Case Study

Transaction Costs of Self-Help Groups - A Study of NABARD's SHG Banking Programme in India

How profitable are self-help groups?
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This paper explores the idea of self-help groups (SHGs) being a viable commercial proposition. 

  • A pilot study of bank transaction costs in a select few bank branches found that they were moderate; it also found that SHG banking was highly profitable for the banks;
  • However, another pilot study that used a different methodology found that the selected bank branches were making losses on this product;
  • Both studies agree that rural banks need to be reformed, interest rate structures adjusted and SHG banking made more efficient.

A study also examined whether SHGs were burdened by excessive transaction costs shifted by the banks. The findings and the conclusions of the study were:

  • Findings:
    • The poor repay their bank loans, while many of the non-poor do not;
    • Even the poorest can borrow, save and repay;
    • Interest rate margins represent a major source of income to the groups.
  • Conclusions:
    • Transaction costs of SHGs were so low that immediate intervention was not required;
    • SHG banking was highly profitable to banks and highly beneficial to SHGs and their members.

The paper concludes by recommending that:

  • NABARD, banks and NGOs should continue expanding and deepening the program;
  • There should be an increase in training, control and supervision;
  • NABARD should be encouraged to facilitate the annual reporting and auditing of the balance sheets and performance data of SHGs, through banks and other cooperating partners;
  • Other countries, such as Indonesia, should learn from India's experience.

About this Publication

By Karduck, S., Seibel, H.
Published