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Economic impact of Self Help Group—A Case Study

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Journal of Rural Development, Vol. 28, No. (4), pp. 451 - 467
NIRD, Hyderabad.

ECONOMIC IMPACT OF
SELF-HELP GROUPS -
A CASE STUDY Tanmoyee Banerjee (Chatterjee)*

ABSTRACT
The paper makes an effort to estimate the impact of Self-Help Groups created under
SGSY programme of Government of India on the basis of primary survey undertaken in
the district of North 24 Parganas of West Bengal during September 2005 to March 2006.
Data were collected from group members as well as from non-group members. It has
been observed that income generation through group activities has improved the aver-
age income of group members but the inequality of distribution of income is high among
the group members than that of the non-group members. Secondly, there has been a
significant decline in the medical expenditure and school dropout rate in the families of
group members than that of non-group members.

Introduction From 1 April, 1999 Government of India

A major cause of poverty among rural
people is lack of access for both individuals and
communities to productive assets and financial
resources. This is caused by the fact that the
formal credit institutions that function smoothly
in developed urban areas cannot cater to the
credit need of rural poor due to lack of informa-
tion about the borrowers, lack of proper collat-
eral among the poor people, which are accept-
able to the formal financial institutions and there
are enforcement problems in case of default.
The failure of formal lending institutions and the
apparent success of Bangladesh’s Grameen Bank
in reaching the rural poor have recently inspired
numerous non-governmental organisations
(NGOs) and governments of less developed
countries to establish group-lending schemes
to deliver credit at low cost and reasonable in-
terest rates to small-scale rural entrepreneurs
(Coleman ,1999). India is no exception in this
case.
initiated a programme called Swarnjayanti Gram
Swarojgar Yojana (SGSY) which is a self-employ-
ment programme of Ministry of Rural Develop-
ment that aims at providing assistance to the
BPL rural poor for establishing micro-enterprises
through bank credit and government subsidy to
acquire an income-generating asset.1 To this end,
SGSY has been designed to cover all aspects of
self-employment such as organisation of the
poor into self-help groups, training, credit, tech-
nology, infrastructure and marketing and
enabling the rural poor to take decisions on all
issues concerning poverty eradication.2
This SGSY programme actually tried to link
the rural poor to the formal micro finance insti-
tutions via self-help groups where groups will
receive joint liability loans from formal credit in-
stitutions.3
Different theoretical results by Ghatak
and Guinnane (1999) had shown that in closed
communities where group members are known

* Department of Economics, Jadavpur University, Kolkata 700032, India. Email: tanmoyee@hotmail.com,

tanmoyee@gmail.com
* This Research Project was undertaken under Seed Support Programme of UPE Scheme of Jadavpur Univer-
sity.
The author is thankful to Professor Ajitava Raychaudhuri, Arpita Dhar, Malabika Roy and Chandralekha Ghosh
for their innovative suggestions and comments.
452
to each other, group lending promotes screen-
ing, monitoring, state verification and enforce-
ment of repayment. Ghatak (1999) had shown
that in closed village communities in-group
formation stage, the members could choose
safer partners that reduce their effective cost of
borrowing and improve rate of repayments of
loans to avoid the social sanction of his peer
group (Basely and Coate (1995)). Experiences
of Grameen bank in Bangladesh have shown that
availability of collateral free tiny loans for income
generating activities for poor have a significant
impact on the lives of poor families (Yunus
2004). A study by Pitt and Khandekar (1998)
considered the impact of Grameen Bank and two
other group-based micro credit programmes in
Bangladesh on labour supply, schooling, house-
hold expenditure and assets.They found that the
programme credit has larger positive impact on
the behaviour of poor if the borrowers are
women rather than men.
Coleman (1999) in a study considered the
impact of group lending programmes in North
East Thailand. This survey had shown that the
impact of village banks that provide group-loans
in villages is insignificant on physical assets,
savings, productions, and productive expendi-
tures and on other variables. However, it has posi-
tive impact on women’s high interest debt be-
cause a number of members had fallen into
vicious circle of debt from moneylenders in
order to repay their loans on village banks. It has
positive significant impact on women’s lending
out with interest because some members
engaged in arbitrage, borrowing from village
bank at low interest and then lending out money
at mark up.
A study by Ahlin and Townsend (2003)
considered the presence of joint liability loans
versus individual loans on the basis of data gath-
ered from Thailand. Their study showed that the
wealth level; showed a ‘U’ shaped relationship
with group loans, and it was also found that the
lower the probability of success of the project,
higher is the likelihood of taking a group loan.
Journal of Rural Development, Vol. 28, No. 4, October - December : 2009
Tanmoyee Banerjee (Chatterjee)
There have been many studies on the
working of SHGs in different parts of India. These
studies mostly covered the SHGs working in the
States of Orissa, Andhra Pradesh, Maharashtra,
Tamil Nadu, and Uttar Pradesh.4 A study by
NABARD covering 560 SHG member house-
holds from 223 SHGs across 11 states, showed
many positive results on the impact of participa-
tion of rural poor in the SHGs. It shows that there
have been perceptible and wholesome changes
in the living standards of SHG members in terms
of ownership of assets, borrowing capacities,
income generating activities, income levels and
increase in savings. It indicates that the average
annual saving per household registered an
increase over three-fold (NABARD, 2002).
The present survey attempts to assess the
social and economic impact of group formation
in West Bengal, which has not been covered in
the literature.
Methodology
The objective of this survey is to study
the impact of SHG joining on economic
positions of the individuals through collection
of primary data from West Bengal.
To this end, primary data were
collected from four sub-divisions (namely,
Barasat, Basirhat, Bangaon and Barrackpore) of
district of North 24 Parganas in West Bengal. A
large number of self-help groups have been
formed in North 24 Parganas under SGSY
programme. According to DRDC of North 24
Parganas, total number of self-help groups in the
district was 11,231 on 31.5. 2006.5
Data were collected by interviewing
people who joined the self-help groups under
SGSY programme, which was started from 1 April
of 1999. In this survey we have first considered
the set individuals who were operating under
self-help groups at least for two years. The data
set covered 300 group members of 27 groups
from all four sub-divisions of the district where
the programme is under operation. According
to DRDC officials, the performance of groups
are not same in all areas under operation. For
Economic Impact of Self-Help Groups - A Case Study
this reason the interviewed groups were
selected from all four sub-division of the district.
All the groups that were interviewed had already
received joint liability loans from formal institu-
tions and members had already utilised the loans
and repayment rates were also 100 per cent.
Secondly, we have collected data from female
individuals of families residing in Hasnsbad and
Basirhat 1 block of Basirthat sub-division who as
well as other family members have not joined
self-help groups under SGSY programme even
when the programme is in operation in that area.
The sample size for people who are not mem-
bers of group is 143. These individuals had self-
selected to be non-members of SHGs.
We collected data on different socio-eco-
nomic- demographic factors like religion, family
size, number of children in the family, occupa-
tional pattern, family income level, family
savings level, family consumption expenditure,
food expenditure, health related expenditure,
number of school dropouts in the family from
group members and non-group members. Also
data on pre-group joining average family monthly
income, consumption expenditure, and savings,
health related expenditure of the group
Table 1 : Comparison of pre and post-SHG joining monthly family
income at constant prices
Price adj income aft
Mean
Standard Error
Median
Mode
Standard Deviation
Sample Variance
Kurtosis
Skewness
Gini Coefficient
Table 1 shows that at constant prices the
distribution of income has become less skewed
as well as kurtosis has also decreased. It implies
that after group joining a redistribution of
income has taken place and inequality of income
had reduced. This is also evident from the calcu-
Journal of Rural Development, Vol. 28, No. 4, October - December : 2009
453
members were collected by direct interview
method.6 The survey was undertaken during the
period October 2005 to March 2006.
Analysis of Data
This section discusses the result of de-
scriptive analyses and regression analyses that
shows the impact of group joining on the in-
come and expenditure level of assisted families.
Impact on Relative Income Inequality (Within
Group Variation) : The groups that are at least
two years old are included in the survey and the
data on pre and post-group joining levels on
monthly family income and consumption expen-
diture were collected. Pre-group joining infor-
mation is collected through recall.
To eliminate the inflationary increase in
income and monthly consumption expenditure
we have adjusted the data set using the con-
sumer price indices for the agricultural labourers
and rural labourers as given by RBI using June
1986-July 1987 as the base year.7, 8. Simple com-
parison of before and after group monthly fam-
ily income at constant prices gives the following
result.
Price adj income bef
408.1298 387.5480497
8.138388 8.379675736
377.907 361.8421053
377.907 391.5171289
140.961 145.1402413
19870.01 21065.68963
6.821039 8.540186082
1.888158 2.111226084
.1766 .1899
lation of gini coefficients.9 The result shows that
the income gini coefficient at constant prices
for pre-group joining level is 0.1899 and that
has reduced to 0.1766 in post-group joining
period. Further, it is observed that the correla-
tion coefficient between individual income
454 Tanmoyee Banerjee (Chatterjee)

