The Self-Help Group Microfinance Model

This month Frances Sinha is writing about lessons from her important new book, Microfinance Self-Help Groups in India: Living Up to Their Promise. This post introduces the book.

In India, Self Help Groups or SHGs represent a unique approach to financial intermediation.  The approach combines access to low-cost financial services with a process of self management and development for the women who join as members of an SHG. The SHGs are formed and supported usually by NGOs, or (increasingly) by Government agencies and sometimes directly by banks. SHGs are linked to banks first with a group deposit account, then for credit, which is disbursed to the group and in turn distributed to the members.  There is a process of group formation and group leaders and members of trained on managing the savings and credit.  Often too SHGs are linked to wider development or community programmes. SHGs are thus seen to confer many benefits, both economic and social, providing new and real opportunities for rural women that challenge the traditional barriers that women face.  SHGs enable women to grow their savings and to access the credit which banks are increasingly willing (or directed) to lend. SHGs can also be community platforms from which women become active in village affairs, stand for local election or take action to address social or community issues (the abuse of women, alcohol, the dowry system, schools, local water supply). 

SHG numbers have grown rapidly since 2000, across India first in the more developed south, now too in the north.  The SHG ‘bank-linkage’ programme is the flagship microfinance programme of the National Bank for Agriculture and Rural Development (NABARD) which has actively supported the development of this programme since the early 1990s.  For some time, NABARD’s website announced:  Did you know:  more than 400 women join the SHG movement in India every hour; an NGO joins our microfinance programme every day?  

But, as with much of microfinance everywhere, so with SHGs, alongside the growth numbers there are also some questions. Microfinance Institutions (MFIs) do usually publish information about their financial performance. Some MFIs are also beginning to report on their social performance.  But in the case of SHGs, there is little information, even on financials.  Even the growth and portfolio data reported by NABARD, at the time we started the study for this book, were cumulative rather than annual. And the data on loan repayments was unclear.  

Our research then aimed to explore financial and social questions. On the financial side, how effective and transparent are the groups in managing their financial transactions? Are the groups sustainable? Are they equitable? On the social side, what does it take for SHGs to mobilise for social or community action?  How effective are such actions?  On both sides, financial and social, who is really benefiting? Do the poorest benefit, do they not join at all or if they do join, are they more likely to drop out?  

These are the questions addressed in the book recently published as Self Help Groups in India:  Living up to their Promise?