Madhya Bharti (T 4rd) UGC Care Group I Journal

ISSN: 0974-0066 Vol-82 No. 04 January - June : 2022

THE ROLE OF SELF HELP GROUPS(SHGs)IN RURAL DEVELOPMENT

Dr. P. Satyanarayana, Assistant Professor, Department of Economics, GDCW (A), Begumpet,

Hyderabad- 500016.

Introduction:
The Third world countries were still facing socio-economic problems like poverty, unemployment,
inflation, regional imbalances, low productivity, low incomes, lack of food security etc. Self Help
Groups (SHGs) play today a major role in rural development and poverty alleviation in rural India. An
increasing number of poor people especially rural women in various parts of the country are members of
Self Help Groups(SHGs) and actively engaged in savings and credit as well as other activities like
natural resource management and income generation, micro finance, literacy, child care and nutrition
etc., The savings and credits focus in the Self Help Groups (SHGs) is the most important element in the
SHG is mobilize the savings in rural areas and some control over capital and building up entrepreneurial
abilities in rural women. SHGs help the rural women empowering women themselves through the
creating employment opportunities and income generation.

In Mid 1970's Self Help Groups (SHGs) concept first introduced in Bangladesh by Nobel Laurate
Mohammed Yunus. First, he introduced SHGs concept in the field of rural banking, it is known
Grameen Bank. The purpose behind introducing this concept is to generate rural credit and mobilize
rural savings and tap the rural investment potential which cater the needs of rural households in small
amounts through Self Help Groups (SHGs) they help themselves and provide themselves loans which
are required in smaller amounts. Mostly they depend on money lenders, those who charges higher
interest rate. Instead of they depend on money lenders, they help themselves through this Self Help
Groups (SHGs) concept. Self Help Group (SHG) is a village-based financial intermediary committee
usually composed of 10 to 20 members, all of them were local women or men. Most of the Self Help
Groups (SHGs) are located in India, though SHGs can be found in other countries, especially South Asia
and South East Asia.

Historical Evolution of Self Help Groups (SHGs)

In mid 1980s Self Help Groups (SHGs) concept introduced in India with the objective of empowering
the rural women through the mobilization of rural savings and tap the rural potential and rural
development. By late 1980's MYRDA, an NGO located in South India, formed around 300 autonomous
SHGs known as the Credit Management Groups. The National Bank for Agriculture and Rural
Development (NABARD), found SHG as an interesting and effective strategy to provide banking
services to the so called "un-bankable" people. Between 1991 and 1992, NABARD in consultation with
RBI, Commercial Banks and NGOs launched the pilot project of linking the SHGs with Commercial
Banks, based on NABARD guidelines. By late 1990s and early 2000. given its success the government
had become a key promoter of SHGs. Decentralization of power at Panchayat's level in 2004 gave local
bodies more teeth and SHGs came to recognized as a powerful institution for the poor. By March, 2005
the SHG programme had provided credit to 16,18,456 SHGs with a membership of over 24 million poor
families or about 120 million poor people, making it the largest micro finance initiative in the world.

In India Self Help Groups (SHGs) came into operation from April, 1999. As per NABARD's Micro
Finance Report (2012), as on March 2012, about 79.6 lakh SHGs, with an estimated membership of 9.7
crore, have savings accounts in the banks, with aggregate bank balance of Rs. 6,551 Crores. Over 43.54
lakh SHGs have loan accounts with total loan outstanding of Rs. 36,340 crores. The total number of

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Madhya Bharti (77 4TRd) UGC Care GroupI Journal
ISSN:0974-0066 Vol-82 No. 04 January- June: 2022
SHG Federations formed is 1.66 lakh most of which are primary federations. Decreasing trend in the
number of SHGs that have a loan outstanding with banks during 2010-2012 which came down from
48.51 lakh SHGs in 2010 to 43.54 lakh SHGs as on March 2012, a reduction nearly 10 per cent is a
major cause of concer. During the same period, the number of SHGs having savings bank account was
gone up from 69.54 lakh SHGs to 79.6 lakh SHGs, an increase of nearly 15 per cent. Only 55 per cent of
the SHGs that have bank account are having a loan outstanding with the bank. Another disturbing trend
is steady increase in Non-Performing Assets (NPAs), which doubled in two years from 2.9 per cent in
2010 to 6.I per cent in 2012.Increasing NPAs and reducing percentages of SHGs that have bank loan
outstanding may adversely affect the prospects of newer SHGs being promoted. Among the total SHGs
most them concentrated in South India. According to Telangana State Finance Minister Mr. Harish Rao,
in Telangana there was total 4,29,269 Self Help Groups with membership of 46,65,443 are working as
on 19th March
2021
Self Help Groups (SHGs) and Rural Development:
In India Self Help Groups (SHGs)operating in various sectors such as handicrafts, food processing units,
grocery stores, farming, rain harvesting. poultry, dairy farms, fisheries etc., Members of Self Help
Groups (SHGs) also make savings contributions over a few months until there is enough money in the
group to begin lending. Funds may be lent back to the members or to the village for any purpose. In
India, many SHGs are linked to banks for the delivery of micro credit. It is a group which help every
poor and needy in rural areas. In order to change socio-economic face of rural areas, micro enterprises
and Self Help Groups (SHGs) are playing significant role in the self-employment by raising the level of
income and standard of living in the rural areas. In this SHGs framework, one of the most important
aspects of the rural employment is rural self-employment is the formation of SHGs which is most
valuable investment in human capital through training and capacity building measures from dairy to
mechanized farming. poultry, weaving, mushroom cultivation and food processing units. Rural India has
been busy with setting up micro-enterprises by SHGs. The group members use collective wisdom and
peer pressure to ensure appropriate use of fund and its timely repayment. These are informal groups in
nature where members come together towards collective action for common cause. The common need is
meeting their emergent economic needs without depending on external help. The SHGs helps in
achieving rural development with the support of Micro-Finance.

