CHAPTER 3

ROLE OF SELF-HELP GROUP IN MICROFINANCE INDUSTRY

CONCEPT OF SELF-HELP GROUP

SHGs are novel and innovative organizational setup in India for the
women upliftment and welfare. All women in India are given chance to
join any one of SHGs for training and development, so as to be prospective
entrepreneur and skilled worker. The SHGs are promoted by the
Government as if women in India may not be resourceful enough to be
entrepreneurs. When the SHGs arrange training facilities to carry out
certain kind of work which are suitable for women in India, bank must
arrange financial assistance to carry out manufacturing and trading
activities, arranging marketing facilities while the Governments will
procure the product of SHGs, arrange for enhancing the capacity of women
in terms of leadership quality and arranging for the management of SHGs
by themselves so as to have administrative capacity. As a social movement
with government support SHGs become more or less a part and parcel of
the society.19

Though there are different models for pursuing micro-finance, the

Self-Help Group (SHG)-Bank Linkage Programme has emerged as the
major micro-finance programme in the country. It is being implemented by
commercial banks, regional rural banks (RRBs), and cooperative banks.
Under the SHG-Bank Linkage Programme, as on 31 March 2012, 79.60
lakh SHG-held savings bank accounts with total savings of Rs. 6,551 crore
were in operation. By November 2012 another 2.14 lakh SHGs had come
19
V.J.R. Emerlson Moses, "Women empowerment through SHGs: A micro study", International Referred
Research Journal, Vol. II, Issue 16, January 2011, p. 25.

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under the ambit of the programme, taking the cumulative number of
savings-linked groups to 81.74. As on 31 March 2012, 43.54 lakh SHGs
had outstanding bank loans of Rs. 36,340 crore (Table 2.1). During 2012-
13 (up to November 2012), 3.67 lakh SHGs were financed with an amount
Rs. 6,664.15 crore.20

Table-2.1 Progress of Micro-finance Programme

Year SHGs Financed by Banks Bank Loan Outstanding
during the year*
No. Amount Growth No. Amount Growth
(lakh) (Rs. (%) (lakh) (Rs. (%)
crore) crore)
2007-08 12.28 8849.26 - 36.26 16999.90 -
2008-09 16.09 12256.51 38.50 42.24 22679.85 33.41
2009-10 15.87 14453.30 17.90 48.52 28038.28 23.62
2010-11 11.96 14547.73 0.65 47.87 31221.17 11.35
2011-12 11.48 16534.77 13.66 43.54 36340.00 16.40
Source: NABARD. Note: *Includes new as well as repeat loans to
SHGs.

The concept of Self-help groups had its origin in the co-operative

philosophy and the co-operators by and large, including the National
Federations in the credit sector, could not think of any better SHG than a
primary co-operative credit society itself.21 As SHG are small and
economically homogenous affinity groups of rural poor, they are
voluntarily coming together for achieving the following.

1. To save small amount of money regularly.

2. To mutually agree to contribute a common fund.

20
Economic Survey 2012-13,p. 110
21
Tamil Nadu Corporation for Development of Women Ltd. - Credit guidelines for SHGs, Handbook,
2007, p. 5.

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3. To meet their emergency needs.
4. To have collective decision making.
5. To solve conflicts through collective leadership mutual discussion.
6. To provide collateral free loan with terms decided by the group at the
market driven rates.

Today, the self-help group movement is increasingly accepted as an

innovation in the field of rural credit in many developing countries
including India to help the rural poor considered a vehicle to reach the
disadvantaged and marginalized section, which in the normal course cannot
avail of credit facility from the bank.

A self-help group is defined as a group consisting of people who have

personal experience of a similar issue or life situation, either directly or
through their family and friends. Sharing experiences enables them to give
each other a unique quality of mutual support and to pool practical
information and ways of coping.

Self-help groups are small informal association of the poor created at

the grass root level for the purpose of enabling members to reap economic
benefits out of mutual help solitarily and joint responsibility. Self-help
groups are formed voluntarily by the rural and urban poor to save and
contribute to a common fund to be lent to its members as per group
decision and for working together for social and economic uplift of their
families and community.

A self-help group is defined as a "self governed, peer controlled

information group of people with similar socio-economic background and
having a desire to collectively perform common purpose." Self-help group

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 have been able to mobilize small savings either on weekly or monthly basis
from persons who were not expected to have any savings. They have been
able to effectively recycle the resources generated among the members for
meeting the productive and emergent credit needs of members of the group.

The Tamil Nadu Corporation for Development of Women Ltd.

(TNCDW) in its credit guidelines for the SHGs defines as a small
economically homogenous affinity group of rural poor, voluntarily formed
to save and contribute to a common fund to be lent to its members as per
group decision and for working together for social and economic uplift of
their family and community. The distinguishing features of Self-help
groups are given below:

i. An SHG normally consists of not less than five persons (with a

maximum of twenty) of similar economic outlook and social status.
ii. It promotes objectives like economic improvement and raising
resources for development and freedom from exploitation.
iii. It has its own by-laws for the proper functioning of the group as well
as for the observance of certain rules by the group members and
regulations concerning membership.
iv. The form of such a group could be mostly on an informal basis
(unregistered).
v. Periodical meetings of members are held for solving their problems
(economic and social) and they collect fixed savings of the members.
vi. The savings of members are kept with a bank in the name of group
and authorized representative of the group operates the bank account.
The deposit kept in the bank is used for giving loans to members for

97
 purposes including consumption at the rate of interest decided by the
group (usually higher than what the banks charge).
vii. Sources of funds are the contribution of member’s savings, entrance
fee, interest from loans, proceeds of joint business operation and
income from investment. Funds may be used for loans, social services
and common investment.

