How to Start a Self Help Group in Your Village.

India is home to the largest network of Self Help Groups in the world. With over 90 lakh SHGs connected to more than 10 crore women households, these groups have transformed the lives of millions of families across the country. If you are thinking about starting a Self Help Group in your village or community, this guide will walk you through everything you need to know.

Self Help Groups have become one of the most powerful tools for financial inclusion and women empowerment in rural India. They bring together people from similar backgrounds who save small amounts of money, lend to each other, and support one another during times of need. The collective strength of these groups has helped families escape poverty, start small businesses, and build better lives.

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What Is a Self Help Group

A Self Help Group is a small informal association of 10 to 20 people who come from similar social and economic backgrounds. The members come together voluntarily to save money regularly, contribute to a common fund, and use this pool of savings to lend to members who need financial support. The fundamental principle behind every SHG is simple. Unity is strength. One stick is easy to break, but a bundle of sticks is difficult to break.

A Self Help Group is a small informal association of 10 to 20 people who come from similar social and economic backgrounds.

1. SHGs operate on the idea of mutual help. Members save as little as Rs 10 or Rs 20 per week or month. This collected money forms a group corpus that can be used for internal lending. When a member faces a financial emergency or wants to start a small business, she can borrow from this common fund at a reasonable interest rate decided by the group itself.

2. Most SHGs in India are formed by women. Over 90 percent of SHG members are women. This is because women have shown greater discipline in savings and repayment, and the government actively promotes women led SHGs as a tool for economic and social empowerment.

3. SHGs do not require formal registration. Unlike companies or societies, a Self Help Group does not need to be registered with any government authority. However, they can be linked to government programs like the Deendayal Antyodaya Yojana National Rural Livelihoods Mission, commonly known as DAY NRLM, to access additional benefits and support.

Why Self Help Groups Matter in India

The impact of Self Help Groups on rural India cannot be overstated. Under the National Rural Livelihoods Mission, SHGs have mobilized over 65 billion dollars in credit from public and private sector banks. Community savings have crossed 5 billion dollars. The loan repayment rate among SHGs is above 98 percent, which is among the highest in the financial sector.

1. Financial inclusion for the unbanked. Millions of rural households had no access to formal banking before joining SHGs. Through the SHG Bank Linkage Programme, these families now have savings accounts, access to credit, and financial literacy that was previously unavailable to them.

2. Women empowerment through economic independence. Studies show that women who participate in SHGs report a 19 percent rise in income and a 28 percent increase in savings. They gain decision making power in their families and participate more actively in community affairs.

3. Access to government schemes and support. The Lakhpati Didi initiative under DAY NRLM aims to help SHG women earn at least Rs 1 lakh annually through sustainable livelihood activities. As of 2024, over 1 crore Lakhpati Didis have been created, with a target of reaching 3 crore women.

4. Collateral free loans for small businesses. SHG members can access collateral free loans of up to Rs 10 lakh from banks. This has enabled thousands of women to start micro enterprises in agriculture, handicrafts, food processing, tailoring, and other sectors.

Step by Step Guide to Starting a Self Help Group

Starting a Self Help Group requires careful planning, patience, and commitment from all members. The process typically takes about five to six months before the group becomes fully functional and ready for bank linkage. Here is a detailed guide on how to form an SHG in your village.

Step 1: Identify Potential Members

The first step is to bring together a group of 10 to 20 women from the same village or locality who share similar socio economic backgrounds. Look for women who are willing to work collectively, save money regularly, and support each other. It is important that all members trust each other and are committed to the group goals.

Key points to remember:

1. Only one member per household. To ensure wider coverage, only one woman from each family should join a particular SHG.

2. Similar economic status. Members should have similar income levels and financial needs. This ensures that savings amounts and loan requirements are comparable across the group.

3. Geographic proximity. Members should live close to each other so that attending regular meetings is convenient for everyone.

4. Homogeneous groups work better. Groups consisting of either only men or only women tend to function more smoothly. Women led groups have consistently shown better performance.

Step 2: Conduct Initial Meetings

Before formally starting the SHG, conduct a few informal meetings to discuss the purpose of the group, its objectives, and the importance of financial discipline. Use these meetings to explain how SHGs work, what benefits members can expect, and what responsibilities they will have.

During these initial meetings, discuss:

1. The concept of collective savings and internal lending. Explain how members will contribute to a common fund and how this money will be used to help members in need.

2. The importance of regular attendance and participation. Weekly meetings are recommended as they help members understand each other better and maintain discipline.

3. The basic rules that will govern the group. Discuss matters like the savings amount, meeting frequency, penalty for absence, and decision making processes.

Step 3: Form the Group Structure

Once members are aligned on the objectives, the next step is to establish the group structure. This involves selecting a name for the SHG and appointing office bearers who will manage the group activities.

