The Purpose and Emerging Issues in the Development of
Self Help Group


V. Tamilselvi
Department of Management studies
NPR college of Engineering and Technology


India once named as the "golden bird" has gathered dust over the years and lost its golden shine.

As Mahatma Gandhi said "India is made up of villages" so there should be a concerted effort to strengthen the rural masses. Development is said to have been complete only when it reaches the most remote place and the most neglected. Ironically there is no end to the road development but as we pass through the road, the places alongside should turn into green pastures of opportunity and prosperity for the people living there.

Even after 54 years if independence India still unable to untangle itself from the shackles of poverty. The magnitude of the problem of poverty faced by the country immense.

The expert group on "Estimation of proportion of number of poor" appointed by the planning commission has estimated in 1987 88, the percentage of persons below poverty line was 39.06 in rural area and 40.12 in urban areas. For the country as a whole, it was estimated to be 39.34 percent. The new estimates are higher than the earlier official estimates.

A substantial decline has occurred since 1973 74 in the proportion of people below poverty line. Nevertheless, in terms of absolute numbers, people below the poverty line are very large and there has to be a multipronged approach to tackle the problem.

Much of the objectives and strategies adopted towards alleviation of poverty in the various five year Plans remains in paper and never got implemented.

The main challenge before a developing nation is to foster sustainable growth. The growth or its recovery, the nation's productive capacity has to be strengthened and expanded. An important issue relates to the problem of the provision and delivery of financial services and credit to the poor so that the poor emerge out of their poverty through meaningful productive activities. Creativity is within every individual, the only thing required is the will to explore the giant with in oneself. The rural people in spite of various constraints like improper  education, improper technological information can still change the world around them.

A number of programmes were designed specifically to enlarge the flow of credit to the poor. The main thrust of these programmes was to provide financial assistance to poor by way of capital subsidy and bank credit so that they can improve their economic conditions.

So a multiagency approach for rural credit delivery was adopted involving commercial banks, co-operative banks and regional rural banks. Beside several programmes were also designed for direct assault on poverty such as, the integrated rural development programme, the self employment programme for urban poor.

It's the women who are the most vulnerable to all the atrocities in the world. Building women into self reliant individuals is the first step towards development. Women should be made self reliant both economically and socially, As a maxim reveals explicitly that "Ideal Nation".

Thus women beneficiaries were given special concession under the various government programmes. For example, under the IRDP, 40% of the beneficiaries were women.

In spite of such programmes being lined up to fight poverty much hasn't happened on the ground. The percentage of beneficiaries of the IRDP who might have crossed the poverty line is the only around 20% . The target oriented approach has also compromised the quality of the programmes.

Broadly speaking, these efforts while impressive in quantitative terms have not brought desired results. The cumbersome lending procedures, inadequate supervision and at times the apathy of bank staff have resulted in delayed and untimely credit, which has been responsible for the large scale misutilisation and default of credit.

The commercial banks suffer from two very basic weaknesses namely their high cost structure and their attitudinal character is basically urban oriented.the co-operative credit system is far from a healthy situation. The system suffers from a number of problems, such as excessive reliance on funds from a higher level structure, undue state control, poor deposit mobilization and poor recovery of loans.

The problems associated with the Regional rural Banks are low interest rates, poor margins, high operating costs involved in handling of small loans and lending exclusively to the weaker sections in backward regions.

According to the price Water House study, 1995, 84% of the rural credit portfolio was met by informal means of credit such as trades, shopkeeper, moneylender, landlord and friends and relatives. 48% of the total respondents had never   borrowed from bank. The money lenders charge as high as 120% interest rates and the poor get indebted to them for even life thus enabling them to break the vicious cycle of poverty.

Given the fact the poor, both in rural and urban areas do not have the necessary capabilities to approach and negotiate with organized credit situations, the liking of formal credit situations with the rural and urban poor, through intermediaries such as non-governmental organization was thought as an alternative mechanism for meeting the credit needs of the poor.

India is placed in a unique situation, so a number of credit based poverty alleviation programmes are needed. Products should be created according to the customers needs and products should now be tailored with the rural poor in mind.

The shortcomings of the rural poor will respect to availing of loans from the financial institutions are manifold, viz, inability to pay high interest rates on loans, lack of skills, unawareness of economic opportunities of the market, inability to overcome bureaucratic requirements, their needs for small consumption loans.

As an alternative to this shortcoming a soothing role is played by the Nongovernmental organization and self help groups. The NGOs will be like that of a catalyst which would facilitate the project formulation by banks on the one hand and its effective implementation by the beneficiaries on the other. They help banks in the follow up and supervision of the projects and ensure that expected results are achieved.

The establishment of self help groups can be traced to the existence of one or more common problems around which the consciousness of the rural poor is built. Such groups thus are normally a response to a perceived need, besides being centered around specific productive activities. These groups also promote savings among their members and use pooled resources to meet the needs of their constitutions.

