For millions of women in rural India and across South Asia, access to even a small loan can be the difference between weathering a crisis and falling deeper into poverty. Yet formal banks have historically required collateral, credit histories, and paperwork that most low-income women simply don’t have. Self-Help Groups – commonly called SHGs – were built precisely to solve this problem. They are small, community-based groups where women pool savings, lend to each other, and collectively build the financial muscle that no single member could develop alone. Today, they represent far more than a savings club; they are a proven engine of women’s financial independence.
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What is a self-help group?
A self-help group is a community-based financial intermediary typically made up of 10 to 25 women from similar social and economic backgrounds who come together voluntarily to save regularly and access credit. Members are usually from the same village or neighborhood, which builds the trust and accountability that holds the group together. According to NABARD’s definition, an SHG is a small informal group of ten to twenty members who are homogenous in social and economic background, coming together to promote saving habits and raise resources for the benefit of all members.
The concept gained formal structure in India when NABARD launched the SHG-Bank Linkage Programme (SHG-BLP) in 1992, in collaboration with the Reserve Bank of India and commercial banks. What began as a pilot to connect around 500 groups to formal financial institutions has since grown into the world’s largest microfinance programme. As of March 2024, the savings-led microfinance model now covers 17.75 crore households across India, with 83.52% of the groups being exclusively women’s groups.
SHGs were first initiated in India by the NGO MYRADA in 1984-85, emerging around the same period that Muhammad Yunus’s Grameen Bank model was proving the power of group-based microcredit in Bangladesh. The Indian model, however, took its own path – prioritizing savings first, then credit, rather than leading with loans.
How SHGs function: the core activities
The daily operations of an SHG revolve around three interconnected activities: regular savings, internal lending, and collective decision-making. These are not separate programs – they are a cycle that reinforces itself over time.
Pooling savings
Every SHG begins with members making small, regular contributions to a shared fund. The amount is modest – often as little as ₹50 to ₹200 per month – but consistency is what matters. Over several months, these contributions accumulate into a meaningful group corpus. NABARD identifies five core principles for a quality SHG – regular group meetings, regular savings, internal lending based on member demand, timely loan repayment, and proper maintenance of accounts – known collectively as the “Panchsutras.” Groups that follow these principles build a strong track record, which eventually qualifies them for bank linkage and larger external loans.
Offering loans to members
Once a group has accumulated enough savings, it begins lending internally to its own members. These loans are offered at interest rates far lower than local moneylenders charge, and they require no collateral. A member might borrow to cover a medical emergency, pay school fees, or purchase raw materials for a small business. By February 2024, India’s SHGs had disbursed loans amounting to ₹1.7 lakh crore, and their bank repayment rate stood above 96%, according to the 2022-23 Economic Survey of India. That repayment rate is remarkable for any lending institution, and it reflects the power of peer accountability within the group structure.
As a group matures and demonstrates financial discipline, it becomes eligible to access credit from formal banks under the SHG-Bank Linkage Programme. RBI regulations mandate that banks offer financial services, including collateral-free loans, to these groups at low interest rates – a policy specifically designed to help poor women bypass the traditional barriers of institutional finance. This group-based guarantee system substitutes social trust for physical collateral, which is a fundamental shift from conventional banking logic.
Collective decision-making
Every SHG operates democratically. Decisions about who gets a loan, how much, at what terms, and for what purpose are made by the group as a whole during regular meetings. This structure is not just procedural – it is transformative. Many women who join an SHG have never had a formal role in financial decisions, either in their households or their communities. The UN Department of Economic and Social Affairs documents that SHGs use consensus-based decision-making, and disputes within groups are resolved through open discussion and amicable settlement. Rotating responsibilities – keeping accounts, chairing meetings, liaising with banks – means that leadership skills are distributed, not concentrated in one person.
Role in empowering women financially
The financial mechanics of an SHG are important, but what they produce – greater autonomy, resilience, and agency for women – is the real story. Research using panel data from 1,470 rural Indian women across five states found that SHG membership has a significant positive impact on women’s empowerment, driven by greater control over income and greater decision-making authority over credit. These are not abstract gains – they translate into concrete changes in daily life.