The SHG, being a group of like-minded persons, gets empowered to

solve most of its problems of a non-financial nature, such as raw material
and input supply marketing, better adoption of technology, education and
training for realization of its objectives for development.22

NEED AND IMPORTANCE OF SELF-HELP GROUP

Self-help groups are necessary to overcome exploitation, create

confidence for the economic self-reliance of rural people, particularly
among women who are mostly invisible in the social structure. These
groups enable them to come together for common objective and gain
strength from each other to deal with exploitation, which they are facing in
several forms. A group becomes the basis for action and change. It also
helps buildings of relationship for mutual trust between the promoting
organization and the rural poor through constant contact and genuine
efforts. Self-help groups plays an important role in differentiating between
consumer credit and production credit, analyzing the credit system for its
implication and changes in economy, culture and social position of the
target groups, providing easy access to credit and facilitating group /
organization for effective control, ensuring repayments and continuity

22
www.tnwomen development corporation.org

98
through group dynamics; setting visible norms for interest rates, repayment
schedules, gestation period, extension, writing of bad debts; and assisting
group members in getting access to the formal credit institutions. Thus,
Self-help group disburses microcredit to the rural women for the purpose of
making them enterprising women and encouraging them to enter into
entrepreneurial activities. Credit needs of the rural and urban poor women
are fulfilled totally through the SHGs. SHGs enhance equality of status of
women as participation, decision-makers and beneficiaries in the
democratic, economic, social and cultural spheres of life.

The rural poor are in-capacitated due to various reasons such as;
most of them are socially backward, illiterate, with low motivation and
poor economic base. Individually, a poor is not weak in socio-economic
term but also lacks access to the knowledge and information, which are the
most important components of today's development process. However, in a
group, they are empowered to overcome many of these weaknesses, hence
there are needs for SHGs which is specific terms are as under:-

 To mobilize the resources of the individual members for their collective

economic development.
 To uplift the living conditions of the poor.
 To create a habit of savings, utilization of local resources.
 To mobilize individual skills for group's interest.
 To create awareness about right.
 To assist the members financial at the time of need.
 To develop entrepreneurship.
 To identify problems, analyzing and finding solutions in the groups.
 To act as a media for socio-economic development of village.

99
 To develop linkage with institution of NGOs.
 To organize training for skill development.
 To help in recovery of loans.
 To gain mutual understanding, develop trust and self-confidence.
 To build up teamwork.
 To develop leadership qualities.
 To use it as an effective delivery channel for rural credit.

CHARACTERISTICS OF SHGs

The important characteristics of Self-help groups are as follows:

1. They usually create a common fund by contributing their small savings

on a regular basis.
2. The groups evolve a flexible system of operations often with the help of
the Non Government organizations (NGOs) and manage their common
pooled resource in a democratic manner.
3. Groups consider loan requests in periodical meetings, with competing
claims on limited resources being settled by consensus regarding greater
needs.
4. Loaning is mainly on the basis of mutual need and trust with minimum
documentation and without any tangible security.
5. The amounts loaned are small, frequent and for short duration.
6. Rates of interest vary from group to group depending upon the purpose
of loans and are often higher than those of banks but lower than those of
moneylenders.
7. At periodical meetings, besides collecting money, emerging rural, social
and economic issues are discussed.

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8. Defaulters are rare due to group pressure and intimate knowledge of the
end use of the credit as also the borrower's economic resources.23

THE FEATURES OF SELF-HELP GROUPS

According to D'souza24 the SHGs are basically small informal

groups, characterized by voluntary memberships, a democratic and
consultative structure of governance, economic participation of members,
autonomy, education and training and concerns for the poor. Apart from a
number of things, the members do as a group, they pool their savings and
lend within the group to meet the credit needs of the members. Creation of
a common fund by regular contribution of members and insurance of loan
with minimum documents and often without any security are, in fact, the
key features of SHGs.

Fund generation in the initial stages may be substantially low in

these groups. Such funds though meager, will be supplemented by external
resources mainly, loans from banks or grants given by NGOs, which
promote them. SHGs offer to members’ preliminary banking services
characterized by cost effectiveness, flexibility and freedom from defaults.
Assessment of the credit needs of members is done periodically at group
meetings. The claims for credit are settle within the group by consensus. In
case of any surplus, the amount is deposited in the bank or post offices.
Defaulters are subjected to severe penalties but such occurrences are
unusual. There is always peer group pressure on those who avail loans
which to a large extent prevent defaults. The influence of the group on

23
S. Subramanian, "A study on Self-help groups in Tiruneveli district", Manonmaniam Sundavanar
University, Tiruneveli, January 2010.
24
D. Souza, W., "Microcredit programme monitoring system : A review of MVRADA experience", Search
Bulletin, 14, No. 13, March 1999, p. 7.

101
 members is very powerful because it can put actions against defaulters and
monitor the behaviour of members in order to forestall default.25

FUNCTIONS OF SHGs

The important functions of SHG are the following:-

i. Enabling members to become self-reliant and self-dependent.

ii. Providing a forum for members for discussing their social and
economic problems.
iii. Enhancing the social status of members by virtue of their being
members of the group.
iv. Providing a platform for members for exchange of ideas.
v. Developing and encouraging the decision making capacity of
members.
vi. Fostering a spirit of mutual help and co-operation among members.
vii. Instilling in members a sense of strength and confidence which they
need for solving their problems.
viii. Providing organizational strength to members
ix. Providing literacy and increasing general awareness among members,
and
x. Promoting numerically and equipping the poor with basic skills
required for understanding monetary transactions.

Thus the SHGs function on the principle of the five 'p's.7

i. Propagator of voluntarism
ii. Practitioner of mutual help

25
K.G. Karmakar, "Rural credit and Self-help groups - Microfinance needs and concepts in India", New
Delhi, Sage Publication India Pvt. Ltd., 2003, p. 231.

102
iii. Provider of timely emergency loan
iv. Promoter of thrift and savings, and
v. Purveyor of credit

LINKAGE BETWEEN BANKS AND SHGs

NABARD continues to provide 100 percent refinance to banks at an

interest rate of 6.5 percent per annum. Other support measures provided
include facilitating training of the bank officials and the field staff of the
NGOs. The federation of NGOs / SHGs and other related institutions
through financial assistance, faculty support and the like. As many as 550
NGOs are participating in the programme. Women SHGs constituted about
94 percent of the total groups linked. On the whole, the programme
benefited 5.60 lakh rural poor families in 280 districts. The southern region
continues to dominate the linkage programmes with share of 65 percent
followed by the western (11 percent), the eastern (11 percent), the central
(10 percent) and the northern regions 8 percent. Andhra Pradesh, Karnataka
and Tamil Nadu states has taken the lead in promoting the SHGs and in
establishing the bank SHG linkage, the bank linkage is generally
established after the successful functioning of individual groups for about
six months to a year. The concept of the SHGs has not been as successful
in the north-east and some of the eastern states. Area specific programme
need to be formulated to meet the varying socio-cultural practices.

