SHGs should balance or break

In the words of NABARD, “internal savings mobilized by its members is the core of the SHG”. Banks size their loans to SHGs as a multiple of the savings accumulated. Strangely though, it is not routine for banks to verify SHG balance sheets before lending. Few SHGs try to balance their books, and even fewer have provisions for audits.
In the SHG-bank linkage model, the size of bank loans is determined by the size of the SHG corpus, more than by any other single factor. As a result, SHGs face very strong systemic incentives to neglect errors that overstate their collective savings or understate losses.

Auditing SHG balance sheets is vital for detecting errors, sloppy disclosure practices and fraud. It is the only way a bank can assure itself of a SHG’s capacity to repay in future. It is the only way members can assure themselves that their savings are really all present and accounted for.

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