after joining group and family income after join-
ing group is positively significant. Thus, the in-
crements in individual income of group mem-
bers have increased their family income and re-
duced the relative income inequality. Secondly,
the median income has increased at constant
prices, which implies that greater number of
people are now concentrated in the higher in-
come class than the pre-group joining level.
Thirdly, it is observed that the mode of the distri-
bution has reduced.This implies that the income
generation process has improved the position
of individuals in the lower income classes more
than that of individuals at higher income class in
pre-group joining stage. In the survey it is ob-
served that of 300 individuals interviewed, 125
(41.66 per cent) of them were unemployed
before joining the group.10 All of them were
gainfully employed after joining the self-help
group and from the lowest income class a large
number of families have shifted to the upper
income classes.11 This has made the entire distri-
bution more symmetrical and reduced the rela-
tive income inequality.
Impact on Monthly Family Expenditure : Next
we consider the changes in different monthly
expenditures at constant prices. In the survey
we have collected data on average monthly fam-
ily consumption expenditure, family food expen-
diture, family non-food expenditure, family
health related expenditure12, and family savings
for pre and post-group joining period.
Table 2 summarises the change in aver-
age monthly income and expenditures at con-
stant prices using June 1986-July 1987 as the
base year.

Table 2 : Comparison of price adjusted pre and post-group joining

monthly family expenditure
Monthly family Mean(S.D) Paried t-statistics
income and for equality of Means
expenditure at Before Aft Mean difference d.f 299 (p value
constant prices Two tailed)
Family Income 387.54 408.12 -20.582 -6.410
(145.14) (140.96) p=.000
Consumption 347.64 343.71 3.932 1.808
Expenditure (99.534) (92.226) p=.072
Food Expenditure 138.34 133.34 5.006 4.650
(39.09) (39.19) p=.000
Non-food 209.29 210.37 -1.074 -.459
Expenditure (89.89) (86.34) p=.647
Health related 27.06 18.40 8.665 8.489
Expenditure (18.49) (12.20) p=.000
Savings 39.30 64.41 -25.113 -7.903
(79.04) (82.35) p=.000

