UNIT 12

Process of Forming SHGs with an

External Facilitator

General Objective

After studying this Unit, you should be able to help participants in your
training session to discuss the process of forming SHGs with an external
facilitator.

Specific Objectives

This Training Unit will help you to enable trainees to:

• describe the stages of SHG development;
• discuss focal points at each stage of development; and
• trace changes in the role of development partners with each stage
of development.

Planning

Time
Training Methodology
Training Materials
Trainer’s Preparation
: 4 hours
: Group presentations
: Charts, marker pens, chalkboards
: Reading background material,
preparing copies of background
material for circulation to participants.

Background Material

Stages of SHG Development

Groups pass through various stages to get stabilized. The majority
process is influenced by various factors such as age of the group,
awareness of members, cohesion, leadership, interaction among
members and other activities. Groups move from total informality to
framing of rules and bye-laws and follow them regularly. The leadership
gets established and most of the conflicts are managed internally.
Financial systems are established and the loaning process is refined
and takes care of the requirements of the members. The group networks
with other groups in the area and also with other development agencies.
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Each SHG goes through different stages in the process of development. Process of Forming
SHGs with an External
Let us examine the stages. Facilitator
Pre-formation (1-2 months)
Villages are identified where there is great need for intervention. Through
the use of Participatory Rural Appraisal (PRA) methods like wealth
ranking, village mapping and rapid appraisal of local savings and credit
systems, NGOs are able to identify the potential group members in the
village.
Formation (2-6 months)
Fifteen to twenty women collectively decide to form a group. They are
motivated to form a group. They select the group leaders and develop
rules and norms for the group. Groups are encouraged to begin savings
immediately after the group is formed. The salary for the accountant is
initially borne by the NGOs. Group records and accounts are maintained
with the assistance of a group accountant. NGOs assist in the group
processes, promote an understanding of savings and credit concepts
and operationalize the procedures and activities.
Stabilization Phase I (6-12 months)
Groups meet and save regularly. They increase the amount of savings
once they gain confidence. They disburse loans among themselves
and repay the loans. Repayment ethics are instilled in the members.
Individual members who have difficulty with repayments are held
accountable by the group. The group often responds by adjusting the
repayment schedule or providing financial support to the member until
she is capable of paying off her debt. Group leaders informally interact
with the leaders from nearby groups. At this stage of interaction, the
group learns various aspects such as rules and regulations, problem
solving, systems and procedures from the neighbouring groups. After
one or two months of interaction, a cluster association is formed
consisting of 15-20 groups from nearby villages.
During this phase, cluster associations may be formed. A cluster
association is promoted by 10-20 SHGs which are in nearby villages.
The major function of this association is promoting and strengthening
the SHGs and giving long-term sustainability to groups by mutual support
and cooperation. The association helps/guides the groups to mobilize
funds from banks and strengthens the financial and managerial
capability of the groups.
Stabilization Phase II (12-18 months)
Groups handle savings and credit transactions on their own. Norms of
savings and lending are routinized. Norms are framed to regulate the
behaviour of members — penalties are levied for any irregularity. Groups
pay the salary of the group accountant.
At this stage, the group will have gained enough experience and
discipline to manage the finances but the funds available in the group
will be inadequate to meet the increasing demand. The group requires
additional funds for supporting income-generating activities. The funds
will be mobilized by linking the groups with banks. Some of the groups 31
Groups and Self Help Groups can get loans from the revolving corpus of the Swa-Shakti project being
implemented by the Department of Women and Child Development,
Ministry of Human Resource Development, Government of India.
Groups begin to address common issues in their community. These
include improving living conditions such as accessing water and
electricity, or improving the conditions of the roads leading to the village.
The interactions between the groups is formalized and the cluster
association is formed. Regular meetings of the cluster association are
held and attended by the leaders of the groups. The association appoints
workers to implement their various activities and support the systems
at group level.
NGOs reduce their direct interaction with the groups and the
responsibilities are transferred to the group and cluster association as
much as possible. However, the NGOs are available as resource
persons for the groups and continue to provide training and capacity
building inputs for leaders and local functionaries appointed by the
cluster associations and groups.
Growth and Role Transformation (18-24 months)
During this phase, the linkage with the bank is intensified. If the group
effectively utilizes and repays the first loan taken from the bank, it can
take the second loan or increase its credit limit. Since limit of the loan
amount is high, more members are encouraged to take loans to improve
their economic activities. NGOs help in identifying suitable activities
and stabilizing existing activities. Cluster associations will initiate special
support activities for social and financial development of member groups.
Leaders take on greater responsibility to manage the activities of the
cluster association.
Groups focus on stabilizing the income generation activities of individual
members. Groups form into a block level federation. Federations are
formed, owned and managed by the primary groups. At the block level,
100-200 groups may form a federation. The purpose of forming a
federation is to ensure sustainability of the groups and to provide
continuity and economics of scale for the programme. Federations also
establish alternate channels for credit support, especially for satisfying
special credit needs of members such as housing, bigger income
generation activities, etc.
The federation will appoint its own staff to extend support to the member
groups. It will initiate collaboration with external institutions like Rashtriya
Mahila Kosh for resource mobilization for further lending to the member
groups. Collaboration with the government agencies helps to address
the social and community development issues.
Each group independently manages its activities and interacts with
banks and cluster level institutions. The older groups extend support to
new groups in the nearby villages. They are a source of inspiration for
the new groups. NGOs extend support for stabilization of federations
of SHGs and formalize linkages with other institutions.
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 Process of Forming
The following table gives you the growth path of an SHG through the SHGs with an External
stages already mentioned. Facilitator