After successful experimentation in Cauvery - Grameen Bank,

Mysore (Karnataka) in association with an experienced NGO, namely
MYRADA, more and more RRBs are involving themselves as SHGs.
Some government agencies like Zillah Panchayat have also taken
initiatives to promote SHGs and such efforts are supported by the
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NABARD through assistance in organizing training programmes for the
staff.

Notwithstanding 100 percent refinance from the NABARD,

commercial banks perceive this activity as unprofitable. Hence, only
regional rural banks and cooperative banks take up such financing. The
RBI has been preventing upon the commercial bank to formulate their
respective policies on micro credit and promotion of SHG. The NABARD
has been organizing the SHGs workshop involving bankers and
development personnel to accelerate the process of SHG bank linkage. The
RBI has issued circular to the commercial banks to reckon micro credit
extended to individual borrower or the tough intermediaries as parts of
their priority sector lending. The circular also stated that micro credit
should forms an integral part of the corporate credit plan of the bank and
should be received at the biggest level on a quarterly basis.26

The RBI issued a circular dated July 24, 1991, to the commercial
banks advising them to participate actively in the pilot support for linking
self- help groups with banks. The NABARD, after consultation with a few
interested banks and voluntary agencies, issued a set of guidelines on
February 26, 1992, which, while being adequately comprehensive were
kept flexible enough to enable participate banks and field level bankers to
involve and to contribute to strengthening the project concept and strategy.
When the pilot project was initiated by the NABARD, the self-help groups
model was adopted and was called as an Indian model, later, in the early
nineties, the NABARD called it the SHG-Bank linkage model.

26
Financing a Self-help Groups - NABARD, 1998, p. 28.

104
 The SHG-Bank linkage programme was show to take off, but has
been speeding along since 1999. But it grew rapidly over the years
reaching 1,079091 SHGs in 2003-04 in India, of these about 1.6 millions
are linked to banks. 27

EVOLUTION OF SELF-HELP GROUPS IN INDIA

In India, soon after independence, there has been an aggressive effort

on the part of the government, which was concerned with improving the
access of the rural poor to formal credit system. Some of these measures
have been institutional, while some others were through implementation of
focused programmes for removal of rural poverty. Reaching out of the far-
flung rural areas to provide credit and other banking services to the hitherto
neglected sections of the society is an unparallel achievement of the Indian
banking system. The main emphasis is the spread of the banking network
and introductions of new instruments and credit packages and programmes
were to make the financial system responsive to the credit the weaker
sections in the society. Comprising small and marginal farmers, rural
artisans, landless agricultural and non-agricultural labourers and other
small borrowers falling below poverty line.28 With the implementation of
the above policies, further government of India in its developmental
planning emphasized the promotion of agriculture and other allied
economic activities through credit intervention for ensuring integrated rural
development and securing the prosperity of the rural areas. In pursuance of
this, formal credit institutions have been guided by the principle of growth

27
www.nabard.org
28
Annual Report of NABARD, 1998, p. 1.

105
with equity and a large share of the credit disbursed for various activities
was channelized towards the weaker sections of the society.

Consequently, by the implementation of several poverty alleviation

programmes, the number of people below the poverty line has declined
from 272.7 million in 1984-85 to 210.8 million in 1989-90, in 1991-2000,
which constitutes over 21 percent of the population. The number of
operational holdings is expected to have crossed the 100 million mark with
more than 80 percent being small and marginal holdings. The institutional
credit system needs to meet the challenges of delivering credit to an ever-
increasing number of rural people who need greater access to formal credit.
It may have to reinforce its own structure at the grass root level and also
have to devise new ways of reaching out of the rural poor. 29

As a result, the experience of implementation of the above discussed

poverty alleviation programmes lead to the introduction of the Integrated
Rural Development Programme (IRDP) on 2nd October, 1980 with the
specific objective of raising the poor rural families above the poverty line.
Such families considered credit support from banks as an important input
in taking up economic and gainful activities.

In spite of these impressive achievements in the expansion of the

credit delivery system and special programmes, nearly half the indebted
rural households are still outside the ambit of the institutional system. They
approach the moneylenders for meeting their consumption and production
in the absence of institutional support. Some of the poor who have not been
reached even by the vast network of the institutional credit delivery system,
have organized themselves into Self-help groups (SHGs) and many such
29
Annual Report of NABARD, 1990-91, p. 19.

106
groups have come into existence either spontaneously or with the active
involvement of the voluntary agencies which motivated the rural poor to
pool their meager financial resources for meeting their small and frequent
consumption and production credit needs.

INITIATIVES BY NABARD

NABARD has been playing the role of propagator and facilitator by

providing conducive policy environment, training and capacity building
besides extending financial support for the healthy growth of the SHG
linkage programme over the years, various steps taken in this regard may
be enumerated as under :-

1. Conceptualization and introduction of pilot programme in February

1992 for linking 500 SHGs with banks after consultations with Reserve
Bank of India, Banks and NGOs.
2. Introduction of bulk lending scheme in 1993 for encouraging the NGOs
which were keen to try group approach and other financial services
delivery innovations in the rural areas.
3. Developing a conducive policy framework through provision of opening
savings bank accounts in the names of SHGs (through they are informal
groups), relaxation of collateral norms, simple documentation and
delegation of all credit decisions and terms to SHGs.
 Training and awareness building among the stakeholders.
 Provision of capacity building support of NGOs/SHGs/Banks.
 Mainstreaming the SHG linkage programme as part of corporate
planning and normal business activity of banks in 1996 and
internalizing, training, monitoring and review mechanism.
 Encouraging banks (RRBs and DCCBs) for promotion of SHGs.
107
 Financial support to NGOs for promotion of SHGs.
 Encouraging rural individual volunteers in promotion and nurturing of
SHGs.
 Close monitoring.
 Dissemination through seminars, workshops, occasional papers and
print media.
 Constitution of High Powered Task to look into the aspects of policy
and regulation of microfinance and suggest policy, legal regulatory
measures for smooth and unhindered growth of microfinance sector.
 Setting up a microfinance development fund in NABARD for meeting
the promotional costs of up-scaling the microfinance interventions. The
funds have since been redesigned as microfinance development and
equity fund.
 Initiating the credit rating of the microfinance institutions through
accredited credit rating agencies of India by meeting 75 percent of the
cost of the rating as grant. This is done to enable the microfinance
institution to approach banks for commercial borrowing and extending
micro-credit to the poor.30