The paired sample t test shows some This is quite obvious. The nominal income of the
interesting results. At constant prices there has group members has increased after joining of
been a significant change in average monthly SHGs and that has increased their real income
family income, consumption expenditure (at 10 also. An increase in income however did not raise
per cent level of significance), monthly food the consumption expenditure, which has actu-
expenditure, health related expenditure, and ally gone down. (This decrease in consumption
savings. The average monthly income at expenditure is significant at 10 per cent level.)
constant prices has shown a significant increase. This may be attributable to the fact that there
Journal of Rural Development, Vol. 28, No. 4, October - December : 2009
Economic Impact of Self-Help Groups - A Case Study
has been a significant increase in the average
family savings after group joining. Self-Help
Group promotes a habit of saving among the
group members. The members of any group
created under SGSY have to save a constant
amount each month towards their group account.
This is reflected in the increase in average
monthly savings of the family.
The decrease in food expenditure
signifies the fact that an increase in income has
caused the food expenditure to reduce while
the non-food expenditure has remained same.
However, the most interesting point is that there
has been a significant decrease in the health
related expenditure of the family after joining
SHGs. In this survey, except the members of one
group (Amra Sabai), all other groups consisted
of female members and 41.66 per cent of group
members were unemployed before joining the
group. Thus, after joining group these female
members of the family have started to earn, and
their earnings have improved the condition of
the family. According to Yunus (2004), lending
to women brings greater benefits to the family
αfamc
than the men. If the mother is the borrower the
children are the immediate beneficiaries and it
improves the condition of the family also. In this
case, the economic empowerment of women
may have created an awareness among them,
which is reflected in better hygienic habits and
may be there has been more optimal allocation
of food expenditure among the family
members, which may have lowered the family
medical expenditure. The reason for this aware-
ness can be explained in the following way.
Table 3 : Impact of group joining on monthly family consumption
function at constant prices
Coefficients for before Coefficients for after Coefficients for restricted
joining groups N=300 joining groups N=300
Constant 50.579* 35.945*
Fammem 17.684* 22.320*
Famy .572* .521*
R2 .773 .771
RSS 672085.6 582282.2
RSSbef+RSSaft 1254367.8
F statistics for ChowTest F=7.21 df =3, 594 P value=.000
· Significant at all levels.
Journal of Rural Development, Vol. 28, No. 4, October - December : 2009
455
After joining the SHGs the group members had
gone through the training programme for
efficient operation of the groups as organised
by group forming authorities like Gram
Panchayat, in collaboration with Zilla Parishad
and District Rural Development Cell (DRDC) and
the NGOs. In these programmes they were also
advised regarding proper hygienic habits and
methods of clean sanitation. These programmes
have developed the awareness among the group
members regarding good hygienic habits and
that may have reduced their monthly family
medical expenditure.
As given in Table 2 an attempt was made
to estimate the changes in consumption func-
tion of the group members after joining SHGs. In
this case the family monthly consumption ex-
penditure on family monthly income and num-
ber of family members is regressed and the
Chow Test is applied to measure the possible
shift in family consumption function after join-
ing of one family member in SHGs. The regres-
sion equations are as follows:
==
famcbef=βα
α1 + βγfammem
1 fammem++γ γ2 1famy
famybef
1 =αaft2 1 2 +ββ
2 2 1 = γ2 bef
Next the same regression equation was
considered for after group joining income and
consumption expenditure.
Finally the restricted model was consid-
ered under the assumption
. The results are as
follows:
model N=600
44.133*
20.003*
.544*
.764
1300104
456 Tanmoyee Banerjee (Chatterjee)

From Table 3 it is clear that there has been
a shift in the consumption function for the group
of individuals who have joined the SHGs.
Comparing the pre-group and post-group level
of coefficients it is found that marginal propen-
sity to consume has fallen after group joining.
Basically after group joining the members have
to compulsorily save a part of their monthly
income and this significantly increased the
post-group joining average saving expenditure
of the families of SHG members. This basically
explains a fall in the marginal propensity to
consume of the individuals.13 In this case it has
been also observed that regression coefficient
corresponding to family specific constant
consumption expenditure has decreased after
joining of SHGs but coefficient corresponding to
marginal increase in consumption expenditure
for per unit increase in family member has gone
up after group joining. This implies that alloca-
tion of consumption expenditure per family
member for a given level of income has
increased after joining of SHGs.
Comparison Of Distribution Of Income For
Group Members And Non- Group Members
Table 4 presents the comparison between dis-
tribution of monthly family income of group
members to that of non-group members.

Table 4 : Comparison of monthly family income for group members

and non-group members
Family income of non- Family income of group
group members members all over the district
Sample Size 143 300
Mean 1025.874126 1403.967
Standard Error 27.7831454 27.99605
Median 1000 1300
Mode 1000 1300
Standard Deviation 332.2380969 484.9059
Sample Variance 110382.1531 235133.7
Kurtosis 5.396940732 6.821039
Skewness 1.792023089 1.888158
Gini coefficient .169 .179
Combined Gini .193

From Table 4 it is clear that mean, median
and mode of the income distribution has
increased after group joining. However, if we
compare 300 group members from all over the
district with 143 non-group members we find
that distribution of income is less skewed for
non-group members (with gini coefficient
0.163) than the group members (with gini coef-
ficient 0.179). So the average income level must
have improved after joining of group, but we
cannot say that group joining has reduced the
inequality of distribution of income compared
to the non-group members. The combined gini
coefficient of group and non-group members
taken together is higher than income gini coef-
ficient for group members and non-group mem-
bers. This implies that increase in income of the
household of group members has further
increased the inequality of distribution of income
in that area.

Journal of Rural Development, Vol. 28, No. 4, October - December : 2009

Economic Impact of Self-Help Groups - A Case Study 457

Table 5 : Comparison of monthly family expenditure of group members

to non-group members
Average Standard Deviation
F Statistics Mean t-statistics
monthly for equality for equality
family of variances of Means
income and Non- group Group (D.F142, Non-group Group
expenditures members members 299) members members
Family Income 332.24 484.91 .469 1025.87 1403.97 -9.586
(p=.00) d.f 387 (p=.00)
Consumption 247.80 317.26 .61 960.49 1182.37 -8.02
Expenditure (p=.00) d.f 349 (p=.00)
Food Expenditure 100.70 107.30 .88 411.33 458.70 -4.430
(p=.196) d.f 441 (p=.00)
Non-food 202.28 296.99 .46 549.16 723.66 -7.245
Expenditure (p=.00) d.f 389 (p=.00)
Health Related 69.97 41.97 2.77 84.02 63.30 3.272
Expenditure (p=.00) d.f=198 (p=.00)
Savings 173.96 283.29 .39 65.73 221.6 -7.12
p=.00 d.f. 413(p=.00)

