Significance of Establishing Linkages with Self-Help Groups and Banks
Y.S.Nanda, NBARD, India
3. The SHG Concept
Self-Help Groups (SHGs) or Thrift and Credit Groups are mostly informal groups whose members pool savings and relend within the group on rotational or needs basis. These groups have a common perception of need and impulse towards collective action. Many of these groups got formed around specific production activity, promoted savings among members and uses the pooled resources to meet emergent needs of members, including consumption needs. Sometimes the internal savings generated were supplemented by external resources loaned/donated by the Voluntary Agency which promoted the SHGs. Since SHGs were able to mobilize savings from the poor who were not expected to have any savings and could also recycle effectively the pooled savings among members, they succeeded in performing/providing banking services to their members, may be ina primitive way, but in a manner which was cost effective, simple, flexible at the door step of the members and above all without any defaults in repayment by borrowers
Involvement of SHGs with banks could help in overcoming the problem of high transaction costs in providing credit to the poor, by passing on some banking responsibilities regarding loan appraisal, follow-up and recovery etc.to the poor themselves. In addition, the character of SHGs and their relations with members offered ways of overcoming the problem of collateral, excessive documentation and physical access which reduced the capacity of formal institutions to serve the poor.
Based on local conditons and requirements, the SHGs have evolved their own methods of working. Some of the common characteristics of functioning of these groups are indicated below:
- The groups usually create a common fund by contributing their small savings on a regular basis.
- Most of the groups themselves, or with help of NGOs, evolve flexible systems of working and managing their pooled resources in a democratic way, with participation of every member in decision-making.
- Request for loans are considered by the group in their periodic meetings and competing claims on limited resources are settled by consensus.
- Loaning is done mainly on trust with a bare minimum documentation and without any security.
- The amounts loaned are small, frequent and for short duration.
- The loans cover a variety of purposes, some of which are non-traditional and rather un-conventional.
- Rate of interest differs from group to group and even with purpose. Interest charged is generally higher than that charged by banks and lower than that charged by money lenders.
- Periodic meetings of members also serve as a forum for collecting dues from members.
- Defaults are rare mainly due to group pressure and intimate knowledge of end use of credit.
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