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Improving Rural Development through Self Help Groups (SHGs)

Rural development in India faces the challenge of poverty, which can be addressed through financial assistance provided to self-help groups (SHGs). SHGs are voluntary associations of the rural poor aiming for social and economic empowerment through savings, credit, and mutual support. This seminar focuses on understanding SHGs, their performance in rural development, and related research studies. Various aspects such as group formation norms, identification of the poor, SHG-bank linkage, and microfinance paradigms are explored to highlight the role of SHGs in uplifting rural communities.

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Improving Rural Development through Self Help Groups (SHGs)

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  1. Seminar II Performance of SHG’s in Rural Development RAJENDRA PRASAD S Sr. MSc (Agril. Extn) PALB 4119 5/25/2024 1

  2. INTRODUCTION Development of a nation is very much dependent on the development of rural people. Today, the real problem faced by every developing country like India is the poverty. The financial requirement is one of the basic needs of the poor rural people of the society for their socio-economic upliftment. Microfinance to Self Help Groups (SHGs) may be considered as a vital tool for meeting the financial requirement of those poorer sections of the society living in the rural areas. 5/25/2024 2

  3.  Above the poverty line  ensuring appreciable increase in income over a period of time  achieved through a process of social mobilization  skill development training  based on local requirement, and  capacity building  along with the provision of income-generating assets through a mix of bank credit and government subsidy. 5/25/2024 3

  4. 5/25/2024 4

  5. Objectives of Seminar • To understand the concept of Self Help Groups 1 • To know the Performance of SHG’s in Rural Development 2 • To review the research studies related to Self Help Groups 3 5/25/2024 5

  6. Concept of Self help groups (SHGs) 5/25/2024 6

  7. Meaning of Self help groups (SHGs) According to the National Bank for Agriculture and Rural Development (NABARD) … ‘’Self help group is a : small, economically homogenous and affinity group of rural poor, voluntarily formed to save and mutually agree to contribute to a common fund to be lent to its members as per group decision for their socio-economic development”. • A self help group is meant for those people who develop themselves out of their own determination and with their own effort. • Sometimes little assistance from outside will speed up the process. 5/25/2024 7

  8. Definition of SHG "A voluntary association of poor with a common goal of social and economic empowerment“ • It is a voluntary association. • Homogenous, informal group & having common interest. • Intend to carry on savings & credit for mutual benefit. 5/25/2024 8

  9. Who promotes SHGs ? Self Help Promoting Institutions (SHPI) like • Non-governmental organisations (NGOs) • Govt. agencies • Bank staff • Farmers' clubs • Rural volunteers 5/25/2024 9

  10. Role of self help promoting institutions (SHPI) • Identify poor • Organise poor into SHGs • Capacity building • Books maintenance • Social activities • Bank linkage • Guidance in economic activities • Plan for withdrawal 5/25/2024 10

  11. How poor are identified by SHPIs ? • Income/expenditure government families into BPL & APL families method- adopted by agencies. Categorises rural 5/25/2024 11

  12. Non-economic criteria • No access to pucca housing • No access to safe drinking water • No access to sanitary latrines • Unemployed person in the household • Eat less than two meals a day • Regularly borrow from moneylenders • More than two children in the family • Family belonging to weaker caste • Old illiterate members in the family • Permanently ill members in the family • Alcoholic and/or drug addicts in the family 5/25/2024 12

  13. Group formation norms Affinity group - bound by • Mutual trust • Respect • Affection Homogenous group-people with similar • Caste • Income • Age • Gender • Literacy level • Occupation • Place of origin 5/25/2024 13

  14. Books of accounts What books of accounts? • Minutes Book • savings & loan register • cash book • members’ pass book • bank pass book 5/25/2024 14

  15. Growth path of a SHG Stage Time (months) Focus Pre-formation 1-2 Identification & organising poor Group norms, meetings, savings, small loans, group cohesion Formation 2-6 Linkage with bank, leadership development, less reliance on others Stabilisation 7-18 Growth & expansion >18 Support for new groups federation of SHGs 5/25/2024 15

