Self Help Groups, composed of a group of people from urban and rural areas who come together to save and lend money to group members, are a popular microfinance model in India as well as other countries around the world. In fact, these savings and credit groups have been around for decades, and in some places, for centuries (such as the Susu Collection System in Ghana) in one form or another, and their popularity is partially based on the fact that they are easy to setup and administer.

The Indian government has taken steps to bring self-help groups into the formal sector by creating supporting funds and also running SHGs in certain provinces, such as Andhra Pradesh.

Basic Workings of a Self Help Group

A self-help group is a collection of a couple dozen men and/or women who gather regularly to pool their funds in the form of regular savings. These savings are then used to advance interest bearing loans, as well as non-interest bearing loans to group members in a cycle, or on demand. Naturally, accounting can be an issue in these groups as the setup is highly informal.

The Susu Collection System, mentioned earlier, is different from the Indian self-help group microfinance model, in that designated susu collectors visit the houses of various members of a community to collect savings, and in turn, advance loans at low interest rates. A small transaction fee is also charged.
Again, fraud is a major risk in this methodology as well, and the Ghana government has taken steps to mitigate this risk by setting up a formal federation for all susu collectors in the country.