India's SHG-Bank Linkage Programme is the largest microfinance programme in the world by number of borrowers. It works through a simple mechanism: women in a village form a Self Help Group, save together, lend to each other, build a credit history, and then link to a bank for larger loans. The RBI's role is to make banks participate — through PSL classification, interest subvention, simplified KYC, and a regulatory philosophy that says "leave the group dynamics to the groups."
The programme evolved through three phases: the micro-credit foundation (2000–2005), the SGSY era (2005–2013), and the NRLM era (2013–present). Each phase generated its own chain of circulars with distinct reporting requirements, eligibility criteria, and interest rate structures.
See also: Priority Sector Lending — The Complete Framework | Financial Inclusion vs. KYC Tension
For the story of how SHG lending became regulated microfinance — from the AP crisis to the 2022 harmonisation — see From Self-Help Groups to Regulated Microfinance.