A Study of SHG Federation Structures in India

Core Elements for Achieving Sustainability

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GIZ NABARD Rural Financial Institutions Programme

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Authors:
Dr. Wolfgang Salomo
G. Bhaskara Rao
N. Naveen Kumar

APMAS
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New Delhi, December, 2012

A Study of SHG Federation Structures in India
Core Elements for Achieving Sustainability
Acknowledgments
T
he Indian SHG movement has great po-
tential to alleviate poverty and for em-
powering marginalised sections of the
population, particularly women. Working on this
study provided us with the unique opportunity
to explore the SHG movement even deeper than
we did before. We are convinced that the results,
both of our learning-process as well as of our thor-
ough analysis, have strong potential to support
relevant stakeholders in taking appropriate action
to increase effectiveness and safeguard sustainabil-
ity of the SHG sector.
In the course of this study, several people sup-
ported us through their cooperation. On behalf of
APMAS, ENABLE and DGRV, we would like to
express our gratitude to GIZ NABARD Rural
Financial Institutions Programme for giving us
this challenging assignment. We received exten-
sive professional support from both of these or-
ganisations. Ms. Marie L. Haberberger, GIZ pro-
vided a number of supportive insights during the
initial stages of the assignment. Mr. Ramakrishna
from GIZ, who accompanied and provided valu-
able suggestions for the study right from the be-
ginning, participated in several meetings as well
as in the June 2012 workshop at Hyderabad. Ms.
Geetha Saraswathy, DGM-NABARD, coordinat-
ed all inputs by NABARD, facilitating the partici-
pation of NABARD representatives in state-level
field missions; including her participation in the
field mission to Uttar Pradesh (U.P.), in study-re-
view meetings at APMAS and in the Hyderabad
workshop. In addition, she contributed her own
inputs towards some of the case studies. Mr.
Pankaj from NABARD Regional Office (RO),
Rajasthan; Mr. Partha, NABARD RO, West Ben-
gal and Ms. Pushapa from NABARD RO, Tamil
Nadu participated during field missions in the
respective states. Mr. N. C. Bhowal, NABARD
DDM, Jalpaiguri, West Bengal and Mr. Naray-
ana, NABARD DDM, Tirunmalai, Tamil Nadu
also participated in these field missions. Officials
from NABARD helped with crucial translations
from regional languages to English.
Member organisations of ENABLE such as SH-
GPF, CmF and GMO provided immense support
to the study, helping to identify sample SHPAs
and SHG federations in their respective states.
Professional representatives like Mr. Sourav Roy
and Ms. Latha from CmF, Mr. Vikas from SH-
GPF and Ms. Pushapa from GMO participated
in the field missions and provided precise transla-
tions of the conversations between the study team
and primary members.
The study immensely benefited from the inputs
received during the workshop Best Practices in
SHG Federations, specially organised to discuss
the preliminary results of the study in June 2010
in Hyderabad. Representatives of almost all sam-
ple SHPAs and other participants provided us
with very useful insights. The study incorporated
inputs received from electronic discussions on
UN Solution Exchange following our query. Dr.
Navin Anand and Ms. Monika Khannawere were
of immense help by posting the query, moderat-
ing the discussion and consolidating the feedback.
Within our own organisations, several col-
leagues provided both intellectual and logistical
support. In DGRV, Mr. Paul Armbruster from
the beginning provided valuable insight into the
cooperative spirit and the experience of best coop-
erative practices. Ms. Nina Hildebrandt provided
us both professional and logistical support and
Mr. Andreas Kappes contributed significantly to
the study through advice and critical comments
as well as by professionally reviewing the report.
In APMAS, Mr. C. S. Reddy provided support
at all stages of the study; from its conceptualisa-
tion until the finalisation of the report. Ms. Rama
Lakshmi provided technical support for the usage
of GRADES and the interpretation of the results
obtained. Mr. Rajan, Ms. Monika, Ms.Rekha,
Ms.Sudha, Mr.Basi Reddy and Mr.Srinivas pro-
Contents | I
vided logistical support. The APMAS field team
at Anantapur, headed by Mr. C. Narayana Reddy,
and other members of the Quality Assessment
team supported the study team during its field
work in Andhra Pradesh.
The field missions generated crucial inputs for
the study. SHPAs of twelve sample federations
provided excellent intellectual input and logisti-
cal support. We appreciate the support extend-
ed by Mr. Rajesh Singhvi and his colleagues at
IBTADA, Ms. Zebul Nisha and her colleagues at
Saheli Samithi, Mr. Sampath Kumar and his col-
leagues at RGMVP, Mr. Rakash Pandey and his
colleagues at Sharamik Bharathi, Mr. Gopal Gosh
and Ms. Madhuri Gosh and their colleagues at
Bagnan Mahila Bikas, Mr. Rajesh Mishra and
Ms. Malini and their colleagues at Centre for the
Development of Human Initiatives (CDHI), Mr.
Vijay Kumar and Ms. Asha and their colleagues
at Myrada, Chitradurga, Dr. Manjunath and his
colleagues at Shri Ksehtra Dharmasthala Ru-
ral Development Project (R.) (SKDRDP), Mr.
R. Ashok and his colleagues at Saryodaya Nano
Financial Limited/ Maduranthakam Sarvodaya
Mutual Benefit Trust (SNFL/ MSMBT), Fr. An-
tony Samy and his colleagues at Don Bosco, Mr.
Surendra Reddy and his colleagues at Society for
Elimination of Rural Poverty (SERP) Ananta
Maha Samakya, and Mr. Neelaiah and his col-
leagues at Ankuram Sangha Poram (ASP)/ Janan-
tha Mutual Aided Cooperative Society (MACS).
Authentic and relevant information was collected
from the interactions with primary stakeholders
of 12 sample federations, 20 cluster/ village level
federations and more than forty SHGs. The team
also interacted with more than 10 bank manag-
ers. The team is grateful to Dr. D. Veerendra Heg-
gade, Dharmadhikari of Dharmasthala and Presi-
dent of SKDRDP, who provided valuable insights
and inspired the team through joint interactions.
Without the support of people from the SHG
sector, the team would not have been able to fulfil
its task.
The contribution and support provided by eve-
ryone is greatly appreciated. We apologise if we
have unintentionally overlooked someones name.
Dr. Wolfgang Salomo
G. Bhaskara Rao
N. Naveen Kumar
Table of Contents
Chapter Page

