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Self Help Groups

Self Help Groups (SHG) are mentioned in the GS Paper 2 as per the latest UPSC Mains Syllabus. SHG related questions can also be expected in Prelims as well as in the Essay Paper of Mains. This article is based on July 2013 Kurukshetra magazine, and intends to give a gist about SHGs.

UPSC syllabus related with SHG reads like this : Development processes and the development industry- the role of NGOs, SHGs, various groups and associations, donors, charities, institutional and other stakeholders.

Topics covered:

  • About SHGs and its composition
  • Role of animator
  • Need of SHGs
  • Members and meetings of SHG
  • Keeping SHG accounts
  • Functions, benefits and challenges of SHG
  • SHG Movement In India


What are Self Help Groups?

  • Self Help Groups (SHGs) are small groups of poor people. The members of an SHG face similar problems. They help each other, to solve their problems.
  • SHGs promote small savings among their members. The savings are kept with the bank.
  • This is the common fund in the name of the SHG.
  • The SHG gives small loans to its members from its common fund.
  • SHG is an informal group and registration under any Societies Act, State cooperative Act or a partnership firm is not mandatory vide Circular RPCD.No. Plan BC.13/PL -09.22/90- 91 dated July 24th, 1991.

Composition of SHGs

  • A reasonably educated and helpful local person has to initially help the poor people to form groups. He or She tells them about the benefits of thrift and the advantages of forming groups. This person is called an ‘animator’ or ‘facilitator’. Usually, the animator is a person who is already known to the community.
  • Any of the following persons can be a successful animator:
    • Retired school teacher or a retired government servant, who is well known locally.
    • A health worker/a field officer/staff of a development agency or department of the State Government.
    • Field officer or a staff member of a commercial bank/regional rural bank or a field staff from the local co-operative bank or society
    • A field level functionary of an NGO.
    • An unemployed educated local person, having an inclination to help others.
    • A member/participant in the Vikas Volunteer Vahini (VVV) Programme of NABARD.
    • Woman animators can play more effective role in organising women SHGs.
  • The animator cannot organise the groups all alone.
  • He or she will need guidance, training, reading material, etc.
  • Usually, one of the following agencies help:
    • A voluntary agency or Non Governmental Organization (NGO).
    • The development department of the State Government.
    • The local branch of a bank.

Role Of An Animator

  • The animator talks to people in the village or at their homes.
  • He or she explains the benefits of thrift and group formation.
  • No promise of bank loan is given to anyone.
  • He or she helps the group members to hold one or two initial meetings.
  • The group finds a group leader, for holding meetings, keeping books, etc.
  • The animator guides and encourages the leader and the group members.

Need for SHGs

  • One of the reasons for rural poverty in our country is low access to credit and financial services.
  • A Committee constituted under the chairmanship of Dr. C. Rangarajan to prepare a comprehensive report on ‘Financial Inclusion in the Country’ identified four major reasons for lack of financial inclusion:
    • Inability to provide collateral security,
    • Poor credit absorption capacity,
    • Inadequate reach of the institutions, and
    • Weak community network.
  • The existence of sound community networks in villages is increasingly being recognised as one of the most important elements of credit linkage in the rural areas.
  • They help in accessing credit to the poor and thus, play a critical role in poverty alleviation.
  • They also help to build social capital among the poor, especially women. This empowers women and gives them greater voice in the society.
  • Financial independence through self-employment has many externalities such as improved literacy levels, better health care and even better family planning.

Size of the SHG

  • The ideal size of an SHG is 10 to 20 members. (Advantage: In a bigger group, members cannot actively participate. Also, legally it is required that an informal group should not be of more than 20 people.).
  • The group need not be registered.


