Wednesday, October 19, 2011


Self-Help Groups are informal associations of people who choose to come together to find ways to improve their living conditions. They help to build Social Capital among the poor, especially women.

The most important functions of Self-Help Groups are:
(a) to encourage and motivate its members to save,
(b) to persuade them to make a collective plan for generation of additional income, and
 (c) to act as a conduit for formal banking services to reach them.

Such groups work as a collective guarantee system for members who propose to borrow from organised sources. Consequently, Self-Help Groups have emerged as the most effective mechanism for delivery of micro-finance services to the poor. The range of financial services may include products such as deposits, loans, money transfer and insurance.

Evolution of the SHG Movement in India:
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 primary objective of (a) increasing their income and assets; (b) enhancing their food and nutritional standards; and (c) increasing their organisational and leadership strength. The Overall intention was to organise women for full employment. Major experiments in small group formation at the local level were initiated in Tamilnadu and Kerala about two decades ago through the Tamilnadu Women in Agriculture Programme (TANWA) 1986, Participatory Poverty Reduction Programme of Kerala, (Kudumbashree) 1995 and Tamilnadu 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.

Forming small groups and linking them to bank branches for credit delivery has been the most important feature of the growth of the SHG movement in our country. The SHG-Bank linkage programme was started as a test project in 1989 when NABARD, the Apex Rural Development Bank in the country, sanctioned Rs.10.0 lakhs to MYRADA as seed money assistance for forming credit management groups. 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),
(b) Rashtriya Mahila Kosh (RMK), and
(c) Housing and Urban Development Corporation (HUDCO).
(d) public sector/other commercial banks which are free to take up any lending as per their policy and RBI guidelines

Apart from the above formal sector organisations, private/NGO initiative too has played an important role  in expanding micro-finance in the country. This expansion has happened in two ways. Some of the NGOs which actively promoted Self-Help Groups in the early years of the SHG movement themselves diversified into micro-credit lending (such as SEWA in Gujarat, Nav Bharat Jagirity Kendra (NBJK) in Jharkhand and Shramik Bharati in Uttar Pradesh). The second set of institutions consists of those which came on the scene later (when the presence of SHGs had already reached a significant level) by registering as pure MFIs such as Bandhan, BASIX and SKS. In 2006, there were 800 NGOs in the country engaged in delivery of micro-credit with an outreach of 7.3 million households

Some Features of the Self-Help Group Movement in the Country (year 2005-06)
• SHG model is the dominant vehicle for Micro Finance in India.
• 2.24 million SHGs under Bank linkage on 31.03.2006.
• Initially NGOs pioneered the SHG promotion processes.
• Government emerged as the largest SHG promoter.
• Various government subsidy programs linked to SHG.
• 9.64 lakh SHGs (6.20 lakh new and 3.44 lakh for repeat loan) got financed in 2005-06.

Poverty eradication through social mobilization and empowerment of women in Andhra Pradesh:
The Government of Andhra Pradesh has been successfully implementing poverty alleviation programmes in the State through extensive social mobilization. Women have been placed in the fore-front of the development agenda through formation of women’s Self-Help Groups. Multi-level SHG federations formed at the block and district levels have further benefited the growth of SHGs and institutionalized this mobilization. The State Government assists the groups by providing Revolving Fund / Matching Grant under various programmes. Society for Elimination of Rural Poverty (SERP), a registered autonomous Body, is playing a key role in this process by providing facilitation support to groups and by sensitizing line departments of the government, Banks and insurance companies towards the needs of the poor.

In the Kudumbashree model of Kerala, Women’s Empowerment is being projected as a strategic route towards the ultimate goal of Poverty reduction. Because of their active involvement in various income generation activities, women who in the past, were regarded as voiceless and powerless, have now started asserting and articulating their innate power, their strengths, opportunities for growth and their role in poverty eradication. This empowerment is also getting transferred to their children (particularly the girl child), the family and ultimately to society.

Impact of SHG on Rural Life :
1) A random impact evaluation study covering 560 members of 223 SHGs linked to Banks located in 11 States was carried out by NABARD. A three year period was selected for this study. The results of this survey released in 200018 indicated that (a) 58% of the households covered under SHGs reported an increase in assets; (b) the average value of assets per household increased by 72% from Rs.6,843 to Rs.11,793; (c) majority of the members developed savings habit against 23% earlier; (d) there was a threefold increase in savings and a doubling of borrowings per household; (e) the share of consumption loan in the borrowing went down from 50% to 25%; (f ) 70% of the loans taken in post-SHG period went towards income generation ventures; (g) employment expanded by 18%; (h) the average net income per household before joining a SHG was Rs.20,177 which rose by 33% to 26,889; and (i) 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%. Participation in group activity significantly contributed to improvement of self-confidence among the members. In general, group members and particularly women became more vocal and assertive on social and family issues.

