Self Help Groups in Rural Development

Definition, Objectives & Role of Self Help Groups

Social Mobilization, Capacity Building, Bank Credit, Government Subsidy, Social Transformation & Women Empowerment

The Self Help Groups (SHGs) Guiding Principle stresses on organizing the rural poor into small groups through a process of social mobilization, training and providing bank credit and government subsidy. The SHGs are to be drawn from the BPL list approved by the Gram Sabha wherein about ten persons are selected, one each from a family and focus on the skill development training based on the local requirement. The SHG movement has gathered pace in countryside and is directly or indirectly contributing towards the economic development of rural areas. This article throws light on forming self help groups in rural areas as well as its effect on the rural economy. The objective of Swarnjayanti Gram Swarozgar Yojana (SGSY) is to bring the assisted poor families; that is; the beneficiaries or Swarozgaris; above the poverty line by ensuring appreciable increase in income over a period of time. This objective is to be achieved by organizing the rural poor into SHGs through a process of social mobilization, their training and capacity building along with the provision of income-generating assets through a mix of bank credit and government subsidy. The main objective of SHG concept is to improve the economic development of women and create facilitating environment for their social transformation in the lift of gender discrimination in work and the household.

Code of Conduct & SHG Mechanism: SHG is a registered or unregistered group of micro entrepreneurs having homogeneous social and economic background, voluntarily coming together to save small amount regularly, to contribute a common fund and to meet their emergency needs on mutual help basis.

Ten persons are selected, one each from a BPL family to form a group which is expected to implement following code of conduct like Assigning name to the SHG, Regular meetings in a Democratic way, Open exchange of thoughts in these meetings, Participation in the Decision Making process, Bank Account in the name of the SHG and Selecting a President and Secretary from the SHG.

SHG Mechanism

The groups’ total fund is to be deposited in the bank account so created. SHGs that are in existence for about six months and have demonstrated the potential of a viable group enters the 3rd stage, wherein it receives a ‘Revolving Fund’ from DRDA and Bank as a cash-credit facility. This money may be utilized for internal lending among the members. If group is found to be regular in its internal lending and successfully utilizes this revolving fund; proposal for bank loan may be forwarded for sanctioning.

 SHGs and Rural Development

In order to change the face of socio-economic scenario, micro enterprises and SHGs are playing significant role in the self-employment by raising the level of income and standard of living rural people. In this framework, one of the most vital aspects of rural self employment is the formation of SHGs which is a valuable investment in human capital through training and capacity building measures. From dairy to mechanised farming, weaving, poultry, food processing units, mushroom cultivation; Rural India has been busy setting up micro-enterprises by forming SHGs. The group members use collective wisdom and peer pressure to ensure appropriate use of fund and its timely repayment. These are informal groups in nature where members come together towards collective action for common cause. The common need is meeting their emergent economic needs without depending on external help. SHG movement is supposed to build economic self reliance of rural poor, overcome misuse and create confidence predominantly among women who are mostly unseen in the social structure.

SHGs: Effects & Outcome

In India, self employment has been recognized as an essential force of development in rural areas. It has emerged as a strategy designed to improve the socio-economic life and mainly focuses on extending the benefits of development to the poorest in the rural areas improving their standard of living and self-realization. SHGs in India are integrating the low income segments with rest of the rural community by ensuring them a better participation in a more equitable share in the benefit of developments. These Groups are not only speeding up economic growth, but also providing jobs and improving the quality of rural life towards self-reliance. Self-employment needs a very wide ranging and comprehensive set of activities, relevant to all aspects of rural economy and covering rural people including skilled, unskilled and landless labours and artisans of Rural India. Even though the Rural Indians put their entrepreneurial skills in all the rural development activities their economic status has not improved to the expected level. Although they have much potential; they are ignorant of converting their skills into reality.

Village Development through Micro-Financing the SHGs

 Though there is variety of programmes to alleviate poverty and empower rural people, SHGs have done well in the country. The emergence of small enterprises and its activities have made a considerable contribution in the socio-economic development of rural poor in the society. In the 11th Five Year Plan; in view of inclusive growth; we cannot think of rural self employment on sustained basis without consideration of Micro-Finance and SHGs. The Plan provides a new vision of inclusive and faster growth at the rate of 9%. No doubt; the SHGs will help in achieving this new vision of growth with the support of Micro-Finance.  The impact on the lives of rural people is not just an economic one; gaining more self-confidence is often a more lasting achievement that forms the basis for social and economic improvements. But are SHGs the answer to all problems in India? Few issues need to be considered when attempting to answer this question:

  • How the poorest participate in this revolution? More effective targeting mechanisms are required, and SHG programs need to be geared towards the specific needs of poor people.
  • Are these SHGs the most significant way of bringing about socio-economic change? Lasting improvement; especially of the situation of rural women; can only be brought about subject to their control over resources increases.
  • Are SHGs the most appropriate institutional-arrangement for Rural Indians? Different types of SHGs are required for different types of people, depending on their particular socio-economic backgrounds.


