Yesterday the self-help group was summoned in Maira, Punjab. Pinki Devi’s husband suddenly fell very ill, for which he needs immediate medical care. Pinki has no money but the treatment requires a lot of it. She turns to the group of women who have been meeting since 2018 and are running as a self-help group. Since she is a member of the group, they discussed about Pinki’s family’s situation and decided to grant a loan.

The terms of lending were agreed and the next step is to withdraw the amount from their joint bank account. The husband was admitted to the hospital. Despite the current lockdown and uncertain future, posing a risk to recovering the loan, the women decided to support each other in this time of crisis. It is the first time that the group trust has resulted in lending. When Pinki is able to work again, she will repay the loan in monthly installments.

This is how SHG short-term loans work

One of the key functions of a Self-Help Group is the development of a common fund that empowers the group to issue short-term loans in times of need to their members. Every month, the women each deposit an agreed amount into the group’s joint bank account, administered by their appointed president and treasurer. After an initial saving period of six months, the balance in the account is sufficient for sanctioning loans.

An SHG member that finds herself in need of a short-term loan can present her case at the next regular meeting. The members discuss the terms for the loan, including the sanctioned amount, rate of monthly interest, and repayment schedule. The loan is gradually repaid through fixed installments each month, with an additional monthly interest that is typically around 2% of the outstanding balance. The members have the power to set the terms for each loan according to the circumstances.

Benefits of Self-Help Group Internal Lending over Bank Loans:

1. Members can immediately receive loans when needed – no waiting time.
2. No bureaucratic and structural barriers to obtaining a loan – typically banks are not interested in lending money to people without collateral.
3. Lower interest rate – when taking loan from a bank, the interest fees are generally higher.
4. Interest paid on a loan goes directly into the group fund – instead of paying fees to a bank, interest payments will increase the common fund.
5. Flexibility in responding to repayment complications – the members are aware of each other’s situation and decide adjustments to the repayment schedule of a member that is struggling to keep up with the initial agreement. By this compassion-driven and collective decision-making approach the groups always find a way to prevent loans from defaulting and individuals from suffering.
6. Self-confidence, group trust, and community strength

Our model: AmritaSREE

In Kerala the AmritaSREE (Self-Reliance Employment & Empowerment) Self-Help Group network has grown to such strength that between 25 and 100 SHGs have formed a so-called SHG clusters and pooled their funds. In 2018, several such clusters have funded the construction of several free houses for poorest members of their communities from their interest earnings. The women were inspired for this selfless gesture by following Amma’s examples of giving back to society.