Self Help GroupsEntrepreneurship Development NotesFor B.Com, BBA and MBA
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In the post I have given a brief introduction of Self Help Groups (SHGs). These notes are useful for the students of B.Com, BBA and MBA of various universities. For more notes visit our website regularly.
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Table of Contents |
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1. Meaning of Self Help Groups (SHGs) 2. Characteristics of Self Help Groups (SHGs) 3. Objectives of Self Help Groups (SHGs) 4. Need and Importance of Self Help Groups (SHGs) 5. Functions of Self Help Groups (SHGs) 6. Provisions relating to formation of Self Help Groups (SHGs) 7. Working Procedure of Self Help Groups (SHGs) 8. Funding Procedure of Self Help Groups (SHGs) 9. Problems of Self Help Groups (SHGs) in India 10. Measures to improve Self Help Groups
(SHGs) |
Concept of Self Help Group (SHGs)
A self help group is defined as a group
consisting of people who have personal experience of a similar issue or life
situation, either directly or through their family and friends. Sharing
experiences enables them to give each other a unique quality of mutual support
and to pool practical information and ways of coping.
Self help groups are small informal
association of the poor created at the grass root level for the purpose of
enabling members to reap economic benefits out of mutual help solidarity and
joint responsibility. Self help groups are formed voluntarily by the rural and
urban poor to save and contribute to a common fund to be lent to its members as
per group decision and for working together for social and economic uplift of
their families and community.
A self help group is defined as a "self
governed, peer controlled information group of people with similar
socio-economic background and having a desire to collectively perform common
purpose."
Characteristics of SHG
Some of the important characteristics of SHGs
as per the Govt. of India stipulation are as follows:
1. As SHG may
consist of 10-20 members.
2. Social
affinity of the members is a common characteristic. This means to say that each
SHG is a group of homogeneous masses.
3. All
members of the group should belong to families below poverty line.
4. The group
shall not consist of more than one member from the same family.
5. A person
shall not be a member of more than one group.
6. Group
members create a common fund by contributing their small savings on regular
basis.
7. The groups
evolve flexible systems of working and manage polled resources in a democratic
manner.
8. Groups
consider the loan requirements of members in periodic meetings and competing
claims on limited resources are settled by consensus.
9. Loans are
given on trust with minimum documentation and without any security.
10. The loans
are of small amount, issued frequently for short duration.
11. The rate
of interest varies from group to group and the purpose of the loan. It is
higher than that of banks but lower than that of moneylenders.
12. At
periodic meetings, besides collecting money, social and economic issued are
also discussed.
Objectives of SHGs
The concept of Self Help Group is initiated
towards fulfillment of the following social objectives:
1. To support economic freedom of the rural
people living Below Poverty Line: The rural people are mostly poor and a
large section of them lives Below Poverty Line (BPL). They lack adequate
disposable income in their hands. As such, it is hoped, if these people are
given adequate support to work and develop their own ventures through the
creation of SHGs, a time will come when they will be able to change their
economic conditions.
2. To encourage poor rural folk in developing
their habit of working in groups: Building of rural community with
homogeneous groups of vulnerable sections of the society becomes essential to give
them mental strength through the spirit of group work.
3. To develop Entrepreneurial Culture among poor
rural people: Entrepreneurial culture is grossly absent in our rural areas due
to variety of causes. Introduction of the concept of SHG helps poor rural
people to undertake income generating projects both at the individual level and
at the group level. Thus, Entrepreneurial Culture is developed among poor rural
people.
4. To Help the vulnerable section of the society,
who does not have access to institutional finance: Due to
lack of collateral securities; most of the vulnerable sections of our society
like women, SC, ST etc fail to get loans from financial institutions in doing
any kind of business. Therefore, the SHGs are created to help such people in taking
up small business ventures through micro-credit and government support.
5. To develop the habit of thrift and saving
among the poor rural people: Self help Groups are initially started
through personal savings of the members in a pool of fund. This fund is used to
help each member through the grant of small loans. Thus, the members are made
to realize that it is their individual small savings which is helping them to
prosper. This develops the habit of thrift and saving among the rural people.
6. To empower the rural people both economically
and socially: The rural people of India, more particularly the women and the
other weaker sections like SC, ST are poor not only economically, but also
socially. Once their economic status improves, they become strong socially also
and working through GHGs considerably helps them in this direction.
7. To develop the sense of social responsibility
among the rural people: As SHGs are formed by the people of a
particular village or its vicinity, these social groups serve the purpose of a
platform to discuss about local problems and they voluntarily contribute to
solve such problems as per their capacities. There are instances that the SHGs
constructed rural roads contributing both physically and financially.
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Also Read:3. Self Help Groups************************************Also Read (Dibrugarh University)
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Need and Importance for SHGs
Self help groups are necessary to overcome
exploitation, create confidence for the economic self-reliance of rural people,
particularly among women who are mostly invisible in the social structure.