PILOT PROJECT - THE HISTORY OF SHG

Encouraged by the results of the studies of the SHGs experience, the

NABARD in consultation with the RBI, the Commercial Banks (CBs) and
the NGOs launched the pilot project of linking the SHGs with the
commercial banks in 1991-92 and issued detailed guidelines in February
1992. The RBI advised the commercial banks in July 1991 to extend

30
Sukhbir Singh, "Towards inclusives rural financial services - Microfinance in India", Edited by Sangita
Kamdar, Microfinance, Self-employment and poverty alleviation, Himalaya Publishing House, 2007, p.
61.

108
finance to the SHGs as per the NABARD guidelines, subsequently; the
linkage project was extended to the RRBs and the cooperatives.

The linkage philosophy was based on the informal credit system, that
is, the moneylenders were holding their away over the rural poor because
of their responsiveness, flexibility and sensitivity to the credit needs of the
poor. The poor require credit very frequently in small quantities without
much hassle and for the activity of own choice. The moneylenders is
always there at his doorstep for supplying the credit promptly, but with an
exorbitant rate of interest, forcing the poor to cough up all his surpluses/
income and making him/her, thereby move downhill along the poverty line.
The moneylender has a vested interest in the perpetuation of poverty.

The formal credit system has the resources, manpower and technical
capability to handle any volume of credit dispensation. The pilot project on
linking the SHGs with the Banks was launched aiming at combining the
positive factors of both the system and ensuring advantages to both the
formal credit system and the SHGs. The traditional attitude of a banker that
the poorest of the poor is not reliable and the banks are not meant for them
is a myth to be dispelled. The distinct advantages envisaged under the
project for the banks and the SHGs are that Banks are advised to win the
confidence and trust of the rural poor.

Though the pilot study is intended to find the impact of the SHGs
with the Banks, however, during the pilot phase of the project, a number of
other studies have also been conducted aiming at comparing the advantages
expected and the reality.31

31
Myrada Experience, "Self-help Groups, Reading Materials and Related Literature", Gulburga district,
2001, p. 127.

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 FORMATION OF SELF-HELP GROUPS

There are three stages in SHG evolution.

1. Group formation
2. Capital formation through revolving fund and skill development.
3. Income generating activities.

1. Group Formation :- Group formation is not a spontaneous process.

External agencies, individual working with communities can act as a
facilitator in the formation of groups and its development. Self-help
Group Institution (SHGI) plays a vital role in the initial stages of group
formation. The external facilitators are generally Non Government
Organization, social workers, village level worker, informal associations
of local people, community based organizations, government
departments, banks, farmer clubs etc.

They interact with the poor families especially women to identify the
small homogenous groups. The members regularly meet on a fixed time
and date in a month to collect savings from members under the
supervision of SHPI/NGOs. Thus SHGs will inculcate the habit of thrift
and credit among the members, who generally belong to the families of
BPL.

2. Capital formation through revolving fund and skill development :-

Self-help groups are taught simple principles of accounting and
facilitated to receive external funds in multiples of their savings. SHPIs,
bankers or donors are the sources of funding for SHGs. The corpus
consists of own savings and other external funds (Revolving fund,
grants, loans). Small loan from corpus fund are given to needy

110
 members. The loans are given to members on a participatory method
during the regular meeting etc. The loans have a definite repayment
schedule, which is usually of short duration. The funds thus are rotated
among themselves. The groups shall have a bank account to deposit the
savings, revolving funds etc. The group shall maintain certain basic
records as well

3. Income Generating Activities (IGA) :- SHG members take up different

income generating activities. SHPIs play an important role in taking up
the suitable IGAs by the members based on the skills.

Income Generation Activities of SHG

 Agriculture
 Chicken shops
 Animal husbandry
 Mess
 Hosiery
 Mid day meals
 Candle preparation
 Embroidery
 Cane items
 School uniform stitching units
 Carpets
 Brick making
 Khadi, leather items
 Pot making
 Spinning and weaving
 Saree business
 Basket weaving
 Candle making
 Woolen blankets weaving
 Agarbatti making
 Sale of fruits and pongamia seeds
 Pickle making
 Vegetable vending
 Fenile making
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 NORMS OF SHGS
Any self-help group will have certain norms: help to function
properly for sustainability of SHGs. It is mandatory for any SHG to have
certain byelaws pertaining to -

1. Objectives of the group

2. Meetings - time, periodicity
3. Savings - amount, periodicity, rate of interest.
4. Credit - procedure for sanction, ceiling amount, purposes, rate of
interest to be charged, repayment period.
5. Fines - defaulters in attending meetings, savings and credit repayment
6. Leadership - election or nomination of leaders, rotation of leaders etc.
7. Personal / Social improvement - minimum literacy to be achieved,
social work to be done, convergence of facilities etc.

The norms are further elaborated as follows.

Meetings: - The group decides the periodicity of the meetings and regular
monitoring, attendance of the meeting, punctuality of the members,
disciplinary action on errant members etc. Generally, each group meets at
least once in a month at a fixed time, some groups meet twice a month to
transact their business. The meeting place may be the house of a leader, a
common place, a temple, panchayat building etc. Absentee member are
liable for fine, which becomes the part of corpus funds of the group.

Maintenance of registers: - Each SHG maintain certain basic register for

effective monitoring, accountability and transparency. The register of
SHGs includes minute book, attendance register, ledger book, cash book,
bank pass book etc. These registers are suggested by promoter (banker,

112
NGO), which may vary from place to place. The details of meetings,
proceedings, attendance, member wise savings and credit, bank
transactions etc. are verifiable from these registers. The registers are
maintained by a book keeper (President / treasurer / literate members), who
is paid monthly honorarium for maintaining these registers.