Acknowledgements I

List of Tables and Boxes V

List of Acronyms VI

Executive Summary IX

Chapter 1: Introduction 1

1.1 Background 1

1.2 The Study and its Objectives 2

1.3 Study Team and the Methodology 2

1.4 Challenges for the Study 3

1.5 Structure of the Study 4

Chapter 2: SHGs and their Federations in India 5

2.1. Evolution of SHGs 5

2.2. SHG Bank Linkage 6

2.3. Evolution of SHG Federations 6

2.4. Functions of SHG Federations 8

2.5. Promotion of SHGs and SHG Federations 8

2.6. Funds for Promotion of SHGs and Federations 9

2.7. Impact of SHGs and SHG banking 9

2.8. Challenges 11

Chapter 3: Field Studies of SHGs and their Federations 15

3.1. Overview on the Field Work 15

3.2. Brief narrative description of sample federations 16

3.3. Major observations/ findings from the sample structures 22

3.4. Performance of Member SHGs 27

 Chapter 4: Cooperative Principles for Sustainability of SHG Institutions 29

4.1. Sustainability framework 29

4.2. Cooperative Character of SHG Institutions 30

4.3. Cooperative experience 31

Chapter 5: Core Elements of Sustainability and Indian SHG Structures 33

5.1. Introduction 33

5.2. System/ Organisational Sustainability 33

5.3. Economic/ Financial Sustainability 37

5.4. Appropriate Legal and Regulatory Framework 49

5.5. Adequate Promotional Support 54

Chapter 6: Summary and Strategic Conclusions 65

Appendix 1: Cross analysis of Sample/ visited SHG federations/ Structures 70

Appendix 2: Strategic Guidelines to Sustainability of SHG Structures 83

IV
List of Tables and Boxes

Title of the Table/Boxes Page

2.1 Overview of Progress of SHG bank linkage programme in India 6

2.2 Regional spread of SHG Federations in India 8

2.3 Services offered by SHG Federations 8

2.4 Regional distribution of SHG bank credit

linkage during 2007 08 and 2010 -11 12

3.1 Details of sample SHG federation 15

3.1 Brief description of sample federations 16

4.1 Sustainability and its Sub-categories 30

4.2 Definition and potential of Cooperatives 31

4.3 Main structural features of the German cooperative model 32

5.1 Core Elements of System/ Organisational Sustainability 34

5.2 International/ cooperatives vis--vis India SHG experience

with respect to systems and organisational sustainability 37

5.3 Core Elements of Economic/ Financial Sustainability 38

5.4 Model/ cooperative principles and India SHG experiences

with respect to economic sustainability: Common vision,
strategy and planning; and functions and structures 39

5.5 Model/ cooperative principles and India SHG experiences

with respect to economic sustainability: Services 43

5.6 Model/ cooperative principles and India SHG experiences

with respect to economic sustainability 46

5.7 Appropriate legal and regulatory framework 49

5.8 Adequate Promotional Support: System Development Promotion 52

5.9 Adequate Promotional Support: Service-/ business related promotion 55

5.10 Adequate Promotional Support: Sector own promotion 63

Contents | V
 List of Acronyms

ADS : Area Development Society

AI : Artificial Insemination
AIDS : Acquired immunodeficiency syndrome
AP : Andhra Pradesh
APL : Above Poverty Line
APMAS : Andhra Pradesh Mahila Abhivruddhi Society
ASP : Ankuram Sangha Poram
ASSEFA : Association for Sarva Seva Farms
BCC : Bagnan Credit Cooperative
BGMB : Bagnan Gramin Mahila Sammilon
BMBCCL : Bagnan I Mahila Bikash Co-operative Credit Society Limited
BPL : Below Poverty Line
CBMFIs : Community Based Micro Finance Institutions
CBO : Community Based Organisation
CC : Core Committee
CCL : Cash Credit Line
CDF : Cooperative Development Foundation
CDHI : Centre for the Development of Human Initiatives
CDS : Community Development Society
CmF : Centre for Microfinance
CMRC : Community Managed Resource Centre
CRP : Community Resource Person
DGRV : Deutscher Genossenschafts- und Raiffeisenverband e.V.
(German Cooperative and Raiffeisen Confederation)
DGSS : DWACRA Group Samannaya Samity
DHAN : Development and Human Action
DPIP : District Poverty Initiative Project
DRDA : District Rural Development Authority
DWACRA : Development of Women and Children in Rural Areas
ENABLE : National Network Enabling Self Help Movement in India
GoI : Government of India
GRADES : Name of SHG federation rating tool. It stands for Governance, Resources, Assets quality, Design of
systems, Efficiency and Service to members
GIZ : German Agency for International Cooperation (former GTZ)
GMO : Global Microfinance Operations
H D Pura : Holalke Dera Pura
HIV : Acquired immunodeficiency syndrome
IGA : Income Generating Activity
ILO : International Labour Organisation
IRV : Individual Rural Volunteer
ISL : Individual Sanitary Latrine
JLG : Joint Liability Group
JTWDS : Jawadi Tribal Women Development Society
MACS : Mutual Aided Cooperative Society
MBCC : Mahila Bikas Credit Cooperative

VI
MBT : Mutual Benefit Trust
MF : Microfinance
mF : MicroFinance or microfinance
MFI : Micro Finance Institutions
MIS : Monthly Income Scheme/ Monitoring Information System
MP : Madhya Pradesh
MS : Mandal (Sub-district) Samakya (Organisation)
MS : Mahila (Women) Sanghatana (Union)
MSMBT : Maduranthakam Sarvodaya Mutual Benefit Trust
MSME : Micro, Small and Medium-sized Enterprises
MYRADA : Mysore Resettlement and Development Agency
NABARD : National Bank for Agriculture and Rural Development
NBTDP : North Bengal Tarai Development Project
NGO : Non-Government Organisation
NHG : Neighbourhood Groups
OB : Office Bearers
PA : Promoting Agencies
PI : Peoples Institution
PLF : Primary Level Federations
PRADAN : Professional Assistance for Development Action
RBI : Reserve Bank of India
RGMVP : Rajiv Gandhi Mahila Vikas Pariyojana
RMS : Rastriya Mahila Kosha
SAG : Self Affinity Group
SAPAP : South Asia Poverty Alleviation Project
SB : Sharamik Bharathi
SERP : Society for Elimination of Rural Poverty
SGSY : Swarnjayanthi Grameen Swarojgar Yojan
SH : Self Help
SHG : Self Help Group
SHGPF : Self Help Group Promotion Forum
SHPA : Self Help Group Promoting Agency
SKDRDP : Shri Ksehtra Dharmasthala Rural Development Project (R.)
SLF : Secondary Level Federations
SMBT : Saryodaya Mutual Benefit Trust
SMF : Sakti Mahila Samiti Federation
SMS : Sakti Mahila Samakya
SNFL : Saryodaya Nano Financial Limited
SOC : Sector Own Control
TLF : Third/ Tertiary Level Federations
TN : Tamil Nadu
UBTMS : Uttar Banga Tarai Mahila Samakya
UNDP : United Nations Development Programme
UP : Uttar Pradesh
WB : West Bengal

