Self-Help Groups: A Keystone of Microfinance in India

- Women empowerment
* Prof. (Mrs.) Pallavi Ingale [email protected]

** Prof. Rais Pathan [email protected]

Abstract
This paper reviews, the current level, pattern of access to finance for India’s rural poor and
examines some of the key microfinance approaches in India, taking a close look at the most
dominant among these, the Self Help Group (SHG) Bank Linkage initiative. The analysis in
the paper draws heavily on a poor people from Maharashtra. For examining the effectiveness
and awareness of microfinance in people author undertake one survey through Jalgaon
District. To study the impact and participation by people in microfinance, authors have
considered two local banks and four nationalized bank from Jalgaon. For study considered
local banks such as Jalgaon District Central Co-Operative Bank (JDCC) and People bank.
Other nationalized banks like ICICI, Axis Bank, Bank of Baroda and Canara bank. Here
major findings women are more participated in Self Help Group and the small scale
industries are taking advantage of microfinance. By comparing local & nationalized bank,
found that most of the people prefer local banks than nationalized bank. This study evidence
that microfinance is reaching the core poor is very limited. This paper also reviews impact of
microfinance on Poverty and The Millennium Development Goals
A brief introduction of Micro Finance
Micro finance (MF) has become one of the most discussed subjects in the last two decades all
over the world. Today micro finance programs and institutions have become increasingly
important components of strategies to reduce poverty or promote micro and small enterprise
development.
In the recent years microfinance became an important intervention as a tool for rural
development and poverty alleviation. In India, many a number of microfinance institutions
including Non-Governmental Organizations (NGOs), NBFIs and Government agencies had
intensively intervened.
It has been approximately 25 years since the birth of micro finance with the Founding of the
Grameen Bank in Bangladesh by Professor Mohammed Yunus. The field has since spread
___________________________________________________________________________
*Prof. (Mrs.) Pallavi Ingale (Faculty) Trinity Institute of Management & Research, Pune
**Prof. Rais Pathan (Asst. Prof), Trinity College of Engineering & Research, Pune
with the adaptation and evolution of Prof. Yunus’ ideas to various countries and context. The
UN Year of Micro Credit in 2005 indicated a turning point for micro finance as the private
sector began to take a more serious interest in what has been considered the domain of
NGOs. The year has seen the launch of a wide array of programmes throughout the UN
system to raise public awareness about micro credit and micro finance. Micro credit is a
powerful economic tool, expected to transform the social and economic life of the poor.
‘Microfinance refers to small scale financial services for both credits and deposits- that are
provided to people who farm or fish or herd; operate small or micro enterprise where goods
are produced, recycled, repaired, or traded; provide services; work for wages or commissions;
gain income from renting out small amounts of land, vehicles, draft animals, or machinery
and tools; and to other individuals and local groups in developing countries in both rural and
urban areas’- Marguerite S. Robinson.
Broadly these definitions explain microfinance as the financial products and services
provided to the poor’s and unbankables. Since the microfinance interventions are carried out
involving a solidarity groups like SHG, Grameen Joint Liability Groups (JLG) etc, so it often
referred as group based microfinance.
The Need of Micro Financial sevices:-
1. Poverty alleviation: - This is the first reason for making available micro finanancial
services. Poverty alleviation can be accomplished through the promotion of sustainable
livelihood, by providing easy and effortable access to crdit and other complementary services
reuired for promotion of livehoods.
2. Harnessing talents: - Microfinance services help harness the talent leadership and
enterpereuial abilities of the poor. Microfiance services facilititate enterprise development
and provide large employement genration in rural areas where poor can obtain employment.
3. Women empoerment: - Micro finacial serviecs mobilzing the womwn, orgnizing them
into groups, builing their capacity for self management at the grass root and enabling them to
access wide range of services including credit saving, insurance and business development.
4. Credit delivery: - Microfinance services are needed to ensure effective delivery system.
The system seeks to ensure rational allocation of resources in the form of subsidized credit in
rural areas.
