Self-Help Groups : Concept, Genesis and Growth in India

M.A. (Women Studies) Part-II Semester-III Lesson No. 10 Paper-1 Self-Help Groups : Concept, Genesis and Growth in India It is a well recognized fact that sustainable development involves equal opportunities and freedom of choices for all without any discrimination on the bases of caste, class, region, gender etc. But the condition of rural poor, especially of women creates a major obstacle in its achievement as they are suffering from poverty,lack of access to resources, social and economic backwardness, lack of collective action and non-participation in decision-making at all levels. Though, the era of liberalisation, privatisation and globalisation has opened up tremendous opportunities for development and growth resulting in the modification of livelihood strategies yet the withdrawal of the state from basic facilities of health, education and employment further adds to the disempowerment and the vulnerability of poor people due to the absence of adequate safety nets. The condition of women becomes fragile due to unequal distribution of power at all levels. For empowering the rural poor and other weaker sections of the society, especially women, the only ray of hope is seen in the local level development organisations. Thus, the need for local level institutions, and those too sustainable ones, has become increasingly important in the new environment of diminishing states and expanding markets. The focus today has shifted to development activities of locally rooted, participatory micro-development organisations. The Government of India launched several development programmes after independence. The programmes focused on improvement of socio economic conditions of rural masses and improvement in the standard of living through elimination of poverty. Unfortunately, the approaches and strategies of these programmes did not yield expected result in improvement of socio economic conditions regarding poverty eradication. The importance of group approach and the ability of rural poor, especially women to function collectively has already been accepted by many development activists, policy makers etc. Individually, a poor person has a tendency to be rather uncertain in his conduct but group membership smoothens his irregular behaviour pattern, making him more reliable as a borrower. Membership of a group gives him guidance, advice and a feeling of protection from people he know and can trust. Micro-finance or Micro-Credit has provided an economic base to such groups of poor people with extension of small loan to them for self-employment, poverty alleviation and social and economic empowerment. Individually, these poor people were unable to access the financial assistance from

M.A. (Women Studies) Part-II (Semester-III) 69 Paper-1 formal institutions due to lack of collateral securities. As a result of this, the government, NGOs and bankers focus on utilising the poor and women groups to implement various activities in order to attain the objectives of socio-economic development and empowerment. While using the group approach, India is also fast becoming one of the largest microfinance markets in the world and self help groups (SHGS) form the basic constituent units of the microfinance movement in India. Self-Help Group model is the most widespread model in the country for microfinance or micro-credit programmers. These Self-Help Groups are savings and credit groups which are playing a major role in organising rural poor around credit to fulfil their financial needs. Many fringe benefits are seen by development practitioners as flowing from micro-credit based SHGs such as changes in gender equations in favour of women, improved health and nutrition, improved education, increased incomes and selfreliance. A number of governmental programmers, non-governmental organisations and financial institutions like banks are involved in the promotion of Self-Help Groups in India with different approaches and philosophies. As SHGs have emerged as an important vehicle for development and empowerment, thus before scanning the origin and growth of SHGs in India and the role of various agencies, it becomes necessary to understand its meaning and concept. Self-Help Groups as a Concept In India, forming and nurturing small homogenous and participatory Self-Help Groups (SHGs) of the poor has today emerged as a potent tool for human development. A number of micro-level, micro-credit models are currently in operation in different parts of India. A common feature has been the promotion of self-help group (SHGs) composed mainly of women through social mobilisation which start with pooled savings for internal rotation, and eventually receive and repay loans. NGOs, government agencies and banks have been promoting SHGs within many approaches. A Self-Help Group (SHG) is a registered or unregistered group of micro entrepreneur having homogenous social and economic backgrounds; voluntarily coming together to save regular small sums of money, mutually agreeing to contribute to a common fund and to meet their emergency needs on the basis of mutual help. The group members use collective wisdom and peer pressure to ensure proper end-use of credit and timely repayment. This system eliminates the need for collateral and is closely related to that of solidarity lending, widely used by microfinance institutions. SHGs in the context of development interventions are economically and socially homogenous group of 10 to 20 people, usually women, who voluntarily form a unit of self help with the support of a development agency. Groups meet regularly, and formal leadership is often a feature. Savings and credit is generally the primary

