Concept of SHGs
SHG is a small group of
rural poor, who have voluntarily come forward to form a group for
improvement of the social and economic status of the members.
It can be formal
(registered) or informal.
The concept underlines
the principle of Thrift, Credit and Self Help.
Members of SHG agree to
save regularly and contribute to a common fund.
The members agree to
use this common fund and such other funds (like grants and loans from
banks), which they may receive as a group, to give small loans to needy
members as per the decision of the group.
Needs of SHGs
The rural poor are incapacitated due to various
reasons, such as; most of them are socially
backward, illiterate, with low motivation and poor
economic base. Individually, a poor is not only weak
in socio-economic term but also lacks access to the
knowledge and information, which are the most
important components of today’s development process.
However, in a group, they are empowered to overcome
many of these weaknesses. Hence, there are needs for
SHGs, which in specific terms are as under:-
To mobilize the resources of the individual
members for their collective economic development.
To uplift the living conditions of the poor.
To create a habit of savings.
Utilization of local resources.
mobilize individual skills for group’s interest.
create awareness about rights.
To assist the members financially at the time of
To identify problems, analyzing and finding
solutions in the group.
To act as a media for socio-economic development
of the village.
To develop linkages with institutions of NGOs.
To organize training for skill development.
To help in recovery of loans.
To gain mutual understanding, develop trust and
build up teamwork.
To develop leadership qualities.
To use as an effective delivery channel for rural
Structure of SHGs
Size of SHG
The ideal size of an SHG is 10 to 20 members.
(Advantage: In a bigger group, members cannot
actively participate. Also, legally it is required
that an informal group should not be of more than
The group need not be registered.
From one family, only one person can become a
member of an SHG. (More families can join SHGs
The group normally consists of either only men or
only women. (Mixed groups are generally not
preferred, since it may obstruct free and frank
discussions, opening up typical personal
Women’s groups are generally found to perform
better. (They are better in savings and they
usually ensure better end use of loans).
Members should be homogenous i.e. should have the
same social and financial background. (Advantage:
This makes it easier for the members to interact
freely with each other, if members are both from
rich as well as poor class, the poor may hardly
get an opportunity to express themselves).
should be between the age group of 21-60 years.
Members should be rural poor (By poor one should
be guided by the living conditions, as given
herein before; and this has no relation to poverty
line. People living above poverty line (APL) can
also form SHG like BPL.
Functions of SHGs
To develop a group into a well-managed Self Help
Group, the members should evolve rules and
regulations, which are to be adopted, after
discussions with all the members for compliance in
full. Some illustrative guidelines for the
formulation of such rules and regulations are given
The group should meet regularly, ideally, the
meetings should be weekly or at least monthly.
(Advantage: They become closer if they meet
regularly. This helps them to understand each
other’s difficulties better).
Compulsory Attendance: Full attendance in all the
group meetings will make it easy for the SHG to
stabilize and start working to the satisfaction of
Membership register, minutes register etc. are to
be kept upto date by the group by making the
entries regularly. (Advantage: This helps you to
know about the SHG easily. It also helps to build
trust among the SHG members).
Fixed day for meetings: The group should have a
fixed day or date for the meetings.(Advantage:
This will help the members to plan their routine
works in advance).
Commonplace: The group should fix a common place
to conduct the meetings.
Savings should be deposited by all the members in
the meeting itself. (Advantage: This will help to
inculcate the habit of regular savings in the
members. By depositing savings in the meetings
before all members will avoid the element of
distrust amongst members).
No interest will be paid to the members for their
money with the group.
The members will not be encouraged to adjust their
savings amount against their loan due to the
Group. Only at extreme circumstances the Group
shall consider to adjust.
Keeping of accounts
Simple and clear books for all transactions to be
If no member is able to maintain the books, the
SHG may take outside help.
All registers and account books should be written
during the course of the meeting. (Advantage: This
creates confidence in the minds of members who are
unable to read and write).
Books to be maintained by
The proceedings of meetings, the rules of the group,
names of the members etc. are recorded in this book.
Savings and Loan Register:
Shows the savings of members and that of the group
as a whole separately. Details of individual loans,
repayments, interest collected, balance etc. are
Summary of receipts and Payments, updated in every
Members Pass books:
Individual member’s pass books in which individual’s
savings and loan balance outstanding is regularly
Major functions of an SHG
Savings and Thrift:
All SHG members regularly save a small amount. The
amount may be small, but savings have to be
regular and continuous habit with all the members.
“Savings first-Credit later” should be the motto
of every SHG member.
SHG members take a step towards self-dependence
when they start small savings. They learn
financial discipline through savings and internal
lending. (Advantage: This is useful when they use
The SHG should use the savings amount for giving
The purpose, amounts, rate of interest, schedule
of repayment etc. are to be decided by the group
Proper accounts to be kept by the SHG.
In every meeting, the SHG should be encouraged
to discuss and try to find solutions to the problems
faced by the members of the group. Individually, the
poor people are weak and lack resources to solve
their problems. When the group tries to help its
members, it become easier for them to face the
difficulties and come up with solutions.
SHG should prepare plans for the future so that each
member can collectively work for the achievement of
the same. It should plan to get financial support
from Government, Bank and NGO for its
sustainability. It can take up some development
programmes in the locality and all the members
should involve themselves in implementation and
monitoring of the programmes.