Conference on Inclusive Growth and Microfinance Access, Banaras Hindu University, January 2011.
Role of Self Help Groups through Micro-finance for poverty alleviation and Micro-
Entrepreneurship of women
KARIMZADEH, MAJID. PH.D SCHOLAR.DEPARTMENT OF ECONOMICS. ALIGARH MUSLIM
UNIVERSITY. ALIGARH.
NEMATINIA, GHAYOUM. PH.D SCHOLAR. DEPARTMENT OF SOCIOLOGY. BANARAS HINDU
UNIVERSITY. VARNASI.
KARIMZADEH, MASOUD. M.A. ECONOMICS.
ABSTRACT
A majority of microfinance program target women with the explicit goal of empowering them. There are
varying underlying motivations for pursuing women empowerment. Some argue that women are amongst
the poorest and the most vulnerable of the underprivileged and thus helping them should be a priority.
The main benefits of micro-credit appear to be reduced vulnerability of the poor to adverse
circumstances, increased consumption in the same group and empowerment of women. Fortunately,
micro-finance practice in India like some other countries has much to offer to the rural population. These
include poverty alleviation, livelihood promotion, developing the local economy, gender empowerment,
building organizations and changing wider systems and institutions within society.
SHG- banking linkage model is an important model of micro-finance which helps their members to start
their own business. Also SHGs in rural area have empowered illiterate and poor women by linking them
to the mainstream banking system and involving members in Micro-Entrepreneurship activities.
Development of Micro-Entrepreneurship can help reduce the problem of unemployment and several
social problems in the society that go with it. It ultimately helps in sustaining the process of development
of the nation. This paper tries to link Micro-finance, Self-Help Groups, and Micro-Entrepreneurships of
women and makes an attempt to review Indian experience in the case of Self-Help Groups and Micro
Finance to show up the importance of Self-Help Groups for Poverty alleviation and empowerment of
women through Micro-Finance.
Keywords: Self-Help Groups, Micro-Finance, Micro-Entrepreneurships, poverty alleviation.
Introduction
In recent years micro-finance become an important intervention as a tool for rural development and
poverty alleviation. In India, In India, many a number of microfinance institutions including NGOs, NBFIs
and Government agencies had intensively intervened. Innovation of group based microfinance especially
Self-help Groups (SHGs), Grameen Joint Liability Groups (JLGs), Mutually Aided Cooperative Societies
(MACS) etc. which replaced the physical collateral with moral and social collateral for micro-loans had
Conference on Inclusive Growth and Microfinance Access, Banaras Hindu University, January 2011.
probably led to speed up of the microfinance programmes in India. The giant step of NABARD on SHG-
Bank Linkage Programme is really praiseworthy which latter considered as one of the biggest
microfinance interventions in the world. (Panda, 2009).
According to Reserve Bank of India, SHGs may be registered or unregistered group of people, mostly
micro-entrepreneurs having homogeneity in their socioeconomic background, who join hands together to
contribute regular savings to a common fund and meet their emergency needs on mutual help basis. The
peer pressure and collective wisdom ensures the credit use and timely repayments. The peer pressure
and collective wisdom substitute the collateral for loans. "In most of the developing countries today, more
and more emphasis is laid on the need for development of women and their active participation in the
main stream of development process. It is also widely recognized that apart from managing household,
bearing children, rural women bring income with productive activities ranging from traditional work in the
fields to working' in factories or running small and petty businesses. They have also proven that they can
be better entrepreneurs and development managers in any kind of human development activities.
Therefore, it is important and utmost necessary to make rural women empowered in taking decisions to
enable them to be in the central part of any human development process. ( V.P.Sriraman)
Although men, as well as women, face difficulties in establishing an enterprise, women have barrier to
overcome. Among them are negative socio-cultural attitudes, legal barriers, practical external barriers,
lack of education and personal difficulties. In spite of this, for women and especially for poor women,
micro-enterprise ownership has emerged as a strategy for economical survival. (Dhanabhakyam, 2009)
Objectives of study
To study the importance and role of the Self Help Groups and micro-finance in poverty alleviation
and empowerment of women.
To analyze the growth of microfinance sector and Self Help Groups in India.
To highlight the role of Micro-finance in Micro-Entrepreneurships in rural areas.
Methodology
This is a descriptive research paper based on secondary data. Data have been found out from different
websites, books, research paper and journals.
