National Level Model Act on SHGs and SHG Federation​s

In India, the banking sector witnessed large scale branch expansion after the nationalization of banks in 1969, which facilitated a shift in focus of banking from class banking to mass banking. It was, however, realised that, notwithstanding the wide spread of formal financial institutions, these institutions were not able to cater completely to the small and frequent credit needs of most of the poor. This led to a search for alternative policies and reforms for reaching out to the poor to satisfy their credit needs. As an alternative to the formal financing system, the SHG Movement was initiated by some of the civil society organizations way back in the 1970's. After the initial struggle from these civil society organizations for long time, bank linkages for enhancing the credit access to women members took off as an important activity. Given this innovation, both Government and Formal Banking System started reacting favorably.

 

The National Bank for Agricultural and Rural Development (NABARD) started Self-help group (SHG) - bank linkage programme (SBLP) as a pilot project in 1992. This programme not only proved to be very successful, but has also emerged as the most popular model of micro finance in India. However, the limitations of an informal small group to undertake substantial investments in productive activities and also to provide universal financial inclusion (with wide range of financial services like savings, credit, insurance, pension and other services) become visible very soon. Therefore, Self Help Promotion Institutions (SHPIs) started promoting the concept of Federations of SHGs.  

 

Despite tremendous achievements of the self-help groups, recognized as the largest decentralized institutional mechanism to extend basic financial services in the World, the growth of the Self Help Groups and Federations are getting limited due to lack of appropriate legal framework. Most SHPIs are initiating SHG Federations as either Public Societies, Trusts or Cooperatives. In seven states of the country, the most frequently used legal act is the Self Reliant Cooperative Societies Acts. Post 97th Amendment of Constitution, where in Republic of India recognized that it is fundamental right of citizens of India to form cooperatives, there was a ray of hope that a member/citizen centric framework independent of government control will be established. However, in 97th Amendment, part IXB goes on to prescribe provisions of bylaws of cooperative societies. Keeping this as ruse, both Madhya Pradesh and Odisha State Governments quickly repealed the Self Reliant Cooperative Societies Acts operational in their states. 

 

Given this background, it is clear that at the National Level there is no appropriate legal framework which is sensitive to the needs of informal Self Help Groups and their federations. Under the context of National Level scaling up of Self Help Groups as part of National Rural Livelihoods Mission, it will be quite appropriate to debate and discuss on the appropriate legal framework for SHGs and SHG Federations. This will be equally relevant for National Urban Livelihood Mission.