Empowerment is the process of obtaining basic opportunities for marginalized people, either directly by those people, or through the help of non-marginalized others who share their own access to these opportunities. Empowerment of Rural India signifies harnessing its power by promoting the tremendous potential to work towards attaining a dignified and satisfying way of life thereby contributing to Inclusive growth in India.

  • In the last few decades, the concept of empowerment has changed from welfare to equity approach by which the powerless gain control over their lives and resources to overcome external barriers (lack of health, mobility, education and awareness, status in the family, participation in decision making) and gain internal qualities such as self-awareness and self-confidence. In this way, empowerment has become a pre requisite for the socio-economic development of any community in the process of change.
  • For this, self-help groups represent a unique approach to financial intermediation. Self-help groups are novel and innovative organizational setup in India for the upliftment and welfare of Rural India especially women.


Self Help Groups are groups of 10-20 people in a locality formed for any social or economic purpose. Most of the SHGs are formed for the purpose of better financial security among its members. SHGs can exist with or without registration.

Self-help Groups (SHGs) are informal associations of people who come together to find ways to improve their living conditions. They are generally self-governed and peer-controlled.

People of similar economic and social backgrounds associate generally with the help of any NGO or government agency and try to resolve their issues, and improve their living conditions.

  • It can be defined as self-governed, peer controlled information group of people with similar socio-economic background and having a desire to collectively perform common purpose.
  • SHG is a form of enterprise. They perform the role of collective banks. They mobilize savings from the members and performs both debit and credit functions.
  • Villages face numerous problems related to poverty, illiteracy, lack of skills, lack of formal credit etc. These problems cannot be tackled at an individual level and need collective efforts.
  • Thus SHG can become a vehicle of change for the poor and marginalized. SHG rely on the notion of “Self Help” to encourage self-employment and poverty alleviation.


The first organised initiative in this direction was taken in Gujarat in 1954 when the Textile Labour Association (TLA) of Ahmedabad formed its women’s wing to organise the women belonging to households of mill workers in order to train them in primary skills like sewing, knitting embroidery, typesetting and stenography etc.

  1. It was in 1972, that the SHG movement got a systematized structure when Self Employed Women’s Association (SEWA) was formed as a Trade Union under the leadership of Ela Bhatt. She organised women workers such as hawkers, vendors, home based operators like weavers, potters, papad / agarbatti makers, manual labourers, service providers and small producers like cattle rearers, salt workers, gum collectors, cooks and vendors with the primary objective of
    • increasing their income and assets;
    • enhancing their food and nutritional standards; and
    • Increasing their organisational and leadership strength.
  1. In the 1980s, MYRADA – a Karnataka based non-governmental organisation, promoted several locally formed groups to enable the members to secure credit collectively and use it along with their own savings for activities which could provide them economically gainful employment.
  2. Major experiments in small group formation at the local level were initiated in Tamil Nadu and Kerala about two decades ago through the Tamil Nadu Women in Agriculture Programme (TANWA) 1986, Participatory Poverty Reduction Programme of Kerala, (Kudumbashree) 1995 and Tamil Nadu Women’s Development Project (TNWDP) 1989. These initiatives gave a firm footing to SHG movement in these states. Today, around 44% of the total Bank- linked SHGs of the country are in the four southern States of Andhra Pradesh, Tamil Nadu, Karnataka and Kerala.
  3. The SHG-Bank linkage programme was started as a test project in 1989 when NABARD, the Apex Rural Development Bank in the country, sanctioned Rs.10.0 lakhs to MYRADA as seed money assistance for forming credit management groups.In the same year, the Ministry of Rural Development provided financial support to PRADAN to establish Self-Help Groups in some rural pockets of Rajasthan. On the basis of these experiences, a full-fledged project involving a partnership among SHGs, Banks and NGOs was launched by NABARD in 1992, which is today the world’s largest microfinance project.
The positive experience gained from the above programmes has led to the emergence of a very strong consensus that the twin concepts of
(a) Small group organization and
(b) Self-management
are potent tools for economic and social empowerment of the rural poor.
Forming small groups and linking them to bank branches for credit delivery has been the most important feature of the growth of the SHG movement in our country.
  1. NABARD alongwith RBI permitted SHGs to have a savings account in banks from the year of 1993. This action gave a considerable boost to the SHG movement and paved the way for the SHG-Bank linkage program.
  2. In 1995, acting on the report of a working group, the RBI streamlined the credit delivery procedure by issuing a set of guidelines to Commercial Banks. It enabled SHGs to open Bank Accounts based on a simple inter-se agreement. The scheme was further strengthened by a standing commitment given by NABARD to provide refinance and promotional support to Banks for credit disbursement under the SHG – Bank linkage programme.
  3. In 1999, Government of India, introduced Swarn Jayanti Gram Swarozgar Yojana (SGSY) to promote self-employment in rural areas through formation and skilling of SHGs.
  4. The programme evolved as a national movement in 2011 and became National Rural Livelihoods Mission (NRLM) – world’s largest poverty alleviation programme.Today, State Rural Livelihood Missions (SRLMs) are operational in 29 states and 5 UTs (except Delhi and Chandigarh).NRLM facilitated universal access to the affordable cost-effective reliable financial services to the poor like financial literacy, bank account, savings, credit, insurance, remittance, pension and counselling on financial services.


