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.

This Note focuses exclusively on clients’ perspectives, before and after the crisis, gathered by the MicroSave team at various points of time, across Andhra Pradesh after the crisis broke in October 2010.

This note provides an array of management tools to SHGs and advice on what banks should do before lending to them