Financing Practices in SHG

This study aims to better inform relevant policies for SHGs by observing intra group dynamics across financial and social interactions in SHGs and gain clarity on group interactions with Self-Help Group Promoting Institutions (SHPIs).

The SHG Bank linkage programme, initiated by NABARD in 1992, has been acknowledged as an effective mechanism to facilitate formal financial institutions to cater to the financial needs of the unbanked population. It has come a long way since its inception, growing to become more than just a conduit for credit and financial products. They have become instrumental in delivering services such as entrepreneurial training and savings deposits as well as evolved into a channel to drive community level development programs.
Despite their success, there is little research into the tracking and monitoring of intra group dynamics across social and financial interactions. Considering current policy developments (introduction of revisions – SHG2), it is important to understand qualitative aspects of SHGs such as group behaviour, performance, preferences and aspirations of group members. Findings from this study will assist in consolidating the achievements of the model and contribute to the development of relevant policies for SHGs.
The study has a two-pronged objective:
1) To understand the financial and non-financial interactions of SHG with external agencies like banks and SHPIs
2) To study the internal group dynamics in terms of financial transactions, decision making, cohesiveness, transparency and acceptance towards technology and new policy.
Based on a strong presence of identifiable SHPIs, two districts each from the states of Madhya Pradesh, Bihar and Karnataka were selected. From each state, 200 SHGs were randomly drawn for the study (100 from each district) in a way that ensures that 50% of SHGs are 1-3 years old and the remaining are older than 3 years. The data was collected across three streams: (i) Interviews with office bearer, (ii) Group Interviews among progressive and poor members of the groups, (iii) Administrative data that records SHG transaction.
Key Findings
Findings from the study show that even though SHGs are on track with achieving financial inclusion and empowerment through group formation, savings, lending, borrowing and community development, there is vast scope for improvement across several parameters that define the success of an SHG. SHGs continue to be over-dependant on SHPIs, showcasing the necessity to move towards more self-reliance, if new advancements in microfinance such as SHG2 are to be successful. SHGs must also investigate incorporating technology into regular operations to improve transparency.


While SHGs have proven to be a robust medium of social and economic empowerment for the groups in our sample, there are certain areas of concern which need to be addressed to realize their full potential  For new advancements in the microfinance sector such as SHG 2 to be successful, there is a pressing need to emphasize on self-reliance of SHGs. Additionally, in order to function effectively; SHGs must start thinking about the use of technology in their regular operations, to promote transparency. 

Thematic area

Financial Inclusion

Project Leads

Amulyakrishna Champatiray, Parul Agarwal


Madhya Pradesh, Bihar, Karnataka