  16. Micro finance paradigm The three players • SHGs – Facilitators for collective decision making by the poor and for providing doorstep banking. • Banks – Wholesalers of credit and providers of resources. • NGOs – Agencies to organise the poor, build their capacities and facilitate the process of empowering them. 5/25/2024 16

  17. SHG - Various models Direct • Model I - Banks lend directly to SHGs formed by them & Govt. Agencies • Model II - Banks lend to SHGs with NGOs/MFIs acting as facilitators for organising & nurturing of groups Indirect • Model III –Banks finance SHGs through NGOs / MFIs. In this model, banks lend in bulk to NGOs / MFIs for on lending to SHGs 5/25/2024 17

  18. SHG bank linkage- Savings Linkage • Savings first - Credit later - motto be followed by all members • Concept of “Income – Savings = Expenditure” to be followed • SHGs to open SBA/C in the nearby bank branch of its choice. • Bank to obtain group resolution & authorisation to open and operate the savings account • SHGs are not required to deposit their entire savings in the bank • Groups will become eligible to apply for loan after 6 months • Six months is not from the date of opening of SB account but from the date of formation of the group. 5/25/2024 18

  19. Assessment / Grading SHGs, Rating factors depend on Composition Age of the SHG Meetings Attendance % Minutes book Participation Savings Savings & loan recovery Functioning & decisions Internal lending Interest on int. lending Turnover of savings Recovery of internal loans Books of accounts Group by-laws • • • • • • • • • • • • • • •

  20. FORMING SELF-HELP GROUPS • How do We Start? • How are Groups Formed? • How are Group Meetings Organised? • How do SHGs take shape? • How do SHGs function? • Characteristics and Functions of SHGs 5/25/2024 20

  21. Linking of SHGs to Bank Step 1 – Opening of S/B Account for the SHG Step 2 – Conduct of internal lending by the SHG Step 3 – Assessment of SHGs Step 4 – Sanction of Credit Facility to the SHG 5/25/2024 21

  22. Characteristics of SHG  " The ideal size of an SHG is 10 to 20 members.  " The group need not be registered.  " From one family, only one member.  " The group consists of either only men or of only women.  " Women’s groups are generally found to perform better.  " Members have the same social and financial background.  " The group should meet regularly.  " Compulsory attendance. 22

  23. Functions of SHG’s a) Saving and thrift b) Internal lending c) Discussing problems 5/25/2024 23

  24. Income generating activities of SHGs 1. Microfinance (lending small loan) 2. Preparation of paper bags, agarbathi, garlands, leather bags, phenyl, detergents, wire basket, candles, vermicompost, milk cova, palm leaf products, pickles and fruit juices 3. Dairying, sheep and goat rearing, poultry keeping, vegetable cultivation, fodder cultivation, fish culture, nursery raising, value addition to Non-timber forest products. 4. Vegetable, tailoring and cloth business/tea and grocery shops etc 5/25/2024 24

  25. Concept of Micro-Finance Joshi, 2006 Micro-finance is defined as “The provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban or urban areas for enabling them to raise their income levels and improve their living standard”. Source: JOSHI, D.P., 2006, Social Banking, Foundation Books Private limited, New Delhi. 5/25/2024 25

  26. History of Microfinance • The concept evolved in 18thcentury with the publications of Lysander Spooner on benefits from small credits. • Friedrich Raiffeisen founded the first cooperative lending banks to support farmers in rural Germany. • The modern use of the expression "micro-financing" has roots in the 1970s when Dr. Muhammad Yunus started Grameen Bank in Bangladesh 5/25/2024 26

  27. HISTORY OF MICRO-FINANCE IN INDIA • Microfinance in India started in 1974 in Gujarat with Shri Mahila SEWA(Self Employed Women’s Association) Sahakari Bank. • Microfinance later evolved in the early 1980s around the concept of informal Self-Help Groups (SHGs). • During 1992, NABARD started linking SHGs to banks in India 5/25/2024 27

  28. Need of micro-finance in India • In India around 27 per cent population living below the poverty line. • About 60 percent of the poorest households do not have access to credit. • Only 20% access loan from the formal sources • Annual credit demand by the poor is estimated to be about Rs. 60,000/- crores and only Rs.12,000/- crores are disbursed. Source: Indiastat, 2012 5/25/2024 28

