It is not surprising that the development of women in India has been the center stage of its development planning since independence though the concept has been evolving from plan to plan. In most South Asian countries, the status of women is low and their socio-economic conditions are much more depressed than that of men. In India, while the constitutional and legal status of women is equal to that of men in all respects, the reality is that they suffer in all spheres of social and economic life. Poverty is one of the aspects of their deprived condition. Low earning, lower wages, low level of skills, limited access to the factors of production, low literacy, malnutrition, poor standard of health, and greater exposure to domestic violence. Self-help groups have emerged as a popular method of working with people in recent years. Power to the people signifies a new social movement, which has probably has born out of the realization that society’s traditional arrangements for solving their problems are inadequate. This movement stems from the people’s desire to meet their needs and determine their destinies through the principle of ‘by the people, for the people, and of the people. Ordinarily, self-help refers to the provision of aid to self, but here self is also taken to mean internal. Self-help emphasizes self-determination, self-reliance, self-production, and self-empowerment by mobilizing internal resources for the person, group, or community.

Origin of Self Help Group Movement

The concept of SHG serves the Principle "by the women, of the women and for the women". The origin of SHG is from the brain child of GRAMIN BANK of Bangladesh, which was founded by the economist, Prof. Mohammed Yunus of Chittagong University in the Year 1975. This was exclusively established for the poor. Self Help Group is a small economically homogeneous and affinity group of rural poor which is voluntarily ready to contribute to a common fund to be lent to its members as per group decision, which works for group's solidarity, self-group, awareness, social and economic empowerment in the way of democratic functioning. The Self Help Group movement became a silent revolution within a short span in the rural credit delivery system in many parts of the world. It has been documented that nearly 53 developing countries including India, have taken up this on a large scale. In 1997, World Micro Credit Summit at Washington converged the developed and the developing countries to tackle the serious problem of poverty by using micro credit as a tool to empower the poorest sections. A global movement has been launched to reach 100 million of the world's poorest families by the year 2005.

Meaning of Self Help Groups-

Self Help Group (SHGs) is a small voluntary association of poor people, preferably from the same socio-economic background. They come together for the purpose of solving their common problems through self help and mutual help. The SHG promotes small savings among its members. The savings are kept with a bank. This common fund is in the name of the SHGs. Usually, the number of members in one SHG does not exceed twenty.

Objectives of Self Help Groups (SHGs)

The following are the main objectives of Self Help Groups:
  • To inculcate the habit of saving and banking habit among the rural women.
  • To build up trust and confidence between the rural women and the bankers.
  • To develop group activity so that various welfare and developmental programs can be implemented in a better way with the participation of these women groups.
  • To achieve women and child welfare program goals by actively involving these women groups in Universal Immunization Program, small family norm, Universal Elementary Education, etc.

Characteristics of SHGs

The following are the chief characteristic features of SHGs:
  • Small size.
  • Identical interest/social heritage/common occupation, homogeneity, affinity.
  • Intimate knowledge of members, intrinsic strength, needs and problems.
  • Flexible and responsive.
  • Democratic in operations.
  • Simple documentation.
  • Collective leadership, mutual discussions.
  • Group solidarity, self help, awareness, social and economic empowerment.


The benefits of SHGs are as follows :
  • A via-media for development of savings habit among the poor.
  • An access to large quantum of resources.
  • A window for better technology/skill upgradation.
  • Availability of emergent, consumption/production credit at the door step.
  • Access to various promotional assistance
  • Assurance of freedom, quality, self-reliance and empowerment.

Functions of SHGs

Given carrying out the empowerment of women, the SHGs are expected to take on certain functions which are essential documentation on the happenings of the SHGs, and their involvement with the wider society is considered to be vital. Small savings details are maintained by the members themselves.

Membership in Self Help Group

It is important that people from poor households are made aware and made to recognize the significance of collective efforts in solving problems that seem impossible with individual efforts, by voluntarily deciding to put their efforts together to help increase their access to financial services, economic services like technology, training in skill and enterprise management, material support and marketing facilities, etc.

