Revitalizing the Self-Help Group Movement in India

02 June 2016
10 comments

The self-help group movement in India began in the 1980s when several NGOs mobilized and organized poor communities in rural areas to provide formal channels for social and financial support. The program gained momentum with the National Bank for Agriculture and Rural Development (NABARD) linking a small number of groups with banks. Called the Self-Help Group Bank Linkage Program (SBLP), the revolutionary initiative connected group members – many of whom had never had a bank account before – to formal financial services in a sustainable and scalable manner.

As of 2014, over 4.19 million self-help groups had outstanding bank loans and 7.42 million had savings accounts with banks under the SBLP. Over the last two decades, the SBLP has proven to be a great medium for social and economic empowerment for rural women. Today, these self-help groups are seen as more than just a conduit for credit – they also act as a delivery mechanism for various other services ranging from entrepreneurial training, livelihood promotion activity and community development programs.

Photo Credit: Somenath Mukhopadhyay, 2012 CGAP Photo Contest

Despite early success, however, the growth of SBLP has slowed in the last five years. Several factors have contributed to the deceleration. The microfinance crisis in 2010 led to the perception of self-help group being inextricably linked with the development of the microfinance program. NABARD too acknowledged issues of regional imbalance, less than ideal average loan size, lack of monitoring and training support by self-help group federations, delays in opening bank accounts, impounding of self-help group savings by banks as collateral, and escalating non-performing assets of self-help group loans with banks. Several studies have also found that self-help groups grapple with issues related to governance, quality, transparency and irregularity in their functions.

The Evidence

An ongoing study at IFMR focuses on understanding these challenges better, along with evaluating the role that self-help groups play in uplifting the livelihoods of people in rural areas. It is one of the first rigorous studies in India that evaluates the impact of self-help groups on the livelihoods of rural poor.

The study, Inclusive growth through microfinance and entrepreneurial training: An impact study, uses a randomized control trial approach to analyze the impact of self-help group program on a broad set of socio-economic indicators (e.g. consumption, expenditure, income, credit and savings patterns, business creation and profitability, health, education, food security).Our recently conducted midline evaluation yielded some encouraging results:

  • Households in the treatment sample (i.e. households that had been randomly selected to be part of a self-help group) were 10% more likely to save on a regular basis and 5% more likely to have outstanding loans.

  • Moreover, households with self-help group members were 8% more likely to have formal loans (largely driven by loans from self-help groups) and 9% less likely to have informal loans (driven by a drop in loans taken from friends and shopkeepers).

  • Women in self-help groups also scored 6% more on average on the empowerment index – a scoring tool based on political and community engagement parameters to assess the women’s agency in their public lives. These higher scores were primarily compelled by the propensity of women in self-help groups to engage with government officials or community leaders to bring up issues and directly campaign for solutions.

Despite the relatively positive results, the study found that over time groups were disintegrating on account of coordination issues. Few members knew how to maintain the group’s required financial documentation, so if those members left, the groups would also dissolve. Low levels of literacy among the rural women in our sample was also part of the challenge.

Ideally these issues can be minimized with constant and enduring structural handholding support from the self-help group promoting institutions (SHPIs). However, it may not be sustainable for these institutions to provide long-term support due to several resource constraints. An alternative study conducted by APMAS on the quality and sustainability of self-help groups in Bihar and Odisha found similar results.  Self-help groups in Bihar were relatively younger and had stronger ties with the SHPIs that facilitated targeted livelihood promotion activities, whereas groups in Odisha lacked institutional support. This resulted in higher non-performing assets – around 18% compared to 6% in Bihar – and suggested that groups that are well-supported by their SHPIs have higher repayment rates when compared to groups without continued supervision and monitoring.

The Future of Self-Help Groups

The self-help group program has shown to be successful at connecting under-served customers with financial services. How can challenges be overcome to improve and revitalize such programs?

  • Self-help groups should be regularly monitored, and their promoters must reinforce structures that ensure the members have the requisite help for at least the first five years. The promoters need to help groups in discussing issues in the social and development purview, enabling groups to have constructive, critical discussions that help them become better community members.

  • Resources should go toward periodic capacity-building of all members, to make the group the collective, democratic effort of all members instead of a few who are better informed. With the Indian Government’s recent focus on digital financial inclusion, several efforts are underway to digitize the self-help group platform. However, investing in training of group members could go a long way in ensuring a smooth transition from manual to technological platforms.

