Self-help Groups as Financial Intermediaries in India ... - Sa-Dhan

1. INTRODUCTIONThis paper seeks to examine the development of self-help groups (SHGs) and their role infinancial services delivery in India. It is now a decade since the National Bank forAgriculture and Rural Development (NABARD) piloted the SHG-bank LinkageProgramme to provide poor rural households access to banking services. The programmehas grown in an exponential manner, particularly during the past five years or so. WhileNGOs have taken the lead in forming SHGs, a variety of financial service promoters andintermediaries, official and non-official, are currently associated with the programme.Further, several central government ministries and state governments have launchedprojects and schemes involving the organisation of savings and credit groups, usually ofpoor women, often as part of programmes supported by bilateral and multilateral agencyfunding. Indeed, SHGs are currently seen as an essential and integral part not only offinancial services delivery, but also as a channel for the delivery of non-financial serviceswithin larger objectives of livelihoods promotion, community development and women’sempowerment.Barring a few exceptions, savings and credit has been used as a practical entry-pointactivity around which to organise (poor) women into SHGs. These SHGs are potential“micro-banks”, either on their own, or through higher levels of association, capable ofusing their own resources, grants and borrowed funds for financial intermediation. Apartfrom accessing funds from the formal financial sector, SHGs can also become a forumfor dissemination of development ideas and information, an association for communitymobilisation or an organisational unit for linking up with other economic, social andpolitical interventions.Within this role for SHGs a range of models and approaches have emerged, representingdifferent methods of ensuring effectiveness and sustainability of this communityinstitution. These models envisage solely financial intermediation or include other nonfinancialelements as well. Given the diversity of approaches being practised it isdesirable to examine costs and benefits and prospects of long-term functioning of SHGsand the emerging SHG federations, particularly those promoted by leading NGOs. Thiswill contribute to an understanding of “best practice” in SHG development towards widerreplication of the SHG model. It is also expected to help in directing funds from donorsand other finance providers into the future development of effective institutions andactivities in the microfinance sector.This study supplements counterpart studies undertaken by I/C Consult, The Hague, TheNetherlands on the self-help group landscape in India (Bosch, 2001; Bosch and Damen,2000). The study has been undertaken by Sa-Dhan, an association of Indian communitydevelopment finance institutions, on behalf of ICCO and Cordaid, two Dutch cofinancingagencies that support a large variety of NGO programmes aimed at promoting1