These groups enable them to come together for common objective and gain
strength from each other to deal with exploitation, which they are facing in
several forms. A group becomes the basis for action and change. It also helps
buildings of relationship for mutual trust between the promoting organization
and the rural poor through constant contact and genuine efforts. Self help
groups plays an important role in differentiating between consumer credit and
production credit, analyzing the credit system for its implication and changes
in economy, culture and social position of the target groups, providing easy
access to credit and facilitating group/organization for effective control,
ensuring repayments and continuity through group dynamics; setting visible
norms for interest rates, repayment schedules, gestation period, extension,
writing of bad debts; and assisting group members in getting access to the
formal credit institutions. There are needs for SHGs which is specific terms
are as under:
a) To
mobilize the resources of the individual members for their collective economic
development.
b) To uplift
the living conditions of the poor.
c) To create
a habit of savings, utilization of local resources.
d) To
mobilize individual skills for group's interest.
e) To create
awareness about right.
f) To assist
the members financial at the rime of need.
g) To
identify problems, analyzing and finding solutions in the groups.
h) To act as
a media for socio-economic development of village.
i)
To develop linkage with institution of NGOs.
j)
To organize training for skill development.
k) To help in
recovery of loans.
l)
To gain mutual understanding, develop trust
and self-confidence.
m) To build
up teamwork.
n) To develop
leadership qualities.
o) To use it
as an effective delivery channel for rural credit.
Functions
of SHGs: The important functions of SHG are the following:
a)
Enabling members to become self-reliant and
self-dependent.
b)
Providing a forum for members for discussing
their social and economic problems.
c)
Enhancing the social status of members by
virtue of their being members of the group.
d)
Providing a platform for members for exchange
of idea.
e)
Developing and encouraging the decision making
capacity of members.
f)
Fostering a spirit of mutual help and
cooperation among members.
g)
Instilling in members a sense of strength and
confidence which they need for solving their problems.
h)
Providing organizational strength to members.
i)
Providing literacy and increasing general
awareness among members, and
j)
Promoting numerically and equipping the poor
with basic skills required for understanding monetary transactions.
Provisions relating to Formation of SHGs
Following are the important points in
the formation of SHG:
1. Voluntary formation: As SHG is
generally an economically and socially homogeneous group formed through a
process of self election ideally with membership ranging between 10 and 20.
Thus, villagers may volunteer to form the group with some common goal to be
mutually benefitted.
2. Homogeneity: They are homogeneous in the sense
that a group may be formed of all women or all the members may belong to
Scheduled Caste/Scheduled Tribe Community or a group of Physically Challenged
persons or may be with members of any Minority Community.
3. Proximity of Members: The
members of a group are known to each other and live in the same village or in
its vicinity.
4. Registration not compulsory: As SHG
may be a registered or an un registered group. However, the group can register
itself either under the Societies Registration Act or under the State Cooperative
Act or even under the Partnership Act.
5. Managing Committee: Members
of the group select a Managing Committee of 5 members which includes a
President, a person responsible for Saving Administration, a person responsible
for Loan Administration, a person responsible for Cash Book and a Controller.
6. Formation by third party: SHGs can
also be formed by Banks, NGOs or other social / charitable organizations.
NABARD has given some guidelines in this regard and some important of them are
pointed out below:
i.
Preliminary
Survey: To understand the need of each family, such a survey of the
households under the targeted village is very essential. The survey helps the
SHG promoters to identify the families with homogeneous socio-economic status
which can come together in SHGs.
ii.
Preliminary
Meeting: Before formations of SHGs, a meeting with the community leaders
and elders of the village should be convened. In this meeting, plan to form SHG
with the purpose should clearly be explained. Support of these people is
considered very essential to ensure community participation. Moreover, their
support virtually gives acceptance to the project in the village.
iii.
Selection
of Members to a group: For the purpose of selecting members to an
SHG, the NABARD has developed 11 questions. Accordingly, before accepting as a
member of a group, each prospective member is asked the following questions:
a) Does the
family have only one family member?
b) Does the
family bring drinking water from faraway place?
c) Are the
women compelled to go for in the open due to absence of latrine?
d) Are there
old illiterate members in the family?
e) Is there
any permanently ill member in the family?
f) Are there
children in the family who do not go to school?
g) Is there a
drug addict or a drunkard in the family?
h) Is their
house made of kaccha materials?
i)
Do they regularly borrow from moneylenders?
j)
Do they eat less than two meals a day?
k) _Do they
belong to Scheduled Caste / Tribe?
After
putting all these questions to the rural people, if the answer is affirmative
(i.e. “yes”) to at least three or four of these questions, the family can be
considered as poor and a person from that family can be accepted as a member of
an SHG.
iv.
