What are Microfinance and Self-help Groups(SHGs)? Explained

1. Introduction
2. Concept of SHG
3. Distinguish features of SHGs
4. Important functions of SHGs
5. Formation and Development of SHGs:
6. Indicators of a good SHG:
7. Self Help Groups and Women’s Empowerment
8. Conclusion

Introduction

Financial services for underprivileged and low-income customers are frequently referred to as "microfinance" and are provided by several kinds of service providers. The phrase is frequently used more specifically to describe loans and other services from companies that self-describe as "microfinance institutions" (MFIs). These institutions frequently have a tendency to make relatively small loans to customers who are not employed while requiring little to no security. These strategies include cooperative lending and liability, pre-loan savings obligations, escalating loan sizes, and an implicit promise of fast access to future loans in the event that present loans are fully and promptly repaid.

From a global perspective, microfinance organizations envision a situation in which low-income households have ongoing access to a variety of high-quality and reasonably priced financial services provided by a variety of retail service providers in order to finance income-generating activities, accumulate assets, control consumption, and mitigate risks.

In order to promote financial inclusion and equality, microfinance was created as an alternative to traditional lending methods. The "Grameen Bank," founded by Nobel Prize laureate Muhammad Yunus, brought the idea of microfinance to Bangladesh.

"Microcredit, or microfinance, is banking the unbankable. It makes credit, savings, and other necessary financial services accessible to millions of individuals who are too poor to be served by conventional banks, typically because they are unable to provide enough collateral. Banks are often not for those who lack money; rather, they are for those who do. Microcredit: An Effective Business or Development Tool,Gert van Maanen, Oikocredit, 2004.

"(Microcredit) is predicated on the idea that the underprivileged have skills that are under- or untapped. Charity is not the solution to poverty; it is unquestionably not a lack of skills that keeps people in poverty. It just encourages poverty to persist. It fosters dependency and undermines a person's ability to take action to overcome poverty. The key to ending poverty is to unleash the creativity and energy that each person possesses (Muhammad Yunus, Increasing Microcredit Access to Achieve MDGs, International Seminar on Combating Poverty with Microcredit, Dhaka, Bangladesh, January 2003).

The majority of microcredit organizations and institutions in the world focus on women in underdeveloped nations. According to observations and experience, women are low-risk borrowers, and they typically repay their loans for the benefit of the entire family. When women are able to support their families financially, it is also seen as a way to enhance their social and economic position and alter the traditional relationship between class and gender that has existed for a long time. The majority of the time, women are in charge of raising the kids, which can be detrimental to their physical and social development. More than 1.2 billion people worldwide survive on less than $1 a day. For a variety of reasons, women have increasingly been the focus of microfinance programs. According to a recent World Bank analysis, societies that discriminate on the basis of gender suffer from higher levels of poverty, slower economic growth, weaker governance, and a lower standard of life for everyone. It's because women make up 70% of the world's poor, on a global scale. In almost every country, women experience higher unemployment rates than males do, and they dominate the unorganized sector of most economies. They make up the majority of people who use microfinance services. Self-help groups have become popular in India as a tool of the microfinance system.

Self-help Groups (SHGs) are a relatively new idea with a recent concept. They not only contribute significantly to reducing poverty in rural India, but they also help raise awareness among a group of people who would otherwise be disregarded and neglected. Members of SHGs, who are primarily women, join freely. Both the number of members and their membership have recently been steadily rising throughout India. They take part in a variety of more socially and economically beneficial activities, such as income generation, environmental protection, literacy, child care, and nutrition, in addition to the problem-solving and investment activities that are typically associated with SHGs. The SHG system is intended to be successful in empowering rural women who live in poverty. One of the fundamental elements of SHG growth is economic and social empowerment.

Self-help Groups (SHGs) are often informal organizations with 10 to 20 members that share a similar understanding of the value of and necessity for collective action. Members of SHGs typically come from the same community, the same social class, or are related to one another. SHGs have a few pre-group social building blocks and are homogeneous groupings. These organizations encourage members to save money and use the combined resources to take care of their members' urgent requirements, such as their consumption demands (Dutta, 2010). The SHGs were established so that their participants might profit economically from one another's support, solidarity, and shared accountability for their own and sustainable growth.

