Self Help Groups
It is a group of micro-entrepreneurs having homogenous socio-economic backgrounds and who voluntarily come together to save regular small sums of money, mutually agreeing to contribute to a common fund, and meet their emergency needs on the basis of mutual help.
Salient features of SHG model
1.A Non-government Organization(NGO) acts as an intermediary between the bank and SHG; helps latter to complete formalities and get loan from banks;
2.The members contribute over some time until there is enough capital to begin lending. They lend back to members or to others in the village for any purpose;
3.NGOs usually provide training to SHG members so that they can become independent in bank related procedures. After training, SHG members start working themselves;
4.The group consists for 10-20 members who hold weekly meetings. The leader is elected by consensus;
5.The group has a saving bank account which is operated by a group representative;
6.SHG lend internally to members from own savings ;
7.Banks lend to the group as a whole. Disbursement of loans to members is at the discretion of the group.
How are SHGs are formed?
The process of formation of a SHG is as follows
1.Identification of potential areas on the basis of size of village, physical access, magnitude of poverty etc;
2.Conducting preliminary survey on financial situation of households;
3.Conducting general meetings - briefing about the organization and credit policy;
4.Identification of preliminary group i.e. member selection on the basis of monthly income criteria;
5.Group orientation. In the end, verification of the group regarding their punctuality, discipline, awareness about the organization, is conducted.
Rules for formation of SHG
1.10-20 members per group. Only 1 member from a family;
2.Weekly meetings are compulsory;
3.All transactions and discussions would be done in the meeting only;
4.For 3 months, emphasis should be on regularity of meetings, 100 pc participation, regular savings and deposits;
5.Between 3 to 6 months, a SHG concept training has to be arranged for all the members;
6.Participation of bank officials in SHG meetings, at least once in 3 months is important.
Weaknesses in SHG model
1.Since savings are held within the group, there is a threat to cash;
2.Professional management skills are missing as members lack higher educational qualifications;
Benefits of SHG model
1.Enables economically weaker sections to set up business and improve their quality of life;
2.Since it is a pooling concept, transaction costs for lenders and borrowers go down.