Building financial resilience
One of the most immediate benefits of SHG membership is access to emergency credit. Before joining a group, many women had only two options when a crisis hit – sell an asset or borrow from a local moneylender at punishing interest rates, often trapping families in a cycle of debt. An SHG internal loan, by contrast, is available quickly, at fair terms, from people who understand the member’s situation. The Bank Sakhi programme under the National Rural Livelihoods Mission trains SHG members to work as banking correspondents in rural districts, improving women’s exposure to financial services and driving digital transactions in rural India. This integration into formal financial infrastructure means members don’t just borrow in a crisis – they build savings buffers over time.
An impact evaluation of DAY-NRLM conducted across nine states in 2019 found that households covered by the programme saw a 19% increase in income and a 28% increase in household savings compared to baseline figures. These numbers represent families better positioned to handle illness, crop failures, or other shocks without sliding into poverty.
Funding small businesses and livelihoods
Beyond managing emergencies, SHG loans give women the capital to start or expand income-generating activities. Members have used group credit to set up small enterprises in tailoring, food processing, livestock rearing, handicrafts, and more. Research published in the Journal of Innovation and Entrepreneurship found that microfinance and entrepreneurial engagement through SHGs had a notably positive impact on women’s financial independence, participation in decision-making, social networks, and overall self-confidence.
Today, India has nine million SHGs with close to 100 million women as members – roughly 14 SHGs per village – making approximately every eighth Indian woman an SHG member. The government has further supported this through the Community Investment Fund, which provides SHGs with up to ₹50,000 per year to design local livelihood programs.
Expanding roles beyond finance
Originally designed as savings and credit groups, the role of SHGs has expanded to include creating health and nutrition awareness, improving governance, and addressing social issues related to gender- and caste-based discrimination. During the COVID-19 pandemic, SHG women across more than 90% of India’s districts produced face masks, ran community kitchens, delivered essential food supplies, and fought misinformation – demonstrating that these groups had become a trusted infrastructure for community response, not just personal finance.
That said, researchers are careful to note where SHGs have limits. Studies show that SHG membership has weaker impacts on deeply entrenched issues like domestic violence attitudes and asset ownership, suggesting that group-based financial programs may need to be combined with broader gender norm interventions to address the most stubborn forms of inequality. SHGs are a powerful tool – but not a standalone solution to gender inequality.
Why the SHG model works
The SHG-Bank Linkage Programme marked a fundamental shift from individual-based lending to group-based finance, using collective responsibility and social cohesion as substitutes for physical collateral. This is the core insight behind the model’s success: social trust among women who know and depend on each other creates accountability that no formal credit scoring system can replicate. Members are invested in each other’s success because a default by one member affects the group’s ability to borrow collectively.
SHGs’ primary purpose has been to economically empower women and communities through saving and lending activities and bank-linkage programs that access larger pools of capital. By starting with small savings and building toward formal banking access, the model meets women where they are – financially excluded and often lacking documentation – and creates a credible pathway into the formal economy. That pathway, walked by nearly 100 million women in India alone, is one of the most significant financial inclusion achievements of the past three decades.
What do you think? If women in a rural community had no access to formal banks, what would be the most critical first step an SHG could take to build financial security for its members? And as SHGs expand beyond savings and credit into areas like health and governance, do you think that expansion strengthens or dilutes their core financial purpose?
References
- https://en.wikipedia.org/wiki/Self-help_group_(finance)
- https://academic.oup.com/cdj/article/58/2/283/6374653
- https://www.nabard.org/content1.aspx?id=1758&catid=8&mid=8
- https://www.nabard.org/content.aspx?id=477
- https://www.cseindia.org/india-s-women-led-self-help-groups-are-emerging-as-the-world-s-biggest-microfinance-project-12094
- https://sdgs.un.org/partnerships/empowerment-women-through-self-help-groups
- https://pmc.ncbi.nlm.nih.gov/articles/PMC8350313/
- https://360info.org/self-help-groups-can-empower-women-financially/
- https://www.drishtiias.com/daily-updates/daily-news-analysis/qutcome-of-shg-bank-linkage-project
- https://innovation-entrepreneurship.springeropen.com/articles/10.1186/s13731-024-00419-y
- https://blog.lukmaanias.com/2022/08/10/topic-role-of-self-help-groups-in-women-empowerment/
- https://www.gktoday.in/shg-bank-linkage-programme/
- https://pmc.ncbi.nlm.nih.gov/articles/PMC8350316/
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