Self Help Groups SHG

Self Help Groups (SHGs) are small, informal groups of 10 to 20 people, usually women from similar socio-economic backgrounds, who come together to save money regularly and provide loans to members from the pooled savings. SHGs are a powerful tool for financial inclusion and women’s empowerment, particularly in rural India.

What Is an SHG?

An SHG is a peer group that practices regular, disciplined savings, manages a common fund, and provides credit to members. The group meets regularly, maintains simple accounts, and collectively decides on loan allocation, interest rates, and repayment schedules.

Over time, SHGs build a track record and link with banks under the SHG-Bank Linkage Programme to access larger credit at formal interest rates.

How SHGs Work

1. Group formation: 10 to 20 women from the same village or locality form a group
2. Regular savings: each member saves a fixed amount weekly or monthly
3. Internal lending: the group lends to members from pooled savings, charging a small interest
4. Group credit record: interest earnings strengthen the group corpus over time
5. Bank linkage: banks open accounts for the SHG and provide loans based on the group’s savings history

SHG-Bank Linkage Programme

NABARD launched the SHG-Bank Linkage Programme in 1992. Banks lend to SHGs at lower interest rates compared to moneylenders. The SHG then on-lends to members at a slightly higher rate, with the difference strengthening the group corpus.

Benefits of SHGs

– Financial inclusion for women who lack individual credit access
– Lower interest rates than moneylenders
– Build savings discipline and financial literacy
– Empowerment: women gain confidence, leadership skills, and income control
– Collective bargaining power for better wages and prices

Government Support

Government programmes like DAY-NRLM (Deendayal Antyodaya Yojana – National Rural Livelihoods Mission) and SGSY formally support SHG formation, capacity building, and bank linkage across India. States like Andhra Pradesh, Telangana, and Kerala have some of the largest SHG networks in the world.

Practical Example

Fifteen women in a village form an SHG and each saves Rs 200 per month. After 6 months, the group has Rs 18,000. Lakshmi, a member, needs Rs 5,000 for her child’s school fees. The group decides to lend it to her at 2% per month interest. She repays within 3 months. After one year, the SHG links with a bank and gets a Rs 1.5 lakh loan for members to start small businesses.

Key Takeaways

– SHGs are groups of 10 to 20 people who pool savings and provide loans to each other
– The SHG-Bank Linkage Programme connects groups to formal credit at lower interest rates
– SHGs are central to women’s empowerment and rural financial inclusion in India
– Government programmes like DAY-NRLM actively support SHG formation and training
– Over 1.2 crore SHGs are active in India, covering tens of millions of women