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Self Help Groups

As we have seen, poor households are still dependent on informal sources of credit.

Why is it so?
  • Banks are not present everywhere in rural India.
  • Even when they are present, getting a loan from a bank is much more difficult than taking a loan from informal sources.
  • Bank loans require proper documents and collateral.
  • Absence of collateral is one of the major reasons which prevents the poor from getting.
  • Bank loans.
  • Moneylenders, on the other hand, know the borrowers personally and hence are often willing to give a loan without collateral.

In recent years, people have tried out some newer ways of providing loans to the poor. The idea is to organise rural poor, in particular women, into small Self Help Groups (SHGs) and pool (collect) their savings.

Let us look at a typical SHG

  • A typical SHG has 15-20 members, usually belonging to one neighbourhood, who meet and save regularly.
  • Saving per member varies from Rs. 25 to Rs. 100 or more.
  • Members can take small loans from the group itself to meet their needs.
  • The group charges interest on these loans but this is still less than what the moneylender charges.
  • After a year or two, if the group is regular in savings, it becomes eligible for availing loan from the bank.
  • Loan is sanctioned in the name of the group and is meant to create self-employment opportunities for the members.
  • SHGs help borrowers overcome the problem of lack of collateral.
  • They can get timely loans.
  • SHGs are the building blocks of organisation of the rural poor.

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