Homogeneity Factor

The greater the extent to which individuals share activities, the more they will interact and the higher the probability that they will form a group. Interaction enables people to discover common interests, likes, and dislikes attitudes or sentiments. There are other important factors that encourage homogeneous group formation viz,

  • Gender: Gender focus of groups has been quite successful in promoting gender concerns, particularly in the context of economic empowerment of women.
  • Neighborhood: People who live in the same neighborhood are likely to form stronger groups than people who live in different areas.
  • Community: People with similar social backgrounds exhibit similar coping behavior in times of crises hence will be able to extend mutual support.
  • Occupation: People in similar occupations tend to be cohesive and group action is often found successful in confronting common problems.
Besides these, other factors like age, physical or social disability, management of community resources/assets are also being tried out for building up community organizations.

Membership Requirements

  • Size of group is normally restricted to 15-20 members to facilitate participatory processes.
  • Members of a group should be at least 18 years of age.
  • Members should be aware of the rights and obligations of membership.
  • Members must share an understanding of the objectives and vision of the group.
  • Finally, membership by mutual selection is a solitary means to build group solidarity.
The mutual selection process entails the participant expressly indicating the list of all people who could be trusted with their money. Persons with negative characteristics tend to be left out of such formed trust groups and those with positive attributes tend to be included.

Rights and Obligations of Members

  • Every member has a right to determine goals, objectives and vision of the group.
  • Every member has a right to participate in every activity of the group.
  • Every member has a right to participate in group meetings and decision making.
  • Every member has a right to participate in the leadership function.
  • Every member has right to access loans from the pooled corpus funds of the roup.
  • Every member has a right to share in the group's wealth.
  • Every member has a right to scrutinise group's records and inspect property.
  • Every member has a right to withdraw from membership in genuine circumstances.
  • Every member is under obligation to accept goals, objectives and vision of the group.
  • Every member is under obligation to participate in all group activities.
  • Every member is under obligation to make oneself aware and abide by group norms and rules.
  • Every member is under obligation to participate in group meetings and decision making.
  • Every member is under obligation to contribute minimum agreed thrift amount to the group.
  • Every member is under obligation to act with diligence in discharge of group responsibilities.
  • Every member is under obligation to discharge debt liability contracted by the group.
  • Every member is under obligation to participate in supervision of group finances/businesses.
  • Every member is under obligation to defend the group at all flora.
It is quite interesting to note that the rights and obligations of members are almost convergent mainly on account of Self Help Group being a member owned, managed and controlled institution; every ordinary member is also a part of management. Hence, transparency is the watch word.

Governance in Self Help Groups

Strong savings and credit groups owned and managed by the community itself need competent and committed development facilitators, strong cadre of leaders, and enlightened and alert members. Hence, the governance of Self Help Groups that promotes democratic traditions is crucial for its success. Evolution of norms or rules and regulations for self-governance, participatory decision making, diligence and self-discipline among group members coupled with strong enforcement mechanism are sufficient conditions for transparency in group operations. These rules and regulations are not mere statements but reflect the understanding of group norms by members through their- conduct in group activities/Rules and regulations of the group, therefore, need to apprehend conflict situation in day to day functioning of group and provide ready solutions. These could broadly cover:

  • Groups to have unique name to give it a distinct identity
  • Goals and objectives of group formation
  • Membership issues—optimal size, entry norms, exit policy
  • Extraordinary issues concerning membership— expulsion and co-option of members
  • Leadership structure—positions, roles and responsibilities
  • Positioning of leaders—tenure, selection and change process
  • Financial services—savings and credit products
  • Fund management—cash management, interest rates, expenditures
  • Decision making—decision making apparatus, styles and record keeping
  • Enforcement of decisions made by the group
  • Enforcement of group norms—discipline procedure
  • Relationships management with service agencies— Banks, SHPI/DRDA, etc.

While stability of group membership is strongly encouraged, it is possible that a few members could be co-opted into the groups to attain optimality in group size, alternately delinquent members could be expelled, in which case the groups could undertake a situational analysis and take appropriate decision. However, core objectives of the group and rule for self-governance should not be lost sight of.

