Self Help Groups (SHGs)

Self Help Groups (SHGs)

This article deals with ‘Self Help Groups (SHGs).’ This is part of our series on ‘Governance’ which is important pillar of GS-2 syllabus . For more articles , you can click here

What are SHGs

SHG are  association of people( 20-30 persons and generally woman) who choose to come together (either on own or organised by outside Institutions like NGOs)  to find ways to improve their living conditions . They help to build up social capital among poor, especially woman .

To have a good feeling of the works of SHGs and how they work, you can refer to following videos as well.

Functions of SHGs

Main functions of SHGs are

  • To encourage and motivate members to save .
  • To persuade them to make a collective plan for generation of additional income .
  • To act as a conduit for formal banking services to reach to them  (how – explained below)

How are groups formed??

  • Most of the SHGs have come through the help of mentor body (either government or NGO) which provided initial information and guidance to them
  • Many  SHGs have been initiated by local communities themselves

How NGOs help them

  • First of all NGOs help in organising them and mentor them how they should work
  • Sometimes they also give them skill so that they can start some work and earn their life
  • They act as facilitator in linking them with banks so that they can get credit at affordable rates
  • Training people on how to manage their bank accounts & spreading financial literacy among poor

Evolution of SHGs in India

1954 First initiative came from Gujarat . Textile Labour Association (TLA) of Ahmedabad formed its women’s wing to organise & train the women belonging to households of mill workers  in primary skills like sewing, knitting embroidery, typesetting and stenography etc  
1972 SEWA (Self Employed Women’s Association ) formed as a trade union under Ela Bhatt . She organised women workers such as hawkers, vendors, home based operators like weavers, potters etc

Objectives of SEWA
1. Increasing their income & assets
2. Enhancing the food & nutritional standards
3. Increase their organisational & leadership strength

Overall intention was to organise woman for full employment .

Currently, SEWA has a membership strength of 9,59,000 which is predominantly urban.  
1980s  – MYRADA – a Karnataka based NGO
– Promoted several locally formed groups to enable the members to secure credit collectively and use it along with their own savings  for activities which could provide them economically gainful employment.  

SHG-Bank linkage Program

SHG Movement was mainly started in 1980s with help of NGOs which wanted to provide alternate models of providing Financial Services to poor. What they were doing was, all the people were saving  and anybody in the group which wanted the money can take out money from that collective saving at interest rate of 24% (ie 2% per month. In villages, Moneylenders lend at 10% per month) . Hence , it was a great help .

Still main problem was there. These Groups were of poor women. Their savings were not that high & hence, members cant get large loans. As a result, linking SHGs with banks was necessary which could provide credit in multiple of savings of the SHG.

Timeline of SHG-Bank linkage program

1989 Started as a test project when NABARD sanctioned 10 lakh ₹ to MYRADA as a seed money assistance for forming credit management groups (just a Pilot Project)
1989 Ministry of  Rural Development provided financial support to PRADAN to establish SHGs in some rural pockets of Rajasthan
1992 A full-fledged project involving a partnership among SHGs, Banks and NGOs was launched by NABARD This marks beginning of SHG – Banking Linkage Program. 

Main features of SHG-Bank linkage program

  • Main feature of the loans under SHG – Bank Linkage Program Loans are
    • Lending is to the group as a whole
    • Group  decides how to use loan without outside interference
    • Lending is without any collateral
  • Loan is in Multiple of the Saving . For groups having good credit history this can be upto 1:4 wrt their savings . Hence, they can get loans as large as 4 times their savings without collateral. This was the major turning point in whole movement.
  • NABARD refinances the banks for this project. It is the money of NABARD that these banks give to SHGs .
  • Forming small groups and linking them to bank branches for credit delivery has been the most important feature of the growth of the SHG movement in our country. Efforts have been made almost in all parts of the country to adopt this model as a necessary component of the poverty alleviation programmes

Models of SHG-Banking Linkage

Financing Model adapted by Banks in Microfinance Industry
  • In first model, Banks give loan to NGOs or some Microfinance Institution and these NGOs and Micro Finance Institutions (MFIs) in turn lend this money to SHGs. Banks give loans to MFIs at commercial rates and these MFIs / NGO charge 24%  so that they can make out their administrative costs out of the difference
  • In second model, NGOs act as facilitator between SHGs and Banks and charge 6% of the loans given by Banks to SHGs as their commission (to make up their administrative charges)

How making groups help??

  • Commercial banks and other institutions which otherwise are not receptive to demands of marginalised individuals start considering such groups as their potential customers . They provide Banking facilities to people which are previously considered unbankable . Individually, these persons are considered unbankable by the banks but collectively, they become potential customer .
  • SHG work as collective guarantee system for members who propose to borrow from organised sources . These have emerged as  most effective mechanism for delivery of Micro finance services to the poor

Note – Loan is issued on name of SHG & not on particular person. Hence, it is the collective responsibility of the group to repay that loan.

