Self Help Group
SHG are informal association of people who come together to find ways to improve their living conditions. Such groups work as a collective guarantee system for members who propose to borrow from organized sources.
The SHG approach help poor to build their self-confidence through community action. Interactions in group meetings and collective decision making enables them in identification and prioritization of their needs and resources. This process also leads to building of social capital.
- It has developed as single important channel for micro finance distribution in developing world.Micro finance is a common term used for smaller loans without collateral. Micro finance is now a synonym for providing financial services to poor.A major micro finance experiment was pioneered by Mohd. Yunus (Nobel Award Winner) in Bangladesh in 1974-76. He also founded Grameen Bank which also became independent bank in 1983.Contrary to expectations, SHG were prompt in paying back the loan.
- The success of SHG programme has also led to considerable improvement in the health and nutritional status of women and children.
- Apart from Bangladesh, India, Bolivia, Indonesia and Mexico are some of the developing countries which have mature micro finance sector.
SHGs in India
- Major experiments in small group formation at the local level were initiated in Tamilnadu and Kerala about two decades ago through the Tamilnadu Women in Agriculture Programme (TANWA) 1986, Participatory Poverty Reduction Programme of Kerala, (Kudumbashree) 1995 and Tamilnadu Women’s Development Project (TNWDP) 1989. These initiatives gave a firm footing to SHG movement in these States.
- Today, around 44% of the total Bank-linked SHGs of the country are in the four southern States of Andhra Pradesh, Tamil Nadu, Karnataka and Kerala.
- The positive experience gained from the above programmes has led to the emergence of a very strong consensus that the twin concepts of
(a) small group organisation and
(b) self-management are potent tools for economic and social empowerment of the rural poor.
A full-fledged project “SHG-Bank Linkage”, involving a partnership among SHGs, Banks and NGOs was launched by NABARD in 1992. In 1995, acting on the report of a working group, the RBI streamlined the credit delivery procedure by issuing a set of guidelines to Commercial Banks. It enabled SHGs to open Bank Accounts based on a simple inter-se agreement. The scheme was further strengthened by a standing commitment given by NABARD to provide refinance and promotional support to Banks for credit disbursement under the SHG – Bank linkage programme.
Apart from NABARD, there are four other major organisations in the public sector which too provide loans to financial intermediaries for onward lending to SHGs. They are (a) Small Industries Development Bank of India (SIDBI), (b) Rashtriya Mahila Kosh (RMK), and (c) Housing and Urban Development Corporation (HUDCO). Then, there are public sector/other commercial banks which are free to take up any lending as per their policy and RBI guidelines.
Swarnajayanti Gram Swarojgar Yojana (SGSY), now National Rural Livelihood Mission (NRLM) under Ministry of Rural Development, also aims to raise the income levels by ensuring appreciable sustained level of income over a period of time. The objective is achieved by organizing the rural poor into SHG through the process of social mobilization, their training and capacity building and provision of income generating assets.
Also micro credit is a part of RBI’s Priority Sector Lending (PSL) norms.
SHG has emerged as a major empowerment tool for women in India.
Concerns related to SHG in India
- Many NGO face the immediate inability to collect back the disbursed loans. Though this is not a widely prevalent phenomena.
- There is a huge setback of “no-collateral” which can put any institution quickly under red, in scenario of SHG not returning the loan.
- On contrary, there have been instances of NGOs charging very high interest rates in some part of country.
All these issues needs proper legislation.
Legislation for control of Micro Finance Institutions (MFIs)
- MFIs involved with SHG activity in India has registered themselves as Non Banking Financial Companies (NBFC), Section 25 Company under Company Act, trusts or society under Society Act of India or state.
- NBFCs are regulated by RBI.
- Almost 22 states also have Money Lenders Act in place. Few state also have Prohibition of Charging Exorbitant Interest Act. In several cases, states have applied provisions of this act to close operations of errant organisations.
RBI appointed committee under Shri S C Gupta has recommended to remove MFI associated with SHG activity from purview of state money lenders act, etc. and bring them all under a model Micro Finance Sector Act. A bill regarding this was also prepared in 2007.
Recommendations of Committees regarding working of SHGs in India
2nd Administrative Reforms Committee
The role of government should be that of facilitator and promotor of SHG. The objective should be to create a supportive environment for this movement.
Rangarajan Committee on Financial Inclusion
A major thrust of expansion of SHG should be exerted in areas where formal source of credit is less.
o The SHG movement need to be extended to urban and peri-urban areas. State governments, NABARD and commercial banks should join together to prepare a directory of activities and financial products relevant to such areas.
o The activities of MFI should be regulated by a model act, and multiplicity of regulations should be avoided.
o Companies formed under Sec 25 of Companies Act, 1956 need to be brought under the purview of this Bill.
o Cooperatives should be taken out of the purview of the proposed bill in order to avoid duality of control.
India has become one of the leading examples in World regarding the success of model of Self Help Groups and related activities pulling millions out of poverty. More fund needs to be mobilized by government towards this with proper legislation in place to pull in many more NGOs and NBFCs in the sector.