M.A. (Women Studies) Part-II (Semester-III) 70 Paper-1 activity of SHG, with loans rotated through the groups from either their own savings, or external resources such as NGOs or banks. Another definition says that an SHG is a group of a new individuals, usually poor and often women-who pool their savings into a fund from which they can borrow as and when necessary. Such a group is linked with a bank a rural, co-operative or commercial bank where they maintain a group account. Over time, the bank begins to lend to the group as unit, without collateral, relying on self-monitoring and peer-pressure with the group for repayment of these loans. NABARD defines it as a group of 20 or less people from a homogenous class who are willing to come together for addressing their common problems. They make regular savings and use the pooled savings to give interest-bearing loans to their members. The process helps them imbibe the essentials of financial intermediation including prioritisation of needs, setting self-determined terms for repayment and keeping books and records. It builds financial discipline and credit history that then encourage banks to lend to them in certain multiples of their own savings and without any demand for collateral security. Self-Help Group as a strategy for social development places emphasis on selfreliance, human agency and action. It aims to mobilize people, to give them voice and build people s organisation that will overcome barriers to participation and empowerment. Thus SHGs work through a process of social mobilisation of rural poor from the same background, especially women. Generally the support of a development agency is required to organise a group. The groups are kept informal to minimise their association with bureaucracy and corruption, unnecessary administrative expenditure and profit constraints. In initial stage, the process of savings is started and a group account in a bank is opened to deposit those savings. Then, interlending to members is started as and when they need it, on the mutually agreed interest rates. After the successful operation of savings and credit for some time, the group can be linked to a bank and can avail bulk of loans from it. The maximum loan amount is multiple of the total funds in the group account. In the next stage, microenterprises are set up on the individual or group level with the loan amount availed from the bank. Thus, income generation activities increase the income of group members and make them economically more empowered and self-reliant and increased incomes save them from the vicious cycle of poverty. The SHGs follow collective decision-making on the issues like meetings, thrift and credit decisions. The participative nature of the groups makes them responsible borrowers. The unique features of these groups are that, manifestly, they are autonomous, homogenous, informal voluntary associations based on the principles of peer control, self-support and self-governance and remain free from bureaucratisation and politicisation. These provide low-cost financial services. The

M.A. (Women Studies) Part-II (Semester-III) 71 Paper-1 other principles of the SHGs are group approach, mutual trust, organised small and manageable groups, group cohesiveness, spirit of thrift demand based lending, collateral free and women friendly loan, peer group pressure in repayment, skill training, capacity building and empowerment. The process empower the poor and enable them to control direction of own development by identifying their felt needs. Self-Help groups (SHGs) and women s self-help groups (WSHGs) in particular, represent a form of intervention that is a radical departure from earlier programmers. They are an effective strategy for poverty alleviation, human development and social empowerment. They offer grassroots participatory implementation that is demand driven by beneficiaries who, in other projects, often find themselves receiving goods or services in a manner that is vague and impersonal. Origin and Growth of SHG Movement in India Self-Help Groups in India are rooted in the traditional Rotating Savings and Credit Associations (ROSCAs) and chit funds and other indigenous informal financial associations. Chit fund associations are old institutions in India in which members made periodic contributions that are pooled into a fund from which money is given to members. A Rotating Savings and credit Associations or ROSCA is group of individual who agree to meet for a defined period of time in order to save and borrow together. ROSCAs are the poor man s bank, where money is not idle for long but changes hands rapidly, satisfying both consumption and production needs. The origin of SHGs is believed to be the brainchild of Grameen Bank of Bangladesh (founded by Mohammed Yunus) which started froming SHGs in 1975. Promoters of Self-Help Groups NGOs and Government Most SHG-Based programmers are implemented by the government in partnership with NGOs or by NGOs and donor agencies. The promoting institution plays a significant role in the way an SHG develops and functions. Role of NGOs as Promoters The role of Non-Governmental Organisations in micro-credit programmers in India needs special focus. Grassroots level organisations usually have good community contacts, knowledge of local languages, patience and skill to organise group of people. This has been proved by success of NGOs working for the promotion of self-help groups for social and economic development, political empowerment and awareness generation in India. In 1980s, Non Governmental organisation played an innovative role in developing Self-Help Groups model for providing microfinance without any government support. But India s first microfinance institution Shri Mahila SEWA Sahakari Bank was set up as an urban co-operative bank, by Self- Employed women s Association (SEWA) soon after the group (founder Ms. Ela Bhatt) was formed in 1974. The SHG system was initiated by an NGO named MYRADA in the mid-1980s in India. In 1986/87, there were some 300 SHGs in MYRADA s projects. Many had emerged from the breakdown of the large cooperative organised

