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Self Help Groups 101 — Part II

How does Self Help Groups function?

This article is a part of our ongoing series about NRLM and Self Help Groups. Read them all here - Self Help Groups 101


Self Help Groups are homogenous groups of 5–20 women who come from a similar social and economic background. These women come together and meet at regular intervals to save a small sum of money (could be as low as Rs.10 or Rs.20 per month). The collected pool of money is then lent to the group members on a need basis during the times of emergency, financial scarcity, important life events or to purchase assets. The loans borrowed from the self-help groups are collateral-free and the peer pressure of the group ensures that timely repayment of the loans happens.

Photo Courtesy: EU Civil Protection and Humanitarian Aid from Flickr

How does an SHG work?

  • A group of 10–20 women from similar economic backgrounds come together and form a Self-Help Group (SHG). The details of the SHG are captured at the block level. Each SHG is given a unique ID and name for identification. SHGs are ‘’informal’’ ‘association of person’ and do not require any separate registration. [RBI Master Circular]
  • Each SHG picks a group President, Vice President and bookkeeper. The role of the bookkeeper is to maintain the accounts and activities that happen in each meeting.
  • The group then decides to meet every month or every week to come together and start saving a fixed amount of money. Once the money reaches a certain pool, the group starts internal lending (i.e) lending within the group members on the need basis.
  • The attendance of the members, savings, credit disbursed, repayments and minutes of the meeting are recorded by the bookkeeper in a ledger.
  • This ledger is later taken to the bank to start a savings bank account in the name of the group.

Roles of a self-help group:

Every self-help group is evaluated by the village federation from time to time based on the Panchasutra principles. According to which a good Self Help Group is on one

  • Which conducts meetings at regular intervals
  • Which the members of the group do regular consistent savings.
  • Which regular inter loaning happens within the group.
  • Which the member do timely repayments
  • Where the book of accounts are maintained up to date

Role of an SHG leader:

  • SHG leader is chosen by the members of the group and the leadership is rotated to different members from time to time.
  • They motivate the SHG members to follow the panchasutra.
  • They act as a link between the SHG and other institutions such as banks.

Role of a bookkeeper:

  • The bookkeeper of the SHG is a literate member of the group or any literate person known to the group members.
  • The bookkeeper is selected by the SHG member and trained by the SHG bookkeeping.

Each bookkeeper has the following books or registers to maintain.

  1. Member passbook — Passbook for each member of the SHG
  2. Minutes book- Record to maintain their minutes of the meeting of the SHG
  3. Savings book — Ledger to maintain the savings pooled by the SHG members.
  4. Cashbook — Ledger to maintain cash in hand and the cash balance in the bank.
  5. Loan book — Ledger to maintain the loan disbursed to the members of the SHG.

Opening a bank account:

For an SHG to open a bank account, these are the following steps:

  • A resolution is passed by SHG to open a bank account in the service area branch or the nearest bank branch. This resolution should have all the signatures of the SHG members.
  • As a part of the resolution, three office bearers should be authorised to operate the savings bank account with a condition that any two office bearers can transact with the bank.
  • An application to open a savings bank account is prepared and submitted to the bank manager by the office-bearers.
  • A seal for the SHG group needs to be made and the office bearers need to submit their proof of identity and address as a part of the KYC norms.
  • The office bearers should carry the above documents and fill the account opening for opening the bank account.
  • Any transaction with the bank will have to be authorised by at least two office bearers nominated.

Credit available to the Self Help Groups:

Self-help groups have access to multiple sources at various stage of the group. An SHG has access to the following funds:

  1. Member savings: The money pooled in by the SHG members as an apart of their regular interval savings.
  2. Interest income: The money lent to the members are repaid with interest and the interest income contributes to the SHG funds.
  3. Funds from Federation: NRLM provides various funds to the federations that are to be redistributed to the eligible SHGs based on their needs and upon meeting certain criteria. The revolving fund (RF) is given to eligible SHGs at a VO level to catalyse the process of internal lending. The Community investment fund is given at the cluster level under three categories which acts a seed capital, vulnerability re-education and livelihood enhancement.
  4. Bank Loan: A bank loan is a formal credit received from banks by linking the SHG to a bank account. Each SHG is eligible up to a credit amount of Rs. 10 Lakhs over a period of 5–6 years. These funds are distributed as either Cash Credit Limit or as Term Loan. The bank starts with a rotating credit of Rs.1 Lakh or 6–8 times of their corpus amount during their first bank linkage.

In the next few articles, we would go into the challenges faced by Self Help Groups and possible digital interventions

About D91 labs:

This research was executed and documented by D91 labs. D91 labs is an open-source initiative by setu.co to help Bharat build great fintech products. We organise and publish user research, insights, and frameworks for fintech in India. Please follow us on medium for more exciting stories and insights on Bharat.

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