Formation of Self Help Groups
An SHG both by definition and in practice is a group of individual members who by free association come
together for a common collective purpose. In practice SHG comprise individual members known to each
Conference on Inclusive Growth and Microfinance Access, Banaras Hindu University, January 2011.
other coming from the same village, community and even marketing neighborhood. That is they are
homogeneous and have certain pre group social binding factors. In the context of micro-finance, SHG are
formed around the theme of savings and credit. (Shelke.R, 2009)
Self-Help Groups don't start with credit; they start as savers groups, with regular weekly for forthrightly
saving targets. Each number of the group has to save a small amount per month. The savings are
deposited in a meeting on an appointed time every week, and the collected saving are lent to members,
with the decision on who gets the loan being taken by the group; in many groups saving are entered in
individual passbooks. Some groups pay interest on saving, others pay dividends; but most have retained
their earnings as part of their capital. An account is opened with a mainline bank to deposit any surplus
savings. After some six months, the bank where the savings were deposited examines the performance
of the group and issues loans to the group.(Pandey.P, 2009). The SHG in turn increases its capacity to
manage high amount of finance, develop entrepreneurial and communication skills and logical ability,
cooperative sense and finally income and employment generating confidence.
The main objective of SHGs is to inculcate the habit of thrift, savings and banking culture to gain
economic prosperity through credit. The most important component of SHG is the mobilization and
organization of women towards the basic strength of solidarity, informality and collective action. Self Help
Group methodology is a novel approach in development of economics. These groups can create a
unique, alternative, need-based credit delivery mechanism by pooling their insufficient resources for
catering to their consumption and occupational requirement.
Characteristics of a good Self Help Group
Well-functioning SHG should have following structural features:
An ideal SHG comprises 15-20 members
All the members should belong to the same socio-economic strata of society specifically poor.
Group should have strong bond of affinity.
Rotational leadership should be encouraged for distribution of power and to provide leadership
opportunities to all the members.
Members should attend meetings, save and participate in all activities voluntarily.
To provide gainful employment and to involve the poor in productive activities.
An SHG should be socially viable institution.
The procedure of decision-making in SHG should be democratic in nature.
It should be non-partisan in nature.
The group is frames rules and regulations which are required for its effective functioning.
To involve women in decision making and to promote leadership qualities among them .
Conference on Inclusive Growth and Microfinance Access, Banaras Hindu University, January 2011.
Micro-finance and its objectives
The concept of microfinance is not new. Savings and credits groups that have operated for centuries
include the “susus” of Ghana, “chit funds” in India, “tandas” in Mexico, and “pasanaku” in Bolivia, as well
as numerous savings clubs and burial societies found all over the world. One of the earlier and longer
lived microcredit organizations was the Irish loan fund system, initiated in the early 1700s. (Rana.M.B,
2008)
The term micro-finance is commonly used in addressing issues related to poverty alleviation, financial
support to micro-entrepreneurs and gender development etc. Micro-finance can be defined as “ provision
of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-
urban or urban areas for enabling them to raise their income levels and improve living standards “. The
term micro-finance sometimes is used interchangeably with the term micro-credit. However, while micro-
credit refers to purveyance of loans in small quantities, the term micro finance has a broader meaning
covering in its ambit other financial services like saving, insurance etc. as well. (Singh.P, 2009)
The main benefits of micro-finance appear to be reduced vulnerability of the poor to adverse
circumstances, increased consumption in the same group and empowerment of women. Fortunately,
micro-finance practice in India like some other countries has much to offer to the rural population. These
include poverty alleviation, livelihood promotion, developing the local economy, gender empowerment,
building organizations and changing wider systems and institutions within society.
Relation between poverty and Micro-finance
One of the main assumptions is that many poor people can absorb, use and actively want productive
credit. It is also being found that in many situations poor people want secure savings facilities and
consumption loans just as much as productive credit. The poor face barriers in gaining access to formal
mainstream financial service institutions. Micro-finance institutions (MFIs) provide this opportunity for poor
people in rural area to have access to Micro-credit mainly through SHGs. SHGs are now being viewed as
trustworthy vehicles for rural credit delivery and Poverty is multi-dimensional. By providing access to
financial services, micro-finance plays an important role in the fight against the many aspects of poverty.
For instance, income generation from a business helps not only the business activity expand but also
contributes to household income and its attendant benefits on food security, children’s education, etc.