When we compare the family expendi-
ture pattern of group members and non-group
members, given that the samples are of two
different sizes, the variances of the expenditures
are unequal except for family food expenditure.
This is very obvious. Since the group members
and non-members are chosen from same social
and geographical location, their food habits are
of similar type. Table 5 shows that family income
and all the expenditures including family
savings have increased significantly after
joining of SHGs, except the health related
expenditure.14 Increase in average monthly
family income has improved the level of
consumption expenditure, food and non-food
expenditure. This can be explained by high
unemployment rate of non-group members.
Basically, of 143 non-group members 41(28.7
per cent) were unemployed and are not
contributing anything towards their family
income. Secondly, it has been observed that
the average health related expenditure has
significantly reduced for SHG members. This
result implies that there have not been any
improvement in general medical facilities of the
district; otherwise the health related expendi-
ture of non-group members should have reduced
also. Thirdly, the increase in average monthly
saving is quite obvious for group members, as
they need to save and contribute compulsorily
to their group account.
Group Joining and Household Health Re-
lated Expenditure
The survey collected data on monthly
family health expenditure of the interviewees.
The monthly health related expenditure consists
of cost of medicine and fees of doctors etc. The
health related expenditure is uncertain in nature.
So we have collected data on monthly family
health related expenditure for the month just
before the month of interview. From above Tables
it is clear that the average monthly health
related expenditure for the group members is
significantly lower than that of non-group
members. This result is further strengthened if
we consider the following regression equation
where we try to find out the factors that
influence the family monthly health related
expenditure of female group members and
female non-group members15. In this case the
monthly family health related expenditure is

Journal of Rural Development, Vol. 28, No. 4, October - December : 2009

458
regressed on family monthly income, number
of children in the family, employment status
dummy 16, group participation dummy and
Table 6 : Results of Regression showing the impact of different variables on monthly
family health related expenditure for female group members and non-group members
Dependent: Monthly Health Related
Expenditure Independents
Constant
Religion
Number of Children
Educational Status
Employment Status
Group Dummy
Monthly Family Income
Overall F Statistics
R2
Table 6 shows some interesting results.
Firstly, it has been observed that the R2 is very
low but the “F statistics for overall significance
of regression equation” is significant. Basically
the health related expenditure, unlike consump-
tion expenditure or food expenditure, is mostly
uncertain in nature. It is not a fixed expenditure,
rather it is a contingency expenditure. So these
variables can only partially explain the variation
in this expenditure.
Secondly, the result shows that the
number of children in the family significantly
increases the medical expenditure of the family.
The survey mostly covers the families who are
very poor and in these families children suffer
from different health related problems due to
malnutrition, lack of health awareness, lack of
proper sanitation system and drinking water.
Thirdly, we find that in the families with an
employed female member, the level of health
expenditure is higher than that of families with
unemployed female family members. The above
result signifies the fact that with a working
female member in the family, the families can
afford to incur a high level of medical expendi-
ture than that of the families with unemployed
female member. Thus, when the ‘mother’ is
employed, children are the immediate benefi-
Journal of Rural Development, Vol. 28, No. 4, October - December : 2009
Tanmoyee Banerjee (Chatterjee)
religion dummy17 and dummy corresponding to
educational status18. The following Table gives
the results of the regression.
Coefficients P value
N=433
43.747 .000
5.019 .349
7.743 .002
-4.880 .353
25.325 .010
-30.568 .000
.008 .148
6.179d.f (6,426) .000
.080
ciaries and the conditions of the families are also
improved. Finally, the most interesting result is
that participation in SHGs has reduced the
family medical expenditure. The survey shows
that all female group members are employed
but their family health related expenditure is
significantly lower than that of non-group
members. Thus, for group member the group
participation effect is dominating the employ-
ment effect and the family health related
expenditure is showing a decline for group
members. In this context, from the survey it was
clear that group participation did not provide with
any extra medical or health facilities to the
members of SHGs but they receive different
advice regarding good hygienic habits in train-
ing programmes organised by group forming
authorities like Gram Panchayat, in collaboration
with Zilla Parishad and District Rural Develop-
ment Cell (DRDC) and the NGOs. For this reason
group participation must have created aware-
ness for better hygienic habits among the women
group members, which may have reduced health
expenditure. 19
Next an attempt was made to isolate the
factors affecting the monthly family health
related expenditure of the female group mem-
bers. In this case it was tried to find out the
Economic Impact of Self-Help Groups - A Case Study
impact of group forming authorities20 and occu-
pational pattern21 of group members on their
monthly medical expenditure.Thus, the monthly
family health related expenditure is regressed
upon number of children in the family, dummy
corresponding to educational status of female
family member, religion dummy, individual
income of the group member 22 , dummy
corresponding to occupational pattern of female
group member (ALAH for person employed in
Table 7 : Results of Regression showing the impact of different variables on monthly
family health related expenditure of female group members only
Dependent: Monthly Family Health
Related Expenditure of Group
Members Independents
GP
NGO1
Religion
No. of children
Educational status
ALAH
NAL1
Individual Monthly Income Aft Joining Group
Overall F Statistics
R2
Table 7 shows some interesting results.
Firstly, it is found that among the group
members the family health related expenditure
is significantly increasing with number of
children in the family. Secondly, it is observed
that religion and educational status do not have
any influence on the family health expenditure.
Next it is observed that the individual income
level of the group member is significantly
increasing the family health expenditure. The
result reflects the fact that the women empow-
erment through group activities is improving the
level of family welfare. Lastly, the model shows
that the medical expenditure is significantly
lower (at 10 per cent LS) for the families of the
group members when group is created by Gram
Panchayats than that of the groups created by
NGO2. 23 As we have mentioned, from the
survey it is clear that the district headquarter of
Journal of Rural Development, Vol. 28, No. 4, October - December : 2009
459
agriculture and animal husbandry, NAL wage
earner or salary earner in non-agricultural activi-
ties, SE for self-employed) and dummy corre-
sponding to institution that has created the
groups (GP and NGO1 has been included in the
regression equation and NGO2 has considered
to be the reference dummy). In this case Self-
Employed Dummy was used as the reference
dummy. Results of regression are presented in
Table 7.
Coefficients P value
N=290
-12.729 .085
-14.032 .156
1.232 .842
6.607 .004
1.068 .839
-10.548 .104
-8.395 .268
.026 .032
2.502 d.f (9,281) .012
.067
North 24 Parganas (Zilla Parishad) along with GPs
have arranged training programme for group
members for better operation of groups. In these
programmes they were also advised about
better hygienic habits, necessity for clean drink-
ing water and proper sanitation methods. This
has generated awareness among the group
members. The result signifies that the GP
created group members are more aware about
better health habits than that of the NGO2, that
is why they have significantly lower family health
related expenditure than the members of the
groups created by NGO2. The result of the
regression shows that the medical expenditure
increases with higher level of individual income.
The GP formed group members ,have statisti-
cally significant higher average income than that
of NGO2 formed group members, but still they
have lower family health related expenditure.
460 Tanmoyee Banerjee (Chatterjee)

