How do Self Help Groups help borrowers to overcome the problem of lack of collateral? Explain.

• Self Help Groups or SHGs is a system of bringing together the rural poor, especially women, to pool their savings. A typical SHG has 15-20 members, usually belonging to one neighbourhood who meet and save regularly.
• Members can take small loans from the group itself at an interest which is still less than what moneylenders charge.
• After a year or two, if the group is regular in savings it becomes eligible for loans from the bank. Loan is sanctioned in the name of the group to create self- employment opportunities and meet working capital needs.
• Important decisions regarding loan activities such as the purpose, amount, interest to be charged, repayment schedule etc. are taken by the group. 
• The group is responsible for the repayment of the loan. Any case of non- repayment by any member is followed up seriously by other members.
• Because of these features, banks are willing to lend to the poor women when organised in Self Help Groups or SHGs without collateral.