time Monitoring & Feedback: Develop scheme dashboards tracking not just loan approvals but enterprise success indicators (profitability, survival, employment generation) with beneficiary feedback loops for continuous improvement.

Special Provisions for Marginalized Women: Design targeted schemes for widows, differently-abled women, and women in conflict areas, as generic schemes fail to address these vulnerable subgroups.

REFERENCES

3ie. (2023). Strengthening the case for India’s national livelihoods program. International Initiative for Impact Evaluation. https://www.3ieimpact.org/evidence-hub/Evidence-impact-summaries/strengthening-case-indias-national-livelihoods-program

Arjun, T. P., & Subramanian, R. (2025). Does participation in self-help group-based micro-financial activities enhance the financial literacy of women? Evidence from India. International Journal of Social Economics. https://doi.org/10.1108/IJSE-10-2023-0843

Bihar Rural Livelihoods Promotion Society. (2026). Jeevika: Bihar Rural Livelihoods Promotion Society. Government of Bihar. https://brlps.in/Ihome

Chandrakar, L., & Kumar, V. (2026). The role of SHGs under DAY-NRLM and CGSRLM (Bihan) in boosting women’s productivity year-on-year and advancing broader life outcomes in Chhattisgarh, India. Journal of Emerging Technologies and Innovative Research, 13(4), 51–56. https://www.jetir.org/papers/JETIRHN06007.pdf

Deore, D. R. (2025). The impact of self-help groups (SHGs) on women empowerment in India: A national perspective and case study analysis. International Journal of Financial Management and Economics, 8(2), 1115–1117. https://www.theeconomicsjournal.com/article/view/652/8-2-119

Extension Journal. (2025). National Rural Livelihood Mission (DAY-NRLM): A study on constraints and suggestions. Extension Journal, 8(1), 1255–1261. https://www.extensionjournal.com/article/view/1582/8-1-86

Global Alliance Against Hunger and Poverty. (2026). India: Deendayal Antyodaya Yojana-National Rural Livelihood Mission (DAY-NRLM). https://globalallianceagainsthungerandpoverty.org/country-example/india-deendayal-antyodaya-yojana-national-rural-livelihood-mission-day-nrlm/

ICSSR. (2025). The DAY-NRLM Scheme: Impact of microfinancing on entrepreneurial development among rural women in Haryana. Indian Council of Social Science Research. https://icssr.org/book/day-nrlm-scheme-impact-microfinancing-entrepreneurial-development-rural-women-haryana

Kudumbashree. (2026). Kudumbashree: State Poverty Eradication Mission. Local Self Government Department, Government of Kerala. https://lsgkerala.gov.in/en/lsgd/allied-institutions/kudumbashree

Maharashtra State Rural Livelihoods Mission. (2026). UMED: Financial inclusion through SHGs. Government of Maharashtra. https://umed.in/financial_inclusion_en.php

Ministry of Rural Development. (n.d.). NRLM Handbook on Community Capacity Building. National Institute of Rural Development and Panchayati Raj. https://nirdpr.org.in/nird_docs/nrlm/nrlmhandbook240614.pdf

National Backward Classes Finance & Development Corporation. (2026). Loan scheme description: Mahila Samriddhi Yojana. Government of India, Ministry of Social Justice and Empowerment. https://nbcfdc.gov.in/nbcfdc/web/en/loan_scheme_description

National Bank for Agriculture and Rural Development. (2024). Impact of Bank Linkage Programme on Self-Help Groups. https://www.nabard.org/auth/writereaddata/tender/pub_0212240932181206.pdf

National Bank for Agriculture and Rural Development. (2025). Status of Microfinance in India 2024-25. https://www.nabard.org

Odisha Mission Shakti. (2026). Mission Shakti Loan: State Interest Subvention. Government of Odisha. https://missionshakti.odisha.gov.in/en/programme/mission-shakti-loan-state-interest-subvention

