Justify the role of Self Help Groups in the rural economy

Justify the role of Self Help Groups in the rural economy.

Answer

1. SHGs help the rural poor, in particular women.
2. A typical SHG has 15-20 members, usually belonging to one neighbourhood, 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 itself to meet their needs.
3. The group charges interest on these loans but this is still less than what the moneylender charges. After a year or two, if the group is regular in savings, it becomes eligible for availing loan from the bank.
4. Loan is sanctioned in the name of the group and is meant to create self employment opportunities for the members.
5. For instance, small loans are provided to the members for releasing mortgaged land, for meeting working capital needs (e.g. buying seeds, fertilizers, raw materials like bamboo and cloth), for housing materials, for acquiring assets like sewing machine, handlooms, cattle, etc.
6. Most of the important decisions regarding the savings and loan activities are taken by the group members. The group decides as regards the loans to be granted – the purpose, amount, interest to be charged, repayment schedule, etc.
7. Rural household face a problem of getting loan from the formal sector due to the lack of collateral.
8. Self Help Group helps the poor household in getting loans easily and prevents them from falling under the clutches of moneylenders.