Self-help group (finance)
A self-help group (SHG) is a financial intermediary committee usually composed of 25 to 40 local women or men. Most self-help groups are located in India, though SHGs can be found in other countries, especially in South Asia and Southeast Asia. SHG is nothing but a group of people who are on daily wages, they form a group and from that group one person collects the money and gives the money to the person who is in need.
Members also make small regular savings contributions over a few months until there is enough money in the group to begin lending. Funds may then be lent back to the members or to others in the village for any purpose. In India, many SHGs are 'linked' to banks for the delivery of micro-credit.
A SHG (self help group) is a community based group with 10-20 members. They are usually women from similar social and economic backgrounds, all voluntarily coming together to save small sums of money, on a regular basis. They pool their resources to become financially stable, taking loans from their collective savings in times of emergency or financial scarcity, important life events or to purchase assets.The group members use collective wisdom and peer pressure to ensure proper end-use of credit and timely repayment. In India, RBI regulations mandates that banks offer financial services, including collateral free loans to these groups on very low interest rates. This allows poor women to circumvent the challenges of exclusion from institutional financial services. This system is closely related to that of solidarity lending, widely used by microfinance institutions.
Beyond their function as a savings and credit group, SHG's offer poor women a platform for building solidarity. They allow women to come together and act on issues related to their own lives including health, nutrition, governance and gender justice.
Self-help groups are started by -governmental organizations (GO) that generally have broad anti-poverty agendas. Self-help groups are seen as instruments for goals including empowering women, developing leadership abilities among poor and the needy people, increasing school enrolments and improving nutrition and the use of birth control. In countries like India, SHGs bridge the gap between high-caste & low-caste people /citizens.
Financial intermediation is generally seen more as an entry point to these other goals, rather than as a primary objective. This can hinder their development as sources of village capital, as well as their efforts to aggregate locally controlled pools of capital through federation, as was historically accomplished by credit unions.
NABARD's 'SHG Bank Linkage' program
Many self-help groups, especially in India, under NABARD's 'SHG Bank Linkage' program, borrow from banks once they have accumulated a base of their own capital. This model has attracted attention as a possible way of delivering micro-finance services to poor populations that have been difficult to reach directly through banks or other institutions. "By aggregating their individual savings into a single deposit, self-help groups minimize the bank's transaction costs and generate an attractive volume of deposits. Through self-help groups, the bank can serve small rural depositors while paying them a market rate of interest."
According to a report from 2006, NABARD estimates that there are 2.2 million SHGs in India, representing 33 million members, that have taken loans from banks under its linkage program to date. This does not include SHGs that have not borrowed. A study conducted by S Chakrabarti in 2004 said that organization like SHG can be an effective tool for "allevating poverty"."The SHG Banking Linkage Programme since its beginning has been predominant in certain states, showing spatial preferences especially for the southern region – Andhra-Pradesh, Tamil Nadu, Kerala, and Karnataka. These states accounted for 57% of the SHG credits linked during the financial year 2005–2006."
Advantages of financing through SHGs
- An economically poor individual gains strength as part of a group.
- Besides, financing through SHGs transaction costs for both lenders and borrowers.
- While lenders have to handle only a triple SHG account instead of a large number of small-sized individual accounts, borrowers as part of an SHG minimize or travel (to and from the branch and other places) for completing paper work and on the loss of workdays in canvassing for loans.
- Where successful, SHGs have significantly empowered poor people, especially women, in rural areas.
- SHGs have helped immensely in reducing the influence of informal lenders in rural areas.
- Many big corporate houses are also promoting SHGs at many places in India.
- SHGs help borrowers overcome the problem of lack of collateral. Women can discuss their problem and find solutions for it.
- Kabeer, Naila (2005). "Is Microfinance a 'Magic Bullet' for Women's Empowerment? Analysis of Findings from South Asia". Economic and Political Weekly. 40 (44/45): 4709–4718. ISSN 0012-9976. JSTOR 4417357.
- (Reserve Bank of India) Archived 2008-05-12 at the Wayback Machine
- Gugerty, Mary Kay; Biscaye, Pierre; Anderson, C. Leigh (2019). "Delivering development? Evidence on self-help groups as development intermediaries in South Asia and Africa". Development Policy Review. 37 (1): 129–151. doi:10.1111/dpr.12381. ISSN 1467-7679.
- Stuart Rutherford. 'Self-help groups as microfinance providers: how good can they get?' mimeo, 1999, p. 9
- Robert Peck Christen, N.Srinivasan and Rodger Voorhies, "Managing to go down market: regulated financial institutions and the move into microsaving." In Madeline Hirschland (ed.) Savings Services for the Poor: An Operational Guide, Kumarian Press, Bloomfield, CT, 2005, p. 106.
- EDA and APMAS Self-Help Groups in India: A Study of the Lights and Shades, CARE, CRS, USAID and GTZ, 2006, p. 11
- Fouillet C. and Augsburg B. 2007. "Spread of the Self-Help Groups Banking Linkage Programme in India", International Conference on Rural Finance Research: Moving Results, held by FAO and IFAD, Rome, March 19-21.