Self-Help Groups (SHGs) : An Overview

Self-Help Groups (SHGs) : An Overview (Jaiib Paper 1, Module B, Unit 14)

Dear bankers,

As we all know that  is Self-Help Groups for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are providing the Self-Help Groups (Unit-14),FUNCTIONS OF BANKS (Module B), Principle & Practice of Banking JAIIB Paper-1.

♦Self Help Groups

♦What are SHGs?

  • Self-Help Groups (SHGs) are informal associations of people who choose to come together to find ways to improve their living conditions.
  • It can be defined as self governed, peer controlled information group of people with similar socio-economic background and having a desire to collectively perform common purpose.
  • Villages face numerous problems related to poverty, illiteracy, lack of skills, lack of formal credit etc. These problems cannot be tackled at an individual level and need collective efforts.
  • Thus SHG can become a vehicle of change for the poor and marginalized. SHG rely on the notion of “Self Help” to encourage self-employment and poverty alleviation.

♦Functions

  • It looks to build the functional capacity of the poor and the marginalized in the field of employment and income generating activities.
  • It resolves conflicts through collective leadership and mutual discussion.
  • It provides collateral free loan with terms decided by the group at the market driven rates.
  • Such groups work as a collective guarantee system for members who propose to borrow from organised sources. The poor collect their savings and save it in banks. In return they receive easy access to loans with a small rate of interest to start their micro unit enterprise.
  • Consequently, Self-Help Groups have emerged as the most effective mechanism for delivery of microfinance services to the poor.

♦Need for SHGs

  • One of the reasons for rural poverty in our country is low access to credit and financial services.
  • A Committee constituted under the chairmanship of Dr. C. Rangarajan to prepare a comprehensive report on ‘Financial Inclusion in the Country’ identified four major reasons for lack of financial inclusion:
  • Inability to provide collateral security,
  • Poor credit absorption capacity,
  • Inadequate reach of the institutions, and Weak community network.
  • The existence of sound community networks in villages is increasingly being recognised as one of the most important elements of credit linkage in the rural areas.
  • They help in accessing credit to the poor and thus, play a critical role in poverty alleviation.
  • They also help to build social capital among the poor, especially women. This empowers women and gives them greater voice in the society.
  • Financial independence through self-employment has many externalities such as improved literacy levels, better health care and even better family planning.

♦Genesis of SHG

  • The Genesis of SHG in India can be traced to formation of Self-Employed Women’s Association (SEWA) in 1970.
  • The SHG Bank Linkage Project launched by NABARD in 1992 has blossomed into the world’s largest microfinance project.
  • NABARD alongwith RBI permitted SHGs to have a savings account in banks from the year of 1993. This action gave a considerable boost to the SHG movement and paved the way for the SHG-Bank linkage program.
  • In 1999, Government of India, introduced Swarn Jayanti Gram Swarozgar Yojana (SGSY) to promote self-employment in rural areas through formation and skilling of SHGs.
  • The programme evolved as a national movement in 2011 and became National Rural Livelihoods Mission (NRLM) – world’s largest poverty alleviation programme.
  • Today, State Rural Livelihood Missions (SRLMs) are operational in 29 states and 5 UTs (except Delhi and Chandigarh).
  • NRLM facilitated universal access to the affordable cost-effective reliable financial services to the poor like financial literacy, bank account, savings, credit, insurance, remittance, pension and counselling on financial services.

♦Benefits of SHGs

  • Social integrity – SHGs encourages collective efforts for combating practices like dowry, alcoholism etc.
  • Gender Equity – SHGs empowers women and inculcates leadership skill among them. Empowered women participate more actively in gram sabha and elections.
  • There is evidence in this country as well as elsewhere that formation of Self-Help Groups has a multiplier effect in improving women’s status in society as well as in the family leading to improvement in their socio-economic condition and also enhances their self-esteem.
  • Pressure Groups – their participation in governance process enables them to highlight issues such as dowry, alcoholism, the menace of open defecation, primary health care etc and impact policy decision.
  • Voice to marginalized section – Most of the beneficiaries of government schemes have been from weaker and marginalized communities and hence their participation through SHGs ensures social justice.
  • Financial Inclusion – Priority Sector Lending norms and assurance of returns incentivize banks to lend to SHGs. The SHG-Bank linkage programme pioneered by NABARD has made access to credit easier and reduced the dependence on traditional money lenders and other non-institutional sources.
  • Improving efficiency of government schemes and reducing corruption through social audits.
  • Alternate source of employment – it eases dependency on agriculture by providing support in setting up micro-enterprises e.g. personalised business ventures like tailoring, grocery, and tool repair shops.
  • Changes In Consumption Pattern – It has enabled the participating households to spend more on education, food and health than non-client households.
  • Impact on Housing & Health – The financial inclusion attained through SHGs has led to reduced child mortality, improved maternal health and the ability of the poor to combat disease through better nutrition, housing and health – especially among women and children.
  • Banking literacy – It encourages and motivates its members to save and act as a conduit for formal banking services to reach them.

♦Capacity Building of the Self- Help Groups

  • SHGs that are in existence for about 6 months and have demonstrated the potential of a viable group enters the stage, wherein it receives the revolving fund of Rs 25000 from the bank as a cash credit facility and also embarks on further capacity building of its entire team.
  • DRDAs will arrange to provide the revolving fund to such groups, meeting their share from out the SGSY fund. Of this, a sum of Rs10000 is given to the bank by the DRDA. Banks may charge interest only on the sum exceeding Rs 10000. The Subsidy of Rs 10000 released by DRDA is adjusted against the loan at the end of cash credit period on the request of the group.

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