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Self Help Groups



  • Definition and Features: SHG is a voluntary group of 10-20 people having similar socio-economic background in small contiguous area who aspire to improve their living standards.
    They operate on the principles of self-help, solidarity and mutual interest.
    They can serve many different purposes depending on the situation and the need.
    They collectively manage their savings and credit needs.
    Each group has a constitution or list of rules, created and accepted by the members themselves.

  • Functions:
    Initiate and maintain savings within the group.
    Lending loans to the members
    Solving common problems
    SHGs must work on getting a collective guarantee system so that they can avail loans from official sources
    Prevent exploitation of or discrimination against member groups

  • Difference from traditional lending:
    Acceptance of these informal groups both for accepting deposits and credit delivery.
    Lending without specification of purpose, activity or project.
    All loans are collateral free.

  • Three Stages of Evolution:
    Formation of group
    Funding or Formation of Capital
    Development of required skills to boost income generation for the group

  • SHG and Bank Linkage Models:
    The Self Help Group – Bank Linkage Programme is the largest microfinance programme in the world, with a total membership of around 10 million groups (covering nearly 120 million households) across India.
    As of March 31, 2019, it has extended collateral-free loans of over 870 billion rupees to more than 5 million SHGs.
    There are 3 kinds of SHGs on the basis of the nature of Bank-SHG Linkage:
    - Banks, themselves, form and finance the SHGs.
    - SHGs are formed by NGOs, government and other agencies but financed by banks.
    - Banks finance SHGs with NGOs and other agencies as financial intermediaries.

Significance of SHGs

  • They facilitate empowerment by building social capital among the poor, especially women and the disabled.

  • By facilitating access to credit and financial services for the poor, SHGs play a critical role in poverty alleviation and financial inclusion.

  • They also provide the marginalized sections an opportunity to improve their economic situation and become visible members of society.

  • SHGs help people earn alternate livelihood by providing vocational training, and also help improve their existing source of livelihood by offering tools, training, etc. They also help ease the dependency on agriculture.

  • Financial independence through self-employment results in improved literacy levels, especially banking literacy.

  • Other externalities of alternate source of livelihood include improved health care, reduced rates of child mortality, improved nutrition, enhanced maternal health, and better family planning.

  • Since SHGs are composed of people with similar interests and issues, they play a pivotal role in promoting collective decision making in solving common problems.

  • They inculcate a feeling of community identity and cohesiveness.

  • SHGs help implement and improve government schemes, thus increasing their efficiency.

  • SHGs also act as pressure groups to positively influence government policies and action.

  • SHGs also promote social integrity by fighting against social ills like child marriage, dowry, etc.

SHGs in India

Origin and Development

  • The concept of SHGs was pioneered by Nobel laureate Mohammad Yunus in 1970s.

  • Small efforts at organization can be seen in India since independence, as is the case of the Textile Labor Association in Ahmedabad which created a women’s wing in 1954 to provide vocational training to women belonging to families of mill workers.

  • The Self-Employed Women’s Association (SEWA) was established in 1972.

  • The movement gained momentum after 1992 after receiving major push from NABARD and its SHG Bank Linkage Project, which is the world’s largest microfinance project at present.

  • During the same time, state governments of Andhra Pradesh, Tamil Nadu, Karnataka and Kerala set up separate organizations to deal with rural poverty.

  • In 1993, NABARD, along with RBI allowed SHGs to open savings bank accounts in banks.

  • In 1999, the Swarn Jayanti Gram Swarojgaar Yojana (SGSY) (National Rural Livelihoods Mission (NRLM) from 2011; (Deendayal Antyodaya Yojana (DAY –NRLM) from 2015) was introduced to promote self-employment in rural areas through formation and skilling of SHGs.

At present, State Rural Livelihood Missions (SRLMs) are operational in 29 states and 5 UTs. SRLMs are working strenuously to form, nurture and strengthen SHGs.

Framework for Promotion of SHGs

  • NABARD, through its’ Micro Credit Innovations Department has continued its role as the facilitator and mentor of microfinance initiatives in the country.

  • The NABARD and the RBI provide guidelines for basic requisites to form a “self-help” group and specifications about the loan requirements.