The Millennium Development Goals
The central theme of the Millennium Development Goals is reduction of poverty in all its
forms by 2015 by 50%.Fiscal measures of the state implemented through the financial system
can play a significant role in reinforcing this objective. When it is concerning the poor, the
importance of community based organizations and NGOs cannot be denied in reaching the
financial services to the grass root level in order to alleviate poverty. Thus the State
Governments, the formal financial system and community based organizations can be
considered as the three pillars that have to work in synergy to achieve this formidable task.
Concept of Basic Self –Help Group (SHG):-
The Self Help Group (SHG)-Bank Linkage Programme, in the past eighteen years, has
become a well known tool for bankers, developmental agencies and even for corporate
houses. SHGs, in many ways, have gone beyond the means of delivering the financial
services as a channel and turned out to be focal point for purveying various services to the
poor. The programme, over a period, has become the common vehicle in the development
process, converging important development programmes. With the small beginning as Pilot
Programme launched by NABARD by linking 255 SHGs with banks in 1992, the programme
has reached to linking of 69.5 lakh saving- linked SHGs and 48.5 lakh credit-linked SHGs
and thus about 9.7 crore households are covered under the programme, envisaging synthesis
of formal financial system and informal sector.(NABARD)
SHG come in directly contact with the lending agencies members, Under the basic SHG
model generally women are involve, and they are mobilizing and organizing into self help
groups. The size of SHGs is neither too lager, as exceeding 20 nor too small as less than 10.
Besides performing saving and loan activity, SHG a serve as a forum for the poor rural
women to,
 Voice their opinions and take decisions
 Interact with one another on group issues
 Share their experiences
 Exchange ideas and raises their voice on various social issues
 Initiate to collective action on a wide range of social, personal and economic issues.
Each SHG selects its own leader, secretary and treasurer and hold regular meetings. Capacity
building inputs are provided to SHGs by the NGOs, so that they become capable of
functioning units in an independent and effective manner. Saving activity is compulsory
feature of SHG activities. This saving activity permits accumulation of capital. The amount
of money to be saved is fixed by the group members themselves.
After period of one or two months of consistent savings, the SHG start rotating their saving in
the form of small internal loans for micro enterprises activity and other purpose including
consumption, as may be decided by members. Most of the decisions making functions such
as interest rates to be charged for internal loans, repayment schedule, fine for default etc. are
left to the decision of the group.
Only those SHGs that have performed well in rotating internal savings, in the form of small
internal loans are assisted with external funds through linkage with banks and other financial
intermediaries. The NGOs act as promoters and catalysts, facilitating the establishment of the
micro finance system that is capable of bring economic, social, political and personal
empowerment to the poor clients.
Progress of SHGs
The conceptual thinking behind the SHG initiative is that self-help supplemented by mutual
help can be a powerful vehicle in the upward socio-economic transition of the poor. Poor can
save and are bankable. Collective wisdom of the poor and peer pressure are valuable
collateral substitutes. NABARD has played a key role not only in promoting SHGs but also
in standing behind the SHG-Bank Linkage Programme. The total refinance released by
NABARD so far has amounted to Rs. 31.3 billion. The performance of the SHGs has been
extremely encouraging. Repayments by members to SHGs have been exceedingly high and
on-time payments have hovered around 98%. Many of the expectations behind the basic
philosophy underlying the formation of SHGs seems to have been fulfilled.
Our experience so far has shown that the poor can organize themselves and do things to
promote the well-being. It has also had a tremendous social impact. It has made women more
self-confident. This impression is largely derived from my experience in Jalgaon District.
Despite this encouraging picture, as of now the total disbursement of credit is very limited
and per household credit made available is very small. If a serious impact on the economic
conditions of the rural poor has to be made, a much larger flow of credit to support a much
broader production base is required. It is in this direction the movement has to travel. Self-
Help Groups have to graduate into promoting micro-enterprises.