This must have been resulted from the better
heath awareness of the former group than that
of the latter. Thus, the result signifies the impor-
tance of group forming agency on the overall
welfare of the group members.
Impact of SHG Joining on School Drop Rate
According to National Human Develop-
ment Report 200124, school dropout rate is very
high in West Bengal. A basic reason for school
dropout is poverty due to which children are
sent to work at a very early stage. Data obtained
from 52nd round survey of NSS provide reasons
for non-enrolment and dropouts from school
during 1995 – 96. It is found that 50 per cent of
all children have never enrolled because of lack
of interest followed by economic factors (25 to
26 per cent). Regarding dropouts from the
schools, lack of interest is the major factor (34
per cent), but direct school related factors are
also important (26 per cent).
Given our data set, an attempt was made
to estimate the impact of group joining of the
female adult family member on the school drop-
out rate of children of the family using a
binomial logistic regression model.25 In this
analysis we have defined the binary dependent
variable that is assigned the value of one if the
family has at least one school dropout child and
zero for no school dropout.The covariates of the
analysis are number of children in the family,
educational status26 of the member interviewed,
monthly family income level, SHG membership
and employment status of the person inter-
viewed27. Dummy variable corresponding to
employment status takes a value equal to 1 if
the person is employed and it is zero otherwise.
We have considered the SHG membership sta-
tus as a dummy variable (GRDUMMY) that is as-
signed a value equal to one for SHG members
and zero for non-members. As was already men-
tioned, expect one group (that is, Amra Sabai) all
other group members are females. In this case
the members of that group are excluded from
the analysis. We have compared 290 female
group members with 143 females from families
that are not member of any SHGs. Table 8 gives
the results:

Table 8 : Results of Logistic Regression showing the impact of different variables of

school dropout rate for families of female group and non-group members
Probability of school drop-
out in the family
Covariates β Coefficient Sig. Exp (β) coefficients
No. of children in the family .781 .001 2.184
Employment status 1.081 .009 2.984
Group dummy -6.272 .000 .002
Educational status -.348 .350 .706
Monthly family income .000 .539 1
Constant -.984 .181 .387
Model fitness results
-2 log likelihood 188.449
Model χ2 269.719 d.f =5 p value .000
Hosmer Lameshow chi-square test 12.889 d.f=8 p value=.116
Measure of overall predictability 90.8
N (total cases) 433