VII
VIII
Executive Summary
I. Introduction
The Self Help Group (SHG) movement in India
can be regarded as one of the best financial in-
termediary systems of the country. Reaching out
beyond simple financial intermediation, it ad-
ditionally provides the institutional framework
for organising livelihood and non-financial ser-
vices as well as social services in accordance with
self-help principles. Despite tremendous positive
impacts, SHGs face significant constraints and
challenges which limit their service capacity, bar-
gaining power, and even hinder and endanger
their long-term sustainability.
Nationally, SHGs supported by their respective
Self Help Promoting Agencies (SHPAs), began
organising themselves into bottom-up, multi-
level federation systems. These structures of clus-
ter- (village) level, block- (sub-district) level and
district-level federations aim to provide support
services to their member SHGs and SHG mem-
bers respectively. They act as an interface between
SHGs and mainstream institutions.
SHG structures were set-up individually in most
cases. Each case followed the specific vision and
policy of the respective SHPA and was in accord-
ance to the heterogeneous socio-economic envi-
ronment as well as the different legal or regulatory
framework in the respective states. Consequently,
a wide variation of SHG federation structures
and a different understanding of their role and
functions can be found today.
Advanced federation systems and their member
SHGs have yet to solve the issue of achieving and
maintaining long-term viability and sustainabil-
ity. By combining and proving the experience
of the Indian SHG movement and by including
internationally accepted good cooperative prac-
tices, this study aims to provide practical strategic
guidelines for sustainability of SHG structures in
India.
The research team conducted detailed field stud-
ies of 12 SHG structures in six states, which re-
flect the diversity of the Indian SHG movement.
To support the field studies, references were made
to secondary resource materials. The study teams
institutional experience and learning and the au-
thors expertise and experiences were also utilised.
II. Evolution of the SHG movement
in India
In India, the women SHG model is a home-
grown model. Primarily, it is the result of NGOs
search for community-based institutions which
may help the poor to overcome their vulnerability
and lack of resources. The SHPAs quickly learnt
that savings and loans could be the binding factor
for groups to remain active for longer periods and
pursue their own agenda.
SHGs got a big impetus in 1992 with the launch
of SHG Banking Pilot Programme by NABARD.
RBI permitted banks to open savings accounts in
the name of informal groups SHGs and lend
to those (informal) groups without collateral and
without asking the loan purpose. Since 1996,
SHG banking has been reorganised as a regular
banking activity. As of March 2011, 7.462 mil-
lion SHGs, with an estimated membership of 97
million, have savings accounts in banks with an
aggregate bank balance of ` 70.16 billion (NA-
BARD, 2011). Over 4.787 million SHGs have
loan accounts with a total loan outstanding of `
312.212 billion.
To take up agenda which was beyond the scope
of individual SHGs, SHPAs started promoting
SHG networks, known as federations since early
1990s. Other objectives of promoting federations
are to facilitate the exit of SHPAs, at least from
certain basic functions, and to scale up economi-
cally. As of July 2010, there were nearly 164,000
SHG federations. Most of them are primary (vil-
Contents | IX
 lage-based) level federations, mostly confined to
southern and eastern parts of the country. Federa-
tions have been providing a number of services
to member SHGs, which could be grouped into
four categories- sector development, financial,
livelihood and social intermediation. The exact
composition of services varies from one context
to another and evolves over time. There is a great
variety and number of SHPAs ranging from vil-
lage volunteers to central government. The gov-
ernment agencies emerged as principal SHPAs
during the last 10 years, accounting for almost
80% of the SHG institutions in the country.
Entry of government agencies proved to be both
strength as well as a weakness of the SHG sector.
If the growth rate of SHG-Bank Linkage is im-
pressive, its impact is even more amazing. It not
only had an impact on primary (SHG) members
but also on their families, communities, and
many institutions. The SHGBank Linkage Pro-
gramme has transformed the whole range of institu-
tions government, banks, NGOs and development
institutions, in their approach towards development
of the poor. (NABARD, 2009)
The sector is also facing numerous challenges
such as policy contradictions, bankers apathy,
unequal competition from MFIs, inadequate loan
and promotional funds, wide regional and social
inequalities, inadequate HR and capacity build-
ing infrastructure.
III. Field studies of SHG structures
The 12 sample SHG structures visited by the study
team are Janatha MACS of ASP, Andhra Pra-desh
(A.P.); Sri Chaitanya MS of SERP, AP; Holalke
Dera Pura (HD Pura) Community Managed Re-
source Centre (CMRC) of Mysore Resettlement
and Development Agency (MYRADA), Karnata-
ka; Kaniyoor federation of SKDRDP, Karnataka;
Saheli Samithi of (PRADAN), Rajasthan; Savera
Federation of Ibtada, Rajasthan; Jawadi Tribal
Women Development Society (JTWDS) of Don
Bosco, Tamil Nadu; Saryodaya Mutual Benefit
Trust (SMBT) of SNFL/ Association for Sarva
Seva Farms (ASSEFA), Tamil Nadu; Sakti Mahila
Samakya of Rajiv Gandhi Mahila Vikas Pariyo-
X
jana (RGMVP), Uttar Pradesh; Sakthi MF of
ShrimkBharati, Uttar Pradesh; Bagnan-I of Ma-
hila Bikas, West Bengal; and Uttar Banga Tarai
Mahila Samakya (UBTMS) of Centre for the De-
velopment of Human Initiatives (CDHI), West
Bengal. These are some of the most renowned
institutions situated in different socio-economic
and geographical contexts in the country and are
quite diversified structures.
In all sample federations, SHPAs played an im-
portant role in the shaping of structure, functions
and their style of functioning. Given the limited
awareness and capacities of the primary members,
the proactive role of SHPAs is perhaps inevitable.
However, the role transformation between the
primary stakeholders and SHPAs is determined
to a large extent by the resources available with
SHPAs. There is a clear division of function be-
tween SHPAs and primary members. While
SHPAs and their representatives look after the fi-
nancial management, review of staff performance,
office management, management of external rela-
tions including legal compliances etc., primary
members monitor the functioning of SHGs, pro-
vide need-based support, resolve conflicts within
and between groups, help in microfinance opera-
tions, especially in recovery of bad debts.
There is less interest and enthusiasm among pri-
mary stakeholders, especially among the mem-
bers of very poor households, to take up leader-
ship responsibilities at SHG and federation levels.
A system of payment of salaries or honorarium to
the leaders may encourage the members to take
up leadership responsibilities. The primary mem-
bers have much more organisational and mana-
gerial capabilities than assumed by the secondary
stakeholders.
Almost all sample federations have limited finan-
cial resources, which vary considerably across the
sample structures. In a majority of the cases, grants
and other external funds are the major source of
resources. Most of the sample federations have a
relatively higher Portfolio at Risk (PAR). How-
ever, none of the federations reported any major
recovery problems. It implies that mainstream fi-
nancial sector indicators like recovery rate, PAR etc.
need to be modified or new indicators need to be
developed for the Community Managed Financial
Organisation (CMFOs). Unlike mainstream finan-
cial institutions, CMFOs have social capital to re-
cover all their debts and have empathy for members
difficulties and adopt flexibility in recovery.
In some cases, federations are forced to take up fi-
nancial intermediation due to the bankers apathy
towards SHG banking. Apart from fulfilling the
credit needs of members or SHGs, some federa-
tions access funds from donors and government
departments or programmes and provide bridge
finance and/ or soft loans to members. The fed-
erations proved to be the most cost effective and
efficient mode to provide financial services to the
members, because of low overhead costs and use
of the services of the social capital/ SHGs in their
microfinance operations. Mobilisation of internal
funds (savings) by SHG federations would reduce
the financial cost of federations and also result in
economisation of existing infrastructure and HR.
However, there are no effective checks and bal-
ances to protect members savings in most of the
federations. The legal status of some of the sample
federations neither permits mobilisation of sav-
ings and funds from members nor foresees ad-
equate protection measures. Most of the services
provided by the federations are inadequate due
to external constraints such as low investments in
capacity building, bankers non-cooperation in
SHG Bank Linkage, few funds for on-lending,
restrictions imposed by the promoting agencies
etc. Limitations of promoting agencies also be-
came limitations of the federations.
Audit is the key for the security of funds, ac-
countability of management and transparency
of transactions. APMAS, SERP and DGRV in
their Sector Own Control (SOC) pilot project
