UPSC Prelims 2023 Q74: Indian Economy – Digital Payments & Financial Inclusion
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?
- (a) Only one
- (b) Only two
- (c) All three
- (d) None
Answer: (b) Only two
Explanation
Self-Help Groups (SHGs) — Facts
| Statement | Claim | Verdict | Correct Position |
|---|---|---|---|
| 1 | SHG programme originally initiated by State Bank of India through microcredit | FALSE | The SHG-Bank Linkage Programme was launched by NABARD (National Bank for Agriculture and Rural Development) in 1992 — not SBI. NABARD piloted the programme and scaled it nationally. |
| 2 | In an SHG, all members take responsibility for a loan one member takes | TRUE | Joint liability is the cornerstone of SHG lending — the entire group is collectively responsible for repayment of any member's loan. This peer pressure mechanism maintains repayment discipline. |
| 3 | Regional Rural Banks and Scheduled Commercial Banks support SHGs | TRUE | Both RRBs and SCBs lend to SHGs under the SHG-Bank Linkage Programme. NABARD refinances these banks for SHG lending. |
Answer: (b) Only two.
Why each option is right or wrong
- (a) Incorrect. 'Only one' — both joint liability and bank support for SHGs are correct.
- (b) CORRECT. Statements 2 and 3 are correct. Statement 1 is wrong — SHG programme was initiated by NABARD, not SBI.
- (c) Incorrect. 'All three' — the SHG programme was not initiated by SBI; NABARD is the originating institution.
- (d) Incorrect. 'None' — joint liability in SHGs is a fundamental feature that distinguishes micro-finance from individual lending.
Key point
SHG = NABARD initiative (1992), NOT SBI. Joint liability (all members responsible for one loan) = TRUE. RRBs + SCBs support SHGs = TRUE. Two of three correct.
Remember
The Self-Help Group programme was originally initiated by NABARD (not SBI) through the SHG-Bank Linkage Programme in 1992. All SHG members take collective responsibility for individual loans (joint liability), and Regional Rural Banks and Scheduled Commercial Banks both support SHGs.
Common mistakes
- Attributing SHG programme to SBI — it was NABARD that launched the SHG-Bank Linkage Programme; SBI participates but did not initiate it.
- Not knowing the joint liability mechanism — this is the key innovation of micro-finance through SHGs; peer pressure replaces collateral.
- Not knowing RRBs participate in SHG lending — NABARD refinances RRBs and cooperative banks for SHG credit, not just commercial banks.
Exam tip
NABARD = SHG-Bank Linkage Programme initiator (1992). SHG model: 10–20 members + savings + collective loans + joint liability = microfinance without collateral. NABARD refinances banks. The 'SBI originated' claim = always wrong.
Sources
- NABARD — SHG-Bank Linkage Programme Annual Report
- NCERT Economics Class 12 — Rural Credit and SHGs