Micro-Financing Rural Women Through Self-Help Groups: A Study on Income Generation and Decision-Making Skills

Abstract

In most developing countries, the policies concerning rural credit were, by and large, based on certain assumptions, some of which were: commercial banks were reluctant to provide for the credit needs of the rural poor for reasons that were neither commercial nor economic; the rural poor did not have any capacity to save; they needed credit on concessionary rates of interest and relaxed terms for taking up income generating activities, more so for development works on their farms; the rural people needed external assistance for organizing themselves into groups and later close watch and regulatory measures to ensure that they work together; many of the target group borrowers would graduate after some doses of concessional credit and would start taking credit on normal terms and that informal finance did a positive developmental role and it was an evil that should be eliminated.

Introduction

The study discusses the evolution of rural credit policies and the role of microfinance and Self-Help Groups (SHGs) in promoting financial inclusion and women's empowerment in India, particularly through the Stree Shakti Programme in Karnataka.

Traditional rural credit policies in developing countries were based on subsidized loans, concessional interest rates, and government-supported credit programs aimed at helping the rural poor. However, these policies often failed to create sustainable credit systems due to poor loan recovery, high operational costs, dependence on external funding, and the inability to effectively reach the poorest sections of society.

Microfinance emerged as an alternative approach, providing small-scale financial services such as savings, credit, insurance, and money transfers to low-income households and micro-enterprises. Unlike traditional lending, microfinance emphasizes group-based lending, savings mobilization, credit discipline, and self-reliance. Its key principles include linking credit with savings, avoiding subsidies, and using group responsibility for loan appraisal, monitoring, and recovery.

Two major microfinance models are:

• Self-Help Groups (SHGs): Groups manage savings and credit activities collectively and act as intermediaries between banks and members.
• Grameen Groups: Individual loans are provided based on joint liability and group assurance.

The Stree Shakti Sangha (SSG) is a women-centered SHG model consisting of 15–20 rural women who pool savings into a common fund and provide loans to members. The groups operate democratically, encourage thrift before credit, promote collective decision-making, and focus on leadership development, education, and skill enhancement. Members share joint responsibility for loans and work on the principle of mutual support.

The SHG-Bank Linkage Programme, promoted by National Bank for Agriculture and Rural Development, has become a major microfinance mechanism in India. It helps reduce transaction costs, improve access to banking services, build trust between banks and rural communities, and support entrepreneurship among poor households. Four linkage models exist, ranging from direct bank financing to SHGs to indirect financing through NGOs.

The Indian microfinance sector has grown significantly. By March 2025, it served more than 8 crore clients across the country, with a loan portfolio of approximately ?3.81 lakh crore. Growth has been driven by financial inclusion initiatives, digitalization, and strong demand for microcredit, especially among women and marginalized communities.

The Stree Shakti Programme, launched in Karnataka in 2000, aims to empower rural women through SHGs. The program has:

• Increased savings and credit access for women.
• Promoted income-generating activities.
• Provided training in leadership, communication, record keeping, and entrepreneurship.
• Supported vulnerable groups such as Scheduled Castes, Scheduled Tribes, minorities, and backward-class women.
• Facilitated bank credit, revolving funds, and government assistance.

The program has generated substantial savings, enabled large-scale internal lending, and improved women's participation in economic and social decision-making. In districts such as Uttara Kannada, Stree Shakti groups have not only improved financial independence but also addressed community issues such as road infrastructure, education, drinking water supply, and social problems like alcohol abuse.

Conclusion

Micro finance, in reality plays a more powerful economic, social and political role. Apart from its availability, credit should be available to poor at lower rate of interest. At present SHGs are lending to members at the rate between 12 to 22 percentages. How do the poor pay such a high interest rate? There for the rate of interest should not be more than 5 to 8 percentage. Stree shakti programme is basically a graduation process for socio-economic empowerment of the poor, providing financial services to them and preparing them to take up activities and bulk credit for poverty alleviation. Some sections of the society find it difficult to participate in stree shakti programme. Care should be taken to make them participate in the programme.There is need for conducting the necessary research to find out how many years are required to come out of the poverty, how many are benefited to know the health, consciousness of the women before and after participation of the stree shakti programme etc.

References

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Copyright

Copyright © 2026 Dr. Abdul Majeed. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.