in Kamareddy cluster in Nizamabad district of
Andhra Pradesh demonstrated that commu-
nity members (non-technical persons) could be
trained to audit SHG accounts. In SERP, Sri
Chaitanya MS, the community auditors conduct
the SHG audit. In a few other federations where
primary members have limited awareness and
roles, external professionals or the SHPAs con-
duct audits. It is important that members know
the financial details and facts; only the audit of
books does not suffice. Summarised financial
transactions should be discussed in special meet-
ings and profits and losses should be appropri-
ated annually. No such practices were observed in
most of the sample federations. Majority of the
federations have good linkages with government
departments, programmes and projects; private
sector companies, insurance companies, corpo-
rate hospitals and NGOs.
Though livelihood services are widely prevalent,
these are isolated interventions with limited im-
pact. SKDRDP has excellent livelihoods and
marketing support services and infrastructures
which are worth replicating.
In the sample federations it was found that per-
formance of SHGs is closely related with the
SHPAs vision to build institutions of the poor;
and quality, adequacy and appropriateness of the
services provided to the members through SHG
institutions.
IV. Cooperative Principles for
Sustainability of SHG Institutions
Sustainability in this study is defined as follows:
a. SHG members conduct effective ownership,
self-governance and self-control
b. Federations meet current and future needs of
their member SHGs and SHG members
c. SHGs and members are using and benefiting
from these services
d. Federations are not-for-profit, but are still eco-
nomically effective and efficient
e. Federations are aware of the importance of in-
tegrity and are maintaining it
f. Federations comply with legal and regulatory
provisions
g. Federations operate independently, however,
may get technical and financial assistance from
SHPAs
Based on this definition, the study further differ-
entiates this broad term into four major sub-cat-
egories of sustainability:- (i) System or organisa-
tional sustainability (ii) Economic and financial
sustainability (iii) Appropriateness of the legal
and regulatory framework and (iv) Adequate-
ness of promotional support. Although separated
Contents | XI
 above for the purpose of definition, all character-
istics at any time should equally and simultane-
ously be taken into consideration since they are
interrelated.
A huge variety of institutionalised sustainable co-
operative systems around the world have the fol-
lowing common features:
a.Self-help, self-administration, self-responsibility
and mutual support
b. Member-owned and controlled and commit-
ted to the members of the community, without
state interference
c. Performing as not-for-profit but observing eco-
nomic criteria in their functions
According to the general understanding and vi-
sion of the SHG movement in India, SHG in-
stitu-tions follow the same principles as coopera-
tive organisations. The experiences of the Indian
SHG movement are analysed in chapter 5 against
the sustainability framework and its core compo-
nents and cooperative principles.
V. Core elements of sustainability
and Indian SHG structures
The core elements of sustainability under each of
the four sub-categories are identified and com-
pared to international successful cooperative in-
stitutions and the Indian SHG sector.
System or Organisational Sustainability
This sub-category covers issues like membership,
governance, institutional structure and proce-
dures, accountancy, internal control and audit,
management and staff. While international coop-
eratives adhere to open membership, the Indian
SHG movement has been, in principle, focusing
on the poor, i.e. conditional open membership.
However, some extremely poor sections did not
join the SHG institutions because of various rea-
sons. Furthermore, considering cooperatives as
institutions for the poor only would be much
too narrow and inappropriate. Similarly, restrict-
ing the scope of SHG institutions to poverty alle-
viation alone will undermine their full potential.
XII
Under governance, the primary members are
expected to have a sense of ownership about
their institutions, norms and standards and fully
charged with decision-making, administration,
internal regulations, etc. The formal presence of
SHPAs could be seen in the Boards of most SHG
structures in the country. Imposition of external-
ly designed norms and standards are widespread
with consequent negative implications. Reluc-
tance on the part of many primary members to
take up positions of leadership could be observed
across the country.
The guiding principles for institutional struc-
ture and procedures are: meeting objectives and
purposes, being manageable for the owners, and
optimum utilisation of human and financial re-
sources. In India, though curtailed in some in-
stances, certain processes are being followed in
developing the federation structure. More than
90% of the federations are Primary Level Federa-
tions (PLFs), which are being federated at higher
levels step-by-step as per the need. Normally,
SHPAs function as de facto leaders and managers
of SHG institutions.
In the sphere of accountancy, internal control and
audit, the primary members in model SHG insti-
tutions should have complete knowledge and full
control. The model institutions need to have fully
integrated and transparent accounting managed
by the primary stakeholders. In India, SHPAs
undertake these functions in most SHGs. Most
PLFs outside Andhra Pradesh (A.P.) do not have
books of accounts. Computerisation of account-
ing helps SHPAs in effective monitoring but the
primary members are unable to comprehend the
processes and information since they have not yet
fully understood accounts and auditing.
Primary members and their representatives have
the responsibility of managing member-based or-
ganisations. It is thus important to mobilise and
pool in the managerial skills of members. One
can see the division of functions between pri-
mary and secondary stakeholders in Indian SHG
structures. The primary members organisational
or managerial capacity is much higher than that
assumed by the SHPAs.
Development of sector-owned HR is one of
the unique features of international cooperative
institutions. Indian SHG structures also pre-
dominantly employ members and even though
members have limited skills and capacity they
are highly committed. A viable suggestion could
be to consider Community Resource Persons
(CRPs) as sector-owned HR.
Economic and financial sustainability
This sub-category covers issues such as common
vision, strategy, planning, functions and struc-
tures, which include four categories of services,
institution building and resources and perfor-
mances.
As per model principles, common vision, strat-
egy and planning cover subjects such as creating a
sense of ownership, awareness, self-responsibility
among primary members, transparency about
SHGs perceptions, intentions and potentials and
realising the advantages of division of functions
and well matched coordination within multi-tier
SHG structures. So far, the conceptual functional
and institutional development of SHG structures
in India has been determined or at least dominat-
ed by the SHPAs and is based on general political
objectives such as poverty alleviation and women
empowerment. Consequently, SHG members
and institutions have mainly felt themselves to be
recipients than as active owners and managers of
their institutions.
Functions and structures allow higher-tier struc-
tures in cooperative organisations to support and
supplement their member organisations. They
contribute towards making the whole structure
financially and operationally viable and enabling
member organisations to meet the needs of their
members. As Indian SHG structures have been
facilitated by external entities like SHPAs, the
principle of subsidiary is not really the guiding
principle. Patron client relationship could be
seen between SHPAs or higher-level SHG organi-
sations and SHGs.
Under sector development services, model or-
ganisations undertake functions such as lobbying,
monitoring, MIS, promotion and management
Contents | XIII
 of quality member organisations, capacity build-
ing and facilitation of external services on shar-
ing basis. Sample Indian SHG federations were
found to be very effective in preliminary sector
development services such as awareness genera-
tion, promotion of new groups and revival of de-
funct groups, facilitation of SHG bank linkage,
and linkage between SHGs, members and main-
stream institutions. A few federations provide
advanced services like auditing, MIS, capacity
building, etc. However, the effectiveness of these
services is constrained by the external environ-
mental factors such as bankers cooperation and
the ability of SHPAs.
Financial services such as savings, loans, insur-
ance, and other retail financial services are the
central element of the federating process in many
countries. Indian SHG federations have been
providing limited but critical financial services to
their members and are legally permitted to mobi-
lise savings from their members. In terms of the
quality of financial services, especially affordabil-
ity, repayment pattern and timeliness, the SHG
structures rank next only to institutional financial
services. There is a lot of mistrust among banks
and SHPAs regarding the capacities of federations
to provide financial services. Due to this mistrust
