Self-Help Groups (SHGs)


Ministry of Food Processing Industries introducing Self-Help Groups (SHGs) in Food Processing Sector

What are Self Help Groups?

  • National Bank of Agriculture and Rural Development (NABARD) defines Self-Help Groups as ‘a homogenous group of rural poor voluntarily formed to save whatever amount they can conveniently save out of their earnings and mutually agree to contribute and emergent credit needs’.
  • A Self-Help Group is defined as a “self-governed, peer-controlled information group of people with similar socio-economic background and having a desire to collectively perform common purpose”.
  • SHG is a mini voluntary agency for self-help at the micro level has been focused on the weaker section particularly women for their social defence. So basically, the concept of SHGs serves the principle “by the women, of the women and for the women”.
  • It is informal associations of people who choose to come together to find ways to improve their living conditions. They help to build Social Capital among the poor, especially women.
  • SHGs promote small savings among their members. The savings are kept with the bank. This is the common fund in the name of the SHG. The SHG gives small loans to its members from its common fund
  • SHG is an informal group and registration under any Societies Act, State cooperative Act or a partnership firm

Timeline of SHG

  • The origin of SHGs in India can be traced back to the establishment of the Self-Employed Women’s Association (SEWA) in 1972.
  • Even before, there were small efforts at self-organising. For example, in 1954, the Textile Labour Association (TLA) of Ahmedabad formed its women’s wing in order to train the women belonging to families of mill workers in skills such as sewing, knitting, etc.
  • Ela Bhatt, who formed SEWA, organised poor and self-employed women workers such as weavers, potters, hawkers, and others in the unorganised sector, with the objective of enhancing their incomes.
  • NABARD, in 1992, formed the SHG Bank Linkage Project, which is today the world’s largest microfinance project.
  • From 1993 onwards, NABARD, along with the Reserve Bank of India, allowed SHGs to open savings bank accounts in banks.
  • The Swarn Jayanti Gram Swarozgar Yojana was introduced in 1999 by GOI with the intention of promoting self-employment in rural areas through formation and skilling of such groups. This evolved into the National Rural Livelihoods Mission (NRLM) in 2011.

Role of an SHG

  • Freedom from exploitative debt – In rural India, people are still dependent on informal moneylenders. These moneylenders exploit these poor people by entering into false agreements, writing wrong amounts on papers, charging excessive interest rates and confiscating property on failing to repay the loan. SHGs free these people from clutches of moneylenders.
  • Collective guarantee system – for members who propose to borrow from organised sources. The poor collect their savings and save it in banks. In return they receive easy access to loans with a small rate of interest to start their micro unit enterprise.
  • Leadership development: SHGs provide organisational platform to rural people to act as leader for their respective activities. SHGs provide dynamic leadership as every person gets a chance to lead according to the skill sets. Example: In Andhra Pradesh alone, 1,40,000 women leaders were created.
  • Social integrity –SHGs encourages collective efforts for combating practices like dowry, alcoholism etc.
  • Gender Equity –SHGs empowers women and inculcates leadership skill among them. Empowered women participate more actively in gram sabha and elections.
  • Pressure Groups –their participation in governance process enables them to highlight issues such as dowry, alcoholism, the menace of open defecation, primary health care etc and impact policy decision.
  • Voice to marginalized section– Most of the beneficiaries of government schemes have been from weaker and marginalized communities and hence their participation through SHGs ensures social justice.
  • Savings – All SHG members regularly save a small amount. The amount may be small, but savings have to be a regular and continuous habit with all the members.
  • “Savings first – Credit later” should be the motto of every SHG member.
  • Internal lending – The SHG should use the savings amount for giving loans to members. The purpose, amount, rate of interest, schedule of repayment etc., are to be decided by the group itself.
  • Financial inclusion – SHGs have mobilised millions of people across the country especially women. 40.95 million families and 204.75 million people having been covered under NABARD-Bank Linkage programme and the cumulative loan figure standing at 18040 crores as on 31-03-2007
  • Impact on Housing & Health –The financial inclusion attained through SHGs has led to reduced child mortality, improved maternal health and the ability of the poor to combat disease through better nutrition, housing and health – especially among women and children.
  • Banking literacy –It encourages and motivates its members to save and act as a conduit for formal banking services to reach them.

