11 min readShort answer
Yes, an SHG loan can be used for farming. RBI classifies SHG loans taken for crop and allied purposes under agriculture for priority sector lending, treating the group as a set of individual farmers and applying the limits per member. The catch is repayment timing. Most SHG credit is structured as a cash credit limit or a monthly repayment term loan, while farm income arrives at harvest. Getting that mismatch right is what decides whether the loan helps or hurts.
What the rules actually allow
The RBI master circular lists the permitted uses of an SHG loan: social needs, swapping out high cost debt, house construction or repair, building a toilet, taking up sustainable livelihoods, or financing a viable common activity started by the group.
Farming sits inside sustainable livelihoods. On the priority sector side the position is more specific. Loans to SHGs for crop loans, medium and long term agricultural loans, and pre-harvest and post-harvest activities are classified under agriculture, with the SHG treated as a group of individual farmers and the lending limits applied per member, provided the bank keeps member-wise data.
Where the loan is for something other than agriculture or an MSME activity, it falls under a different priority sector head with a limit of Rs 2 lakh.
The share that must go to income generation rises with loan size. Above Rs 1 lakh, at least half. Above Rs 4 lakh, three quarters. Above Rs 6 lakh, 85 per cent.
Activities SHG credit commonly funds in agriculture
Groups across states use SHG credit for a fairly consistent set of activities. Vegetable cultivation on small plots. Dairy, usually one or two animals per member. Goat rearing. Backyard poultry. Vermicompost production. Mushroom growing. Seed production on contract. Bee keeping. Buying a sprayer, a pump set or small implements shared across the group. Leasing land for a season. Paying labour and input costs at sowing.
What SHG credit is poor at is large fixed investment. A tractor, a borewell with a submersible pump, or a shed of any size will normally exceed the group's drawing power in the early years, and the repayment period on an SHG loan is shorter than the life of the asset. For those, a term loan against the asset, or an FPO route, fits better.
The crop cycle problem, and how groups handle it
An SHG cash credit limit is sanctioned for three years and reviewed each year. A term loan usually runs 24 to 60 months with monthly repayment. Farm income does not arrive monthly. It arrives once or twice a year.
Groups that manage this well do one of three things.
Some use the cash credit limit rather than a term loan. Drawing at sowing and repaying after harvest is exactly what a cash credit is built for, and interest is charged only on the amount actually drawn. If your group's borrowing is seasonal, ask the branch for a cash credit limit rather than a term loan, and put the reason in writing in the application.
Some stagger members inside the group. Not everyone grows the same crop or harvests in the same month. A group that lends to its dairy members and its vegetable members alongside its paddy members has money coming back every month, which lets it meet a monthly bank repayment even though individual members repay seasonally.
Some keep a repayment buffer from the group corpus. Members repay to the group at harvest, and the group meets the bank instalment through the year from the corpus plus internal interest.
The one approach that fails is a group where every member grows the same single crop, takes a term loan with monthly repayment, and hopes. That is how groups become overdue in their first year.
SHG, KCC or JLG
These three get confused, and choosing wrong costs money.
A Kisan Credit Card is a crop loan facility in an individual farmer's name, linked to land records, priced with interest subvention for prompt repayment. If you have land in your own name and you need crop inputs, KCC is normally the cheapest route. Use it.
A Joint Liability Group is a small group of four to ten farmers, promoted by NABARD, designed specifically for tenant farmers, oral lessees and sharecroppers who cannot produce land documents. Members take individual loans against a joint guarantee. If you farm land you do not own, and you want a crop loan rather than a livelihood loan, JLG is often the right instrument and very few pages mention it.
An SHG is a savings-first group of 10 to 20 members. It suits allied activities, mixed livelihoods, members with no land record, and households where the credit need is a mix of farm and non-farm. It is also the route that comes with government support such as Revolving Fund and interest subvention.
Many households end up using more than one. A woman may be in an SHG for livelihood credit while the household holds a KCC for the crop. That is normal and not barred.
How much your group can draw
The limit is not a fixed number. It grows with your corpus, which is savings plus interest earned on internal lending.
Under DAY-NRLM the cash credit limit is sanctioned for three years with a minimum of Rs 6 lakh, and the drawing power is set each year: six times the corpus or Rs 1.5 lakh in year one, eight times the corpus or Rs 3 lakh in year two, and a minimum of Rs 6 lakh from year three, based on the Micro Credit Plan.
RBI's collateral-free ceiling for SHG loans is Rs 20 lakh. Up to Rs 10 lakh there is no collateral and no margin, and the bank cannot mark a lien on the group's savings account. Between Rs 10 lakh and Rs 20 lakh the bank may take a margin of up to 10 per cent of the amount above Rs 10 lakh.
Bank practice varies. Some banks lend up to the full Rs 20 lakh, others cap SHG exposure lower. Ask your branch for their internal ceiling rather than quoting RBI at them.
On rate, a women's SHG under DAY-NRLM pays 7 per cent a year up to Rs 3 lakh. Men's groups are not covered by that subvention and pay the bank's normal SHG rate.
Men's groups and agriculture
The interest subvention under DAY-NRLM is for women's SHGs. That does not mean men's groups cannot get SHG credit. Banks lend to men's and mixed SHGs under the SHG Bank Linkage Programme on normal terms, and the loans still count as priority sector.
In practice most SHG lending in India is to women's groups. As of 31 March 2024, exclusive women's SHGs made up 83.5 per cent of savings-linked groups and 72.30 lakh of the 77.42 lakh groups with loans outstanding. If your area's bank staff and community mobilisers work almost entirely with women's groups, a men's group may face more friction, and it helps to approach a branch that has done it before.