federations are able to mobilise only limited re-
sources for on-lending. The SHG Bank Linkage
is underperforming due to the vitiated environ-
ment in the country, which is prevalent particu-
larly in the non-southern states. SHG members
have much more managerial capacities to provide
financial services than that assumed by the sec-
ondary stakeholders. To realise those potentials,
financial intermediation needs to be promoted
on cooperative principles and values rather than
modern microfinance practices.
Livelihood services such as input supply, com-
mon production facilities and marketing are
most sought after by cooperative organisations in
many developed countries. Networking and fed-
erating with neighbouring cooperative structures
strengthens bargaining power and market posi-
tions of cooperatives. Almost all sample federa-
tions are very active on livelihood promotion and
enhancement. However, the efforts of many fed-
erations are hampered by the lack of bank link-
XIV
ages, external constraints and insufficient funds
with federations. All the sample federations are
taking innovative measures in their context spe-
cific interventions. There is good scope for learn-
ing and networking for mutual benefits.
The so-called business cooperatives in developed
countries mostly do not take up the providing of
direct social services. But parallel operating in-
stitutions and networks, often also organised as
cooperatives or other community-based institu-
tions, focus on directly providing these services.
However, social services are one of the core ser-
vices in Indian SHG structures. The social agenda
of many SHG structures is determined by SHPAs
and external influence. Separate accounting is
not common in SHG institutions. According to
member needs, these services need to be taken up
and funds for these services need to be mobilised
transparently and accounted separately.
Institutional separation of functions is very com-
mon in the cooperative movement worldwide.
The criteria for guiding institution building are:
(a) sector vision;
(b) guaranteeing the highest possible effectiveness
and efficiency of the multi-level system as a
whole;
(c) ensuring a high level of sector integration and
coherence;
(d) enabling all responsible actors within the sys-
tem to manage and control sector activities;
and (e) clear separation of business related
services and social services from the develop-
ment function (including control and audit
services).
Institutionalisation of different services in the
sample Indian SHG structures is in the nascent
stage. Though some vertical divisions of functions
were noted yet the horizontal division is absent.
SHPAs are playing an important role in the insti-
tutionalisation process. Among the different cate-
gories of services, the sector development services
are still predominantly with the SHPAs. In some
sample SHG structures, the Secondary Level Fed-
erations (SLFs) were especially entrusted with a
number of functions beyond their capacities.
Even though employing professionals from inter-
nal sources is most appropriate, external profes-
sionals could be employed to bridge the critical
gaps in expertise and skills. However, Commu-
nity Resource Persons (CRPs) are progressively
replacing outside experts. Since SHPAs pay the
honorarium to CRPs, they appear to be repre-
senting the SHPAs. SHG structures are not able
to attract and control external professionals and
are heavily dependent on SHPAs and volunteers
for professional support.
The model principle is to mobilise adequate fi-
nancial resources and use them optimally. Yet,
most Indian sample SHG federations have inad-
equate resources for on-lending and other pur-
poses. Since there are certain legal and regulation
issues in mobilising savings and deposits, banks
do not lend to SHG institutions at an advanta-
geous scale. Grants and other support from insti-
tutions like SHPAs are a major source of funding
for majority of the SHG federations. Despite nu-
merous complicated constraints SHG federations
are able to provide valuable services through most
cost effective methods. This is because of the in-
herent strengths of the SHG model such as low
cost of operations that come with adherence to
cooperative principles instead of using modern
microfinance practices.
Appropriate legal and regulatory framework
An appropriate framework comprises of proper
legislation, sector-owned control (self-regula-
tion), external regulation and supervision as
well as safety provisions. Registration encour-
ages internal and external confidence building.
The model legislation may take into account the
uniqueness of SHG structures, may have space
for self-governance and ensure a level playing field
and encourage compliance. Indian Mutual Aided
Cooperative Society (MACS) Acts are perhaps
close to being an appropriate model law for In-
dian SHG institutions. Indian SHG institutions,
even SHPAs, avoid submitting to official regu-
lations and interferences. Therefore, they prefer
not to register, or if necessary, to register it under
the law which has the least possibility of interfer-
ences. The MACS Act, a more appropriate Act for
SHG structures, has been enacted only in 9 states.
In these states, almost all SHG structures have
been registered under MACS, unless categorically
prohibited. In other states, SHG structures have
been registered under different Acts such as Socie-
ties Act, Trust Act, and Cooperative Act.
Important sector-owned control practices and
tools are: involvement of primary members in de-
veloping and implementing institutional norms
and standards; ultimate authority with primary
members; regular financial, management and gov-
ernance auditing and Annual General Meetings;
regular elections and leadership rotation with
some continuity and legal compliance. Primary
members have very limited awareness about tech-
nical issues like financial audit and legal compli-
ance and as a result norms and standards in most
SHG structures are developed externally. There is
inadequate rotation of leadership and compliance
to legal requirements, especially in the structures
registered under the MACS Act.
Apart from sector-owned control, external regu-
lation and supervision by financial authorities
is needed for financial federations. To achieve
economically efficient regulation and supervi-
sion, the financial authorities should base their
activities primarily on the SHG sector-owned
control systems of SHG structures. Furthermore,
there is need for a stable system aiming to avoid
or compensate risks and losses faced by primary
members. As of now, the introduction of sector
owned control in the Indian SHG sector is still
in its initial stages and regulation by the financial
authorities is also minimal. Safety measures like
deposit insurance do not exist at all.
Adequate promotional support
It is essential to have adequate promotion of sys-
tem development, service or business and sector-
own control. The promotion of system develop-
ment comprises of concept development and
implementation, institution and capacity build-
ing, managerial or organisational support, and fi-
nancial assistance to SHGs and their federations.
The model institutions integrate primary mem-
bers in institutional development from the early
stages. Their institutional design will be based
on members interests, felt needs and resources,
including managerial capacities. They avoid any
external interference which could counteract self-
Contents | XV
 help development, mobilise sufficient advisory
and financial resources as well as time for project
realisation; and ensure compatibility between sev-
eral promotional efforts.
In the sample Indian SHG structures, mem-
bers needs were not always the focus of SHG
promotion. Suitable tools and practices are not
employed to mobilise and utilise the full poten-
tial of SHG members managerial and invest-
ment capacity. Very few SHPAs have clarity on
member-owned, member-managed institutions
meeting members needs. The overall availability
of promotional and loan funds is inadequate and
are distributed unevenly among the regions and
institutions. There is also a severe dearth of HR,
resource materials and resource organisations. In
some regions strong competition was seen among
SHPAs, MFIs and other service providers includ-
ing banks.
Financial intermediation is the natural agenda of
SHG federations. As effective financial inclusion
has proven to be one of the most critical liveli-
hood services, SHG federations have to be sup-
ported to provide successful financial services
in disadvantaged regions. Given the complexity
and rigorousness of financial management, the
operations of federations have to be limited, i.e.
turnover, loan size, etc. These restrictions could
be eased step-by-step depending upon premises
to be fulfilled by the federations. Cooperative
principles should govern the financial interme-
diation functions of federations, i.e. instead of
short-term profit maximisation, the focus should
be on member welfare, long term gains and in-
stitutional sustainability. Federations may have
diverse sources of funds for lending, yet mobilisa-
tion of internal savings and deposits may be given
importance. Introduction of other financial ser-
vices such as insurance, pensions, and remittance
should depend on informed decisions made by
primary members.
Due to several reasons Indian SHG structures are
unable to facilitate SHG Bank Linkages. Banks
are unenthusiastic, SHGs are unable to realise the
savings potential, are over dependent on grants
