of representatives of nabard, commercial banks and professionals with domain knowledge. the board will be asked to suggest suitable legislation, and i expect to introduce a draft bill in the next fiscal year ”. it must be recognised that the policy of expanding the thrust beyond micro - credit to the mfis is not a reflection on the lack of progress in provision of micro - credit but a reiteration of its success and a possible approach to widening, deepening and strengthening micro - finance movement as a whole. the evolution of shg bank - linkage programme could be viewed in terms of three distinct phases, viz., ( i ) pilot testing during 1992 to 1995, ( ii ) mainstreaming during 1996 to 1998 and ( iii ) expansion from 1998 onwards. the cumulative number of shgs ‘ credit - linked ’ to the banks showed a significant expansion from 255 as at end - march 1993 to 16. 18 lakh as at end - march 2005. commensurate with an increase in the cumulative refinance support from nabard from about rs. 0. 3 crore as at endmarch 1993 to over rs. 3, 092 crore as at end - march 2005, the cumulative bank loans disbursed witnessed a sharp increase from about rs. 0. 3 crore to around rs. 6, 898 core during the period. this translates to an estimated 2. 42 core poor families being brought within the fold of banking services. the loans per shg increased to rs. 42, 620 during 2004 - 05 from an average of rs. 36, 179 in the previous year, reflecting the process of deepening of the credit access amongst the shgs. new paradigm it is clear that the dominant theme so far has been of extending micro - credit through bank - shg linkages, with nabard playing a leadership role and micro - finance institutions, mainly ngos, playing a catalytic as well as enabling role at the gross root level. however, there is clearly an emerging new paradigm in the approach to micro - finance. it would be appropriate to recall that while the term microcredit has not been strictly defined at present, it usually refers to the credits of “ very small amounts ”. however, for the purpose of exempting the micro - finance companies registered under section 25 of the companies act from the core regulatory provisions attracted by nbfcs, such companies are required by rbi to be engaged solely in extending micro - finance upto rs. 50, 000 for small businesses

left to themselves and need neither be regulated nor formal structures be imposed or insisted upon. nabard was advised to reinforce its commitment to enhancing the flow of micro - credit while simplifying the process and to devise mechanisms to ensure sharing of experiences amongst the bank branches that were closely involved in extending micro - finance. in view of the interim report of the task force on revival of cooperative credit institutions ( vyas committee ), rbi clarified that micro finance institutions ( mfis ) would not be permitted to accept public deposits unless they comply with the extant regulatory framework of the reserve bank. the annual policy statement of april 2005 noted the progress and targets of shgs programme and indicated two measures to give further fillip to microfinance movement. first, access to external commercial borrowings was indicated for non governmental organisations engaged in micro finance activities. second, the policy also announced that the modalities were being worked out for allowing banks to adopt the agency model by using the infrastructure of civil society organisations, rural kiosks and village knowledge centres for providing credit support to rural and farm sectors and appointment of micro - finance institutions ( mfis ) as banking correspondents. review of developments it must be recognised that considerable work had been done by the rbi in this sector since 1991 before making the formal policy announcements in 1999. in 1991 - 92, a pilot project for linking about 500 shgs with banks was launched by nabard in consultation with the rbi which advised the banks to actively participate in it. in 1994, the rbi constituted a working group on ngos and shgs. on the recommendations of the group, the reserve bank advised that the banks ’ financing of shgs would be reckoned as part of their lending to weaker sections and such lending should be reviewed by banks and also at the state level bankers ’ committee ( slbc ) level, at regular intervals. as a follow up of the recommendations of the nabard working group, the rbi took a series of measures in april 1996 to give a thrust to micro - finance based lending, and these are worth recalling. banks were advised to consider lending to the shgs as part of their mainstream credit operations, to identify branches having potential for linkage with shgs and provide necessary support services to such branches while including the shg - lending within their service area plan. the service area branches, in turn, were to fix their own programme for lending to the shgs with a view to enabling them to get the benefit of catalytic services of ngos.