The concept of self help groups

Self help groups are voluntary association of people formed to attain certain collective goals, both economic and social goals. Self help groups are normally formed of the poor coming from rural or semi-urban areas. Each group consists of 10 to 20 members of small and marginal farmers, landless agriculture laborers, rural artisans, women folk, and micro-entrepreneurs. A group could be exclusively male or female, or even mixed. However, majority self help groups are female groups.

Principle of self help groups

The basic principle of which a self help groups is formed is “micro-saving”. The members of the group voluntarily decide to fix a monthly rate per member for saving. This may range from Rs. 10 to Rs. 150. This money is collected by the treasurer and kept partially in a bank and partially among the group. The system is very flexible. The group aggregates the small individual saving and borrowing requirements of its members. The bank has to maintain only one account for the group as a single entry. The group can be thus treated as a single customer by the bank. The hassles of treating 20 micro-accounts of each member can be done away with. The group members meet once in a week or fortnight or month. They decide how to work on different accumulated saving and how to work on different socio-economic issues that confront them.

Helping each other

The funds from internal saving which gradually accumulated are rotated among members to meet their credit needs. Groups lend for consumption and production activities without collateral but normally emergent needs brought down when the fund position of the groups improves. Repayments period for joins are usually 2 to 3 months which can extend to 10-12 months when the group matures. The size of the loans increases as the group gain strength and experience. Because of peer presume and peer support, recovery rates are very high and no one dares to default. As Jones has observed, “Illiterate village women are sometimes better bankers than some with professional qualifications[1]. They know that rapid access to funds are most important than their cost. They also know that they may not be able to calculate the figures.

Self help groups and micro enterprises

Typical micro-enterprises earn well over 500% return on small sums invested in it. The groups thus charge themselves high rates of interest. They are happy to take advantage of the generous spread that the NABARD subsidized bank lending rate of 12 % allows them. They are also willing to from new generation institutions as basic finance at 18.5% or 21%” (Harper 1998). Each group has its own norms and operational guidelines for management of the group. The group has to maintain account books, cashbooks, general ledger, sub-ledger and minutes/ resolution books. When the group matures it may have a separate accountant. The cost of maintaining the books and keeping the accountant is borne from the group funds.

A member of self help groups, especially a woman can reap the following benefit by participating in the activities of a group.


  1. Jones, Susan R. 1999. “Self-Employment: Possibilities and problems.” In Hard Labor: Women and work in the post Welfare Era, edited by Joel F. Handle and Lucie White, 76-95. New York: M.E. Sharpe
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