  • From one family, only one person can become a member of an SHG. (More families can join SHGs this way.)
  • The group normally consists of either only men or of only women. Mixed groups are generally not preferred.
  • Women’s groups are generally found to perform better. (They are better in savings and they usually ensure proper use of loans.)
  • Members should have the same social and financial background.
  • Some Common factors for Membership in an SHG
    • Women/men from very poor households.
    • Those who depend on moneylenders even for daily necessities.
    • Those with a per capita income not exceeding Rs. 250 per month.
    • Those having dry land holding not exceeding 2.5 acres.
    • Common living conditions for the Group Members  eg. Living in kutcha houses, Having no access to safe drinking water, Presence of illiterate adults in the family etc


  • The group should meet regularly. Ideally, the meetings should be weekly or at least monthly. They become closer, if they meet regularly. This helps them to understand each other’s difficulties better.
  • Compulsory attendance: Full attendance in all the group meetings will make it easy for the SHG to stabilise and start working to the satisfaction of all.
  • Membership register, minutes register etc., are to be kept up to date by the group by making the entries regularly. This helps you to know about the SHG easily. It also helps to build trust among the SHG members.

Keeping of Accounts by the SHG

  • Simple and clear books for all transactions to be maintained.
  • If no member is able to maintain the books, the SHG may take outside help. (It has been seen that a boy or a girl from the village with some educational qualification does this job enthusiastically. After some months, the group can even consider giving him or her a small reward for this job.). Animator can also help.
  • All registers and account books should be written during the course of the meeting. (Advantage: This creates confidence in the minds of members who are unable to read and write.)
  • Books to be kept by an SHG
    • Minutes Book:The proceedings of meetings, the rules of the group, names of the members etc. are recorded in this book.
    • Savings and Loan Register:Shows the savings of members separately and of the group as a whole. Details of individual loans, repayments, interest collected, balance, etc. are entered here.
    • Weekly /Fortnightly/Monthly Register:Summary of receipts and payments, updated in every meeting.
    • Members’ Passbooks:Individual members’ pass books in which individual’s savings and loan balance outstanding is regularly entered. (Advantage: this encourages regular savings.)


  • It looks to build the functional capacity of the poor and the marginalized in the field of employment and income generating activities.
  • It resolves conflicts through collective leadership and mutual discussion.
  • It provides collateral free loan with terms decided by the group at the market driven rates.
  • Such groups work as a collective guarantee system for members who propose to borrow from organised sources. The poor collect their savings and save it in banks. In return they receive easy access to loans with a small rate of interest to start their micro unit enterprise.
  • Consequently, Self-Help Groups have emerged as the most effective mechanism for delivery of microfinance services to the poor.

Benefits of SHGs

  • Social integrity – SHGs encourages collective efforts for combating practices like dowry, alcoholism etc.
  • Gender Equity – SHGs empowers women and inculcates leadership skill among them. Empowered women participate more actively in gram sabha and elections.
  • There is evidence in this country as well as elsewhere that formation of Self-Help Groups has a multiplier effect in improving women’s status in society as well as in the family leading to improvement in their socio-economic condition and also enhances their self-esteem.
  • Pressure Groups – their participation in governance process enables them to highlight issues such as dowry, alcoholism, the menace of open defecation, primary health care etc and impact policy decision.
  • Voice To Marginalized Section– Most of the beneficiaries of government schemes have been from weaker and marginalized communities and hence their participation through SHGs ensures social justice.
  • Financial Inclusion – Priority Sector Lending norms and assurance of returns incentivize banks to lend to SHGs. The SHG-Bank linkage programme pioneered by NABARD has made access to credit easier and reduced the dependence on traditional money lenders and other non-institutional sources.
  • Improving efficiency of government schemes and reducing corruption through social audits.
  • Alternate Source Of Employment – it eases dependency on agriculture by providing support in setting up micro-enterprises e.g. personalised business ventures like tailoring, grocery, and tool repair shops.
  • Changes In Consumption Pattern – It has enabled the participating households to spend more on education, food and health than non-client households.
  • Impact on Housing & Health – The financial inclusion attained through SHGs has led to reduced child mortality, improved maternal health and the ability of the poor to combat disease through better nutrition, housing and health – especially among women and children.
  • Banking literacy – It encourages and motivates its members to save and act as a conduit for formal banking services to reach them.