Leadership Responsibilities

It is apt to realize that leadership in a Self Help Group is a Verb and not a Noun. The range of leadership responsibilities includes the following:
  • Providing guidance for group activities
  • Assisting in information sharing among group members
  • Helping define problems and identify solutions
  • Facilitating appraisal of group performance
  • Encouraging members to offer ideas and opinions
  • Resolving conflicts and disputes between group members
  • Conducting meetings and facilitating group decisions
  • Organising, implementing and coordinating group plans
  • Facilitating financial transactions during group meetings
  • Maintaining and keeping records of accounts
  • Maintaining a bank account on behalf of the group
  • Representing the group's interests to outside bodies
  • Conducting negotiations and doing business with other organizations
  • Rendering truthful and correct accounts to members

Considering the wide ranging responsibilities of leaders in Self Help Groups, responsibility sharing mechanism by assigning different leadership roles to several members must be worked out. This entails :

  • Grouping of leadership responsibilities and identifying leader positions
  • Affording clarity in roles and responsibilities of different leadership positions
  • Selecting leaders for discharging expected leadership roles on consensual basis
  • Developing systems and procedures where ordinary members are required to assist leaders in discharge of routine functions
  • Providing in built mechanism for rotation of leadership at least once in two years with clear succession plans for smooth change-over of leadership, similar to that found in rotary clubs
  • Adopting a methodology for changing leaders in case of non-fulfillment of expected roles.


Group meetings include the time when members gather either periodically or at short notice to discuss the activities of the group and decide on its future actions. All activities in Self Help Group revolve around meetings at which members access savings and credit services, share experiences, learn from each other and also receive education and training.

  • Meeting is a forum for group action and facilitates information sharing among members
  • Meetings are to be convened at regular intervals as per the convenience of the members
  • While the frequency of meetings is guided by the convenience of members, the critical determinant is the ability of members to discharge the financial obligations to the group. In other words, thrift, credit, and record-keeping functions must converge with the meeting at least once a month
  • Meetings must be held at a mutually decided place, date, and time. In other words, meetings are conducted at the same place, on the same day, and at the same time each time they are held
  • In the absence of a common meeting place, meetings could be held at the house of each member by rotation
  • Active participation in the deliberations by all members must be encouraged with an expression of free and frank views. However, the involvement of non-members in the decision-making process should be strictly objected to
  • Structured agenda for a group meeting with a definite sequence of activities to be pursued (viz., attendance, review of decisions of the previous meeting, thrift, repayments, loans, and social issues) will make meetings effective
  • Deliberations on other social and community issues together with routing financial matters are found to consolidate group dynamics
  • Sharing of various responsibilities among the members during the meeting process
  • Attendance of members taken before commencement of deliberations at the meeting enables effective member participation
  • Meetings should have near-full attendance of members, any absence of members must be viewed seriously
  • Penal provisions like fines, penalties, etc. must be enforced for late coming/leave without prior intimation
  • Chronic absenteeism in meetings are generally discouraged by withholding or delaying other pecuniary benefits to members

Savings Function

Poor look for saving services from formal financial institutions. Without a safe place to put their savings, the poor tend to invest it in "assets" such as gold, silver, livestock, etc. which can be pawned or sold in times of need. Thrift contributions by members to the group must be perceived as a savings product serving long term financial security needs. As such savings are generated by poor households either by refraining from consumption or postponement of their not so urgent needs. The thrift contribution reflects confidence of members on the group and is seen as an index, of their stake in the process. Thrift management is, perhaps, the most important function in a Self Help Group. Some of the best practices in this include :

  • Thrift collection could commence from first meeting itself
  • Periodicity and quantum of thrift decided by group members themselves keeping in view the ability of poorest member among them to pay the agreed amount at predetermined intervals
  • Minimum compulsory thrift contributions to be made by all members
  • Withdrawals against compulsory thrift contributions are not permitted unless the member withdraws from primary membership
  • Groups must insist for on-time contribution by members
  • Groups must collect thrift contribution in the presence of all members during the meetings only
  • Thrift collections must be utilized for lending to group members and must not be kept idle
  • Penal provisions like fines, penalties, etc. must be enforced against late payment or default in thrift
  • Chronic default in on-time thrift contributions by members are generally discouraged by withholding or delaying other pecuniary benefits to members. At times penalties for late/non-payment include fees, denial of higher loan amounts or longer waiting periods for loans
  • Delayed thrift contributions must not be received outside meetings
  • Additional or seasonal savings are encouraged by a few number of groups. But it is again desirable to have equal savings without interest implications keeping in view the weak fund management capability of many groups. However, whenever optional savings are offered it is suggested that suitable compensation (interest) is provided to address the equity question among various members
  • It is desirable to make payment of thrift amount to a member withdrawing from the group for genuine reasons
  • Continuity of thrift is the Jugular of Self Help Group process and any attempt to obstruct or discontinue it after receipt of Revolving Fund, Subsidy, Grant or even a Bank Loan can only be a self-inflicting move

