What is a self-help group (SHG)?
Self-Help Groups are informal associations of people who choose to come together to find ways to improve their living conditions. They help to build Social Capital among the poor, especially women. The most important functions of a Self-Help Groups are (a) to encourage and motivate its members to save, (b) to persuade them to make a collective plan for generation of additional income, and (c) to act as a conduit for formal banking services to reach them. Such groups work as a collective guarantee system for members who propose to borrow from organised sources. Consequently, Self-Help Groups have emerged as the most effective mechanism for delivery of micro-finance services to the poor. The range of financial services may include products such as deposits, loans, money transfer and insurance
Guiding Principles for Formation Of SHGs
The strong belief by the individual to bring about change through collective efforts
- Effort is built on mutual trust and mutual support
- Every individual is equal and responsible
- Every individual is committed to the cause of the group
- Decision is based on the principles of consensus
- The belief and commitment by an individual that through the group their standard of living will improve
- Savings is the foundation on which to build the group for collective action.
Features of SHGs
The term ‘self-help group’ or SHG can be used to describe a wide range of financial and non-financial associations, in India it has come to refer to a form of Accumulating Saving and Credit Association (ASCA) promoted by government agencies, NGOs or banks.
A distinction can be made between different types of SHGs according to their origin and sources of funds. Several SHGs have been carved out of larger groups, formed under preexisting NGO programmes for thrift and credit or more broad-based activities. Some have been promoted by NGOs within the parameters of the bank linkage scheme but as part of an integrated development programme. Others have been promoted by banks and the district rural development agencies (DRDAs). Still others have been formed as a component of various physical and social infrastructure projects.
Some characteristics features of these SHG are:
- An SHG is generally an economically homogeneous group formed through a process of self-selection based upon the affinity of its members.
- Most SHGs are women’s groups with membership ranging between 10 and 20.
- SHGs have well-defined rules and by-laws, hold regular meetings and maintain records and savings and credit discipline.
- SHGs are self-managed institutions characterized by participatory and collective decision making.
Strength of SHG:
The strengths of SHG’s may be categorized in the following manner:
- Groups members usually create a common fund by contributing their small savings on a regular basis; groups manage pooled resources in a democratic way; considers loan requests; and loans are disbursed by purposes. The rates of interest vary from group to group and the purpose of loan, interest rates are higher than that of banks but lower than moneylenders.
- The average deposit and loan size of SHG account is larger than individual accounts under the priority sector, bank transaction cost of dealing with SHG’s is obviously lower than that of individual borrowers; the rate of growth of credit absorption of SHG’s is much higher than individual borrowers under the priority sector.
- Banks can reduce the operating costs of forming and financing of SHG’s, involving NGO’s or youths for forming and nurturing SHG’s.
- The innovative forms of financing is imperative to supplement credit strategies for meeting the needs of the poor by combining the flexibility, sensitivity and responsiveness of the informal credit system with the technical and administrative capabilities and financial resources of formal financial institutions and also to build material trust and confidence between bankers and the rural poor and to encourage banking in a segment of population that formal financial institutions usually find difficult to reach.
- The entire process of internal savings and credit is backed by financial and management counselling, promotion of new avenues of employment and motivation for enhancement of earnings from the ongoing activities.
- The groups develop their own management system and accountability for handling the resources generated. The interaction among the members is based on participatory mechanism in terms of decision-making.
- Small savings of rural women can generate the required resources, which can wean the people away from the exploitation of moneylenders. Thus, the voluntary savings constitute the key for economic progress. Promotion of SHG’s can bring women into the mainstream of economic development.
- Credit through SHG’s is being regarded more suitable by banks and NGO’s since creditability of SHG’s regarding utilization and recovery is praise worthy.
- Credit accessibility through SHG’s is cost effective and group approach can ensure wider coverage of poor families through bank credit, even the members of the group learn interdisciplinary approach the 5 banks for advance lead to direct interaction and guidance from the bank officials.
- SHG’s can create a unique, alternative need based credit-delivery-mechanism by pooling their meager resources for catering to their consumption and production requirements.
SHG LINKAGE – THE INDIAN EXPERIENCE:
- The first organised initiative in this direction was taken in Gujarat in 1954 when the Textile Labour Association (TLA) of Ahmedabad formed its women’s wing to organise the women belonging to households of mill workers in order to train them in primary skills like sewing, knitting embroidery, typesetting and stenography etc. In 1972, it was given a more systematized structure when Self Employed Women’s Association (SEWA) was formed as a Trade Union under the leadership of Ela Bhatt.
