Kudumbashree and micro finance

Kudumbashree, a community organization of Neighbourhood Groups (NHGs) of women in Kerala, has been recognized as an effective strategy for the empowerment of women in rural as well as urban areas: bringing women together from all spheres of life to fight for their rights or for empowerment. The overall empowerment of women is closely linked to economic empowerment. Women through these NHGs work on a range of issues such as health, nutrition, agriculture, etc. besides income generation activities and seeking micro credit.

Kudumbashree differs from conventional programs in that it perceives poverty not just as the deprivation of money, but also as the deprivation of basic rights. The poor need to find a collective voice to help claim these rights. Kudumbashree was conceived as a joint program of the Government of Kerala and NABARD implemented through Community Development Societies (CDSs) of Poor Women, serving as the community wing of Local Governments. Kudumbashree is formally registered as the “State Poverty Eradication Mission” (SPEM), a society registered under the Travancore Kochi Literary, Scientific and Charitable Societies Act 1955. It has a governing body chaired by the State Minister of LSG. There is a state mission with a field officer in each district. This official structure supports and facilitates the activities of the community network across the state.


 This system operates by encouraging women to form small homogenous groups under the SHG-bank linkage program. The members of these minute groups were encouraged to meet frequently and amass minute thrift amounts from their members. They were also taught simple accounting methods to enable them to maintain their accounts. Individually these poor could never have had enough savings to open a bank account. The first step in establishing links with the formal banking system opened up when the pooled savings enabled them to open a formal bank account in the denomination of the group. These were followed by frequent group meetings. Pooled thrift was utilized to impart lean loans to members for meeting their diminutive emergent needs saving them from debt traps/ money lenders who demanded unusually high rates of interest and accelerated their empowerment through group dynamics, decision-making, and funds management. Peer- screening effect was engendered as borrowers themselves undertook the task of credit evaluation and reduced the transaction costs, community members had much more preponderant information than banks. Peer monitoring effect induced group members to utilize their imprests in productive ways. The desire to preserve valuable ties induced borrowers to spend extra effort if compulsory to secure timely payments. These ties were valuable because they sanctioned members’ borrowing and provided business connections. Moreover, a very consequential feature of group-lending was the collateral effect. Gradually the pooled thrift grew and soon 11 they were adept in receiving external funds in multiples of their group savings. Bank loans enabled the group members to undertake income- generating ventures.

 The various microfinance activities taken up by Kudumbashree are:

  Thrift and credit operations

NHGs are instrumental in thrift mobilization, encouraging the poor to save and to avail low -cost formal credit. They facilitate easy and timely credit to the unreached. The amount of loan to members and the purpose for which the loan should be utilized are decided by the NHG. The repayment is collected weekly during the NHG meetings. It is estimated that the thrift mobilized is on an average Rs 40 per month per member.

Linkage Banking.

NHG-Bank linkage scheme is one of the flagship programmes of Kudumbashree. NABARD SHG-Bank linkage grading procedures are applied while selecting eligible NHGs for availing loan. The NHGs are rated on the basis of a 15 -point index developed by NABARD. Bank will provide loans to those NHGs who pass 80 % of marks in the grading.

  Matching Grant.

 Matching grant is an incentive provided to NHGs. This grant linked to amount of thrift mobilized, performance of NHG in the Grading and loan availed from banks. An amount of 10% of the savings of the NHG subject to a maximum of Rs 5000/- is provided as matching grant to each NHG. The grant is released based on their assessment rated using 15-point grading criteria developed by NABARD.

  Interest Subsidy for Linkage loan.

 Govt of Kerala has introduced a new interest subvention scheme to promote Bank Linkage Program among Kudumbashree Neighborhood Groups. Under this scheme all Kudumbashree NHGs are eligible for interest subvention to avail the loan facility at an interest rate of 4% on credit up to Rs. 3 lakhs. The interest subsidy would be provided as annual instalments to the NHGs.


KAASS, the Kudumbashree Accounts & Audit Service Society; is a homegrown enterprise to ensure proper account keeping in the community network. Each district has been furnished with a KAASS team that has been 12 drawn from commerce graduates and is guided by professional chartered accountants

  Digitization of MIS’ and repayment Info System (E- SHAKTI)

 Keeping in view the Government of India’s mission for creating a digital India, NABARD has launched a project for digitization of all Self -Help Group (SHG) in the country.

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