Friday, October 27, 2006

Grameen model vs Self-Help Groups - a comparison

Grameen model of microfinance has evolved in Bangladesh and is the most dominant model prevalent there. Centrally managed, dedicated microfinance institution, groups of five, highly disciplined organizational structure - that is Grameen model. The focus is primarily on lending, but every group member must save a certain amount.

In contrast, in India, the most popular model is Self-help groups. SHGs are groups of between 15-20 people. Scheduled banks provide the loans and manage the savings for the group. But the banks do not directly interact with the SHGs. Instead, non-governmental organizations (NGOs) get involved, help in forming groups, but then empower the groups to manage their own affairs. The focus is primarily on saving. Lending to group members is first sought from within the group savings, and then from the bank.

I had learnt about both the methods - about Grameen model by reading various books on the subject, and the SHG from a person who is the administrative manager of an NGO, organizing SHGs in Chennai.

SHGs are more popular in India. The Grameen replicators are very few in India.

I was wondering why these two methods are so starkly different and how two distinct methods developed in these two countries independently.

I have now found an excellent article

Grameen Bank Groups and Self-help Groups; what are the differences? Malcolm Harper (2002)

which describes the two schemes in detail, compares the two, and explains possible reasons on why Grameen model developed in Bangladesh while SHGs are more popular in India.

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