Functions of Self Help Groups

  • They try to build the functional capacity of poor and marginalised sections of society in the domain of employment and income-generating activities.
  • They offer collateral-free loans to sections of people that generally find it hard to get loans from banks.
  • They also resolve conflicts via mutual discussions and collective leadership.
  • They are an important source of microfinance services to the poor.
  • They act as a go-through for formal banking services to reach the poor, especially in rural areas.
  • They also encourage the habit of saving among the poor.

Advantages of Self Help Groups

  • Financial Inclusion – SHGs incentivise banks to lend to poor and marginalised sections of society because of the assurance of returns.
  • Voice to marginalised – SHGs have given a voice to the otherwise underrepresented and voiceless sections of society.
  • Social Integrity – SHGs help eradicate many social ills such as dowry, alcoholism, early marriage, etc.
  • Gender Equality – By empowering women SHGs help steer the nation towards true gender equality.
  • Pressure Groups – SHGs act as pressure groups through which pressure can be mounted on the government to act on important issues.
  • Enhancing the efficiency of government schemes – SHGs help implement and improve the efficiency of government schemes. They also help reduce corruption through social audits.
  • Alternate source of livelihood/employment – SHGa help people earn their livelihood by providing vocational training, and also help improve their existing source of livelihood by offering tools, etc. They also help ease the dependency on agriculture.
  • Impact on healthcare and housing – Financial inclusion due to SHGs has led to better family planning, reduced rates of child mortality, enhanced maternal health and also helped people fight diseases better by way of better nutrition, healthcare facilities and housing.
  • Banking literacy – SHGs encourage people to save and promote banking literacy among the rural segment.

Issues With Self-Help Groups:

  • Access of market: Also, the goods produced by SHGs do not have access to larger market place.
  • Lacks up-gradation of skills: Most SHGs are not making use of new technological innovations and skills. This is because there is limited awareness with regards to new technologies and they do not have the necessary skills to make use of the same. Furthermore, there is a lack of effective mechanisms.
  • Politicization: Political affiliation and interference has become a serious problem with SHGs.
  • Agricultural Activities: Most of the SHGs work at local level and engaged in agricultural activities. SHGs in rural areas should be introduced to non-agricultural businesses too and should be provided with state-of-the art machinery.
  • Lack of Technology: Most of the SHGs work with rudimentary or no technology.
  • Weak Financial Management: It is also found that in certain units the return from the business is not properly invested further in the units, and the funds diverted for other personal and domestic purposes like marriage, construction of house etc.
  • Inadequate Training Facilities: The training facilities given to the members of SHGs in the specific areas of product selection, quality of products, production techniques, managerial ability, packing, other technical knowledge are not adequate to compete with that of strong units.
  • Problems Related with Raw Materials: Normally each SHG procures raw materials individually from the suppliers. They purchase raw materials in smaller quantities and hence they may not be able to enjoy the benefits of large scale purchases like discount, credit facilities etc.
  • Moreover, there is no systematic arrangement to collect raw materials in bulk quantities and preserve them There is no linkage with major suppliers of raw materials. Most of the SHGs are Ignorant about the major raw material suppliers and their terms and conditions. All these cause a high cost of raw materials.
  • SHGs are run by non-professionals: There is no professionalism within the SHGs. This does not promote the expansion and improvement of the SHGs. This does not allow for the increase of wages of the members and improvement in their living conditions. This also leads to error in accounting and mismanagement.
  • Lack of Stability and Unity Especially among women SHGs: In the case of SHGs dominated by women, it is found that there is no stability of the units as many married women are not in a position to associate with the group due to the shift of their place of residence. Moreover, there is no unity among women members owing to personal reasons.
  • Exploitation by Strong Members: It is also observed that in the case of many SHGs, strong members try to earn a lion’s share of the profit of the group, by exploiting the ignorance and illiterate members.
  • Too much dependence on government and NGOs: Many SHGs are dependent on the promoter agencies for their survival. In case these agencies withdraw their support, the SHGs are vulnerable to downfall.
  • Inadequate Financial Assistance: It is found that in most of the SHGs, the financial assistance provided to them by the agencies concerned is not adequate to meet their actual requirements. The financial authorities are not giving adequate subsidies to meet even the labour cost requirements
  • Credit Mobilization: A study has shown that about 48% of the members had to borrow from local money lenders, relatives and neighbours because they were getting inadequate loan from groups.
  • Contrary to the vision for SHG development, members of a group do not come necessarily from the poorest families;


