Self-Help Groups (SHGs) and Joint Liability Groups (JLGs) are both important models for providing financial services to people who have limited access to formal banking. However, their objectives, structure, and functioning are different.
The primary difference is that an SHG is a savings-oriented group, while a JLG is a credit-oriented group.
In a Self-Help Group, members regularly save small amounts of money and create a common fund. The group’s borrowing capacity is generally determined by the amount of savings accumulated and its financial discipline. Banks usually provide loans to SHGs based on their savings history, repayment record, and overall group performance. Thus, savings form the foundation of the SHG model.
In contrast, a Joint Liability Group is formed mainly for the purpose of obtaining loans from banks and other formal financial institutions. Members are not required to build a savings corpus before seeking credit. Instead, the group’s creditworthiness is based on mutual trust, joint liability, and the repayment capacity of its members. JLGs are particularly useful for small and marginal farmers, tenant farmers, sharecroppers, and rural entrepreneurs who need immediate access to credit but may not have collateral or significant savings.
Difference Between SHG and JLG
| Basis | Self-Help Group (SHG) | Joint Liability Group (JLG) |
|---|---|---|
| Primary Objective | Savings and financial inclusion | Access to credit |
| Nature of Group | Savings-oriented | Credit-oriented |
| Formation Purpose | To promote savings and internal lending | To obtain bank loans |
| Group Size | Usually 10–20 members | Usually 4–10 members |
| Savings Requirement | Regular savings are mandatory | Savings are generally not mandatory |
| Basis of Loan Eligibility | Savings record and group performance | Joint liability and repayment capacity |
| Target Beneficiaries | Rural poor, especially women | Small farmers, tenant farmers, sharecroppers, and rural producers |
| Internal Lending | Common among members | Usually not a major feature |
| Collateral Requirement | Not required | Not required |
| Liability | Group responsibility through collective functioning | Members jointly guarantee loan repayment |
Conclusion
While both SHGs and JLGs promote financial inclusion and provide access to formal banking services, their focus areas differ significantly. SHGs emphasize savings, self-help, and gradual financial empowerment, whereas JLGs focus on providing quick and collateral-free access to credit through joint responsibility among members. Together, these two models play an important role in supporting rural development, poverty reduction, and financial inclusion in India.