National Rural Livelihood Mission

Preface: Indian economy recorded a fairly high GDP growth rate of 7.2 percent during 1998-2008. Notwithstanding the relatively high growth rate, over 25 crore rural population (45 million households) in the country remain locked in poverty. Contrary to the earlier estimates of rural poverty, the Tendulkar Committee reported a rural poverty ratio of about 42 percent. While the number of rural people living on less
than Rs.50/- a day decreased by 2.9 crores between 1981 and 2005, the number of rural people living on less than Rs.62.5 a day grew by 3.5 crore during the same period. The key challenge before the Indian economy today is to ensure that its growth becomes inclusive and contributes to a significant reduction in rural poverty. It is in this context that XI Five Year Plan has adopted an inclusive growth strategy of expanding livelihood opportunities to the excluded social and occupational groups.

Most of the poor rural households are resource-poor. A predominant proportion of these households are engaged in agricultural labor, even as agriculture sector has been experiencing a relative decline in Gross Domestic Product (GDP).In addition, the rural poor have a limited skill base that restricts their occupational mobility to benefit from the urban-centric growth process. Poverty denies the poor households access to a wide range of markets and services, including credit. Lack of access to last-mile services further intensifies their poverty and affects their food security, health and nutritional status.

Key Challenges to the Development of Rural Poor

1. Lack of Effective Institutional Platforms for the Poor
2. Low Participation of Poor in Organized Sector Jobs
3. Absence of Last Mile Service Delivery and the Supply Side Failure 

(The rural poor, especially those living in the more interior villages, do not have access to a variety of social and economic services provided by the state. These include free health services, free education, free supplementary nutrition, free agricultural extension services and such others )

Establishment of NRLM

1. The GoI established the National Rural Livelihoods Mission (NRLM) in June 2010 to implement the new strategy of poverty alleviation woven around community based institutions
2. The mission of NRLM is “to reduce poverty by enabling the poor households to access gainful self-employment and skilled wage employment opportunities, resulting in appreciable increase in their incomes, on a sustainable basis through building strong grassroots institutions of the poor. These institutions enable and empower the poor households to build-up their human, social, financial and other resources, solidarity, voice and bargaining power. They, in turn, enable them to access their rights, entitlements and opportunities.”
3. The progress of the SGSY scheme launched in 1999, with objectives similar to the NRLM, has been uneven, slow and in many cases distorted. The design and implementation mechanism of SGSY suffer from several weaknesses . Government of India (GoI) constituted a Committee on Credit Related Issues under SGSY (under the Chairmanship of Prof. Radhakrishna) to look into various aspects of scheme implementation. The Committee recommended adoption of a ‘livelihoods approach’ to eliminate rural poverty encompassing the four inter-related tasks of:
   
         i) Mobilizing all rural, poor households into effective self-help groups (SHGs) and their federations;
   

         ii) Enhancing access of the rural poor to credit and other financial, technical and marketing services;
   iii) Building capacities and skills of the poor for gainful and sustainable livelihoods; and Improving the delivery of social and economic support services to the poor. 
4.  The government has accepted the recommendation of the Committee and accordingly, Swarnajayanti Gram Swarozgar Yojana (SGSY) is being restructured as National Rural Livelihoods Mission (NRLM) to provide greater focus and momentum for poverty reduction and to achieve the Millennium Development Goals (MDG) by 2015.
5. Key Features of SGSY and NRLM



Sl. No.	Key feature	SGSY	NRLM
1	Fund allocation	District wise allocation based on BPL list/rural poverty estimate	Overall state allocation based on estimated poverty population- sub state poverty level based on State Perspective Plan
2	Fund flow	To the districts	To the state
3	Delivery mechanism and program management	Through DRDAs	Through state Mission structure, a special purpose organization established for NRLM
4	Program priority	Capital subsidy	Mobilization of poor into groups
5	Capital subsidy flow	Through banks as subsidy for economic activities	Direct to groups as demand based seed capital
6	Role of banks	As disbursers of capital subsidy	As providers of credit
7	objective	One time support	Enable to access repeat finance
8	Beneficiary identification	BPL list	‘participatory identification of the poor’
9	Basis	Allocation basis	demand driven’ strategy