M.A. (Women Studies) Part-II (Semester-III) 72 Paper-1 by MYRADA. The number of these NGOs participating in micro-credit programmes increased from 1030 in 2000-2001 to 3078 in 2009-2010 with growth of 198.83 percent. NGOs also provide assistance in micro-enterprise promotion. The work of Society for Helping Awakening Rural Poor through education (SHARE) and Bharatiya Samruddhi Investments Consulting Services Ltd. (BASIX) and Working Women s Forum (WWF) is considerable in this context. NGOs also work in association with government and other microfinance institutions. Government Agencies as Promoters The efforts of Non Governmental organisation started gaining acceptance and recognition in government planning and policy making. Many government programmers for development and poverty alleviation were based on such group approach for micro-credit and income-generation activities. Integrated Rural Development Programme (IRDP) was the only programme meant for self- employment in the beginning. After that some other allied programmes were introduced to supplement IRDP efforts in poverty alleviation. These programmes were Training of Rural Youth for Self-Employment (TRYSEM), Development of Women and Children in Rural Areas (DWCRA), Supply of Improved Toolkits to Rural Artisans (SITRA), The Ganga Kalian Yojna (GKY), National Rural Employment Programme (NREP), Jawahar Rojgar Yojna (JRY), Million Wells Scheme (MWS), Rashtriya Mahila Kosh (RMK), Indira Mahila Yojna (IMY) etc. Among these programmes, DWCRA (started in 1982) and IMY (started in 1995) were mainly based on this SHG approach. Self-Help Group - Bank Linkage Programme of NABARD NABARD had been involved in experimenting SHG model for assisting the poor since 1987 in some states of India. Without the assistance of NABARD, the SHG movement would not have had official recognition and ownership. In 1992, NABARD starts its bank linkage programme to promote and encourage bank lending to Self-Help Groups. Soon after, the Reserve Bank of India (RBI) advised commercial banks to consider SHGs as a part of their rural credit operations. These efforts and simplicity of the SHG model helped to spread the movement across the country.by 1990s, SHGs were viewed by state governments and NGOs to be more than just a financial intermediation but as a common interest group working on other concerns as well. The agenda of SHGs included social and political issues as well. This SHG Bank Linkage Programme was started as a pilot project for credit linking 500 SHGs with banks with the objective of extending formal banking services to the unreached rural poor by evolving a supplementary credit delivery strategy in a cost effective manner. This model of finance -an Indian innovation -has been very successful since its inception.