Journal of Rural Development, Vol. 28, No. 4, October - December : 2009

Economic Impact of Self-Help Groups - A Case Study
Analysing the result we find that among
the covariates of the analysis only the number
of children in the family, group dummy and the
employment status of the female family
member interviewed, are significantly affecting
the probability of school dropout in the family.
The family income level or the educational
status of the interviewed female member of the
population is not affecting the probability of
school dropout in the family. In the data set we
have total 433 data points, of which 290 are group
members with no school dropout in the family ,
and 143 are non-group members with 96 (67
per cent) families having school dropout chil-
dren. The result shows that the group participa-
tion dummy is significantly reducing the prob-
ability of school dropout in the family (As the
Exp (b) coefficient is less than unity). The result
further shows that the number of children in the
family is increasing the probability of school drop-
out in the family (As the Exp (b) coefficients is
greater than unity). In the poorest group of the
population, higher number of children in the
family reduces the probability that a child will
receive the chance of getting educated. Thirdly,
we have observed another result, which shows
that the probabilities of school dropout increase
if the female family member is employed.28 This
result may seem counter-intuitive. In the survey
we observed that all female group members are
employed and none of these families have any
school dropout. In this case 28.7 per cent of non-
group members are unemployed but 67 per cent
families of non-group members have at least
one school dropout child. Thus, the result shows
that if the mother of the family is employed,
when the individuals are non-group members,
then it has a negative impact on the school
participation of the children. Reasons may be as
follows. If the mother of the family is working,
then in many cases girl children are not sent to
school to manage the household matters. If the
mother had to devote a very long hour to her
workplace, it may not be possible for her to
monitor the school participation of the children.
Thirdly, if the mother of the family is not aware
of the necessity of education of the children,
then the school dropout increases in the family.
Journal of Rural Development, Vol. 28, No. 4, October - December : 2009
461
We have already observed that the school drop-
out rate has dropped in the families with SHG
members where the female SHG members are
all employed. This result shows that the
employment of the female family member is
not enough to reduce the school dropout rate in
the family. The group joining may have created
awareness among the mothers regarding the
necessity of education of the children, which is
reducing the school dropout rate in the families
of group members.
Conclusion
The SGSY programme has supplied pro-
duction loan to the members of SHGs. The loans
have been supplied through the Nationalised
Commercial Banks in the name of the Self-Help
Group. The loans are treated as joint liability of
the members of the group. In case of North 24
Parganas it has been observed that in most of
the cases the woman of the family has joined in
the Self-Help Groups. It has also been observed
that among 300 group members interviewed
(of whom 290 are females) 42 per cent were
unemployed in pre-group joining stage. After
joining group they became employed and this
has changed their family income category. So
the inequality of the distribution of the family
income had reduced for the group of people
who had joined SHGs. It has been further
observed that from low-income group more
people have shifted to high-income levels. This
has reduced the inequality in the distribution of
family monthly income.
Secondly, the comparison of the pre-
group and post-group level of the average
monthly income and expenditures of the 300
group members at the constant prices had
shown some interesting results. Here it is
observed that the increase in average family
income at constant price is significant and the
family average consumption expenditure and
food expenditure at constant prices had reduced
significantly during this period. However, the
post-group joining monthly average family
health related expenditure has decreased
significantly at the constant price. Alternatively
462
the monthly family saving has increased after
joining of Self-Help Group. This result is very
obvious as the Self-Help Groups promote the
saving habit among the group members.The fall
in average family health related expenditure
signifies that the economic empowerment of
women must have created an awareness among
them, which is reflected in better hygienic
habits and more optimal allocation of food
expenditure among the family members. In this
context we have compared the pre-group and
post-group joining consumption function of
these 300 families. It is found that the consump-
tion function of pre-group level is significantly
different from that of post-group joining
consumption function and marginal propensity
to consume out of income has decreased after
joining SHGs. This is in line with the increase in
average family savings. Basically after joining
SHG, members have to save compulsorily a part
of their income. This has decreased the marginal
propensity to consume out of family income.
The comparison of the monthly family
income and consumption expenditure of group
members with a group of individuals who had
not joined any SHGs within the survey period
has showed that there has been a significant
increase in the average monthly family income
and consumption expenditure at current prices
of the group members who are gainfully
employed after joining the group.
Next it is obtained that family health
related expenditure is significantly lower for
group members than that of the non-group
members. And group-forming authorities have
significant impact on reducing the medical
expenditure of the group members.
Journal of Rural Development, Vol. 28, No. 4, October - December : 2009
Tanmoyee Banerjee (Chatterjee)
Finally, the most interesting result of this
survey is that the rate of school dropout has
significantly lowered in the families of group
members than the families who do not belong
to Self-Help Groups. It has been also observed
that in the families of non-SHG members
employment of woman family member has not
reduced the school dropout, rather a family is
more likely to have a school dropout if the
woman member is working. But in case of group
members there is no school dropout observed
in the data. It has been observed in the survey
that the members have to undertake different
paper works to run the group activities in groups
created under SGSY programme. This has
created an awareness regarding the necessity
of education among the group members, which
has reduced the school dropout rate in the
families of group members.
Thus, so far the survey results showed
that there has been some positive impact of SGSY
programme as a poverty alleviation programme.
And it has helped to reduce the phenomenon
of school dropout which will lead to a better
society in the future. Finally from our study it
appears that provision of employment in rural
areas may not solve the social problems like
school dropout of children, improvement of
family health or welfare. The programmes that
provide employment or supply income gener-
ating assets must be accompanied by awareness
campaigns that raise the awareness regarding
better health habits, necessity of child educa-
tion to bring overall development of the society.
Economic Impact of Self-Help Groups - A Case Study 463

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Anand, Jaya S. (2002), “Self-Help Groups in Empowering Women: Case Study of Selected SHGs and NHGs”,
Discussion Paper No. 38, Kerala Research Programme on Local Level Development, Centre for Development
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Bali Swain Ranjula and Fan Yang Wallentin ( 2007), “ Does Micro Finance Empower Women ? Evidence from
Self-Help Groups in India”, Working Paper 2007:24, Department of Economics, Uppsala University, August 2007.
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ment Economics, 46, pp.1-18.
Coleman B.E (1999), ‘The Impact of Group Lending in Northeast Thailand’, Journal of Development Economics,
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Informal Journey Through Self-Help Groups’, Indian Journal of Agricultural Economics, 56, no. 3.pp. 370-386.
Deshmukh- Ranadive, J. (2004), Women’s Self-help Groups in Andhra Pradesh: Participatory Poverty Allevia-
tion in Action, Washington, DC: World Bank.
EDA and APMAS(2006), “ Self-Help Groups in India A Study of the Lights and Shades” http://www.edarural.com/
documents/SHG-Study/Executive-Summary.pdf
Ghatak M (1999), ‘Group Lending Local Information and Peer Selection’, Journal of Development Economics,
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Ghatak M and T.W Guinnane (1999), ‘Economics of Lending with Joint Liability: Theory and Practice’, Journal
of Development Economics, 60, pp.195-228.
NABARD (2002), ‘ Ten Years of SHG-Bank Linkage: 1992-2002’, NABARD and Micro Finance.
Lahiri-Dutt and Samanta (2006), ‘Constructing Social Capital: Self-Help Groups and Rural Women’s Develop-
ment in India’, Geographical Research, 44 pp. 285-295.
Namboodiri. N.V and R.L Shiyani (2001), ‘Potential Role of Self-Help Groups in Rural Financial Deepening’,
Indian Journal of Agricultural Economics, 56, pp.401-409.
Pitt. M.M and S.R Khandekar (1998), ‘The Impact Of Group Based Credit Programmes On Poor Households In
Bangladesh: Does The Gender Participants Matter? Journal of Political Economy, 106, 958-996.
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Sen A (1973), On Economic Inequality, Oxford University Press, Delhi.
Smith, D. H and K Pillheimer (1983), ‘Self-Help Groups as Social Movement Organisations: Social Structure and
Social Change’, Research in Social Movements, Conflicts and Change, Vol 5 No 2.
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Weekly, Vol XL No 17 pp.1705-1713.
Yunus M (2004), Grameen Bank, Micro Credit and Millennium Development Goals, EPW, Vol. 39, 4077-4092.

Journal of Rural Development, Vol. 28, No. 4, October - December : 2009

464 Tanmoyee Banerjee (Chatterjee)

Appendix 1
Table A1.
Consumer Price Indices for
Agricultural Labourer and Rural Labourer.*

Year Consumer Price Indices Consumer Price Indices Avg of Column

For Agricultural Labourer For Rural Labourer 2+Column 3
cpi for 01-02 303 305 304
cpi for 02-03 305 308 306.5
cpi for 03-04 321 324 322.5
cpi for 04-05 333 336 334.5
cpi for 05-06 342 346 344
Source: : http://www.rbi.org.in/scripts/BS_ViewBulletin.

