Microfinance programs are often characterized by progressive lending. A typical borrower receives at first small amounts that increase further with proper repayment performance. This paper attempts to investigate the features of progressive lending and Bank-Self-Help Group (SHG) linkage for a sample of 204 women SHGs in Tamil Nadu. The paired ‘t’ tests reveal that the mean loan cycles across a few blocks are significantly different over loan 1 and loan 2 and loan 1 and loan 4. The empirical analysis reveals that the groups witnessed a decline in their loan sizes over loan cycles. This indicates that the progressive lending to SHGs has declined. Although the loan amount has been increasing over the cycle, the number of loan borrowers was declining. The regression results indicate that factors such as age of the SHG, per capita member credit, and type of bank linkage determine the extent of progressive lending and borrowing in SHGs.

The Self-Help Group-Bank Linkage Program (SHGBLP) initiative by the National Bank for Agriculture and Rural Development (NABARD) has contributed significantly towards financial inclusion in India. The SHG-Bank Linkage Program and the Microfinance Institutions (MFI)-Bank Linkage Program have been accepted as effective tools towards inclusive growth for extending various financial services to hitherto excluded categories of poor and rural households. As on March 31, 2012, there were more than 7.96 million savings-linked SHGs and more than 1.15 million credit-linked SHGs with a savings amount of 65.5 bn. The phenomenal outreach of the program has enabled an estimated 103 million families to gain access to microfinance from the formal banking system (Acharya and Parida, 2013).

Although the SHG model has been around for two decades now and has been immensely successful in bringing many sections of the society within the formal banking system, there still remain many problems with the model. A large number of SHGs fail in regularly performing their most basic functions—meeting regularly, saving money, lending internally, and borrowing from banks. It is also observed that the success of the SHG linkage program has been constrained by rising Non-Performing Assets (NPAs). As per the NABARD data, the NPAs of banks against loans to SHGs have gone up from 422.93 cr (2.9% of NPAs to O/S SHG loans) in 2007-08 (first time banks reported to NABARD) to 1,474 cr (4.7% of NPAs) in 2010-11 and further deteriorated to 2,213 cr (6.1% of NPAs) in 2011-12. The year-over-year growth in NPAs is much higher than the growth of loans to SHGs. A ranking of states in terms of lowest NPAs to highest NPAs (against bank loans to SHGs) places Tamil Nadu in the 17th position (Acharya and Parida, 2013).