Self-help group (finance)

A self-help group (SHG) is a village-based financial intermediary usually composed of between 10-15 local women. Most self-help groups are located in India, though SHGs can also be found in other countries, especially in South Asia and Southeast Asia.

Members make small regular savings contributions over a few months until there is enough capital in the group to begin lending. Funds may then be lent back to the members or to others in the village for any purpose. In India, many SHGs are 'linked' to banks for the delivery of microcredit. SHGs are member-based microfinance intermediaries inspired by external technical support that lie between informal financial market actors like moneylenders, collectors, and ROSCAs on the one hand, and formal actors like microfinance institutions and banks on the other. Other organizations in this transitional zone in financial market development include CVECAs and ASCAs.

Introduction

A Self-Help Group (SHG) is a registered or unregistered group of micro entrepreneurs having homogenous social and economic backgrounds, voluntarily coming together to save regular small sums of money, mutually agreeing to contribute to a common fund and to meet their emergency needs on the basis of mutual help. The group members use collective wisdom and peer pressure to ensure proper end-use of credit and timely repayment. This system eliminates the need for collateral and is closely related to that of solidarity lending, widely used by microfinance institutions. [ [http://www.rbi.org.in/scripts/FAQView.aspx?Id=7 (Reserve Bank of India)] ]

Goals

Self-help groups are started by non-profit organizations (NGOs) that generally have broad anti-poverty agendas. Self-help groups are seen as instruments for a variety of goals including empowering women, developing leadership abilities among poor people, increasing school enrolments, and improving nutrition and the use of birth control. Financial intermediation is generally seen more as an entry point to these other goals, rather than as a primary objective. [Stuart Rutherford. "Self-help groups as microfinance providers: how good can they get?" mimeo, 1999, p. 9] This can hinder their development as sources of village capital, as well as their efforts to aggregate locally controlled pools of capital through federation, as was historically accomplished by credit unions.

NABARD's 'SHG Bank Linkage' program

Many self-help groups, especially in India, under NABARD's SHG-bank-linkage program, borrow from banks once they have accumulated a base of their own capital and have established a track record of regular repayments.

This model has attracted attention as a possible way of delivery microfinance services to poor populations that have been difficult to reach directly through banks or other institutions. "By aggregating their individual savings into a single deposit, self-help groups minimize the bank's transaction costs and generate an attractive volume of deposits. Through self-help groups the bank can serve small rural depositors while paying them a market rate of interest." [Robert Peck Christen, N. Srinivasan and Rodger Voorhies, "Managing to go down market: regulated financial institutions and the move into microsavings". In Madeline Hirschland (ed.) 'Savings Services for the Poor: An Operational Guide', Kumarian Press, Bloomfield, CT, 2005, p. 106.]

NABARD estimates that there are 2.2 million SHGs in India, representating 33 million members, that have taken loans from banks under its linkage program to date. This does not include SHGs that have not borrowed. [EDA and APMAS "Self-Help Groups in India: A Study of the Lights and Shades", CARE, CRS, USAID and GTZ, 2006, p. 11] . "The SHG Banking Linkage Programme since its beginning has been predominant in certain states, showing spatial preferences especially for the southern region – Andhra Pradesh, Tamil Nadu, Kerala and Karnataka. These states accounted for 57 % of the SHG credits linked during the financial year 2005-2006." [ [http://www.fao.org/ag/rurfinconference/docs/posters_theme_2/SHG_banking.pdf Fouillet C. and Augsburg B. 2007. "Spread of the Self-Help Groups Banking Linkage Programme in India", International Conference on Rural Finance Research: Moving Results, held by FAO and IFAD, Rome, March 19-21.] ] .

Advantages of financing through SHGs

An economically poor individual gains strength as part of a group. Besides, financing through SHGs reduces transaction costs for both lenders and borrowers. While lenders have to handle only a single SHG account instead of a large number of small-sized individual accounts, borrowers as part of an SHG cut down expenses on travel (to & from the branch and other places) for completing paper work and on the loss of workdays in canvassing for loans. [ [http://www.rbi.org.in/scripts/FAQView.aspx?Id=7 (Reserve Bank of India)] ]

References

ee also

* CVECA
* microcredit
* microfinance
* NABARD
* ROSCA

External links

[http://www.shggateway.in/common/aboutus.html| Self-help group gateway] hosted by APMAS in Andhra Pradesh, India