Check sibling questions

How do Self Help Groups help borrowers to overcome the problem of lack of collateral? Explain.

Answer

Self Help Groups typically comprise 15-20 people, who pool in their resources to help each other time and again. It has proven to be a successful way to financially organize rural poor in a better manner. 

Once this group becomes regular in savings, it becomes eligible for loan from the bank. These loans are provided for the purpose of creating self employment opportunities for group members, without any collateral. The reason for this is that it’s the group's responsibility to keep track of repayments, etc.

Any case of non repayment of loan by any one member is followed up seriously by other members in the group. Because of this feature, banks are willing to lend to the poor borrowers when organized in SHGs, even though they have no collateral as such. 

Self Help Groups also provide small loans to members against a low interest rate without any collateral. 

 

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Davneet Singh has done his B.Tech from Indian Institute of Technology, Kanpur. He has been teaching from the past 12 years. He provides courses for Maths, Science, Social Science, Physics, Chemistry, Computer Science at Teachoo.