Following table 1 shows the SHGs progress in 2009-2010:- (NABARD)

The evolution of Self-Help Groups at three levels:
 At the first level households use microfinance to meet ‘survival’ requirements where
small savings and loans serve as a buffer in the event of an emergency or to smoothen
consumption or even service previous debt to give themselves more liquidity during
lean times.
 At the second level, ‘subsistence’ needs are met through microfinance, where a
household begins to utilize microfinance to diversify its basket of income-generating
activities, or to meet working capital requirements in traditional activities.
 At the third level as households reach a stage where they can assume a higher degree
of risk, microfinance would be used to invest in setting up an enterprise or facilitating
entry into employment in one way or the other in order that the household becomes
‘sustainable’.
SHG Bank Linkage Programme
The SHG-Bank Linkage Programme started as an Action Research Project in 1989. In 1992,
the findings led to the setting up of a pilot project. The pilot project was designed as a
partnership model between three agencies, viz., the SHGs, Banks and Non-Government
Organizations:
 SHGs were to facilitate collective decision-making by the poor and provide ‘doorstep
banking’;
 banks as wholesalers of credit, were to provide the resources;
 NGOs were to act as agencies to organize the poor, build their capacities and facilitate
the process of empowering them.

Graph No.1 Status of SHGs in India 2009-2010 (NABARD)

Impact of SHGs
With the structure and model of SHGs and SHG Bank Linkage firmly established, the nature
of the impacts of SHGs can be more closely examined and evaluated. The latest published
estimates from NABARD state that, to date of March 31, 2005, 1.6 million SHGs have
benefited from approximately Rs 69 billion in financing (NABARD, 2005). There is no doubt
that there has been greater outreach of financial services to the poor through SHGs. Of course
the outreach has been good in South India. However, there outreach has been limited in the
rest of the country.
In addition to the financial analysis of SHGs, the non-financial areas such as social security
and gender dynamics are also affected by the SHG Movement. Indeed, poverty reduction is
much less an issue of numbers but rather ideas and concepts. The following is an analysis of
the non-financial impact of SHGs.
1) Political
Political engagement includes active involvement by SHGs in government including
local assemblies, Lok Sabha or Panchayati Rai Institutions (PRIs) (APMAS, 2005).
One of the key benefits of SHGs is women’s empowerment and this can be seen with
the number of women involved in public affairs.
The role of SHGs is both as an inspiration and as a financer. Impoverished women
develop greater language and financial skills through the SHG which provides the
building blocks for higher levels of confidence to engage the world. Also, the SHG
sometimes finances the campaign of its members that stand for election. SHGs not
only empower its members but also wield a powerful political role as a group as well.
 2) Social Harmony
The compositions of SHGs are sometimes exclusively one particular social group or a
mix. The impact of SHGs on social harmony has also been mixed. While it has been
observed that in groups with mixed membership had group leaders that came from a
variety of the social groups.
3) Social justice
Social justice is the presence of moral and ethical conduct in areas that are historically
typified with backward and abusive customs. There have been several occurrences of
SHGs resolving disputes between members and the community at large. Now, there
are instances of women, SHG members, being involved in resolving disputes.
4) Livelihoods
Livelihoods, meaning a persons’ economic activity, is an area that is vitally important
to SHGs. The loans that SHG members receive are intended to improve their
livelihoods so that they can receive greater and more steadier cash flows. In rural
areas, livelihoods range from agriculture farming, animal husbandry, dairy and
various other goods and services activities. The interventions to introduce new
livelihoods or refine existing ones that could yield better economic results were done
by external agencies.

Scope
This study done to find awareness of microfinance services & it’s the impacts. To analysis
this authors have considered Jalgaon district (Maharashtra). As well as in this study author
cover the preference of people in micro finance service provider organizations. By
conducting survey of customers & bank the finding are drawn. For study considered local
banks such as Jalgaon District Central Co-Operative Bank and People bank. Other
nationalized banks like ICICI, Axis Bank, Bank of Baroda and Canara bank.

