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Informal financial services

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WHO/Moss

Financial assistance often comes from informal sources within the community, including:

  • Family members
  • Religious organizations
  • Neighbours
  • Friends, and
  • Self-help groups

Informal financial services like these have always been a feature of poor communities and remain essential for their survival.

Learn how the success of self-help groups in India has enabled them to approach banks for loans that will support larger projects.

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There are many thousands of self-help groups all over India, with collective savings amounting to many millions of rupees. With these financial assets, self-help groups can approach banks for substantial loans, using their savings as collateral, enabling them to undertake larger projects and escape poverty.

Each member of the group saves Rs 30 (US$ 0.66) per month. This creates a monthly collective saving of Rs 360 (US$ 8) which is banked. Group members may take loans from the group. Loan repayments include interest charged at 2% per month (24% per year). Repayment is normally within a six-month period.

Examples of loans to members from the group’s savings include the following:

  • A woman borrowed Rs 1000 (US$ 22.20) for materials to make joss sticks. She supports her mother through her income from this craft.
  • Another woman borrowed Rs 1000 (US$ 22.20) for embroidery materials. She earns about Rs 300 (US$ 6.60) per week and supports her elderly mother. She learnt embroidery skills through a government training programme.
  • A young man in the group borrowed Rs 500 (US$ 11) for college fees. He is studying economics and civics and aims to become a teacher. He has a scholarship from the government, but this is not paid until the end of the year, and he needed money before that. He will repay the self-help group loan when he receives this money.

The group itself decides on the amount of interest to charge, recognizing that all interest paid on these loans is income for the group, so is not a loss to individual members.

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