Many SGH's were primarily started by poor women getting together and starting to pool meager savings together. By pooling meager funds together individuals were able to help each other out in times of crises or need or afford more costly items as and investment in a micro business or home industry.
India has formalized this process by supporting SGH's that have demonstrated that they are capable of accumulating savings, within the group, above a stipulated threshold. This was, in many ways, accomplished by encouraging the poor to save a rupee a day.
In spite of government backing, by providing of capital to small local banks, to on-lend to these, the poorest of the poor, in these SHG's many may end up paying as high as 30% -70% interest rates.
Most of these high interest rates are justified on the basis of very high administrative costs associated with extending and handling such small loans.