SHG Models -SHG Bank Linkage Model:

SHGs are voluntary and small group structure for mutual aid and the accomplishment of a special
purpose. They are usually formed by peers, who have come together for mutual assistance in satisfying a
common need (Katz and Bender, 1976). In India, SHGs have federated into larger organizations,
typically about 15 to 50 SHGs make up a Cluster/Village Organization (VO) with one or two
representative from each SHG and with the several inter groups decision making structures. The most
important point SHGs institutional model is the SHG-Bank Linkage Model (SLBM) and in India three
different schemes of linkage of SHGs to the financial institutions have emerged; they are first Banks
themselves, form and finance the SHGs. Second SHGs are formed by NGOs, Government and other
agencies financed by banks. Banks finance SHGs with NGOs and other agencies as financial
intermediaries.

Types of Self-Help Promoting Agencies:

Most SHGs are formed with assistance from a promoting institutions
Sclf Help Promoting Agencies
of Institutions' (SHPAs, SHPIs), but others are formed by themselves. The main types of Self Help
Promoting Institutions include: Non-Governmental Organizations (MYRDA.PRADAN,DHAN

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Madhya Bharti (HE7 4TRdH UGC Care Group I Journal
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Foundation and CARE-NGO); Government (Departments of Panchayat Raj& Rural Development,
Women & Child Development, Women Development Corporation etc..); Poverty Reduction
Programmes (Kudumbashree, Indira Kranthi Pathakam (Velugu), Vazhundu Katuvoon, MAVIM and
Mission Shakti); State and Commercial Banks (ICICI, HDFC etc.); SHG Federations, Cooperatives,
Cooperative Banks, Micro finance institutions, VVVs or farmer's clubs, Individuals (Social
Entrepreneurs") and SHG leaders (may promote SHGs).

Self Help Groups (SHGs) and Micro Finance:

Micro Finance is emerged as a powerful instrument for poverty alleviation in the Rural India. In India,
micro-finance scene is dominated by Self Help Groups (SHGs) and Banks Linkage Programme, aimed
at providing a cost effective mechanism for providing financial services to the 'unreached poor. Based
on this philosophy of peer pressure group savings as collateral substitute, the SHG programme has been
successful in not only designing financial products meeting peculiar needs of the rural poor, but also in
strengthening collective self-help capacities of the poor at local level, leading to their empowerment and
as well rural development. According to National Bank for Agriculture and Rural Development
(NABARD) annual report for 2007-08, starting in 1992, by 2007 there were 2.2 million SHGs covering
32.98 million households. In 2021, it is increased to 6.7 million SHGs covering 70 million households.
Total credit disbursement by these SHGs was Rs. 11,398Crore compared to estimated the demand of the
Rs. 1,00,000 Crore in 2007.

Role of Micro Finance in Rural Development through Self Help Groups (SHGs):
The most common micro finance product is a micro credit loan, usually less than Rs.1000. These tiny
income loans are enough for hard working micro entrepreneurs to start or expand small businesses like
weaving baskets, raising chickens or buying wholesale products to sell in market. Income from these
businesses provides better food, housing, health care and education for their families and most important
additional income provides hope for better future and not only that it will provide a secure place to save
their money and access to insurance for their homes, businesses and health. Micro finance Institutions
(MFls) are now innovating to help meet these needs, empowering the world's poor to improve their own
lives.

The global repayment rate for micro credit loans is higher than 95 per cent and Rate of Return on
Investment (ROI ) is 100 per cent. Which allows Micro finance Institutions (MFIs) to re-lend these
funds to even more clients. By giving the world's poor to a hand up, not a hand out, micro finance can
help break the vicious circles of poverty in as little as a single generation.