- In the 1980s, MYRADA – a Karnataka based non-governmental organisation, 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.
- Major experiments in small group formation at the local level were initiated in Tamilnadu and Kerala about two decades ago through the Tamilnadu Women in Agriculture Programme (TANWA) 1986, Participatory Poverty Reduction Programme of Kerala, (Kudumbashree) 1995 and Tamilnadu Women’s Development Project (TNWDP) 1989. These initiatives gave a firm footing to SHG movement in these States.
SHG Development since 1992 and NABARD
The SHG movement in India is basically aimed at utilizing the SHG’s as an ‘intermediatory’ between the banks and the rural poor to help drastically reduce transaction costs for both the banks and the rural clients (Nanda, 1995). NABARD with its head quarters at Mumbai, is an Apex Development Bank in India for financing and promoting agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts so as to promote integrated rural development. In wake of banking sector reforms invoked in early 1990’s the role of commercial banks in providing credit to rural poor came under intensive debate vis-à-vis the sustainability of entire banking operation for providing banking services-both in terms of savings and credit-to the rural poor. Sheokand (1998) has indicated that as the rural poor’s share in availing formal sector credit got further marginalized, NABARD, in 1992 launched the SHG – Bank linkage programme with the policy backup of the Reserve Bank of India. The SHG – Bank linkage programme initiated by NABARD, in active collaboration with Non-GovernmentalOrganisations (NGOs), aimed at enhancing the coverage of rural poor under institutional credit thereby focusing on poverty alleviation and empowerment.
As per a NABARD report (1995) the scheme on SHGs was made applicable to RRBs and co-operative banks of the country in 1993 and in April’96, RBI advised the banks that lending to SHGs should be considered as an additional segment under priority sector advances and it be integrated with mainstream normal credit operation. SHG-bank linkage programme has gained considerable movement in southern region of the country, though the northern states too are also now catching up fast and an overwhelming (78%) of the listed SHGs are Women Self Help Groups (WSHG’s), that is the SHGs which constitute of only women members. Since the inceptions of NABARD promoted SHG linkage programme there has been an appreciable increase both in formation of SHG and their linkage with the banks.
The concept and importance of SHGs has been accepted and adopted by policy makers and they will form the backbone of rural poverty alleviation strategies, implemented by Government of India.
SELF HELP GROUPS & LINKAGE PROGRAMME
The Indian Experience of SHG Linkage Programme is unique in some respects. RBI and NABARD have tried to promote ‘relationship banking’ i.e. improving the existing relationship between the poor and bankers with the social intermediation by NGOs. The Indian model is predominantly “linkage model”, which draws upon the strengths of various partners – NGOs (who are the best in mobilizing and capacity building of poor) and bankers (whose strength is financing). Thus, as compared to other countries, where “parallel” model of lending to poor (i.e. NGOs acting as financial intermediaries) is predominant, the Indian linkage banking tries to use the existing formal financial network to increase the outreach to the poor while ensuring necessary flexibility of operations for both the bankers and the poor. Thus a nutshell, the SHG Linkage programme offers a win-win situation for the credit delivery system comprising banks of all types.
What are the goals of an SHG?
An SHG is seen as an instrument for achieving a variety of goals, including empowering women. Data from Nabard, which pioneered the concept, shows that 90% of members in the SHG are women and most of them do not have any assets. It also helps in developing leadership abilities among the poor, increasing school enrolments, improving nutrition and in birth control. An SHG is generally started by non-profit organisations, such as an NGO with broad anti-poverty agendas. It is also a popular channel of micro-lending by commercial banks, particularly government-run banks.
What are the advantages of financing through an SHG?
A poor individual benefits enormously being part of an SHG . Raising finance through SHGs reduces transaction costs for both lenders and borrowers. Lenders have to handle only a single SHG account instead of a large number of small-sized individual accounts, borrowers as part of an SHG cut down expenses on travel to the branch to get the loan sanctioned.
What are the different ways in which banks fund SHGs?
Banks deal directly with individual SHGs. They provide financial assistance to each SHG for lending to individual members. Alternatively, banks provide loans to SHGs with recommendation from NGOs. Here the SHGs are formed by NGOs or government agencies, which raise funds from banks. In this, NGOs would organise the poor into SHGs, undertake training, help in arranging inputs and marketing and assist in maintenance of accounts.