The Collaborative Roles of SHGs and NGOs in Group Formation

When a group of women from similar economic backgrounds comes together, pools their savings, and begins making collective decisions about their futures, something powerful happens. But that moment rarely occurs in a vacuum. Behind most successful Self-Help Groups (SHGs) is a Non-Governmental Organization (NGO) that helped spark the process – mobilizing members, building trust, and laying the groundwork for what would eventually become a fully self-managing community unit. The relationship between SHGs and NGOs is not static; it evolves deliberately, moving from close guidance to gradual withdrawal. Understanding this arc is essential to understanding how community-level empowerment actually works.

What are SHGs and why do they need NGOs? 🔗

An SHG is typically a small, informal group of 10-25 individuals – most commonly women from similar socio-economic backgrounds – who voluntarily come together to save regularly, access credit, and work toward shared economic and social goals. They operate on the principles of mutual aid, self-reliance, and collective decision-making.

While the concept is relatively straightforward, the reality of forming and sustaining such a group is not. Members may be unfamiliar with financial management, group governance, or even the idea of collective ownership. This is precisely where NGOs enter the picture. NGOs and SHGs share a common mission of social and economic empowerment, but they operate at different scales and with different structures – NGOs typically work at a broader level and bring institutional resources, while SHGs function at the grassroots, representing the community from within.

The facilitator and participant roles in the early stages 🔗

In the formation phase, the roles of NGO and SHG are clearly distinct: the NGO is the facilitator, and SHG members are the participants. This division is not about hierarchy – it is about function. The NGO brings external knowledge, resources, and process expertise, while the SHG members bring their lived experiences, local trust networks, and the community capital that no outside organization can manufacture.

What NGOs do at the start 🔗

During the early stages, the NGO’s work is foundational. It begins with community outreach – organizing village meetings, conducting door-to-door visits, and explaining how collective saving and lending can address members’ individual challenges. Facilitators address common concerns and misconceptions, often using real examples from other communities to build credibility and trust.

Beyond awareness creation, NGOs perform three critical early functions. First, they help mobilize resources – connecting prospective members to seed funding, introductory loans, or linkage programs like India’s NABARD SHG-Bank Linkage Programme, which began in 1992 and helped savings groups become central to rural poverty alleviation efforts by 2000. Second, they provide capacity-building training in leadership, basic accounting, and group management. Third, they work to establish inter-member trust, which is the social glue holding any SHG together. Without this, even the most well-structured group can fracture under the weight of financial disputes or interpersonal conflict.

At this stage, the NGO is not just a trainer – it is a mentor and a resource broker. It introduces concepts like internal lending, meeting protocols, and record-keeping, while simultaneously ensuring that the group remains cohesive and stays focused on its collective purpose.

The participant role of SHG members 🔗

Early on, SHG members are active participants but not yet independent agents. They attend meetings organized by the NGO, learn the systems being introduced, and begin the practice of regular saving. Their agency is growing, but it is still developing. Decisions about financial management or conflict resolution often remain guided by the facilitating NGO.

This is not a failure of the SHG – it is simply the nature of the formation stage. Effective SHG formation relies on shared responsibility among members and governance by members, with external facilitation used only as necessary during formation. The goal from day one is self-governance; the NGO’s presence is a transitional scaffold, not a permanent structure.

From passive to active: the role shift as SHGs stabilize 🔗

As an SHG moves through its early months and begins to find its rhythm – regular savings deposits, functioning internal loan systems, consistent meeting attendance – something important shifts. Members who once relied on the NGO for direction start taking initiative. This transition from passive participant to active co-manager is one of the most significant milestones in an SHG’s development.

Signs of the transition 🔗

The transition shows up in several practical ways. Members begin driving meeting agendas rather than waiting for the facilitator to set them. Elected internal leaders – a president, secretary, and treasurer – start managing records, managing disputes, and representing the group externally. Collective decision-making deepens: rather than deferring to the NGO on lending decisions or group rules, members negotiate and reach consensus among themselves.

Democratic decision-making is a cornerstone of effective SHGs, but it requires careful facilitation in the early stages because many rural communities may not have extensive experience with formal group governance. As that experience builds, the NGO’s facilitative role gradually shifts from directing to observing, and from training to coaching.

Ownership and confidence as drivers of change 🔗

Beyond structural changes, there is a psychological dimension to this role shift. Participation in SHGs has been shown to increase confidence among members and support greater levels of decision-making status in their communities, particularly across South Asia. As members see concrete results – a loan repaid, a business started, a household crisis navigated through group support – their sense of ownership over the group deepens. This growing confidence is what makes the transition from passive to active sustainable. It is not just a procedural change; it is a change in how members see themselves in relation to the group and their community.

UNDP’s SHG model in Syria illustrates this well: members receive capacity development through training in group dynamics, conflict management, and financial governance in parallel with their savings activity, enabling them to develop their own management structures over time. The training is not separate from the group process – it is embedded within it.