India, a country inundated with a population of about 1.18 billion has got the 2th position in terms of
population size in the world.72.2% populations are still living in rural areas infested with very poor
infrastructural facility resulting about 350 million are still under the poverty line. Microcredit is a widely
discussed concept and practice throughout the world to combat against poverty. People borrow from
MFIs and then utilize that money for different income generation activities. If the borrowers really utilize
Conference on Inclusive Growth and Microfinance Access, Banaras Hindu University, January 2011.
this microcredit to various income generation activities, then they will be able to overcome poverty.
(Rana.M.B, 2008)
Empowerment
Empowerment is a multi-dimensional process, which should enable an individual or a group of individuals
to realize their full identity and powers in all spheres of life. It consists of greater access to knowledge and
resources, greater autonomy in decision making to enable them to have greater ability to plan their lives
and free them from shackles imposed on them by custom, belief and practice. (Iyer.S.R, 2007)
Empowerment is not about power over others, but power to achieve goals and aims. In brief,
empowerment is a process of awareness and capacity building leading to greater participation to greater
decision-making, power and control and to transformative action. Empowerments of women are an
effective strategy to cope with gender biased discrimination and attain gender equality.
A majority of microfinance program target women with the explicit goal of empowering them. There are
varying underlying motivations for pursuing women empowerment. Some argue that women are amongst
the poorest and the most vulnerable of the underprivileged and thus helping them should be a priority.
Whereas, other believe their investing in women's capabilities empowers them to make choices which is a
valuable goal in itself but it also contributes to greater economic growth and development. Micro-finance
programs are currently being promoted as a key strategy simultaneously addressing both poverty
alleviation and women's empowerment.
For women to become a successful entrepreneur, she needs access to capital, technical and managerial
know-how and market. The essence to empower rural women lies in catalyzing appropriate economic
activities at the grass root level and creating new opportunities for them to earn higher income in order to
improve their standard of living. (Srivaman.V.P)
Although the process of empowerment varies from culture to cultures, several types of changes are
considered to be relevant in a wide range of cultures. Some of these changes include:
To enhance self-esteem and self-confidence in women
Enabling women to gain equal access to control and over resources
To faster decision-making and action through collective process
To provide information, knowledge and skill for economic independence
Conference on Inclusive Growth and Microfinance Access, Banaras Hindu University, January 2011.
Transforming the institutions such as family education, religion, media etc. and structure such as
legal, political, economic and social etc.
To develop in them an ability to think critically.
Credit for empowerment
Credit for empowerment is about meeting daily consumption need of the poorest. It entails trying to build
capacities of a large number of individuals, usually collectives, to increase credit absorption and
undertake sustainable livelihoods. The SHG is conceived as a sustainable people’s institution, which
provides the poor with the space and support necessary for them to take affective steps toward achieving
greater control of their lives in society. The focus is on mobilizing the poor to pool their own funds,
building their capacities, and empowering them to leverage external credit.( Zubair M,2006) in other word,
credit for empowerment is about organizing people, particularly around credit and building capacities to
manage money.
Women and Entrepreneurship
Entrepreneurship refers to a creative approach in business. Exploring and discovering new business
opportunities, managing the enterprise exactly, taking risks and successfully introducing innovations are
the entrepreneurial function. Women entrepreneurs may be defined as a woman or groups of women who
initiate, organize and run a business enterprise.
Women entrepreneurship makes them economically strong and gives the freedom to take decisions since
women entrepreneurs initiate, organize and operate the business enterprise. The Government of India
has defined women enterprise as an industrial unit where one or a group of women owned at least 51 per
cent share in the capital and at least 51 per cent employment generated by the enterprise should be for
women only. Women entrepreneurs, who were confined to traditional areas like food, fruits, vegetables,
pickles, papads, tailoring etc., have shifted to non-traditional areas like engineering, jewellery, handicraft,
electronics, manufacturing etc. (Choudhary.N, 2009)
SHG- banking linkage model is an important model of micro-finance which helps their members to start
their own business. SHGs in rural area have empowered illiterate and poor women by linking them to the
mainstream banking system.
Most women remain deprived of employment opportunities as wage workers because of their family
responsibilities, social and cultural barriers. In this context, self-employment or setting up enterprise of
their own may become an opportunity for women, to get an income and to acquire financial security in this
regard Self Help Groups can play major role and development of entrepreneurship can help reduce the
problem of unemployment and several social problems in the society that go with it. It ultimately helps in
Conference on Inclusive Growth and Microfinance Access, Banaras Hindu University, January 2011.
sustaining the process of development of the nation. Therefore, Entrepreneurship development among
women can be considered as a possible approach to economic empowerment of women.
