Formation of Self - Help Group (SHG)

There are two major models under microfinance namely Self-Helf Group - Bank Linkage (SHG-BL) and Microfinance Institutions (MFIs). Self-Help Group (SHG) is a voluntarily formed group with the members size of 10 - 20. Basically Self-Help Groups are homogeneous in nature. Members come together for addressing common problems. The amount of saving is within the range of Rs. 20 - 150 per month. They rotate this common pooled resource within the members with very small rate of interest.

The President or Secretary of Self-Help Group usualy maintains records of transactions on daily basis in a written format. In India NABARD intiated SHGs in 1986-87. But the real effect was made after 1991 - 92 from the linkage of SHGs with banks. The main aim of the programme is to tap the potential of the SHG concept so as to bring banking services to the neglected by the formal financial agencies in the past.

Self-Help Group intermediaries in microcredit have been shown to have positive effects on women, with some of these impacts being ripple effects. They have played valuable roles in reducing the vunerability of the poor through asset creation, income generation and consumpation somthing, provision of emergency assistance and empowering and emboldening women by giving them control over assets and increased Self-esteem and knowledge.

There are various advantages of financial through Self-Help Groups. An economically poor individually gains strength as part of a group. A part from it financing through SHG reduces transaction costs for both tenders and good borrowers. While lenders have to handle only a single SHG account instead of a large number of small sized individual accounts, borrowers as part of SHG cut down expenses on travel for competing paper work and on the loss of workdays of convassing for loans.