Self Help Groups (SHGs): Empowering India, Fostering Financial Inclusion & Sustainable Development

To prepare for GOVERNANCE for any competitive exam, aspirants have to know about Self Help Groups (SHG). It gives an idea of all the important topics for the IAS Exam and the Governance syllabus (GS-II.). Self Help Groups (SHG) terms are important from Governance perspectives in the UPSC exam. IAS aspirants should thoroughly understand their meaning and application, as questions can be asked from this static portion of the IAS Syllabus in both the UPSC Prelims and the UPSC Mains exams. Even these topics are also highly linked with current affairs. Almost every question asked from them is related to current events. So, apart from standard textbooks, you should rely on newspapers and news analyses as well for these sections. 

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Impact of Self Help Groups on Rural Financial Inclusion:

• National Bank of Agriculture and Rural Development (NABARD) defines Self-Help Groups as ‘a homogenous group of rural poor voluntarily formed to save whatever amount they can conveniently save out of their earnings and mutually agree to contribute and emergent credit needs’.
• 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”.
• SHG is a mini voluntary agency for self-help at the micro level and has been focused on the weaker section particularly women for their social defence. So basically, the concept of SHGs serves the principle “by the women, of the women and for the women”.
• 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 a Self-Help Groups are:
• To encourage and motivate its members to save,
• To persuade them to make a collective plan for generation of additional income, and
• 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 microfinance services to the poor. The range of financial services may include products such as deposits, loans, money transfer and insurance.
• The SHGs comprise very poor people who do not have access to formal financial institutions. They act as the forum for the members to provide space and support to each other. It also enables the members to learn to cooperate and work in a group environment.
• The SHGs provide a savings mechanism, which suits the needs of the members. It also provides a cost-effective delivery mechanism for small credit to its members.
• The SHGs significantly contribute to the empowerment of poor women by involving them in some productive activity which in turn will yield something to overcome their poverty.

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Core Objectives of Self Help Groups in Cultivating Financial Habits and Economic Growth

The main objectives of SHG is to inculcate the habit of thrift savings, banking culture, that is, availing the loan and repaying the same over a given period of time and in the process, again economic prosperity through credit. Self Help Groups are mostly informal groups whose members pool their savings and relent within the group on a rotational or need basis. 

Self Help Groups in India: Origins, Evolution, and Empowerment:

• SHGs originated in 1975 in Bangladesh by Mohammed Yunus of Chittagong University. It is a programme related to the eradication of poverty in general, rural development through women empowerment in particular.
• Its initiation-credit in India in 1986-87 goes to National Bank for Agriculture and Rural Development (NABARD). But the real effort was taken after 1991-92 from the linkages of Self Help Groups with banks.
• 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:
• Increasing their income and assets;
• Enhancing their food and nutritional standards; and
• Increasing their organisational and leadership strength.
• The overall intention was to organise women for full employment.
• In the 1980s, MYRADA – a Karnataka based non-governmental organisation, promoted several locally formed groups to enable the members to secure credit collectively and use it along with their own savings for activities which could provide them economically gainful employment.
• 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-Bank Linkage Programme: 40.95 million families and 204.75 million people having been covered under this programme and the cumulative loan figure standing at 18040 crores as on 31-03-2007.

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Impact and Functions of Self Help Groups in Rural India

• Freedom from exploitative debt – In rural India, people are still dependent on informal moneylenders. These moneylenders exploit these poor people by entering into false agreements, writing wrong amounts on papers, charging excessive interest rates and confiscating property on failing to repay the loan. SHGs free these people from clutches of moneylenders.
• Collective guarantee system – for members who propose to borrow from organised sources. The poor collect their savings and save it in banks. In return they receive easy access to loans with a small rate of interest to start their micro unit enterprise.
• Leadership development: SHGs provide an organisational platform to rural people to act as leaders for their respective activities. Self Help Groups provide dynamic leadership as every person gets a chance to lead according to the skill sets. Example: In Andhra Pradesh alone, 1,40,000 women leaders were created.
• Social integrity –SHGs encourage collective efforts for combating practices like dowry, alcoholism etc.
• Gender Equity –SHGs empowers women and inculcates leadership skills among them. Empowered women participate more actively in gram sabha and elections.
• Pressure Groups –their participation in governance processes enables them to highlight issues such as dowry, alcoholism, the menace of open defecation, primary health care etc and impact policy decisions.
• Voice to marginalized section– Most of the beneficiaries of government schemes have been from weaker and marginalized communities and hence their participation through Self Help Groups ensures social justice.
• Savings – 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.
• “Savings first – Credit later” should be the motto of every SHG member.
• 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.
• Financial inclusion – SHGs have mobilised millions of people across the country especially women. 40.95 million families and 204.75 million people having been covered under NABARD-Bank Linkage programme and the cumulative loan figure standing at 18040 crores as on 31-03-2007
• Impact on Housing & Health –The 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.
• Banking literacy –It encourages and motivates its members to save and act as a conduit for formal banking services to reach them.

