Self Help Group
Definition of SHG :
"A voluntary association of poor with a common goal of social and economic empowerment"
- It is a voluntary association.
- Homogenous, informal group & having common interest.
- Intend to carry on savings & credit for mutual benefit.
Who promotes SHGs ?
Self Help Promoting Institutions (SHPI) like :
- Non-governmental organisations (NGOs)
- Govt. agencies
- Bank staff
- Farmers' clubs
- Rural volunteers
Role of self help promoting institutions (SHPI) :
- Identify poor
- Organise poor into SHGs
- Capacity building
- Books maintenance
- Social activities
- Bank linkage
- Guidance in economic activities
- Plan for withdrawal
How poor are identified by SHPIs ?
Income/expenditure method- adopted by government agencies. Categorises rural families into BPL & APL families
- No access to pucca housing
- No access to safe drinking water
- No access to sanitary latrines
- Unemployed person in the household
- Eat less than two meals a day
- Regularly borrow from moneylenders
- More than two children in the family
- Family belonging to weaker caste
- Old illiterate members in the family
- Permanently ill members in the family
- Alcoholic and/or drug addicts in the family
Group formation norms :
Affinity group - bound by
- Mutual trust
Homogenous group-people with similar
- Literacy level
- Place of origin
Books of accounts :
What books of accounts? Minutes Book, savings & loan register, cash book, members’ pass book, bank pass book
Growth path of a SHG :
|Pre-formation||1-2||Identification & organising poor|
|Formation||2-6||Group norms, meetings, savings, small loans, group cohesion|
|Stabilisation||7-18||Linkage with bank, leadership development, less reliance on others|
|Growth & expansion||>18||Support for new groups federation of SHGs|
Micro finance paradigm :
The three players
- SHGs – Facilitators for collective decision making by the poor and for providing doorstep banking.
- Banks – Wholesalers of credit and providers of resources.
- NGOs – Agencies to organise the poor, build their capacities and facilitate the process of empowering them.
SHG - Various models :
- Model I - Banks lend directly to SHGs formed by them & Govt. Agencies
- Model II - Banks lend to SHGs with NGOs/MFIs acting as facilitators for organising & nurturing of groups
- Model III –Banks finance SHGs through NGOs / MFIs. In this model, banks lend in bulk to NGOs / MFIs for on lending to SHGs
SHG bank linkage- Savings Linkage :
- Savings first - Credit later - motto be followed by all members
- Concept of “Income – Savings = Expenditure” to be followed
- SHGs to open SB A/C in the nearby bank branch of its choice.
- Bank to obtain group resolution & authorisation to open and operate the savings account
- SHGs are not required to deposit their entire savings in the bank
- Groups will become eligible to apply for loan after 6 months
- Six months is not from the date of opening of SB account but from the date of formation of the group.
SHG bank linkage :
Assessment / Grading SHGs, Rating factors depend on:
- Age of the SHG
- Attendance %
- Minutes book
- Savings & loan recovery
- Functioning & decisions
- Internal lending
- Interest on int. lending
- Turnover of savings
- Recovery of internal loans
- Books of accounts
- Group by-laws
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Scheme of promoting Joint Liability groups
The SHG- Bank linkage, spearheaded by NABARD, has proved to be successful in providing access to financial services from the formal banking sector for assetless or very poor. In order the develop effective credit products for small/ marginal/tenant/ farmers, oral lessees, and sharecroppers, as also entrepreneurs, engaged in various non –farm activities, NABARD has launched the scheme for promotion of Joint Liability Groups.
objectives of the scheme :
- To augment flow of credit to farmers, especially small, marginal, tenant farmers, oral lessees, share croppers / individuals taking up farm activities.
- To serve as collateral substitute for loans to be provided to the target group.
- To build mutual trust and confidence between bank and the target group.
- To minimize the risks in the loan portfolio for the banks through group approach, cluster, approach, peer education and credit discipline.
- To provide food security to vulnerable sections by enhanced agriculture production, productivity and livelihood promotion through JLG mechanism.
