2 How self-help groups work
In India SHGs are formed for a variety of purposes and by a variety of people. This paperfocuses on SHGs formed by rural people (mostly women) with the objective of improvingtheir livelihoods through collective savings and investments in income-generating activities.NABARD (1997) captures this by defining SHGs as "small, economically homogenousaffinity groups of rural poor, voluntarily formed to save and mutually contribute to a commonfund to be lent to its members as per the group members' decision".Most SHGs in India have 10 to 25 members, who can be either only men, or only women, oronly youth, or a mix of these. As women's SHGs or sangha have been promoted by a widerange of government and non-governmental agencies, they now make up 90% of all SHGs(http://www.jammuandkashmirbank.com/trust/jul_sep_2002/leadstory.html). Therefore, themajority of the issues discussed in this paper are particularly relevant for women. As Indianwomen do not generally have the same opportunities to migrate for wage work as men due tosocial obligations and taboos, it is particularly important for women to improve employmentand income earning opportunities
, and in a way that is compatible with their role inchild care.The rules and regulations of SHGs vary according to the preferences of the members andthose facilitating their formation. A common characteristic of the groups is that they meetregularly (typically once per week or once per fortnight) to collect the savings from members,decide to which member to give a loan, discuss joint activities (such as training, running of acommunal business, etc.), and to mitigate any conflicts that might arise. Most SHGs have anelected chairperson, a deputy, a treasurer, and sometimes other office holders.It appears as though the vast majority of rural SHGs invest the loan amounts in a mix of consumption and productive purposes. As credit needs of the poor are determined in acomplex socio-economic milieu, where the dividing line between credit for 'consumption' and'productive' purposes is rather blurred, it is difficult to adopt the traditional banking approachto lending and to insist that loans are not used for consumption.Most SHGs therefore start without any external financial capital by saving regularcontributions by the members. These contributions can be very small (e.g. 10 Rs per week).After a period of consistent savings (e.g. 6 months to one year) the SHGs start to give loansfrom savings in the form of small internal loans for micro enterprise activities andconsumption. Only those SHGs that have utilised their own funds well are assisted withexternal funds through linkages with banks and other financial intermediaries (see section 3for details).Most development initiatives working through SHGs are specifically targeting the poorestpeople. For example, the World Bank funded Andhra Pradesh District Poverty InitiativesProject aims, amongst others, at supporting investment in sub-projects proposed by grass-rootinstitutions of the poor to accelerate their entry and expand their involvement in social andeconomic activities. In order to reach the poor, this project used a three-fold system of targeting: geographic targeting (selection of the poorest districts, and within these the poorestmandals), group targeting (through formation of group-based activities for the poor) and self-targeting (through a focus on small, technologically manageable investments that areattractive primarily to the poor organising themselves into common interest groups). SeeWorld Bank 2000 for details.