Methods of promoting Entrepreneurship
There is need for increased support services, encouragement and training for women-entrepreneurs.
Entrepreneurship development can be taken up in three ways. (Shashi.V etal. 2009)
1. Promotion of agripreneurship
2. Promotion of Non-agripreneurship
3. Development of SHG
Promotion of agripreneurship
Indian agriculture has entered in a dynamic phase with greater attention on diversification and value
addition. The agriculture is now not confined to production only but has moved forward to export phase.
Therefore, it has become more demand driven and knowledge oriented technological development in
agriculture has provided wide range of opportunities to income and employment generation at individual
and collective level.
Promotion of Non-agripreneurship
Depending upon the occupational skills of people, availability of raw materials and market feasibility
different trades can be adopted by rural women. Tailoring and dress designing, milk and milk products,
soft toys making, raxeen bag making, beauty parlour, integrated animal management, screen printing,
block printing, detergent making and book binding etc are some of the entrepreneurship activities which
can be taken up by rural women.
Development of SHGs
Self Help Groups are considered as one of the most significant tools to adopt participatory approach for
the economic empowerment of women. It is an important institution for improving the life of women on
various social and economic components. The basic objective of an SHG is that it acts as the forum for
members to provide space and support to each other and get financial sustainability through adopting
micro-enterprises based on availability of resources, prevalent skill and availability of markets for sale of
products. Group entrepreneurship is ideal for weaker sections of the society and it is an instrument which
helps the poor women to over come their poverty. It gives employment opportunities for illiterates.
SHGs and Micro-Finance in India
First official interest in informal group lending in India took shape during 1986-87 on the initiative of the
National Bank of Agriculture and Rural Development (NABARD). As a part of this broad mandate,
NABARD initiated certain research projects on Self-Help Groups (SHGs) as a channel for delivery of
Conference on Inclusive Growth and Microfinance Access, Banaras Hindu University, January 2011.
micro-finance in the late 1980s. In 1988-89, in collaboration with some of the member institutions of the
Asia-pacific Rural and Agricultural Credit Association (APRACA), NABARD undertook a survey of 43
NGOs in 11 states in India, to study the functioning of Micro-finance SHGs and their collaboration
possibilities with the formal banking system. But by then micro-finance by "non-formal" financial
organization had already started. Self-Employed Women's Association (SEWA) owned by women of petty
trade groups was established on cooperative principle in 1974 in Gujarat. (harper et al.,2006)
NABARD started a pilot project of SHG-bank linkage in 1992. The project objective was to facilitate
access of the poor to formal credit institutions. The pilot project envisaged banks to lend to the SHGs
without collateral on the principle of trust-banking. The Reserve Bank of India (RBI) issued policy
guideline in the year1996, treating SHG finance as a priority sector advance. Government of India also
introduced the SGSY scheme in 1999. This program aiming at self-employment and poverty alleviation
replaced the Integrated Rural Development Program and other allied programs targeting the rural poor.
The rationale behind the introduction of the SGSY scheme was to increase the percentage of people
living above poverty line by providing assistance to poor families, promoting micro-level enterprises, inter-
alia organizing the poor into SHGs.
NABARD also launched” The Micro Enterprise Development Programme (MEDP) in March 2006 with the
basic objective to enhance the capacities of the members of matured SHGs to take up micro enterprises
through appropriate skill up gradation / development in the existing or new livelihood activities both in
farm and non-farm sectors by way of enriching knowledge of participants on enterprise management,
business dynamics and rural markets. In 2009-10, a total of 1530 MEDPs, both under Farm and Non-farm
activities, were conducted across the country covering 38313 members of the matured SHGs.
Cumulatively, total 2837 MEDPs have been conducted so far covering 93777participants.
In order to give new approach to rural finance NABARD has launched The pilot project in 1992 that aimed
at promoting and financing SHGs by linking 255 SHGs with banks in 1992, the program has reached to
linking of 69.5 lakh saving-linked SHGs and 48.5 lakh credits linked SHGs and thus about 97 million
families are covered under the program in 2010.
The SHG-Bank linkage project is expected to be advantageous to the banking sector from both the
angles of fulfillment of social goals (like reaching out the poor) and achieving operational efficiency (by
externalizing part of their transaction cost). The improvement of the SHG-Bank linkage program is seen in
Tables 2. In the initial period i.e., in1992-93 Just 255SHG were linked to banks with Rs. 2.89 million as
refinance from NABARD. In 2009-10, about 6,953250 SHGs have been linked to banks with 12861.65
crore cumulative refinance.
