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How Self Help Groups (SHGs) In India Work : An Overview

In a country as diverse and complex as India, tackling socio-economic issues is a monumental task. While government schemes and NGOs do their part, the real change often starts at the grassroots level. In this blog, well cover - The History of SHGs The functions of SHGs Importance of SHGs SHGs in India

The Essence of Self Help Groups

Self Help Groups (SHGs) are small voluntary associations of people, often from similar socio-economic backgrounds. They gather every week, pooling in small amounts of money, discussing community issues, and planning collective actions.

As of 2020, India is home to over 12 million SHGs, impacting approximately 100 million families. These aren't just numbers; they're a testament to the transformative power of collective action.

The History of Self Help Groups in India

The concept of SHGs isn't new. It traces its roots back to the co-operative movements of the early 20th century.

1950s-1960s: The Co-operative Movement

Co-operative societies were among the earliest forms of collective financial activities in India, laying the groundwork for future community-based initiatives.

1970s: The Birth of Informal Groups

Informal savings and credit groups began to form, especially in southern India, as a way for communities to pool resources.

1980s: The MYRADA Influence

MYRADA, an NGO, started promoting savings and credit groups in Karnataka, which later evolved into the SHG model we know today.

1992: NABARD's SHG-Bank Linkage Program

NABARD (National Bank for Agriculture and Rural Development) launched the SHG-Bank Linkage Program, aiming to link SHGs with formal banking systems for better financial inclusion.

1999: Introduction of SGSY

The Swarnajayanti Gram Swarozgar Yojana (SGSY) was launched by the Indian government to promote income-generating activities among SHGs.

Early 2000s: Focus on Women Empowerment

SHGs started focusing more on women's empowerment, leading to the formation of women-centric SHGs across the country.

2007: NRLM Framework

The National Rural Livelihoods Mission (NRLM) was formulated, providing an institutional framework for SHGs and promoting skill development and employment.

2011: Launch of Aajeevika

Aajeevika, a sub-scheme under NRLM, was launched to enhance the livelihoods of SHG members through better market linkages and skill development.

2015: Digital Financial Services

Introduction of digital financial services for SHGs, making financial transactions more transparent and efficient.

2018: Expansion to Urban Areas

The National Urban Livelihoods Mission (NULM) was launched to replicate the SHG model in urban settings.

2020: COVID-19 and SHGs

SHGs played a crucial role during the COVID-19 pandemic, from making masks and sanitizers to creating awareness about health protocols.

2021: Focus on Sustainable Livelihoods

Recent initiatives aim to link SHGs with sustainable agricultural practices and climate-resilient livelihoods.

SHGs aren't static; they evolve. Once stable, they move to capital accumulation and lending. The final stage is diversification into social enterprises, a stage nearly 60% of SHGs reach within five years of formation. The SHG model in India has found admirers globally, and several countries are exploring the viability of replicating this framework. Interestingly, the SHG model has even made its way into academic curricula, demonstrating its importance in community development and financial inclusion.

The Multifaceted Functions of SHGs

While savings and credit activities are the backbone of SHGs, their role isn't confined to finance. They're also involved in skill development and social welfare activities. In fact, SHGs have mobilised over $2 billion in savings as of 2020. But more importantly, they've become platforms for education, healthcare, and even political participation. Besides their role in financial activities, SHGs have also ventured into community policing in some areas. The members of SHGs often act as the eyes and ears of the community, helping to maintain law and order. This auxiliary role emphasises the multi-dimensional utility of SHGs in modern India.

Why are SHGs Necessary?

Why do we need SHGs when we have banks and other financial institutions? The answer lies in accessibility. A staggering 40% of India's population doesn't have access to formal financial services. SHGs fill this void, especially in rural areas, acting as a bridge to formal financial systems.

SHGs have a unique advantage of local understanding, which conventional banking institutions often lack. This enables SHGs to offer micro-credits at favorable terms, tailored specifically to the community’s needs. This community-centric approach makes SHGs an indispensable tool for rural development.

Advantages and Impact of SHGs

The advantages of SHGs are manifold. Financial inclusion is just the tip of the iceberg. They're instrumental in women's empowerment, skill development, and community building. Women constitute over 80% of SHG members in India, gaining not just financial independence but also a voice in their communities. The role of SHGs in disaster management should not be overlooked. In regions prone to natural calamities, SHGs have been pivotal in organizing community-based disaster relief efforts, thereby adding another layer to their multifaceted impact.

Challenges Faced by SHGs

However, it's not all smooth sailing. SHGs face challenges such as lack of education among members, inefficient management, and limited access to markets. Only 20% of SHGs are linked to markets for their products, a gap that needs to be addressed for sustainable growth.

Another challenge that SHGs face is the digital divide. With the world moving towards digital transactions, the lack of technological access and know-how can be a barrier for SHGs, particularly those in remote areas.

SHGs Across the India

There are over 2,000 SHGs focused solely on organic farming, a niche yet growing sector. A few notables one are - Lijjat Papad - Maharashtra

Focus: Women Empowerment, Food Processing

Impact: Started by seven women in 1959, Lijjat Papad has now become a household name. It empowers women by providing them with employment opportunities in papad making.

Focus: Women Empowerment, Microfinance, Agriculture

Impact: Kudumbashree is one of the largest women-empowering projects in India. It has successfully uplifted thousands of women by providing them with income-generating opportunities.

Focus: Women Empowerment, Labor Rights

Impact: SEWA has been instrumental in organising women workers in the informal sector. It has more than 1.9 million members and has set an example in collective bargaining. Apart from the ones mentioned, there are SHGs that focus on renewable energy solutions like solar lanterns, clean cooking stoves, etc., enhancing not just livelihoods but also contributing to environmental sustainability.

The story of Self Help Groups (SHGs) in India is an inspiring one, showcasing the strength of community-based systems. As we move into a future where sustainability and local empowerment are key, the role of SHGs is bound to evolve, adapt, and expand. Whether it's through digital inclusion or linking with global markets, SHGs are here to stay, continuing to shape India's socio-economic landscape.

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Apr 01

Hello Meenal, I am thinking, if I locate a women SHG, which is already operating, I can lend them Rs50000 for 5 or 10 years and see how things go, hopefully this will help... What do you think of the practicability of this? Maybe I can start from some friend's maid's SHG?


Hello Mr Seemon

It is me again. Looks like I am the only one who posts comments. I want to make some points.

  1. Mohammad Yunus popularized it and spread the word internationally but looks like it was being practiced in India too.

  2. SHG do not necessarily improve the economic situation of participants unless the loan is for a business and links to markets. However, having a little money of their own enhances women's confidence and self-respect as they do not have to ask the males in the household for petty expenses. This confidence is the first step towards making their own decisions.

  3. I live in the US and have often mentioned how helpful these groups are and wondered why church…


Meenal Mamdani
Meenal Mamdani
Sep 22, 2023

Mr Seemon,

I love your posts. You provide so much information to those who want to learn more.

Your post today is like going down a rabbit whole, endless diversion, endless information.

You say that it is a 4 min read. For me, I will be going down all the rabbit holes and so this will keep me occupied for days.

As a result of your post, I have just signed up for getting regular emails from IDR.

One might say so what is the use of all this information?

For me, it is a beacon of hope. Amidst all the harrowing and dispiriting news about India, these items assure me that change for the better is happening in India.

Leslin K Seemon
Leslin K Seemon
Sep 22, 2023
Replying to

Thank you so much for your kind words, Meenal Ji. Your comment fuels my motivation to keep digging deeper into issues that matter, and to keep sharing stories that inspire action and thought.

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