DefinitionA self-help group is a small economically

homogeneous and affinity group of rural poor voluntarily coming together

To save small amounts regularlyTo mutually agree to contribute to a common fundTo meet their emergency needsTo have collective decision makingTo solve conflicts through collective decision

making and mutual decisionTo provide collateral free loans with terms

decided by the group at market rates.

Needs for SHGs

High transaction cost to the banks in financing a large number of small and marginal farmers.

High cost to farmers while visiting banks due to distance and procedural formalities.

Farmers often need financial assistance for consumptive purpose which is not there in traditional banks.

Dependence on informal credit channels is reduced.

Structure of SHGA SHG is a group of about 10 to 20 people,

usually women, from a similar class and region, who come together to form savings and credit organization. They pooled financial resources to make small interest bearing loans to their members. This process creates an ethic that focuses on savings first. The setting of terms and conditions and accounting of the loan are done in the group by designated members.

Illustrative SHG Federation

SHG Federation /Apex /

Mandal Samakhya

Cluster/VillageOrganization

SHG SHG SHG

Cluster/VillageOrganization

NABARD and the SHG Linkage ProgrammeIntroduction of pilot phase of SHG linkage

programme in February 1992 for linking 500 SHGs.Provision of opening saving banks account in the

name of SHGs, relaxation of collateral norms, documentation, delegation of all credit decision and terms to SHGs.

Introduction of bulk lending schemes in 1993Training and sensitization of bank officials.Experimenting with RRBs for promotion of SHGs.Support to NGOs for promotion of SHGs.Close monitoring through state level forums.Dissemination through seminars, workshops,etc.

SHG Bank LinkageThe linking of SHGs with the financial sector

was good for both sides. The banks were able to tap into a large market, namely the low-income households, transactions costs were low and repayment rates were high. The SHGs were able to scale up their operations with more financing and they had access to more credit products.

Criteria for selection of SHGs for the linkage with BanksThe group should be in active existence for at

least a period of six months.Have successfully undertaken credit and

savings operations from its own resources.Democratic environmentThere should be genuine need to help each

other and work together among the members.Homogeneous background and interest.

Linkage Models

There are two basic models, with number of modifications to depict the relationship between SHGs and banks at present found in the country.

SHG Bank Linkage TrendsYear No. of

SHGs Linked

Cumulative No. of SHGs

Bank Loan (Rs. In crores)

Cumulative loan amount(Rs. In crores)

98-99 32995 32995 57 57

99-00 81780 114775 136 193

00-01 149050 263825 288 487

01-02 197653 461478 545 1026

02-03 255882 717360 1022 2049

03-04 361731 1079091 1856 3904

04-05 539390 1681848 2994 6898

Impact of SHGsWith 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).

The non-financial areas such as social security and gender dynamics are also effected by the SHG Movement.

The State of SHGs in India- 1.Financial ManagementThe financial management of SHGs has been found to be

ranging from weak to average.Internal controls such as the systems and processes

that manage the day to day transaction flow and ensure that roles and responsibilities are defined and executed are lacking.

In addition to internal controls, how SHGs are managing their cash flows is especially important. Since SHGs are accessing external borrowings through SHG Bank Linkage and then lends these funds to its members, there has been cases of poor cash flow management to repay debts not just externally but also internally.

2.GovernanceSince SHGs are an informal organization and a

SHG Federation is a composition of informal groups, there is poor governance and the capacity of the members to enact good governance is weak.

The members of SHGs do not have much experience with establishing formalized monitoring and review functions or complying with legal regulations.

With the growing size of the loans being made to SHGs, a strong governance system is needed to ensure that there is accountability.

3.Human ResourcesWhile the achievements of the women

members to form common interest groups to help themselves is remarkable, there is a long way to go to build the capacities of the staff of SHGs.

The role of NGOs to provide support is essential to many SHGs success stories.

The support needed ranges from bookkeeping and accounting, organizational structure, governance and other areas.

Thank you.