DRAFT MANUSCRIPT
[May 15/272009]
Self-Help
Groups
-A Handbook
Daman Prakash
GC Shrotriya
IFFCO FOUNDATION
NEW DELHI
CONTENTS
Foreword…………………03
01Introduction…………………05
02Self-Help Group Movement in India…………11
03Formation of Self-Help Groups……………19
04Financial Management of Self-Help Groups………25
05Self-Help Group Meetings……………33
06Performance Assessment of Self-Help Groups………38
07Self-Help Groups and SHG Associations/Federations……41
08CapacityBuilding in Self-Help Groups…………45
09Self-Help Groups as Sub-System of Cooperatives……51
10IFFCO Foundation and Self-Help Groups………53
IFFCO FOUNDATION
IFFCO HOUSE, 34 Nehru Place
New Delhi 110019
May 15/27 2009
IFFCO FOUNDATION
FOREWORD
BESIDES the cooperatives and other forms of organisations, there is yet another form of enterprise which is organised voluntarily by the members themselves to meet a variety of their needs. The Self-Help Groups [SHGs] are such organisations which are formed, nourished and managed by the members themselves.
The SHGs, people’s voluntary and informal institutions, are organised as viable alternative to achieve the objectives of rural development and to get community participation in rural development programmes. These are similar to traditional group activities in all communities. It is a new form of a movement which aims at reducing the incidence of poverty through the provision of easy credit. In case of self-movement, thrift and credit are the entry points of activity. Micro-finance or provision of financial services to low-income households, have come to be accepted in policy implementation as the most efficacious intervention to alleviate poverty, enhancing agricultural production and developing local leadership.
A Self-Help Group is an informal organisation of not less than 10 and not more than 20 people from the poorer section of the village society, organised, owned, operated and controlled by the members in a democratic manner, based on solidarity, reciprocity, common interest and resource pooling. Self-Help Group is a social design in which people participate by making themselves socially and economically accountable to each other. All SHGs are not necessarily linked to lead/focal bank because they do not need external credit except the support from their sponsoring organisations.
SHGs have been promoted under various programmes and by various development agencies. It has been found that SHGs can serve the needs of the small farmers better than the cooperatives. It is believed that Self-Help Groups are a sub-system of cooperatives.
This grouping is a method of organizing the poor people and the marginalised to come together to solve their individual problems. The SHG is recognised by the government and does not require any formal registration. The purpose of the SHG is to build the functional capacity of its members in the field of employment and income-generation activities.
In view of the weak financial situation, lack of business diversification of cooperatives members often face problems in obtaining farm-related services as well as in credit supply. SHGs have been considered as an additional support mechanism to assist the farmer-members. It is in this context that the Foundation has promoted a number of Self-Help Groups in selected districts of five states. At present there are 1,739 SHGs with a total membership of 23,503, 70% of them are women.
The Foundation has also enabled the groups to form their own associations/federations and get themselves registered under the Societies Registration Act-1862 to secure a legal entity due to which they can transact business with cooperative societies and with private traders. So far 30 SHG Associations have been formed which are duly registered and linked with nodal/lead banks in their respective areas. The SHG Associations conduct business on behalf of their affiliate-groups on the basis of a good bargaining power.
To facilitate the formation and management of Self-Help Groups and to motivate members to join the groups over 20SHG motivators [most of them are women] were recruited, trained and inducted. They provided on-the-spot guidance to the groups and their members and facilitate the process of relationship with the link/lead banks. They are also expected to support the groups in holding their meetings and upkeep of relevant books and other documents.
Since the task of organisation and management of the groups and retention of members’ interest in their groups is of complex nature, it is important and relevant that the motivators are kept informed and refreshed on the latest market situations and latest policies on SHGs. The Foundation has embarked upon an intensive education and capacity building programme for them so that their relationship with their associations remains cordial and effective.
The present manual has been designed to support the promotion and organisation of Self-Help Groups and their associations. The main objective of this training material is to enhance and refresh the knowledge of field level staff, leaders of groups so that members and groups are aware of their rights and duties and the methods and techniques of operating their organisations to meet the business and financial needs of the members – men and women, by holding short-term extension education programmes from time to time.
The training material has been prepared by our two consultants, Dr Daman Prakash and Dr GC Shrotriya who have rich, varied and wide field experience of working in the field of rural institutional development. This material has been developed with a view to provide basic and working knowledge about SHGs, the role and duties of various functionaries involved, and to enhance the competence of SHGs so that they become viable instruments to improve the social and economic conditions of rural people. I feel confident that the material would be found of some interest and use. We will appreciate very much any comments and suggestions which could contribute to the effectiveness of this material.
