Concept of Self Help Group (SHGs)
A self help group is defined as a group consisting of people who have personal experience of a similar issue or life situation, either directly or through their family and friends. Sharing experiences enables them to give each other a unique quality of mutual support and to pool practical information and ways of coping.
Self help groups are small informal association of the poor created at the grass root level for the purpose of enabling members to reap economic benefits out of mutual help solidarity and joint responsibility. Self help groups are formed voluntarily by the rural and urban poor to save and contribute to a common fund to be lent to its members as per group decision and for working together for social and economic uplift of their families and community.
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."
Characteristics of SHG
Some of the important characteristics of SHGs as per the Govt. of India stipulation are as follows:
1. As SHG may consist of 10-20 members.
2. Social affinity of the members is a common characteristic. This means to say that each SHG is a group of homogeneous masses.
3. All members of the group should belong to families below poverty line.
4. The group shall not consist of more than one member from the same family.
5. A person shall not be a member of more than one group.
6. Group members create a common fund by contributing their small savings on regular basis.
7. The groups evolve flexible systems of working and manage polled resources in a democratic manner.
8. Groups consider the loan requirements of members in periodic meetings and competing claims on limited resources are settled by consensus.
9. Loans are given on trust with minimum documentation and without any security.
10. The loans are of small amount, issued frequently for short duration.
11. The rate of interest varies from group to group and the purpose of the loan. It is higher than that of banks but lower than that of moneylenders.
12. At periodic meetings, besides collecting money, social and economic issued are also discussed.
Objectives of SHGs
The concept of Self Help Group is initiated towards fulfillment of the following social objectives:
1. To support economic freedom of the rural people living Below Poverty Line: The rural people are mostly poor and a large section of them lives Below Poverty Line (BPL). They lack adequate disposable income in their hands. As such, it is hoped, if these people are given adequate support to work and develop their own ventures through the creation of SHGs, a time will come when they will be able to change their economic conditions.
2. To encourage poor rural folk in developing their habit of working in groups: Building of rural community with homogeneous groups of vulnerable sections of the society becomes essential to give them mental strength through the spirit of group work.
3. To develop Entrepreneurial Culture among poor rural people: Entrepreneurial culture is grossly absent in our rural areas due to variety of causes. Introduction of the concept of SHG helps poor rural people to undertake income generating projects both at the individual level and at the group level. Thus, Entrepreneurial Culture is developed among poor rural people.
4. To Help the vulnerable section of the society, who does not have access to institutional finance: Due to lack of collateral securities; most of the vulnerable sections of our society like women, SC, ST etc fail to get loans from financial institutions in doing any kind of business. Therefore, the SHGs are created to help such people in taking up small business ventures through micro-credit and government support.
5. To develop the habit of thrift and saving among the poor rural people: Self help Groups are initially started through personal savings of the members in a pool of fund. This fund is used to help each member through the grant of small loans. Thus, the members are made to realize that it is their individual small savings which is helping them to prosper. This develops the habit of thrift and saving among the rural people.
6. To empower the rural people both economically and socially: The rural people of India, more particularly the women and the other weaker sections like SC, ST are poor not only economically, but also socially. Once their economic status improves, they become strong socially also and working through GHGs considerably helps them in this direction.
7. To develop the sense of social responsibility among the rural people: As SHGs are formed by the people of a particular village or its vicinity, these social groups serve the purpose of a platform to discuss about local problems and they voluntarily contribute to solve such problems as per their capacities. There are instances that the SHGs constructed rural roads contributing both physically and financially.
Need and Importance for SHGs
Self help groups are necessary to overcome exploitation, create confidence for the economic self-reliance of rural people, particularly among women who are mostly invisible in the social structure. These groups enable them to come together for common objective and gain strength from each other to deal with exploitation, which they are facing in several forms. A group becomes the basis for action and change. It also helps buildings of relationship for mutual trust between the promoting organization and the rural poor through constant contact and genuine efforts. Self help groups plays an important role in differentiating between consumer credit and production credit, analyzing the credit system for its implication and changes in economy, culture and social position of the target groups, providing easy access to credit and facilitating group/organization for effective control, ensuring repayments and continuity through group dynamics; setting visible norms for interest rates, repayment schedules, gestation period, extension, writing of bad debts; and assisting group members in getting access to the formal credit institutions. There are needs for SHGs which is specific terms are as under:
a) To mobilize the resources of the individual members for their collective economic development.
