The self-help group (SHG) program, which began as a women’s empowerment initiative through financial inclusion in the 1980’s added a significant component in 1992, when a NABARD initiative linked a small number of SHGs with banks. Today, there are over 73.18 lakh savings-linked SHGs and 44.51 lakh credit linked SHGs in India, covering approximately 95 million households. SHGs are more than just a conduit for credit – they also act as a delivery mechanism for various other services, ranging from entrepreneurial training to savings deposits and now with changing paradigms, a channel to deliver community level development programmes.
Despite the success of the SHG model, the impact of SHG programs on the lives of the poor has been limited. There are several reasons for this, ranging from inadequate support from the self-help group promoting institutions (SHPIs) to low quality of SHGs in terms of their regular functions, such as savings, group meetings, borrowing, internal lending and book-keeping. In order to overcome these limitations, National Bank of Agriculture and Rural Development (NABARD) proposed a revised form of SHG referred to as SHG2 in a circular dated March 2012. Under this revision, NABARD proposed several changes that provided flexibility to the SHG model. One such change was to enable Joint Liability Groups (JLGs) within SHGs to facilitate higher loan amounts to group members who wanted to finance their individual economic activity. Another innovative change was brought in the form of allowing voluntary savings. This helped SHGs to save over and above the compulsory amount, thereby providing an opportunity to group members to graduate from community to individual banking. Other significant revisions proposed under SHG2 was bringing modifications in credit products by making them purpose neutral, improving risk mitigating mechanisms to ensure the sustainability of the SHG movement and lastly, building second tier institutions that could help promote, finance and train SHGs.
This column discusses the implications of the above mentioned revisions by citing evidence from a recently completed study by IFMR Lead on SHGs titled ‘Self Help Group Bank Linkage: Through the Responsible Finance Lens’ (Agarwal, Sharma and Champatiray, 2013). The objective of the study was to understand the financial and non-financial interactions of SHGs with external agencies and review the internal group dynamics in terms of financial interactions, decision making, cohesiveness and transparency.
Relevance of SHG2: Evidence from Tri-State study on SHGs
- Results from the study depict a general sense of lack of adequate savings among SHGs. There are a significant percentage of group members who are unable to comply with the compulsory savings and the amount of monthly average savings per member is low for group members in Bihar (Rs. 35) and MP (Rs. 10). In such a scenario, allowing voluntary savings might have a limited impact, since it would be followed only by members that fulfill the current norm, have the capacity to save further and belong to the SHGs that have at least a few such members.
- Modifications in credit products is a welcome change since there are several occasions when SHG members mostly belonging to low-income households require credit for non-income generating activities, such as a health emergency, schooling for children, marriage, consumption smoothing etc.
- The proposition to form JLGs within SHGs for members with requirement for higher loan amount is an important revision, since the findings from our study indicate that approximately 75% of SHGs in Bihar and MP and 94% of SHGs in Karnataka have at least one member who mentioned the need for higher amount of loans to meet their business expenses.
- From the perspective of financial service provider, catering to the needs of low income households is associated with certain risks. Some of the major type of risks that banks could face varies from legal, financial and operational risks which could be managed through regular monitoring and developing procedures in place to mitigate such risks. Results from the study suggest that a majority of SHG members maintain a very low standard in updating their books of accounts. This propels developing certain risk mitigating mechanisms such as self-rating tools to conduct audits at the SHG level.
- Lastly, the SHG2 model suggests building second tier institutions (in addition to SHPIs) that constitute of active members of well- functioning SHGs or other entities (NGOs) that can be engaged in promotion and facilitation of services to SHGs. This is an essential requirement since there is still a long way to go for the current SHG movement to reach its fullest potential and become ‘self-sufficient’. This is also substantiated in our study where sample SHGs across all the three states expressed their willingness to be a part of training sessions, acquire new skillsets, and adopt technology in their new operations, all of which is facilitated to group members by external agencies.
Over the last few decades, the SHG model has proven to be a great medium for social and economic empowerment for women and has been the most preferred model for financial inclusion. However, several concerns have been raised with respect to the implementation of the SHG program. Ironically, the problems faced by the SHG model of financial inclusion have not changed much, i.e. the type of drawbacks that surrounded SHG movement a decade ago, hold relevant even today. Hence, it becomes imperative to see what works for the SHGs and what doesn’t, what are the qualities of SHGs that are successful versus those that are not, etc. Prior to introducing modifications in the SHG movement, it is essential for the stakeholders of the industry to take a step back and assess the performance of the current SHG model before moving to the next level of financial inclusion.
 Status of Microfinance in India 2012-13, NABARD
 Self Help Group Bank Linkage: Through the Responsible Finance Lens (Published by ACCESS- ASSIST, 2013) : http://www.ifmrlead.org/cmf/wp-content/uploads/2014/02/Self-Help-Group-Bank-Linkage.pdf