M.A. (Women Studies) Part-II (Semester-III) 73 Paper-1 Various Annual Reports of NABARD provide data on the growth of SHG Bank Linkage Programme. The SHG-Bank Linkage Programme was slow to take off as in the year 1992-93, only 255 SHGs linked with banks. This number reached to 32995 SHGs in 1999. Since then, the programme has become the largest micro finance bank linkage programme in the world in terms of outreach and sustainability.the number of SHGs linked with banks reached from 114775 SHGs in 1999-2000 to 1618456 SHGs on 31st March, 2005. Up to March 2010, about 48.5 Lakh SHGs have been covered by SHG-Bank Linkage Programme. Thus SHG-Bank Linkage Programme by NABARD is considered as a milestone in the growth of SHG movement in India. It has turned into a national movement leading to the social and economic empowerment of poor especially women. It has received generous support from RBI, the central and several state governments of India and thousands of NGOs and the banking sector. Swaranjayanti Gram Swarozgar Yojana (SGSY)-1999 From the time when the first SHGs emerged in 1985 to the inclusion of the SHG strategy in the annual plan of Government of India for 2000/01, the SHGs have been an important component of the Government's overall thrust to mitigate poverty and has been included in every annual plan since 2000. In recent years, government developmental programmes have also sought to target the poor through the SHGs. The government has used the SHG approach in many of its anti-poverty projects. A number of poverty alleviation programmes including Integrated Rural Development Programme (IRDP), Development of Women and Children in Rural Area (DWCRA), Training of Rural Youth for Self Employment (TRYSEM), Supply of Improved Toolkits to Rural Artisans (SITRA), Ganga Kalyan Yojana (GKY) and Million Well Scheme (MWS), Rashtarya Mahila Kosh (RMK) and Indira Mahila Yojana (IMY) were in operation in rural areas till the end of 1998-99. It was felt that this fragmented approach with a multiplicity of schemes was not able to focus on the needs of the rural poor in a coherent manner. Hence, these multiple schemes were amalgamated by Government of India and merged into a single scheme called "Swamjayanti Gram Swarozgar Yojana" (SGSY) with effect from 1.4.1999. SGSY is a centrally sponsored scheme and is jointly funded by the Government of India and the State Government in ratio of 75:25. The centrally sponsored Swam Jayanti Gram Swayrozgar Yojana (SGSY) has been revised keeping in view experiences of the strength and weaknesses of earlier self-employment programmes. It is a comprehensive self-employment, programme for the rural poor and is conceived as a holistic scheme of micro- enterprises covering various aspects of self-employment, organisation of the rural poor in SHGs, capacity building, training, planning of activities clusters, infrastructure buildup, technology, credit and marketing. Thus emphasis in rural development has progressively shifted from growth to welfare and then from a responsive to an integrated approach.

M.A. (Women Studies) Part-II (Semester-III) 74 Paper-1 The impact of SGSY in' the spread of SHG-Bank Linkage Programme of NABARD is noticeable as up to 1999, there were nearly 33 thousand SHGs creditlinked with banks. This number has reached to 48.5 lakhs SHGs in March 2010. The programme is implemented countrywide through a hierarchy of SGSY committees, at the central, state, district and block levels. The actual disbursement of government funds is through the District Rural Development Agency (DRDA) who distributes the subsidy to banks. There is supposed to be an active involvement of Panchayati Raj Institutions (PRIs), the banks and the NGOs and NABARD. With increasing acceptance of the SHG based developmental approach there is pressure set on village and block level administrators to achieve targets of forming a certain number of SHGs by a specified date. Thus Panchayats are also promoting SHGs in many years. The key activities for micro-enterprises are also selected with the approval of the concerned Panchayat Samities at the Block level, and DRDA at the District level. The main objective of SGSY - the largest Self-Employment Programme for Rural Poor was declared to bring every poor family above the poverty line by making them self sufficient through bank credit and Government subsidy and by ensuring appreciable increase in income over a period of time. Though declared target has not been achieved but the programme is an important move, in the direction of empowering poor women. It emphasised on mobilisation of rural poor especially SC, ST, women and disabled persons to enable them to organise into Self Help Group with a participatory approach in selecting key activities. SGSY has been an excellent source of subsidised credit as SHGs are strengthened through Revolving Fund Assistance (RFA). If a group survives for 6 months it becomes eligible for a revolving fund of Rs. 25,000 from a participating bank. Out of this loan, Rs. 10,000 is in the form of government subsidy and banks may charge interest only on the amount exceeding this Rs. 10,000. The Rs. 25,000 fun injection becomes part of the group corpus. Six months after the receipt of the revolving fund, the groups are tested for their preparedness to take up economic activities. If they pass the test, they are eligible for loan-and-subsidy for economic activity up to a maximum of Rs. 10,000 per group member or Rs. 1.25 lakhs per group, whichever is less. There are also incentives, payable in several stages, to NGOs or "animators" incubating and nurturing SHGS. Women Self-Help Groups Women Self-Help Groups constitute a large part of Self-Help movement in India because women are seen as most reliable customers in terms of repayment and utilization of loans. It is because of this reason that a discussion on self -help groups in India ultimately takes the form of a discussion on women Self Help Groups. Number of savings linked Women SHGs is 5310436 and credit-.linked Women SHGs is 1294476. The data indicates that up to the year 2010, 76.4 percent of total savings-linked SHGs comprise only women members and 81.5 percent of total credit-

