Women in India Have a 98% Loan Repayment Rate. Here’s Why?
- Remin Francis I R
- Jul 21
- 2 min read
Who would you guess are India’s most reliable borrowers? High-income urban professionals with solid credit histories? Think again. The real champs of repayment are rural women, many of whom have never held a bank account in their own name. In 2023-24, the Non-Performing Assets (NPAs) for loans extended to Self-Help Groups (SHGs) stood at just 2.05%, that’s a mind-blowing repayment rate of nearly 98%.
So, what makes this model so successful, especially when traditional banking struggles with far higher default rates? The answer lies in a brilliant recipe for success.
It all starts with a different kind of collateral. Not land, not gold, but something arguably more powerful, social collateral. In an SHG, and there are over 1.4 crore of them across India, the loan is not given to one individual, but to the group as a whole. If one member defaults, the entire group’s ability to borrow in the future is at risk. In tight-knit rural communities, reputation matters a lot. Peer pressure in this context becomes a powerful motivator. Nobody wants to be the one responsible for closing the doors on future opportunities for everyone.
But the success of SHGs goes beyond just peer accountability. Before a group can even approach a bank for a loan, they must first build a track record of saving and lending among themselves. This “savings first” approach isn’t just about financial prudence; it’s a kind of grassroots credit school. Women learn how to manage money, track repayments, and handle group dynamics, all with their own contributions. It’s financial literacy in action, long before any formal loan is sanctioned. And by the time they approach a bank, they come equipped with discipline and data.
Then there’s the clever incentive structure. SHGs are not one-time borrowers. Banks typically start with a first loan of up to ₹1 lakh, but successful repayment opens the door to second, third, and even fourth “doses”, each bigger than the last. It’s a system designed to reward reliability and build momentum. The prospect of a larger future loan is reason enough to keep current repayments on track.
Monitoring is also homegrown. Community-Based Repayment Mechanisms (CBRMs) ensure that repayment doesn’t rely solely on bank reminders. These committees, formed by SHG members themselves, keep a close eye on loan usage and repayment, using social norms to enforce discipline. It's self-regulation, but deeply rooted in shared accountability.
What India’s SHG model teaches us is profound: people don't fail financial systems, financial systems often fail people. By building a structure based on trust, community, and shared incentives, SHGs have transformed what it means to be “creditworthy.” Maybe it’s time global finance took a leaf out of their book.
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