An economic model of self‐help groups: policy implications for banks and NGO initiatives

Abstract In India, the Self‐Help Group (SHG) has emerged as a suitable innovative institution in bringing formal financial sector credit to poor. This article constructs an economic typology of SHGs based on four important economic variables, namely, interest on members' savings paid by the SHG, sharing of SHG surpluses by members, members' claim on exit from the SHG and lending rates charged by the SHG to members. An economic analysis of each type of SHG shows these variables to be important in terms of the members' costs of borrowing and demand for credit. Based on the analysis, some leads for a set of policy guidelines for each type of SHG are presented. Copyright © 2001 John Wiley & Sons, Ltd.