Start-up
Meeting: After meeting with the community leaders and elders of the
village, one member from each of the identified families should be invited in a
meeting convened for the purpose on a separate date. The gathering should
clearly be given detailed information regarding the purpose / benefits of a
group, the working procedure, etc.
************************************
Also Read:3. Self Help Groups************************************Also Read (Dibrugarh University)
************************************
Working Procedure of SHGs
The SHGs follow certain specific
working procedure. The procedure is developed in such a way that the villagers
do not face any complicacy and the system makes them empowered as they learn
while doing. Moreover, transparency and democratic values are given due weight
age. Some important points in this score as follows:
1) Formation of Simple rule for operation: For smooth functioning of
an SHG, certain simple basic rules and regulations are required. This should
contain the following aspects:
a) Common
agreement of the members about formation of SHG and its functioning through the
adoption of basic rules and regulations.
b) Decision
on time and place of meetings.
c) Agreed
penalties for non-attendance of meetings by any member.
d) Agreement
on amount of savings by the members.
e) Giving
small loans to the members.
f) Taking
loans from bank.
g) Procedure
for repayment of loans taken by members, etc.
2) Meeting of the Group: Meeting of
the group members on regular intervals is very essential to get up-to-date information
about the working of the group, make the members active, keep the group in
working condition, and resolve the issues pertaining to the members and the
group.
3) Mandatory participation of members in
Meetings: Participation of all members in the group meetings is compulsory
and absence attracts penalty of an agreed amount.
4) Frequency of the Meeting: Ideally,
every group should meet once in a week on routine basis. In addition to this,
there may be need based meetings of the group.
5) Agenda of the meeting: In each
of the weekly meetings there are some mandatory items of the agenda. These
relate to collection of members’ savings, repayment of loans by the borrowers,
payment of penalties for defaults by the members and grant of fresh loans. In addition
to these, the group discusses and tries to find solutions to the problems faced
by the members of the group. The up-to-date financial condition of the group is
also presented in the meeting.
6) Maintenance of proper accounts: Books and
accounts are maintained to promote transparency and accountability within the
SHG and the external world. For this purpose, competent group members are
entrusted. If no member is able to maintain the books, someone should be
engaged by the group for the purpose.
7) Books of accounts and Registers to be
maintained: Simple and clear books for all transactions should be maintained.
The following books are records are usually maintained by an SHG:
a)
Minute
Book: Proceedings of the meetings, rules of the group, names of the
members, etc are recorded in this book.
b)
Savings
and Loan Register: This register shows the savings of the members
separately and of the group as whole. Details of the individual loans,
repayments, interest collected, balance, etc are recorded here.
c)
Weekly
Register: This register presents summery of the receipts and payment on
weekly basis. This is up-dated in every weekly meeting.
d)
Cash Book:
A
cash book records all the receipts and payments of the fund which reflects the
total amount available in the fund on a particular date.
8)
Opening of
Bank Account: Soon after the SHG is formed and one or two meetings held, where
the savings are collected, a saving bank account is opened in the name of the
SHG. Reserve Bank of India has issued instructions to all commercial banks and
Regional Rural Banks, permitting them to open Saving Bank Accounts of
registered or un-registered SHGs. For
opening bank accounts the following documents are required to be submitted to
the bank
a)
Resolution
of the SHG: The SHG has to pass a resolution in its group meeting, signed by
all members, indicating their decision to open a Saving Bank A/C with the bank
branch. The resolution should be filed with the bank in a manner so required.
b)
Authorization
from the SHG: The SHG should authorize at least three members, only two of whom
to jointly operate upon their account. The resolution along with the filled in
application form duly introduced by the promoter may be filled with the bank
branch.
c)
Copy of
the Rules and Regulations of the SHG: This is not a must. If the group has
not formulated such rules and regulations, loans can be sanctioned even without
them.
9)
Conduct of
Internal lending by the SHG: After saving for a minimum period of 2 to 3
months, the common saving fund shall be used by the SHG for lending to its own
members. Lending can be for any purpose. However, productive use of borrowed
fund, more particularly for investment in income generating project is
encouraged.
************************************
Also Read:3. Self Help Groups************************************Also Read (Dibrugarh University)
************************************
Funding Procedure of SHGs
The fund is owned by the group and consists
of savings of the members. The fund is used to make short-term loans with
interest to the members. The profit of the fund (i.e. interest on loan plus
fines) is divided to the members of the group at the end of the year. Apart
from the fund generated by an SHG through the small savings of its members on
regular basis, it acquires funds through other sources as follows:
a) Bank Linkage: The NABARD
initiated three models under the Bank-SHG linkage programme. There are:
Model I: SHGs formed and financed by banks. In
this model banks themselves take up the work of forming and nurturing the
groups, opening their saving accounts and providing them bank loans.
