Self Help Groups and Rural Banking

Self help group is the buzzword in finance and rural banking today. Self help group is an association of some people who work jointly for everybody's benefits. To know how a self help group is formed, how a SHG works , go through the article.

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.

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