Microfinance Management

by
Pradeep Kumar Mishra
Cengage Learning (2019)

Chapter – 3
Self-Help Groups: Institution Building, Operations
Learning Objectives
• To discuss the process of SHG formation and management
• To provide an overview of the rules and regulations of SHG
management
• To provide an idea of the organisation structure of SHG based
programmes
What is SHG
• 10-20 members
• From the vicinity
• Self-managed institution
• Not registered – informal
• One member from a household
• No duplication

SHGs are formed on the basis of Homogeneity, Self-decided norms, and

Affinity. In MYRADA, they are called AFFINITY GROUPS
Purpose of SHG
• The purpose of an SHG is
• to make collective effort for the development of its members.
• The ultimate goal of an SHG is to empower its members.

• Activities
• Meeting at regular frequency (say weekly or monthly)
• Thrift and credit activities
• Promoting enterprising activities directly or indirectly
• Raising voice in the interest of members

• Enterprising activity is not necessary.

• SHGs can limit themselves to issues like education and health
• Role of SHGs
• Simple thrift and credit (Access to finance)
• Enterprise development (livelihoods)
• Basic unit for social mobilization (empowerment)

• SHG as an instrument for development

• SHG as institutional strength which itself is the development
Phases of SHG promotion
• Organizing the community
I.SHG Formation • Formation of SHGs
• Opening of Bank Account

II. Strengthening • Internal lending

of SHG • Capacity building

III. Enterprise • Linkage with Bank for credit

development and • Capacity building / livelihood
bank linkage activities

IV. Withdrawal • Federations

phase • Withdrawal
Phases
Phas duration Activity
e
I 3-6 months Identification of members,
meeting, group formation

II 6-9 months Internal lending

Capacity building

III 12-18 months Bank linkage/Enterprising

activities
IV 6-12 months Withdrawal/ Federating
Records Maintained by SHGs
1. Proceedings register/Minutes register
2. Attendance register
3. Cash book
4. Savings register
5. Loan register
6. Ledger
7. Bank passbook
8. Individual passbooks
Rules
• Membership
• Savings per month
• Frequency and location of meeting
• Quorum
• Criteria for loan approval
• Rate of Interest on Internal Loan, Bank Loan.
• Penalty (non-attendance, delay in deposits, non-repayment)
• Election, term and role of office bearers
• Distribution of profit/surplus
• Dissolution of the group
Good practices
• Regular meetings
• Regular savings and repayment
• Provision of penalty
• Rotational leadership
• Platform for resolving problems
• Medium for raising social issues
Advantages and Disadvantages
• Advantages
• Economy of Scale
• Cost-effective service delivery
• Collective learning
• Promotes democratic culture
• Confidence building

• Overall, a platform for empowerment

• Disadvantages
• Time consuming
• Needs a lot of resources
• Needs continuous hand holding - After withdrawal the
group may not function well
Banks’ apathy
• Dependence on facilitating agency
• Self help spirit is not followed – benefit driven
SHG Programme
• Facilitating Agency: SHPI
• A small programme can be run with 50-60 SHGs
• Functionary at field level
• Community Organiser /Field Executive/Field Officer
• One person at field level can deal with 15-30 SHGs depending the
stage of project. Initially it requires more attention.
• At cluster level, there has to be one such functionary
• At block and district level specialists should be there if the programme
is large
SHG Federations
• Purpose
• The SHPI cannot continue in the project forever. SHGs still would require
support from time to time.
• The federation can takeover the role of the SHPI.
• Being a federation of cooperative nature, it can also undertake lending and
other financing activities.
• It provides a platform for SHGs for raising their issues at higher level.
• It enhances the bargaining power of SHGs.
• It helps in promoting and providing a platform for local leadership.
• Federations can undertake on-lending or can become an MFI
• Weakness of Federations
• Adding another layer (Harper, 2003)
• Should be formed only when necessary
• Can be exploited politically – routing freebies during elections
Thank You