The role of SHGs in the development of India

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Mains: GS II- 

  • Development processes & the development industry: the role of NGOs, SHGs, various groups & associations, donors, charities, institutional & other stakeholders.
What are Self Help Groups?


  • Self Help Groups (SHGs) are informal associations of people who come together to improve their standard of life. They help to build social capital among the poor, especially women.
  • Their most important function is to encourage the members to save their earning, persuade them to make a collective plan for generating additional income, and to act as a conduit for formal banking services to reach them.
  • SHGs work as a collective guarantee system for members who propose to borrow money from institutional sources like Microfinance institutions. Hence, they have emerged as the most efficient mechanism for the delivery of microfinance services to the poor.

Characteristics of a good SHG: A well functioning SHG would have the following features:

  • Membership: 15-20 members
  • All members belonging to the same socio-economic strata
  • A strong bond of affinity
  • Competent leadership
  • Members should attend all the meetings, save and participate in all activities voluntarily.
  • Should be a socially viable institution
  • Involvement of women in decision making and promoting leadership qualities among women

Functions of SHGs

  • Initiate and maintain savings within the group: All members must regularly save at least a small amount. These savings allow them to get future credits for their group.
  • Lending loans to the members: The savings made by the SHG must be used to provide loans to members of the group. Everything related to the loan must be decided within the group.
  • Solving common problems: SHGs mostly consist of individuals who face similar problems. The grouping should essentially help the individual overcome these problems through discussions and interactions within the group and overcoming the problems and finding a common and united solution to the problems.
  • Bank Loans: SHGs must work on getting a collective guarantee system so that they can avail of loans from official sources.
The role of SHGs in development:
  •  The SHGs play multiples roles in the developmental process. some of these are as follows:
    • Poverty Alleviation:
      • The formation of SHGs has helped the members save a part of their income. It has increased its assets, income, and generated employment opportunities.
      • There has been a significant shift in the use of loans for personal use to them being used for income generation.
      • The cumulative savings of the members had made them financially stable. This has helped them come out of the vicious circle of poverty and unemployment.
    • Financial Inclusion:
      • According to the NSSO survey(59th round), more than half of the farmer households in rural India do not have access to formal credit. Overall around 70% of all the households don't have any access to institutional credit. Microfinance helps the SHGs access formal institutions like the banks both for saving and securing loans.
      • The members of the SHGs are thus able to minimize their dependence on money lenders. Thus, SHGs can help achieve the goal of financial inclusion in rural India.
    • Human Resource Development:
      • The financial stability of the members encourages them to spend more on the education of their children. The member households have reported better school attendance and a decrease in school dropout rates.
      • The financial stability has led to lower child mortality, improved maternal health, good nutrition, housing, and health – especially among women and children.
    • Women Empowerment:
      • The contribution of women to household income has increased. It gave them better control over the decisions that affect their lives. It has led to an increased involvement of women in decision making.
      • It has increased their awareness about various welfare schemes and organizations and access to such organizations. 
      • The Expenditure on girl education in member households has also increased.
A successful case study
  • In India, women’s self-help groups combat the COVID-19 pandemic:
    • Women Self Help Groups in India have risen to the extraordinary challenge of the COVID-19 pandemic. They are meeting shortfalls in masks, sanitisers, and protective equipment, running community kitchens, fighting misinformation, and even providing banking and financial solutions to far-flung communities.
    • Making maks and other safety equipment: In over 90% of India’s districts, away from the limelight of the cities, SHG women are producing facemasks, running community kitchens, delivering essential food supplies, sensitizing people about health and hygiene, and combating misinformation. 
    • India’s SHG movement has evolved from small savings and credit groups that sought to empower poor rural women, into one of the world’s largest institutional platforms of the poor. Today, 67 million Indian women are members of 6 million SHGs.
    • Groups across the country are working furiously to make up the shortfall of masks and personal protective equipment (PPE). In Odisha, for instance, poor rural women who were once engaged in stitching school uniforms are sewing masks instead. Over the past couple of weeks, these women have produced more than 1 million cotton masks, helping equip police personnel and health workers, while earning something for themselves.
    • All told, more than 19 million masks have been produced by some 20,000 SHGs across 27 Indian states, in addition to over 100,000 liters of sanitiser and nearly 50,000 liters of hand wash. Since production is decentralized, these items have reached widely-dispersed populations without the need for complex logistics and transportation. 
    • Running Community Kitchens: With huge numbers of informal workers losing their livelihoods during the lockdown and food supply chains getting disrupted in some areas, SHGs have set up over 10,000 community kitchens across the country to feed stranded workers, the poor, and the vulnerable.
    • In Kerala, the Kudumbashree network, one of the country’s earliest community platforms of women with 4.4 million members and several years of catering experience behind them, were the government’s natural choice to run a number of these kitchens. Given the massive nature of the challenge, these groups have dramatically ramped up their efforts and are now running 1,300 kitchens across the state, while also delivering food to those in quarantine and the bedridden.
    • In Jharkhand, where poverty is high, SHGs – being the closest to the ground – are helping district administrations identify pockets of hunger and starvation so efforts can be made to ameliorate them
    • Fighting Misinformation: Importantly, the SHGs are helping curb rumors and misinformation. “The women are systematically using their vast network of WhatsApp groups to ward off chaos and confusion, providing critical support to the government in this hour of need.
    • Spreading Awareness: Women's groups are also disseminating Covid related messages among hard-to-reach populations. In Kerala, Kudumbashree is spearheading the government's Break the Chain campaign by raising awareness about hand hygiene and social distancing through mobile phones, posters, and weekly meetings. In Bihar, one of India's poorest states, Jeevika – the state's SHG platform – is spreading the word about handwashing, quarantine, and self-isolation through leaflets, songs, videos, and phone messages.
    • Providing banking and pension services: Since access to finance is critical for people to sustain themselves during the lockdown, SHGs women who also work as banking correspondents have emerged as a vital resource.  Deemed as an essential service, these bank sakhis have continued to provide doorstep banking services to far-flung communities, in addition to distributing pensions and enabling the neediest to access credits into their accounts through direct benefit transfers (DBT). Banks have given these women special orientation and provided them with financial incentives to enable them to continue to work during the lockdown. 

