The basic objective of the ‘Self Help Groups’ (SHG’s) is to organize the rural poor, in particular, women, into small groups so that they can pool in their savings. Usually belonging to one neighbourhood, these SHG’s consist of 15-20 members who meet and save regularly. The savings per member varies from Rs 25 to Rs 100 or more, depending upon the ability of the people to save.
1. Member of these SHG’s can take small loans from the group itself to meet their needs such as for releasing mortgaged land, for meeting working capital needs or for buying housing materials etc. Although the group charges interest on these loans, it is way less than the interest charged by the moneylenders present in villages.
2. Saving on a regular basis, after a year or two, the group also becomes eligible for availing loan from the bank. The loan is sanctioned in the name of the group and is meant to create self-employment opportunities for the members.
3. The SHG’s not only collect and save money regularly but also provide the members of the group, an opportunity to discuss regarding the amount of loan and the interest rate to be charged. It, therefore, provides a platform to seek financial independence to the rural poor and women.
4. The SHG’s help borrowers overcome the problem of lack of collateral while getting loans. Being the building blocks of organizing the rural poor, they also provide a platform to discuss and act on a variety of issues such as health, nutrition, domestic violence, etc.
NOTE – In rural areas, informal lending is a common practice. Moneylenders are the major forces of providing credit to the rural poor. However, the lending activities of these moneylenders are very exploitative in nature as there is no organization to regulate them and they charge very high levels of interest rates. The initiative of SHG’s is a positive sign which solves the major problem of credit in rural areas. In addition to this, it is also a platform that empowers people in making them financially independent.
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