  • In 2000, the central government included micro-credit/ rural Credit in the list of permitted Non Banking Financial Company (NBFC) activities for being considered for Foreign Direct Investment (FDI)/ Overseas Corporate Bodies (OCB)/ Non-Resident Indian (NRI) investment to encourage foreign participation in micro credit projects.

  • Since the efficiency and survival of SHGs depends on transparent transactions especially on behalf of the banks, NABARD introduced the Banking Ombudsman Scheme in 2006 to address grievances of borrowers.

  • Other actors:
    Small Industries Development Bank of India (SIDBI) - a statutory body –acts as the Principal Financial Institution for promotion, financing and development of the Micro, Small and Medium Enterprise (MSME) sector as well as for co-ordination of functions of institutions engaged in similar activities.
    The Rashtriya Mahila Kosh (RMK) is an autonomous statutory society under the Ministry of Women and Child Development which works for socio-economic empowerment of women.
    It acts as a facilitating agency and provides loans to NGO-MFIs termed as Intermediary Micro-financing Organizations (IMO) which SHGs and /or individual women.
    The NGO sector has played a prominent role of working as a Self Help Group Promoting Institution (SHPI) by organizing, nurturing and enabling credit linkage of SHGs with banks.
    NABARD also coopted other organizations such as SHPIs including the rural financial institutions (RRBs, DCCBs, PACS), Farmers’ Clubs (FCs), SHG Federations, Individual Rural Volunteers (IRVs) etc. These stakeholders were encouraged to take up promotion of SHGs by way of promotional grant assistance from NABARD.

Rangarajan Committee Report, 2008 - Financial Inclusion

  • The report defines financial inclusion as “a process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost.”

  • It highlighted four major reasons for lack of financial inclusion in India:
    - Inability to give collateral security
    - Weak credit absorption capacity
    - Insufficient reach of institutions
    - Weak community network

  • In India, the primary responsibility of ensuring financial inclusion lies with the commercial banks subject to guidelines of the RBI.

  • Owing to the large size and diversity of population, commercial banks take assistance of various social and financial entities like cooperative banks, regional rural banks (RRBs), self-help groups (SHGs), and other non-banking finance companies (NBFCs).

Women in SHGs

  • Formation of women’s self-help groups (WSHGs) is a well-established strategy in India for empowering women and improving their livelihoods; over 90 percent of all SHGs in India are composed of women.

  • WSHGs have a greater coverage in rural areas, and their bank linkage in both rural and urban areas is almost universal.

  • They are engaged mostly in private activities (such as vegetable cultivation, pisciculture, terra cotta craft, etc.), and a few are linked to government schemes (such as production of take-home rations, management of paddy procurement centres, electricity meter reading, etc.).

  • Notable examples:
    Café Kudumbashree chain of women-owned and operated canteens in Kerala
    A maize producer company run by women in Bihar
    Shaurya Dals, or Courage Brigades in Madhya Pradesh, which intervene in communities to help fight violence against women

  • Benefits:
    These groups have bonded women into a collective force, emerging as a powerful catalyst for their social and economic empowerment in rural India.
    Higher income for women translates into food security and nutrition for the entire family.
    It empowers enterprising women to reap dividends by investing in small businesses.

Challenges faced by SHGs

  • Lack of financial literacy among members of SHGs, most of whom are women from poor households. This makes management of micro enterprises difficult. Financial investment and management also suffer as a result.

  • Ignorance of members/participants about the facilities available to them.

  • Lack of proper training to members regarding product selection, quality of products, production techniques, managerial ability, packing, and other technical knowledge leads to no competitive advantage.

  • Due to the small scale of enterprise, procuring raw materials in small quantities at affordable prices becomes a challenge. There is a lack of channels with big suppliers, as well as of proper storage facilities.

  • Marketing of products created by SHGs is a bug hurdle to their prosperity. Various challenges include:
    Fewer orders
    Lack of linkages with marketing agencies
    Inadequate sales promotion
    Issues of quality with products due to usage of traditional technology
    No permanent market for SHG-based products.
    Competition from the major players

  • SHG products often result in low margins of profit for the members.

  • SHGs, especially those of women lack stability and unity, due to movement of women with their families, as well as due to interpersonal issues in the group.

  • In certain cases, it is found that the SHG becomes another mechanism of exploitation of the poor as the group is dominated by certain powerful individuals.