  29. Activities of Micro-Finance Micro-finance involves the activities like 1. Small loan for working capital, 2. Collateral securities such as group guarantees or compulsory savings, 3. Access to repeat and larger loans based on repayment performance, 4. Streamline loan disbursements and monitoring 5. Secure savings. 5/25/2024 29 Rao and Sharma (2006)

  30. Microfinance Models in India • Self Help Group- Bank linkage model > 97 per cent of Microfinance business • Micro-finance Institution Model (MFI) • Grameen Model • Individual Lending 5/25/2024 30

  31. THE SELF HELP GROUP-BANK LINKAGE MODEL It is the dominant microfinance methodology in India. • • Started as a pilot project in 1992 by NABARD. • SHGs were linked to banks. 5/25/2024 31

  32. WORKING OF SHG-BANK LINKAGE MODEL BANK CLIENT CREDIT NGO /FACILITATOR PROMOTION & TRAINING SHG MEMBER/CLIENT 5/25/2024 32

  33. TYPES OF SHG-BANK LINKAGE MODEL Model Type I Banks forms SHGs and finance them II NGOs forms SHGs and banks finance them III NGOs and other agencies, as financing intermediaries between banks and SHGs 5/25/2024 33

  34. MICRO-FINANCE INSTITUTIONS MODEL (MFI) Micro-finance Institutions (MFls) • MFIs include NGOs, trusts, NBFCs, • These lend small sized loans to individuals or SHGs. • They also provide other services like capacity building, training, marketing of products etc. • Example – Bhartiya Samruddhi Investments and Consulting Services Ltd. (BASICS Ltd) in Hyderabad 5/25/2024 34

  35. WORKING OF MFI MODEL BANK CREDIT CLIENT MFI/NGO PROMOTION & TRAINING CLIENT SHG MEMBER/CLIENT 5/25/2024 35

  36. Loans disbursed to MFIs by banks Year No. of MFIs Amount (crores) 3732.33 2008-09 581 2009-10 779 10728.50 2010-11 471 8448.96 2011-12 465 5206.29 2012-13 426 7839.51 2013-14 545 10282.49 Source: Status of Micro-finance in India- 2015, NABARD 5/25/2024 36

  37. PROBLEMS IN MICROFINANCE • Insufficient loan amount • High interest rate (12 to 36% p.a. ) • Low recovery of loans • Regional Imbalances in formation of SHGs • High level of illiteracy and lack of organizational experience of most members is a constraint for most SHG members in performing this role (Risk monitoring, financial management, accountability etc.) management, repayment 5/25/2024 37

  38. HOW MICRO-FINANCE HELPS IN AGRICULTURE DEVELOPMENT 1. Financial services: -Funding for purchase of implements and inputs. 2. Non-financial services: -Technical assistance, capacity building and information by the development officers 3. Market access for the produce: -Formation of groups and encouraging group marketing - Coordination with local extension agencies 5/25/2024 38

  39. Performance of SHG’s in Rural Development 5/25/2024 39

  40. Highlights of the SHG-Bank Linkage Programme Achievements Sl.no Particulars Physical (in lakhs) Financial (Rs in crores) 1 Total number of SHGs saving linked with banks 74.30 9897.42 (i) Out of total (of which) exclusive Women SHGs 62.52 8012.89 (ii) Out of total (of which) SHGs under NRLM/SGSY/Other Govt. spons. programmes 22.62 2477.58 5/25/2024 40

  41. Highlights of the SHG-Bank Linkage Programme Achievements Sl.no Particulars Physical (in lakhs) Financial (Rs in crores) 2 Total number of SHGs credit linked during 2013-14 13.66 24017.36 (i) Out of total (of which) exclusive Women SHGs 11.52 21037.97 (ii) Out of total (of which) SHGs under NRLM/SGSY/Other Govt. spons. programmes 2.26 3480.60 5/25/2024 41

  42. Highlights of the SHG-Bank Linkage Programme Achievements Sl.no Particulars Physical (in lakhs) Financial (Rs in crores) 3 Total number of SHGs having loans outstanding as on 31 March 2014 41.97 42927.52 (i) Out of total (of which) exclusive Women SHGs 34.06 36151.58 (ii) Out of total (of which) SHGs under NRLM/SGSY/Other Govt. spons. programmes 13.07 10177.42 5/25/2024 42