Across the country, women's SHGs have risen to this extraordinary challenge with immense courage and dedication. Their quick response to food insecurity and shortages in goods and services shows how this decentralized structure can be a vital resource in a time of crisis. The strength of India's rural women will continue to be essential in building back economic momentum after the most critical period is over.

Government Measures to strengthen the SHG movement

The government plays a crucial role as a facilitator for the SHGs. There various government schemes dedicated to the promotion of the SHGs. Some of them are as follows:

  • Swarn Jayanti Gram Swarozgar Yojana (SGSY): In 1999, the Government of India, introduced SGSY to promote self-employment in rural areas through the formation and skilling of SHGs.
  • Deen Dayal Antyodaya Yojana – National Rural Livelihoods Mission (DAY-NRLM):
    • It is under the Ministry of Rural Development, across the country in a mission mode with the objective of organizing the rural poor women into Self Help Groups (SHGs) and continuously nurturing and supporting them to take economic activities till they attain an appreciable increase in income over a period of time to improve their quality of life and come out of abject poverty.
    • The program aims to ensure that at least one woman member from each rural poor household (about 9 crores) is brought into the fold of women SHGs and their federations within a definite time frame.
    • As of 31st May 2019, 5.96 crore women have been mobilized into 54.07 lakh women Self Help Groups (SHGs) under the program.
    • The government is planning to create a total of 75 lakh Self Help Groups by 2022 to enable more women to get a livelihood.
  • Scheme for promotion of Women SHGs (WSHGs) in backwards & LWE districts of India: 
    • The scheme aims at saturating the districts with viable and self-sustainable WSHGs by involving anchor agencies who shall promote & facilitate credit linkage of these groups with banks, provide continuous handholding support, enable their journey to livelihoods and also take the responsibility for loan repayments. Under the Scheme, in addition to working as an SHPI, the anchor agencies are also expected to serve as a banking/business facilitator for the nodal implementing banks. 
    • To facilitate the implementation of the Scheme, an exclusive fund – ‘Women SHG Development Fund’ was set up by the Dept. of Financial Services, Ministry of Finance, Govt. of India in NABARD with a stated corpus of Rs. 500 Crore Grant support with Rs 10,000/- per SHG.
Shortcomings of SHGs and Recommendations to overcome them
  • The Politicization of the SHGs: The Strength of an SHG lies primarily in its solidarity-based participatory character, and in its ability to survive without any external help or involvement. Of late, the government interventions and subsidies have started impacting the SHGs negatively. The patronage and subsidies provided to the SHGs by the government and the Panchayats have often led to their politicization.
    • Hence, care must be taken to ensure that government initiatives don't undermine the foundational principles of self-help and empowerment of the poor.
  • Absence in Urban Areas: Increasing rural-urban migration has been a dominant trend in recent decades. The lack of access to formal credit due to the lack of documentary proofs has led to their impoverishment in urban slums.  
    • There is a need to organize these people into Neighbourhood Groups in the same pattern as the SHGs of the rural areas.
  • Poor Coverage:  A large number of households in the rural areas of the North-East and in the backward states like Bihar, Jharkhand, Uttar Pradesh, Uttarakhand, Madhya Pradesh, Rajasthan, and Odisha don't have access to formal credit due to the lack of good SHG movement. 
    • A major thrust on the expansion of the SHG movement in these states should be provided.
  • Poor Credit Mobilization: There is still a long way to go before the SHGs could fully utilize the available credit under government schemes. The SHG movement should be further strengthened to achieve this goal.
  • The attitude of the government officials: Steps should be taken to for training and capacity building of the government functionaries so that they develop a positive attitude and treat the members of SHGs as viable and responsible customers and as entrepreneurs.

Way Forward

  • SHGs are seen as drivers of rural development. However, the living conditions in rural areas remain underdeveloped.
  • The government must take a pro-active role in the promotion of the SHGs at the grass-root level.
  • Constant monitoring of the SHGs is the need of the hour. A separate government body to monitor the functioning and the progress of the SHGs can make it more successful.
  • New financial mechanisms based on the individual needs of the particular area is also essential for the SHGs to achieve their aims and objectives.
  • Therefore, the private banks and National Banks for Agriculture and Rural Development (NABARD) in cooperation with the local governing bodies must ensure that the financial inclusion is provided at the ground level – based on the diverse needs of rural India.

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