SHG Member Leaving With Loan Outstanding: What to Review
A member wants to leave a self-help group but still owes money. What to review: savings, internal loan, bank loan share and signatories, with a ₹ example.
In this article (9 sections)
When a member wants to leave a self-help group (SHG) while she still owes money, the group should first write down her full position: savings, any share of group income she is entitled to, internal loans outstanding (and from which fund), and any share of the bank or CIF loan passed to her. Then settle it in a minuted meeting under the group's written rules, adjust savings against dues, record the balance, and inform the bank if she was a signatory. The bank loan belongs to the group, so her exit does not reduce what the SHG owes the bank. Rules described here are as of November 2026.
There is no single national formula for member exit. The RBI master circular on DAY-NRLM does not lay one down, so the answer comes from your group's bylaws and any guidance from your State Rural Livelihood Mission (SRLM) or promoting agency.
What the group should review
| Item | Question to answer | Where to look |
|---|---|---|
| Savings | How much has she saved in total? | Savings register, her passbook |
| Share of group surplus | Do the rules give a leaving member any share of interest income or reserves? | Bylaws, minutes |
| Internal loans | Balance outstanding, interest due, overdue | Loan ledger |
| Source of her loans | Own savings, revolving fund, CIF or bank loan? | Loan ledger tags |
| Bank loan instalments | Will the group still meet them without her repayments? | Bank sanction letter, repayment schedule |
| Signatory status | Was she an authorised signatory or office bearer? | Bank mandate, minutes |
| Group assets | Did she hold group cash, equipment or stock? | Cash book, asset list |
| Reason for leaving | Migration, marriage, illness, dispute? | Discussion at meeting |
Good records make this simple. If savings and loan funds are mixed, start with our guide to separate SHG savings and loan records.
Step-by-step settlement
- Freeze the numbers on a date. Update her savings, loan balance and interest up to the exit meeting.
- Read the rules aloud. Check what the bylaws say about refund of savings, share of surplus, notice period and penalties.
- Calculate net position. Savings plus any share of surplus allowed by rules, minus loan principal, interest and other dues.
- Agree on how the balance is paid. If she owes money, write the amount, instalments and dates. If the group owes her, decide when it can be paid without hurting the bank instalment.
- Record in the minutes with signatures of members present, including hers if possible.
- Update every register: close her savings account in the ledger, adjust loans, record payments in the cash book, and note the exit date in the member list.
- Inform the bank and federation of the change in membership; if she was a signatory, submit a resolution with new office bearers and their KYC.
- Give her a written settlement statement and keep a copy.
Worked example: Rekha leaves with ₹8,500 outstanding
The figures are illustrative.
Rekha has been in a 12-member SHG for 30 months, saving ₹200 a month.
- Her savings: ₹200 × 30 = ₹6,000
- Outstanding loan from the group (part of the bank loan on-lent to her): ₹8,000 principal plus ₹500 interest due = ₹8,500
- The group's rules allow a leaving member to receive an equal share of accumulated interest income. That income is ₹24,000, so her share is ₹24,000 ÷ 12 = ₹2,000
Net position:
| ₹ | |
|---|---|
| Savings | 6,000 |
| Share of surplus (as per rules) | 2,000 |
| Total due to Rekha | 8,000 |
| Less: loan principal and interest | 8,500 |
| Rekha still owes the group | 500 |
If the rules gave no surplus share, she would owe ₹8,500 − ₹6,000 = ₹2,500.
Meanwhile, the group's bank loan instalment is unchanged. Rekha's ₹8,000 principal was part of what the group must repay, so once her savings are adjusted, the group's cash for the bank instalment falls unless she pays the balance or other members cover it. Plan the next few months' cash before agreeing to refund anything. You can test the group's instalment in the EMI calculator.
Sample text for the exit resolution
"In today's meeting held on [date] with [number] members present, it was decided that [name], member since [date], leaves the group from [date]. Her savings are ₹[amount] and her share of group income as per our rules is ₹[amount]. Her outstanding loan is ₹[principal] and interest due is ₹[interest]. After adjustment, she will pay the group ₹[balance] in [number] instalments of ₹[amount] from [date] / the group will pay her ₹[balance] on [date]. The group's bank loan repayments will continue as scheduled. Signed by members present."
Read it aloud, give her a copy, and paste the signed copy in the minutes book.
If she leaves without settling
- Record the exact amount due and the date, and send her a written notice through the group or the village organisation.
- Discuss the case with your community resource person, village organisation or block SRLM staff; many states use the federation to mediate.
- Keep paying the bank on time from group funds if you can, and record that the group is covering her share; the bank sees the group's account, not individual members.
- Document whether the default is wilful. The RBI DAY-NRLM circular says wilful defaulters should not be financed under the scheme and the group may be financed excluding them, while non-wilful defaulters (for example after illness or disaster) should not be debarred.
- Avoid informal pressure tactics; disputes over large amounts may need legal advice.
Signatories and bank records
If the leaving member was president, secretary or treasurer:
- Pass a resolution electing replacements and authorising new signatories.
- Submit it to the branch with the new signatories' KYC, as the bank's KYC process under RBI's master direction requires.
- Ask the bank to confirm in writing that the mandate is updated.
- Collect any cheque book, passbook, cash or records she held, and note it in the minutes.
Protecting the group in future
- Write exit rules into the bylaws now: notice period, savings refund timing, surplus share, and how loans are adjusted.
- Cap loans to a member as a multiple of her savings so exits do not leave large gaps.
- Tag every loan by source so the group knows whose funds are at risk.
- Keep a small reserve from interest income to cover gaps in bank instalments.
- When adding members later, set clear joining terms; see admitting a new member when the SHG has bank debt.
Related guides
Key takeaways
- A member's exit does not reduce the SHG's bank loan; the group remains liable for every instalment.
- Settle in a minuted meeting: savings plus any share allowed by rules, minus loan and interest.
- In the example, Rekha owed ₹500 if the rules gave a surplus share and ₹2,500 if they did not.
- Update the bank mandate and KYC if she was a signatory.
- Write exit rules into the bylaws before the next case arises.
Frequently asked questions
Can an SHG member leave while she still owes the group money?
She can leave, but the group's rules decide how her savings, share of group funds and outstanding loan are settled. In most groups her savings are first adjusted against what she owes, and any balance is paid by her or to her as agreed in a minuted meeting.
Does the group's bank loan reduce when a member leaves?
No. The bank loan is owed by the SHG as a group, so the group remains responsible for every instalment. The part that was lent to the departing member must still be recovered from her or covered by the group.
Does a member get her savings back when she leaves an SHG?
Usually her savings are refundable as per the group's rules, after deducting any loan, interest or dues she owes. Whether she also gets a share of interest income or other surplus depends on the bylaws and any SRLM guidance.
What if the member leaving was the president, secretary or treasurer?
The group should pass a resolution naming new office bearers and submit it to the bank to change the authorised signatories, with KYC of the new signatories. Until the bank updates the mandate, the old signatory may still be on record.
Can the bank refuse a new loan because one member defaulted and left?
The RBI DAY-NRLM circular says wilful defaulters should not be financed and the group may be financed excluding them, while non-wilful defaulters should not be debarred. Banks also look at whether the group's own account is regular, so clear the overdue or reschedule it openly.
This article is for general education and is not personalised financial, tax or legal advice. Rates and rules are as of 3 Nov 2026; confirm current terms with your lender, AMC or a qualified adviser.
