DAY-NRLM (Deendayal Antyodaya Yojana, National Rural Livelihoods Mission) works differently from a typical loan product. Instead of applying individually, rural women join a Self Help Group (SHG), and the group's collective savings and repayment discipline gradually unlocks larger amounts of bank credit for its members.
The Loan Progression: Why It's Staged, Not a One-Time Sanction
- Revolving fund: after 3 to 6 months of regular group savings, the SHG receives ₹15,000 to ₹30,000 from the government as seed capital, this isn't a bank loan, it's a starting grant to build the group's internal lending capacity.
- First bank loan: once the SHG has functioned for at least 6 months, it can borrow from a bank at a ratio of roughly 1:1 or 1:2 against its own savings corpus.
- Repeat loans: SHGs with a clean repayment history can borrow 8 to 10 times their savings corpus on subsequent loans, a meaningful jump from the initial ratio.
- Individual member loans: once the SHG achieves Grade 1 status (a formal rating based on functioning and repayment), individual members can access loans up to ₹3 lakh each.
Interest Rates: Who Actually Gets 7%
In 250 identified backward districts of India, SHGs are charged just 7% interest, with the government subsidizing the rest. In other districts, including most of Tamil Nadu, banks can charge their standard rate, though well-performing SHGs often negotiate better terms given their group repayment track record. In Tamil Nadu specifically, the Tamil Nadu Corporation for Development of Women (TNCDW) manages SHGs and provides additional state-level interest subvention on top of any central scheme benefit, and prompt repayment can bring the effective rate down to around 4% in some cases.
Tamil Nadu Specific Programs Worth Knowing About
- TNSRLM (Tamil Nadu State Rural Livelihoods Mission), the state body managing DAY-NRLM implementation across Tamil Nadu.
- Magalir Urimai Thogai, part of the Pudhumai Penn scheme, provides ₹1,000 a month to SHG women, a separate income support benefit alongside the credit access.
- Kalanjiam Community Banking Programme, active specifically in districts like Dharmapuri and Krishnagiri.
How to Join or Form an SHG
- Contact your local Panchayat office or the nearest TNSRLM block office to join an existing SHG, or form a new one with 10 to 20 rural women from the same village (not close relatives).
- Begin regular savings, typically ₹50 to ₹500 per week or month, building an internal corpus the group can use for small emergency loans among members.
- After roughly 6 months, the SHG is graded by the bank or TNSRLM. A Grade 1 rating opens up immediate eligibility for bank loans.
- The SHG applies collectively to a bank for linkage, rather than each member applying separately.
- Once the SHG has a strong repayment history, individual members can layer on other schemes, Mudra loans, MSME loans, using the SHG's track record as supporting context.
Frequently Asked Questions
How do I form an SHG in Tamil Nadu?
Contact your Village Panchayat, Block Development Office, or your district's TNSRLM office. You need 10 to 20 women from the same village who commit to meeting regularly, saving collectively, and managing group funds transparently.
How much can each SHG member actually borrow?
It depends on the SHG's grade and the specific bank's policy. Early-stage SHGs typically see ₹50,000 to ₹1 lakh per member, scaling up to ₹3 lakh per member for Grade 1 SHGs with a clean repayment record.
Can urban women access a similar scheme?
Yes, through DAY-NULM (National Urban Livelihoods Mission), the urban equivalent, with a similar SHG formation and bank linkage structure. Contact your city's Municipal Corporation to start the process.
See the full NRLM SHG loan scheme details, or talk to us if your SHG is ready for bank linkage.
