Bank Linkage Scheme – Mission for Elimination of Poverty in Municipal Areas,Andhra Pradesh

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Case Study

MEPMA’s Bank Linkage Scheme – A Model for Inclusive Financial Empowerment

The Mission for Elimination of Poverty in Municipal Areas (MEPMA), operating under the Government of Andhra Pradesh, has pioneered a transformative initiative aimed at improving access to formal financial systems for urban poor women through its Bank Linkage Scheme. Aligned with the objectives of the DAY-NULM scheme and initiated in 2013, this program has evolved into one of the largest and most successful microfinance models globally. The initiative focuses on empowering Self-Help Groups (SHGs) of urban women by linking them to formal banking channels and enabling them to access soft loans for consumption and income-generating activities, thereby reducing their dependency on exploitative private moneylenders and microfinance institutions.

At the inception of the scheme, several significant barriers were identified that prevented SHGs from accessing formal credit. First, there was a lack of trust from banking institutions toward SHG women, with the initial average lending amount being as low as ₹5,000 to ₹10,000. Many SHG members, therefore, turned to private lenders and MFIs who charged exorbitant interest rates ranging from 36% to 54%. Furthermore, the SHG members often lacked financial literacy, proper orientation, and knowledge about viable livelihood opportunities. Relationships between banks and SHGs were minimal, often leading to poor responsiveness from banks and an overall lack of trust and coordination. Lastly, the absence of a structured monitoring mechanism further weakened the system, limiting credit access and jeopardizing repayment cycles.

MEPMA responded to these challenges through a series of carefully structured interventions. The cornerstone of the program was building trust between SHGs and banks. Strategic meetings and the enactment of the MFI Regulation of Money Laundering Act, 2011 were pivotal in reducing exploitation by private institutions and laying the foundation for formal financial inclusion.

One of the key innovations was the establishment of the Community-Based Recovery Mechanism (CBRM). Each CBRM unit, covering 2 bank branches and up to 400 SHGs, consisted of experienced SHG members from various federations who worked in close coordination with branch managers to track defaulters, conduct recovery visits, and ensure regular repayment without coercion. The branch managers chaired the CBRM committees, fostering direct community-bank interaction and ownership of the repayment process.

Further institutional support was structured through the formation of Town Level Bankers Committees (TLBCs), District Coordination Committees (DCCs), and the State Level Bankers Committee (SLBC). These platforms ensured that SHG-bank linkage issues were addressed systematically at multiple administrative levels. The TLBCs monitored branch-wise credit flow and ensured SHG federations had a voice. The DCCs resolved district-level constraints, while the SLBCs regularly reviewed state-wide implementation and monitored achievement of credit targets.

MEPMA placed strong emphasis on training and capacity-building. Branch managers received training on RBI guidelines and SHG linkage procedures twice a year. Simultaneously, SHG women were trained in financial literacy, livelihood planning, and digital financial tools. The introduction of digital Household Livelihood Plans (HLP) and Micro Credit Plans (MCP) streamlined loan application and tracking.

To further support implementation, MEPMA developed a local language SHG loan application, a digital loan charging module, and introduced a real-time web-based analytical reporting system. Encouragement of digital payments and mobile banking via UPI, mobile wallets, and other online platforms equipped the SHG members to manage their finances more efficiently and securely.

The results of the scheme have been remarkable. Andhra Pradesh emerged as the national leader in SHG-bank linkage with a 30% share of the country’s total and an exceptional recovery rate of 99.50%. Banks, once hesitant, now extend up to ₹20 lakhs in collateral-free loans to SHGs, highlighting the trust and stability built through the scheme. Interest rates on SHG loans were reduced from 13.50% to 9.5%, significantly easing the financial burden on the borrowers.

A major indicator of success was the shift in credit usage. Initially, 70% of the loans were used for consumption, and only 30% for livelihood activities. That ratio has now reversed, with 65% of loans being utilized for productive investments like small businesses, agriculture, livestock, and retail trade. MEPMA has set a new target of 75% productive usage by March 2026.

The “Poor to Rich” initiative within the program demonstrated the income-generating potential of empowered SHG members. Out of 28 lakh SHG members, 12 lakh have crossed the ₹1 lakh annual income threshold. Notably, 100 high-performing women entrepreneurs, referred to as “Prerana Sakhis,” have achieved turnovers of ₹30 to ₹50 lakhs annually and are now being supported with higher-value loans.

Several innovations contributed to the success of this initiative. The deployment of technology through digital financial tools, the simplification of loan processes via local language forms, and regular training for all stakeholders created an enabling ecosystem. The introduction of mobile banking and awareness on tools such as UPI, mobile wallets, and passbook tracking greatly enhanced financial control and literacy among SHG members.

Lessons from the implementation underscored the importance of training at all levels—from SHG members to senior bank officials—and consistent handholding to sustain the momentum. Regular monitoring, field visits, and data-driven evaluations were also critical.

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For more information, please contact:
Tej Bharath N at mdmepma2@apmepma.gov.in

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