ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Multiplier Effect of Self-help Groups

This article measures financial inclusion performance on three dimensions--branch penetration, credit penetration and deposit penetration and in the process of quantifying the contribution of self-help groups towards macro-level financial inclusion dimensions, reveals the multiplier effect of SHGs. Since it enables all group members to access savings, credit and other financial services from bank, efforts to promote financial inclusion through SHGs should continue.

There is a symbiotic relationship between financial sector development and economic growth. Financial inclusion is an important process in enabling people to exit poverty by transforming their production and employment activities (Banerjee and Newman 1993; Aghion and Bolton 1997; Yunus 1998; Burgess and Pande 2003; Basu and Srivastava 2005). Financial inclusion is defined as the “delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups” (Leeladhar 2006).

The National Bank for Agriculture and Rural Development (NABARD) pioneered the idea of mobilising small, cohesive and participatory groups, known as self-help groups (SHGs) (Fernandez 2007). The economic activities of SHGs comprise accumulating member savings, providing internal loans to group members and availing bank loans. As on March 2014, there were 74.3 lakh SHGs, of which 56% were credit-linked and 84% were all women groups (NABARD 2014). The SHG-bank linkage programme has proved to be cost-effective for banks as group loans lower the operational costs and delinquency rates. This programme has been regarded as the world’s largest and fastest-growing microfinance programme that goes beyond mere financial services provision to encompass wider goals of securing livelihoods, reviving local economies and empowering women through trainings, confidence building and leadership development (Fischer and Sriram 2002; Seibel 2005).

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