Question

Significance of SHGs in rural areas

Answer 1

Answer:

A self-help group (SHG) is a financial intermediary committee usually composed of 10–20 local women or men. Most self-help groups are located in India, though SHGs can be found in other countries, especially in South Asia and Southeast Asia. SHG is nothing but a group of people who are on daily wages, they form a group and from that group one person collects the money and gives the money to the person who is in need.

Members also make small regular savings contributions over a few months until there is enough money in the group to begin lending. Funds may then be lent back to the members or to others in the village for any purpose. In India, many SHGs are 'linked' to banks for the delivery of micro-credit

Advantages of financing through SHGs

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An economically poor individual gains strength as part of a group.

Besides, financing through SHGs reduces transaction costs for both lenders and borrowers.

While lenders have to handle only a triple SHG account instead of a large number of small-sized individual accounts, borrowers as part of an SHG minimize expenses on travel (to and from the branch and other places) for completing paper work and on the loss of workdays in canvassing for loans.

Where successful, SHGs have significantly empowered poor people, especially women, in rural areas.

SHGs have helped immensely in reducing the influence of informal lenders in rural areas.

Many big corporate houses are also promoting SHGs at many places in India.

SHGs help borrowers overcome the problem of lack of collateral. Women can discuss their problem and find solutions for it.