  • Government should leverage the self-help group platform to expand the financial inclusion agenda of the country. Given the popularity of self-help groups in rural India, it can act as an intermediary to provide financial services in their community. Recent pilots on using self-help group members as bank agents showed some encouraging results in terms of number of transactions and percentage of active accounts. Similar innovations are needed to reshape the SHG movement and use it for the best possible outcome.   

Since its initiation, self-help groups have come a long way. Through economic and social assistance, they have proven to not just uplift the livelihoods of low-income households but also empower their social, economic and political lives. With the ever expanding scope of the self-help group channel, it is important for stakeholders to invest in providing the right kind of support to maximize the impact these groups can have on livelihoods.

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Comments

Submitted by amit arora on
SHG model is not just a financial services delivery approach to reach poor households but a huge social mobilisation tool for riding multiple layers of suitable services (non financial)at low cost. However RBIs recent circular on member level CIC reporting , though well intended ,may slow down the Bank's credit flow to this channel as they are not equipped to effectively respond to this guidelines. Unless, Public sector Banks embrace IT based solutions and encourage e-booking efforts (NABARDs E-Shakti is one ex) and /or leveraging BC channel for routing SHG-member level transactions, things may slow down. Some Rural banks have customised their BC based model to serve this segment. See one ex : https://www.youtube.com/watch?v=grrG- and read more about this on : https://www.cgap.org/blog/why-women-self-help-group-members-make-good-bank-agents

Submitted by RAFEE UD DIN MALIK on
nice effort

Submitted by Brett Matthews on
The IFMR study rightly notes coordination problems for SHGs resulting from members having trouble maintaining documentation and - a closely related matter - "low levels of literacy". A sustainable solution cannot involve more training and does not require abandoning SHGs. Interface design - both paper-based and digital - that makes the financial documentation manageable for illiterate users is not only possible but may have other spin-off benefits, like better consumer rights, less risk of bank expropriation of savings, and less risk of disputes. That would allow for either less outside training, or outside training (if it takes place) that gets beyond basic group functionality to higher level opportunities and challenges. See our recent CGAP blog http://www.cgap.org/blog/cash-unsung-hero-digital-finance and video https://www.youtube.com/watch?v=bJarFAKnKgg.

Submitted by Misha Sharma on
Hi Brett. Thanks for your comments. Absolutely agree that the role of cash cannot be under-estimated and a smooth integration from cash to digital is necessary for the last mile user to even begin understanding the importance and benefits of digital transactions. As well, your point on a paper plus digital based solution for SHGs could work as it again smooths the transition process for the economically under-privileged and (mostly illiterate) users.

Submitted by Vinod on
The decline of confidence in SHG is, as per my observation, is mainly due to two main issues 1. The target oriented approach of the Governments both at the Centre and STate to promote SHGs as a vehicle through which their programmes could be delivered without focussing on the group dynamics 2. The non availability of support from banking sector to the groups. The Banks even today do not understand what are groups and their requirements. Even RBI has limited understanding about groups which is clearly visible from their latest circulars on credit bureaus and updation of information on borrowers with credit bureaus. The overall preference to individual based approach to group based approach dominates the mindset of regulator.

Submitted by Misha Sharma on
Agree with you that SHGs are heavily burdened to act as a livelihood promotion platform. While this is a good idea, huge effort needs to be invested in training them (and I don't mean just financial literacy) and bringing them upto the level where they are able to act as enabling agents for others in their community.

Submitted by RANJIT ADHIKARY on
SHG IS A ONE OF THE BEST TOOLS FOR WOMEN EMPOWERMENT,THANKS TO NABARD FOR BEGAN THE SELF-HELP GROUP MOVEMENT IN INDIA AND SEVERAL NGOS.

Submitted by Misha Sharma on
Hi Ranjit, I agree. SHG is a great platform for empowering women and NABARD's effort in initiating the program is definitely commendable. The next step is to transform the SHG program into achieving its full potential.

Submitted by Ram Bhagat on
Having eexperienced over a period of time I can conclude, it is not merely a poverty aalleviation programme rather a ffinancial, ssocial and political revolution. And above all it is women empowerment who is life line of the society. Only condition for its success is "sincere and honest hand holding by SHGPIs through ccommunity instructions".

Submitted by Misha Sharma on
Sure that is true. Forming an SHG group and being part of one provides low income rural women with multiple opportunities. While hand holding by SHPIs is definitely the key to its success, digitization of SHG platforms can also play a huge role in bringing in much needed transparency and stremlining the process better.

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