  • The role of the Government in the growth and development of the SHG movement should be that of a facilitator and promoter. The objective should be to create a supportive environment for this movement.
  • The literacy levels of rural women are low and hence efforts to enhance literacy levels in the area should be given priority.
  • The government could make SHGs as statutory bodies and allowed to work with the local bodies to channelize women’s development programmes.
  • Government should encourage export of goods which are produced by the group members.
  • The An integrated approach is required for meeting overall credit needs of a poor family in terms of backward linkages with technology and forward linkages with processing and marketing organizations.
  • Credit needs to be provided for diversified activities including income generating livelihood activities productions, housing consumption loan and against sudden calamities.
  • The delivery system has to be proactive and should respond to the financial needs of the farmers.
  • Training programmes relating to management of finances, maintaining accounts, production and marketing activities etc. should be given.
  • Simplify the process of giving loans, i.e. reduce the number of questions to important non repetitive ones.
  • Provide gender sensitization training to bank staff so that they are sensitized to the needs of rural clients especially women.
  • Adequate insurance coverage should be provided to the business units promoted by SHG against the financial losses to safeguard the interest of the entrepreneurs.
  • The SHG movement needs to be extended to urban and peri-urban areas. State Governments, NABARD and commercial Banks should join together to prepare a directory of activities and financial products relevant to such areas.
  • NGOs may help SHG in identifying new marketing areas and methods of distribution of products manufactured or marketed by SHGs.
  • A Self-Help Group should not only concentrate on the growth of the group, but should also show active involvement on the social issues and other essential issues like health, sanitation etc. to develop the entire village.
  • There should be rotation of group leadership, so that all the members of the group get an opportunity to play managerial roles.

Government Measures to strengthen the SHG movement

The government plays a crucial role as a facilitator for the SHGs. There various government schemes dedicated to the promotion of the SHGs. Some of them are as follows:

  • Swarn Jayanti Gram Swarozgar Yojana (SGSY): In 1999, the Government of India, introduced SGSY to promote self-employment in rural areas through the formation and skilling of SHGs.
  • Deen Dayal Antyodaya Yojana – National Rural Livelihoods Mission (DAY-NRLM):
    • It is under the Ministry of Rural Development, across the country in a mission mode with the objective of organizing the rural poor women into Self Help Groups (SHGs) and continuously nurturing and supporting them to take economic activities till they attain an appreciable increase in income over a period of time to improve their quality of life and come out of abject poverty.
    • The program aims to ensure that at least one woman member from each rural poor household (about 9 crores) is brought into the fold of women SHGs and their federations within a definite time frame.
    • As of 31st May 2019, 5.96 crore women have been mobilized into 54.07 lakh women Self Help Groups (SHGs) under the program.
    • The government is planning to create a total of 75 lakh Self Help Groups by 2022 to enable more women to get a livelihood.
  • Scheme for promotion of Women SHGs (WSHGs) in backwards & LWE districts of India: 
    • The scheme aims at saturating the districts with viable and self-sustainable WSHGs by involving anchor agencies who shall promote & facilitate credit linkage of these groups with banks, provide continuous handholding support, enable their journey to livelihoods and also take the responsibility for loan repayments. Under the Scheme, in addition to working as an SHPI, the anchor agencies are also expected to serve as a banking/business facilitator for the nodal implementing banks. 
    • To facilitate the implementation of the Scheme, an exclusive fund – ‘Women SHG Development Fund’ was set up by the Dept. of Financial Services, Ministry of Finance, Govt. of India in NABARD with a stated corpus of Rs. 500 Crore Grant support with Rs 10,000/- per SHG.

Case Studies

  • Kudumbashree in Kerala: It was launched in Kerala in 1998 to wipe out absolute poverty through community action. It is the largest women empowering project in the country. It has three components i.e., microcredit, entrepreneurship and empowerment. It has three tier structure – neighborhood groups (SHG), area development society (15-20 SHGs) and Community development society (federation of all groups). Kudumbashree is a government agency that has a budget and staff paid by the government. The three tiers are also managed by unpaid volunteers.
  • Mahila Arthik Vikas Mahamandal (MAVIM) in Maharashtra – SHGs in Maharashtra were unable to cope with growing volume and financial transactions and needed professional help. Community managed resource centre (CMRC) under MAVIM was launched to provide financial and livelihood services to SHGs. CMRC is self-sustaining and provides need-based services.
  • Tamil Nadu – In Tamil Nadu, the Department of Rural Development has taken initiative to organise the rural poor into Self-Help Groups which collectively work for securing livelihood employment for the members. The members of the group agree to save regularly and convert their savings into a common fund known as the group corpus. This fund is used by the group through a common management strategy.

Source: PIB

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