SHGs

Self-Help Groups (SHGs) are voluntary, small, informal associations designed to promote savings, credit, and mutual support among members. They are common in many developing regions, with a large presence in rural India, and are used to foster financial inclusion, risk sharing, and social empowerment.

Formation and operation typically involve 10 to 20 members who commit to regular savings and to meeting at regular intervals. The group builds a common fund, often called a thrift or revolving fund, which enables internal lending to members. Meetings are conducted with transparent record keeping, and SHGs usually elect office bearers and follow a simple governance framework. Some groups maintain a bank account to manage funds.

Financial linkages and services often extend beyond the group’s internal activities. SHGs mobilize savings to create internal credit and may access external finance through banks or microfinance institutions. In India, the SHG-Bank Linkage Program connects groups to formal banking for larger loans, while NGOs and government schemes provide training, financial literacy, and capacity building to enhance income-generation activities.

Outcomes associated with SHGs include improved financial inclusion, increased household savings, easier access to credit, and enhanced empowerment and social capital, particularly for women. However, evidence on impact remains mixed. Potential drawbacks include the risk of over-indebtedness, governance and accountability challenges, variable lending quality, and dependence on external promoters for ongoing support. Sustainability depends on effective internal management, market opportunities, and continued capacity-building and financial linkages.