Self-Help Groups | PAPER II – PRINCIPLES & PRACTICES OF BANKING | MODULE B: FUNCTIONS OF BANKS

Self-Help Groups (SHGs)

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Definition

A Self-Help Group (SHG) is a small, voluntary association of people—typically from the same socio-economic background—who come together to save small amounts regularly, contribute to a common fund, and use the fund to meet emergency needs through mutual help and internal lending.

Need for SHGs

• To promote financial inclusion and reduce dependence on informal money lenders.
• To empower marginalized communities, especially women, through collective decision-making.
• To promote savings and build creditworthiness.
• To enhance access to formal banking systems and livelihood support.

Forming SHGs

1. SHGs usually consist of 10-20 members from similar social and economic backgrounds.
2. Members save a fixed amount monthly.
3. The group selects a leader and maintains records of savings, loans, and meetings.
4. After 6 months of regular activity, the SHG becomes eligible for bank linkage.

SHGs under Government Schemes

1. Deendayal Antyodaya Yojana – National Rural Livelihoods Mission (DAY-NRLM)

DAY-NRLM is a flagship program of the Ministry of Rural Development aiming to eliminate rural poverty by promoting self-employment and skill development. It supports the formation of SHGs, their capacity building, and financial assistance through Revolving Funds (RF) and Community Investment Funds (CIF).

2. Deendayal Antyodaya Yojana – National Urban Livelihoods Mission (DAY-NULM)

This program is focused on urban poor households. It facilitates formation of SHGs and their federations, providing financial support, interest subvention, and skill development to enhance employment opportunities.

SHG-Bank Linkage Programme (SBLP)

Initiated by NABARD in 1992, the SHG-Bank Linkage Programme is a major microfinance strategy to link SHGs with formal banking institutions. It enables banks to lend to SHGs after a period of successful internal lending and saving activity.

Models of SHG-Bank Linkage

1. Model I: SHGs formed and directly financed by banks.
2. Model II: SHGs formed by NGOs/others and financed by banks.
3. Model III: SHGs financed by banks using NGOs as financial intermediaries.

Example

A rural SHG named “Shakti” has 12 women members who each contribute ₹100 per month. In 6 months, they accumulate:

Savings = 12 members × ₹100 × 6 months = ₹7,200

They use ₹5,000 to give internal loans with 2% monthly interest. After 2 months, they earn:

Interest Income = ₹5,000 × 2% × 2 months = ₹200

The group demonstrates financial discipline and becomes eligible for a ₹50,000 bank loan under SHG-Bank Linkage.

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Multiple Choice Questions (MCQs)

1. What is the typical size of a Self-Help Group?
   a) 2–5 members
   b) 10–20 members
   c) 20–50 members
   d) More than 50 members
   Answer: b) 10–20 members
2. Which organization initiated the SHG-Bank Linkage Programme?
   a) RBI
   b) NABARD
   c) SIDBI
   d) Ministry of Finance
   Answer: b) NABARD
3. Which scheme targets urban poor for SHG formation?
   a) PMAY
   b) DAY-NRLM
   c) DAY-NULM
   d) MGNREGA
   Answer: c) DAY-NULM
4. What is the purpose of a Revolving Fund (RF) in SHGs?
   a) Infrastructure development
   b) Internal lending support
   c) Paying taxes
   d) Marketing support
   Answer: b) Internal lending support
5. How long must an SHG typically operate before being linked to a bank?
   a) 1 month
   b) 3 months
   c) 6 months
   d) 1 year
   Answer: c) 6 months
6. What is a common monthly saving amount in SHGs?
   a) ₹10
   b) ₹50–₹100
   c) ₹500
   d) ₹1,000
   Answer: b) ₹50–₹100
7. In which SHG-Bank linkage model does the bank finance SHGs directly?
   a) Model I
   b) Model II
   c) Model III
   d) Model IV
   Answer: a) Model I
8. Which fund is provided to mature SHGs for livelihood activities?
   a) Startup Fund
   b) Community Investment Fund (CIF)
   c) Development Fund
   d) Emergency Fund
   Answer: b) Community Investment Fund (CIF)
9. SHGs are mainly associated with which objective?
   a) Tax planning
   b) Infrastructure creation
   c) Empowerment and microfinance
   d) Export promotion
   Answer: c) Empowerment and microfinance
10. Interest subvention under DAY-NULM is available to:
    a) All businesses
    b) Only large corporations
    c) SHGs linked with banks
    d) NGOs
    Answer: c) SHGs linked with banks