Gradual NGO withdrawal: strategies for building SHG independence 🔗

The long-term goal of any responsible NGO-SHG partnership is to make itself unnecessary. Gradual withdrawal is not abandonment – it is a structured, phased process of transferring ownership, authority, and capacity from the external facilitator to the group itself. Done well, it leaves the SHG stronger. Done poorly, it can destabilize a group that was never fully prepared to stand alone.

Capacity building and skills transfer 🔗

The most important precondition for successful withdrawal is that SHG members have genuinely internalized the skills needed for self-management. This means training in financial literacy, conflict resolution, leadership, and basic entrepreneurship. Members undergo training in financial literacy, entrepreneurship, and skill development, empowering them to manage finances and run small businesses effectively. The NGO’s role here is to ensure that these skills are not just demonstrated but practiced – repeated enough times that they become second nature to the group’s own leadership.

Building a strong governance structure 🔗

A group with clear internal governance is far more resilient to the absence of an external facilitator. NGOs support the development of written bylaws, defined roles for elected members, and transparent processes for financial record-keeping and dispute resolution. SHG members who have shared responsibility and contribute their share of resources to the group are better positioned to sustain operations without outside direction. Governance structure is, in effect, the institutionalization of the group’s own accountability mechanisms.

Linking SHGs to external resources 🔗

One of the most practical strategies for NGO withdrawal is ensuring that the SHG has independent access to external support systems before the NGO steps back. This means facilitating connections to banks, government welfare schemes, microfinance institutions, and market networks. Linking social capital – the ties between SHG members and more powerful institutions like NGOs and government functionaries – is central to both effective group formation and to layering additional interventions as the group matures. An SHG that can independently navigate a bank loan application or access a state subsidy scheme is genuinely self-reliant in a way that internal capacity alone cannot guarantee.

Phased reduction of NGO involvement 🔗

Withdrawal does not happen overnight. A responsible exit strategy involves a deliberate phasing-out of the NGO’s direct involvement. The NGO moves from hands-on facilitation to periodic oversight, then from oversight to an on-call advisory role, and finally to a position of minimal contact – available if needed but no longer present in day-to-day operations. At each stage, the SHG takes on more of what the NGO was previously providing. This phased approach gives the group time to adapt, test its own capacities, and identify any gaps before the safety net is fully removed.

Federation building as a sustainability mechanism 🔗

One of the most powerful tools for ensuring SHG sustainability beyond NGO withdrawal is the formation of federations – larger structures that bring multiple SHGs together. CBR programmes can facilitate the formation of a self-help group federation by bringing together elected representatives from each self-help group, allowing groups to collectively advocate, access larger resources, and support one another. Federations reduce the dependency of any single SHG on external support by creating a peer-support and resource-sharing structure that outlasts any individual NGO partnership.

The long-term impact of this collaborative model 🔗

When the NGO-SHG partnership works as intended, the results extend well beyond financial inclusion. SHGs are recognized as instruments for empowering women, developing leadership abilities among the poor, increasing school enrollment, and improving nutrition and use of reproductive health services. The financial entry point – saving and lending – becomes a doorway to broader participation in social and political life. Members who start by managing a group fund often go on to challenge domestic violence, negotiate with local government, and lead community health initiatives.

The scale of this impact in India alone reflects how transformative the model can be. More than 100 million women have been mobilized into approximately 9.1 million SHGs under the DAY-NRLM program, with bank loans to these groups exceeding ₹7.68 trillion since 2013-14. This is not incidental to the NGO-SHG model – it is a direct consequence of it. NGOs created the conditions for SHGs to form, mature, and eventually operate independently at scale.

The key insight is that the NGO’s value is not in its ongoing presence but in the quality of its exit. An NGO that builds genuine capacity, transfers real governance authority, connects the group to external systems, and withdraws at the right pace leaves behind an SHG that does not need it anymore. That, ultimately, is the measure of success.

What do you think? If an NGO withdraws too early before an SHG has fully developed its governance structures, what risks does the group face – and who bears the responsibility for those risks? And as SHGs grow in confidence and scale, should they be encouraged to mentor newly forming groups in their communities, effectively replacing the NGO’s original facilitation role?

References

1. https://en.wikipedia.org/wiki/Self-help_group_(finance)
2. https://vajiramandravi.com/current-affairs/self-help-groups/
3. https://cleartax.in/s/shg-vs-ngo
4. https://agriculture.institute/institutional-support/steps-to-forming-self-help-groups/
5. https://pmc.ncbi.nlm.nih.gov/articles/PMC7269175/
6. https://www.ncbi.nlm.nih.gov/books/NBK310972/
7. https://www.publicsphereproject.org/content/self-help-groups
8. https://www.undp.org/syria/stories/self-help-groups-model-promoting-self-reliance
9. https://pmc.ncbi.nlm.nih.gov/articles/PMC8350316/
10. https://ruralduniya.com/shg/