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Library
A Handbook on Forming Self-Help Groups (SHGs)
Topic : Community-based Finance
This handbook has been prepared for local animators or group promoters for helping the poor to form self-help groups (SHGs) that can be linked to a local bank. It has been written by the National Bank for Agriculture and Rural Development in India and is thus particularly focused on the Indian context. However, it provides excellent advice for the creation and function of SHGs, which can be applied in any environment where the establishment of SHGs are legally and culturally appropriate.
All self-help groups are based on the fundamental principles of “helping each other” and “unity is strength”. You can use this handbook to develop questions to ask potential SHG members in order to gain a sense of the feasibility of establishing a SHG in the area; and the methods to use in promoting SHGs. The handbook will help you assist the members in defining the division of responsibilities within their SHG. It will also help you to explain the purposes and different types of books that an SHG must learn to keep. Example pages from savings and loan account registers and a cash book are provided in an annex.
The handbook also guides the process of linking an SHG to a bank and divides it into 4 steps:
- The opening of a bank account. The SHG presents the bank with a resolution stating its intent to open a bank account, the authorisation of at least three members to jointly operate upon their account, and a copy of the rules and regulations of the SHG if available.
- Internal lending. The handbook stresses how it is important for the SHG to practice internal lending before opening a bank account, as it is through internal lending that the SHG will learn to properly manage, utilise and repay their SHG loans.
- Assessment of the SHG. A clear and simple checklist is provided for a bank manager to use to determine whether an SHG is functioning well and is creditworthy. Example values for each criterion in the checklist are given under the heading of very good, good and unsatisfactory.
- Sanction of credit facility to the SHG. The group is collectively responsible for the repayment of the loan. NABARD accepts this as security, instead of the traditional collateral.
This handbook for forming self-help groups is complemented by the multimedia presentation “The Luminous Link” and a handbook for branch level managers, both of which are referenced here in the RFLC and are available from NABARD.