Shreyas Ernest Isaac
Research Intern, Jindal Centre for the Global South,
O.P Jindal Global University, India.
Financial inclusion is an important variable for any country to develop their economies, the World Bank found that in 2017, around 1.3 billion people did not have access to a formal financial institution or a mobile money provider, out of this 56 percent of all unbanked adults were women (World Bank Group, 2017). In this article, I argue that Self Help Groups are a powerful tool that countries in the Global South can employ, in order to not just reduce financial poverty and financial exclusion, but to also promote sustainable development, inclusive growth and gender justice. SHG’s are powerful symbols of a resilient and courageous Global South and they need to not just be supported but also celebrated.
Travel across rural India and a common sight in many villages would be groups of women, normally sitting cross legged on the ground, either under a large tree to protect themselves from the blistering summer sun in India or in an empty school classroom, discussing matters of finance, household management, entrepreneurship and even family issues. These groups of women normally have a leader and meet once or twice a week. What may look like an ordinary assembly of women, is actually a powerful tool of inclusive development, which has worked wonders in rural India. These groups of women are called ‘Self Help Groups’ and are strictly women only groups, operating across rural India. The basic principle on which these groups run is that all women contribute a sum of money to the common pool of the group, this money is then lent to group members, who would then use this money to set up and run micro businesses, normally operating out of their own homes. Money could also be lent to group members in times of personal emergencies. The size of the SHG could vary, but are usually between ten to twenty-five members with one or two facilitators. Women of the SHG would normally come from similar social and economic backgrounds. The decision making within the SHG is democratic and all members are allowed to express their views freely. The Reserve Bank of India through the National Bank for Agriculture and Rural Development, has also come up with the SHG-Bank Linkage Scheme, under which SHG’s are allowed to open bank accounts in formal financial institutions, which makes access to credit easier for group members, this step has made access to formal financial institutions much easier for a large number of rural women, coming from low-income communities. Today around 67 million Indian women are part of the movement, with around 6 million SHG’s across India (The World Bank Group 2020).
Why are SHG’s so important?
SHS’s perform two key functions in transforming the lives of rural women, firstly, they are important in the economic sense, as they provide rural women with a quick and easy way to access to credit, this credit, even if not substantial, can spur micro entrepreneurship and can make women financially independent. Access to credit and to financial services through formal financial institutions like banks are tricky and sometimes even out of reach for rural poor, for a wide range of reasons, including the lack of collateral, lack of documentation etc. Loaning to group members is done based on trust rather than on risk analysis. It is without doubt that those working in the informal sectors of the rural economy pose a higher lending risk for formal financial institutions. It is in this context that the role of the SHG becomes very important. Any form of entrepreneurship, even cottage industries and micro industries, require capital, SHG’s therefore become a source of easy capital for rural women- they do not need to show documents, they do not need collateral and they do not need to worry about high interest rates. This decentralized form of making credit more accessible, goes a long way in spurring economic growth and capital formation in rural areas. In a study published in 2013, it was found that there is positive relationship between SHG membership and the amount of bank accounts that were opened by women members (H.R & K.N, 2013). Another study found that SHG membership and the duration of SHG membership leads to greater financial inclusion (Adhikary & Bagli, 2010). There is also clear evidence that on an average, there is an increase in the empowerment of women who belong to SHG’s (Swain & Wallentin, 2009).
The second important role that SHG’s play in the lives of women, is that they give women a community to open up about the issues they face in their lives, they provide women a platform to raise issues like domestic violence, sanitation, health, nutrition and other personal concerns. SHG’s create a sense of solidarity and oneness among the members of the group, which then ensures that open conversations about sensitive issues are held. The SHG is much of a social organization as it is an economic organization and it plays as much of a social role as it plays an economic role in the lives of rural women. SHG’s, can also be useful for local governments when it comes to the last mile delivery of welfare schemes. During the initial days of the COVID-19 Pandemic, SHG’s played an important role across India, by producing face masks, running community kitchens and sensitizing people about COVID-19 (The World Bank Group 2020).
India’s experience with SHG’s provides countries of the Global South with a powerful policy initiative to combat poverty and to boost economic development. When policy makers take a more decentralized and bottom to top approach to economic growth and development, the very foundations of a country become stronger. If countries have to effectively tackle and overcome 21st century issues, we will have to look beyond conventional frameworks of development and economic growth. A more diverse, democratic and inclusive approach is the need of the hour. Countries in the Global South, who face similar social and economic problems like India, have the opportunity here to transform the lives of millions of people living in rural areas, all this would require is for the governments to work in tangent with NGO’s and financial institutions, in order to mobilize women and rural poor. The SHG movement India is also an excellent example of how governments can work hand in hand with non-governmental organizations and financial institutions in order to provide optimum support for citizens. Removing financial exclusion will be a key requirement if we have to achieve developmental goals, SHG’s offer us an effective framework to overcome this obstacle.
Adhikary, D., & Bagli, S. (2022). Impact of SHGs on Financial Inclusion – A Case Study in the District of Bankura. Journal Of Management and Information Technology, 2(1), 16-33.
H.R, U., & K.N, R. (2013). The Role of SHGS in Financial Inclusion. A Case Study. International Journal of Scientific and Research Publications, 3(6).
In India, Women’s Self-Help Groups combat the COVID-19 (Coronavirus) pandemic. (2020). Retrieved 22 April 2022, from https://www.worldbank.org/en/news/feature/2020/04/11/women-self-help-groups-combat-covid19-coronavirus-pandemic-india
Swain, R., & Wallentin, F. (2009). Does microfinance empower women? Evidence from self‐help groups in India. International Review of Applied Economics, 23(5), 541-556. doi: 10.1080/02692170903007540
World Bank Group. (2017). The Global Findex Database. World Bank Group.
The opinions expressed in this article are those of the author (s). They do not purport to reflect the opinions or views of the Jindal Centre for the Global South or its members.