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 Micro Credit and Self Help Group (SHGs)  

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.

  •  To mobilize individual skills for group’s interest.

  •  To create awareness about rights.

  • To assist the members financially at the time of need.

  • Entrepreneurship development.

  • 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 self-confidence.

  •  To build up teamwork.

  • To develop leadership qualities.

  • To use as an effective delivery channel for rural credit.

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 20 people).

  • The group need not be registered.


  • From one family, only one person can become a member of an SHG. (More families can join SHGs this way).

  • 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 problems).

  • 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).

  •  Members 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 as under:-


  • 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 all.

  • 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 maintained.

  • 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 an SHG

 Minutes Book: 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 entered here.

Weekly/Fortnightly/Monthly Register: Summary of receipts and Payments, updated in every meeting.

Members Pass books: Individual member’s pass books in which individual’s savings and loan balance outstanding is regularly entered.

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 bank loans).

Internal lending:

  • The SHG should use the savings amount for giving loans members.

  • The purpose, amounts, rate of interest, schedule of repayment etc. are to be decided by the group itself.

  • Proper accounts to be kept by the SHG.

Discussing problems: 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.

Planning: The 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.

SGHs under PMRY | SBI Life ‘Shakti’| Rural Housing Loans to Self Help Groups