• Basically the SHGs are economic organization. Small funds are raised for day to day needs. The saving groups when transformed to earning groups not only increase the productivity of women but the credibility also. 
• Doors are wide open to women to understand and gain knowledge about Banking, Gram Panchayats, Zilla Parishad, Law and Judiciary etc. 
• As economical solutions are available, the family structure is maintained. 
• SHG is a good way to stop the exploitation of consumers. 
• Broadening of view is a major gain. The ascending order of family, group, village, Tehsil, Zilla, Zone, State, Nation, World, makes the vision global. 
• To develop self-confidence among members
• To create a common platform is available for a dialogue and sharing of views.

Support Base for the formation of SHGs:

• An SHG normally consists of not less than ten persons (with a maximum of twenty) of similar economic outlook, homogenous and social status. 
• It promotes objectives like economic improvement and raising resources for development and freedom from exploitation. 
• It has its own by-laws for the proper functioning of the group as well as for the observance of certain rules by the group members and regulations concerning membership. 
• Periodical meetings of members are held for solving their problems (economic and social) and they collect fixed savings of the members. 
• Savings of Members are kept with a bank in the name of the group and the authorized representative of the group operates the bank account. The deposit kept in the bank is used for giving loans to members for purposes including consumption at the rate of interest decided by the group (Usually higher than what the banks charge). 
• Sources of funds are the contribution of member’s savings, entrance fee, interest from loans, proceeds of joint business operation and income from investments. Funds may be used for loans, social services and common investment. 
• The SHG, being a group of like-minded persons, gets empowered to solve most of its problems of a non-financial nature such as raw material and input supply, marketing, better adoption of technology, education and training for realization of its objectives for development

Important functions of SHGs

• Enabling members to become self-reliant and self-dependent. 
• Providing a forum for members for discussing their social and economic problems. 
• Enhancing the social status of members by virtue of their being members of the group. 
• SHG provides a platform for members for exchange of ideas. 
• Developing and enhancing the decision-making capacity of members. 
• SHG Foster a spirit of mutual help and co-operation among members. 
• Instilling in members a sense of strength and confidence which they need for solving their problems. 
• Providing organizational strength to members. 
• Promoting literacy and increasing general awareness among members and 
• Promoting numerically and equipping the poor with basic skills required for understanding monetary transactions.

The first and most crucial investment is in promoting and expanding SHGs as functional institutions. The process of growth and promotion for these groupings must be natural and progressive. A range of process inputs are required in order to organize the members and develop their leadership potential. Equal efforts must be made in order to nurture and grow them as institutions for the future. Each of these institutions is at a particular level of development and has attained specific developmental milestones. In many parts of the world, it has been realized that social mobilization of underprivileged people, especially into Self-Help Groups (SHGs), is an effective method of battling poverty and enabling communities to improve the quality of life (SHGs). Self-help organizations are founded on the idea of community involvement since active community participation is required for sustained community development. By including the public, development's benefits are distributed fairly. Proposals for the decentralization of power are made in order to accomplish income redistribution, improve access to education, and other social services. Therefore, the purpose of self-help organizations is to empower the impoverished, particularly women, by organizing and building their capacity to handle the socio-political and socio-economic issues that affect their lives. Self-Help Groups have been established in nearly every village in the Assam district. To improve their own financial situation, the women have been encouraged to form modest organizations for credit and savings.

1. Whether the members are from the poorest category? 
2. What is the motive of the members in forming the SHG? 
3. Whether they framed by-laws and selected the office bearers? And 
4. What is the number of the members?

• The minutes are written every month and read at the end of every meeting; 
• Simple accounting system and necessary books are opened and maintained from the first day itself. 
• Awareness of the norms of the groups among all members is created and 
• Training is imparted to the office-bearers and group accountants for clarifying their role.

• The first stage of a small group's existence is concerned with the formation of the group. This stage is marked by members' need for safety and security, their reluctance to respond, their need for superficial contact with others, and their dependence on current authority figures (trainer or facilitator).
• In the second stage, a focus on task performance emerges, yet most energy is expended inside a subgroup. "Pairing" is a common occurrence.
• The third stage of development is characterized by a greater emphasis on task performance. Efforts are undertaken to develop distinct task performance standards. The interaction between the members and the authority figure grows more loosened as the members assume greater responsibility for their own groups. Others in the group who are dissimilar are accepted, and interaction among dissimilar individuals occurs around the activity.
• This is the fourth stage of a fully functional group, where members perceive themselves as a unit and completely engage in the activity. Each individual contributes, and the authority figure is also considered a member of the group. To ensure the effectiveness of the group, group norms are followed and collective pressure is applied. The organization redefines its objectives in light of information from the external environment and demonstrates an independent determination to pursue them. The group's long-term viability is developed and fostered.