The steps, in order
Form the group. Ten to twenty members, from similar economic backgrounds so that the loan sizes people need are broadly comparable.
Save every week or every month, without a break. The amount matters less than the regularity.
Lend internally from the group's own money. This is the evidence a bank looks for.
Open the group's savings account. Do this within about two months of forming.
Follow the Panchasutras. Regular meetings, regular savings, internal lending on demand, timely repayment, and proper books of account. These five are what the grading is based on.
Get graded after six months of active existence.
Apply for credit linkage. Ask for the facility type that fits your cropping pattern.
The full linkage process, and what to do if the branch refuses, is set out in SHG bank linkage programme explained.
When your group outgrows SHG credit
There comes a point where the group is not short of credit but short of scale. Members are producing well and still selling to the same trader at the same price.
At that stage the constraint is marketing, not finance, and the answer is aggregation rather than a bigger loan. That is what an FPO does, and it needs a much larger membership. The comparison is in SHG vs FPO: which is better for farmers.
Before that stage, the cheapest gain available to most groups is buying inputs together. A group that consolidates its seed and crop protection requirement for a season, and buys directly from a manufacturer instead of member by member at the counter, keeps the margin that would otherwise go down the supply chain. It is worth getting bulk supply quotes before deciding how much working capital your group actually needs.
Frequently asked questions
Can an SHG loan be used for agriculture?
Yes. RBI classifies SHG loans for crop loans and pre-harvest and post-harvest activities under agriculture for priority sector purposes, treating the group as a set of individual farmers. Seed, fertiliser, crop protection, implements, livestock and land lease are all accepted uses.
How much loan can an SHG get from a bank?
Up to Rs 20 lakh without collateral under RBI's position. What your group can actually draw depends on its corpus: six times the corpus or Rs 1.5 lakh in year one, eight times or Rs 3 lakh in year two, minimum Rs 6 lakh from year three. Individual banks may cap lower.
What is the difference between an SHG loan and a Kisan Credit Card?
A KCC is an individual crop loan tied to land records and is usually cheaper for crop inputs. An SHG loan goes to the group, needs no land documents, and suits allied activities and members without land in their own name. A household can hold both.
What is the difference between an SHG and a JLG?
An SHG has 10 to 20 members and is built around savings first, then credit. A JLG has four to ten members, is promoted by NABARD specifically for tenant farmers, oral lessees and sharecroppers, and gives individual loans against a joint guarantee without land documents.
How does an SHG repay a loan when the crop is harvested once a year?
Ask for a cash credit limit instead of a term loan, so you draw at sowing and repay after harvest with interest only on what you use. Groups also stagger members across different crops and activities so money comes back through the year, and keep a repayment buffer in the group corpus.
Can an SHG take a loan to buy a tractor or farm equipment?
Small implements, a sprayer or a pump set are within reach. A tractor usually is not, because it exceeds the group's drawing power in the early years and the SHG repayment period is shorter than the asset's life. A term loan against the asset or an FPO route fits better.
Can men's SHGs get agriculture loans, or only women's groups?
Men's and mixed groups can borrow under the SHG Bank Linkage Programme on normal terms. The DAY-NRLM interest subvention of 7 per cent is for women's SHGs only. Most SHG lending in India goes to women's groups, so a men's group may face more friction at the branch.
What is the interest rate on an SHG loan for agriculture?
For a women's SHG under DAY-NRLM it is 7 per cent a year up to Rs 3 lakh, and the bank's benchmark rate or 10 per cent, whichever is lower, between Rs 3 lakh and Rs 5 lakh. Other groups pay the bank's normal SHG rate.
How long after forming an SHG can we get a bank loan?
The group needs at least six months of active existence, regular savings, internal lending and proper books, and then has to be graded. Six to nine months from formation to first loan is a realistic expectation.
What is SHG grading and who does it?
Grading checks the five Panchasutras: regular meetings, regular savings, internal lending on demand, timely repayment and proper books of account. It is done against NABARD's parameters, usually by the bank or the promoting institution.
What happens if the SHG loan is not repaid?
The group is liable, not one member. The group's next loan stops and the members generally have to cover the shortfall between them. An individual member's default elsewhere should not by itself block the group's borrowing, provided the group is not in default.
Is an SHG loan a government loan or a bank loan?
It is a bank loan. The government's role is the support around it: interest subvention, Revolving Fund and Community Investment Fund under DAY-NRLM. The money you repay goes to the bank.
Sources used
RBI Master Circular on SHG-Bank Linkage Programme, 1 April 2025 — https://www.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=12805
RBI Master Circular on Deendayal Antyodaya Yojana - National Rural Livelihoods Mission, 1 April 2025 — https://rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=12806
RBI Priority Sector Lending Targets and Classification Directions, 24 March 2025
NABARD, Micro Credit Innovations Department, SHG-Bank Linkage data as on 31 March 2024 — https://www.nabard.org/content.aspx?id=477
NABARD, Status of Microfinance in India 2023-24 — https://www.nabard.org/auth/writereaddata/tender/0808244223NABARD-SOMFI%20%20%20%20%20%20%20%2020232024%20%20%20%20%20%2030072024.pdf
Recommended external anchor links inside the article: "RBI master circular" to the SHG-BLP master circular, and "NABARD" to the Micro Credit Innovations page. Nothing else is needed.
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