Question

Discuss the role of `Self-Help Groups' (SHGs) in rural credit.

Hint:

The Grameen Bank model of Bangladesh, founded by Muhammad Yunus (Nobel Peace Prize 2006), was a major inspiration for the SHG-based micro-credit movement in India.

Answer 1

Step 1: Understanding the Concept:
Rural households, especially the poor, have historically been excluded from formal banking credit. Self-Help Groups (SHGs) were created as a microfinance mechanism to bridge this gap.

Step 2: Detailed Explanation:
Self-Help Groups (SHGs) are small, homogeneous groups (typically 15--20 members) of rural households, mostly women, who pool their savings regularly to create a common fund. Their role in rural credit includes:
1. Promoting Thrift: SHGs encourage regular saving habits among rural households.
2. Providing Collateral-free Credit: Members can avail small loans from the common pool at reasonable interest rates without any collateral, which reduces dependence on exploitative moneylenders who charge exorbitant rates.
3. Linking with Banks: Under the SHG-Bank Linkage Programme (promoted by NABARD), SHGs are linked to formal banks for larger credit.
4. Women Empowerment: SHGs predominantly empower rural women by giving them financial independence and encouraging entrepreneurship.

Step 3: Final Answer:
SHGs provide collateral-free micro-credit, promote savings, reduce moneylender dependency, and empower rural women through collective financial management.