Self-help groups as financial institutions: Policy implications using a financial model

Abstract

This paper uses a spreadsheet financial model to identify key-financial policy parameters that influence the performance of self-help groups (SHGs) whose primary activity is microfinance. The focus is on long-run (ten-year) performance. There is bad news for those policy makers and practitioners who focus unduly on growth as measured by loan activity. A conservative financial policy that does not inject external funds into the SHG in the initial years and, when it does, does so with moderation, seems appropriate in the long run. Additionally, a high loan interest rate policy produces SHGs that are strong financial institutions.