It is very important and vital to address these issues and for this an integrated approach of Government, Banks and NGOs is crucial. The institutional efficiency needs to be increased. Speeding up the delivery process is also very important. Easy access to credit, flexibility in the repayment schedule, conceptualization of new schemes for the poor should be considered. Role of NGOs, too, is equally important as they serve as the most important element to create awareness among the rural poor. They should give wide publicity to rural banking and its linkage programmes at local level and must enable the Rural Indians to participate in the decision making process at the bottom level. These measures can significantly make the Self Help Groups effective and efficient in order to boost the Rural Economy of India.

Brief PowerPoint Presentation (PPT)

Self Help Groups



  • Chandra, S. (2001). Non-Government Organization: Structure, Relevance and Function. New Delhi: Kanishka Publishers.
  • Desai, V. (2005). Rural development in India: Past, Present and Future (second ed.). Mumbai: Himalaya Publishing House.
  • Kamdar, S. (2007). Economic Growth and Human Development – A Study of Maharashtra. Mumbai: Himalaya Publishing.
  • Kay, T. (2002). Empowering women through self- help micro-credit programmes. In: Bulletin on Asia-Pacific Perspectives 2002/03 (
  • Narayanaswamy (2005). Micro-Credit and Rural Enterprises. Journal of Rural Development.
  • NIRD (2001). National Movement in SHG movement in the country and SGSY. Hyderabad
  • Sen, A. (2005). The Argumentative Indian. New Delhi: Penguin Books.
  • Varma, S. and Pawar, Y. (2005). Rural Empowerment: Through SHGs, NGOs and PRIs, National Slum Dwellers Federation in India. New Delhi: Deep and Deep.
  • Voluntary Action Cell (2007). National Policy on Voluntary Sector.  Planning Commission: Government of India.
  • Yojana Magazine, Wikipedia, the Hindu & the Google

Earlier Posts


NGOs: Role of NGOs in Rural-Development of Amravati District

Social Audit: Social Auditing in India – A Management Framework


  1. Ravi says

    sir, where can we get those books and journals you mentioned in the references? we don’t have them in our library.

  2. Dr.S.K. Gupta says

    My rearch scholar is going to received PhD on “Decision &Leadership styles in different self help groups.”
    I found your article very useful.

  3. Shubhangi Jore says

    Rajesh Sir,

    Your article helped me in preparing the report for my boss, especially the references were useful and I could explore the topic further. Thank You! My friends were asking when you ll be coming to our office for the next lecture series? We have even asked boss to have you soon.

  4. Gaurav says

    Hi Rajesh,

    Please give me contact details of some S H G becoz my company want to purchase some home made products in corporate social Responsibly (C S R ) , so please do fervor for us .


  5. Judie Lundborg says

    Hello, can anyone vouch for a method to stop this site from displaying a javascript popup in Internet explorer? Best wishes

  6. Dr. Mrs Sushma Joiya Pandit says

    Till date 96% of Self Help Groups are ineffective. They are engaged in any socio-economic activity.
    FRUSTRATION is being felt in rural areas by the name of SHGs. This is because the SHGs are not yielding any positive response.
    NGOs must be encouraged to activate the SHGs in such a manner that at leat each member of SHG must earn minimum Rs 2000/- per month. The project must be result oriented. If the NGO is not in a position to render result oriented services, it should be blacklisted.
    Members of SHGs are having tremendous energy and enthusiasm but the officials are not encashing this energy for socio-economic development of the groups.

  7. Vishal Shinde says

    Thnx Rajeshji.
    I m plnng for an ambitious project.Pls snd u r emailid and cell no. So that we can discuss in details.

  8. ANANT PATIL says

    Self-Help Group significant impact on rural development i accept your result, but what are the overall Rural Economical Development Indicator influence for the work of Self help group.

  9. Ernest says

    Its very interesting.i ask you to come to my home country south africa for helping rural areas here.please lets make an arrangement

  10. Swati says

    Useful Article SHG is tool for women empowerment as well as poverty alleviation,Social mobilization ,Rural employment,Economic growth,overall impact on capacities of women.

    If concept is clear women can improve their lives through SHG. Thanks for Article Rajesh. One more aspect is still need improve financial literacy of this women.

  11. Kamalu Bala Murtala says

    Thank for your effort because I find in simplest way.then I want to visit my country.

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