and other financial assistances, are over depend-
ent on SHPAs in the management of financial
XVI
services; and third party insurance contracts were
apparently sold (forced), not marketed.
Like financial services, livelihood or non-finan-
cial business services are also natural functions
of cooperatives in developed countries. There
are very interesting and useful livelihood services
facilitated by SHPAs in the Indian sample SHG
structures too. However, these services are far too
few and are limited to only one or two locations.
Still these services appeared to be more prevalent
vis--vis financial services and proved to be use-
ful to members. SHPAs play a crucial role in the
basket of services, which in turn is determined by
their resource position and philosophy. Some of
the agriculture related services need family level
or male involvement but most SHG structures ig-
nore this principle. Most of the sample structures
are, in principle, accessing support from all kinds
of sources such as the government, the corporate
sector and donors, but are effectively able to mo-
bilise very little resources and assistance due to
several reasons.
In model SH institutions providing social ser-
vices, the exact basket of the social services has
to be determined according to the local context.
Resources for these services have to be mobilised
transparently. Concealed cross subsidisation from
microfinance or other income generating services
may not be desirable. There is a need for clear
agreements between SHPAs and SHG institu-
tions while delivering these services.
Even though federations are unable to provide
adequate services due to various limitations, so-
cial intermediation is one principle function of
SHG federations in India. The effectiveness of
social services provided by federations may also
depend on the success of their financial and liveli-
hood services. SHPAs have been playing a major
role in the social services agenda. In some sam-
ple structures the social services are discounted.
For instance, health awareness is quite prevalent
and very useful to the members. Support from
SHPAs and other resources are predominantly
being used in providing these services. Though
technically most sample structures access support
from all sources such as the government, corpo-
rate and donor agencies, the overall access level is
still unsatisfactory since the available programmes
and the SHPAs philosophy and capacity are not
properly publicised.
Sector owned promotion is fostered by progres-
sive role transformation between SHPAs and
SHG institutions, networking and cross learning
among SHG structures, joint implementation of
various developmental and sector development
programmes by the federations; and common use
of secondary institutions such as training facili-
ties, CRPs, etc. In SHG model structures, sector-
owned promotion will dominate as compared to
external promotional support. This is commonly
used by cooperative structures, forcing the mo-
bilisation of primarily owned resources, thereby
enabling promotional activities to better suit their
own needs, strengthening ownership and safe-
guarding against external interference.
In the sample SHG structures, the transformation
process is still in an early phase. Furthermore, the
stages of development for various SHG structures
are different. The SHPAs resources and philoso-
phy determine the transformation process. SHG
institutions proved to be most cost effective in the
outreach of the sector and revitalisation of exist-
ing structures. There is widespread mistrust about
the primary members ability to manage their in-
stitutions and functions. However, the primary
members have far more potential and capabilities
than presumed by others. To bring out the best in
the primary members, a system of adequate com-
pensation for the time devoted by the primary
stakeholders needs to be introduced. Further, the
SHG institutions need to be developed not only
based on cooperative principles, but also based on
the local context and locally available resources.
VI. Summary and Conclusions
For achieving long-term sustainability of the SHG
movement, the establishment of well organised
federations must be a precondition. According to
the general understanding and vision of the SHG
movement in India, SHG institutions in spirit
are the cooperative organisations with women as
their foremost focus. Nearly hundred and fifty
years of global experience of cooperative systems
indicates that under any circumstance they have
the ability to develop into successfully operating,
well-performing, and economically sustainable
organisations and/or enterprises. Indian SHG
institutions that have adhered to the cooperative
principles have achieved sustainability and suc-
cess.
The majority of SHG institutions in India are
adopted by government agencies, which have
made them beneficiary organisations. Some
NGOs have promoted them as microfinance in-
stitutions. In both these cases, the potential of
SHG institutions remained unrealised and their
sustainability remains uncertain. To realise the
full potential of SHGs and to make them sustain-
able, the SHG structures may be promoted with
cooperative principles and values. As per model
cooperative and self-help institutional principles,
the primary members have to be involved from
the beginning in the processes of institutional
building. They have to take charge of their insti-
tutional governance, management and functions.
They also have to mobilise and contribute all nec-
essary resources. However, SHPAs play a domi-
nant role in the promotion, governance, manage-
ment and functions of Indian SHG structures.
The primary members are highly dependent on
SHPAs for advice, resources and personnel. Yet,
given the general illiteracy, poor awareness and
poverty, there is no alternative to the dominant
role of SHPAs in the promotion and support of
SHG institutions, at least in the initial stages.
While SHGs need to be promoted as self-help
institutions of the members, for the members,
by the members, they are predominantly being
promoted as beneficiary organisations, because
of several constraints at the SHPA level. Primary
members seldom have a sense of ownership to-
wards the SHG institutions and are reluctant to
increase their stakes, contributions and involve-
ment in their institutions and prefer to remain
as mere beneficiaries. To promote quality SHG
institutions, SHPAs need adequate resources,
time and capacity building, especially on issues
related to Sector Own Control (SOC) to increase
and enable the primary stakeholders stakes and
involvement in SHG institutions.
Contents | XVIII
 Financial intermediation is the natural function
of SHG federations. Despite so many challenges,
the sample SHG structures in India are able to
provide many vital services, especially financial
and livelihood services. The financial federations
provide credit to their members at a much cheap-
er rate as compared to MFIs (Microfinance Insti-
tutions). This is not only because of subsidised
funds and grants but also because of an efficient
cost structure. The financial federations operate
with low overhead expenses because they manage
the last mile connectivity with their social capital
rather than highly paid staff.
As direct SHG bank linkages eluded most of
the disadvantaged states and sections, financial
services rendered by the SHG federations are in-
dispensable. The moot question is not whether
SHG federations are suitable or not for financial
intermediation, but rather how to make the
SHG federations effective financial services pro-
viders.
As cited before, primary members have more
potential than believed by others. Apart from
compensation for leaders, the condition of com-
pulsory rotation of leadership at specified periods
should also be introduced. Based on cooperative
principles, NABARD and the Government of
India may facilitate the promotion and strength-
ening of SHG institutions as well as financial
services provided by the federations, with self-
regulation and SOC practices and tools.
XIX
Through networking and federating with other
SHG structures, clear contractual agreements
with SHPAs and other collaborators, and trans-
parent funding arrangements, the SHG fed-
erations could effectively provide livelihood and
social services and accomplish institutional sus-
tainability.
The study results so far indicate no clear prefer-
ence for any specific strategic model of existing
federation structures or for promoting policy
among the cases analysed. However, the experi-
ences gathered, as well as good and critical prac-
tices of the SHG sector, are well qualified to prop-
erly meet the strategic challenges of sustainability.
Incorporating appropriate long-term experiences
of well-operating, mature cooperative organisa-
tions in India and in other countries will support
this process. Therefore, combining the already
available experiences of SHGs and SHPAs with
cooperative best practices will lead to a coopera-
tive model of SHG structures. This model could
properly serve as a strategic path for the future
SHG movement to prepare and maintain sus-
tainability. Based on this model, a set of practical
strategic guidelines have been developed aimed at
supporting the SHGs and their federations, as-
sisted by the respective SHPAs to elaborate an
appropriate common vision, strategy, and plan-
ning. The availability of such a strategic frame-
work enables external stakeholders to align their
support programmes more appropriately with the
assistance needs of the SHG structures.
Chapter 1
Introduction

