CGP 2020

Governance

SELF HELP GROUPS (SHGs)

CONTENTS: SYLLABUS:
1) What are SHGs/ Definition with example
2) Brief History and Overview on the role of GS II: Self Help Groups (SHGs)
the SHG in India
3) Functions of SHGs
4) Impacts of SHGs on rural life
5) Issues/Challenges
6) Government Initiatives
7) Recommendations
8) Conclusion/Way Forward

Self-Help Group:
● The term ‘Self-Help Group’ refers to any self-governed, peer controlled, informal group of people with
similar socio-economic background who have voluntarily come together to collectively perform
common purposes.
● As per definition provided by the National Bank for Agriculture and Rural Development (NABARD),
“SHGs are small economical homogenous affinity groups of rural poor, voluntarily formed to save and
mutually contribute to a common fund to be lent to its members as per group decision”

Brief History and Overview:

● Earliest example of concerted effort to organise rural poor to establish micro-enterprises can be traced
to establishment of Grameen Bank across rural Bangladesh. Muhammad Yunus took the initiative to
establish micro-finance institution or community development banks which make small loans to the
impoverished without requiring collateral. The social mobilization has been recognised internationally
and he was awarded with the prestigious Nobel Prize.
● In India, the idea of organising like-minded people into groups to solve common problems has been in
vogue for centuries.
● The first organised initiative in this direction was taken in Gujarat in 1954 when the Textile Labour
Association (TLA) of Ahmedabad formed its women’s wing to organise the women belonging to
households of mill workers in order to train them in primary skills like sewing, knitting, embroidery,
typesetting and stenography etc.
● In 1972, it was given a more systematized structure when Self Employed Women’s Association
(SEWA) was formed as a Trade Union under the leadership of Ela Bhatt. She organised women
workers such as hawkers, vendors, home based operators like weavers, potters, papad / agarbatti
makers, manual labourers, service providers and small producers like cattle rearers, salt workers, gum
collectors, cooks and vendors with the objective of increasing the income and assets of the members,
enhancing their food and nutritional standards and to provide them with leadership skills.
● Further in 1988, ‘Chaitanya’ Gramin Mahila Bal Yuvak Sanstha started promoting SHGs in Pune
District, informally.

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 ● Major experiments in small group formation at the local level were initiated in Tamil Nadu and Kerala
about two decades ago through the Tamil Nadu Women in Agriculture Programme (TANWA) 1986,
Participatory Poverty Reduction Programme of Kerala, (Kudumbashree) 1995 and Tamil Nadu
Women’s Development Project (TNWDP) 1989. These initiatives gave a firm footing to SHG
movement in these states. Today, around 44% of the total Bank- linked SHGs of the country are in the
four southern States of Andhra Pradesh, Tamil Nadu, Karnataka and Kerala.
● NABARD alongwith RBI permitted SHGs to have a savings account in banks from the year of 1993.
This action was aimed to address the main challenge of unavailability of formal credit for poor and
marginalized section of the society.gave a considerable boost to the SHG movement and paved the way
for the SHG-Bank linkage program. The concept of self help groups has been evolved to organize the
rural poor to meet their productive and consumption needs out of their savings.
● The Ninth Plan Document (1997-2000) laid emphasis on the participation of people in the planning
process, and the promotion of self-help groups.
● NABARD’s SHG-Bank linkage program (SBLP) connected group members to formal finance services.
Over the last two decades this program has been a great medium of social and economic empowerment
for rural women. India promoted a 3 tiered architecture of community institutions at group, village and
cluster levels.
● In 1999, The Government of India, introduced Swarn Jayanti Gram Swarozgar Yojana (SGSY) to
promote self-employment in rural areas through formation and skilling of SHGs
● The programme evolved as a national movement in 2011 and became National Rural Livelihoods
Mission (NRLM), the world’s largest poverty alleviation programme.
NRLM facilitated universal access to affordable, cost-effective and reliable financial services to the
poor like financial literacy, bank account, savings, credit, insurance, remittance, pension and
counselling on financial services.

Major Functions of an SHG:

● Savings and Thrift:
All SHG members regularly save a small amount. The amount may be small, but savings have to be a
regular and continuous habit with all the members. Thus, SHG members take a step towards self-
dependence when they start small savings. They learn financial discipline through savings and internal
lending.
Members of a SHG agree to save regularly and convert their savings into a common fund known as
Group Corpus. The members of the group agree to use this common fund and such other funds that
they may receive as a group through a common management.
● Internal lending: The SHG should use the savings amount for giving loans to members.
The purpose, amount, rate of interest, schedule of repayment etc., are to be decided by the group itself.
● Social Cooperation: SHGs function on the basis of co-operative principles and provide a forum for
members to extent support to each other
● Audit and Account: Proper accounts to be kept by the SHG and proper audit should be conducted.
● Discussing problems: In every meeting, SHG members are encouraged to discuss and try to find
solutions to the problems faced by the community. Individually, the poor people are weak and they lack
the resources to solve their problems. When the group tries to help its members, it becomes easier for
them to face the difficulties and come up with solutions.