M.A. (Women Studies) Part-II (Semester-III) 75 Paper-1 linked SHGs are exclusively of women beneficiaries. SHGs enhance the status of women as participants, decision-makers and beneficiaries in the democratic, economic, social and cultural spheres of life. Models of Self-Help Groups in India There are three major models of SHGs working in India for credit linkage of SHGs with banks. But most of the SHGs are formed on the lines of Model II because of its simple and beneficial functioning. Model I: SHGs formed and financed by banks In this model, the bank itself acts as a promoter to SHGs and provides assistance and credit to these groups~ Banks themselves take up the work of forming and nurturing the groups, opening their savings accounts and providing them bank loans. About 20% of the total number of SHGs is financed from this category. Model li: SHGs formed by government agencies, NGOs, but directly financed by banks In Model II, the groups are formed, nurtured and trained by NGOs or by government agencies. The bank then provides credit directly to the SHGs while NGOs or government agencies continue with their facilitation services as promoters. This model continues to have the major share, with around 74% of the total number of SHGs financed falling under this category.here, NGOs and formal agencies in the field of micro finance act only as facilitators not as mediators for credit. Model III: SHGs financed by banks using NGOs and other agencies as financial intermediaries In Model III, the NGOs act as both facilitators and micro finance intermediaries. They promote, nurture and train them and then approach banks for loans for lending to SHGs. Here, repayment responsibility is with the NGOs. This is 'the model wherein the NGOs take on the additional role of financial intermediation. 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 on-lending to the SHGs. In areas where a very large number of SHGs have been financed by bank branches, intermediate agencies like Federations of SHGs are coming up as links between bank branch and member SHGs. These Federations are financed by banks, which, in turn, finance their member SHGs. The share of cumulative number of SHGs linked under this model continues to be relatively small at 6 percent. According to the SGSY Guidelines, the SHG approach helps the poor to build their self -confidence through community action. Interactions in group meetings and collective decision-making enable them in identification and prioritisation of their

M.A. (Women Studies) Part-II (Semester-III) 76 Paper-1 needs and resources. This process would ultimately lead to the strengthening and socio-economic empowerment of the rural poor as well as improve their collective bargaining power. Governmental involvement in SHG programmes has its own negative aspects. Politicisation, favouritism and corruption in allotment of funds among SHGs has become a big problem. The Involvement of panchayats in the formation of SHGs often makes them open to political pressure and misuse of funds. NGOs based SHGs do not face these problems. Thus, the quality of NGO- formed groups are usually superior to those formed by the local government (Panchayats) and villagers are keen to join the former.