The SHGs significantly contribute to the empowerment of poor. They help to build Social Capital among the poor, especially women. The most important Objectives of a Self-Help Groups are:

  • To sensitize people of target area for the need of SHG and its relevance in their empowerment process.
  • To build the functional capacity of the poor and the marginalized in the field of employment and income generating activities.
  • To enhance the confidence and capabilities of members.
  • To develop collective decision making among members.
  • To encourage habit of saving among members and facilitate the accumulation of their own capital resource base.
  • To resolves conflicts through collective leadership and mutual discussion.
  • To motivate members taking up social responsibilities particularly related to development.

Self-help groups are seen as instruments for goals including empowering women, developing leadership abilities among poor and the needy people, increasing school enrolments and improving nutrition and the use of birth control. In countries like India, SHGs bridge the gap between high-caste & low-caste people /citizens.

Formation of Self Help Groups
Every Self-help group usually goes through 3 stages of evolution stated below:

  1. Formation of group
  2. Funding or Formation of Capital
  3. Development of required skills to boost income generation for the group


In India, there is a substantial percentage of rural and urban poor, who if try individually cannot break their chains of poverty, and hence collective action is required.

One of the reasons for rural poverty in our country is low access to credit and financial services. Bank credits are not easily accessible to individual poor, but by forming a SHG, there are make better prospects for bank credits. (Often without collateral).

  1. A Committee constituted under the chairmanship of Dr. C. Rangarajan to prepare a comprehensive report on ‘Financial Inclusion in the Country’ identified four major reasons for lack of financial inclusion:
    • Inability to provide collateral security,
    • Poor credit absorption capacity,
    • Inadequate reach of the institutions, and
    • Weak community network.
  2. The existence of sound community networks in villages is increasingly being recognised as one of the most important elements of credit linkage in the rural areas.
  3. They help in accessing credit to the poor and thus, play a critical role in poverty alleviation.
  4. They also help to build social capital among the poor, especially women. This empowers women and gives them greater voice in the society.
  5. Financial independence through self-employment has many externalities such as improved literacy levels, better health care and even better family planning.
  6. The concept of self-help groups has been evolved to organize the rural poor to meet their productive and consumption needs out of their saving.


  1. They try to build the functional capacity of poor and marginalised sections of society in the domain of employment and income-generating activities.
  2. They offer collateral-free loans to sections of people that generally find it hard to get loans from banks.
  3. They also resolve conflicts via mutual discussions and collective leadership.
  4. They are an important source of microfinance services to the poor.
  5. They act as a go-through for formal banking services to reach the poor, especially in rural areas.
  6. They help in developing collective strength among the poor.
  7. It is being recognised that one of the most important elements of credit linkage in rural areas is the prevalence of sound community networks in Indian villages.
  8. SHGs play a vital role in giving credit access to the poor and this is extremely crucial in poverty alleviation.
  9. They also play a great role in empowering women because SHGs help women from economically weaker sections build social capital.