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 ● Taking bank loan: The SHG takes loan from the bank and gives it as loan to its members.

IMPACT OF SHG ON RURAL LIFE

● Economic Empowerment
○ The availability of microfinances from the group has reduced the dependency on informal
money lender source.
○ Enabled members to become self-reliant and self-dependent.

● Gender Equity
○ SHGs empowers women and inculcates
CASE STUDY OF KUDUMBASHREE
leadership skills among them.
○ Economic empowerment of women has Workers of Kudumbashree women
enabled women to take part in decision-making empowerment program played
in the family. important role in cleaning up the flood
○ Women empowerment led to positive hit areas in Kerela. 4 lakh women were
externalities on aspects of health, education, mobilised for relief work. The secular
work space also assist mobilisation. They
nutrition and thus improving the demographic
also run community farms that help
attribute of the society.
rejuvenate agricultural production. The
○ The financial inclusion attained through SHGs training courses are comprehensive and
has led to reduced child mortality, improved include awareness on women’s rights,
maternal health and the ability of the poor to constitutional and legal rights,
combat disease through better nutrition, empowerment through access to
housing and health – especially among women financial services etc. Its a best practice
that can be emulated pan India.
and children.
○ Currently, over 90% of all the SHGs in India
comprise of women only.

● Ensuring life of dignity

○ Enhanced the social status of poor by virtue of their being members of the group.
○ provided organizational strength to members.

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 ● Social Inclusion
○ Increased participation of hitherto marginalized section of the population such as dalits,
women, workers and farmers in political and socio cultural affairs of the village.
○ Provided a forum for members to discuss their social and economic problems.

● Social integrity
○ SHGs encourages collective efforts for combating social evils like dowry, alcoholism etc.
○ They help in the fostering of a spirit of mutual help and co-operation among members.

● Capacity Building
○ Provided literacy and general awareness among members and also equipping the poor with
basic skills required for understanding monetary transactions.

Case Study:
○ In 2017,the district administration in Telangana’s Sangareddy district has developed ‘Ammaku
Akshara Mala’ p(alphabet garland for mother) and involved students in Classes VII to X.
○ They were asked to teach their mothers (mostly members of the Self-Help Groups and not
literate) to read and write Telugu alphabets at home.

● Governance
○ SHGs acts as pressure groups and can influence policy-making. Moreover, SHGs help in
improving efficiency of government schemes and reducing corruption through social audits.
○ NABARD Study published in 2018 showcased following facts,
■ 58% of the households covered under SHGs reported an increase in assets;
■ 70% of the loans taken in post-SHG period went towards income generation
ventures;
■ the share of consumption loan in the borrowing went down from 50% to 25%;
■ about 41.5% of the household studied were below their state specific poverty line in
the pre-SHG enrolment stage; it came down to 22%.

CHALLENGES/ISSUES/PROBLEMS
● Policy Issues:
○ There are issues of regional imbalance in distribution of SHGs, most of them are rural
oriented and focused on agricultural business only.
○ There are structural problems related to raising funds for startup, growth in working capital
and technical assistance etc.
● Economic Issues:
○ Economically the average size of the loan size is very less as compared to the economic average.
○ There are also concerns regarding the increased NPA of the loans given to the SHGs in the
absence of economically viable businesses.
○ According to a study conducted by NABARD in 2018, Still, 8% of SHGs had to borrow money
from informal sources.
○ Poor resourced states like Bihar, Jharkhand perform poorly due to high incidence of poverty.

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 ● Capacity Building:
○ There is lack of training and monitoring support to individual SHGs.
○ There are social constraints due to low level of women literacy.
● Absence of social cohesion:
○ Lack of coordination has led to the fragmentation of groups.
● Governance Issue:
○ Politicisation has resulted in lack of effective management of the groups.
● Infrastructural bottlenecks:
○ lack of roads, commercial market and other establishment in the rural areas limits the
opportunity of an SHG
● Socio-cultural issues
○ Feudal societies lack entrepreneurial spirit.
○ A deeply patriarchal society hinders the mobility of women in SHGs. Most women leave the
groups after marriage, shift in location, family responsibilities etc hence there is no continuity
in their workings.
○ Intra group politics, Caste dynamics, landholding size etc. results in the strong personalities
cornering the benefits by misguiding the illiterate persons.