1. Choose a meaningful group name. Select a name that reflects the aspirations of the group or has local significance.

2. Appoint office bearers. Every SHG needs three key office bearers. The President leads meetings and represents the group externally. The Secretary maintains records and handles correspondence. The Treasurer manages all financial transactions and keeps account books.

3. Rotate responsibilities. To ensure that all members learn leadership and accounting skills, rotate the office bearer positions every one or two years.

Step 4: Decide on Savings and Meeting Schedule

The group must decide on a fixed savings amount that all members will contribute at every meeting. This amount should be affordable for all members but substantial enough to build a meaningful corpus over time.

1. Fix the savings amount. This could be as low as Rs 10 per week or Rs 100 per month, depending on what members can afford consistently.

2. Decide meeting frequency. Weekly meetings are ideal as they promote regular interaction and discipline. Monthly meetings are acceptable if weekly meetings are not practical.

3. Choose a fixed day, time, and venue. Consistency helps members plan their schedules around SHG meetings.

Step 5: Start Saving and Maintain Records

From the very first meeting, members should start contributing their savings. Equally important is maintaining proper records of all transactions. Good record keeping is essential for the group credibility and eventual bank linkage.

Essential records every SHG must maintain:

1. Minutes book. Record the proceedings of every meeting, including attendance, decisions made, and any issues discussed.

2. Savings register. Track the savings of each member separately and the total group savings.

3. Loan register. Maintain details of all loans given, including the borrower name, amount, interest rate, repayment schedule, and outstanding balance.

4. Cash book. Record all cash transactions, including savings collected, loans disbursed, repayments received, and expenses incurred.

5. Member passbooks. Each member should have an individual passbook showing her savings and loan history.

Step 6: Begin Internal Lending

After three to six months of regular savings, the group can start internal lending. This is a crucial phase where members learn to manage loans, make decisions collectively, and handle repayments.

1. Decide lending criteria. The group should collectively decide who gets loans, for what purposes, at what interest rate, and for what duration.

2. Prioritize need based lending. Give preference to members who have genuine financial needs such as medical emergencies, education expenses, or starting a small business.

3. Set reasonable interest rates. The interest rate should be higher than savings interest to generate surplus for the group but lower than moneylender rates to benefit borrowers.

4. Ensure timely repayment. The discipline of internal lending prepares the group for larger bank loans later.

Step 7: Open a Bank Account

The SHG should open a savings bank account within two months of formation. This is a critical step for accessing formal credit through the SHG Bank Linkage Programme.

Requirements for opening an SHG bank account:

1. A resolution passed by all members. This resolution should state the intent to open a bank account and authorize at least three office bearers to operate the account jointly.

2. KYC documents of office bearers. The bank requires KYC verification of all office bearers. Aadhaar cards are commonly accepted.

3. No PAN required. As per RBI guidelines, PAN is not mandatory for SHG bank accounts. Members can submit Form 60 instead.

4. Copy of group rules. If available, submit a copy of the rules and regulations framed by the SHG.

Step 8: Get Linked to DAY NRLM

Registering your SHG with the Deendayal Antyodaya Yojana National Rural Livelihoods Mission opens up access to government support including revolving funds, training programs, and market linkages.

Benefits of NRLM linkage:

1. Revolving Fund of Rs 10,000 to Rs 15,000. This seed capital helps new SHGs strengthen their internal lending capacity.

2. Community Investment Support Fund. Eligible SHGs can receive up to Rs 2,50,000 for livelihood activities.

3. Bank credit linkage. NRLM facilitates bank loans for SHGs at subsidized interest rates.

4. Skill training and capacity building. Members receive training in financial literacy, enterprise development, and technical skills.

Common Challenges and How to Overcome Them

Starting an SHG is not without challenges. Many groups face difficulties in the initial months before they find their rhythm.

1. Irregular attendance. Set clear rules about attendance and introduce small penalties for absence without valid reason.

2. Delayed loan repayments. Peer pressure within the group usually ensures timely repayment. Discuss repayment capacity before sanctioning loans.

3. Poor record keeping. Invest time in training the bookkeeper. Simple formats and regular audits help maintain accuracy.

4. Conflict among members. Establish a democratic decision making process. Major decisions should be taken by consensus or majority vote.

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Conclusion

Starting a Self Help Group in India is a powerful way to bring financial independence and social empowerment to women in rural communities. The journey requires patience, discipline, and collective effort, but the rewards are transformative. From accessing formal banking for the first time to building small businesses that lift entire families out of poverty, SHGs have proven their impact across millions of households.

If you are ready to start a Self Help Group in your village, begin by identifying women who share your vision of mutual support and collective growth. Start small, save regularly, and build trust through transparent operations. The resources and support from government programs like DAY NRLM are available to help your group succeed.

For guidance on starting a Self Help Group or connecting your community with livelihood programs, reach out to Marpu Foundation. Our team works with rural communities across India to facilitate SHG formation, bank linkage, and sustainable income generation initiatives.

Contact Marpu FoundationEmail: connect@marpu.orgPhone: +91 7997801001