Role of SHGs in Mobilization of Rural Savings and Utilization of Resources:

The Self EHelp Groups mobilize the rural savings and it is important to note that this amount has come
out of very small the monthly contribution. For example the monthly contribution of month very small,
i.e., Rs.30per month. The important point that enabled SHGs with rural poor women even to save
smaller amounts regularly and as matter of discipline. In absence of the SHG mechanism, it would have
not been possible for the rural women to make deposits of a smaller amount Rs.30 per month in Bank.
Even for the banks, it would not have viable to transact such small and intermitter deposits.

Not only their savings were regular and also large proportion of SHGs had managed even to increase
their monthly savings. The increase contribution was upto 16 to 20 percent in nearly 75% of SHGs. This
can be viewed as an indicator of continued mutual trust among the members and increasing desire to

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Madhya Bharti (77 4TRd) UGC Care Group I Journal
ISSN: 0974-0066 Vol-82 No. 04 January- June: 2022
savings. Moreover, the pooled savings were managed by very well by the SHG members, initially for
internal lending among themselves and latter to establish a credit linkage with banks and avail larger
group loans.

According to a study, in India nearly 68 per cent of the members are barrowing from the groups (SHGs),
and it implies that large number of members are accessing the credit. Those who are barrowed the loans
more than once after repaying old loans, we called then active barTOwers constituted nearly 65 per cent
of the total barrowers, which indicate that a large proportion of barrowers had used their first loan very
well, repaid it and further access to credit. According to a study, it is 44 per cent of total loan amount
was sourced as loans from banks and the balance 56 per cent was from internally generated resources
indicating the financial strength that SHGs have attained. In this context, it is important to note that the
poor are able to meet margin requirements of those close to 50 per cent from their group savings.

If we analyze the loan pattern of SHG members, according to their size of loans, classified into different
categories. It is 91 per cent loan account coming under size class below Rs.3000. Even in the case of
loan amount taken it is 64 per cent of loans were below Rs.3000 indicating demand for small loans.
Catering for such small loans has been virtually impossible for the formal banking system in the past,
mainly due to the high transaction and processing cost involved. Now a days, it makes happen to
possible through the Self Help Groups (SHGs). The main purposes and utilization of barrowings of SHG
members are agricultural expenses (with 53 per cent of loan accounts and 57 per cent share in loan
amount),meeting urgent consumption needs (with 35 per cent of loan accounts and 29 per cent share in
loan amount), off-farm enterprises and education are other important purposes for which SHG members
borrowing loans.

Self Help Groups and Women Empowerment:

Women Empowerment means to creation of environment for women where they can make decision of
their own for their personal benefits as well as for the society. Self Help Groups(SHGs) have
undoubtedly begun to make a significant contribution in poverty alleviation and empowerment of poor,
especially women in rural areas of our country. Nearly 80 per cent SHGs are women based SHGs.
Through these SHGs, women empower themselves by taking their own decisions, mobilize savings,
training, some control over capital, creating employment opportunities and income generation for
themselves. Through these Self Help Groups (SHGs) group members, they improve their entrepreneurial
decision making and leadership skills. Through the small savings and loans given by Banks they provide
capital for their micro enterprises and creating the employment and income opportunities and these
incomes provides better food, housing, health care and education for their families and most important
additional income provides hope for better future and not only that it will provide a secure place to save
their money and access to insurance for their homes, businesses and health. Women Empowerment,
especially for rural women empowerment possible only through SHGs.

Conclusion
In India, in order to change socio-economic face of rural areas, Self Help Groups (SHGs) are playing
significant role in the self-employment by raising the level of income and standard of living in the rural
areas. In this SHGs framework, one of the most important aspects of the rural employment is rural self-
employment is the formation of SHGs which is most valuable investment in human capital through
training and capacity building measures from dairy to mechanized farming, poultry, weaving, mushroom
cultivation and food processing units. Rural India has been busy with setting up micro-enterprises by
SHGs. The group members use collective wisdom and peer pressure to ensure appropriate use of fund

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Madhya Bharti ( 7 YRd) UGC Care Group I Journal
ISSN: 0974-0066 Vol-82 No. 04 January-June: 2022
and its tinmely repayment. The common need is meeting their emergent economic needs without
depending on external help. The SHGs helps in achieving rural development with the support of Micro-
Finance. 85 per cent SHGs working successfully. Due to some problems, 15 per cent SHGs are not
performing well. Another disturbing trend is steady increase in Non-Performing Assets (NPAs), may
adversely affect the prospects of newer SHGs being promoted. Ultimately Self Help Groups help the
rural women empowering women themselves through the creating employment opportunities and
income generation. The SHGs helps in achieving rural development with the support of Micro-Finance.

References:
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2. Srinivas, R. (2018), "Impact of Self Help Group (SHG) on Women Empowerment", published
in "Women Empowerment and Rural Development in India'", Edited by D. Muniswamy,
Paramount Publishers.
3. Ethiopian Delegation (2014), "Self Help Groups (SHGs) in India", New Delhi
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