Shg Formation

Promoting Group Stabilization: A Technical Note on SHG-formation: D. C. Pathak A very preliminary draft

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Promoting Group Stabilization: A Technical Note on SHGformation : D. C. Pathak1

SHG-movement is in full-swing in India. SHG is a group of people coming together to uplift their economic condition. SHG-formation is an exercise, which demands motivational skills. A joint study by CARE, CRS, USAID and GTZ opines that “the formation of SHGs is regarded as being based upon certain general principles; they should be voluntary, mutually beneficial, with some affinity among the members, and equitable.” Stabilizing a SHG is an even bigger problem which field-level workers often face. During a field work on SGSY2, it was observed that the facilitators form SHGs in a very ad hoc manner. They don’t take care of forming a SHG that could be sustainable3. Their entire stress is on number and not quality of the SHGs formed4. The result is that either these SHGs become defunct after some time or they just break apart. Rutherford S. (1999) opines, “I don’t know of any examples of SHGs surviving in the long term after their promoting NGO has left them to their own devices. There may be some but I doubt if their numbers are significant.”

This technical note presents a new approach towards sustainable SHG formation. It is divided in three sections. The second section presents a brief yet innovative overview of group-formation process in SGSY. The section III illustrates a new approach towards sustainable SHG-formation. II The Process of Group Formation in SGSY: The beneficiaries under SGSY are known as Swarozgaries. The Swarozgaries can be either individuals or groups. SGSY lays emphasis on the group approach, under which the rural poor are organized into Self-Help Groups (SHGs). 1

The author is Senior Research Fellow at the OKD Institute of Social Change and Development, Guwahati. Swarnjayanti Gram Swarozgar Yojna, a self-employment, anti-poverty programme by Government of India, started on April 1, 1999. 3 ‘Sustainability of SHG’ implies that it should be able to survive once the fostering hands of NGO/government is withdrawn. 4 Facilitators are paid as per number of the SHGs formed and graded. 2

Promoting Group Stabilization: A Technical Note on SHG-formation: D. C. Pathak A very preliminary draft

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SHG is a group of rural poor who have volunteered to organize themselves into a group for eradication of poverty of the members. SHGs pass though following stages of formation:

1. Group Formation: This stage involves the formation, development and strengthening of the groups to evolve into self-managed people’s organization at grass-root. In a society, individuals are to be linked together by various common bonds like caste, sub-caste, community, gender, place of origin etc to name a few. These common bonds create “Affinity Groups”. The figure 1 shows such an affinity group. Identification of such affinity groups is critical for the progress and success of the Self-Help Groups.

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Individuals in an Affinity Group.

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Common affinity bonds like caste, sub-caste, community, skills etc.

Figure 1: Thematic Description of Affinity Group

2. Group Stabilization: In this stage, the individuals in the affinity group are motivated by a common economic purpose. Thus, Self-Help Group could be defined as an

Promoting Group Stabilization: A Technical Note on SHG-formation: D. C. Pathak A very preliminary draft

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affinity group motivated by a common economic purpose. The figure 2 below depicts an affinity group which has now graduated to Self- Help Group.

Common Purpose

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Affinity Group + A Common Purpose = Self-Help Group Figure 2: Thematic description of SHG-Formation

They agree to save regularly and convert their savings into a common fund know as the Group Corpus. The process of group stabilization involves thrift and credit activities among the members and building their group corpus. The group takes up internal loaning to the members from their group corpus. This saving and lending process and a common purpose of improving their economic condition helps the affinity group to metamorphose into Self-Help Group. The figure 3 below shows the process of lending and borrowing among members from the group corpus.

Promoting Group Stabilization: A Technical Note on SHG-formation: D. C. Pathak A very preliminary draft

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a

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b Group Corpus

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= Thrift and Credit Activity by individuals Figure 3: Thrift and Credit of the SHG members creates a Group Corpus and thus stabilizes the Group

3. Injection of Micro Credit: The group has become now sufficiently stabilized and it could now be considered worthwhile to inject micro credit to supplement the group corpus. This injection of micro credit would be made in the form of Revolving Fund sanctioned as cash credit limit by the Banks. The figure 4 below shows this stage.

