Sustainability of Self-Help Groups in India: Two Analyses (Occasional Paper No. 12)

This CGAP paper reports on two separate studies of Self-help groups (SHGs) in India. In the first study, the authors review SHGs developed by five different SHPIs (government agencies or non-government organizations). They look primarily at the financial viability of these SHG programs. In the second study, the authors analyze the operational structure and financial performance of four leading SHG programs and propose a methodology for designing sustainable SHG programs. They ask:

• Can the SHG programs provide essential support services?
• Can these services finance themselves and the SHGs that they support?

The studies find that:

• Well-executed SHG programs achieve financial sustainability;
• SHPIs provide enough external support services to keep the SHGs functional, and SHGs are willing and able to pay for this support;
• Loan default is very rare in well-run SHG programs;
• SHG programs compare favorably with other microfinance models in terms of administrative costs;
• Clients join SHG programs mainly to get loans, not to save;
• SHG programs do reach the very poor and marginalized people;
• There is little evidence of ‘elite capture in SHG programs.

The paper concludes that the reason for the success of the SHG program in India might be that the external funding comes from a commercial bank that is serious about getting its money back.