  • Financial assistance provided to SHGs is often found to be inadequate and unable to meet the group’s requirements.

  • Uncooperative attitude of financial institutions towards SHGs makes the process of obtaining loans long and cumbersome.

Recommendations for increased Effectiveness

  • The group dynamics of working of the SHGs should neither be regulated nor should formal structures imposed or insisted upon. The approach to financing of SHGs from the government’s end should be that of a facilitator rather than regulator.

  • The state should however, put in place a mechanism to monitor SHGs and their activities in different states.

  • The attitude of government officials towards SHG members seeking loans should reflect respect, cooperation and coordination.

  • Efforts should be made to design new and updated financial products for the SHGs.

  • Issues arising out of variation in location of SHG group and individual bank accounts should be addressed by the NPCI (National Payments Corporation of India).

  • The spectrum of services provided on the Bank Correspondent (Bank Sakhi) platform for financial inclusion should be expanded.

  • The government must invest in literacy of the poor – digital, financial and digital-financial.

  • Entrepreneurship development which involves enhancing entrepreneurial skills and knowledge through structured training and institution building programmes should be a priority effort for SHG members.

  • Innovation should also be encouraged in the functioning of SHGs.

  • Organizational, administrative and managerial skills among SHGs should be improved, and the communication/information gaps among SHGs members should be filled.

  • The importance of understanding environmental, social and localized issues in promoting sustainable SHGs should be acknowledged and promoted.

  • Focus on expansion of SHGs into remote credit-deficient areas of the country.

  • Use technology and communication advances to expand the financial infrastructure in remote regions of states.

  • Due to increasing urbanization and the number of urban poor, there is a need to develop and strengthen the SHG network in urban areas.

SHGs and COVID-19

  • Self-help groups are well-suited to play a critical role in rebuilding the social and economic order damaged by COVID-19. They already serve as community resources in health, farming and nutrition programmes, and they have generated enormous social capital which can be leveraged to design effective responses to the pandemic.
    According to the ministry of rural development, more than 132 lakh masks were produced by 14,522 SHGs involving 65,936 members in 399 districts, spread across 24 states of India, in just a period of 15 days from March 15 to March 30, 2020.
    Women SHG members, who also work as banking correspondents, known as ‘Bank Sakhis’, have continued to provide doorstep banking services to remote areas. They are distributing pensions as well as enabling the most vulnerable to access credits into their accounts through direct benefit transfers (DBT).
    In Kerala, an SHG named Kudumbashree is helping dispel fake news through its network of WhatsApp groups with more than 100,000 women as members. These platforms are specifically leveraged to disseminate urgent and authentic information regarding the pandemic. It is also delivering free ration and grocery kits in the remote tribal hamlets in the district and is running about 1,300 kitchens around the state
    The Mahila Arthik Vikas Mahamandal (MAVIM) and the numerous women SHGs operating under it played a crucial role in combating the socio-economic impact of the pandemic in rural Maharashtra. These women even contributed approximately Rs. 11 lakh to the Chief Minister’s Relief Fund through a MAVIM-driven donation campaign.
    In Jharkhand, SHG women use the Aajeevika Farm Fresh mobile app to sell vegetables, ensuring that social distancing guidelines are not flouted. They also use their networks to identify vulnerable households, flagging to the administration the pockets in need of food.
    A Women-led SHG in Orissa has set up kitchens in 5,247 gram panchayats and 108 urban local bodies.
    Prerna, an SHG in Uttar Pradesh, has attempted in communicating messages on social distancing by street art and wall paintings.

  • They have also faced some challenges in this period:
    Due to scarcity of resources, many NGOs are unable to provide capacity-building support to SHGs.
    Lack of transport and marketing facilities, delays in procuring loans etc. are affecting income.
    Future challenges include defaulting on loans taken by banks and a possibility of group dissolution due to reduction in income and viable market linkages.

  • Government responded with announcing doubling collateral free loans to women Self Help Groups (SHGs) from Rs 10 lakh to Rs 20 lakh. This is expected to help 63 lakh SHGs covering 7 crore families.

  • Post lockdown, there is an imperative need for economic revival and reconstruction. More SHG loans should be sanctioned and enhanced in order to facilitate spending or investment.

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