6. Creation of appropriate institutional support structures to facilitate implementation of activities is central to the success of the Mission. As part of NRLP-NRLM, a dedicated National Mission Management Unit (NMMU) has been set-up. In addition, NRLP-NRLM would facilitate setting-up of dedicated sensitive support units at the state, district and sub-district levels, to catalyze social mobilization, build community institutions, capacities and skills, facilitate financial inclusion and access to financial services, support livelihoods and promote convergence and partnerships with various programmers and stakeholders. These units would be staffed with professionally competent and dedicated human resources.
7. Package of Economic Assistance/Financial Norms as approved by the Cabinet Committee



Sl. No.	Activity	Financial Norms
1	Formation of SHGs	Rs. 10,000 per SHG
2	Revolving fund	Equivalent to corpus of SHG with a minimum of Rs.10,000 to a maximum of Rs. 15,000 per SHG
3	Capital Subsidy	Maximum amount of Rs. 2.50 lakh per SHG calculated @ Rs 15,000 per general category and Rs 20,000 per SC/ST category beneficiary
4	Capacity building and skills training	Rs. 7,500 per beneficiary
5	Interest subsidy	Subsidy on interest rate above 7 percent per annum for all SHG loans availed from banks, based on prompt repayment, up to Rs 1.00 lakh per capita.
6	One time grant for corpus fund for sustainability and effectiveness of federations	• Rs 10,000 for Village/Panchayat level federation • Rs 20,000 for Block level federation • Rs 100,000 for District level federation
7	Administrative expenses	5 percent of the allocation, net of the component relating to skill development & placement and net of the component of RSETIs
8	Infrastructure and Marketing	Up to 20 percent (25 percent in case of north eastern states and Sikkim) of the allocation
9	Skills and Placement Projects and Innovations	20 percent of the allocation out of which expenditure on innovative projects should not exceed 5 percent and the remaining will be for placement linked skill development projects. 7.5 percent of the allocation will be retained at the centre for multi-state skill development projects and 7.5 percent will be allocated to states to implement state specific skill development



8. Coordination Mechanisms  
   Close involvement of various line departments, banks, public and private sectors and civil society organizations is essential for monitoring the flow of credit and utilization of credit. In order to ensure proper coordination the following committees could be constituted at various levels.
9. Central Level
   The Department of Rural Development in the Ministry of Rural Development, Government of India, New Delhi has the overall responsibility of policy formulation, monitoring and evaluation of the program and for release of central share of funds. A Central Level Coordination Committee (CLCC) has been constituted as under to assist the Department. The CLCC will meet once in six months.
10. State Level The State Level Bankers’ Committee would constitute an exclusive sub-committee for SHG bank linkages and implementation of NRLM activities. Functions of this committee would include planning, coordination, monitoring and review of financial inclusion and credit linkages under the program. This committee shall meet at least once every quarter to ensure proper follow up and effective implementation.
11. District Level The forum of District level Coordination Committee chaired by the District Collector would review the implementation of NRLM activities and remove any impediments in flow of credit to SHGs, SHG federations and livelihoods collectives. This committee shall meet at least once every quarter for the following functions:Monitoring and review of the overall progress in physical and financial terms.Sorting out inter-agency differences and to prepare items for consideration of State Level Committee. Assessing training needs of beneficiaries and also to review the arrangements for training including identification of appropriate institutions and also Monitor the recovery position bank-wise and block-wise so as to initiate corrective measures where necessary. Below the district level, the joint block level consultation committees will review SHG-Bank linkages and NRLM. The district and sub district mission unit members, branch managers in the block and other block level development officials will attend the meeting. In addition, the SHG representatives and the representatives of livelihoods organizations within the block, will be invited to these meetings. In the intensive blocks, the block level federation members and select SHG-Bank linkage committee members will be invited to these meetings.
    