Credit Function

Providing credit access to members of poor household on sustainable basis is the primary objective of Self Help Group. A well conceived loan program in a Self Help Group will enhance its attractiveness to the members. These loans are often given for various purposes without insistence on collateral but are available at cost. There is no compulsion to avail of loan facility, as such those who avail loans have to make a choice to pay the cost, or have no credit at all. Some of the best practices in the area of credit function management include:

  • Self Help Groups typically offer small, short-term loans for meeting emergent and consumption requirements only to their members
  • The internal lending must preferably commence from the data of first pooling of savings. Need based lending is strongly recommended by active groups
  • Loans are extended keeping in view the nature of need of particular member. Preference in borrower evaluation is, however, given to those who are regular in attendance at meetings and timely payment of thrift amounts
  • Group must have a system of giving differential priorities to several purposes for taking loaning decisions. Here, urgency of purpose is given precedence while selecting a borrowing member
  • Groups must establish a process to assess of credit requirement for arriving at loan quantum, efficacy of such system need to be seen in the context of particular Self Help Group
  • In a few groups, the loan quantum is in proportion to the individual member's total thrift contribution. Decision of groups indicating differential loan quanta based on the purpose and person availing the loan reflects their maturity
  • All credit decisions must be taken at the meetings only after giving due consideration to opinion of all members
  • Large loans to members are suitably collateralized considering the risk perception of the group. Often, groups go in for chattel financing wherein a borrower offers a critical productive asset as security for loan
  • Terms of credit like interest rate and schedule of loan repayments are negotiated and conveyed clearly to the borrowing member
  • Flexible repayment schedules are worked out by groups taking into consideration the various income-flows of the household and repayment capacity of the member concerned
  • Monthly or even weekly repayments (wherever weekly meetings are held) of both principal and interest payments are found to be convenient to both borrowers and the group to liquidate the loan liability
  • Separate schedules for principal and interest payments may be stipulated as they are easy to comprehend even by illiterate borrowers
  • Loans could be issued to the borrowing members in the presence of other members of the group
  • Groups ensure proper end-use on credit as also management of asset, wherever created. This practice must be continued at frequent intervals till the loan is fully repaid by the borrowing member
  • Concurrent loans are generally discouraged by most groups in view of small fund base. But where-ever they are given; rigorous appraisal must be undertaken on the purpose, genuine need of borrower and her performance in the earlier loan.
  • Reward for on-time repayment may be given to members in the form of future access to higher loan amounts
  • Penal provisions like fines, penalties, etc. must be enforced against late payment or default in loan repayment
  • Chronic default in on-time loan repayment by members are generally discouraged by withholding or delaying other pecuniary benefits to members. At times penalties for late/non-payment include fees, denial of higher loan amounts or longer waiting periods for further loans.
  • Continuity of need based internal lending will strengthen Self Help Group processes and any attempt to obstruct or discontinue it after receipt of Revolving Fund, Subsidy, Grand or even a Bank Loan can only be a self-destructive move.

Fund Management in Self Help Groups

Mobilizing micro thrifts is only part of a comprehensive savings service Self Help Groups. Small savings from resource-poor households need operative protection against loss of deposits. Misappropriation in savings and credit groups as well as imprudent lending from internally generated deposits threatens the security of savings program. They have to be shielded against the financial and non-financial risks. It is, therefore, considered necessary that high standards are set in the area of fund management which cover the following :

