Self Help Groups (SHGs) - their History, Working and Criticism

The article seeks to compile all the relevant information regarding Self Help Groups (SHGs) in the field of micro finance. A historical perspective on these groups is given and the mode of working of SHGs is discussed in some detail. Finally the grounds on which these groups have been criticized are being discussed.

Self Help Groups (SHGs) are small groups of around 15-20 people, mostly women, formed for the purpose of imparting microcredit and encouraging micro-entrepreneurship and habits of thrift. In this article, the history of these groups, their mode of working and the grounds on which they have been criticized are covered.


The history of SHGs dates back to 1985, from the actions undertaken by the Mysore Resettlement And Area Development Agency (MYRADA). The SHG movement, under the leadership of MYRADA, first started in the southern states. There is a general awareness in these states, especially amongst women, regarding thrift and importance of cheap credit. By 1986-87, there were around 300 SHGs in MYRADA's projects. MYRADA imparted training to these groups on several grounds like organizing meetings, setting agendas, keeping minutes and accounts etc.

Over time several agencies like the National Bank For Agricultural And Rural Development (NABARD), the Reserve Bank Of India (RBI), leading NGOs, as well as multilateral agencies like International Fund For Agricultural Development (IFAD) helped in the growth of the SHGs.

The history of SHGs can be broadly studied in two phases:
Phase 1(1987-1992):
In this phase, NABARD was the main agency for helping out SHGs. NABARD undertook measures to assist MYRADA through a grant of INR 1 million in 1987. It then helped other NGOs involved in promoting SHGs. In 1992, the RBI accepted the SHG model as an alternative credit option.

Phase 2(1992-present):
In this second phase, the linkage of SHGs and banks was done, with the unstinting support of RBI as well as IFAD. By March 2005, credit had been extended to about 1,628,456 SHGs with a cumulative membership of about 24 million families.

Mode of working

  • SHGs may be registered or unregistered.

  • Comprises a group of micro entrepreneurs, coming together voluntarily to pool money.

  • Members agree to contribute to a common fund and extend mutual help in case of emergencies.

  • Loans may be taken by the members from the common pool of the group.

  • Collective wisdom and peer pressure are used to ensure proper end use of loans and timely repayment.

  • To make accounting simple, flat interest rates are used for most calculations.

  • Once SHGs achieve a record of regular returns and have achieved a sizable pool of common capital, they become eligible to borrow from banks under NABARD's SHG-bank linkage program.

  • The southern states have shown a better record than all others in case of SHGs availing bank credit. This is because of the following reasons:

    Benefits of SHGs

    • They inculcate the habit of thrift among villagers, particularly rural women.

    • They persuade members to find additional income sources.

    • Self help groups act as a conduit for formal banking services to reach poorer people.

    • SHGs have also led to better financial condition of the women and in some cases have led to improvement in health parameters like nutrition and maternal mortality.

    • A general improvement in the status of women within the household is also one of the contributions of the SHG movement.

    Criticism of the SHGs

    • In certain cases, due to lack of continued official support, the micro enterprises started by women SHGs have collapsed, as has happened in case of the Annai Theresa Women's SHG.

    • The educational status of the members is also below par, making financial management difficult. Also lack of vocational education makes diversification into technical enterprises almost impossible.

    • Aggregate data regarding actual governance of the SHGs: whether groups once formed continue to function effectively or not and other related themes are yet to be published.

    • The discontinuation of the functions of the SHGs, lack of cooperation between the members, unavailability of bank linkages, favoritism among members are some of the other issues that need to be addressed.

    • Increased work burden and responsibility of the household invariably falls upon women, stagnating the SHG movement.

    Possible solutions

    The concept of SHGs, when it was first started, was indeed an innovative one. But over the years, as has been already mentioned under the previous heading, a number of problems have been noticed. Possible solutions to these problems are as follows:

    • The general education status in villages, particularly female education, has to be emphasized upon.

    • Special stress has to be laid on vocational education so that members are able to start various kinds of small scale manufacturing enterprises.

    • General awareness among members regarding their own rights has to be improved through public outreach programmes.

    • Incentives need to be provided to banks so that they are encouraged to set up branches in rural areas.

    • The aggregate data regarding actual management of the SHGs have to be published so that we know about their actual management.

    • Finally a general improvement in the status of rural infrastructure is needed for micro enterprises to grow.

    When these suggestions will actually be implemented is a matter of question. But it should be clear by now that without steps for improvement, the SHG model, which had shown so much promise in the earlier years, may wither away soon.

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