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A self-help group (SHG) is a unique village-based financial intermediary usually composed of 10–20 local women. The approach connects SHG members to low-cost financial services. Most self-help groups are located in India, though SHGs can also be found in other countries, especially in South Asia and Southeast Asia. Members make small regular savings contributions over a few months until there is enough capital 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 microcredit.

Structure

A Self-Help Group may be registered or unregistered. It typically comprises a group of micro entrepreneurs having homogenous social and economic backgrounds, all voluntarily coming together to save regular small sums of money, mutually agreeing to contribute to a common fund and to meet their emergency needs on the basis of mutual help. They pool their resources to become financially stable, taking loans from the money collected by that group and by making everybody in that group self-employed. The group members use collective wisdom and peer pressure to ensure proper end-use of credit and timely repayment. This system eliminates the need for collateral and is closely related to that of solidarity lending, widely used by micro finance institutions.[1] To make the book-keeping simple enough to be handled by the members, flat interest rates are used for most loan calculations.

National Bank and Rural Development

Self-help groups (SHGs) are part of a large-scale anti-poverty intervention in India that reaches over 30 million people or households (Shyamsukha, 2011). The self-help group model is the largest part of the microfinance movement in India. This model links small groups of mostly poor women to the national banking system through the National Bank and Rural Development or NABARD. According to Chakrabarti (n.d.) “Over the past decade, NABARD’s “SHG-Bank Linkage Program” aimed at connecting self-help groups of poor people with banks, has, in fact, created the largest microfinance network in the world.”

Microfinance

In 2006, Mohammad Yunus and the Grameen Bank of Bangladesh were awarded the Nobel Prize for Peace for their efforts to reduce global poverty through microfinace (Yunus, 2006)<needref>. Already a popular intervention, this event further increased support for microfinance. In addition to small loans, microfinance organizations usually provide differing arrays of social services aimed at creating sustainable economic development to the poor.

Microfinace refers to a wide-array of financial and social services offered by microfinace institutions (MFIs). These institutions generally provide small loans to the poor (those usually excluded from traditional banking systems) with little or no capital. Often the loans are given in a group-lending model using group liability, sometimes the loans have a pre-savings model and may be accompanied trainings and other social support services.

The basic argument for microfinance is that the poor have historically been excluded from reasonably priced credit, thus excluding them from the possible economic gains access to affordable credit may offer. Usually loans are offered to a group of poor women. Repayment in the group model relies on group pressure. Women are targeted with the loans as they tend to be among the most poor.

Grameen Bank found through experience that women had a higher payback rate than men. But outside of the higher payback rate, women are also targeted because it has been theorized and evidence backs the theory, that increases in women’s income has a greater impact on household poverty (Goetz & Gupta, 1996). Increases in women’s income result in higher education in the family, higher nutrition levels and increased health spending (Goetz & Gupta, 1996). Or, things that are unique concerns of the domestic (read: women’s) sphere have more resources.

In a study to determine the impact of loans to women (regardless of who ultimately had control of the loan), Hashemi et.al (1996) found access to loans for women to be positive. The results included women had increased purchasing power, increased assets in their names, and greater social capital. Of interest to empowerment goals, women with access to credit were found to have power in decision making and in the political arena.

Goals

Self-help groups are started by non-governmental organizations (NGOs) that generally have broad anti-poverty agendas. Self-help groups are seen as instruments for a variety of goals including empowering women, developing leadership abilities among poor people, increasing school enrollments, and improving nutrition and the use of birth control. Financial inter mediation is generally seen more as an entry point to these other goals, rather than as a primary objective.[2] 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.

An economically poor individual gains strength as part of a group. Besides, financing through SHGs reduces transaction costs for both lenders and borrowers. While 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 & from the branch and other places) for completing paper work and on the loss of workdays in canvassing for loans.

Amartya Sen (1999) advocates that development in poor communities is process of liberation; poverty and lack of resources are factors that limit freedom. Rather than focusing on specific means or instruments to achieve development, Sen (1999) conceptualizes development as removal of things that inhibit freedom. Those who live in communities complicated by corruption, lack of health care, lack of education are not free to pursue their dreams for themselves and for their families. This movement away from just income allows a conceptual value in all aspects of life: it allows poverty to be about limitations on pursuing one’s dreams.

Sen (1999) further introduces the concepts of capabilities and agency. Capabilities are the things of value that people are able to do, and agency is the specific human actor’s doings. There is a link between the capability approach and a particular focus on the problem of poverty (Sen 1999). The poor lack income and and are consequently unable to do basic things of inherent value (they are not able to move around, meet minimal caloric or nutritional needs, be adequately sheltered, educated, and so forth).

Sen’s (1999) idea of agency is congruent with social connections fostered by individuals. How one connects within a community, family or social network. These connections, although individual, take place within a larger construct. Connections are limited by capabilities, if individuals are not capable of meeting basic needs, freedom to develop social networks, invest in social good, and pursue civic engagement. Deprivation inhibits communal and political potential. Removing the barrier to the credit and the banking system (through SHG membership) is an example of using this lens when approaching solutions to poverty. Usually poor women are the members of SHGs, both because women tend to be more poor than their male counterparts and have more constraints and less ability to foster community connections. SHG members are linked with other women in their community and the group as a whole is then linked with a bank. The SHG as a whole keep a pooled savings account from which they may borrow money. Eventually, the bank provides small loans to group members, as needed, from this pooled fund. The emphasis is to target the poorest people and create an environment whereby capabilities are increased.

Using this framework, increasing capabilities equates to empowerment. Yet the concept of empowerment is difficult to measure. The World Bank (2001) defines empowerment as “the process of increasing the capacity of individuals or groups to make choices and to transform those choices into desired actions and outcomes. Central to this process are actions which both build individual and collective assets, and improve the efficiency and fairness of the organizational and institutional context which govern the use of these assets.” (83)

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 and have established a track record of regular repayments. This model has attracted attention as a possible way of delivering microfinance 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."[3] 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.[4] "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."[5]

Swain (2007 ) identifies the NABARD model as unique in the following ways:

1. The distinctive process of formation of the SHGs and the freedom that they have in deciding the terms of their lending and borrowings within the group, once they receive the loan.

2. The use of the existing and extensive infrastructure of rural bank branches for disbursing microfinance services.

3. Three distinctive ways of linking the SHGs to the banks, through NGOs, commercial and rural banks, with the NGOs playing a major role in promotion of the SHGs and their training.

4. The government’s poverty alleviation programmes such as Swaranajayanti Grama Swarojgar Yojna (SGSY) and the Rashtriya Mahila Kosh implement their programmes through microfinance interventions.

(73)

Limitations of SHGs

SHGs that are not linked with an NGO that provides training and outreach services have less success of meeting outcomes<refneeded>. As a mere financial services package, evidence of meeting the goal of women's empowerment thin .

As research is conducted on the SHG model, it is increasingly challenging to find a standard way to measure empowerment. For a program of this magnitude there is the need to operationalize and study the outcomes. Programs that report success may be measuring outcomes in a different ways, that are difficult to compare. As empowerment is not concrete, this may require greater understanding into the social structure that created lack of empowerment.

In a systematic review of microfinace (as a whole) and it's impact on the poor, Duvendack et. al (2011) found statistically insignificant impact. A more through evaluation of SHGs is needed, with emphasis on understanding groups that have had greater success and how those groups differ from less successful groups.

External Links

The NARARD website