JNL Srivastava, IAS [Retd]
Managing Trustee
IFFCO Foundation
Chapter-01
INTRODUCTION
Setting up of an Institution
It is pertinent to take into account the forms, organisation, functions, management and characteristics of an organisation!
There are various types of institutions/organisations e.g., some as big as Indian Farmers Fertiliser Cooperative Limited [IFFCO], world’s largest chemical fertiliser producing and distributing business house with nearly 60 million individual farmers belonging to over 45,000 member-cooperatives in its fold, and others like national or state federations, consortium, forum, trusts, groups, societies, cooperative societies [PACS], Self-Help Groups, SHG Associations, Horticulture Associations, Farmers’ Groups or Clubs. A farmer is also an institution by himself.
The institutions are born out of necessity to serve some cause – economic, social, cultural, political or military. There are people[stakeholders] and organisations behind creating institutions and they have some objectives.
People create their own institution. An institution should have some recognition. It can be an informal group or an institutional group. There are institutions which need to be registered with some official agency to attain a legal entity so that they are able to undertake business operations with others.
Building of an institution is an important and complex task. There has to be an overallInstitutional framework; Organisational structure; Design; Statement of objectives, Methods of management, Implementation; Monitoring or Evaluation. Institutions, to serve the needs of their members, need to be democratic in which decisions could be made democratically and ways of implementation be developed by themselves. In some cases there are institutions which are created only for a specific purpose and for a limited duration either by the members themselves or under the direction or guidance of an organisation which may be governmental or non-governmental.
To be effective and purposeful an institutions must state its main aim, objectives and possible activities through which the objectives are intended to be achieved. Institutions which are created under controlled or directed conditions generally work to achieve the objectives of their sponsoring institutions.
To operate the institutions there is a need for a management system. The management consists of elected leaders, nominated functionaries and appointed officials. Members who have purchased shares or remitted fee and admitted as formal members are the stakeholders. They are assigned specific tasks and they are expected to take proper decisions which are beneficial to the organisation and its stakeholders. While the members, as a general body, elect a Board of Directors, the employees are supposed to implement the decisions made by the Board in accordance with the policies laid down by the General Body. The management has, therefore, to be professional for which the organisation makes arrangements for their training and career development.
Management functions in an organisation are of paramount significance. The management, therefore, develops various means and methods to achieve the overall objectives. These methods include: Commands and controls, Inputs [Men, Machines, Money]; Capacity building [of leaders, employees and members]; Outputs [wealth, accomplishments]; Collaboration and cooperation; Participation of stakeholders and beneficiaries; Evaluation, Improvements and Modifications.
For the enrichment of an institution, continuous appraisals, monitoring, reassessing the relevance of the institution are equally necessary.
Type of Organisations
There are various forms of organisations e.g., social, economic, religious, traders, farmers’ etc. Some of them are formal and some others are informal. Government or NGOs creates some while the others are organised by the people themselves without any external support to meet their own needs.
[a]Cooperative Institutions: These are voluntary in character but still operate under the legal framework established by the government. The Registrar of Cooperative Societies regulates cooperatives. There are a number of external components which require the cooperative to comply with several regulations. There is a lot of paper work and several returns have to be filed in time with the Registrar. There is a regular audit, sequencing of meetings, contacts with the bank which keep the cooperative always engaged in sorting out procedural matters. There are, however, several merits in organising a cooperative and dealing with it. Such institutions are run in accordance with the universally-accepted Principles of Cooperation. Farmers can get into the membership of an agricultural cooperative by making an application with a small admission fee and by purchasing some shares of the cooperative.
[b]Agricultural Cooperatives - Farmers’ Organisations:The largest number of cooperatives in the world is related to agriculture. Agricultural cooperatives, to be real and effective enterprises must ensure that they are run on sound business principles and in conformity with the Cooperative Principles and business ethics and social norms. They must ensure proper linkages for marketing and supplies and that they collaborate and cooperate with similar cooperatives and other business enterprises. They must satisfy the needs of their members by maintaining quality and quantity standards. They can raise funds for their own business as well as for their members from the central cooperative banks. Agricultural cooperatives provide a broad range of services to the members e.g., input supply, credit, marketing and farm extension.
Cooperatives are not social or charitable institutions. They are economic enterprises. It is the basic principle of a cooperative – more it is used by its members stronger it becomes to serve the members.