GOVERNMENT INITIATIVES:
● Self Help Group-Bank Linkage Programme: It is an initiative of NABARD in 1992 to link the
unorganised sector with the formal banking sector. Under this programme, Commercial banks,
Regional rural banks (RRBs) and Cooperative banks were allowed to open savings accounts for SHGs.
● RBI initiative in 1996, led to microfinance-based finance to the SHGs. Over 80 lakh SHG linked bank
accounts have impacted 10 crore individuals.
● Priyadarshini scheme by NABARD aims to empower women through SHGs.
● Swarnajayanti Gram Swarojgar Yojana (SGSY) has been launched with the objective of bringing
every assisted family above the poverty line within three years, through the provision of micro
enterprise. SGSY is conceived as a holistic programme of micro-enterprises covering all aspects of self-
employment viz. organisation of the rural poor into self-help groups (SHGs) and their capacity
building, planning of activity clusters, infrastructure build up, technology, credit and marketing.
● The National Rural Livelihoods Mission (NRLM) replaced SGSY in 2011. NRLM aimed at
alleviation of rural poverty through building sustainable community institutions of the poor. It seeks to
mobilize households into SHGs and link them to sustainable livelihood opportunities by building their
skills and enabling them to access formal sources of finance, entitlements and services from both public
and private sectors. Recently NRLM has been renamed as The Deendayal Antodaya Yojana –
National Rural Livelihoods Mission (DAY-NRLM). In the year 2017-18, more than 80 lakh
households have been mobilised into 7 lakh SHGs. Cumulatively 5 crore women have been mobilised
through 40 lakh SHGs.
● Priority Sector Lending: the RBI has allowed the lending to SHGs as a part of lending to ‘weaker
sections’ under the Priority Sector Lending norms
● Apart from NABARD, there are four other major organisations in the public sector which too provide
loans to financial intermediaries for onward lending to SHGs. They are
(a) Small Industries Development Bank of India (SIDBI)

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 (b) RashtriyaMahilaKosh (RMK). It was set up in 1993 to facilitate credit support to poor women for
their socio-economic upliftment.
(c) Housing and Urban Development Corporation (HUDCO)
(d) then, there are public sector/other commercial banks which are free to take up any lending as per
their policy and RBI guidelines

Recommendations:
● Policy Support
○ At present, the gestation period of an SHGs to get through the grading process and avail the
loan for economic activity is almost one year It has been reported that SHGs not getting a loan
from the bank even after more than one year of its formation and group activities . The grading
exercise should be given to an independent agency since in the present system of grading,
wherein the same agency, which has been involved in the group formation stage, grading the
group, can be partial.
○ Gram Panachayat are closely associated with the identification of BPL families to be assisted
and other activities in the initial phases of the implementation of the scheme such as NRLM.
The panchayats may be given a greater role in the recovery of loans

● Promotion of SHG
○ Use NABARD to facilitate the expansion of SHGs movement in low presence areas.
○ The SHGs should be actively promoted in semi urban and urban areas.
○ The NGOs should actively help the SHGs in both backward and forward linkage and provide
them market support in particular.
○ The Government should reward the successful SHGs as an incentive for good work .

● Banks and other Institutions

○ The SHG – Bank Linkage model with a mentor SHPI deserves to be encouraged as the
preferred mode for financial intermediation throughout the country.
○ Design new financial model based on the local requirement needs to be made with active
involvement of financial institutions and the state.
○ A rapport-building programme may be offered in the which bank functionaries, NGO
functionaries, SHGs’ office-bearers and other grass roots level stakeholders should participate.

● Addressing interpersonal differences:

○ Wherever the group is not cohesive, interpersonal differences should be removed through
counseling and organizing special training programmes for them.

● Effective monitoring mechanism

○ Almost all the successful SHGs are observed to be not conducting regular meetings and
keeping accounts.
○ In this aspect, a greater role of NGOs may be sought. At present, the presence of NGOs as
facilitates is found to be limited.

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 ○ Effective monitoring of SHG functioning would prevent the discrimination of members
based on caste, religion or political affliations.

Conclusion/Way Forward:
Report of the Committee on Financial Inclusion aka Rangarajan Committee (2008) identified four major
reasons for lack of financial inclusion of the poor in rural India, these are
1. Inability to provide collateral as security.
2. Weak credit absorption capacity
3. Weak community network
4. Inadequate reach of the financial institutions such as Banks and Post offices
Self-Help Groups tries to fill in the vacuum by establishment of sound community networks. SHG helps in
providing access to credit to the rural poor families which is crucial in poverty alleviation. SHG also play a
critical role in elevating the social and economic status of the women in the community. Financial
Independence through creation of self-employment opportunities manifests positive externalities in the form
of improved literacy and educational status, better nutrition and healthcare attainment, better family planning.

However, the following suggestions should be considered to capitalize on the potential of the Self-Help Groups
● There is need to keep an eye on the activities of the Self-help groups. A separate body can be established
under the Centre or the States to effectively monitor their functioning.
● The body should ensure auditing of finance, imparting financial and technical knowledge to the
members of an SHG.
● There is a need to establish an institutional connection between the SHG and the local government
such as Panchayats and Municipalities.
● At present,financial instruments provided to the SHGs are uniform in character and they do not
consider the regional differences prevailing across the country. The financial institutions should
provide for customized financial mechanism to cater to the diverse needs of the people based on their
unique problems and priorities.

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