  • Group fund generally comprises member thrift, interest earned on internal loans, fines and penalties levied on defaulting members, loans and grants received in the name of the group. The groups are not expected to discriminate between the sources of fund for meeting loaning requirements. In other words, the savings, loan repayments, interest payments, fines and penalties paid by members will be pooled in the meeting for on-lending to the group members.
  • Efficient cash management in a meeting reflects the fund management capability of the group. Idle funds are a drag on the group.
  • Responsibility sharing in cash management at each meeting on rotation basis for assisting the group leaders will not only promote transparency but also enhance fund management competence among group members.
  • Managing of savings account with local branch is another important area in fund management. All cash collections made" at a meeting-may: be deposited into the bank and withdrawals made for disbursing the loans. While members could take turns for depositing the cash into bank, the persons authorised and the borrower concerned could draw the money from bank. However, groups maintaining up to date records could consider extending loans out of pooled fund during the meetings itself. Periodic reconciliation of accounts with bank transactions is considered useful.
  • Preparation of micro-credit plans in groups by groups improves considerably the credit absorption capacity as it entails acquisition of planning and financial skill among group leaders.
  • In the initial stage only short term loans are extended, usually for periods ranging from 3-12 months, to enable larger number of members access credit facility from the group. However, insistence on monthly repayments from borrowing members will accelerate the velocity of lending within the group, which also partially reflects equity in loan access to group members. Groups must have a policy on interest rates. Most groups charge interest rates that are linked to contemporary market rates. It is also desirable to build in risk factor in the interest rate structure in long term.
  • Generally interest is not paid to the members on the compulsory savings. Even in cases where interest is computed on compulsory thrift contributions the same is merged with the member savings rendering the very process in fructuous.
  • Coming to interest rate on loans, a few groups have been charging differential interest rates to their borrowers keeping in view the purpose of loan which can be considered good. However, the groups are not expected to soften their rates in the short term with the receipt of grant or loan funds from institutional sources. It must be appreciated that the interest charged on loan is a source for raising additional capital to fund the corpus base. However, the interest maybe charged on outstanding loan amounts as against interest rates charged by a few on EMI or flat rate basis.
  • Members must be made aware of their cumulative thrift contributions and loan outstanding.
  • Investment of pooled savings in a common asset (even a productive one) and blocking internal lending will in fact run counter to the objective of giving sustainable credit access to poor households. Further, the risk of investing entire corpus in a singular activity is fraught with risks.
  • Groups incurring regular expenditure towards cost of bank transactions, honorarium to book keeper etc. could consider collecting additional amounts every month from their members to avoid erosion of loaning funds.
  • A few groups have been holding small cash balance, say of Rs. 200/- to Rs. 300/- to give hand loans to members for meeting emergent credit requirements.

Record Keeping

Record keeping is possibly the most crucial function in a Self Help Group often confined to the periphery. An efficient record keeping assumes significance for promoting transparency in the system considering the need for providing safety of micro deposits pooled in savings and credit programs. An effective information system that supports their self-management efforts is sine-quo-non for sustainability of Self Help Groups. Such system can be considered effective when it is easily understood and appeals to cognitive abilities of ignorant and illiterate community. Besides, it must be credible, verifiable and facilitate quick recall of stored information in the perception of users. Some of the best practices in record keeping area could reflect upon the following issues :

  • Critical self-awareness must be created among groups on issues relating to record keeping
  • Groups must assume the responsibility for safe keeping of records
  • Group members must be trained to recognize books of accounts and their structure
  • Groups must be encouraged to discuss on nature and contents of records
  • Groups must be encouraged to hire services of local book keeper to upkeep records in case of non¬availability of literate members in the group capable of writing the records
  • Groups must be strongly encouraged to compensate for services rendered by book keeper
  • Groups must ensure that books are updated while the meeting is in progress
  • Groups must ensure that book writer reads out the notings made by him in various books
  • Groups must develop a practice of closing the books of accounts by year end
  • Cross checking of books across groups (peer audit) could be encouraged for audit purposes
  • Groups must encourage its members to learn to read and write their own books in the long run
  • Members must cultivate habit of confirming entries in member passbook

Group Vigilance

The corpus fund of a group is entirely contributed by its members and hence they alone must ensure that the fund is managed and controlled by them without any outside interference whatsoever. There is no alternative to alertness of members and their participation in group meetings. Some of the best practices discussed earlier also go in strengthening the group vigilance and control mechanism. These include :

