Promotion of Self Help Groups under the SHG Bank Linkage Programme in India

This paper, presented at the Seminar on SHG-Bank Linkage Programme at New Delhi in November 2002, discusses the role and development of Self Help Groups (SHGs) in India, a “unique process of socio-economic engineering”. It is a fascinating look at a from-the-ground-up way of bringing people out of poverty and will be of use to policy-makers. This study compares the way SHGs are promoted by Self Help Promotion Institutions (SHPIs), in order to enhance the quality and efficiency of the promotion process and thus to improve the extent and level of financial service provision to rural people now without access to formal financial services.

A SHG is a group of about 20 people from a homogeneous background, who come together to address their common problems. They are encouraged to be thrifty, and pool their resources to make small interest-bearing loans to their members. Once the SHGs show evidence of mature financial behaviour, banks are encouraged to make loans to the groups in certain multiples of the accumulated savings of the SHG. The bank loans are given without collateral and at market interest rates. The groups continue to decide the terms of loans to their own members. Peer pressure ensures timely repayment and acts as an incentive that effectively replaces the requirement for collateral for the bank loans. This study, including a survey and a questionnaire filled out by 82 respondents with personal knowledge of SHG promotion and financing, included fieldwork undertaken in Orissa, Uttar Pradesh, and Karnataka. 35 SHGs, 20 SHPIs, and 16 bank branches were interviewed, and though the author admits that the samples are too small to allow for definite recommendations, they were sufficient to suggest the following main conclusions:

  • banks, particularly co-operatives, are likely in the medium term to be the main SHPIs, but the author hopes their role in promotion will be overtaken by SHG members’ own initiatives
  • a regular national SHG sample survey should be put in place to allow the National Bank for Agriculture and Rural Development (NABARD) to monitor SHG quality and to delegate the management of SHG promotion to banks
  • SHC promotion should take place even for lower-grade bank staff, and schemes to encourage SHC promotion should be delegated to the banks

This study is both thorough and very readable, although its reliance on a series of acronyms takes some getting used to. If it has a weakness, it is that it jumps from subject to subject rather lightly; however, it provides an excellent survey.

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