[c]Other Organisations:4-H Clubs, Young Farmers’ Clubs, Reading Room Clubs, Sports Clubs, Savings groups, Workers’ groups, Women’s groups, Water Users’ Groups are some others which need not be registered but are sponsored, organised and managed by the members themselves according to the norms established by themselves. All these informal groups are organised to meet some specific objectives.
[d]Self-Help Groups: There is yet another form of organisation which is organised voluntarily by the members themselves to meet a variety of their needs. The major requirement of the people at the basic level is of credit. The Self-Help Groups [SHGs] are such organisations which are formed and managed by the members themselves.
Credit is one of the accelerators for any development programme and is particularly true for rural development, which aims at increasing agricultural productivity or livelihood opportunities as well as improving standard of living of rural people. For this reason, the availability of credit to the rural masses has remained to be the single and most important component of rural development.
Despite vast expansion of the formal credit system encompassing spheres of social and mass banking, the dependency of the rural poor on moneylenders still continues in many areas, especially for meeting their emergent needs. Under the circumstances, a non-formal agency for credit supply to the poor, in the form of Self-Help Groups, emerged as a promising partner to the formal credit system. SHGs are part of micro-credit system.
SHGs are unique institutions both socially and economically. On the economic front these groups are providing support to their members. The people obtain loan only in distress situations. Financial assistance is available only for productive and income-generating activities.
Several NGOs have organized SHGs of men and women in rural areas. The basic thinking behind the creation of these SHGs has been to emancipate rural populace from the vicious exploitation of private moneylenders and landlords. These SHGs can play an important role in attaining the objective of economic development through community participation.
The Concept of Self-Help Groups
The SHGs of 10-20 persons from the economically homogeneous strata aim to:
[a] Regularly save the amount from out of their earnings;
[b] Collectively agree to contribute to a common fund;
[c] Meeting their emergency needs;
[d] Taking democratic decisions;
[e] Resolving conflicts through discussions in open forum; and
[f] Providing surety-free loans at market driven rates to members.
The multi-dimensional success that SHGs have met in Bangladesh has prompted social workers and financial institutions in a country like India to make some serious attempts in the development of SHGs in this country. It goes to the credit of some SHGs that they have done appreciable work in the direction of disentangling village folk from the financial subjugation and exploitation by moneylenders.
The real aim of creating SHGs is to empower persons and their families in such a way that they may find themselves capable of playing an important role in the socio-economic development of the community.
It is not proper or adequate to limit the role of SHGs only as alternate agencies for providing institutional finance. Any attempt to limit the role of SHGs to grant and disbursement of loans is likely to end up in increasing the economic dependence of its members on loans.
The aim, in fact, should be to prompt these groups to play an important role in enhancing the capacity of self-reliance of their members by increasing their participation in decision-making and raising the confidence of people marginalized in the course of time.
SHGs as Micro-Finance Institutions
The idea of micro-finance is based on the philosophy of organising poorest of the poor into Self-Help Groups and makes them realise the very basic theory of survival. Prof Muhammad Yunus of Bangladesh initiated it and the success achieved by Grameen Bank in Bangladesh gave a new impetus to micro-credit for socio-economic empowerment of rural poor in the developing countries. The concept of micro-credit has been praised worldwide.In 1997 a Micro-Credit Summit was organised at which a decision was taken to extend credit for self-employment activities to 100 million of world’s poorest families by the year 2005.
The poor do not find the institutional credit delivery system to be sensitive enough to their subsistence credit needs and hence depends on moneylenders either out of compulsion or choice. This dependence on credit was more pronounced in case of landless labourers, marginal farmers, petty traders and rural artisans belonging to the socially and economically background classes in general and the tribal population in the resource poor areas in particular.
The concept of micro-financing the self-employment activity in rural areas has developed considerably over the last twenty years. Strategically micro-finance relies on rotational investment done to motivate poor to empower themselves and to save for the future and use those resources during the time of need.
Theoretically, micro-finance or micro-credit or micro-lending means provision of smaller working capital loans to the self-employed or self-employment seeking poor. Such loans may be provided even for the activities like cotton and wool to weave raw material for handicrafts, milch cattle and the like. It is viewed that provision of micro- finance may be seen more as logical extension of the managerial and programmatic approach to poverty reduction. But with regard to financial perspective credit is an effective tool the level of that helps the poor to tackle the problem of deprivation, improve their welfare and social acceptance and credibility.
Thus micro-finance institutions are those which provide thrift, credit and other financial services and products of very small amounts mainly to the poor in rural, semi-urban and urban areas for enabling them to raise their income level and improve living standards. Even though it includes the initiatives made by both informal and formal sectors, there is increasing tendency to use the term micro-finance only by the formal institutions.