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A self-help group is a small economically

homogeneous and affinity group of rural poor

voluntarily coming together
To save small amounts regularly
To mutually agree to contribute to a common fund
To meet their emergency needs
To have collective decision making
To solve conflicts through collective decision
making and mutual decision
To 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
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
Structure of SHG
A 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
NABARD and the SHG Linkage
Introduction of pilot phase of SHG linkage
programme in February 1992 for linking 500
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 1993
Training 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 Linkage
The 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
The 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 environment
There should be genuine need to help each
other and work together among the
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 Trends
Year No. of SHGs Cumulative Bank Loan Cumulative
Linked No. of SHGs (Rs. In loan
crores) 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 SHGs
With 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
1.Financial Management
The 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

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.
Since 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 Resources
While 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.