b) To uplift the living conditions of the poor.
c) To create a habit of savings, utilization of local resources.
d) To mobilize individual skills for group's interest.
e) To create awareness about right.
f) To assist the members financial at the rime of need.
g) To identify problems, analyzing and finding solutions in the groups.
h) To act as a media for socio-economic development of village.
i) To develop linkage with institution of NGOs.
j) To organize training for skill development.
k) To help in recovery of loans.
l) To gain mutual understanding, develop trust and self-confidence.
m) To build up teamwork.
n) To develop leadership qualities.
o) To use it as an effective delivery channel for rural credit.
Functions of SHGs: The important functions of SHG are the following:
a) Enabling members to become self-reliant and self-dependent.
b) Providing a forum for members for discussing their social and economic problems.
c) Enhancing the social status of members by virtue of their being members of the group.
d) Providing a platform for members for exchange of idea.
e) Developing and encouraging the decision making capacity of members.
f) Fostering a spirit of mutual help and cooperation among members.
g) Instilling in members a sense of strength and confidence which they need for solving their problems.
h) Providing organizational strength to members.
i) Providing literacy and increasing general awareness among members, and
j) Promoting numerically and equipping the poor with basic skills required for understanding monetary transactions.
Provisions relating to Formation of SHGs
Following are the important points in the formation of SHG:
1. Voluntary formation: As SHG is generally an economically and socially homogeneous group formed through a process of self election ideally with membership ranging between 10 and 20. Thus, villagers may volunteer to form the group with some common goal to be mutually benefitted.
2. Homogeneity: They are homogeneous in the sense that a group may be formed of all women or all the members may belong to Scheduled Caste/Scheduled Tribe Community or a group of Physically Challenged persons or may be with members of any Minority Community.
3. Proximity of Members: The members of a group are known to each other and live in the same village or in its vicinity.
4. Registration not compulsory: As SHG may be a registered or an un registered group. However, the group can register itself either under the Societies Registration Act or under the State Cooperative Act or even under the Partnership Act.
5. Managing Committee: Members of the group select a Managing Committee of 5 members which includes a President, a person responsible for Saving Administration, a person responsible for Loan Administration, a person responsible for Cash Book and a Controller.
6. Formation by third party: SHGs can also be formed by Banks, NGOs or other social / charitable organizations. NABARD has given some guidelines in this regard and some important of them are pointed out below:
i. Preliminary Survey: To understand the need of each family, such a survey of the households under the targeted village is very essential. The survey helps the SHG promoters to identify the families with homogeneous socio-economic status which can come together in SHGs.
ii. Preliminary Meeting: Before formations of SHGs, a meeting with the community leaders and elders of the village should be convened. In this meeting, plan to form SHG with the purpose should clearly be explained. Support of these people is considered very essential to ensure community participation. Moreover, their support virtually gives acceptance to the project in the village.
iii. Selection of Members to a group: For the purpose of selecting members to an SHG, the NABARD has developed 11 questions. Accordingly, before accepting as a member of a group, each prospective member is asked the following questions:
a) Does the family have only one family member?
b) Does the family bring drinking water from faraway place?
c) Are the women compelled to go for in the open due to absence of latrine?
d) Are there old illiterate members in the family?
e) Is there any permanently ill member in the family?
f) Are there children in the family who do not go to school?
g) Is there a drug addict or a drunkard in the family?
h) Is their house made of kaccha materials?
i) Do they regularly borrow from moneylenders?
j) Do they eat less than two meals a day?
k) Do they belong to Scheduled Caste / Tribe?
After putting all these questions to the rural people, if the answer is affirmative (i.e. “yes”) to at least three or four of these questions, the family can be considered as poor and a person from that family can be accepted as a member of an SHG.
iv. Start-up Meeting: After meeting with the community leaders and elders of the village, one member from each of the identified families should be invited in a meeting convened for the purpose on a separate date. The gathering should clearly be given detailed information regarding the purpose / benefits of a group, the working procedure, etc.
