Union Bank

JOINT LIABILITY GROUP

SCHEME FOR JOINT LIABILITY GROUPS

The SHG Bank Linkage has been proved to be successful in providing access to financial services from the formal
Banking Sector to the poorest of the poor. In order to develop effective credit products for small / marginal / tenant
farmers, oral lessees and share croppers, as also entrepreneurs engaged in various non-farm activities, the scheme
for Joint Liability Groups was launched. The salient features of the scheme are as under.

1.

2.

Objective
o

To augment flow of credit to farmers, especially small, marginal, tenant farmers, oral lessees,
sharecroppers /individuals taking up farm activities

To extend collateral free loans through JLG mechanism

To build mutual trust and confidence between Banks and the borrowers

To minimize risk in the loan portfolio for the banks through group approach, cluster approach, peer
education and credit discipline

To provide food security to vulnerable sections by supporting the cause of enhanced agriculture
production, livelihood promotion

What is JLG
o

A Joint Liability Group (JLG) is an informal group comprising preferably of 4 to 10 individuals

coming together for the purposes of availing bank loan either singly or through the group
mechanism against mutual guarantee

The JLG members are mostly engaged in similar type of economic activity in the
Agriculture/Allied/Non-Farm sector

The JLG members offer a joint undertaking to the Bank that enables them to avail loans

The management of the JLG is simple with little or no financial administration

JLG members are expected to provide support to each other in carrying out occupational and social

activities

3.

Who can form JLG

o

4.

5.

Business Facilitators, NGOs, Farmers' Cubs, 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, Government
Departments, Individuals, Input dealers, MFIs / MFOs etc.

Selection of JLG members

o

JLGs can be formed primarily consisting of tenant farmers and small farmers cultivating land
without possessing proper title of their land

Members should be of similar socio economic status, background and environment carrying out
farming and allied activities agreeing to form a JLG so that the group would be homogeneous and
organised and to develop mutual trust and respect

The members should be residing in the same locality and should know & trust each other

The members should be engaged in agricultural activity for a continuous period of not less than 1
year within the area of operations of the Branch

None of the group member should be a defaulter to any formal financial institution

A JLG should not have more than one person from a family

JLG should select a good/able/active leader for the JLG to ensure leadership role for the benefit of
all the JLG members. However, care should be taken to ensure that benami loans are not cornered
by the group leader

Size of the JLG

o The group should be ideally of 4 to 10 members to enable

the group members to offer mutual guarantee
o While informal group of upto 20 memebers could also be
considered, such large groups are found to be not effective

in fulfilling mutual guarantee obligations in the case of

farmers. therefore smaller groups of farmsrs (4-10
members) are recommended for effective functioning of
JLG.

6.

7.

Group Approach
o

All members of JLG should be active enough to assume leadership role. The leader should foster a
sense of unity, maintain discipline, share information and facilitate repayments. For the Bank, he is
the focal point for group activities

Regular meetings should be held and attended by all members to discuss issues of mutual interest
and to emphasize on the roles and expectations from the members and the benefits of group
dynamics

JLG can act as a conduit for facilitating training and technology and disseminating market
information

The JLGs for specific activity, e.g. production of pulses/vegetables/fruits or weaving may be
federated at village/block level for development of the product

On stabilisation JLGs could come together in the form of cluster federation forming an entire value
chain, thereby achieving economies of scale in procurement, processing and marketing

Saving by JLG
o

Primarily JLG is intended to be a credit group therefore, savings by the members is voluntary and
the members should be encouraged to save

All the JLG members may be encouraged to open an individual "No Frills" account

In case JLG chooses to undertake savings along with credit operations then they should open a
savings account in the name of JLG with atleast two members authorised to operate the account on
behalf of the group

The quantum of loan to be given to the group should be related to the credit needs and not to the
quantum of savings

8.

JLG Models
o

Model A Financing Individuals in the Group:

Each member of the JLG should be provided an individual UGC. The financing branch should
assess the credit requirement, based on the crop to be cultivated, available cultivable land and the
credit absorption capacity of the individual

All members would jointly execute one inter-se document (making each one jointly and severally
liable for repayment of all loans taken by all individuals in the group)

There has to be mutual agreement and consensus among all members about the amount of
individual debt liability that will be created. Any member opting out of group or joining the group will
necessitate a new loan agreement

Model B Financing the JLG as a Group:

The group would be eligible for accessing one loan, which could be combined credit requirement of
all its members

The credit assessment of the group should be based on the available cultivable area of each
member of the JLG/activity to be undertaken

All members would jointly execute the document and own the debt liability jointly and severally

The mutual agreement needs to ensure consensus among all members about the amount of
individual debt liability that will be created. Any change in composition of the group, will lead to a
new document being registered by the bank branch

JLGs that undertake savings apart from credit are required to maintain books of accounts

Members may also be graded by Branch on the basis of performance parameters

The credit requirements for the group may be worked out based on combined credit plan and needs
of individual members and need not be linked to group's savings.

Branches

can

finance

JLGs

by

adopting

any

of

the

two

models:

Purposes of credit

The finance to JLG is to be a flexible credit product addressing the various credit requirements of its

members including crop production, consumption, marketing and other productive purposes.

Type of loan

Cash credit, short-term loan or term loan depending upon the purpose and tenor of loan.

Loan Limit

As loan to be granted is against the mutual guarantee offered by the group, maximum amount of loan may
be restricted to Rs.1.00 lac per individual without margin / security for agricultural loans and up to Rs.50000/per borrower for composite loans

Margin

Loan limit

Margins (in %)

Up to Rs.1.00 lac

Nil

Above Rs.1.00 lac

10-15%

Collateral Security

No collaterals.

Documents

Model A:

Introduction form

Application cum appraisal form

Letter of guarantee

Joint liability agreement and

DP Note.

Model B: Documents as applicable to SHGs are to be obtained.

Rate of Interest

Rate of interest as applicable to Agriculture Advances.

Short term loans sanctioned to a JLG, the per member cap of Rs.3.00 lacs be considered while
determining ROI under the interest subvention scheme and not the aggregate amount sanctioned to
a JLG

Personal Accident Insurance

Branches should cover individual members of JLG under Personal Accident Insurance, applicable for Union
Green Card.

Crop Insurance

National Agricultural Insurance Scheme (NAIS) i.e. Rashtriya Krishi Bima Yojana extends crop
insurance cover to all farmers including tenant farmers, sharecroppers growing notified crops.

Branches to work out the premium payable by the JLG members availing of crop loan and pay the
same to the insurance company.