• Meetings: The group must meet weekly or fortnightly for collection of savings and repayment of loan amount and for discussing all other matters. The group meetings need to be conducted with a certain discipline in relation to regularity, time, and items to be discussed. 
• Group Savings: The group members must be encouraged to save as much as each can without it being a uniform amount for all. Usually the SHGs start off with a minimum savings of all members. As the years pass they may opt for optional savings according to the capacity of each member. 
• Group Common fund: The amount such as fines imposed on members, grants from the NGOs, bonuses for various programmes and service charges on external loans should be put into the common fund of the groups. All common expenses related to the group may be met from this common fund. 
• Rotation of group fund: All savings and excess of common fund would be rotated as short-term loans amongst the members at the rate of interest decided by the group. 
• Books and register to be maintained: The books and registers to be maintained by each SHG to ensure proper accounts i.e. Attendance Register, Minutes Book, Savings Ledger, Loan Ledger, General Ledger, Cash Book, Individual Pass Book, Receipt Book and Payment Voucher.

• A survey is made to get the number of helpless women from each family in a particular village. 
• Next step is to make aware of this team to the rest of the villages. 
• Illiterates of the village are also made aware of this team. 
• A team consist of 10 to 20 women and remembers from one team are restricted to join other teams. 
• Ladies from families poor in income, education, job and assets are only eligible to be the member of this self-help group. 
• Team should not be farmed with making false offerings of loans 
• Only one person from each family can be included in teams.

• Belonging to poor family. 
• Residing in same village 
• The age limit for women is 16-60 year.

• Homogeneous Membership: As far as possible, the membership of an SHG may comprise people from comparable socio-economic background. Though difficult to define in clear terms, a major indicator of homogeneity in membership is absence of conflicting interests among members. 
•  No discrimination: There should not be any discrimination among members based on caste, religion or political affiliations. 
• Small membership: Ideally, the group size may be between 15 and 20, so that the members are participative in all activities of the SHG. In a smaller group, members get opportunity to speak openly and freely. However, the membership may not be too small that its financial transactions turn out to be insignificant. . 
• Regular Attendance: Total participation in regular group meetings lends strength to the effectiveness of SHGs. To achieve this, the SHGs should place strong emphasis on regular attendance in the group meetings. 
• Transparency in functioning: It is important that all financial and non-financial transactions are transparent in an SHG. This promotes trust, mutual faith and confidence among its members.  Maintenance of books of accounts as also other records like the minutes book, attendance register, etc., are important. 
• Set of Byelaws: The SHG may discuss and finalise a set of byelaws, indicating rules and regulations for the SHG's functioning and also roles and responsibilities of members. It is better to have a written set of byelaws. The Self Help Promoting Institution (SHPI) and bank may guide the SHGs in this. 
• Thrift: The habit of thrift (small savings) is fundamental to the SHG and helps in building up a strong common fund. 
• Savings for loaning: Once an SHG has accumulated sizeable amount in the form of savings say for a period of about 3-6 months, the members may be allowed to avail loans against their savings for emergent consumption and supplementary income generating credit needs.

1. Chander, B & Singh R (2001) “Women Empowerment for Gender Equality- A Functional Analysis”, in Sahoo R.K and Tripathi S.N (Eds), Self-help Group and Women Empowerment, Anmol Publications Pvt. Ltd. New Delhi. 
2. Chiranjeevulu, T (2003), “Empowering Women Through Self Help Groups Experiences in Experiment”, Kurukshetra, Vol- 48(5). 
3. Das R.M, (2001), “Micro-Finance through SHGs: A Boon for the Rural Poor”, Kurukshetra, Vol-49 (2).
4. Devasia, L & Anton. J, (2004), “Social Development Issues in Self-help Groups” Social Welfare, Vol-50(10) 
5. Ghate, P. (2007), Microfinance in India: A State of the Sector Report, 2006, Microfinance India Publications, New Delhi. 
6. Ghate, P. (2008), Microfinance in India: A State of the Sector Report, 2007, Microfinance India, Publications, New Delhi.