Model II: SHGs formed by formal agencies
(NGOs/Voluntary Associations) other than banks, but directly financed by banks.
Model III: SHGs financed by banks, using NGOs
and other agencies as financial intermediaries. In areas where the formal
banking system faces constraints, the NGOs are encouraged to approach a
suitable bank for bulk loan assistance. This in turn, is used by the NGO for
lending to the SHGs.
b) Revolving Fund: Every SHG
which is in existence at least for a period of six months and which has
demonstrated the potential of a viable group through regular savings and active
participation of members, pass through a scanning to be qualified for first
grading to kick-start lending activity by bank, gets Revolving Fund of Rs.
25,000 from bank as cash-credit facility. Of this, a sum of Rs. 15,000 is given
to the bank by the District Rural Development Agency (DRDA). Bank may charge
interest only on the sum exceeding Rs. 15,000.
The Revolving Fund is provided to the group for augmenting their group
corpus so as to enable larger number of members to avail loan and also to
facilitate increase in the per capita loan available to the members.
c) Bank Loan for Economic Activities: Once an
SHG receives Revolving Fund, its activities are closely monitored by the bank
with regard to usage of the fund, financial discipline, account keeping; and
once again graded. This second grading revolves around financial management of
the funds provided. The concerned bank and the DRDA take active part in grading
exercise of the SHG. After the second grading, the successful groups become
eligible for bank financing for undertaking economic activities. The bank loan
is generally payable as per the project cost; in addition to other considerations
like the size of internal resource generated by the SHG, activities of the
members, type of project taken up by the group and its members, etc.
d) Capital Subsidy: The Govt.
of India, through the Ministry of Rural Development, grants Capital Subsidy of Rs.
15,000 to each of the members of a group belonging to the general category and
Rs. 20,000 to ST/SC and people with disabilities. In addition to this, each of
the SHG groups gets Rs. 20,000 per capital subject to a maximum of Rs. 2.5
lakh, whichever is less.
e) Interest Subsidy: This is
another mode of funding SHGs. This was announced under the Government of
India’s National Rural Livelihood Mission (NRLM) in 2011. Under this scheme,
subsidy on interest rate above 7%, per annum charged by the bank is given for
all SHG loans availed from banks, based on prompt payment. This subsidy is
provided to individual beneficiary or SHG member till he/she has availed a bank
loan up to an amount of Rs. 1 lakh. However, this subsidy is not available on
such occasions when the SHG is availing Capital Subsidy.
Problems of SHGs movement in India and measures to improve it
Problems
of SHGs: Though the SHG movement in India has gained momentum in some parts
of the country and has become successful particularly in the southern states,
has failed miserably in most of the other states. Several studies have
identified a host of problems; some are localized, while some others are
general for the country as a whole. A few important general problems which
stand in the way of efficient functioning of the SHG are as follows:
1. Limited Financial strength hence limited
Borrowing Capacity: The financial corpus generated by the SHGs out
of the meager contribution of the members is generally small. This considerably
limits the borrowing capacity of the groups. As a result, the volume of
business also considerably limited.
2. Marketing of products poses a major challenge
for SHGs: A serious problem of the SHGs is that there is lack of innovation
among members; most of the SHG members are the followers of what others do. As
a result, too many units of similar type crop up in the same area. This results
in marketing disadvantage for most of the groups and their members.
3. Consumers’ reluctance to buy SHG products when
the products produced by MNCs are available in the market: Another
serious challenge faced by the SHGs is the competition from Multi-National
Companies (MNCs). When products of MNCs are available in the market, even
sometime at cheaper cost, people in general discard the products of SHGs.
4. Lack of Professionalism as the members are
less qualified: Poor academic attainment of the SHG members also stands heavily
in the way of efficient working of the groups in most cases. When an income
generating project is operated, the SHG members are entrepreneurs and as such,
they are expected to behave with professional attitude. Such trait is grossly
missing with most of the SHG members.
Measures
for improvement: A few suggestions for improvement in the
working of SHGs are noted as follows:
1.
Selecting
right products: If SHGs are to survive in the long-run, selecting the right type
of products which have high market demand should be produced. The situation may
even call for changing the products mix, colour, packaging, etc from
time-to-time depending upon the changing market needs.
2.
Need for
Cluster Approach: To withstand competition with the products of
MNCs, SHGs producing similar products may resort to cluster approach and sell
their products under a common brand name. This will considerably help them to
gain marketing strength by expanding the market to distant places in urban
areas where traditional products are highly welcomed by some section of
consumers.
3.
Include
qualified persons in Management: Where the SHG members lack adequate
academic qualification to do with their business in right earnest, one
qualified person to take care of the matters may be hired when the business
takes a good shape. This will considerably help to augment the business.
4. Undergoing proper training in Business Management: The SHG members, wherever possible, should undergo proper training in Business Management with the intervention of the NGOs and banks.