NCERT · Class 10 · Social Science · Economics: Money and CreditWhat is Self-Help Group (SHG)? Explain the functioning and importance of SHGs in rural India with suitable points.

Introduction to Self-Help Groups (SHGs)\nIn recent years, Self-Help Groups (SHGs) have emerged as a revolutionary tool to tackle the problem of rural credit and poverty, especially among women. An SHG is typically a small voluntary association of poor people, mostly rural women, who belong to the same neighborhood and face similar economic challenges. They come together to save small amounts of money regularly and help each other in times of financial need.

Functioning of SHGs

• Formation and Savings: A typical SHG consists of 15 to 20 members, usually women, who meet regularly. Each member saves a small amount, ranging from Rs. 25 to Rs. 100 or more, depending on their ability.
• Internal Lending: The group pools these savings together. Members can take small loans from this pooled fund to meet their urgent needs, such as buying seeds, paying off old debts, medical emergencies, or purchasing sewing machines.
• Interest Rates: The group charges a nominal interest rate on these loans, which is much lower than what moneylenders charge. All decisions regarding savings and loans are taken collectively by the members.
• Bank Linkage: After a year or two of regular savings and timely repayment, the SHG becomes eligible to avail loans from commercial banks in the group's name. This bank loan is used to start self-employment ventures or expand existing livelihoods.

Importance of SHGs

• Overcoming Collateral Problem: The biggest hurdle for the poor in getting bank loans is the lack of collateral. Banks grant loans to SHGs based on the group's collective guarantee, bypassing individual collateral requirements.
• Eradication of Debt Trap: By providing easy access to cheap internal and bank credit, SHGs free rural poor from the clutches of ruthless moneylenders and save them from unending debt traps.
• Financial Discipline and Timely Repayment: Regular meetings, collective decision-making, and peer pressure ensure a high rate of loan repayment, building trust among financial institutions.
• Women Empowerment: SHGs serve as a platform for women to discuss various social issues like domestic violence, health, and nutrition. It builds their confidence, makes them financially independent, and gives them a voice in family and community decision-making.