Notes
1
The Swarnjayanti Gram Swarozgar Yojana, a credit-based scheme sponsored by the Government of India for
poverty alleviation, is perhaps the largest of its kind in the world. It was first announced in 1997 to com-
memorate fifty years of India’s Independence and first allocations for it under the Ministry of Rural Develop-
ment (MoRD) were included in the GoI budget of 1999/2000. The MoRD was to fix the shares of each district
in the country roughly on the basis of relative numbers of poor residing there, 75 per cent of the funds would
come from the Union Government and each state government would match it for the remaining 25 per cent.
Both parts of the funds are to go directly to the DRDA; in each district, the DRDA is in charge of executing the
scheme. For this, it is to draw on the help of local governments, line agencies of superior governments and
local branches of commercial banks. In case of SGSY programme it was directed by the Government of India
that the groups will be formed by taking members from Below Poverty Level (BPL) List. If above poverty level
members are included in the group then that person cannot be an office- bearer of the group.
2
Under SGSY, the individual beneficiaries and members of SHGs are called swarozgaris. Generally a Self-Help
Group (SHG) consists of 10-20 persons, but in difficult areas like deserts, hills and areas with scattered and
sparse population and disabled persons, this number may be 5-20. Focus is given on the vulnerable groups-
SC/STs should be at least 50 per cent of swarozgaris; women-40 per cent and disabled- 3 per cent of swarozgaris.
List of BPL households identified through BPL census and duly approved by Gram Sabha forms the basis for
identification of families from which the members of Self-Help Groups (SHGs) are drawn. DRDAs initiate and
sustain the process of social mobilisation for formation, development and strengthening of SHGs through
facilitators viz. NGOs, CBOs, Banks, Community Coordinators, Animators and SHPIs. Source: http://rural.nic.in/
FAQ_SGSY.pdf
3
In September 1982, the Government of India (GoI) launched the DWCRA programme under the Integrated
Rural Development Programme (IRDP). The programme was started in 50 districts (all over India) on a pilot
basis. This was the first rural development programme which focused entirely on the development of women
and a large number of SHGs were created in rural areas under this scheme. However, these groups did not
function properly in many areas. Lahiri-Dutt and Samanta (2006) had pointed out that in Burdwan district of
the State of West Bengal, India, many groups created under DWCRA collapsed due to lack of communication
and coordination between the group members.
4
Ranjula Bali Swain and Fan Yang Wallentin (2007) have tried to study the impact of micro-finance and SHG on
women empowerment. The data used have been collected from five States namely, Orissa, Andhra Pradesh,
Karnataka, Maharashtra, Tamil Nadu, Uttar Pradesh (two districts from each State). A general structural model
is estimated by employing appropriate technique to treat the ordinal variables in order to estimate the
impact of SHGs on women empowerment for 2000 and 2003. The results demonstrate that there has been
a significant increase in women empowerment of the SHGs members.

Journal of Rural Development, Vol. 28, No. 4, October - December : 2009

Economic Impact of Self-Help Groups - A Case Study 465
The study by Jaya S. Anand (2002) has attempted to show the performance of selected SHGs in Andhra Pradesh
and to assess their impact on empowering women. One important observation is that all the members had
savings after joining the group. It was also observed that few members were dominating the groups from
year to year. In this study it has been further observed that micro-credit through SHG has created a positive
impact on the families of the members. This research further demonstrates that there has been positive
change in the attitude of beneficiaries. Several groups have become centres for initiating social actions
against dowry system, alcoholism, illiteracy and divorce.
Another study by EDA and APMAS (2006) presents many important results before us. The study is based on
a sample of 214 SHGs in 108 villages of nine districts in four States: Andhra Pradesh (60 SHGs) and Karnataka
(51 SHGs) in the southern region, Orissa (50 SHGs) and Rajasthan (53 SHGs). The sample represents active,
older, women’s groups, mostly bank linked (with a bank loan) before March 2000.This study represents that
the migratory labourers do not join SHGs as they migrate from place to place. Apart from them people with
very uncertain income and people falling in the last bracket of income usually do not join SHGs. It has been
further observed that mostly the related people form groups. This study confirms the increase in financial
status of members after joining the group.
Deshmukh-Randive (2004) has studied the impact of SHG in Andhra Pradesh. The study reveals that there has
been an increase in economic activity, savings, income, financial assets of the group members after joining
SHGs. Apart from economic progress, joining SHGs has made the members socially aware which has resulted
in better family planning and adoption of healthy habits.
5
According to the 2007-2008 State Budget of West Bengal Government in the current year (2006-2007),
there has been an encouraging progress of the Self-Help Groups in the State. At the end of the last year
(2005-06), the total number of Self-Help Groups was 3.8 lakh out of which 1.42 lakh groups obtained loan
from banks on the strength of their own savings. In the current year, another 1.5 lakh Self-Help Groups have
been set up, thereby increasing the total number of Self-Help Groups at present to 5.3 lakh. The number of
members of these Self-Help Groups is about 53 lakh, of whom 90 per cent are women. Of these Self-Help
Groups, 2.92 lakh have already taken loan from banks on the strength of their own savings, and in more than
90 per cent of the cases, have also repaid the loan. In view of this progress of formation of Self-Help Groups,
it has now been estimated that in the next year, the number of Self-Help Groups is likely to exceed 7 lakh, with
more than 70 lakh members. It may, thus, be noted with modesty that even though the Self-Help Group
G = 1 + (of
formation started late in the State, the number of members n ) −Self-Help
1 /the [
(2 / n 2µ)Groups,
y1 + 2 ywhich
2 + .......... ]
+ nyformed
have .been n for y1 ≥ y 2 ≥ ............... ≥ y n
in a different manner with the initiative of Panchayats, municipalities, cooperatives and banks, is going to
exceed the number of members of the Grameen Bank of Bangladesh (69 lakh). Of the additional Self-Help
Groups (1.5 lakh) which have been able to obtain loan from banks on the strength of their own savings, at least
20 per cent (according to assessment by NABARD) have been able to create a potential for employment
generation of their members (about 3 lakh). In addition, in the current year, potential for at least additional
1 lakh employment generation has been created through implementation of different self-employment
programmes. Source: http://www.wbfin.nic.in/2007-Speech3.htm
6
We have collected the data on post-group joining family income level, consumption level, family saving,
family food expenditure, family health related expenditure by registering the values of these variables for
the month just before the interview was taken. Data on these variables for pre-group joining level have been
collected on recall basis.
7
The source: http://www.rbi.org.in/scripts/BS_ViewBulletin.aspx
8
See Appendix 1.
9
Following Sen (1973) gini coefficient has been calculated using the formula given as follows:

