Read part 1 of Challenges Faced by Self Help Groups (Solved by Formalizing this Microfinance Model).

3. Lack of capital

The loan requirement of the self-help group may easily exceed the pool of funds generated through savings from group members, especially considering money lost through bad debts. SHGs may need access to funds from external sources, such as NGOs and government bodies, in order to compensate any shortage of capital.

4. Lack of management skills

Self-help groups are often initiated by a small cluster of individuals from low-income groups. Even though the members have little formal education or exposure to running thriving businesses, they may manage the group efficiency when the group size is small. However, over time, the self-help groups may grow in size to accommodate a few dozen members, which requires that internal control mechanisms be setup to monitor the entire group’s activities, otherwise the group may simply be ‘too large to manage’.

At this point, it is important that NGOs and other microfinance institutions step in to assist the management of the group through capacity building – whether it is through the provision of skilled human resources, the training of the current group managers, or even the establishment of new governance structures.