1.1 Background already contributed significantly towards alleviat-

ing widespread poverty and towards improving
With a coverage of 97 million households and a the empowerment of women. This is due to its
total loan outstanding of ` 312.212 billion (NA- tremendous potential for outreach and for mobi-
BARD, 2011), the Self-Help Group (SHG) Bank lising self-help capacities, its low-cost approach,
Linkage (SHBL) Programme1 is the worlds larg- and its flexibility towards meeting different needs
est community based microfinance programme. of group members.
Conceptually, it can be regarded as being one of
the best financial intermediary systems developed Despite the tremendous positive impact of the
in India. Reaching out beyond plain financial SHG bank linkage programme on the economic
intermediation, it additionally provides the insti- and social situation of the poor, especially in ru-
tutional framework for organising livelihood and ral areas, SHGs as a structure of informal, small,
non-financial business services as well as social stand-alone women groups face many constraints
services according to self-help principles. It has and challenges limiting their service capacity, bar-
1. The development of Self-Help Groups (SHGs) has been particularly enforced through NABARDs project of SHG Bank Link-
age, initiated in 1992, which successfully linked the informal SHG structures to the formal financial sector.

Contents | 1
 gaining power and even hindering and/or endan-
gering their sustainability. Furthermore, the Self
Help Promoting Agencies (SHPAs), which were
initiated to support SHGs, mostly do not have
sufficient advisory capacity and financial resourc-
es to meet the growing needs of the increasing
number of SHGs.
All over India, but with higher numbers particu-
larly in the Southern part, SHGs with support
from their respective SHPAs began organising
themselves into multilevel federation systems:
Cluster-level federations (village), block-level fed-
erations (sub-district), district level federations.
Over 163,730 SHG federations emerged, which
act as an interface between SHGs and mainstream
institutions. Given that the SHG structures were
set up in many different ways, there is a wide
variation within the Indian SHG movement and
97 mn in the understanding of their roles and functions.
The heterogeneous socio-economic environment
households have across the country, varied political support, differ-
been outreached ent legal and regulatory frameworks in respective
with a total loan states, different approaches and support capaci-
outstanding of ties of the SHPAs, all lead to different solutions.
INR
312.2 bn All federation structures continue to be in a stage
of development. Many of them are still in a pro-
under the SHBL cess of identifying their role as service providers
Programme, for their member SHGs, which range from finan-
making it the cial intermediation, livelihood and business sup-
worlds largest port, and social services, as well as system devel-
comunity-based opment support. They often adopt the role of the
Microfinance former SHPA as a capacity builder and supervisor
programme. for the respective next tier. But in general, they
do not have adequate managerial, institutional,
and financial capacity to provide proper services
for their member SHGs. They need further exter-
nal support to properly address these challenges.
However, some federation structures and models
have already developed successfully. Therefore,
there is an opportunity to focus on these systems
and experiences in order to share and scale-up the
good practices as well as to learn from negative
experiences. Yet, even advanced federation sys-
tems and their member SHGs still have to solve
the huge issue of achieving and maintaining long-
term viability and sustainability.
2
1.2 The Study and its Objectives
Given the importance and relevance of the sec-
tor, APMAS, ENABLE and DGRV have jointly
taken up the study on SHG Federation Models in
India. GIZ Deutsche Gesellschaft fr Interna-
tionale Zusammenarbeit (German Development
Cooperation, and formerly referred to as GTZ)
and NABARD National Bank for Agriculture
and Rural Development supported the study.
Funds from Ford Foundations ENABLE grant
were also used for the study.
The principle objective of the study is to contrib-
ute to the long-term viability and sustainability
of the Indian SHG movement. By combining
and proving long-term experience of the Indian
SHG movement as well as internationally accept-
ed good cooperative practices, the study aims at
providing orientation and strategic guidelines to
key stakeholders of the SHG movement, i.e. to
the SHGs and their federations, as well as to sup-
porting NGOs, state agencies and governments.
At the same time, it is desired that the study may
serve as a practical basis for defining a future strat-
egy on further development of the SHG struc-
tures, on appropriate institution building, on
performance improvement, on legal and regula-
tory adequateness as well as on further support of
SHG federations. The objectives of the study are:
(1) Enhancing the understanding of federations,
their role and functions within the SHG
movement, their performance and sustain-
ability
(2) Consideration of lessons learnt: good as well
as bad practices, identification of appropriate
models or, at least, developing strategic guide-
lines particularly focussing on achieving and
maintaining the SHG movements sustain-
ability
1.3 Study Team and the Methodology
For the purpose of elaborating this study, the col-
laborating organisations constituted a study team
consisting of two senior Indian experts and one
senior German expert, who were well equipped
with broad expertise as practitioners and advisors
on issues of the SHG movement in India as well
as on international cooperative practices and in-
stitutions. In addition, significant contributions
were made by experts from APMAS, ENABLE
and NABARD, operating in the respective re-
gions. The research team utilised the following
sources of material and expertise in the study:
1. Review of literature, including research studies
and workshop reports
2. In-house expertise and learning of study or-
ganisations
3. Expertise and learning of GIZ, NABARD and
ENABLE member organisations
4. An electronic discussion on UN Solution Ex-
change was initiated and the inputs were con-
solidated
5. The outcome of the workshop on best practices
in SHG Federations, which was specially or-
ganised for this report in June 2010
For a comprehensive study, the team utilised pri-
mary and secondary data2. The main source of
infor-mation however were the extensive field
visits. Field visits enabled the team to draw in-
ferences from the recent experiences of advanced
SHG structures and their SHPAs. In total, 12
SHG systems in six states were visited, two each
in the states of Rajasthan, Uttar Pradesh (U.P.),
West Bengal, Karnataka, Tamil Nadu (T.N.), and
Andhra Pradesh (A.P.). The field visits included
interactions with SHG members and lead-
ers, office-bearers and staff of the vertical SHG
structures including SHGs, cluster federations,
and block-level federations. In order to paint a
comprehensive picture of the sample SHG insti-
tutions, additional data and information was col-
lected, analysed and discussed. For this task the
team applied GRADES, a rating system designed
by APMAS. They were completed by discussions
with the supporting and promoting agencies, re-
gional representatives of NABARD as well as with
managers of local bank branches. The purpose of
these activities was not to conduct a complete as-
sessment or grading of the sample SHG systems,
but learning from their experiences and drawing
2. Most of the research and reading material on Indian SHG movement is available on www.apmas.org; www.shggateway.in
and www.enableindia.net
lessons from good and bad practices.
Besides drawing on and learning from the Indian
experience, the study is supplemented by relevant
experiences from other countries with similar
community and member-based organisations, es-
pecially from well-operating cooperative systems
which have proven their sustainability. SHG in-
stitutions with good practices were examined to
supplement the field visit results. The question-
naire was posted in the Microfinance Communi-
ty of Solution Exchange India. The purpose was
to seek additional inputs from members of this
network on examples of good practices adopted
by SHGs, federations and SHPAs. The response
to this questionnaire was very positive and help-
ful. The team could derive valuable information
from it. This helped in critical evaluation of ear-
lier results. New references for good practices and
additional recommendations for achieving sus-
tainability of SHG structures were found. In ad-
dition to the above mentioned research sources,
the authors could draw on their respective institu-
tions knowledge and the know-how of the imple-
menting organisations, APMAS and DGRV, as
well as of the practical experiences of their experts
involved.
1.4 Challenges for the Study
Although the framework for the research was in-
tensively prepared, the research team experienced
certain limitations and challenges during the field
visits.
The team had the aim of finding and analysing
the most advanced SHG systems for the empiri-
cal study research. This was not possible in all
regions because of a variety of reasons such as
logistical problems and the inability and unwill-
ingness of a few SHG structures to participate in
the research efforts. Another challenge for the
study team was the language barrier faced during
the interactions with SHG members and federa-
tion leaders. Regional experts participating in the
field work helped overcome this problem which
Contents | 3
 could have otherwise been a barrier for mutual
understanding. SHG members and federation
leaders were met at their homes and responded
to the questionnaire in an open manner. SHPAs
also showed similar openness towards the study
team. In spite of such cooperation, all responses
and answers gathered could not be fully verified.
Financial data was unavailable in all cases, which
became a hindrance for a comprehensive assess-
ment of cross-checking the empirical results of
the field studies. There are several grounds for
such a lacking. Although the team asked for data
to be prepared before visiting the organisations,
not all were able to present complete and updated
information. In each of these cases, the team, in
collaboration with SHG accountants, SHG lead-
ers, federations and SHPA staff, attempted to
complete and assess the data in the field. While
the data was simply unavailable in some cases,
on the other hand, the lack of time didnt allow
for a complete assessment of the rating of the re-
spective SHG institutions. As mentioned above,
rating along APMASs GRADES is complex and
time-consuming. Moreover, the organisations
visited were not always interested in being rated,
referring to sensitivity of financial data. How-
ever, the GRADES approach used by the team
significantly helped to complete field interaction
and allowed for valuable insights into the subject,
which in turn were useful for the study as a whole.
The organisations conducting the study, APMAS,
4
ENABLE (member organisations) and DGRV,
have their own historical and organisational back-
ground. A permanent coordination process and
repeated clarifications between the study partners
ensured common results being achieved. The co-
operation in the SOC pilot project during the last
years and other common activities contributed to
this mutual understanding needed for conduct-
ing this study successfully.
1.5 Structure of the Study Report
The study report has been divided into six chap-
ters. Chapter 2 briefly discusses the evolution
of the SHG sector in India. The sample SHG
structure details and major field observations
and learning are summarised in chapter 3. The
conceptual issues related to sustainability, its core
components, cooperative principles and the in-
ternational German cooperative experiences are
discussed in Chapter 4. The Indian SHG insti-
tutional experience, the field learning in particu-
lar, is analysed using the sustainability framework
and cooperative and model self-help institutional
principles in chapter 5. Finally in chapter 6, the
study findings as well as the strategic conclusions
for guiding SHG institutions and key stakehold-
ers in the best way possible towards sustainability
are summarised. Based on the cooperative model
of SHG structure, detailed practical strategic
guidelines for sustainable SHG institutions are
elaborated (attached).
Chapter 2
SHGs and their Federations in India
2.1. Evolution of SHGs
In India, the women Self Help Group (SHG)
model is the home-grown model. Primarily, it
results from NGOs searching for community-
based institutions, which may help the poor to
overcome their vul-nerability and lack of resourc-
es. The Self-Help Promoting Agencies (SHPAs)
quickly found that savings and loans could be
the binding factor for groups to remain active
for longer periods and pursue their own agen-
da. Probably, the Bhagavatula Charitable Trust
in Visakhapatnam district in Andhra Pradesh is
the first organisation to promote women savings
and credit groups in rural areas of the country.
In the mid-eighties, there were a few similar ex-
periments, mostly in Andhra Pradesh and other
Southern states. Initially, it was mostly savings
centred groups, as banks did not have any provi-
sion to have linkages with informal groups. Even
the SHG savings accounts used to be opened
in the name of 2 or 3 individuals in the group.
Groups used to circulate their own savings as
small loans among their members. Some SHPAs
have promoted networks of SHGs, commonly
known as feder-ations to facilitate the inter-
group circulation of funds. Networks like SHPAs
have also accessed external grants and loan funds
for on-lending. In 1987, NABARD provided`1
million as grant or soft loan to MYRADA to lend
to its groups. Similar experiments were initiated
by other prominent NGOs like Development
and Human Action (DHAN) and Cooperative
Development Fund (CDF), with assistance from
national and international donors like Tata Trusts
and Ford Foundation. The result of MYRADA
experiment and similar experiments by others led
to many innovations and path breaking projects,
policies and programmes and institutional devel-
opment. District Rural Development Authority
(DRDA) provided what is commonly known as
Contents | 5
Table 2.1: Progress of Self-Help Group-Bank Credit Linkage (Amount in Rupees crore)