Weaknesses of SHGs

  • Though there has been social empowerment of the poor, the economic gain to bring about a qualitative change in their life has not been satisfactory.
  • Members of a group do not come necessarily from the poorest families.
  • There is a lack of qualified resource personnel in the rural areas who could help in skill upgradation or acquisition of new skills by group members. Further, institutional mechanisms for capacity building and skill training have been lacking.
  • Many of the activities undertaken by the SHGs are still based on primitive skills related mostly to primary sector enterprises. With poor value addition per worker and prevalence of subsistence level wages, such activities often do not lead to any substantial increase in the income of group members.
  • Lack of resources and means to market their goods.
  • Poor accounting practices and incidents of misappropriation of funds.
  • SHGs are heavily dependent on their promoter NGOs and government agencies. The withdrawal of support often leads to their collapse.


  • Lack of rural banking facilities – There are about 1.2 lakh bank branches and over 6 lakh villages. Moreover, many public sector banks and micro-finance institutions are unwilling to provide financial services to the poor as the cost of servicing remains high.
  • Lack of knowledge and proper orientation among SHG-members to take up suitable and profitable livelihood options.
  • Patriarchal mindset – primitive thinking and social obligations discourages women from participating in SHGs thus limiting their economic avenues.
  • Sustainability and the quality of operations of the SHGs have been a matter of considerable debate.
  • Only a minority of the Self-Help Groups are able to raise themselves from a level of micro-finance to that of micro-entrepreneurship.
  • No Security – The SHGs work on mutual trust and confidence of the members. The deposits of the SHGs are not secured or safe

Measures to Make SHGs Effective

  • Positive Attitude – Government functionaries should treat the poor and marginalized as viable and responsible customers and as possible entrepreneurs.
  • The Government should play the role of a facilitator and promoter, create a supportive environment for the growth and development of the SHG movement.
  • Expanding SHG Movement to Credit Deficient Areas of the Country – such as Madhya Pradesh, Rajasthan, States of the North-East.
  • Extension of Self-Help Groups to Urban/Peri-Urban Areas – efforts should be made to increase income generation abilities of the urban poor as there has been a rapid rise in urbanisation and many people remain financially excluded.
  • Rapid expansion of financial infrastructure (including that of NABARD) and by adopting extensive IT enabled communication and capacity building measures in these States.
  • Need Based Approach – Commercial Banks and NABARD in collaboration with the State Government need to continuously innovate and design new financial products for these groups.
  • Monitoring – Need to establish a separate SHG monitoring cell in every state. The cell should have direct links with district and block level monitoring system. The cell should collect both quantitative and qualitative information.

SHG Movement In India 

  • Formation of SHGs for savings and credit and their linkage to commercial banks was initiated in India by MYRADA (Mysore Resettlement and Development Agency), an NGO, in the mid-1980s.
  • However, SHGs as a tool to address poverty became significant only when the Reserve Bank of India (RBI) issued a circular in 1992 to link about 500 groups under the NABARD-SHG bank linkage pilot program.
  • This success has led to mainstreaming of SHGs into the financial landscape and especially the Indian banking system, with about 94 million poor linked with banks through 7.5 Million SHGs, availing them of collateral-free credit.
  • As a part of the poverty alleviation measures, the Government of India launched the Swarnjayanti Gram Swarozgar Yojna (SGSY) in April 1999 where the major emphasis is on SHG formation, social mobilization and economic activation through micro-credit finance
  • This success led to the genesis of a massive community mobilization initiative by the Government of India as National Rural Livelihoods Mission (NRLM) in 2011

Public Administration by G.Rajput

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