Initiating and monitoring the credit programmes for the poor can be made more effective and less costly if banks attempts to organize the poor in self help groups hereby peer pressure can be used to ensure proper utilization of credit and prompt repayment of loans. Here loans are offered in a prompt and simpler manner, ensure need based loans and keep the loan size within the repaying capacity of the borrowers and more importantly the interest rate charges are as low as 2%

The main advantage to the banks of the link among them, the self help groups and the NGOs, would be the externalization of a part of the work items of the credit cycle viz., assessment of credit needs, appraisal, disbursal supervision and repayment, reduction in the formal paper work involved and a consequent reduction in the transaction cost.

The concept of people's participation has been tried by several developing countries the world over. Philippines, Indonesia and Bangladesh are some such countries. In Bangladesh, Prof.Mohammed Yunus seeded the concept of SHG which be named as Grameen Bank. The success of the Bangladesh Grameen Bank in providing financial assistance to the rural poor on reasonable terms for generating productive self employment has gained wide recognition. Here the loan proposals are entertained only on a group basis. The rate of interest is generally 16 to 16.5%. Its recovery performance was 98% in 1988 which was a world record. The Bangladesh Grameen Bank indeed provides several lessons in terms of mobilization of resources, lending policies and procedures and recoveries.


SHGs are self managed groups of poor men and women which primarily came into existence to mobilize financial resources through their own savings and lend the same amongst themselves to meet the credit needs of their members. SHGs usually consist of 15 to 20 poor men / women living in the same area. Each SHG has unique system of organizing and managing its own finance and operate on the principles of self help group, mutual trust and co-operation. Regular transactions like collecting savings, issuing loans and collection of repayment takes place at particular intervals where all members are present and can collectively take decisions. The SHGs also provides a forum for social interaction which serves as an alternate social structure for peer level interaction. During the initial stages, the own funds of SHGs are primarily used for meeting small time consumption and emergency needs.


SHGs are emerging as alternative system to provide financial services to the poor. The basic purposes for which these groups are promoted are

* To create a separate line of credit for consumption and emergencies, this would help the poor families to get out of the debt by trap bid by exploitative financial system.
* To create a habit of savings among the rural people, the concept of SHG has proved to be a boon
* To reduce the costs of lending for the formal banking systems, and the cost of borrowing for the rural poor.

SHGs as a financial Institution

Each Self Help Group acts as a localized financial institution owned and managed by the poor all the basic principles of financial management are applicable to the group.

A) Book Keeping and Accounting System

Maintaining of proper accounting and book keeping is an essential part of SHG system. The following books are usually maintained in each group.

* Minutes book
* Receipts
* Vouchers
* Cash book
* General ledger
* Members pass book and sub ledger for members

All the financial transactions are captured in these books. Individual pass books are given to each member while other books can be retained at a common place, normally in a box kept at the leader's house. But some self Help Groups formed directly by Banks insist that the members pass books should be kept by the person concerned. This is a step to make them self reliant.

Each Self Help Group should have an accountant to maintain the books of accounts and the proceedings of the meetings. The accountant has to be appointed by the group.

B) Financial  Transactions:

The following transactions are undertaken during the regular meetings where all the members are present.

* Collection of savings
* Collection of loan repayment
* Collection of penalties, fee etc.
* Issues of loans
* Payment of expenses

Normally the meeting is conducted on a fixed date and continues for three to four hours and in most cases for one hour. All the financial transactions take e place during the regular meetings.

C) Sources and application of funds:

SHGs can mobilize funds both for internal and external sources. The following table lists the major sources and application of funds.

Internal sources

* Regular savings by members
* Interest earned on loans
* Common fund of the group
* Loan repayment from the members
* Penalties, fees, etc


Most of the funds available with the Self Help Group are issued as loans to its members . The major items on which the SHG funds are applied are listed below

* Loans to members
* Interest  on savings by members
* Expenses for salary, stationary and travel
* Loans repayments from banks
* Deposits with banks and other agencies

The funds collected at each meeting is immediately disbursed in some cases but the money collected in the meeting is deposited in the bank the following day. Most of the times, the self help group has very little cash balances left unspent.


Each SHG mobilises savings from all the members and lends the same as loan to the needy members. Normally, a self Help Group pays an interest of twelve percent per annum on the savings from members and lends at a rate of twenty four to thirty six percent per annum sleaving a spread of twelve percent. In addition the self help Group collects administrative fee, membership fee and penalities which adds on to the income. Self Help Group can leverage loans from bank at 12% and lends to members at 20% and lends to members at 24 to 36%.  Self Help Groups can meet the cost of books, accountant salary, auditing fee and other meeting expenses from their income.

The Profitability of the Self Help Group depends on the total volume of  business.     Each Self Help Group has to lay down clear cut norms for repayment  and strict procedures for follow up. Poor performance can affect the profitability of the group.

E) Auditing

All the books of accounts of the groups have to be audited internally once in six months and externally by a Chartered Accountant once in a year. Sound accounting and financial practices can be ensured by the practice. As the groups are expected to establish a sustainable relationship with banks and act as a financial intermediary, auditing is essential.

Each Self Help Group has to conduct an Annual General Body meeting once a year where the audit report is shared and approved. Members can review the progress and achievements and prepare plans for the forthcoming year.

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Source: E-mail February 22, 2011


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