A Study On Impact Factor of Self Help Groups (SHGS) Should Balance or Break

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INTERNATIONAL JOURNAL OF RESEARCH REVIEW IN
ENGINEERING AND MANAGEMENT (IJRREM)
Tamilnadu-636121, India
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A Study on Impact factor ofSelf Help Groups (SHGs)

Should Balance or Break
Prof. Dr.V.SIVAKUMAR, M.Com.M.Phil, M.B.A., Ph.D.
Assistant Professor & Head
Department of Management Studies
Jayam College of Engineering and Technology,
Dharmapuri, Tamilnadu, India- 636705
Mail- hodmba@jcet.ac.in
Phone: +91 9750922807
Mr.A.ARULKUMAR.,
PG Student,
Department of Management Studies
Jayam College of Engineering and Technology.,
.Dharmapuri, Tamilnadu, India- 636705.
Mail- arul78100@gmai.com
Phone: +91 7810054530
ABSTRACT
Self Help Groups (SHGs) enhance the equality of status of women in participation,
decision making and shared benefits in the democratic, economic, social and cultural spheres of
life. The rural poor are in-capacitated due to various reasons such as socially backwardness,
illiteracy, low motivation and poor economic base. The present study is vital to motivate the
public for forming a large number of SHGs in general and building confidence among the
existing members of SHGs in particular for their socio economic betterment. The main
objectives of the study are i) to ascertain the financial problems faced by the Women SHGs ii) to
analyse the capacity building in respect of financial activities attained by the Women SHGs, iii)
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to examine the financial prospects of the Women SHGs, iv) to assess the level of satisfaction of
Women SHGs. Both the primary and secondary data were used extensively. Based on the data
analyses and research findings, it is concluded that members satisfaction towards SHGs
activities depends on financial prospects and in turn financial prospects depend on capacity
building programme which means capacity building programme has an impact on financial
prospects and ultimately financial prospects have impact on the members satisfaction. There is a
need for concerted and synchronized effort among the members of SHGs, authorities and banks.
These coordinated efforts will improve the financial prospects and the level of satisfaction
among the members. The high extent of financial prospects will improve their living standards
and social status. Consequently, it will lead to women empowerment. If SHGs that have formed
mainly to access bank loans break every few years, they can retain the confidence of lenders
and reduce their monitoring costs - without balancing. SHGs committed to saving are fewer. But
identifying them and investing in their capabilities has key developmental benefits. A firmer
foundation can be built, able to support greater local capital formation through compounding of
retained earnings over time. This can help members achieve their savings goals, while fuelling
village development through reinvestment of retained earnings.
Key Words: Women Empowerment, Backwardness, Financial Prospects, Capital Formation.
INTRODUCTION
Auditing SHG balance sheets is vital for detecting errors, sloppy disclosure practices and
fraud. It is the only way a bank can assure itself of a SHGs capacity to repay in future. It is the
only way members can assure themselves that their savings are really all present and accounted
for.In the SHG-bank linkage model, the size of bank loans is determined by the size of the SHG
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corpus, more than by any other single factor. As a result, SHGs face very strong systemic
incentives to neglect errors that overstate their collective savings or understate losses.
The bank linkage programme has achieved rapid growth, with over 4 million groups
credit-linked. But the lack of balancing or audit risks undercutting the evolving trust between
rural poor people and banks. If there is inadequate money to pay all claims, should it be the
lender or the SHG member whose obligations take seniority? Banks should not lend to SHGs if
member savings may be at risk as a result.
SAVINGS REQUIRE A BALANCED FOUNDATION
Even though SHG members join groups primarily to access credit, they also believe that
SHGs are useful for saving. In the past decade many microfinance studies have shown that poor
people save at home in large amounts. This helps them achieve many critical goals. Savings
drive health and education planning, large asset acquisitions like improved housing, transport or
farm equipment, and preparation for expected or unexpected income gaps, among other goals.2
Because SHG members have no way to confirm whether their savings are all accounted
for, they cannot use SHG savings as a reliable foundation for accomplishing these goals. And it
is equally impossible to build sustainable SHG federations on such an unstable foundation.
VERTIGO LEADS TO BREAKING
Decades of microfinance experience have shown that sooner or later, subsidised funds
attract elite capture. The larger the fund, and the longer its life, the more robust the defences
required to protect it. Bank linkage loans are very cheap compared to other options of villagers,
so its natural that powerful villagers seek to corner the benefits. "They get this money for
nominal interest rates like 7% which they put in chit funds where they get returns of 30% or
more. This is a big fraud on the system 3".
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In the first years SHGs build their internal savings to access bank loans. But gradually,
devious people find the gaps in the control system. Transactions may increasingly take place
outside meetings, or the groups only record-keeper may leave. The longer gaps beckon and
money piles up, and the clearer it becomes that no one is in control, the larger and more frequent
