The Catalytic Role of Shg's in the Indian Economy

Abstract

The development of the wide nation like India needs joint efforts by all. Still today most of the people in India are below the poverty line, which is a surprising concept when we are talking about the Technological revolution in the country. Even after 60 years of Indian independence, 1/3 of our population is still illiterate and at least 26% of the population still lives under the poverty line and these percentages are increasing. Most of the un-banked or financially excluded population of India live in rural areas; nevertheless, there is also a significant amount of the urban population of India who face the same situation even with easy access to banks. Many of the financially excluded in these areas are illiterates earning a meager income just enough to sustain their daily needs. For such people, banking still remains an unknown phenomena or an elitist affair. It is easier for them to keep their money at their house or with some moneylenders and easily make immediate purchases (which make up most of their expenditure) rather than to follow the cumbersome process at banks. A lot of the financially excluded populations are at the mercy of moneylenders or pawn shop owners. They should be made a part of the formal banking structure so that they could also have the benefits that the others enjoy. By making them financially inclusive, we are making their financial position less volatile. At the same time, we are treating them on an equal par with other members of the population so that they would not be denied of access to a basic service such as banking. The exclusion of such a vast segment of the population warranted a new form of intermediary and in response to its self help groups and Micro Finance Institution emerged in India.

Self Help Groups have played a magnificent role in bridging the gap between the economically backward and economically developed people. To meet the changing rural economic needs and protect the poor from the financial exploitation by the informal agencies, creative change in the functioning and objectives of the financial institutions is the urgent requirement. One of such a measure is self help group. With an effective administrative machinery and the bank linkage programme, SGHs will certainly prove to be successful instrument for the contribution to the economic development of the nation.

Whether SHGs are effective intermediary in bringing more financial inclusion is studied in this paper. It is observed that financial inclusion through SHGs efforts has a tremendous potential and hence the purpose of this paper is to focus on social and economic issues and the use of SHGs as a strategy for inclusion growth and sustainable development