Background
In rural India, access to formal credit is limited primarily to wealthier households, while the poor rely on informal lenders, often at the cost of exorbitantly high-interest rates. This section explores the concept of Self-Help Groups (SHGs) as a means to overcome these challenges.
Self-Help Groups (SHGs) Explained
SHGs are small groups of individuals, typically women, from similar socio-economic backgrounds who meet regularly to save and lend to one another. Each group usually consists of 15-20 members who contribute a small amount from their earnings. The collective savings allow group members to access affordable loans without the need for collateral, which is a common barrier to obtaining bank loans.
Functionality of SHGs
The SHG mechanism involves the following key components:
- Pooling of Savings: Members save a fixed amount regularly, ranging from Rs 25 to Rs 100 or more.
- Loan Provision: Members can take loans from the group's savings, with the group setting the loan terms, including interest rates and repayment schedules.
- Bank Loans: If the group maintains consistent savings, it can secure loans from banks, which are sanctioned in the group's name.
Benefits
- Financial Empowerment: SHGs enable members to become financially self-reliant by supporting small-scale business initiatives and reducing dependency on informal moneylenders.
- Social Cohesion: Regular meetings allow members to discuss and address wider social issues, thus fostering community support networks.
- Increased Creditworthiness: Because members are collectively responsible for loan repayments, banks are more willing to lend to SHGs, even without individual collateral.
Conclusion
SHGs are pivotal in providing financial stability to the rural poor, particularly women, while addressing broader societal issues.