The self-help group (SHG) movement in India gained momentum in the early 1990s, and today, India boasts of some 12 million SHGs, of which 88 per cent are all-women-member ones. Over the years, the SHGs have played a vital role in rural development and women’s empowerment in the following ways:

• Rural development:
  • They have helped to create a culture of saving and financial discipline in rural areas, and have provided a source of credit to individuals who would otherwise have no access to it.
  • SHGs have been instrumental in promoting entrepreneurship in rural areas, with members using the loans they receive to start small businesses.
  • SHGs have helped create livelihood opportunities in rural areas, which has further attracted the involvement of many financial players in rural development.
• Women empowerment:
  • By providing women with access to credit and financial resources, SHGs have helped to break down traditional gender roles and empower women to become active participants in the economy.
  • Women who join SHGs often report an increased sense of self-esteem and confidence and are better able to assert their rights.
  • SHGs have provided self-employment opportunities to those women who earlier were largely unemployed, working for daily wages, farmers, or homemakers.
  • SHGs bring women into the mainstream of the decision-making process and contribute towards engendering equality in the democratic, social, economic, and cultural spheres of life.

However, the development of SHGs has not been uniform across the geographical regions of India and the rising proportion of non-performing assets (NPAs) of the SHGs is a matter of serious concern:

• Regional disparities: Since its inception, the SHG programme has enjoyed significant success in the Southern and Eastern regions, while other regions have lagged behind in this regard.
• Access to credit: Credit provided to SHGs in the Southern and Eastern regions together comprised about 94% of the total loans disbursed to SHGs.
• Uneven expansion: More than 40% of all operational SHGs are in Southern India alone, showing severe regional disparities in the expansion of the programme.
• Low savings and capacity creation: Savings by SHGs is the highest in the Southern region while lowest in the North-Eastern. Also, low savings reduces security for banks against credit and lowers their confidence to issue bigger loans.
• Mismatch in poverty reduction and loan growth: The primary objective of the SHG movement was to eradicate rural poverty. But, despite having almost similar poverty levels, loan disbursement increased in the Eastern region whereas it declined in the North- Eastern region.
• Rise in the NPAs of SHGs: With the swift expansion of the SHG programme, there has been a rapid increase in loan defaults, transforming several SHG loans into Non-Performing Assets (NPAs). Between 2011-12 and 2018-19, the NPAs in banks from SHG loans registered a growth of 104%. In states like Haryana, UP and Tripura, almost half of the total loan amount was converted to NPAs.
  • The rise in NPAs from SHG loans is due to poor formation of groups without adequate understanding of local conditions, loans used for consumption, frequent write-offs and interest subventions on bank loans deteriorate the financial discipline of SHG members, etc.

To make the SHGs truly effective and for them to play a role in rural transformation, there is a need to build systemic processes before pumping financial resources, such as, paying attention to internal dynamics during group formation, conducting state-level studies, developing and sharing credit information, incentivizing timely repayments, and monitoring loan defaults on a case-to-case basis while protecting the self-reliance of SHG members.