Where yi is the income level. Sen A (1973), On Economic Inequality, Oxford University Press, Delhi
10
At the pre-group joining stage 101 people were at the family income class Rs.150-Rs. 299 (income measured
at constant prices with June 1986-July 1987 as the base year). Out of these 101 individuals, 54 (i.e. 53 per
cent) people were unemployed in pre-group joining stage. Alternatively in the income class Rs.300-Rs.500
out of 160 individuals 65 (40 per cent) were unemployed in the pre-group joining stage. And in the income
class Rs.501-Rs.1500, out of 39 people only 6 were unemployed.
11
After group joining the number of people at lowest income class Rs.150-Rs. 299 was 71 only. In the second
income class Rs.300-Rs.500, the number of individuals was 174 and in the third income class, Rs.501-Rs.1500
the number of individuals was 55.

Journal of Rural Development, Vol. 28, No. 4, October - December : 2009

466 Tanmoyee Banerjee (Chatterjee)
12
Family health related expenditure implies medical expenses, expenses related to child health etc.
13
It has been also found that marginal propensity to save has significantly increased after joining of SHGs.
14
The same results are obtained if these 143 individuals from Basirhat 1 and Hasnsbad block of Basirhat sub-
division are compared with 102 group members of 8 SHGs in that area.
15
In this survey we have only one group namely, Amra Sabai with all male members. This group is eliminated
from this analysis to find the impact of group joining of female family members.
16
Employment status dummy assumes a value equal to one if the person is employed and otherwise it assumes
a zero value. In this case we must mention that none of the group members are unemployed. There are only
41 unemployed interviewed females among the non-group members.
17
Group Participation dummy is unity if the person is a group member and zero otherwise. Similarly, religion
dummy is unity for Muslims and zero for Hindus. Among 290 group members 96 families are Muslims and 194
families are Hindu families and among non-group members number of Hindu families is 86 and that of Mus-
lim families is 56.
18
Given that most of the individuals interviewed were just literate, the variable corresponding to educational
status assumes just two values. It is equal to 1 if education level is above class V1 otherwise zero. Among 290
female group members 188 individuals have above primary level of education. Among 143 non-group
members 55 individuals have above primary education.
19
In this case we have also run this regression using individual monthly income instead of family income as an
explanatory variable to find how the income level of the female family member is influencing the family
medical expenditure. The result shows that this variable does not have any significant impact on the family
health related expenditure, however the other results remain same.
20
In the survey we observed that there were mostly three institutions that have created the SHGs under SGSY
programme in survey areas. Firstly, different Village (Gram) Panchayats (GP) have created 14 groups under
survey. There is only one group that is created by a credit cooperative society. We have clubbed it with the
groups created by panchayats and these groups covered 189 female group members under survey. There
was one NGO namely Lokenath Divine Mission (NGO2) that have formed 6 groups covering 53 female group
members under survey and finally there was another NGO namely OFFER (NGO1) that have formed 4 groups
covering 48 female group members under survey.
21
In this case the dummy variable SE assumes a value equal to one if the individual is self-employed. In this
occupational category we have 128 group members who are mostly small shop owners, van pullers, dwellers,
or are involved in different types of handicraft activities. Secondly, the dummy variable ALAH assumes a value
equal to one if the group member is involved in agricultural activities or animal husbandry. 113 group mem-
bers are involved in this occupation. Thirdly, the dummy variable NAL assumes a value equal to one where the
individual is a non-agricultural wage earner or salaried person. Finally among the 290 female group mem-
bers 49 individuals fall in this occupational group.
22
The results with family income level shows that this variable has insignificant impact on the level of medical
expenditure.
23
After analysing the data it is noticed that average monthly individual income of the GP created group mem-
ber is Rs. 337.67 and average monthly family health related expenditure for the same group is Rs. 61.43 and
that of NGO1 are Rs. 355.63 and Rs. 65.21, respectively and that of NGO2 are Rs.288.20 and Rs.68.11, respec-
tively. The F test shows that the average monthly individual income levels of three groups are significantly
different.
24
http://planningcommission.nic.in/reports/genrep/nhdrep/nhdch4.pdf
25
The binomial logistic regression model expresses a qualitative dependent variable as a function of several
explanatory variables both qualitative as well as quantitative. If p be the probability of school dropout of
children of the family then

[
p = 1 + e[−βX ] ]−1

Journal of Rural Development, Vol. 28, No. 4, October - December : 2009

 Economic Impact of Self-Help Groups - A Case Study 467

Where β is a vector of the unknown coefficients and X is a vector of covariates that affects the probability of
school dropout in the family. Thus, the general logistic regression model can further be expressed as

The ratio p i / 1 − pi is called the odd ratio.

26
Given that most of the individuals interviewed were just literate, the variable corresponding to educational
status assumes just two values. It is equal to 1 if education level is above class V1 otherwise zero.
27
Dummy variable corresponding to employment status takes a value equal to 1 if the person is employed and
it is zero otherwise.
28
Introduction of an interaction dummy of non-group employed is significantly increasing the probability of
school dropout in the family. Thus, employment of female family member in families with no SHG members
is actually reducing the school dropout rate.

k
Log e [pi / 1 − pi ] = βX = ∑ β jX ij
j= 0

Journal of Rural Development, Vol. 28, No. 4, October - December : 2009

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