Pattern of leadership: - Each group shall have leaders, who represent the
group matters in various platforms. The nomenclature of leaders varies
from region to region and state to state. The leaders are elected from the
members on rotation. Leaders aid to democratic function of the group. The
purpose of rotation is to see that the leadership qualities are developed
among the members of the group. However, the experience in Andhra
Pradesh indicates that the rotation of leadership apparently take place on
the prescribed manner. The same leaders continue to hold the office and or
influence the leadership.

Awareness of group: - The group will create a awareness among the

members and empowerment of members take place. The members will
have to know the purpose of group formation, activities and operations,
savings, credits etc. The members are expected to participate actively in the
group discussion and decision making process. SHG helps to work as a
cohesive group and will have transparency in the transactions.

Group activities:- Savings and credit are the two important dimensions of
SHG movement. Regularity in savings and method of dealing with
defaulters are the important features of savings. The credit function of
SHGs is judged by decision making process adopted credit requirement and
quantum of loans sanctioned, system of monitoring credit repayment
pattern etc. The group has to monitor their performance regularly.
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Revolving of fund:- The SHGs to become eligible for sanction of
revolving fund, community investment fund etc. they need to pass through
certain stages.

Stage - 1 (Grading of SHG):- The formation stage lasts for 6 months. It is

necessary to test whether it has evolved into a good group or not. This
helps to understand the weakness of the group and to overcome such
deficiencies. Members also evaluate their own performance through a
participatory approach.

Stage - 2 (Capacity Building of SHG) :- It is a crucial stage to enhance

the capacity of groups and enables to receive the revolving fund, which
become a part of corpus fund of the group. The external fund received
enhances the group capacity to extend loans to the maximum. The
expectation of the group during this stage include -

1. Gradual improvement of per capita loan

2. Shift from consumption to production loans.
3. Understanding the training requirements.
4. Assessing and ascertaining the reasons for poverty.
5. Meeting the credit needs of the members.
6. Understanding the participatory monitoring of assets created through
loans extended to its members.
7. Capable of understanding community action programmes and
continuing to do so independently, and
8. Reducing dependently on outside facilitating agency.

Final stage (Taking up the economic activities) :- After the above

two stages, the group is eligible to receive assistance for economic

114
activities in the form of revolving fund or subsidy extended to the members
and or group, some members are given loan and subsidy with the assurance
of group as guarantor, which monitors the repayment, under SGSY, the
subsidy component is about 50% or Rs. 1,25,000/-.32

ROLE OF NON-GOVERNMENT ORGANIZATIONS

(NGOs)

Voluntary action stimulated and promoted by Non-Government

Organizations engaged in development play a significant role at the grass
root level in the Indian social milieu, the success of rural development
depends upon the active participation of the people through Self-help
organization. The Non-Government Organizations involve people in the
developmental process and relate themselves to working with people. This
means that their main plan is the generation of the self-confidence and Self-
help through Self-help groups and independence among the people of the
community in which they operate. They substantiate the efforts of
government with regard to provision of social welfare through rural
development programmes planned for this purpose.

Non Government organizations act as 'creators', 'reservers' and

'destroyers' of evils in rural areas. They create awareness among people,
create livelihood and opportunities for people with their co-operation and
preserve what is needful to their environment, cultural base, appropriate
technologies and scientific practices etc. and destroy the evils like
alcoholism, female foeticide, superstitions and other social ills.

32
Case studies on programmes: "Planning and Management", Self-help Group and Microfinance, p. 49-
52.

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 In recent years, the Non Government organization has acquired
greater importance and significance than ever before because the
administration has not been able to reach the people especially the poor and
weaker sections to the desired level. In this context, the fact that the Non
Government organizations are the appropriate agencies for creating the
right type of climate for change and development cannot be disputed.

ROLE OF GOVERNMENT ORGANIZATION

An SHG is a small affinity group of 10-20 members from

homogenous strata. It is formed and groomed by an NGO or bank branch
or a government agency called Self-help promoting institution (SHPI). The
members of the group are encouraged to collected regular thrift on a
weekly or fortnightly or monthly basis and use the pooled resources to give
interest bearing small loans to needy members. The SHPI trains the
members to maintain simple accounts of the collected thrift and loans given
to members. The regular meetings also provide them a platform to discuss
and resolve many social and common issues, thus fortifying their
togetherness. A savings bank account is opened with a bank branch and
regular thrift collection and loaning to members build up the financial
discipline among the members to encourage the bank to provide larger
loans to the group.33

Government organizations are as follows:

1) District Rural Development Agency (DRDA)
2) Krishi Vidyan Kendra (KVK)
3) Mahila Arthik Vikas Mahamandal (MAVIM)

33
Sukhbir Singh, "Towards inclusives rural financial services - Microfinance in India", Edited by Sangita
Kamdar, Microfinance, Self-employment and poverty alleviation, Himalaya Publishing House, 2007, p.
58.

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District Rural Development Agency (DRDA):-

The Swarnajayanti Gram Swarozgar Yojana (SGSY) has been

launched with effect from 1.4.1999 as a new self-employment programme
for the rural poor. The SGSY is being implemented by the DRDA through
the Block Development Office. The SGSY programme replaces the self-
employment and allied programmes - Integrated Rural Development
Programme (IRDP), Training of Rural Youth for Self-employment
(TRYSEM), Development of Women and Children in Rural Area
(DWCRA), the Ganga Kalyan Yojana (GKY) as well as Million Scheme
(MWS) are no longer in operation.

The salient features of the Swarn Jayanti Gram Swarozgar Yojana are
given below:

