SELF HELP GROUP

(SHG) Model
Overview

Challenge for the poor

Access the finance to meet the diverse needs on
Required amount
Within short period

Introduction
Basic Principle

SHG

Pillar A:
Helping each other

Pillar B:
Unity is strength

Norms of SHGs
Important contribution of SHG towards poverty
alleviation:
Following financial discipline
Protecting the vulnerable from shocks
Introducing saving culture within the members

Structure
Federation

Formation: Legal Entity

(MACs/Co-op or Society/Trust)
(Formal Group)
Services: Credit & Credit +
(Heterogeneous)

Networking

SHG
NO:01

SHG
NO:02

SHG
NO:03

Formation: Based on Class/Cast (Informal Group)

Socio Economic Condition: Same ( Homogeneous)

Neighbour
Groups

Features
Clients

Primarily women

Groups

15-20 Clients per group

Group Norms

Focus in peer pressure for ensuring credit delivery

Group Strength

Gender solidarity & Higher level of decision making at group level

Structure

Group--> Branch--> Head Office

Group Formation Cost

Very small cost compare to the other models

Services

Saving and Credit

Role of MFI Staffs

Guidance and Facilitation

Meetings

Monthly

Members saving

Members have to be saved with the group

Saving

At group level and saving is withdrawable and voluntary

Savings deposit

Rs. 20-100/ Month

Interest on saving

Bank Rate (4.25 %)+Profit Share

Internal Loan

Members saving will be rotated

MFI Loan approval

Loan made against the loan approval at group level/ branch level

Initial loan amount

Rs.5,000 - 10,000

Credit

Generally lower interest rate than Grameen MFI

Effective Interest Rate

24-28%

Insurance

Sometimes loan linked to health and life insurance

Development Services

Some associated programs

Growth

Slow in terms of loan size and membership

SHG System
01

Members get together

02

Form the group

Formation: Members from New Group/ Existing ROSCA

03

Made formal Linkage

with MFI or Bank

Step 1: Regular saving culture

Step 2: Elect head for the group

04

Open saving account

With MFI/ Bank

Saving Account maintained : In group name

Loan Sanctioned by MFI/ Bank: In group name

05

Members Start borrow

individually from SHG

Limitations
: Purpose, Term and Conditions
Decision maker : Whole group

06

Guidance from MFI/Bank

Assistance: In record keeping

Demand : SHG Members details & Use of loan

07

Cost for SHG

Average Forming Cost: Rs.20,000 per SHG

Promotion Cost
: Rs.10,000 per SHG

Facilitation: By NGO / MFI / Bank

Step 3: Assign authority

Step 4: Link with the bank

Loan operation and general timelines

Activity

Duration needed

SHG Formation

1st Month

Open bank account

2nd Month

Internal lending

< 6 Month

Eligible for bank loan

< 0r = 12 Months

Loan

Amount (Rs.)

Loan period

1st Loan

25,000 10 Months

2nd Loan

50,000 10 Months

3rd Loan

100,000 10 Months

4th Loan

CCF ( Cash Credit Facility)

15 Months

5th Loan

CCF ( Cash Credit Facility)

20 Months

6th Loan

CCF ( Cash Credit Facility)

20 Months

7th Loan

500,000 36 Months

SHGs- PROs & CONs

IN SHGS POINT OF VIEW
PLUSES

MINUSES

Flexible

Need more management skills and time

No need for bank at all

depends on members accountability

Highly empowered

can be hijacked internally and externally

Members can save & borrow as needed

Cash may not be secure

Can evolve from existing group

IN BANK'S POINT OF VIEW
PLUSES

MINUSES

Lower transaction cost

Hard to monitor

Saving mobilization easier

Slow to develop

Can build on existing group

May form own federation

Can fit into any branch

MIS is more complex

Need highly committed Staff to develop groups