A self-help group is a village-based financial intermediary usually composed of 10–20 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

Microcredit

Microcredit is the extension of very small loans to those in poverty designed to spur entrepreneurship. These individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit...

.

Structure

SHGs are member-based microfinance

Microfinance

Microfinance is the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services....

 intermediaries inspired by external technical support that lie between informal

Informal economy

The informal sector or informal economy as defined by governments, scholars, banks, etc. is the part of an economy that is not taxed, monitored by any form of government, or included in any gross national product , unlike the formal economy....

 financial market actors like moneylenders, collectors, and ROSCA

Rosca

Rosca is a Spanish and Portuguese bread dish eaten in Mexico, South America, and other areas. It is made with flour, salt, sugar, butter, yeast, water and seasonings. It is also called ka'ake and referred to as a "Syrian-style crack ring."Roscas de reyes is an oversized version colored with candy...

s on the one hand, and formal actors like microfinance institutions and bank

Bank

A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...

s on the other. Other organizations in this transitional zone in financial market development include CVECA

CVECA

A CVECA is a self-reliant village savings and credit bank . CVECAs are designed to operate in rural areas with clients who are primarily subsistence farmers, with minimal non-farm income...

s and ASCAs.

A Self-Help Group may be registered or unregistered. It typically comprises a group of micro entrepreneurs

Micro-enterprise

A micro-enterprise is a type of small business, often registered, having five or fewer employees and requiring seed capital of not more than $35,000. The term is often used in Australia to refer to a business with a single owner-operator, and having up to 20 employees...

 having homogenous social and economic backgrounds, all 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. They pool their resources to become financially stable, taking loans from the money collected by that group and by making everybody in that group self-employed. The group members use collective wisdom and peer pressure

Peer pressure

Peer pressure refers to the influence exerted by a peer group in encouraging a person to change his or her attitudes, values, or behavior in order to conform to group norms. Social groups affected include membership groups, when the individual is "formally" a member , or a social clique...

 to ensure proper end-use of credit and timely repayment. This system eliminates the need for collateral

Collateral (finance)

In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan.The collateral serves as protection for a lender against a borrower's default - that is, any borrower failing to pay the principal and interest under the terms of a loan obligation...

 and is closely related to that of solidarity lending

Solidarity lending

Solidarity lending is a lending practice where small groups borrow collectively and group members encourage one another to repay. It is an important building block of microfinance.-How it Works:...

, widely used by microfinance institutions. To make the book-keeping simple enough to be handled by the members, flat interest rates

Flat rate (finance)

Flat interest rate loans are often used by traditional moneylenders in the informal economy of developing countries. They are also used by many microfinance institutions. One reason for their popularity is their ease of use...

 are used for most loan calculations.

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. 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

Microfinance

Microfinance is the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services....

 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."

NABARD estimates that there are 2.2 million SHGs in India, representing 33 million members, that have taken loans from banks under its linkage program to date. This does not include SHGs that have not borrowed.. "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.".

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.

See also

• CVECA
  CVECA
  A CVECA is a self-reliant village savings and credit bank . CVECAs are designed to operate in rural areas with clients who are primarily subsistence farmers, with minimal non-farm income...
  
  
• Kudumbashree
• microcredit
  Microcredit
  Microcredit is the extension of very small loans to those in poverty designed to spur entrepreneurship. These individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit...
  
  
• microfinance
  Microfinance
  Microfinance is the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services....
  
  
• NABARD
• ROSCA
  Rosca
  Rosca is a Spanish and Portuguese bread dish eaten in Mexico, South America, and other areas. It is made with flour, salt, sugar, butter, yeast, water and seasonings. It is also called ka'ake and referred to as a "Syrian-style crack ring."Roscas de reyes is an oversized version colored with candy...
  
  

External links

• Self-help group gateway hosted by APMAS in Andhra Pradesh, India