    
    Financial Inclusion Strategies and Role of Revolving Fund, Capital Subsidy and Bank Linkages  Access to finance at affordable price, desired amount and convenient repayment terms is critical for poverty reduction. Repeated doses of credit are essential to help poor to smoothen consumption and support investments in assets (acquisition, renewal and expansion). The poorest and vulnerable in several parts of the country still depend upon wages in kind. In times of food, health and other shocks, they borrow food or money from informal sources at usurious interest rates which is repayable in kind, labour and produce.
            The poor therefore need to come out of this debt trap as the first step out of poverty. The Reserve Bank of India defines financial inclusion as providing access to appropriate financial products and services to the most vulnerable group of the society in a fair, transparent and cost-effective manner by the mainstream financial institutions. Making poor the preferred clients of the banking system is core to the NRLM financial inclusion strategy.Mobilization of bank credit is crucial for accomplishing investment goals under NRLM.

Basic banking services

• The role of banks commences right from inception of the program. The banks shall open savings accounts for all program beneficiaries, Self Help Groups and their federations (unregistered/registered) and facilitate full range of banking services including savings, credit and remittances. 
• State Level Bankers’ Committee in each State will facilitate consensus on the KYC procedures to be adopted by the banks for smooth opening of bank accounts. NRLM will develop strategic partnerships with major banks.

Financial assistance to Self Help Groups

     Primary source of financial assistance on a continuous basis for the institutions of poor, like Self Help Groups and their federations, is the SHG-Bank Linkage Program This unique banking innovation, pioneered by NABARD in partnership with N.G.Os, has led to remarkable results. This will be the cornerstone of N.R.L.M.

Micro Investment Plan:

      Every Self Help Group that is practicing ‘Panchasutra’ principles (They are regular meetings, regular savings, regular inter-loaning,  timely repayment of loans and up-to-date books of accounts) will be facilitated to formulate Micro Investment Plans, which will become the basis for financial assistance from NRLM or the financial institutions. Micro Investment Plan is a simple list of investments that members would like to make with the financial support of their Self Help Group. Micro investment planning is an iterative process entailing the following steps:

• Developing household investment plans to address their most important vulnerabilities, in discussion with all family members

• Appraisal of socio-economic status of members through participatory wealth ranking among the group members

• Appraisal of household investment plans by the SHGs

• Consolidation and prioritization of loan requests by the group. Priority on the basis of the urgency of the need and the vulnerability of the member.

• Mobilizing financial resources to support MIP. To apply future cash flows (from thrift, repayments, revolving fund, external loans, etc.) to support members in the order of priority

• Evolving terms of partnerships with borrowing members that prescribes manner of acquisition of assets, asset insurance, repayment schedule, interest rates and penal provisions for non-compliance

• Social audit on loan utilization by SHG members and sub committees of the federation

Revolving Fund support to SHGs:

               The NRLM provides a revolving fund support equivalent to corpus of SHG, with a minimum of Rs. 10,000 to a maximum of Rs. 15,000 per SHG, to groups meeting the following eligibility conditions: 

• Completed minimum period of 6 months of active existence. However this condition could be reduced to three months for groups that meet regularly on weekly basis (for the purpose of revolving fund support). 
• Practicing Panchasutra. 
• Prepared a Micro Investment Plan covering all members of the group and use the plan for extending financial support to members.

The revolving fund support besides meeting consumption and initial production needs, will also build institutional capacities of Self Help Groups in managing loans and funds. The revolving fund would remain with the groups and will form part of the corpus.

Capital Subsidy Fund in intensive blocks:

          NRLM envisages taking up full range of activities in the intensive blocks where primary federations at village or Panchayat level will be actively promoted. In the first phase it is expected that 10% of the blocks in a state will be selected as intensive blocks. This will enable the states to acquire hands-on experience in the key NRLM processes. Each primary federation will have a membership of 10-15 affinity based Self Help Groups. The capital subsidy fund to the eligible Self Help Groups will be routed through the primary federations. This fund will act as catalytic capital and the federation will have flexibility to allocate resources for various requirements with the consent of the member groups. These federations will use large part of these funds for on-lending to the Self Help Groups for providing continuous and timely financial assistance to the poor to meet their livelihoods and other essential needs.

The eligibility conditions for the federation to receive the capital subsidy are: 

• The primary federation should have been in active existence for at least 6 months: i) A savings account has been with a nearby bank branch. ii) Three core functional committees have been established and trained. (These are bank linkage committee, social audit committee and repayment monitoring committee have been established). iii) Completion of training of office bearers and the functional committees. 

