What is a Self-Help Group ?

Dictionary (COD) defines Self-Help as—

  1. “the theory that individuals should provide for their own support and improvement in the society.
  2. the act or faculty of providing for or improving oneself”.

NABARD’s Development Policy Department defines Self Help Group as—
“Voluntary organization of people operating within a frame work of rules and regulations for common economic and social objectives with an approach of participatory decision-making and sharing of benefits in an equitable manner”. (Vide Circular No.NB.DPD.SHG/3755/92-APACS/93-04 dated 02/03/1994).

Characteristics of a Self-Help Group

  • Small Size (5 – 20);
  • Compact Residential Area (Hamlet concept);
  • Same poor economic condition of members – all-round homogeneity (unisex, same life-style etc.);
  • Voluntary organization – no interference from outside agencies;
  • Economic and social objectives having equal priority;
  • Equal status for all the members and democratic leadership with rotation of leadership at definite intervals;
  • Participatory functioning;
  • Group dynamism;
  • Though mainly informal, not ad hoc associations (existence of rules, constitution, working records, proper accounting)
  • Equitable, not necessarily equal, benefit-sharing;
  • Savings first (at least for 6 months), credit then; and
  • No divider between productive / consumptive purposes of loan (i.e., the members are so economically disabled that denial of consumption loan to them will mean disruption in their productive activities)

Difference of SHG from other anti-poverty programmes

  • These are voluntary cohesive groups;
  • Schemes are as per members’ choice and skill;
  • The activities are not dependent on Subsidy;
  • Flexible interest rates for the SHG members, decided by the members ;
  • Loan quantum is linked with Savings ( maximum 4 : 1 )
  • There is a potentiality for 100% repayment;
  • Social objectives are in-built in the system; and
  • There is a strong gender bias.

Eligibility and Entitlement

A Self-Help Group, with unbroken record of having deposited their periodical savings for at least the last six months at weekly/ fortnightly / monthly intervals on behalf of each of its members at the pre-determined rate and periodicity (both decided by the Group through unanimous decision adopted in its meeting, duly recorded), may be financed either through the member Primary Co-operative Agricultural Credit Societies (PACS) or direct by the Branches of the Bank in semi-urban, urban or metropolitan areas where there is no member PACS, provided that in the later case the SHG shall become a nominal member of the Bank. Loan will be available for any productive (agriculture, industry, service, trade etc.) or consumptive purpose, but the total amount of loan to the SHG (for any one or more members) will not exceed four times of the total cumulative savings of the SHG as a whole (i.e., the total deposit mobilized by all the SHG members).

Preconditions for SHG – Bank linkage

  • Group Dynamism is the first and foremost condition and until and unless there is visible cohesion within the Group, no Bank loan shall be advanced;
  • There should be unanimous decision on the prospective borrower-member(s) selected and the activities) identified;
  • The applicant SHG-members shall have full command over the schemes/ activities chosen;
  • Individual consciousness on repayment obligation and simultaneous continuance of savings should be ensured;
  • Maintenance of proper records / accounts by the SHG as well as by the PACS should be ensured.

Period of Repayment

Repayment period will generally be 12 to 60 months, depending on the activities to be undertaken by the SHG members and the periodicity of repayment will be monthly (equal monthly installments).

Rate of interest

As may be decided by the Bank from time to time.

Security to be held:

The borrowing SHG/ PACS shall deposit the savings of the SHG members with the Bank and since based on the quantum of deposit so mobilized, loan upto 4 times will be provided, this amount (along with further amounts to be deposited by the SHG/ PACS at pre-determined rate at periodical intervals) shall be treated as Security for the loan.

List of the documents to be submitted

  • Application for loan in the prescribed Pro forma;
  • Application of the SHG for nominal membership of the Bank in case of direct linkage with the Bank Branch;
  • Copy of resolution of the SHG and/or the PACS;
  • Proof of deposit of periodical savings of the SHG members/ PACS with the PACS/ Bank Branch;

Such other documents as the Sanctioning Authority will call for.

Appraisal and Sanction: All loans of this type shall be appraised by the Branch Manager himself or any official authorized by him with reference to the Loan Manual of the Bank specifically recommended by the Branch Manager/ Manager of the Branch, processed at the Regional / Head Office level and then considered and sanctioned by the appropriate Committee of the Bank duly authorized by the Board of Directors from time to time or by the Board of Directors itself.

Do’s & Don’ts for Banks / PACS


  • Help the needy, not the greedy
  • Create new leadership
  • Test group dynamism
  • Insist on female groups
  • Insist on one-family one-member
  • Priorities proper records / accounts-keeping
  • Interest on compact area, literacy for all, regular savings, regular meeting, participatory functioning
  • Cover members under Group Accident / Life / Insurance
  • Visit SHG’s and interact frequently, ensure 100% repayment


  • Don’t encourage Group Enterprise
  • Don’t select schemes, leave them to SHG’s
  • Don’t utter credit before regular savings
  • Don’t allow grace period for the 1st loan
  • Don’t insist on uniform repaying period for all the members of an SHG
  • Don’t allow any default in installment — enforce joint responsibility