Growth Path of an SHG

S.No. Stages of Time Focus
Development (months)
1. Pre-formation 1-2 Identifying the poor
through participatory
methods in small
villages.
2. Formation 2-6 Evolving group names
and bye-laws,
regularizing group
meetings; pooling of
savings, lending and
collection of small
loans; group cohesion
and adjustment,
systems of accounts.
3. Stabilization-1 6-12 Stabilization of
handling of group level
transactions
independently or with
less support; Cluster
interactions.
4. Stabilization-II 12-18 Initiation of income
generation
programmes, (IGPs);
linkages with banks;
cluster associations;
initiation of support for
new groups.
5. Growth 18-24 Establishing linkages
with banks and cluster
associations;
expansion of IGPs;
addressing community
issues.
6. Expansion and > 25 Creation of
Diversification assets for the group
members; spreading
the concept and
promotion of new
groups; creation of
block level federation.
Stages of SHG Development
The stages and activities included in each of these stages have been
modified in the Swa-Shakti project. This was done keeping in view the 33
Groups and Self Help Groups various components of the modified project. The modified stages are
mentioned in the following table.
Interventions according to the Age of the Group (in months)
0-12 12-18 18-24 24
Group formation On-farm activities Networking Creche
Literacy Health check up Capacity building Drinking
of cluster water
associations
Group training Revolving corpus Convergence with Withdrawal
and bank linkage other programmes
Community asset Linkage with
creation Panchayati Raj
institutions
Awareness Non-farm activities
generation
Soil and water
conservation
The SHG Development Process
Let us look at the SHG development process in the Swa-Shakti project.
Here is the set of guidelines which are available for promoting successful
SHG development.
• In order to build a cohesive group, and ensure trust and confidence
between members with no more than 15-20 members, it is important
that the group size be small.
• Any decisions about the group and its activities must be taken on
the basis of group consensus. The decision-making process should
be participatory and there will be no executive committee.
• Each group will frame its own regulations for the operation of the
group’s savings and loans.
• Regular meetings are important. Ideally, groups should meet weekly
but the minimum would be monthly. All saving and loan fund
procedures will be conducted at this meeting. The facilitator would
initially attend these meetings to give advice and to check that the
accounts are maintained correctly. Group meetings should also
be used for discussion on awareness raising, informal interactive
training sessions on group dynamics, leadership and related
subjects. They could provide a forum for the NGO facilitator to
conduct training sessions on special topics like health, nutrition,
agriculture, etc. to which outside resource persons could be invited.
• Loans would initially be provided mainly for consumption purposes
but as the savings fund grows and the group gains experience in
managing the fund, larger loans, with longer repayment periods,
would be agreed on for more productive purposes.
• Six to nine months into the programme, and based on the
performance of the group, the banks would be approached to
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 provide the group a bulk loan. Initially, this linkage with the banks Process of Forming
SHGs with an External
would take the form of a cash credit limit. Facilitator
• At the same time, the SHG would serve as a forum for other facets
of empowerment such as literacy, dissemination of information on
family welfare, health and nutrition, financial management, legal
rights, and so on, and a basis for social action. Participation of the
women’s husbands in certain family related discussions should,
on occasion, be encouraged.
• Once groups have gained experience, the concept of individual
savings accounts within the group, and from which women would
be able to withdraw their savings, could also be introduced.
Role of NGO at each stage
The role of NGOs has to change continuously in tune with the growth
of the group. In this process, the NGOs have to delegate their old roles
and responsibilities to others and take on new ones. NGOs have to
help in the process of transferring roles and ensure that each partner
plays its own role effectively. This needs protection and facilitation.
The facilitator continues her role as a supporter, although her visit to
the village becomes less frequent with each stage of development.
SHG Promotion and Development: Change in the Role of
Development Partners
We can expect that the role of development partners such as NGOs
and bankers will change depending on the phase of SHG development.
Let us explore this aspect:
Phase of SHG NGOs SHGs Bankers
Development
Pre-formation Explorer and initiator Observer Onlooker
Formation Promoter and Passive Observer
facilitator participant
Stabilization I Coach Passive owner Experimenter
Stabilization II Resource person Active owner Financer
Growth Advisor and IGP Manager Collaborator
initiator
Expansion and Business support Self-managed Collaborator
Diversification and
financial
advisor
Factors Influencing the Growth of a Self Help Group
There are some aspects which facilitate the growth of the group. Some
aspects need to be avoided to ensure smooth functioning and growth
of the group. The facilitating and inhibiting factors are listed in the
following table.
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Groups and Self Help Groups Facilitating and Inhibiting Factors