Pahal Horizon. (2025). Microfinance in India: Relevance of current delivery mechanism and a road map to propel prosperity. Pahal Horizon, 6(3). https://pahalhorizon.com/assets/documents/v6i3/2_1_Microfinance%20in%20India-Relevance%20of%20Current%20Delivery%20Mechanism%20and%20a%20Road%20Map%20to%20Propel%20Prosperity.pdf

Press Information Bureau. (2025, August 15). 1.52 crore women trained under Lakhpati Didi scheme. Government of India. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2101864&reg=48&lang=2

Press Information Bureau. (2025, November 20). Self-Help Groups-Bank Linkage Programme: Progress and performance. Government of India. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2146870&reg=3&lang=2

Press Information Bureau. (2026, July 16). Strengthening Rural Credit for Inclusive Growth in India [Press release]. Government of India. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2285236

Press Information Bureau. (2026, September 17). Women’s SHG loan schemes show significant impact on rural livelihoods. Government of India. https://www.pib.gov.in/PressReleaseDetail.aspx?PRID=2306481&reg=48&lang=2

Rajasthan Mahila Nidhi. (2026). Mahila Nidhi: Empowering rural women through microfinance. Government of Rajasthan. https://mahilanidhi.rajasthan.gov.in/mahilanidhi/UI/HomeNew.aspx

Regional Rural Development Society Government Degree College. (2024). Evaluation of SHG-Bank Linkage Programme in India (Research Report No. RRD/2024/03). https://rrdsgdc.ac.in/wp-content/uploads/2024/04/SHG_merged.pdf

Reserve Bank of India. (2025). Master circular on Deendayal Antyodaya Yojana-National Rural Livelihoods Mission (DAY-NRLM) (RBI/2025-26/15). https://www.rbi.org.in/commonman/english/scripts/Notification.aspx?Id=2662

RJWAVE. (2026). The role of DAY-NRLM in promoting women entrepreneurship in rural India. Journal of Advanced Agriculture and Food Research, 3(5). https://rjwave.org/jaafr/papers/JAAFR2605734.pdf

Sa-Dhan. (2025). Bharat Microfinance Report FY 2024-25. Association of Community Development Finance Institutions. https://www.sa-dhan.net/wp-content/uploads/2025/10/Bharat-Microfinance-Report_FY_2024-25_compressed.pdf

Singh, B. (2025). Women’s empowerment through SHG bank linkage in rural India. International Journal of Foreign Trade and International Business, 7(2), 157–159. https://www.foreigntradejournal.com/archives/2025.v7.i2.B.184

Sridhar, V. (2026, May 7). Telangana increases interest-free loan limit for women SHGs from ₹5 lakh to ₹10 lakh. The Hindu. https://www.thehindu.com/news/national/telangana/telangana-increases-interest-free-loan-limit-for-women-shgs-from-5-lakh-to-10-lakh-seethakka/article70950895.ece

Tamil Nadu State Rural Livelihoods Mission. (2026). TNSRLM: Empowering rural women through self-help groups. Tamil Nadu Corporation for Development of Women. https://tncdw.org/pages/view/TNSRLM

West Bengal Swarojgar Corporation Limited. (2026). Eligibility of SHG for bank linkage. Government of West Bengal. https://shgsewb.gov.in/shgportal/eligibility_of_shg_for_bank

World Bank. (2020). SHG-Bank Linkage: A success story. https://documents1.worldbank.org/curated/en/486171590655967465/pdf/SHG-Bank-Linkage-A-Success-Story.pdf

ABOUT THE CONTRIBUTOR

Karnavi Shende is a Research and Editorial Intern at IMPRI. She holds a Master’s in Politics, specializing in International Relations, from Jawaharlal Nehru University, New Delhi. Her interests include International Relations, Strategic Studies, Public Policy, Gender, and Human Rights, with a focus on policy research and contemporary governance challenges.

ACKNOWLEDGEMENTS

The author extends sincere gratitude to the reviewers (Sneha Kohli and Samiksha Muskan) and the IMPRI team for their expert guidance and constructive feedback throughout the process.