2) While some of the SHGs have been initiated by the local communities themselves, many of them have come through the help of a mentor Body (either government or an NGO) which provided initial information and guidance to them. Such support often consists of training people on how to manage Bank accounts, how to assess small business potential of the local markets and how to upgrade their skills. In the end, it creates a local team of resource persons.

3) Group formation becomes a convenient vehicle for credit delivery in rural areas. Commercial Banks and other institutions which are otherwise not receptive to the demands of marginalized individuals, start considering such groups as their potential customers. Overall such Joint-Liability Groups expand the outreach of the micro-finance programme in an effective way, reaching out to the excluded segments e.g. landless, sharecroppers, small and marginal farmers, women, SCs/STs etc.

4) The majority of Self-Help Groups comprise of women members. There is evidence in this country as well as elsewhere that formation of Self-Help Groups has a multiplier effect in improving women’s status in society as well as in the family. Their active involvement in micro-finance and related entrepreneuarial activities not only leads to improvement in their socio-economic condition but also enhances their self-esteem. Women in a group environment become more articulate in voicing their concerns and a change occurs in their self-perception. They start to see themselves not only as beneficiaries but also as clients / informed citizens seeking better services. On the home front, their new found awareness and the confidence generated out of their entrepreneurial skills make them more confident vis-à-vis their menfolk.
5) The SHG programme has contributed to a reduced dependency on informal money lenders and other non-institutional sources.

6) It has enabled the participating households to spend more on education than non client households. Families participating in the programme have reported better school attendance and lower drop-out rates.
7) financial inclusion attained through SHGs has led to reduced child mortality, improved maternal health and the ability of the poor to combat disease through better nutrition, housing and health – especially among women and children.

But the SHG movement has certain weaknesses as well:
• contrary to the vision for SHG development, members of a group do not come necessarily from the poorest families;
• the SHG model has led to definite social empowerment of the poor but whether the economic gains are adequate to bring a qualitative change in their life is a matter of debate;
• many of the activities undertaken by the SHGs are still based on primitive skills related mostly to primary sector enterprises. With poor value addition per worker and prevalence of subsistence level wages, such activities often do not lead to any substantial increase in the income of group members.
• there is lack of qualified resource personnel in the rural areas who could help in skill upgradation / acquisition of new skills by group members.

The 2nd ARC has comprehensively considered the strength and weaknesses of this movement and it feels that the following eight issues of this sector deserve priority attention:
• Maintaining the participatory character
• Need to expand the SHG movement to States such as Bihar, Uttar Pradesh, Madhya Pradesh, Orissa, Rajasthan and in the North-East (where the SHG movement and micro-finance entreprenuership is weak)
• Need to extend small group organisations (SHGs) to peri-urban and urban areas
• Mode of SHG development and financial intermediation
• Self-Help Groups and Regional Rural Banks
• Issues of sustainability
• Financial assistance to SHPIs and other support institutions
• Role of Micro-Finance Institutions

Building financial infrastructure is an important step towards expansion of economic opportunities in a backward area. But, it needs to be firmly supported by cooperative action and social mobilization on the part of local stakeholders. India has a rich history of economic systems and traditions based on cooperative action, exchange labour, village irrigation network and participatory management of village commons. The Commission is of the view that expansion of social cooperation should be regarded as a central feature of the development process and hence, people’s organisations like Self-Help / other Joint-Liability Groups need to be encouraged.

The National Rural Employment Guarantee Scheme (NREGS), currently, is the most important livelihood programme of the government in the rural sector. The scheme can be handled more effectively through formation of village Self-Help Groups. Right from the stage of job card making, to selection of a scheme in the village, to its implementation and to payment of wages to labourers through a post office or a Bank, the members of the identified group can take up execution of the NREGS projects with competence and responsibility. If needed, the local Self-Help Groups can even take up impact assessment / social audit of such programmes. Such local Self-Help Groups can also be encouraged to take up programmes of horticulture and development of assigned lands.

Establishing stable linkage between a SHG and a local financial institution is one of the key elements of the SHG movement. Currently, four distinct models of financial intermediation are in operation in various parts of the country namely;
1.   SHG-Bank linkage promoted by a mentor institute(SHPI i.e. self help promoter institution)
       2. SHG-Bank direct linkage
       3. SHG-Mentor Institution linkage; and
      4. SHG-Federation model

Role of SHPI
Usually, a SHPI provides initial training and guidance to the participating members before launching them into a formal thrift and credit management group (SHG). In some cases, the members of the group may be economically too weak to contribute even the initial seed money to the group funds to start an activity. The promoter institution in such cases may have to provide financial support to the groups. MYRADA was effective in setting up several Self-Help Groups in rural areas of Karnataka in 1989 by providing (a) sustained guidance and (b) by granting seed money to them from the corpus of 10 lakhs which was given to it by NABARD under a demonstration project.
Source: Second ARC Report

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