Self Help Groups
Banks are not present everywhere in rural India.
Even if they are present, getting loan from a bank is much more difficult than taking loan from informal sources.
Bank requires proper documents and collateral which makes it difficult for poor people to take loan from formal sector.
Moneylenders knows the borrowers personally and are willing to give a loan without collateral. But they charge very high rate of interest, keep no record of the transactions and harass poor borrowers.
Therefore, to reach to poor people in the rural areas ,there is a need to think of other ways.
Functions of the Self -Group
The idea is to organize rural poor, in particular women, into small help groups (SHG) and pool (collect) their savings.
Usually a self help group have 15-20 members who meet and save regularly.
Saving per member varies from Rs. 25 to Rs. 100 or more, depending on the ability of the people to save.
Members can take small loans from the group on which low rate of interest is charged.
They meet regularly and important decisions regrding the savings and loan activities are taken by the group.
The group decides as regards the loans to be granted- the purpose, amount, interest to be charged, repayment schedule etc.
After a year or two, if the group is regular in savings, it becomes eligible for availing loan from the bank. Loan sanctioned in the name of group.
Not only women become financially self-reliant, but because of self- group they can discuss and act on a variety of social issues.
Grammeen Bank of Bangladesh
Biggest success stories in reaching the poor to meet their credit needs.
Sarted in 1970s as a small project
Almost all the borrowers are women and belong to poor sections of the society.
Professor Muhammad Yunus is the founder and receipent of 2006 Nobel Prize for Peace.