 The Swarn Jayanti Gram Swarozgar Yojana (SGSY) aims at

establishing a large number of micro-enterpries in the rural areas,
building upon the potential of the rural poor.
 The SGSY emphasis on the cluster approach for establishing the micro-
enterprises. For this 4-5 key activities have to be identified in each
block. The major share of SGSY assistance has to be in activity clusters.
 The SGSY adopts a project approach for each key activity. Project
reports are to be prepared in respect of each of the identified key
activities. The banks and other financial institutions have to be closely
associated and involved in preparing these project reports, so as to avoid
delays in sanction of loans and ensure adequacy of financing.
 The existing infrastructure for the clusters of activities should be
reviewed and gaps identified. Critical gaps in investment have to be
made up under SGSY, subject to a ceiling of 20 percent of the total
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 allocation made under the SGSY for each district. This amount is
maintained by the DRDAs as SGSY - Infrastructure fund and which can
also be utilized to generate additional funding from other sources.
 The assisted families may be individuals or groups (Self-help Groups).
The SGSY, however, favours the group approach.
 The SGSY seeks to lay emphasis on skill developments through well
designed training courses. Those who have been sanctioned loans are to
be assessed and given necessary training. The design, duration of the
training and the training curriculum is tailored to meet the needs of the
identified key activities. DRDAs are allowed to set up to 10 percent of
the SGSY allocation on training. This may be maintained as SGSY
training fund.
 The SGSY provides for promotion of marketing of the goods produced
by the SGSY swarozgaries, which involves provision of market
intelligence, development of markets and consultancy services, as well
as institutional arrangements for marketing of the goods including
exports.
 The SGSY is a credit-cum-subsidy programme. However, credit is the
critical component of the SGSY, subsidy a minor and enabling
elements. Accordingly, the SGSY envisages greater involvement of the
banks.
 Subsidy under SGSY is uniform at 30 percent of the project cost,
subject to a maximum of Rs. 7500. In respect of SC/STs, subsidy is 50
percent and Rs. 10,000/- respectively. For Self-help groups, the subsidy
is at 50 percent of the cost of the scheme, to a ceiling Rs. 1.25 lakh.
There is no monetary limit on subsidy for irrigation projects. SGSY
particularly focus on the vulnerable groups among the rural poor.
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 Funds under the SGSY are shared central and state governments in the
ratio of 75:25.34

Krishi Vigyan Kendra (KVK) :-

The Shram Sadhana Amravati’s is the premier organisation in

Maharashtra which founded “Krishi Vigya Kendra” at Durgapur, Distt.
Amravati (Maharashtra) in July, 1996 with a view to spread agricultural
education among the small farmers and weaker sections of society. The
Krishi Vigyan Kendra is an institutional project of the Indian Council of
Agricultural Research (ICAR) to demonstrate the application of science
and technology input of agricultural research and education on the farmer’s
field and in the rural area with the help of multidisciplinary team of
scientists. It is therefore, also called as a front line demonstration, transfer
of technology of extension system in the country.

The technical and administrative controls of this center have been

taken over by the Maharashtra Government and this Kendra is registered as
a society. This Kendra is financed by the ICAR as well as by the
Maharashtra government.

Under ICAR programmes, this KVK is carrying out the activities as

per the mandates of KVK which are as follows:

 Conducting on-farm testing for identifying technologies in terms of

location specific sustainable land use systems.
 Organize training to update the extension personnel with emerging
advances in agricultural research on regular basis.

34
Swarna Jayanti Gram Swarozgar Yojana, Guidelines, Govt. of India, New Delhi, 1999.

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  Organize short and long term vocational training courses in
agriculture and allied vocations for the farmers and rural youths with
emphasis on learning by doing for higher production on farms and
generating self employment.

Women cell is functioning at this Kendra for the welfare of farm

women. As on March, 2010, 101 Self-help groups were promoted under
women cell in various villages. The leaders and members of these SHGs
are trained on various aspects of agriculture and allied fields so as to enable
them to start self-employment units. To fetch additional income for their
families and improve nutritional and health like educational field,
agriculture field is also developing and expanding in this age of
information and technology. Krishi Vidyan Kendras is not only limited to
education and research but have been also become centres for creating
employment and entrepreneurs.

Mahila Arthik Vikas Mahamandal (MAVIM):-

MAVIM is the state women's development cooperation of

Maharashtra, established on the 24th February, 1975 on the occasion of
International Women's year.

The mission of the corporation is "To bring about gender justice and
equality for women, investing in human capital and the capacity building of
women, thus making them economically and socially empowered and
enabling them to access sustainable livelihood."

The corporation has the objective of bring about women's

empowering by mobilizing women and building organization of women,
enhancing their capacities by training, increasing their self confidence and

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strengthening entrepreneurship among women and making credit and
market accessible to women. The corporation also seeks to improve
women's access to education, and increase their participation in decision
making and governance.

MAVIM's head office is situated in Mumbai and the corporation has

34 district offices across the state of Maharashtra. MAVIM has
professionally qualified personnel trained in social science in its head
office and in district offices. MAVIM promotes Self-help group in villages
its (1350) field workers known as Sahayoginies and through its 4
contracted NGOs. Reorganization of MAVIM from a commercial company
under the company Act 1956 to being registered in September 2005 under
section 25 of the company's Act as a not for profit company.

MAVIM has decided to work for following five component i.e.

1. Formation of SHG : Progress of SHG, age wise classification of SHG,

month wise SHG progress, member wise classification of SHG, caste
wise status of SHG member steps are done under various scheme like
MRCP, SGSY, SCP, TSP, Krushi Saptak Yojana. There are 2915
formed SHG in 2011 and gradation of SHG is done through various
schemes mentioned above. Further bank wise SHG formation, bank
wise status of SHG linkage, bank wise eligible SHG status for linkage
process is done.
2. Entrepreneurship Development: To encourage women to take up
entrepreneurship activities to increase their income EDP trainings have
been launched to helps women to understand concepts, identify
opportunities and become entrepreneurs. Fee base skill training like

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 fashion design, dress design, beauty parlor and tailoring etc. is given for
their generation of income.
3. Gender Sensitization: Gender sensitization is not measurable indicator
while discussion with SHG members, they feel to participation in social
and general functions. They are contacting Govt. officials without any
support. They are also getting respect from their family and villagers for
their efforts. SHG women are now regularly attending village and block
level meetings and their husband sharing domestic work. SHG member
are representative of various committee in village level.
4. Functional Literacy:- Literacy is major problem in rural area. By
conducting various awareness programmes some women comes out of
their problems. Only literacy is not important but there should have
functionality.
 SHG are independently organizing various activities (study tour,
exhibition, tournament, experience sharing, debate competition, hand
writing, sundar maza ghar competition etc.)
 Participation of family group members in decision making (child
education, marriage, family planning, family budget and
expenditures).
 SHG members are operating bank account and maintain relation with
government officials (gram panchayat, Panchayat Samitis, Post
office, Tehsil office etc.).
5. Social awareness: Near all SHG are aware of their role and
responsibilities. SHG also organized following programmes. Sanitation
programmes, Savitribai Phule Jayanti, health camp, world women day,
darubandhi and other programmes, etc. In 2007, the state government
sanctioned a new programme for MAVIM supported by IFAD known as
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 the Tejaswini Maharashtra Rural Women Empowerment Programme.
The Tejaswini programme is implemented in all 33 rural districts of the
state and 13000 villages where MAVIM presently operates, supporting
over 65000 SHGs. This programme is for poor rural women especially
from scheduled castes and scheduled tribes, widows, divorces, landless
labourers etc. The Tejaswini programme will focus on the following
thrust areas:-
 Grass root institution building
 Microfinance services
 Livelihood and micro enterprises development
 Women empowerment

For fulfillment of above component MAVIM has appointed qualified

and experienced staff and doing with NGO for the fast mobilization.