General Features of JLG :
A Joint Liability Group (JLG) is an informal group comprising of 4-10 individuals coming together for the purpose of availing bank loan on individual basis or through group mechanism against mutual guarantee. Generally, the members of a JLG would engage in a similar type of economic activity in the Agriculture /Allied /Non – Farm Sector. The members would offer a joint undertaking to the bank that enables them to avail loans.JLG members are expected to provide support to each other in carrying out occupational and social activities.
Criteria for membership :
- Members should belong to similar socio-economic status, background and environment carrying out farming and Allied activities and who agree to function as a Joint Liability group. This way the groups would be homogeneous and organized by likeminded farmers/individuals and develop mutual trust and respect.
- The members should residing in the same village /area/ neighbourhood and should know and trust each other well enough to take up Joint Liability for group/ individual Loans.
- Members who have defaulted to any other formal financial Institution, in the past ,are barred from the Group Membership.
- More then one person from the same family should not be included the same JLG.
Group approach :
- All members of all the JLG should be active enough to assume leadership of the group to ensure the activities of the JLG. The selection of an effective/able/active leader for the JLG is the essential as this will ultimately benefit all the JLG members. The leader fosters a sense of unity, oversees and maintains discipline, shares information and facilitates repayments. For the bank, he is the focal point for group activities.
- The JLG should hold, regular meetings which must be attended by all the members regularly to discuss issues mutual interests.
- The principles of self-help and group strength need to be emphasised. Group cohesion has to be ensured. Adequate emphasis should be placed on the roles, expectations and functions of the group/ members & the benefits of group dynamics.
- The JLG can easily serve as a conduit for technology transfer, facilitating common access to market information, for training and technology dissemination in activities like soil testing, training and assessing input requirements.
- The JLGs for specific activity, e.g production of pulses/vegetables/fruits or weaving may be federated at village/ block level fore development of the product.
- The JLGs in the clusters on their stabilization could come one together in the form of cluster federation or producers’ companies with a view to contributing the entire value chain and thereby achieving economics of scale in procurement, processing and marketing of the produce.
- The JLGs and evolving JLG structures are expected to build up empathy and understanding and create responsive lending mechanisms leading to greater introduction and interdependence between the members of JLGs.
JLG members need to be encouraged to save regularly. Bank may open savings account by the JLG/ individual members of the JLG to ensure regular savings and thrift habit amongst them. However the quantum of loan to be given to the groups should be related to the credit needs of the enterprise and not to the quantum of savings.
JLG models :
Banks can finance JLGs by adopting any of the two models:
- Model A- financing individuals in the JLG
- Model B – financing the JLG
Credit to JLG s form normal business activity under Priority Sector :
Provision of credit and other financial services of very small amounts not exceeding 50,000 per borrower, either directly or indirectly through or in directly through a SHG/JLG mechanism, will constitute micro credit-a category under priority sector as per RBI guidelines.
Who can from JLGs
Business facilitators, NGOs, farmers clubs, farmers Associations, Panchayat Raj Institutions (PRIs), Krishi Vikas Kendras (KVKs), State Agriculture Universities (SAUs), Agriculture Technology Management Agency (ATMA), Bank branches, PACS, other cooperatives, Govt. Depts., Individuals, Input dealers, and Document writers (in cooperative banks), MFIs/MFOs, etc.
Incentive for promotion of JLGS :
To facilitate promotion of JLGs, banks are eligible for grant assistance from NABARD. Grant assistance will be extended to banks/other institutions for formation, nurturing and financing of JLGs over a period of 3 years @ Rs: 2000 per JLG.
The first installment of Rs. 1000/- would be released to the Bank/ other institutions after sanction of loan by the bank. The 2nd and 3rd installment would be released, based on certification from the banks about prompt repayment by all members of the group.
Capacity Building :
NABARD would consider supporting capacity building programmes for Bank’s staff for greater awareness and orientation.
NABARD Refinance :
NABARD will provide 100% refinance assistance to all banks in respect of their leading to JLGs.
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