NABARD provides refinance support to banks to the extent of 100 per cent of the bank loans disbursed to
SHGs. The total refinance disbursed to banks against banks loans to SHGs during 2009-10 was 3173.56
crore, registered a growth of 21.1 percent from 2008-09. Further, the cumulative refinance disbursed
under SHG bank linkage program by NABARD to banks up to 31 March 2010 stood at 12861.65 crore.
NABARD also continued to organize/sponsor training programs and exposure visits for the benefit of
Conference on Inclusive Growth and Microfinance Access, Banaras Hindu University, January 2011.
officials of banks, NGOs, SHGs and Governments agencies to enhance their effectiveness. The
cumulative fund support for the purpose as on 31 March 2010 stood at 45.02 crore. During the 2009-10,
fund support of 9.93 crore was provided for capacity building, exposure visits and awareness-building as
against 6.10 crore during 2008-09.
It may be seen , in table 3, that of the total number of saving linked and credit linked SHGs, exclusive
women SHGs with banks were 76.4 per cent and 81.6 per cent, respectively. Further, the percentage of
loans outstanding of exclusive women SHGs to loans outstanding of total SHGs which was 81.9 per cent
as on 31 March 2009 has increased to 82.1 per cent as on 31 March 2010.
Conclusion
India still is the home to the largest population of the poor in the world and about 37% of population is
below poverty line. The levels of poverty are high and because of this problem Self Help Groups
movement occupies a significant agenda in the poverty reduction and empowerment of women for poor
people.
Micro-finance program are important institutional devices for providing small credit to the rural people in
order to alleviate poverty and SHG bank linkage, have the potential to minimize the problems of
inadequate access of banking services to the poor. Many studies highlighted that SHGs have inculcated
saving habits in poor. Many studies reveal that increased availability of micro-credit to the poor through
SHG bank linkage program will help rural people to take up larger productive activities, empower the poor
women, and decrease the dependence on money lenders. But, In spite of the impressive figures of micro-
finance in India as have exposed in tables. It is still too small to create a massive impact in poverty
alleviation. However; Indian experience in the case of Micro-finance and SHG is shown that this strategy
is suitable strategy for developing and underdeveloped countries against poverty.
References
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Conference on Inclusive Growth and Microfinance Access, Banaras Hindu University, January 2011.
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Table 1: Highlights of SHG-bank linkage program
as on march 2010
Total no. of SHGs saving linked with banks 69.53 lakh
Out of total exclusive women SHGs 53.10 lakh
Total no. of SHG credit linked with banks 15.87 lakh
Total saving amount of SHGs with banks 6198.71 crore
Total amounts of loan discoursed to SHGs 14453.30 crore
Out of total saving of exclusive women 4498.66 crore
Out of total loan disbursed to women SHGs 12429.37 crore
Estimated number of families covered up to 31 March 97 million
No. of participating banks 446
No. of program conducted by govt. during 2009-10 6804
No. of participants covered during 2009-10 2.54 lakh
Source: NABARD
Conference on Inclusive Growth and Microfinance Access, Banaras Hindu University, January 2011.
Table 2: Overall progress – SHG – Bank linkage
(In crore)
2006-07 2007-08 2008-09 2009-10
Particulars No. of Amount No. of Amount No. of Amount No. of Amount
SHGs SHGs SHGs SHGs
Savings of Total 4,160,584 3512.71 5009794 3785.39 6121147 5545.62 6953250 6198.71
SHGs with SHGs
Bank Out of 9,56,317 757.50 1203070 809.51 1505581 1563.38 1693910 1292.62
which
SGSY
Banks Total 11,05,749 6570.39 1227770 8849.26 1609586 12253.51 1586822 14453.30
loans SHGs
disburse of Out of 1,88,962 1,411.02 246649 1857.74 264653 2015.22 267403 2198.00
to SHGs which
SGSY
Source: NABARD
Table3: Position of women SHGs (in crore)
Particulars Year Total SHGs Women SHGs
NO. AMT NO. AMT
Saving linked 31.03.2009 6121147 5545.62 4863921 4434.03
SHGs
31.03.2010 6953250 6198.71 5310436 4498.66
Loans disbursed 2008-09 1609586 12253.51 1374579 10527.38
2009-10 1586822 14453.30 1294476 12429.37
Source: NABARD