Facilitating Factors In

• Economically poor members • Big, unma

who are in need of credit; group;
• Homogeneity and cohesion • Lack of c
among group members leaders;
leaders; • Insincere
• Team spirit and mutual trust NGO;
among the members; • Misunder
• Good leadership and sharing members
of responsibility by the • Lack of g
leaders and members; support;
• Size of group is optimum (15- • Political in
20); • Over-fina
• Regularity in conducting taking loa
meetings; managing
• Savings of groups is the primar and issue
source for lending; without g
• Members self-select activities Lower in
• Flexibility in loan processing subsidize
and fixing repayments; • Improper
• Proper book-keeping and • Lack of fo
accounting systems; • Inequality
• Clear norms for managing the • Natural c
group; beyond th

Design Features of Good SHG-Oriented Programmes

S.No. Feature Action
1. Membership Members should be:
• poor;
• from similar social and economic
backgrounds;
• participating voluntarily (not by force).
2. Loan sizes Loans should be small in the beginning to
ensure that the richer and more influential
members are not interested in them.
3. Meetings Meetings should be regular and attendance
compulsory. Generally wealthy members
refuse to participate at every meeting.
4. Interest rates Interest rates should be higher than bank
36 charges, but lower than moneylenders’ rates.
 Process of Forming
Exceptions may be made for health and SHGs with an External
education-related loans. Facilitator

5. Regular Members who have defaulted on a loan

reminders should be regularly reminded. The group
to defaulters should monitor the loan default at every
meeting.
Loans should be repaid in front of all the
members during meetings so that defaulters
suffer a loss of face.
6. Increased size of Members can get more loans if the
second loans repayments are made on time.
7. Long-term loans Experienced groups should encourage long-
term loans on reduced interest rates for
construction and repairs to toilets or houses
and for major agricultural activities.
8. Funds for Groups should build up reserves to handle
loan default loan defaults.
9. Distribution of Some groups make large savings over time.
excess savings It is advisable to return some of these savings
to group members after a few days. Similarly,
profits made by the group should also be
distributed among its members every year.
10. Insurance An experienced group should start small
schemes insurance schemes to provide relief to
members in case of the loss of an earning
member or for medical emergencies.

Work Plan for Your Training Session

Activity 1
Ask participants to go through the background material. Divide the
participants into four groups. Ask each group to prepare a 15 minute
presentation on one of the following aspects (a,b,c or d):
a) Stages of SHG development;
b) Growth path of an SHG;
c) Types of interventions at each stage of SHG development;
d) Change in role of bankers and NGOs during each stage.
Let each group make their presentation. Summarize the main points
for reinforcement.

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Groups and Self Help Groups Acknowledgements

Department of Women and Child Development

Ministry of Human Resource Development
Publications

1) Network of Self Help Groups: A Guide Book written by Tara Sinha,

Friends of Women’s World Banking, India.
2) Resource Book for Group Building
3) Swa Shakti: Guide Book for Field Workers
4) Training of Self Help Groups: A Guide Book written by Girija
Srinivasan
5) Organizing Self Help Groups – A Resource Book

Disclaimer: The use of materials as part of the background material of

the training units does not infringe in any way on the copyright of the
original authors of this material. Use of the materials has been permitted
with due acknowledgement.

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