Self Help Groups (SHGs): Meaning, Features and Objectives

A Self Help Group, generally abbreviated as SHG, is a small, voluntary and homogeneous group of people — most commonly around ten to twenty members — who come from a broadly similar socio-economic background and choose to come together for their mutual financial benefit. The defining activity of an SHG is thrift: members agree to save a small, fixed amount of money at regular intervals — often weekly or monthly — and pool these savings into a common group fund. From this pooled fund, the group extends small loans to its own members, on terms of interest and repayment that the group itself decides collectively, rather than terms imposed by an outside lender.

Several features together define what makes a group a genuine SHG. Membership is voluntary — no one is compelled to join, and members join because they see a direct benefit in doing so. The group is homogeneous, meaning its members typically share a similar economic condition, occupation, or social background, which builds the trust needed for the group's internal lending to work. Regular savings, or thrift, is the foundation of the group's fund and financial discipline. Loans are extended internally, among members, out of the group's own resources, before the group even approaches a bank. Decision-making within the group — on how much to save, whom to lend to, and on what terms — is collective, usually taken in regular group meetings. Once an SHG has functioned successfully for a period, maintaining regular savings and a good internal repayment record, it becomes eligible to access credit from formal banks as a group, borrowing in the group's name for on-lending to its own members.

The central objective behind the SHG movement is financial inclusion — extending the benefits of savings and credit to people, especially rural women and others from low-income households, who have traditionally been excluded from formal banking because they lack the collateral, income documentation, or credit history that banks usually require of individual borrowers. By pooling their own resources first and building a track record of disciplined savings and repayment as a group, SHG members create the trust and financial history that eventually allows them to access much larger amounts of credit than any one member could have obtained alone. …