Self Help Groups : An Overview of Functioning

It is estimated that more than 25 million rural women of India have been benefited by the Self Help Groups(SHG). The socio-economic benefits include economic self independence, participation in village affairs and awareness about education. This article is aimed at providing a brief overview of functioning of SHG.


Self Help Groups are small groups of people facing similar problems. The members of the group help ach other to solve their problems. A reasonably educated but helpful local person takes the lead in mobilizing these people to form a group.

The person, called animator or facilitator, helps the group members develop the habit of thrift and promote small savings among them. The group savings are kept in a common bank account from which small loans are given to members.

After six months, the SHG can approach any bank for availing loan facility to undertake a suitable entrepreneurial activity. The group loan is distributed among the members to run a small business. The loan is repaid out of the profits earned.


The animator plays important role in functioning of SHG. Anybody can be animator. A retired school teacher or government employee, or an educated but unemployed youth in the locality, or any NGO. The animator (he or she) should have inclination to help others.

1. The animator talks to the people by arranging small meetings or approaching individually.

2. He/she explains the benefits of thrift and group formation.

3. He helps the group in identifying their leader.

4. He also guides them in maintaining their accounts etc. In general, the role of animator is to guide and motivate the leader and members of SHG.


The ideal size of SHG is 10-20 members. A smaller size is preferred because in a big group members cannot participate actively. The group may or may not be registered. Only one person from one family can become member of a SHG. A group of either men or women is formed. A mixed group is generally not preferred. It is important that the members have a common social and financial background. For example, the group should be of farmers, artisans, craftsmen, housemaids, mill workers etc. The advantage of a homogenous group is that members can interact freely. Following could be some of common factors for membership of SHG:

1. Women / men from poor households.

2. Those with dry land holding not mre than 2 acres.

3. Having no access to safe drinking water

4. Having illiterate adults in family

5. Presence of alcoholic or drug addict or a person with prolonged illness in the family.

6. SC or ST families


1. Savings and thrift

2. Internal lending

3. Keeping proper accounts of transactions

4. Discussing problems

After a satisfactory performance of SHG and sufficient balance in the common account, the SHG can approach any bank of its convenience for availing loan. The RBI and NABARD has issued special guidelines to all the banks to encourage microfinance to such SHGs. The SHG can approach the bank with following documents:

Resolution from SHG

Authorization from SHG

Copy of rule and regulations of SHG

Passbook of its account

Details of financial transactions

The bank manager / field officer assesses the performance of SHG based on guidelines issued by RBI/NABARD and if found fulfilling the criteria , the SHG is sanctioned with credit facility. NABARD rules stipulate that no collateral security is necessary for the loans sanctioned to SHG. The credit is given to the group at substantially lesser interest rate. The group can charge 2-3 percent more to its members for its operation.

A repayment schedule is drawn up with the SHG and the loan is to be repaid regularly in small and frequent installments. The loan is the collective responsibility of the members. The experience of the bankers tells that repayments from SHGs are far better than individual accounts.

The SHG movement thus has taken root in India and is contributing in poverty alleviation, and more importantly women empowerment. The government needs to encourage this movement on a bigger scale.


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