SHGs & microfinance

Self-Help Groups (SHGs), usually at the behest of certain developmental non-government organizations (NGOs), have quietly mushroomed in most districts of India over the last few years. Millions of poor, predominantly women, are now members of thousands of SHGs.
Home to the largest population of poor in the world, India has been a natural candidate for experimenting with microfinance as a tool for poverty alleviation. With a nationalized formal banking sector that has emphasized rural and developmental banking for several decades now, India’s involvement with small credit targeted primarily at the rural poor is hardly new. However, recent years have generated unprecedented interest in microcredit and microfinance in the form of group-lending without collateral; thanks in part to the remarkable success of institutions like the Grameen Bank in neighboring Bangladesh and BRI, BancoSol and others in more distant lands. The performance of organizations like SEWA in Western India and SHARE and BASIX in Southern India have convinced many a sceptic that microfinance can indeed make a difference in India as well. Over the past decade, NABARD’s “SHG-Bank Linkage Program” aimed at connecting self-help groups of poor people with banks, has, in fact, created the largest microfinance network in the world. The self-help group approach has won enthusiastic supporters among influential policymakers like the Andhra Pradesh CM, Chandrababu Naidu. Even the central government has recognized the advantages of group lending and has adopted the approach in its battle against poverty.

Microcredit, in the sense of small loans to the poor, is of ancient origins in India. Traders and moneylenders have traditionally provided credit to the rural poor, usually at exorbitant rates of interest leading to considerable hardship and impoverishment of borrowers, including undesirable and illegal practices like bonded labor. What we refer to as microfinance today does not include such exploitative practices, but rather lending to the poor at reasonable but sustainable rates.

Within India the microfinance movement in Western and Southern India have received most attention, both in the media as well as in academic research