Group loans are given by SHGs. Self-help groups are voluntary organizations consisting of people with similar economic and social backgrounds. This system has become quite popular in rural areas. In rural areas, mainly women form groups by making small savings and participate in financial social activities.

You must have heard about group loans many times. But do you know what they are and to whom they are given? This is a type of financial facility designed mainly to empower rural and low-income communities, especially women. Group loans are given through self-help groups or joint liability groups. Before understanding group loans, you should understand about self-help groups. You should know how the work of empowering women in rural areas is being done vigorously by self-help groups.

What is a Self Help Group (SHG)?

Self Help Group is a voluntary organization which includes people with similar economic and social background. This system has become quite popular in rural areas. In rural areas, mainly women form groups by making small savings and participate in financial social activities.

Small Health Group, a partner in women's skill development

Through Self Help Group, women are being given benefits like skill development, financial assistance and social empowerment. Most of the women in these groups are from below poverty line and deprived communities. Who want to help their family financially by making small savings.

How is a group formed?

At least 5 to 20 members of financially weaker section form a group together.

During the formation of the group, the name and rules of the group are decided. Things like when the meetings will be held, how much amount will be saved every month, when the loan will be given and training etc. are decided.

A president, secretary, and treasurer are elected.

It is necessary for the members to trust each other, as they collectively share the responsibility of savings and loans.

The group opens a joint bank account, in which the savings and loan amount is deposited. This account is usually opened in the nearest bank or cooperative bank.

These groups are given training by NGOs or local units of NRLM or the bank. In which they are told about savings, accounting and loans. Apart from this, training is also given in income generating activities like sewing, handicrafts, animal husbandry.

Large amount is accumulated from small savings

Every member of the group makes small savings like 50 or 100 rupees every month. This amount is deposited in the bank account of the group. It is used for giving loans and in other ways for the benefit of the group.

What are group loans?

After knowing the working system of self-help groups, you must have also known the meaning of group loan. This is a financial facility which is mainly given to empower rural and low-income communities, especially women. The purpose of group loans is to start small businesses, increase income and achieve financial independence.

Who gives group loans

The group deposits its savings in banks. On which they get loans. This loan is provided without any collateral, because the members of the group collectively guarantee the repayment of the loan. In India, group loan schemes are run by National Backward Classes Finance and Development Corporation, Piramal Finance, Bank of India and other microfinance institutions.

Group loans can be used for many purposes such as starting a small business like sewing, embroidery, handicrafts, grocery shop etc., for animal husbandry or agriculture, emergency expenses for education or health, to increase income generating activities.

Benefits of group loans

1. Collateral free loan

This loan is available without collateral i.e. without mortgaging the property. Many women in rural areas have started their own small businesses using group loans.

2. Low interest rate

Group loans are given at lower interest rates than normal loans. Therefore, it is quite popular among the members of self-help groups.

3. Easy payment benefits

The process of repayment of group loans is easy. These loans can be paid in monthly or quarterly installments.

4. Small amount loans

Self-help group members usually easily get loans of small amounts i.e. from Rs 10000 to Rs 100000. The loan amount depends on the size and requirement of the group.

5. Promotion of women empowerment

Group loans are mostly made keeping women in mind. So that they can be empowered and made self-reliant.

Process of getting group loan

To get a group loan, first of all, the application form has to be submitted by going to the bank NBFC or micro financial institution related to the group. Application can also be done online.

To avail a group loan, all the group members need to provide Aadhaar Card, PAN Card, Voter ID, Group Registration Certificate, Bank Account Details, Savings Records, Income Proof and Business Plan or details about the use of the loan.