Working Procedure of SHGs
The SHGs follow certain specific working procedure. The procedure is developed in such a way that the villagers do not face any complicacy and the system makes them empowered as they learn while doing. Moreover, transparency and democratic values are given due weight age. Some important points in this score as follows:
1) Formation of Simple rule for operation: For smooth functioning of an SHG, certain simple basic rules and regulations are required. This should contain the following aspects:
a) Common agreement of the members about formation of SHG and its functioning through the adoption of basic rules and regulations.
b) Decision on time and place of meetings.
c) Agreed penalties for non-attendance of meetings by any member.
d) Agreement on amount of savings by the members.
e) Giving small loans to the members.
f) Taking loans from bank.
g) Procedure for repayment of loans taken by members, etc.
2) Meeting of the Group: Meeting of the group members on regular intervals is very essential to get up-to-date information about the working of the group, make the members active, keep the group in working condition, and resolve the issues pertaining to the members and the group.
3) Mandatory participation of members in Meetings: Participation of all members in the group meetings is compulsory and absence attracts penalty of an agreed amount.
4) Frequency of the Meeting: Ideally, every group should meet once in a week on routine basis. In addition to this, there may be need based meetings of the group.
5) Agenda of the meeting: In each of the weekly meetings there are some mandatory items of the agenda. These relate to collection of members’ savings, repayment of loans by the borrowers, payment of penalties for defaults by the members and grant of fresh loans. In addition to these, the group discusses and tries to find solutions to the problems faced by the members of the group. The up-to-date financial condition of the group is also presented in the meeting.
6) Maintenance of proper accounts: Books and accounts are maintained to promote transparency and accountability within the SHG and the external world. For this purpose, competent group members are entrusted. If no member is able to maintain the books, someone should be engaged by the group for the purpose.
7) Books of accounts and Registers to be maintained: Simple and clear books for all transactions should be maintained. The following books are records are usually maintained by an SHG:
a) Minute Book: Proceedings of the meetings, rules of the group, names of the members, etc are recorded in this book.
b) Savings and Loan Register: This register shows the savings of the members separately and of the group as whole. Details of the individual loans, repayments, interest collected, balance, etc are recorded here.
c) Weekly Register: This register presents summery of the receipts and payment on weekly basis. This is up-dated in every weekly meeting.
d) Cash Book: A cash book records all the receipts and payments of the fund which reflects the total amount available in the fund on a particular date.
8) Opening of Bank Account: Soon after the SHG is formed and one or two meetings held, where the savings are collected, a saving bank account is opened in the name of the SHG. Reserve Bank of India has issued instructions to all commercial banks and Regional Rural Banks, permitting them to open Saving Bank Accounts of registered or un-registered SHGs. For opening bank accounts the following documents are required to be submitted to the bank
a) Resolution of the SHG: The SHG has to pass a resolution in its group meeting, signed by all members, indicating their decision to open a Saving Bank A/C with the bank branch. The resolution should be filed with the bank in a manner so required.
b) Authorization from the SHG: The SHG should authorize at least three members, only two of whom to jointly operate upon their account. The resolution along with the filled in application form duly introduced by the promoter may be filled with the bank branch.
c) Copy of the Rules and Regulations of the SHG: This is not a must. If the group has not formulated such rules and regulations, loans can be sanctioned even without them.
9) Conduct of Internal lending by the SHG: After saving for a minimum period of 2 to 3 months, the common saving fund shall be used by the SHG for lending to its own members. Lending can be for any purpose. However, productive use of borrowed fund, more particularly for investment in income generating project is encouraged.
Funding Procedure of SHGs
The fund is owned by the group and consists of savings of the members. The fund is used to make short-term loans with interest to the members. The profit of the fund (i.e. interest on loan plus fines) is divided to the members of the group at the end of the year. Apart from the fund generated by an SHG through the small savings of its members on regular basis, it acquires funds through other sources as follows:
a) Bank Linkage: The NABARD initiated three models under the Bank-SHG linkage programme. There are:
Model I: SHGs formed and financed by banks. In this model banks themselves take up the work of forming and nurturing the groups, opening their saving accounts and providing them bank loans.
Model II: SHGs formed by formal agencies (NGOs/Voluntary Associations) other than banks, but directly financed by banks.