the abuses can be expected to become.
Accumulating saving and credit associations (ASCAs) in India have succeeded by staying
short term. After 6-12 months of saving and lending they break by distributing all savings and
profits to their members. While limiting options for long term savings, this provides an action
audit and limits the risk of elite interest while neatly side-stepping the complexities of creating
control systems for larger funds.4 By breaking, ASCAs protect members rights to:
1. Receive all individual savings plus profits in cash, to use as desired without conditions,
2. leave the group without conditions, and
3. Elect new leadership and accept new members.
Some SHG support institutions (SHPIs), such as BWDA and Chaitanya, require their groups
to formally break. This responds to a felt need among members themselves. To avoid becoming
targets for elite capture and other forms of misappropriation, members have for years engaged in
incremental cash-outs (as depicted in the graph) . Member drop-outs are also high, in spite of the
fact that drop-outs usually lose any claim to retained earnings inside the group.5
In practice SHGs limit the size of their corpus by withdrawing savings from the bank and
distributing it. When their internal fund is large enough to lever the loans they want, they skip
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savings contributions or stop them altogether. Within a few years the savings exposure of
members (as distinct from internally generated profits) can start to drop, and may eventually
disappear altogether.
The 2008 State of the Sector Report has confirmed that rising delinquency is a trend across
Indian SHGs.6 By keeping savings amounts small, based on a belief that saving at home is
probably safer; SHG members protect themselves from loss. Once members limit their savings
commitments, attention paid to the group corpus and member solidarity drops, and the potential
for delinquency rises steadily.
WHY SHGS DO NOT BALANCE?
Compared to other record-keeping tasks of SHGs, preparing a balance sheet is a
relatively infrequent event, and more challenging as well as abstract. Once an SHG has been
operating for years without balancing, replacing old books with new ones on a running account
basis, even an SHPI may shrink from the effort involved in balancing.
In addition, most SHPIs view external financing as the main source of funds for SHGs,
rather than compounding of savings over time. They have neglected protection of the SHG asset
foundation. They risk killing the goose that is laying the golden eggs.
CAN SHGS BALANCE?
Outside stakeholders often believe SHG members are not interested in or capable of
preparing or understanding a balance sheet. Most SHG members, like most other people, do not
enjoy basic book-keeping. But SHGs do not have to balance. MFIs/banks and SHG federations
can do it for them and also charge them for the service.
Doubtless most SHGs will find balancing a daunting, even pointless exercise. But,
studies of SHG quality by APMAS have shown that 15% of groups, or about 600,000 SHGs,
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have good records. Furthermore, the difference in record quality between literate and illiterate
groups is not as great as sometimes believed.
WHICH SHGS SHOULD BALANCE, AND WHICH SHOULD BREAK?
If SHGs that have formed mainly to access bank loans break every few years, they can
retain the confidence of lenders and reduce their monitoring costs - without balancing. SHGs
committed to saving are fewer. But identifying them and investing in their capabilities has key
developmental benefits. A firmer foundation can be built, able to support greater local capital
formation through compounding of retained earnings over time. This can help members achieve
their savings goals, while fuelling village development through reinvestment of retained
earnings.
In a recent paper8 CGAP suggested that banks are charging SHGs rates that would be
unsustainable without subsidies. Regular breaking can be expected to reduce monitoring costs
and delinquencies. Regular balancing will increase monitoring costs and the capacity of SHGs to
borrow, repay, and purchase other financial services.
MANAGEMENT TOOLS
Unless they balance annually, SHGs should break every 2-3 years by providing an
unconditional cash-out opportunity (or Rutherfords action audit) to all members.
UNLESS A CURRENT AUDIT IS AVAILABLE FROM A TRUSTED SOURCE,
LENDERS SHOULD DO THE FOLLOWING BEFORE LENDING TO SHGS:
1. Require it to break a minimum of once in 3 years;
2. Prepare a field balance sheet;
3. Verify loan amounts by random sampling of members passbooks and testimony in
private, in their homes;
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4. Total all savings contributions based on the number of members and the number of
expected contributions;
5. Add reasonable expected profit based on rates charged on loans and compare the total to
the actual corpus; and
6. Make sure all old cash ledger books have been tallied and signed off by a trusted source.
SHGS THAT WANT TO PROTECT SAVINGS ENOUGH TO LIMIT THEIR
CONSUMPTION OF CREDIT SHOULD BE TAUGHT HOW TO BALANCE:
1. The steps involved in balancing can be analyzed by SHPIs through process mapping.
2. SHPI facilitators should identify through groups of non-literate SHG members ways of
tracking balances.
3. Focus groups of non-literate members can also identify ways to transparently present
balance sheet results.
4. A cadre of private-sector munchies can be developed to check balance sheets
periodically.
5. The most effective auditor may be a local school- teacher or an SHG leader from another
village.
CONCLUSION
It is concluded that members satisfaction towards SHGs activities depends on financial

