With an aim to boost financial inclusion and support for women entrepreneurs through self-help groups (SHGs), Finance Minister Nirmala Sitharaman announced in the Budget the introduction of a 'Grameen Credit Score'. This initiative marks a pivotal shift in the way rural creditworthiness of millions of women across the country, particularly those involved in SHGs, is determined.

The backdrop of the proposal is significant given that India's rural landscape comprises approximately 0.65 million villages with over 9.3 million SHGs that engage about 100 million women, as per the Deendayal Antyodaya Yojna-National Rural Livelihoods Mission, a flagship programme of the Ministry of Rural Development. These groups play a critical role in the economic stability of rural households by enabling women to pool resources for joint economic activities.

H.P. Singh, CMD of microfinance player Satin Creditcare Network, emphasises the potential of the Grameen Credit Score to empower rural populations. "The framework will allow financial institutions to assess creditworthiness more effectively, including for individuals without formal credit histories. This will open up financial opportunities for rural women to expand their businesses and improve their livelihoods," he states. The move is complemented by the launch of customised credit cards for micro-enterprises, with a limit of ₹5 lakh, indicating a robust push towards financial empowerment at the grassroots level.

What’s pertinent to note is that not all the 9. 3 million SHGs are credit-linked.

Alok Misra, CEO & Director of Microfinance Institutions Network (MFIN), a self-regulatory body, too welcomes the move given there is a significant gap in the current credit bureau: "SHGs are currently outside the credit bureau systems as assessment of credit is not done at an individual level owing to the group-based nature of SHG loans. Despite a directive by the RBI to banks to keep SHG records also, not much has moved," says Misra. The credit score aims to bridge this gap by formalising SHG transactions into the mainstream credit system. "While there are no clear details on the scoring framework, the move will provide a more structured and transparent framework for credit assessment and sanctioning," says Misra.

Since 2011, SHGs have moved from informal alliances to becoming central to the government's strategy for ensuring livelihood opportunities under the National Rural Livelihoods Mission. Supported by initiatives like the Community Investment Fund and the Lakhpati Didi initiative — which aims to enable women in SHGs to earn at least ₹1,00,000 per year — the role of SHGs has been significantly enhanced.

States such as Andhra Pradesh and Telangana have the highest numbers of SHGs, followed by Tamil Nadu, Uttarakhand, Kerala, Punjab, and Gujarat. Incidentally, the average limit sanctioned to SHGs has more than doubled in FY24 compared to FY19, and the rate of credit repayment has also seen a marked improvement, demonstrating a more judicious and timely repayment process. “The average credit offered to SHGs differs from state to state. In the case Andhra Pradesh, a SHG can get ₹8-10 lakh, in UP, it could be ₹2 lakh. It largely depends on the maturity of the movement,” says Misra.

By FY27, it is anticipated that India will host millions of 'Lakhpati Didis' across nearly every state, highlighting the expanding scale and scope of SHG impacts. This progress is a testament to the robust banking relationships facilitated by the SHG Bank Linkage Programme (SHG-BLP), which has transformed into the largest microfinance program globally, covering approximately 16.19 crore households.

The formalisation of SHG activities into the mainstream credit system through the Grameen Credit Score is expected to enhance financial inclusivity significantly, aligning with the government’s broader goals of sustainable development and poverty alleviation.