This is the main reason that repayment rate is very high in case of SHG loans. If person is not paying, extreme peer pressure works in that situation 

SHGs & their role in empowerment of Woman

In rural India, where winds of  development is yet to reach, farm labour is main employment for woman but this doesn’t fulfill all their needs . Hence, participation in SHG helps them in saving some money out of their daily household expenses & can also avail loan with lower interest which has potential to  change situation

1 . Social Empowerment

  • Members of SHG are mainly woman. They can save money & invest in SHG & can use it at time of need . With money in hand , they get status in their family & this increases their  self confidence  & esteem
  • SHGs discuss women centered issues which help them in gaining social security

2. Political Empowerment

  • SHGs gave women taste of leadership which they never experienced earlier and give them aspiration to become leaders of society .
  • Along with that SHGs organised women and they started to act as local pressure groups for and against particular candidate

3. Social Justice

  • SHGs are seen to have taken up issues like domestic violence, bigamy, dowry deaths, prevention of child marriage, support for separated woman to remarry etc

4. Financial Inclusion

  • SHG program has contributed to reduced dependency on informal money lenders & other non institutional sources
  • This financial inclusion has led to increased spending on education of children, lower drop rate , reduce in child mortality, improved maternal health & ability of poor to combat diseases through proper nutrition
  • Due to loans , they have managed to come out of poverty. With these loans women started small businesses or bought dairy animals or helped their husbands to start some work. It is argued that this program has played most important and effective role in reducing poverty.

Fodder to be used in answers : NGOs involved in this

SEWA Ahmedabad
MYRADA (main mind behind SHG-Bank Linkage program) Karnataka
PRADHAN Rajasthan
DHAN foundation , Janodaya,  Cohesion Foundation , Jan Chetna Sansthan Other prominent NGOs in this field

Key Issues today  about SHG & SHG-Bank Linkage Program

Although in short span , a lot has been done but a lot need to be done to make SHGs success story

1 . Changing nature of SHGs today

  • After SHG program’s success was shown to the world , government decided to use it as policy tool 
  • But this changed the whole scenario. Now it has become top down approach . Banks are given targets to give loans to SHGs and these targets need to be met each financial year. Hence, Banks don’t check quality of SHGs work and give loans to untrained groups who don’t have any training how SHGs work. As a result, these SHGs don’t able to pay back loans .
  • Hence, due to the mistake of Banks and Authorities , questions are raised on the viability of project now a days

2. Moral Hazards

  • Bankers have always warned that giving low interest loan to people living in areas where getting loan is difficult and rate is higher can set in moral hazards where people who get loan at lower can start giving that loan to others at even higher rate.
  • Now since, credit available is large and banks don’t bother to go and check whether loan is used in constructive way, people has indulged in this practice.

3. Giving credit is mean and not end in itself

  • Banks and officials think that giving easy loans is end in itself . But it is just a mean to help these people come out of poverty and empower them
  • Only  a  minority  of  the  Self-Help  Groups  are  able  to  raise  themselves  from  a  level  of  micro-finance to  that  of  micro-entrepreneurship.
  • Hence, along with loans, government should merge these schemes with skill development and entrepreneurship programmes. Time has come to take this program to higher level.

4. Need to Expand (to urban areas & excluded states)

  • Need to extend small  group  organisations  (SHGs)  to  peri-urban  and  urban  areas:
    • As  per  the  existing  statutory  provisions,  NABARD’s  mandate  is  to  provide  micro-finance facilities  only  to  rural  and  semi-urban  areas.   Need to expand to these areas .
  • 45% SHGs in Andhra Pradesh and negligible presence in Bihar,UP and North East .  This imbalance need to be corrected

5. Financial Assistance to SHPI

  • SHPI = Self Help Promoting Institution
  • 45% of woman SHGs are situated in AP  because of initiative shown by promoter NGOs called SHPI . If we want SHG to spread throughout India , SHPI model need to be replicated in whole India
  • But Problem is major financial support to SHPI come from Microfinance Development & Equity Fund of NABARD & it is limited to ₹1500per SHG formed & activated. This need to be revised

Viability of SHG – Corporate Linkage Model

  • Rural Markets = untapped market + Tremendous potential of growth for corporations .
  • Integration of SHGs with corporations as part of their company policy in tackling the issue of reach & market awareness is win win situation for both
  • RBI working committee report has recommended that Corporates can integrate SHGs into various functions such as
    • Marketing,
    • Distribution ,
    • Procurement of various raw material ,
    • production and processing of indigenous products etc
  • Example : TAJ group has adopted a SHG for procurement of sea food and meet 60% of their demands through the SHG.

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