prospects and in turn financial prospects depend on capacity building programme which means
capacity building programme has impact on financial prospects and ultimately financial
prospects have impact on the members satisfaction. There is a need for concerted and
synchronized effort among the members of SHGs, authorities and banks. These coordinated
efforts will improve the financial prospects and the level of satisfaction among the members. The
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high extent of financial prospects will improve their living standards and social status.
Consequently, it will lead to women empowerment.
HGs demonstrate significantly higher empowerment, as evidenced by a variety of indices. In

absolute terms though, there is scope for higher achievements. Outcomes related to political
awareness or participation are a clear example of this phenomenon; although women from
project areas display considerably higher engagement in political decision making, the scope for
further changes are immense. On the dimension of participation in decision making, we find such
phenomenon for every decision which relate to outcomes that are more public in nature. Women
have significantly higher say in self- employment, primary livelihoods, purchase of durables,
etc., than control HHs; however, in absolute terms, the percentage of women that do participate
in such decision making can still improve by a large margin.
REFERENCES
1.
NABARD, SHGs-Banks Linkage Project. NABARD Regional Office, Bhopal, 1998, p.
5.
2.
Wright, Graham A.N., The Relative Risks of the Savings of Poor People, MicroSave,
Kampala, 2000.
3.
Somanath, VS of Nano Ventures, cited in Microfinance Cos Sniff Big Biz, TNN, 17
February 2009.
4.
Rutherford, Stuart, The Poor and Their Money, Oxford University Press, Delhi, 2000.
5.
Srinivasan, N. State of the Sector Report 2008, p. 23. Sage Publications, Delhi, 2009.
6.
Srinivasan, N., p. 26.
7.
EDA Rural Systems and APMAS, Self Help Groups in India: A Study of Lights and
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Shades, Delhi, 2006, p. 106.

8.
Isern, Elizabeth, Robert Peck Christen et. al., Sustainability of Self-Help Groups in
India: Two Analyses, CGAP Occasional Paper #12.
9. Murlidhar A. Lokhande (2013). Micro Finance for Women Empowerment - A Study of
Self-Help Groups-Bank Linkage Programme. International Center for Business Research,
2, 159-166.
10. Nishanth, P. and Zakkariya, K. A. (2014). Barriers Faced by Micro, Small and Medium
Enterprises in Raising Finance. Abhinav National Monthly Refereed Journal of Research
in Commerce & Management, 3(5), 39-46.
11. Pallavi Mehta (2013). Women Entrepreneurship: Purpose, Problems & Prospects: A
Study of Udaipur District. Pacific Business Review International, 5(11), 8-16.
12. Parimala Devi, B. (2012). Problems and Prospects of Women Entrepreneurship in India.
International Journal of Science and Research, 3(9), 1277-1280.
13. Prabhakar, K. Lavanya Latha, K. and Papa Rao, A. (2010). Empowerment of Women
through Self-Help Groups (SHGs): A Case Study of Viswa Santhi Balananda Kendram.
Stud Home Comm Sci, 4(3), 133-136.
14. Pradipta Kumar Sahoo (2014). Role of Self Help Groups in Empowering Women: A
Case Study of Kolhasingh and Kharamangi Village in Jajpur District, Odisha. Economic
and Business review, 2(4), 47-53.
15. Priyanka Sharma Gurnani (2014). Changing Status of Women-owned Enterprises in India
- An Insight, Global Journal of Finance and Management, 6(9), 933-944.
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16. Rajasekaran R. Major and Sindhu, R. (2013). Entrepreneurship and Small Business- A
Study with Reference to Women Self Help Groups. Global Journal of Management and
Business Studies, 3(7), 703-710.
17. Ramakrishna, H. (2013). Performance of Self Help Group-Bank Linkage Programme
(SBLP) in India an Analytical Study. Tactful Management Research Journal, 1(10), 1-
6.
18. Rana Zehra Masood (2011). Emergence of Women-Owned Businesses in India-an
Insight. Journal of Arts Science & Commerce, 2 (1), 233-243.
19. Ranbir Singh (2012). Women Entrepreneurship Issues, Challenges and Empowerment
through Self Help Groups: An Overview of Himachal Pradesh. International Journal of
Democratic and Development Studies, 1(1), 45-58.
20. Reji (2013). Economic Empowerment of Women through Self Help Groups in Kerala.
International Journal of Marketing, Financial Services & Management Research, 2(3),
97-113.
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www.ijrrem.

in ISSN (Online) No:

A Study on Impact factor ofSelf Help Groups (SHGs)

Key Words: Women Empowerment, Backwardness, Financial Prospects, Capital Formation.

It is concluded that members satisfaction towards SHGs activities depends on financial

HGs demonstrate significantly higher empowerment, as evidenced by a variety of indices. In

Shades, Delhi, 2006, p. 106.

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