There is a possibility that, regular interest charges on the loans that SHG members avail from SHGs might not allow them to save much. Why I am saying this, because during one of my study I observed that, in most of the SHGs even if any member required Rs. 100.00, she would go for a loan rather than withdrawing her savings, and while repaying she have to also give the interest. If she would have gone for withdrawal then the amount paid as interest could have been easily saved.
Though, there could be an argument against this that whatever interest she is paying is going to the fund of SHG and thus aggregate saving is increasing. But if we look at micro level, even though it is true that aggregate saving is increasing, but the amount what she is paying as interest is also getting distributed among all the members, thus reducing her individual savings by an amount which is equal to:
(n-1) I / n
[where n is equal to total number of members in SHG and I is the amount of interest paid],
and this is due to the fact that in most of the cases SHGs doesn’t allow withdrawal of savings, because they never want to reduce their saving or they considered savings of an individual as a security deposit against the loan.
