Banking With The Poor : Self Help Group Approach in India

This paper explores the potential of the Self Help Group (SHG) "Bank Linkage Program" to provide financial services to the "un-reached poor" of India. It discusses:

• SHG financing as an alternative choice for alleviating rural poverty in India;
• The achievements of this program so far.

The paper lists the constraints faced by the SHG program in its implementation:

• Institutional constraints:
  • Lack of an institutional mission;
  • Requirement of an organizational structure;
  • Need of adequate, trained staff;
  • Inability of banks to meet costs;
  • Failure in the mechanism to direct, monitor and lead the groups towards a common goal;
  • Insistence on collateral by banks;
  • Negligence of the special requirements of small farmers.
• Non-institutional issues:
  • Non-conformance to SHG rating norms;
  • Need to discourage the large numbers of "caste-based" homogenous groups;
  • Lack of peer pressure in majority of the groups;
  • Illiteracy of group members leading to incomplete updating of group activities;
  • Lack of counseling and training sessions for various financial activities in most groups.

The author concludes by stating that once the constraints are removed, the SHG approach could prove to be a realistic approach for the poor to borrow money at market rates, instead of borrowing money from the informal market at high interest rates.