Research Purpose
The overall purpose for the selected literature is to evaluate the effectiveness of microfinance
in various dimensions. This covers an impact and participation by people in microfinance.
Loosely stated, the goal of microfinance is to reduce poverty, so this study also covers impact
of microfinance in relation to poverty in Jalgaon District (Maharashtra). This study has focus
on Self-Help group (SHG) & involvement of women in this activity.
Methodology:-
The study is basically based on both primary and secondary data. The primary data has been
collected through questionnaire and several structured and unstructured interviews were also
conducted to elicit fast hand information with the theme of the research work. However,
secondary data is collected from various sources like journals, books, manuals, and reports of
the state concerned for literature part. The primary data collected from customers & banks
which are providing micro finance services in Jalgaon.
A questionnaire-based survey covered a larger number of customers, with this method
observation method also used. This study includes two questionnaires one for designed for
customer of bank & second questionnaire designed for banks.
Sample characteristics
Two local cooperative banks are considered, Jalgaon District Central Co-Operative Bank and
People bank, Jalgaon. These bank have around 2000 to 3000 customers in District Jalgaon,
state Maharashtra, India. Four national banks are considered, namely ICICI, Axis Bank, Bank
of Baroda and Canara bank. By using this samples study shows comparative study of micro
finance customer’s reference for bank & customer awareness about micro finance.
Sample size
This study based on survey of 1000 customers.
As per NABARD Status of Micro-finance in India 2009-2010
The overall progress under these two models is depicted in Table -1:
Table : 2- Overall Progress under Micro-finance during the last three years (NABARD)
Table 3:- Shows microfinance bank linkage for last three years in India. (NABARD)

Table 4:- Progress under microfinance-bank loans disbursed in Maharashtra (2009-2010)

(NABARD)

Table 5:- Progress under microfinance savings of SHGs with banks in Maharashtra (2009-
2010) (NABARD)
Graph No.2 shows 67% women & 33% men are participating in microfinance from Jalgaon
district

Comparative analysis in microfinance services avail by people in Jalgaon District

(Maharashtra)

Number of customers (in

Microfinance Services
thousands)
Self Help Group (SHG) 9
Rural Artisans Program(Composite loan) 4
Short term Agriculture Loan 6
Other 3

Graph No.3 shows comparative analysis in microfinance services avail by people in Jalgaon
District (Maharashtra)

Comparative analysis of customers involve in micro finance:-

 Name of Bank Number of customers

Jalgaon District Central Co-Operative Bank 400

People bank 150
ICICI 200
Axis Bank 100
Bank of Baroda 100
Canara bank 50

Graph No.4 shows comparative analysis of customers involve in micro finance bank loan
between the local banks & nationalize bank.

Discussion of Findings
After discussing we found that microfinance tries to assist the communities of economically
excluded for achieving greater levels of asset creation and income security of the household
and community level. In this study we found that people like to take microfinance from local
bank because local banks accessible in Jalgaon rural areas. The study result shows that more
people are involve in SHG & participation of women is more than men. From above study it
is very clear that microfinance remains a powerful tool for development.
Conclusions
Some valuable lessons can be drawn from the following experience of successful
microfinance operations. India is to stand among the country of developed nation and there is
no denying the fact that poverty alleviation and reduction of income inequalities has to be the
top most priority. In this backdrop impressive gain made by SHG-Bank Linkage Programme
in coverage of rural population with financial services offers a ray of hope. The paper argues
for mainstreaming of impact assessment and incorporation of local factors in service delivery
to maximize impact of SHG Bank Linkage Programme on achievement of Millennium
Development Goals (MDGs) and not letting go the opportunities.
The main conclusion of this topic is that micro finance can contribute to solving the problem
of inadequate housing and urban services as an integral part of poverty alleviation
programmes. This paper has outlined working with SHGs to further their impact on civil
society. It should be noted though that the sustainability of SHGs to effect such change is
directly linked to their financial sustainability.

References
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of Business Research Papers, Vol. 5 No. 5 September 2009 Pp. 131-146
2. Thanuja Mummidi, “Women and Income Generating Activities: Understanding
Motivations by Prioritising Skill, Knowledge and Capabilities”, Rural Microfinance and
Employment project, 2007
3. CS Reddy, APMAS CEO, Sandeep Manak, APMAS Intern, “Self-Help Groups: A
Keystone of Microfinance in India - Women empowerment & social security”, October 2005
4. Alok Misra “Micro Finance in India and Millennium Development Goals : Maximising
Impact on Poverty”, Discussion paper for Workshop on World Bank Singapore 18th
September 2006
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strategy to reach the millennium Development Goals?” Focus Note, No. 24,January 2003
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entrepreneurship”, Richardson, Texas November 2006
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on Rural Households: A Quasi experimental Evidence from an Indian State”, International
Review of Business Research Papers,Vol. 5 No. 5 September 2009 Pp. 131-146
8. NABARD, “Status of Micro Finance in India 2009 – 2010”