• Standard books of accounts and a trained book keeper is in place. 
• All the micro investment plans of SHGs are compiled and posed to the commercial/cooperative banks. 
• At least one-third of the member groups are credit linked to banks and the repayment against such loans is at least 90 percent, or there is an assurance from the banks that SHGs following good management principles will be financed within a defined time period.

It must be noted that under no circumstances capital subsidy ceilings for BPL SHGs and for the individuals in SHGs are exceeded. Within this ceiling, further ceilings may be introduced since money available is limited.

The key guiding principle for deciding on the funds requirements for a federation could be: 

• The minimum amount required to meet the priority needs of the poorest and the most vulnerable members. 
• The responsiveness of the banks to finance member SHGs. 
• The need for the food security credit and health security credit. 
• Amount required for ensuring the viability of the primary federations.

The primary federations will be encouraged to prepare a 3 to 5 year plan which indicates the investments required for the member SHGs and also for the collective economic activities on behalf of the members. The portions that will be met from own savings, bank loans (SHG-Bank linkages) and the use of capital subsidy would be indicated. Financial intermediation by the primary federations is seen as ‘bridge financing’ to attract mainstream financing for SHGs. In order to demonstrate that poor are credit worthy, there is a need to inject financial resources that are in the nature of catalytic capital, into the institutions of poor to help them invest in livelihoods of the poor and develop a track record of the SHGs to attract the mainstream financial institutions. In other words, the subsidy support to the institutions of the poor is in the nature of bridge capital and therefore should not be seen as viability gap funding appropriated by individuals, projects or enterprises. This is a radical departure from the earlier financial strategies for anti-poverty programs. This is the key paradigm shift in NRLM. Subsidy becomes a ‘resource in perpetuity’ rather than a viability gap funding.

Capital Subsidy Fund in non-intensive blocks:

Formation of SHG federations is no envisaged in non-intensive blocks. In the absence of such institutions of the poor, the

capital subsidy fund is to be seen as an enabling provision for the Self Help Groups to demonstrate their credit worthiness to mainstream financial institutions and build their confidence to provide repeat doses of loans on continuous basis. As

such the capital subsidy fund is linked to the bank loan and will be released to the groups satisfying the following eligibility conditions

·         Completed at least 12 months of active existence practicing Panchasutra

·         A minimum period of 6 months has elapsed after the receipt of revolving fund

·         Availed and repaid promptly at least one dose of bank linkage

·         Have received satisfactory rating from the financing bank

·         Prepared a Micro Investment Plan for the proposed dose of financing

The banks will follow the financing norms applicable to SHG-Bank Linkage Program as agreed in the State Level Bankers’ Committee. However, the banks will maintain a minimum subsidy-loan ratio of 1:2. This will be a front-end subsidy and will be applied along with the bank loan for financing MIP of the group. Since there will be large number of eligible groups in a block, the capital subsidy fund allocation may not sufficient to meet the requirements of all eligible groups. Since funds are scarce, SRLM may consider maintaining equity in releasing finances across all eligible groups in the block, and also keep focus on the most vulnerable groups.

Bank linkage under NRLM

Expansion of SHG-Bank Linkage Program during last few years provides several useful examples of successful partnerships between government agencies, non-governmental organizations and banks. Considering the procedural bottlenecks and misaligned incentive in the past, the bank credit dispensation under NRLM has been streamlined. The salient features of bank finance under NRLM are:

a. Banks to treat NRLM as mainstream business opportunity and view Self Help Groups formed under the program as business clients. This would provide incentive to banks to maximize the business potential in Self Help Groups and extend credit support on continuous basis.

b. Banks will adopt a Rating Index (like the index developed by NABARD) as appraisal tool for assessing credit worthiness of Self Help Groups, which broadly covers the Panchasutras.

c. The financing under NRLM will take two forms.

1.      The first form of financing is extending direct credit assistance to Self Help Groups or through their federations against their Micro Investment Plans covering variety of livelihoods activities, including social needs.

2.      The second form is financing Self Help Groups or their Federations for specific economic activities on cluster basis.

d. The SRLM will coordinate with RBI, NABARD and State Level Banker’s Committee (SLBC) to develop SHG-Bank Linkage strategy for each year. On its part, SLBC will facilitate consensus among the various participating banks on the norms like eligibility of groups, size and tenor of loans, etc. for MIP based lending. This will send clear policy signal and facilitate better coordination on bank linkage program between the institutions of the poor and the local branches.