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Case Studies  of Kudumbashree, MAVIM, and Tamil Nadu’s Self Help Groups in Transforming Rural Lives

• Kudumbashree in Kerala: It was launched in Kerala in 1998 to wipe out absolute poverty through community action. It is the largest women empowering project in the country. It has three components i.e., microcredit, entrepreneurship and empowerment. It has three tier structures – neighborhood groups (SHG), area development society (15-20 SHGs) and Community development society (federation of all groups). Kudumbashree is a government agency that has a budget and staff paid by the government. The three tiers are also managed by unpaid volunteers.
• Mahila Arthik Vikas Mahamandal (MAVIM) in Maharashtra – Self Help Groups in Maharashtra were unable to cope with growing volume and financial transactions and needed professional help. Community managed resource centre (CMRC) under MAVIM was launched to provide financial and livelihood services to SHGs. CMRC is self-sustaining and provides need-based services.
• Tamil Nadu – In Tamil Nadu, the Department of Rural Development has taken initiative to organise the rural poor into Self-Help Groups which collectively work for securing livelihood employment for the members. The members of the group agree to save regularly and convert their savings into a common fund known as the group corpus. This fund is used by the group through a common management strategy. 

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Social Impact of Self Help Groups on Financial Inclusion, Education, and Healthcare:

• The SHG programme has contributed to a reduced dependency on informal money lenders and other non-institutional sources.
• 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.
• The financial inclusion attained through Self Help Groups 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.

Future Opportunities and Leadership Development through Self Help Groups:

• Self Help Groups often appear to be instrumental in rural poverty alleviation.
• Economic empowerment through SHGs, provides women the confidence for participation in decision making affairs at the household-level as well as at the community-level.
• Un-utilised and underutilised resources of the community can be mobilised effectively under different SHG-initiatives.
• Leaders and members of successful SHGs bear the potentiality to act as resource persons for different community developmental initiatives.
• Active involvement in different SHG-initiatives helps members to grow leadership-skills. Evidence also shows that often women SHG leaders are chosen as potential candidates for Panchayat Pradhans or representatives to Panchayati Raj Institution (PRI).

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Issues faced by Self-Help Groups and opportunities for Sustainable Development:

• Access to market: Also, the goods produced by SHGs do not have access to larger market places.
• Lacks up-gradation of skills: Most SHGs are not making use of new technological innovations and skills. This is because there is limited awareness with regards to new technologies and they do not have the necessary skills to make use of the same. Furthermore, there is a lack of effective mechanisms.
• Politicization: Political affiliation and interference has become a serious problem with SHGs.
• Agricultural Activities: Most of the SHGs work at local level and are engaged in agricultural activities. SHGs in rural areas should be introduced to non-agricultural businesses too and should be provided with state-of-the art machinery.
• Lack of Technology: Most of the SHGs work with rudimentary or no technology.
• Weak Financial Management: It is also found that in certain units the return from the business is not properly invested further in the units, and the funds diverted for other personal and domestic purposes like marriage, construction of house etc.
• Inadequate Training Facilities: The training facilities given to the members of SHGs in the specific areas of product selection, quality of products, production techniques, managerial ability, packing, and other technical knowledge are not adequate to compete with that of strong units.
• Problems Related with Raw Materials: Normally each SHG procures raw materials individually from the suppliers. They purchase raw materials in smaller quantities and hence they may not be able to enjoy the benefits of large scale purchases like discounts, credit facilities etc.
• Moreover, there is no systematic arrangement to collect raw materials in bulk quantities and preserve them. There is no linkage with major suppliers of raw materials. Most of the SHGs are Ignorant about the major raw material suppliers and their terms and conditions. All these cause a high cost of raw materials.
• SHGs are run by non-professionals: There is no professionalism within the SHGs. This does not promote the expansion and improvement of the SHGs. This does not allow for the increase of wages of the members and improvement in their living conditions. This also leads to error in accounting and mismanagement.
• Lack of Stability and Unity Especially among women SHGs: In the case of SHGs dominated by women, it is found that there is no stability of the units as many married women are not in a position to associate with the group due to the shift of their place of residence. Moreover, there is no unity among women members owing to personal reasons.
• Exploitation by Strong Members: It is also observed that in the case of many SHGs, strong members try to earn a lion’s share of the profit of the group, by exploiting the ignorance and illiterate members.
• Too much dependence on government and NGOs: Many SHGs are dependent on the promoter agencies for their survival. In case these agencies withdraw their support, the Self Help Groups are vulnerable to downfall.
• Inadequate Financial Assistance: It is found that in most of the SHGs, the financial assistance provided to them by the agencies concerned is not adequate to meet their actual requirements. The financial authorities are not giving adequate subsidies to meet even the labour cost requirements
• Credit Mobilization: A study has shown that about 48% of the members had to borrow from local money lenders, relatives and neighbours because they were getting inadequate loans from groups.
• Contrary to the vision for SHG development, members of a group do not come necessarily from the poorest families;