  1. Combating Rural poverty
    • SHGs have become a vehicle to lift people from below poverty line, generate awareness about welfare and developmental schemes of government, monitor its implementation etc.
    • Positive correlation between SHGs and poverty can be inferred from the fact that southern states with high number of SHGs (71%) have average poverty rate at 9% as against nation’s average of 21%.
  2. Social integrity
    • SHGs help eradicate many social ills such as dowry, alcoholism, early marriage, by encouraging collective efforts for combating practices. Economic empowerment through SHGs, provides women the confidence for participation in decision making affairs at the household-level as well as at the community-level.
    • The SHGs provide a forum in which people can meet on a regular basis and discus various issues or concerns that the members face in their day-to-day life which acts as the basic source of social capital generation.
  3. Women empowerment
    • By providing employment opportunities, financial and social security SHGs help improve the status of women and creating awareness regarding their rights and responsibilities, as pointed by the 2nd ARC report.
    • With more women participation and their enhanced status address issues such as nutrition poverty and low literacy rate.
    • SHGs empowers women and inculcates leadership skill among them. Empowered women participate more actively in gram sabha and elections.
    • There is evidence in this country as well as elsewhere that formation of Self-Help Groups has a multiplier effect in improving women’s status in society as well as in the family leading to improvement in their socio-economic condition and also enhances their self-esteem.
  4. Pressure Groups
    • Their participation in governance process enables them to highlight issues such as dowry, alcoholism, the menace of open defecation, primary health care etc and impact policy decision.
    • They act as pressure groups for policy framing as seen in legislation prohibiting liquor in Bihar which was the result of pressure from several women SHGs in Bihar.
  5. Voice to marginalized section
    • SHGs act as pressure groups through which pressure can be mounted on the government to act on important issues. SHGs have given a voice to the otherwise underrepresented and voiceless sections of society.
    • Most of the beneficiaries of government schemes have been from weaker and marginalized communities e.g. landless, sharecroppers, small and marginal farmers, women, SCs/STs etc.and hence their participation through SHGs ensures social justice.
  6. Financial Inclusion
    • SHGs incentivise banks to lend to poor and marginalised sections of society because of the assurance of returns.
    • Priority Sector Lending norms and assurance of returns incentivize banks to lend to SHGs.
    • The SHG-Bank linkage programme pioneered by NABARD has made access to credit easier and reduced the dependence on traditional money lenders and other non-institutional sources. Such groups work as a collective guarantee system for members who propose to borrow from organised sources.
    • Consequently, Self-Help Groups have emerged as the most effective mechanism for delivery of microfinance services to the poor.
  7. Improving efficiency of government schemes
    • Un-utilised and underutilised resources of the community can be mobilised effectively under different SHG-initiatives. SHGs help implement and improve the efficiency of government schemes.
    • They also help reduce corruption through social audits.
  8. Alternate source of livelihood/employment
    • SHGs help people earn their livelihood by providing vocational training, and also help improve their existing source of livelihood by offering tools, etc.
    • They also help ease the dependency on agriculture by providing support in setting up micro-enterprises e.g. personalised business ventures like tailoring, grocery, and tool repair shops and opportunities for self-employment through setting of micro-enterprise.
    • Skill development program undertaken by SHGs improves employability of members involved.
  9. Improved living standards
    • As a result of increased jobs there is rise in income which enhances access to food, health services and overall rise in living standards.
    • SHGs have enabled the participating households to spend more on education, food and health than non-client households.
  10. Positive impact on Housing, Education & Health
    • The financial inclusion attained through SHGs has led to reduced child mortality, improved maternal health and the ability of the poor to combat disease through better nutrition, housing and health – especially among women and children.
    • SHGs have enabled the participating households to spend more on education than non- client households. Families participating in the programme have reported better school attendance and lower drop-out rates.
  1. Banking literacy
    • It encourages and motivates its members to save and act as a conduit for formal banking services to reach them.
    • SHGs promote banking literacy among the rural segment. Such groups work as a collective guarantee system for members who propose to borrow from organised sources.
    • The poor collect their savings and save it in banks. In return they receive easy access to loans with a small rate of interest to start their micro unit enterprise.
    • The SHG programme has contributed to a reduced dependency on informal money lenders and other non- institutional sources.
  2. Electoral Changes at grassroots levels
    • Active involvement in different SHG-initiatives helps members to grow leadership-skills. Evidences also show that often women SHG leaders are chosen as potential candidates for Panchayat Pradhans or representatives to Panchayati Raj Institution (PRI).
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