Self Help Groups (SHGs) – UPSC Notes

SHGs are an association of people(20-30 persons, primarily women, from similar socio-economic backgrounds) who choose to come together (either on their own or organized by outside Institutions like NGOs) to find ways to improve their living conditions. They help build social capital by providing mutual support, encouraging savings, and promoting entrepreneurship among their members. 

Success stories include ​Kudumbashree in Kerala, Jeevika in Bihar, Mahila Arthik Vikas Mahila Mandal in Maharashtra, and recently, Looms of Ladakh.

 The main functions of SHGs are

• Financial Inclusion: SHGs encourage savings and provide access to small loans and credit facilities. Members pool their savings, which are then used to provide loans to members at affordable interest rates. 
• Skill Development and Capacity Building: SHGs focus on enhancing the skills and capacities of their members by providing training and support in various areas
• Empowerment and Social Support: SHGs create an environment where individuals (particularly women) can share their experiences, discuss issues, and collectively find solutions. 
• Collective Bargaining: SHGs enable members to negotiate collectively with various stakeholders, such as banks, suppliers, and local authorities. 
• Social Capital to solve livelihood problem: Social Capital is the network of relationship among people living and working in a particular society, enabling that society to function effectively. Self Help Groups use the concept of Social Capital to solve the problem of livelihood and income generation by organizing the poor and marginalized people to come together to solve individual problems. They do this by pooling their resources, creating a common fund to make small interest-bearing loans among themselves.

Most of the SHGs have come through the help of mentor bodies (either government or NGO), which provided initial information and guidance to them.

1. Identification of Potential Members: The first step is identifying individuals willing to join and participate in an SHG. 
2. Formation Meeting: Once potential members are identified, a formation meeting is organized. This meeting serves as a platform to explain the concept, purpose, and benefits of an SHG.
3. Group Formation and Membership: During the formation meeting, interested individuals formally express their commitment to forming an SHG. They agree to abide by the group’s rules and regulations and actively participate in its activities. 
4. Group Registration (Optional): SHGs have the option to register themselves formally under various government schemes, programs, or society acts.
5. Regular Meetings and Activities: Once the SHG is formed, regular meetings are held at a mutually agreed frequency, such as weekly or monthly. These meetings serve as a platform for members to discuss and plan their activities, share experiences, address issues, and make collective decisions. 
6. Savings and Internal Lending: A crucial aspect of SHGs is promoting savings and internal lending. Members contribute a predetermined amount of money as savings during each meeting. These savings are pooled together and kept as a common fund, which can be used for internal lending within the group. 
7. Capacity Building and Linkages: SHGs often collaborate with NGOs, government agencies, or other stakeholders to access training programs, skill development initiatives, market linkages, and government schemes.

Earlier Issue

SHG Movement was mainly started in the 1980s with the help of NGOs which wanted to provide alternate models of Credit Services to the poor. All the members of SHG were saving and anybody in the group who wanted the money could take out money from that collective savings at a nominal interest rate. 

But these groups comprised poor women. Their savings were low & 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.

Main feature of the loans under SHG – Bank Linkage Program 

• Lending is to the group as a whole.
• The group decides how to use loan without outside interference 
• Lending is without any collateral
• SHGs have to practice the ‘Panchasutra’, i.e. regular meetings, savings, regular inter-loaning, timely repayment and updated account books to avail of loans from banks.
• The loan is in Multiple of the savings. For groups having a good credit history, this can be up to 1:4 wrt their savings. Hence, they can get loans as large as 4 times their savings without collateral. It was the major turning point in the whole movement. 
• NABARD refinances the banks for this project. It is the money of NABARD that these banks give to SHGs. 

Models of SHG-Banking Linkage

• In the first model, Banks give loans to NGOs or some Microfinance Institutions, and these NGOs and MFIs lend this money to SHGs. Banks provide loans to MFIs at commercial rates, and these MFIs / NGOs charge around 24% so that they can make their administrative costs out of the difference
• In the second model, NGOs act as facilitators 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 does making groups help?

• SHG work as a collective guarantee system for members who propose to borrow from organized sources. As a result, commercial banks and other institutions which otherwise are not receptive to the demands of marginalized individuals start considering such groups as their potential customers. 
• The loan is issued in the name of SHG & not to a particular person. Hence, it is the collective responsibility of the group to repay that loan. It is the main reason the repayment rate is very high in SHG loans. If the person is not paying, extreme peer pressure works in that situation 

Fodder to be used in answers: NGOs involved in SHG Movement

SHG Bank Linkage Program

• Discussed above

Village Poverty Reduction Plan

• All the SHGs are involved in the preparation of Village Poverty Reduction Plans 

StartUp Village Entrepreneurship Program (SVEP)

• It is a component of the Deen Dayal Upadhaya National Rural Livelihood Mission.
• The program helps SHG members to setup non-farm enterprises at the village level.

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

1. Social Empowerment

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

2. Political Empowerment

• SHGs gave women a taste of leadership which they had never experienced earlier and gave them the aspiration to become leaders of society. 
• Also, SHGs organized women, and they started acting as local pressure groups for and against particular candidates.

3. Social Justice

• SHGs have taken up issues like domestic violence, bigamy, dowry deaths, prevention of child marriage, support for separated women 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 the education of children, lower drop rate, reduction in child mortality, improved maternal health & ability of the 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, bought dairy animals, or helped their husbands start some work. It is argued that this program has played a most important and effective role in reducing poverty. 

5. Skill Development

• SHGs often organize training programs to enhance the skills and capacities of their members. Women are trained in various areas, such as entrepreneurship, vocational skills, financial literacy, and leadership development.