  

Financing Micro Investment Plans of Self Help Groups

Eligibility:

                                               i)     SHG should be in active existence at least since the last 6 months as per the books of account of SHGs and not from the date of opening of S/B account.

                                             ii)      SHG should be practicing ‘Panchasutras’ i.e. Regular meetings; Regular savings; Regular inter-loaning; Timely repayment; and Up-to-date books of accounts;

                                           iii)      Qualified as per grading norms fixed by NABARD. As and when the Federations of the SHGs come to existence, the grading exercise can be done by the Federations to support the Banks.

                                           iv)      The existing defunct SHGs are also eligible for credit if they are revived and continue to be active for a minimum period of 3 months.

Type of Loan: SHGs can avail either Term loan or a CCL loan or both based on the need. In case of need
additional loan can be sanctioned even though the previous loan is outstanding.

Preparation of Micro Investment Plans: The groups shall prepare a Micro Investment Plan prioritizing

the needs of each member household. The plan will also include a fund rotation plan for recycling the

recoveries received from the members before the bank loan is fully repaid. It may be made abundantly clear

that unit cost of each activity is left to the discretion of the groups and not prescribed by outside agencies.

Quantum of Loan: The banks will decide upon the quantum of loan based on the Micro Investment Plans

and the fund rotation plan submitted by them. Banks may increase the quantum of loan with every dose

based on the track record of previous loans, rating of the group and increasing proportion of income

generating activities in Micro Investment Plans.

Multiple doses of credit: Under the financing mechanism, the banks are expected to provide continuous

flow of credit to the groups and nurture them as business clients. Successful repayment of each dose of loan

by a Self Help Group shall establish credit history of the group and enhance its credit entitlement.

1.      First dose: 4-8 times to the proposed corpus during the year or Rs. 50,000 whichever is higher.

2.      Second dose: 5-10 times of existing corpus and proposed saving during the next twelve months or Rs. 1 lakhs, whichever is higher.

3.      Third dose: Minimum of Rs. 2 lakhs, based on the Micro credit plan prepared by the SHGs and appraised by the Federations/Support agency and the previous credit history

4.      Fourth dose onwards: Loan amount can be between Rs. 5-10 lakhs for fourth dose and/or higher in subsequent doses. The loan amount will be based on the Micro Credit Plans of the SHGs and their members.

Security norms: The loans made by banks under NRLM will be treated as advances to weaker

sections and hence no margin/security is required for the purpose. No collateral and no margin

will be charged upto Rs. 10.00 lakhs limit to the SHGs. No lien should be marked against

savings bank account of SHGs and no deposits should be insisted while sanctioning loans.

Repayment Period: The principle for fixing loan installments for SHG is based on the need to

allow float for recycling part of the repayment proceeds within the group and capture the inbuilt

investment multiplier in Self Help Group mechanism.

Repayment schedule could be as follows:

The first dose of loan will be repaid in 6-12 instalments

Second dose of loan will be repaid in 12-24 months.

 Third dose will be sanctioned based on the micro credit plans, the repayment has to be either

monthly/quarterly /half yearly based on the cash flow and it has to be between 2 to 5 Years.

·         Fourth dose onwards: repayment has to be either monthly/quarterly /half yearly based on the cash flow and it has to be between 3 to 6 Years

·         Sanction and disbursement procedures: The banks shall decide upon the loan quantum and other conditions of the loan in a transparent manner after discussing with group members the Micro Investment Plan prepared by them. The banks sanction the loan in a reasonable period of time (15days) from the date the applications received by the bank. The loan disbursements shall be made in cash.

·         Post disbursement scrutiny and monitoring: The social audit committee of the federation will ensure compliance to MIPs, while bank linkage will monitor repayment of bank loans. Banker will also undertake periodic visits to Self Help Groups.

Financial Assistance to Individuals

Under NRLM emphasis will be given to the group approach, under which the rural poor are organized into Self Help Groups and efforts will be made that most of the benefits of the scheme are provided to the poor through Self Help Groups. However, in certain cases it may not be possible. In such cases, an individual member can also be considered for providing the benefits of the scheme.

