Previous Post
Next Post

New microfinance approaches have emerged in India over the past decade, creating the habit of thrift and provision of credit and other financial services and products, with the aim of raising income levels and improving the living standards of especially India’s rural population.The prominent microfinance companies are Bandhan, SKS, and the recently listed Equitas.

One notable area is the women’s Self-Help Group (SHG). The members of the SHG make small regular savings and contributions over a few months until there is enough capital in the group to begin lending. Funds may then be lent back to the members or to others in the village for any purpose. In India, many SHGs are linked to banks for the delivery of microcredit.

Many SHGs under NABARD’s SHG Bank Linkage Programme borrow from banks once they have accumulated a base of their own capital and have established a track record of regular repayments. NABARD estimates that there are 2.2 million SHGs in India, representing 33 million members that have taken loans from banks under its linkage programme till now.

Through SHGs, banks can serve low income rural depositors while paying them market rate of interest. The SHG Bank Linkage Programme since its beginning has been predominant in certain states, showing spatial preferences especially for the southern region covering the states of Andhra Pradesh, Tamil Nadu, Kerala and Karnataka.

The small SHGs are engaged in self-employment activities such as papad making, pickles making, dairy farming and agricultural activities. There are usually 20 members in the SHG to conduct the activities.They pool their resources to become financially stable by taking loans from the money collected by that group and by means of making everybody in that group self-employed.

The group members use collective wisdom and peer pressure to ensure proper end-use of credit and timely repayment. This system eliminates the need for collateral and is closely related to that of solidarity lending, widely used by microfinance institutions. To make the book-keeping simple, flat interest rates are used for most loan calculations.

This model has attracted attention as a possible way of delivering microfinance services to poor population where it has been difficult to reach directly through banks or other institutions. By aggregating their individual savings into a single deposit, SHGs minimise the bank’s transaction costs and generate attractive volume of deposits.

The benefits of financing through SHGs include enlarged strength as part of a group for poor individuals, decrease of transaction costs for lenders and borrowers, empowerment of poor people mainly women in rural areas, lenders requiring to handle only a single SHG account instead of large number of small individual accounts and lower expenses for borrowers.

The benefits of SHG can be seen from the case of PRADAN (Professional Assistance for Development Action). In 1998, PRADAN helped Teliya village in Jharkhand in its transformation from a remote village with a bleak future of severe food insecurity, malnutrition and almost no cash, to a thriving place with year-round cash crops and other products that are sold nationally.

SHG suggested by PRADAN brought the village’s women together to support one another, access financial and public services, and lead changes that affect the whole community and could become keen representatives for their communities’ rights and aspirations.With small moves year after year, villagers have adopted new habits and made remarkable progress.

PRADAN’s role is strengthening villagers’ ability to do the work of improving their community for themselves. And the results go beyond one village. The federation of women’s SGHs has grown into a network representing 36,000 families across the district, and PRADAN is working with communities in eight states of India by expanding its scale of operations and impact.