Promoting Group Stabilization: A Technical Note on SHG-formation: D. C. Pathak A very preliminary draft

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Group Corpus

Micro Credit

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Figure 4: Injection of Micro Credit (as Revolving Fund) by Bank to supplement the Group Corpus

4. Micro Enterprise Development: Now, the SHG would take up economic activity of their choice for income generation. This phase would include entrepreneurship development as well as skill development training of the members of the SHG to enable them to successfully implement the chosen activity. The figure 5 shows this stage. a

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Group Corpus

Micro Credit

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Micro-enterprise Development Figure 5: Micro Enterprise Development

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Promoting Group Stabilization: A Technical Note on SHG-formation: D. C. Pathak A very preliminary draft

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III The members in a SHG would be held together by some kind of affinity. The affinity could be of common caste, sex, or the skills. The study proposes a theoretical argument for enhancing the group stability using affinities. It has been discussed with the help of three figures which show the binding effect of the affinity in a group. Free to dissociate Affinity

Free to dissociate

SHG

Caste

Free to dissociate Figure 6: SHG bounded with only one affinity

A SHG where members have only one common bond, say caste/sex/skill, would have an affinity bounding the group from only one side as evident in the figure 6 above. The group would be free to dissociate from the three unbounded sides and if any allurement in form of a stronger affinity would come to the members, they would be attracted toward that, dissociating their self with the group in process. This is a common practice in SGSY to form such SHGs based on one affinity.

Free to dissociate Affinity Caste

SHG

Affinity Sex

Free to dissociate Figure 7: SHG bounded with two affinities

Promoting Group Stabilization: A Technical Note on SHG-formation: D. C. Pathak A very preliminary draft

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The figure 7 depicts the case of a SHG bounded from two affinities, from two sides. Though it would be more stable then the SHG bounded from only one affinity (as shown in figure 6), the members in it still have freedom to dissociate under attraction of a stronger affinity from two sides that are yet unbounded.

Skill

SHG

Caste

Sex

Figure 8: SHG bounded by three affinities: enclosed from all sides

The affinity group should be most effective when it fulfils the three dimensions of affinity, i.e., sex, caste and most importantly, skills. Common sex and caste affinity remove the social and traditional taboos of interaction among the members. Sharing a common skill would provide a base for a concerted effort in which each plays his/her role to the optimum. The figure 8 above presents the case of a SHG bounded by three affinities from three sides. The three affinities and their mutual interaction would form a triangle of affinity within which the SHG shall stay peacefully. The broken arrows depict the mutual interaction of these affinities with each other. The triangle of affinity would protect the group members from any other attraction to dissociate the group. It should be noted that at least three affinities are required to form a triangle of affinity.

Promoting Group Stabilization: A Technical Note on SHG-formation: D. C. Pathak A very preliminary draft

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Apart from these considerations of affinities, the three Cs (i.e., character, capacity and capital) of the micro credit should be taken into account while forming SHGs. Individuals who are equal on these accounts should be clubbed in a SHG. These would provide further support to the stability of group. References: Pathak D.C. Socio-Economic Impact of Swarnajayanti Gram Sawrozgar Yajan on Poverty Alleviation: A Case-Study of Jaunpur District, unpublished Ph.D. Thesis.

Rutherford S. (1999), The Poor and Their Money: An Essay About Financial Servicesfor Poor People, Institute of Development Policy and Management. University of Manchester, January 1999. (download link: www.uncdf.org/mfdl/readings/PoorMoney.pdf), Retrieved on Nov. 12, 2008.

SHGs in India: A Study of Lights and Shades, A Joint Stduy by CARE, CRS, USAID and gtz, 2006, download link: http://www.apmas.org/pdf%5Cm.pdf, retrieved on Nov. 23, 2008.