1.      The first task for considering the benefits under the scheme to the individual beneficiary is to identify the most deserving beneficiary through a participatory identification of the vulnerabilities.

2.      The second task is to provide financial literacy and business counseling services to help the person in developing a business plans for financing.

It is possible that the number of such potential beneficiaries would be more than the availability of the funds in a particular block. In such a case, the efforts should be made to select the best of the potential entrepreneurs. The provision of capital subsidy & interest subsidy for the individual beneficiary would be as follows:

The list of all individual beneficiaries should be disclosed at SHG federations and the Gram Panchayats. Similar list shall also be made available to the DRDA/DPMU other block officials, bankers and all other concerned agencies. To ensure focus on the vulnerable groups and weaker sections, the SRLM will maintain stipulated thresholds viz. SC/STs to constitute 50 percent; women 50 percent; and persons with disability 3 percent of the total swarozgaris assisted during the year.

Making financial services work for the poor

NRLM will invest in creating enabling conditions for both the banks and the poor clients for mutually rewarding relationship. This will include range of activities in both supply and demand side of rural finance value chain. Some of them are:

·         Financial literacy and business counseling services embedded in the Micro Investment Planning process

·         Improving the service quality of bank branches to poor clients by positioning dedicated customer relationship managers (Bank Mitra). Similarly SHG federations could be encouraged to constitute specialized sub-committee on bank linkage and recovery of loans for monitoring bank credit

·         Similarly specialized spearhead teams could be constituted by banks for business development and origination services, monitoring and recovery of loans to SHGs and federations

·         Developing and delivering new savings, credit, remittance and insurance products with and through institutions of the poor.

·         Partnership with banks for extending banking outreach to all villages with population exceeding 2,000 by leveraging IT and mobile based financial technologies and using institutions of poor as business facilitators and business correspondents. NRLM will also create pool of youth formally trained in business correspondent banking to expand the outreach model to remote and isolated locations.

·         Business process re-engineering taking advantage of Core Banking Solutions and other financial technologies. Networking electronic payment points with branch network or backed by call centres and business processing cells in the back end would be essential to make banking pro-poor.

·         Creating specialized NRLM Cells for review and coordination in each controlling office of the participating banks. These cells will give on-site guidance for the branches to coordinate closely with SRLM for drawing up joint strategies and review the progress in flow of credit to the poor.

Interest Subsidy

NRLM has a provision for interest subvention, to cover the difference between the Lending Rate of the banks and 7%, on all credit from the banks/ financial institutions availed by women SHGs, for a maximum of Rs 3,00,000 per SHG. This will be available across the country in two ways:

i.     In 150 identified districts, banks will lend to all the women SHGs @7% upto an aggregated loan amount of Rs 3,00,000/- . The SHGs will also get additional interest subvention of 3% on prompt payment, reducing the effective rate of interest to 4%.

ii.   In the remaining districts also, NRLM compliant women SHGs will be registered with SRLMs. These SHGs are eligible for interest subvention to the extent of difference between the lending rates and 7% for the loan upto Rs. 3 lakhs, subjected to the norms prescribed by the respective SRLMs. This part of the scheme will be operationalized by SRLMs.

The interest subsidy incentive is available to each BPL household till their cumulative loaning, over several doses, reaches Rs. 1.00 lakh. It may be noted that interest subsidy is not available to the groups which receive direct capital subsidy. The same family will not avail of two subsidies at the same time.

Closure of SGSY Scheme. 

1. Banks may commence extending credit under NRLM replacing SGSY from 1^st July 2013.
2. In respect of Loans sanctioned under SGSY during 2012-13 for which subsidy is released, the banks may disburse the loan before 30^th June 2013 or return the subsidy amount, if the loan is not disbursed.
3. The loans sanctioned by banks on or after April 1st, 2013 will be covered under the ambit of NRLM. 
4. In case of part disbursal of loans, the Banks may disburse the full amount by availing the balance subsidy  amount under SGSY.
5. Interest subvention scheme is not applicable for the outstanding loans sanctioned under SGSY, where capital subsidy is already released.