RULES AND REGULATIONS OF SHGs

(a) Memberships

1. Only one responsible person from a family aged around 21-60

years can become member in the groups.

2. The members / persons who are involved in any party politics

activities or involved in any type of antisocial activities or the
willful defaulters are not eligible for membership in the group.

3. The size of the group shall be around 10 to 20 members.

(b) Group Meeting

1. The group members meetings should be held once a week or

fortnight / month regularly on a convenient day, place and time as
decided by the group.

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 2. The members should attend all the meetings in time without fail.
3. The member who unable to attend the meeting for genuine
reasons, the same has to be intimated to the group in person or
through a messenger in advance or at least informed at the same
meeting. If fails the member is liable to pay fine for the absence
as decided by the group.
4. The latecomers for the meeting and those who walk out in the
middle without intimating the chairpersons are liable to pay fine
as decided by the group.
5. If a member is absent for three consecutive meetings without
genuine reasons, such person's membership shall be suspended or
cancelled with or without notice.
6. Unrelated issues / points should not be brought for discussion in
the group meetings.
7. The members should not use vulgar words or physical force
against any member during the meeting and the violators or
misbehaviors have to pay fine as decided by the group or their
membership shall be cancelled.
8. The members should not sleep or stay separate from the group
during the meeting.
9. All the members should have to sign in the minutes book at the
end of the meeting after recorded proceedings of each meeting
are read out and confirmed.

(c) Members Participation in the Group

1. All the members should participate in the discussions and

decision-making process orally and mentally in the group
meetings.

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 2. Equal opportunities and encouragement should be given to all the
members for their full participation in the meeting and in all the
activities of the group.
3. All the members should attend the related training / workshop /
seminars / exposures etc. within and outside the village without
fail. The violators are liable to pay fine except for the genuine
reasons.
4. The members should co-operate and participate in all the
developmental activities related to the member’s families, village,
the group environment etc. Appropriate actions against non-
cooperators / non-participators shall be taken by the group.
5. The members should participate in researching/learning
dissemination and adoption of appropriate technologies for
development.
6. The illiterate members should show interest and put efforts to
become literates. The group shall run a learning center at the
convenient time for this purpose.
7. All the members should involve in regular savings and credit
management activities with a special focus.
8. All the members should work with concern towards
creating/building socio-economical safety society and stress on
population control.

(d) Duties and Responsibility of the Members

1. All the members should promote co-operation and unity in the

group.

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 2. The members should create equal opportunities and the give
encouragement to all the members in the groups.
3. The member should mobilize, use and manage the needy
resources properly / judicially.
4. It is the responsibility of all the members to take necessary
collective action against the willful defaulters and recovers the
loan amount.
5. The members should take responsibility carefully for their all-
round development and should also take leadership
responsibility in the group with service motive.
6. All the members should involve in planning, implementing,
monitoring and evaluate the development programmes of the
family, village and environment time to time and to give
attention for the results of evaluations with proper actions.
7. The member should promote and protect the unity and integrity
of the group and the village.

(e) Executive Committee

1. An executive committee consisting three representatives selected

unanimously in the group should take overall responsibility of
the smooth functioning of the group.
2. The period of the executive committee shall be six months or
one year as group decides and the new committee should be
selected three months in advance and trained to take over the
position of their representatives.
3. The above three position of the representatives shall be called as
(a) President, (b) Secretary (c) Treasurer. Two out of the above

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 three shall jointly operate the Group's bank account. This
committee is responsible for the group's cash at hand, cash at
bank or post office.
4. The executive committee members should ensure remitting the
cash at hand immediately to the group's bank account. The cash
in hand should not be kept more than two days for emergencies,
if kept, the concern member should pay fine plus interest as
decided by the group.
5. The active member / cashier / treasurer should ensure proper
maintenance of books of accounts of the group on day to day
basis regularly up to date. They are also responsible for getting
the accounts inspected once a month and audited once in six
months or year and to submit the accounts statements and reports
to the group meeting for appraisal.
6. The executive committee should facilitate the programme
planning, timely implementation, monitoring, evaluation and
actions.
7. The executive committee should facilitate the regular group
meetings and smooth functioning of the group.
8. The executive committee members should have good contact
with the Govt. Departments, credit institutions, voluntary
organizations and other related institutions and mobilize
resources for the improvement of group and village.
9. The executive committee members can execute any agreement /
deeds / contact on half of the group with prior discussions and
resolutions in the group each time for each subject.

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(f) Members Savings in the Group

1. Each and every member should save at least minimum or

maximum as per members wish per week or per month in the
group which should be maintained in each individual member’s
name.
2. Savings account may be withdrawn by the members only at
critical circumstances with prior approval of the group.
However, the member should maintain a minimum balance of
Rs. 1000/- in their savings account.
3. No interest will be paid for the members’ savings with group.
But 12% interest shall be paid for the amount kept in the group
as fixed deposit for a minimum period of six months.
4. The members should save from the family income earned only,
but not the borrowed money for interest.
5. The members will not be encouraged to adjust their savings
amount against their loans due to the group. Only at extreme
circumstances, the group shall consider to adjust.

