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Role of Self Help Groups in Poverty Alleviation

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Self-help groups are made up of disadvantaged individuals from rural areas (especially women). The objective is to assist them in organizing themselves, providing financial assistance, providing jobs, and assisting them in other areas, including domestic concerns. These groups are informal gatherings of people who are dealing with similar issues. These folks band together to form a group to solve their mutual concerns and raise their living standards. They are typically from the same socioeconomic background and are involved in little savings between themselves at banks. This sum serves as the SHGs’ fund and is utilized to make loans to its members. It is a critical instrument for lifting people out of poverty and improving social standing by encouraging self-employment.

The Self-Help Group (SHG)-Bank Linkage Program has emerged as the country’s most important microfinance program. Commercial banks, regional rural banks (RRBs), and cooperative banks are implementing it. As of March 31, 2012, the SHG-Bank Linkage Program had 79.60 lakh SHG-held savings bank accounts in operation, totaling Rs. 6,551 crore in savings.

A self-help group is a financial intermediary in a community made up of 10–20 local women. Self-help groups are most common in India, but they can also be found in other countries, especially in South and Southeast Asia. Over the course of a few months, members make tiny recurring savings contributions until the organization has enough funds to begin lending. The funds can then be re-loaned to members or others in the community for any purpose. Many SHGs in India are ‘connected’ to banks in order to receive microcredit.

Formation of Self-Help Group:  

There are three stages in SHG evolution.  

  1. Group formation
  2. Capital formation and skill development through a revolving fund
  3. Income-generating activities

1. Group formation: It is not a natural process for people to form groups. External agencies and individuals working with communities can assist in the formation and development of groups. In the early stages of group formation, the Self-Help Group Institution (SHGI) is critical. Non-governmental organizations, social workers, village level workers, informal associations of local people, community-based organizations, government departments, banks, farmer clubs, and other external facilitators are common.

They interact with low-income families, particularly women, in order to identify small, homogeneous groups. Members gather on a monthly basis at a predetermined time and date to collect savings from members, who are supervised by SHPI/NGOs. As a result, SHGs will teach its members, who are largely from low-income households, the importance of saving and credit.

2. Capital formation and skill development through a revolving fund: Simple accounting principles are taught to self-help groups, and they are given opportunities to receive external funds in multiples of their savings. SHGs receive funding from SHPIs, bankers, and donors. Own savings and other external funds (revolving funds, grants, loans) make up the corpus. Needy members are given small loans from the corpus fund. The loans are distributed to members in a participatory manner during regular meetings and other events. The loans have a set repayment schedule that is usually only a few months long. As a result, the funds are rotated among themselves. The groups must have a bank account where they can deposit their savings, revolving funds, and other funds. The group is required to keep certain basic records as well.

3. Income generating activities: SHG members engage in a variety of revenue-generating activities. SHPIs are critical in assisting members in selecting appropriate IGAs based on their skills.

Key Characteristics of Self-Help Groups:

  1. They usually start a common fund by putting aside small amounts of money on a regular basis.
  2. The groups develop a flexible system of operations, frequently with the assistance of non-governmental organizations (NGOs), and democratically administer their shared pooled resource.
  3. Groups meet on a regular basis to review loan requests, with conflicting claims on limited resources determined by consensus on broader requirements.
  4. The majority of loans are made on the basis of mutual need and confidence, with minimal documentation and no real collateral.
  5. The loans are little, frequent, and for a short period of time.
  6. Interest rates vary by group, depending on the purpose of the loan, and are frequently greater than those charged by banks but lower than those charged by moneylenders.
  7. Emerging rural, social, and economic concerns are discussed at periodic meetings in addition to collecting money.
  8. Defaulters are uncommon owing to peer pressure and intimate awareness of the credit’s intended usage as well as the borrower’s financial circumstances.

Some Major Roles of Self Help Groups for upliftment:

1. Income generation for the poor

The distribution of average annual per capita income among SHGs reveals that prior to the formation of SHGs the region’s members’ average annual per capita income was very low, with the majority of them falling below the poverty line. Members’ salaries have increased slightly since the formation of SHGs, though.

SHG implementation can provide chances for the rural poor to engage in a variety of self-employment activities. With an effective distribution micro-credit system, the self-help group is nothing more than an excellent tool for giving self-sustaining vocations to rural poor women.

2. Formation of a Group

Generally, the group’s overall size is between 12 and 20 people and for self-employment and financial independence, poor sections need credit. Bank credits are not easily accessible to individuals poor, but by forming an SHG, there are make better prospects for bank credits. Hence, the chances of successful income generation are high with SHGs than individual attempts to ensure its long-term viability. 

3. Women empowerment:

  • Women’s income contribution has risen. It provided them more power over the decisions that influenced their life. Women’s participation in decision-making has risen as a result of this.
  • It has boosted their understanding of various assistance systems and organizations, as well as their ability to access them.
  • In addition, member households’ expenditure on girl education has grown.

4. Resolve the collateral problem:

The collateral problem can be solved through a self-help group. Members can borrow money from the group without putting up any collateral to suit their requirements. On their loans, the Group charges interest, but it is lower than what money lenders charge. The group members make the majority of the choices for savings and loan activity. The group agrees on the kind of loans to be given, as well as the quantity of money to be borrowed, the interest rate to be paid, and the payback schedule, among other things. The repayment of the loan is the group’s responsibility. 

Conclusion:

Self-help groups are an effective way to improve women’s health by increasing their knowledge and awareness of health issues, as well as providing financial security during health emergencies. It’s very active in terms of providing revenue-generating activities. India has a diverse culture, history, and historical antecedents. As a result, the government’s capacity to deal with socio-economic issues independently is restricted. As a consequence, bringing individuals together who are coping with similar problems might be a game-changer for India’s economy.


Last Updated : 24 Nov, 2021
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