Reimagining Self-Help Groups (SHGs)

ECONOMY/ GOVERNANCE

• GS-3: Indian Economy and challenges
• GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation. 

Reimagining Self-Help Groups (SHGs)

Context: SHGs were created for providing financial access and gradually metamorphosed into the world’s largest microfinance program, where multiple agencies, NGOs, governments, banks work in unison. 

• The first SHG was linked by Bangarpet Branch of Vysya Bank in Kolar district, Karnataka. 
• RBI made this unconventional idea of linking informal women groups to formal banks, possible.

The salient features of a good SHG are 

• Homogeneity
• Regular meetings
• Savings
• Book-keeping
• Accessing bank credit (usually 4-times their savings)
• Inter-lending and on-time repayment. 

Progress of SHGs

• SHGs moved a long way, from the policy intention in 1992, to link 500 SHGs to banks. Now, there are about 1.2 crore SHGs. 
• Their savings deposit is about, ₹37,500 crore and outstanding credit ₹1,03,000 crore. 
• But, average loan outstanding per SHG at about ₹1.80 lakh (₹15,000-per member-considering 12 women per SHG) and percentage of non-credit linked SHGs at about 50 per cent has almost remained same.
• Considerable investments in community mobilisation through SHGs and capacity building resulted in social capital, manifested as women empowerment and credit-discipline.

Linkage between Microfinance Institutions (MFIs) and SHGs

• MFIs began operations in early 2000s, initially in southern India. MFIs include, NBFC-MFIs, NBFCs, SFBs, banks and others which provide micro loans. About 200 such entities exist. 
• They currently have about 10 crore loan accounts with loan outstanding of about ₹2,47,000 crore. Per member loan is about ₹40,000
• SHGs cater to the poorest and mostly rural clients and MFIs usually peri-urban. 
• SHGs lend to members taking loans from banks. MFIs provide loans to clients through Joint Liability Groups (JLG), comprising of about five members. They are jointly and severally responsible for loan repayment. 
• Clients of SHGs and MFIs are predominantly women.
• The process of Joint Liability Group formation and loaning is not as intensive, when compared to SHGs.
• MFIs operate in the social sector but are profit oriented whereas SHGs share profits from group lending amongst members.
• The NPA level, in both these programmes, is almost the same at 4-5 per cent. 
• Interestingly about 70 per cent of the current loan portfolios of MFIs is in south and eastern region where SHG movement is strong because of State patronage. The outstanding loans to SHGs is about 50 per cent in this region.
• MFIs are cost effective vehicle for providing loans as compared to commercial banks which have an advantage in providing bulk loans

Way Forward

• Many rural bank branches can also provide micro loans when/if they strategise to increase business by providing loans to their existing eligible clients.
• Further, if banks use the credit-card model of fixing loan limits, contours of micro credit will be changed for good. 
• If, NGOs and Corporate Banking Correspondents, transform themselves into an intermediary; hand holding SHGs, providing financial literacy, guiding them with micro-enterprises, ensuring end use of credit, marketing assistance and repayment, livelihoods will improve. 
• If first loss default guarantees to banks can also be provided it would be wonderful.