(g) The Credit Management

1. The credit can be given to the needy members of the group for the
purposes such as consumption, income generation, asset creation,
clearing the old burden loans, socio-religious and any other
appropriate purposes.
2. The credit shall be given to the needy person of the group only
after careful study, through discussion and unanimous decision on
the quantum of credit, rate of interest and the repayment schedule
for each loan.
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3. All SHG members regularly save a small amount. The amount
may be small but have to be regular and continuous habit with the
members.
4. Savings first credit later should be the motto of every SHG
member.
5. The loaner should give a written agreement to the group for the
loan amount as the official procedures in the presence of the
witness to the group at the time of taking credit. The loaner
should give a guarantor within the group if necessary.
6. The loan amount should be utilized for the agreed purpose only.
In case of any change of purpose, it should be approved by the
group in advance. The violators are liable to pay fine/penal rate of
service charge.
7. The loaner should repay the credit/loan amount with service
charge as per repayment schedule agreed upon. If failed such
member is liable to pay fine or penal rate of service charge @ Rs.
12% annum in addition to the normal rate of service charge from
the date of overdue or as decided by the group.
8. The members those who are irregular for the SHG meetings or
irregular in savings are not eligible for credit/loan from the group.
9. All the members shall have equal opportunity for loan from the
group on eligibility / priority basis.
10. The funds of the group should be resolved to the optimum extent
for the benefit of all the members.
11. The group can avail loan from the bank and other credit
institutions, NGOs, other groups and other available sources for

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 its activities and the same has to repay in time as per the terms
and conditions agreed upon.

WORKING OF SELF-HELP GROUPS

There are no uniform rules and regulation for the SHGs, and they
may vary from group to group. The promoter of the group formulates the
rules and regulations, which may be suitable for the all groups, are
summarized below:

1. Group Formation :- The group formation is proceeded by a village

level household survey together the baseline area. The promoters
should conduct this, and a suitable poverty assessment method
should be used for the purpose.

To facilitate sustainability, the total number of members of the group

should range between 12 and 20. The age limit for membership will
be 21 to 60. The group must be a homogeneous one though not
necessarily from the same caste or religion. The target group must be
the poorest.

2. Meetings :- The group must meet weekly or fortnightly for

collection of savings and repayment of loan amount and for
discussing all other matters. The group meetings need to be
conducted at President's house, members of groups or Gram
panchayat or temples, with a certain discipline in relation to
regularity, time and items to be discussed.
3. Group Savings :- The group members must be encouraged to save
as much as each can without it being a uniform amount for all.
Usually the SHGs start off with a minimum savings of all members.

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 As the years pass, they may opt for optional savings according to the
capacity of each member.
4. Group Common Fund :- The amount such as fines imposed on
members, grants from the NGOs, bonuses for various programmes
and service charges on external loans should be put into the common
fund of the groups. All common expenses related to the groups may
be met from this common fund.
5. Rotation of Group Fund :- All savings and excess of common fund
would be rotated as short-term loans amongst the members at rate of
interest decided by the majority members of groups and loan is given
to needy members on the priority basis.
6. Books and Registers to be maintained :- The books and registers
to be maintained by treasurer / literate members of group to ensure
proper accounts are given below for transparency. Attendance
register, Minutes book, Savings ledger, Loan ledger, General ledger,
Cash-book, Individual pass book, Receipt book and Payment
voucher etc.
7. Training :- The staff of NGO, DRDA and bank staff imparts
training of skill development, self employment like fenile making,
agarbatti making, soap making, making dairy products etc. through
MICON and entrepreneurship development. So as to start his own
business for the betterment of life.
8. Annual Auditing :- A qualified auditor should audit the accounts of
the groups annually. The Self-help groups should meet the audit
cost. But most of SHG could not audited annually.

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 TYPOLOGY OF SHGs

1. Model -I Self-help groups formed by NGOs and linked to banks :

In this model, NGOs would organize the poor into groups undertake
training for awareness and understanding building, entrepreneurship
and skill training help in arranging inputs, extension and marketing,
introduce savings and internal lending, help in maintenance of
accounts and link them with the banks for credit requirements. Banks
directly provide loans to SHGs with recommendation of NGOs. In
this model, NGOs act as facilitators.
2. Model - II NGO forms and perform financial intermediation
role as an lender to SHG after sourcing loans from bank : In this
model, besides acting as facilitator, the NGO also works as financial
intermediary. Here, the loan is given to NGO by the bank for on
lending the SHGs. In this linkage model, NGO would be legally
responsible for repayment and would bear the risk of non-payment.
Involvement of NGOs in microcredit system would have positive
influence as they are the grass root agencies with information about
borrowers. Thus, adverse selection and production of recovery could
be avoided. At the same time, NGO would be in a position to help
the rural poor, particularly the women to bring them above poverty
line create rural employment. The growth rate of SHGs and micro-
credit have been phenomenal which certainly reveal that the rural
people involved in their growth are able to improve their micro-
entrepreneurial skills with the help of their own savings and
additional bank credit, as required.

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 3. Model - III Bank - SHGs Association : In this case, banks directly
promote Self-help groups. Here, the bank assumes to play the role of
NGOs and ensure linkage with SHGs. This SHG-NGO-Bank
integration is very much essential to credit delivery for self-
employment and other business activities, which could be an
effective vaccine against poverty. But the ultimate goal of this
linkage programme is not just promotion of SHGs. The challenge of
poverty alleviation must come at the center stage. It is already an
established fact that micro-credit is an important means of poverty
alleviation. The SHG route is one of the cost effective methods of
credit flow to the poor who need most.

There are a variety of SHGs or peer groups the world over. For
example, in the Grameen bank, a group consists of only five members. Out
of these five, one is the president; one is secretary and one treasurer. Only
two members are ordinary members. When the loan is available, the group
gives it first of all to the ordinary member and only later to its office
bearers. This implies many lessons, while some members hold position,
others benefit by early loans.

In Grameen bank model, six groups i.e. 30 members’ form a center

and a lending activity of the banks are done only in the branch offices. A
branch office operates within 10 kms of all centers, weekly meetings of the
groups are held. When they gather, the women first of all do some physical
exercise and they recite the 16 principles for their social development.
Thereafter, the repayments of loans are made and then regular savings are
collected. These are considered subject to recommendations by the center.
On another day, the borrower has to visit the branch office to collect the

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loan amount. For an SHG within the pattern of loose collective, there is a
variation. The group may be a cooperative credit society or a federation of
cooperative societies. In case, the groups are federations, the savings are
collected by the group leader and brought to the federation office, which
maintain detailed accounts of group savings.

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