Self-Help Groups as Financial Intermediaries in India: Cost of Promotion, Sustainability and Impact

This paper analyzes the role and development of self-help groups (SHGs) in financial intermediation, in rural India. It seeks to achieve an understanding of best practice in the SHG development in India, in order to help direct donor funds for microfinance.

The study is based on literature review on SHGs and the experiences of leading non-governmental organizations (NGO) and microfinance institutions (MFIs) involved in SHG-formation and promotion.

The study addresses three main issues of efficiency, effectiveness and sustainability in the context of SHG promotion and provides insights into:

• The development of SHGs in India;
• NGO strategies and structures for financial intermediation in SHG development;
• Costs of SHG promotion;
• Sustainability of SHGs and SHG-based institutions;
• Impact of SHG-based microfinance programs.

Finally, the study recommends the following for donor support towards SHG development:

• Development of standards for SHGs;
• Support for microfinance and promotion of SHGs in poverty belt states;
• Development of loan products for MFIs working in undeveloped states;
• Funding for state-level support institutions and resource NGOs for SHG development;
• Research on SHG/ SHG Federation sustainability;
• Continuation of grant support for SHG promotion.