Role Of Shgs In Strengthening Rural Financial Systems In Karnataka

Abstract

Self-Help Groups (SHGs) are now significant part of rural financial development in India and in particular, in state of Karnataka. They are very instrumental in increasing financial inclusion through accessing savings by rural households, credit, and provision of basic banking services. SHGs operate under the philosophy of collective saving and assisting one another such that the members (primarily rural women) could meet their financial needs in an orderly and reliable manner. This has enabled such groups to connect the rural communities to the institutional financial institutions under the SHG -Bank Linkage Programme resulting in the reduction in the use of informal sources of credit.

The role of SHGs to rural financial system of Karnataka is discussed in this paper by exploring their role in contributing to the savings behavior, institutional credit access, income generating activities and financial awareness. The research has its foundation on the primary and secondary data, and its approach to analysis is descriptive. The findings indicate that SHGs have been very significant in increasing financial discipline, improvement of credit access and economic empowerment of people in the rural setting. Nevertheless, the challenges like the lack of financial literacy, performance differences in groups, and the necessity of continuous training and support of the institution are also noted in the study. This research finds that SHGs are important to the rural financial systems and can do more to further impact them with more capacity-building initiatives and policy support.