  • Responsibility sharing mechanism where members assist leader in conduct of meeting
  • Practice of leadership rotation coupled with clearly laid out succession plan
  • Preventing outsiders from handling cash, even for training purposes
  • Responsibility fixing for handling cash during meeting and holding cash thereafter
  • Practice of tallying cash inflows and outflows at the end of each meeting
  • Practice of clarifying member wise cumulative savings and loans position every month
  • Responsibility to deposit cash and withdrawal from savings bank account on rotation basis
  • Practice of bank reconciliation on periodic basis
  • Ensuring end-use of credit by helping the borrowing member in purchase of assets, if any
  • Regular review of deviant behavior of members in attendance, thrift or loan repayment
  • Enforcement of group discipline through fines and penalties system in a transparent manner
  • Practice of rotating members accompanying leader for training and review sessions

Banking Relationship

Self Help Groups are primarily savings and credit groups and availing savings and credit services from local banks is a logical extension of their growth strategy to meet increasing credit demand from members. Moreover, accessing savings services from banks will provide safety to the pooled funds. It is expected that groups will demonstrate desired maturity in terms of group and financial dynamics leading to inculcation of banking habits in the groups. It would also make possible the bringing about of general improvement in the nature and scale of operations that would accelerate economic development.

  • Open savings account in group's name with the service area branch concerned
  • Regular operations in the group's savings account will help build healthy relationship with bank
  • Groups to assess their future fund requirements and articulate the credit gap in micro-credit plans
  • Groups to have clarity on issues relating to eligibility conditions, credit entitlement and legal obligations arising out of credit linkage with banks
  • Groups and banker must hold discussions at loan appraisal stage for enabling banker to arrive at a credit decision
  • Terms and conditions of credit extended by banks including implication of joint and several liability in the event of credit linkage must be clearly understood by all members of the group
  • Groups must assimilate bank loans with their corpus fund by extending need based loans to those members who could not access loans earlier from out of pooled savings. Here, the group must take care not to deviate from the financing norms (quantum of loan, rate of interest, repayment period) already laid down for giving loans out of their pooled thrift amounts merely because outside funds are injected into the group corpus
  • Groups must ensure on-time payment of bank loans by setting aside a portion of total collections made in each meeting for honouring repayment obligation to the bank. In other words, groups will square up the default amount of any borrowing member and pass on the instalment amount to the bank as per contracted repayment schedule
  • Continuity of thrift and need based internal lending even after receipt of bank loan will strengthen Self Help Group processes and any attempt to obstruct or discontinue it can only be a self-inflicting move.
  • Banks must reward for on-time repayment by means of repeat and higher finance.

SHGs also promoted democratic culture and provided women with opportunities to imbibe norms of behavior that are based on mutual respect. Hence they were able to foster concern even in internal lending of loans based on the individual needs and priorities. It provided a firm based for dialogue and co-operation in programs with other institutions like Government departments, co-operatives, financial and Panchayat Raj Institutions. The SHGs engaged not only in productive economic activities but also in social empowerment and capacity building of rural women. Health education, medical facilities, literacy, alternative agriculture practices, leader- ship qualities and team building are other activities of SHGs various studies revealed that SHGs ensured ‘we feeling’ among the members achieving the group cohesiveness and accorded a social identity to the rural women. It also enabled them for collective bargaining while keeping up their dignity. The "non-productive and non-assets worthy", naive village women had become agents of social change and economic development of the community through decentralized means of empowerment.
Empowerment, therefore, is closely linked to economic independence. Nothing succeeds better than the self help. And when efforts are supported by the Government and private agencies the results could be extremely gratifying. Today, there are two lakh self-help group women focused around economic activities like savings, collective marketing, and promotion of individual enterprise and in the process of moving into the main stream of society. In the process, leadership qualities blossom, discipline prevails and true democracy beginning to function. This also helps add value to the work they do, their families and their communities.


The SHGs provides the rural poor women with credit on reasonable. It is a media for the development of savings habit among the women folk. It mobilizes a large quantum of resources. It is a window for better technology and skill up gradation. In addition to financial intermediation, it conducts social intermediation to make the poor both socially and individually accountable. Such accountability leads to more effective use of loans and consequently ensures loan recovery. Thus, SHGs can be considered as an important tool to eradicate poverty among society and particularly making women self reliant and empowered.