Model III: SHGs financed by banks, using NGOs and other agencies as financial intermediaries. In areas where the formal banking system faces constraints, the NGOs are encouraged to approach a suitable bank for bulk loan assistance. This in turn, is used by the NGO for lending to the SHGs.
b) Revolving Fund: Every SHG which is in existence at least for a period of six months and which has demonstrated the potential of a viable group through regular savings and active participation of members, pass through a scanning to be qualified for first grading to kick-start lending activity by bank, gets Revolving Fund of Rs. 25,000 from bank as cash-credit facility. Of this, a sum of Rs. 15,000 is given to the bank by the District Rural Development Agency (DRDA). Bank may charge interest only on the sum exceeding Rs. 15,000. The Revolving Fund is provided to the group for augmenting their group corpus so as to enable larger number of members to avail loan and also to facilitate increase in the per capita loan available to the members.
c) Bank Loan for Economic Activities: Once an SHG receives Revolving Fund, its activities are closely monitored by the bank with regard to usage of the fund, financial discipline, account keeping; and once again graded. This second grading revolves around financial management of the funds provided. The concerned bank and the DRDA take active part in grading exercise of the SHG. After the second grading, the successful groups become eligible for bank financing for undertaking economic activities. The bank loan is generally payable as per the project cost; in addition to other considerations like the size of internal resource generated by the SHG, activities of the members, type of project taken up by the group and its members, etc.
d) Capital Subsidy: The Govt. of India, through the Ministry of Rural Development, grants Capital Subsidy of Rs. 15,000 to each of the members of a group belonging to the general category and Rs. 20,000 to ST/SC and people with disabilities. In addition to this, each of the SHG groups gets Rs. 20,000 per capital subject to a maximum of Rs. 2.5 lakh, whichever is less.
e) Interest Subsidy: This is another mode of funding SHGs. This was announced under the Government of India’s National Rural Livelihood Mission (NRLM) in 2011. Under this scheme, subsidy on interest rate above 7%, per annum charged by the bank is given for all SHG loans availed from banks, based on prompt payment. This subsidy is provided to individual beneficiary or SHG member till he/she has availed a bank loan up to an amount of Rs. 1 lakh. However, this subsidy is not available on such occasions when the SHG is availing Capital Subsidy.
Problems of SHGs movement in India and measures to improve it
Problems of SHGs: Though the SHG movement in India has gained momentum in some parts of the country and has become successful particularly in the southern states, has failed miserably in most of the other states. Several studies have identified a host of problems; some are localized, while some others are general for the country as a whole. A few important general problems which stand in the way of efficient functioning of the SHG are as follows:
1. Limited Financial strength hence limited Borrowing Capacity: The financial corpus generated by the SHGs out of the meager contribution of the members is generally small. This considerably limits the borrowing capacity of the groups. As a result, the volume of business also considerably limited.
2. Marketing of products poses a major challenge for SHGs: A serious problem of the SHGs is that there is lack of innovation among members; most of the SHG members are the followers of what others do. As a result, too many units of similar type crop up in the same area. This results in marketing disadvantage for most of the groups and their members.
3. Consumers’ reluctance to buy SHG products when the products produced by MNCs are available in the market: Another serious challenge faced by the SHGs is the competition from Multi-National Companies (MNCs). When products of MNCs are available in the market, even sometime at cheaper cost, people in general discard the products of SHGs.
4. Lack of Professionalism as the members are less qualified: Poor academic attainment of the SHG members also stands heavily in the way of efficient working of the groups in most cases. When an income generating project is operated, the SHG members are entrepreneurs and as such, they are expected to behave with professional attitude. Such trait is grossly missing with most of the SHG members.
Measures for improvement: A few suggestions for improvement in the working of SHGs are noted as follows:
1. Selecting right products: If SHGs are to survive in the long-run, selecting the right type of products which have high market demand should be produced. The situation may even call for changing the products mix, colour, packaging, etc from time-to-time depending upon the changing market needs.
2. Need for Cluster Approach: To withstand competition with the products of MNCs, SHGs producing similar products may resort to cluster approach and sell their products under a common brand name. This will considerably help them to gain marketing strength by expanding the market to distant places in urban areas where traditional products are highly welcomed by some section of consumers.
3. Include qualified persons in Management: Where the SHG members lack adequate academic qualification to do with their business in right earnest, one qualified person to take care of the matters may be hired when the business takes a good shape. This will considerably help to augment the business.
4. Undergoing proper training in Business Management: The SHG members, wherever possible, should undergo proper training in Business Management with the intervention of the NGOs and banks.