Financing to Joint Liability Groups (JLGs)

Objectives:

  • To augment flow of credit to farmers, especially small, marginal, tenant farmers, oral lessees, share croppers/individuals taking up farm activities.
  • To serve as collateral substitute for loans to be provided to the target group.
  • To build mutual trust and confidence between bank and the target group.
  • To minimise the risks in the loan portfolio for the Banks through group approach, cluster approach, peer education and credit discipline.
  • To provide food security to vulnerable section by enhanced agriculture production, productivity and livelihood promotion through JLG mechanism.

General Features of JLGs: A Joint Liability Group (JLG) is an informal group comprising a 4-10 individuals coming together for the purpose of availing Bank Loan on individual basis or through Group mechanism against mutual guarantee. Generally, the members of a JLG would engage in a similar type of economic activity in the Agriculture and Allied sector. The members would offer a Joint Undertaking to the Bank that enables them to avail loans. JLG members are expected to provide to each other in carrying out occupational and social activities.

Criteria for Membership:

  • Members should belong to similar socio-economic status, background and environment carrying out farming and Allied activities and who agree to function as a Joint Liability Group.
  • The members should be residing in the same village/area/neighborhood and should know and trust each other well enough to take up joint liability for the group/individual loans.
  • Members who have defaulted to any other formal financial institution, in the past, are debarred from the Group Membership.
  • More than one person from the same family should not be included in the same JLG.

Who can form JLGs?

Business Facilitators, NGOs, Farmers Clubs, Farmers Associations, Panchayat Raj Institutions (PRIs), Krishi Vikas Kendras (KVKs), State Agriculture Universities (SAUs), Agriculture Technology Management Agency (ATMA), Bank Branches, PACs, other co-operatives, Govt. Deptt., Individuals, Input Dealers and Document Writers (in co-operative Banks), MFIs/MFOs etc.

Savings: LJG members need to be encouraged to save regularly. Banks may open savings account by the LJG/Individual members of the JLG to ensure regular savings and thrift habit amongst them. However, the quantum of loan to be given to the groups should be related to the credit needs of the enterprise and not to the quantum of savings.

JLG Models:

Bank can finance JLGs by adopting any of the two models:

  • Model A : Financing Individuals in the JLG
  • Model B : Financing the JLG as a Group

Loan Amount: No minimum or maximum limit of loan amount. However actual loan amount shall be determined after proper assess of individual credit needs. Suitable rating tools may be used for the purpose.

Margin

  • JLGs in Farm Sector
    • Loan up to Rs. 100,000 /-  :  NIL
    • Loan above Rs. 100,000 /- : Minimum 15%
  • JLGs in Non-Farm Sector
    • Loan up to Rs. 25,000/-  : NIL
    • Loan above Rs. 25,000/- : Minimum 15%

Repayment: Repayment period and periodicity shall be decided on the types of loan and activity and income generation capacity from the unit.

Moratorium Period: As applicable for the scheme to be taken up by the individual/group.

Interest Rates: As applicable for the scheme to be taken up by the individual / group.

Periodicity for application of Interest: As applicable for the scheme to be taken up by individual / group.

Security: Similar to that of Agricultural or non-agricultural loan and Group Guarantee.

Processing fees: NIL

Prepayment Charges: NIL

Insurance: Coverage under crop insurance and personal accident insurance etc. may be followed by the bank as per its regular norms.

Priority Sector: Credit to LJG of farmers will form normal business activity under Priority Sector. Lending to JLG of farmers should be treated as Direct Agricultural Advances under the Priority Sector.

Documentation: All members would jointly execute a loan document, making each one jointly and severally liable for repayment of all loans taken by all individuals belonging to the group. The mutual agreement needs to ensure consensus among all members about the amount of individual debt liability that would be created. Any change in composition of the group, will lead to a new document being registered by the bank branch.