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Key Recommendations for Strengthening Self-Help Groups in Rural Development:

• The role of the Government in the growth and development of the SHG movement should be that of a facilitator and promoter. The objective should be to create a supportive environment for this movement.
• The literacy levels of rural women are low and hence efforts to enhance literacy levels in the area should be given priority.
• The government could make SHGs as statutory bodies and allowed them to work with the local bodies to channelize women’s development programmes.
• Government should encourage export of goods which are produced by the group members.
• An integrated approach is required for meeting overall credit needs of a poor family in terms of backward linkages with technology and forward linkages with processing and marketing organizations.
• Credit needs to be provided for diversified activities including income generating livelihood activities productions, housing consumption loan and against sudden calamities.
• The delivery system has to be proactive and should respond to the financial needs of the farmers.
• Training programmes relating to management of finances, maintaining accounts, production and marketing activities etc. should be given.
• Simplify the process of giving loans, i.e. reduce the number of questions to important non repetitive ones.
• Provide gender sensitization training to bank staff so that they are sensitized to the needs of rural clients especially women.
• Adequate insurance coverage should be provided to the business units promoted by SHG against the financial losses to safeguard the interest of the entrepreneurs.
• The SHG movement needs to be extended to urban and peri-urban areas. State Governments, NABARD and commercial Banks should join together to prepare a directory of activities and financial products relevant to such areas.
• NGOs may help SHG in identifying new marketing areas and methods of distribution of products manufactured or marketed by SHGs.
• A Self Help Groups should not only concentrate on the growth of the group, but should also show active involvement on the social issues and other essential issues like health, sanitation etc. to develop the entire village.
• There should be rotation of group leadership, so that all the members of the group get an opportunity to play managerial roles.

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Government Initiatives to Boost Self-Help Groups in India’s Development:

• Self Help Group-Bank Linkage Programme: On the recommendations of SK Kalia Committee, the SHG-Bank linkage programme was started at the initiative of NABARD in 1992 to link the unorganised sector with the formal banking sector. Under this programme, banks were allowed to open savings accounts for Self-Help Groups (SHGs). Banks provide loans to the SHGs against group guarantee and the quantum of loan could be several times the deposits placed by such SHGs with the banks.
• Priority Sector Lending: GOI has included SHG as a priority sector to mandate and enhance banks focus on them. Bank credit to members of SHGs is eligible for priority sector advance under respective categories viz., Agriculture, Micro, Small and Medium Enterprises, Social Infrastructure and Others.
• SHG, have been allowed to run grain banks to secure food security in food & care regions.
• Priyadarshini scheme, with NABARD as the nodal agency, has aimed at women empowerment and livelihood enhancement through Self Help Groups.
• Deendayal Antodaya Yojana – National Rural Livelihoods Mission (DAY-NRLM): It seeks to alleviate rural poverty through building sustainable community institutions for the poor. Mission closely works with the Department of Financial Services (DFS), Reserve Bank of India (RBI) and the Indian Bank Associations (IBA) to provide bank credit to SHGs.
• Mahila Kisan Shashaktikaran Pariyojana: In order to promote agro-ecological practices that increase women farmers’ income and reduce their input costs and risks, the DAY-NRLM Mission has been implementing the Mahila Kisan Shashaktikaran Pariyojana (MKSP).
• Rashtriya Mahila Kosh (RMK):The Rashtriya Mahila Kosh was set up by the Government of India in March 1993 as an Autonomous Body registered under Societies Registration Act, 1860 under the Department (now Ministry) of Women and Child Development. The objective was to facilitate credit support to poor women for their socio-economic upliftment.

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