  43. Highlights of the SHG-Bank Linkage Programme Achievements Sl. no Particulars Physical (in lakhs) Financial (Rs in crores) 4 Average loan amount outstanding/SHG as on March 2014 102273.21 5 Average loan amount disbursed/SHG during 2013-14 * 175768.36 6 Estimated number of families covered up to 31 March 2014 97 million 5/25/2024 43

  44. Overall Progress under SHG-Bank Linkage for last 3 years Particulars 2011-12 No. of SHGs (lakh) 2012-13 No. of SHGs (lakh) 2013-2014 No. of SHGs (lakh) Amount (crore) Amount (crore) Amount (crore) Total SHGs 79.60 (6.7%) 6551.41 (-6.7%) 73.18 (-8.1%) 8217.25 (25.4%) 74.30 (1.53%) 9897.42 (20.45%) SHG Savings with Banks as on 31st March Of which NRLM/ SGSY/ Other Govt. spons. programmes 21.23 (5.0%) 1395.25 (-23.2%) 20.47 (-3.6%) 1821.65 (30.6%) 22.62 (10.46%) 2477.58 (36.01%) % of NRLM/SGSY/ Other Govt. spons. programme Groups to Total 26.7 21.3 28.0 22.2 30.45 25.03 All women SHGs 62.99 (3.3%) 5104.33 (-3.7%) 59.38 (-5.7%) 6514.86 (27.6%) 62.52 (5.27%) 8012.89 (22.99%) Percentage of Women Groups 79.1 77.9 81.1 79.3 84.15 80.96

  45. Particulars 2011-12 2012-13 2013-2014 No. of SHGs (lakh) Amount (crore) No. of SHGs (lakh) Amount (crore) No. of SHGs (lakh) Amount (crore) Total SHGs 11.48 (-4%) 16534.77 (13.7%) 12.2 (6.3%) 20585.3 (24.5%) 13.6 (12.0%) 24017.3 (16.67%) Of which NRLM/ SGSY/ Other Govt. spons. programmes 2.10 (- 12.9%) 2643.56 (6.6%) 1.81 (- 13.8%) 2207.47 (-16.5%) 2.26 (24.56 %) 3480.60 (57.67%) Loans disbursed to SHGs during the year % of NRLM/SGSY/ Other Govt. spons. programme Groups to Total 18.3 16.0 14.8 10.7 16.52 14.49 All women SHGs 9.23 14132.02 (12.0%) 10.37 (12.4%) 17854.3 (26.3%) 11.52 (%) 21037.97 (11.02%) (-9.2%) Percentage of Women Groups 80.4 85.5 85.1 86.7 84.3 87.6 45

  46. Particulars 2011-12 2012-13 2013-2014 No. of SHGs (lakh) Amount (crore) No. of SHGs (lakh) Amount (crore) No. of SHGs (lakh) Amount (crore) Total SHGs 43.54 (-9%) 36340.00 (16.4%) 44.51 (2.2%) 39375.30 (8.4%) 41.97 (-5.71%) 42927.52 (9.02%) Loan out- standing against SHGs as on 31st March Of which NRLM/ SGSY/ Other Govt. spons. programmes 12.16 (-5.4%) 8054.83 (2.9%) 11.93 (-1.9%) 8597.09 (6.7%) 13.07 (9.55%) 1177.42 (18.38%) % of NRLM/SGSY/ Other Govt. spons. programme Groups to Total 27.9 22.2 26.8 21.8 31.1 23.7 All women SHGs 36.49 30465.28 (16.6%) 37.57 (2.9%) 32840.04 (7.8%) 34.06 (-9.34%) 36151.58 (10.08%) (-8.4%) Percentage of Women Groups 83.8 83.8 84.4 83.3 81.2 84.2

  47. SHG‐Bank Linkage ‐ Highlights 2014 5/25/2024 47

  48. Progress under MFI-Bank Linkage Programme 5/25/2024 48

  49. Grant Support to Partner Agencies for Promotion and Nurturing of SHGs 5/25/2024 49

  50. SHG penetration in different regions 5/25/2024 50

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