Year (end March) No. of SHGs credit linked Bank loan amount
During the year Cumulative Loan Outstanding During the year Cumulative Outstanding
1992-93 255 255 - 0 0 -
1993-94 365 620 - 0 1 -
1994-95 1,502 2,122 - 2 2 -
1995-96 2,635 4,757 - 4 6 -
1996-97 3,841 8,598 - 6 12 -
1997-98 5,719 14,317 - 12 24 -
1998-99 18,678 32,995 - 33 57 -
1999-00 81,780 114,775 - 136 193 -
2000-01 149,050 263,825 - 288 481 -
2001-02 197,653 461,478 - 545 1,026 -
2002-03 255,882 717,360 - 1,022 2,049 -
2003-04 361,731 1,079,091 - 1,856 3,904 -
2004-05 539,365 1,618,456 - 2,994 6,898 -
2005-06 620,109 2,238,565 - 4,499 13,397 -
2006-07 1,105,749 - 2,894,505 6,570 19,967 12,366.49
2007-08 1,227,770 - 3,625,942 8,849 28,817 16,999.91
2008-09 1,609,586 - 4,224,338 12,254 41,070 22,679.84
2009-10 1,586,822 - 4,851,356 14,453 55,524 28,038.28
2010-11 1,196,134 - 4,786,763 14,548 70,072 31,221.17
From 2006-07 onwards, data on number of SHGs financed by banks and bank loans are inclusive of Swarnajayanti Gram Swarozgar Yojna
(SGSY) SHGs and existing groups receiving repeat loans. Due to this change, NABARD discontinued the publication of data on a cumulative
basis from 2006-07.
Source: data for 2009 10 and 2010 11 is taken from NABARD, 2010 and 2011, other years from RBI, 2010;
Loan outstanding data has been compiled from last five years NABARD publications

a revolving fund (RF) to hundreds of thousands
of SHGs in different parts of the country for rota-
tion as internal loans. The most common amount
of revolving fund was `10,000 for each SHG. In
1992, the Government of India established the
Rastriya Mahila Kosha (RMK), a dedicated or-
ganisation to lend to NGOs, SHPAs and SHG
federations.
2.2. SHG Bank Linkage
SHGs got a big impetus in 1992 with the launch
of SHG banking pilot programme by NABARD.
The Re-serve Bank of India (RBI) permitted
banks to open savings accounts in the name of in-
formal groups SHGs and lend to those (infor-
mal) groups, without collateral3 and without asking
the loan purpose. Since 1996, SHG banking has
been recognised as a regular banking activity. The
programme had a modest beginning, with 225
credit-linked groups and a loan amount of ` 2.9
million. Since then, the programme has grown
exponentially. In the process, SHGs emerged as a
mass movement across the country and the larg-
est community based microfinance model in the
world. As on March 2011, 7.46 million SHGs,
with an estimated membership of 97 million,
have savings accounts in the banks, with an ag-
gregate bank balance of ` 70.16 billion (NAB-
ARD, 2011). Over 4.78 million SHGs have loan
accounts with total loan outstanding of ` 312.21

3. Replacement of physical collateral with social collateral

6
billion. It is predominantly a women movement.
As some experts pointed out, it is a development
innovation in its own right.
2.3. Evolution of SHG Federations
The tremendous success of the SHG movement
heavily relied, and continues to rely on SHPAs to
mobilise, train, and support groups. In the late
1990s, the government had become a key pro-
moter and functioned as a SHPA of SHGs, espe-
cially in Southern India. As the number of groups
grew with continuous addition of new groups,
the SHPAs degree of involvement and even di-
rect contact with the groups greatly diminished.
The SHPAs find that they are unable to provide
groups with similar levels of attention as well as
quality of inputs as they did earlier. At this stage,
the SHPAs have begun to think of setting up
higher level bodies, those which are able to take-
over many of the SHPAs tasks, thus enabling
them to leverage their limited resources in the
most judicious manner possible (APMAS, 2007).
Major objectives of the promotion of SHG fed-
erations are to overcome the inherent limitations
of small and informal groups SHGs, such as
limited resources, limited needs, limited negotia-
tion and bargaining powers, inability to deal with
external bodies such as the government, main-
stream institutions, markets, etc. The benefits of
federations include:
(a) those arising from economies of scale
(b) reduction in transaction costs
(c) reduction in default rates at all levels
(d) provision of value added services
(e) reduction in the cost of promoting new SHGs
(i.e. the cost of reaching out to every poor
woman) and
(f ) increasing levels of financial discipline and ac-
countability among SHGs (Nair, Ajay, 2005).
Other objectives of federations were: inter-group
rotation of funds and to access bulk loans and
grants from external sources; gradual handover
of functions of SHPAs to Community Based Or-
ganisations (CBOs); promote leadership and gov-
ernance skills among primary members; develop
poor peoples own institutions. The SHG Federa-
4. The data is being published in the State of Microfinance Sector Reports, especially in 2008, 2009 and 2010
tions function as per the principle of subsidiary.
Some prominent NGOs and DRDAs in some
states pioneered the promotions of SHG Federa-
tions from the early 1990s. UNDPs 1994 ini-
tiative of South Asia Poverty Alleviation Project
(SAPAP) is perhaps the first large-scale federation
promotion initiative in the country. It promoted
a 3-tier structure SHG Village Organisations
Mandal Samakyas. The programme was imple-
mented in 20 mandals spread across three districts
in Andhra Pradesh. The Government of Andhra
Pradesh promoted Society for Elimination of
Rural Poverty (SERP) which has up-scaled the
model to the entire rural Andhra Pradesh cover-
ing over 37,000 federations organised at village,
mandal and district level. Apart from Andhra
Pradesh, some state governments like Kerala,
Maharashtra and Tamil Nadu also promote SHG
federations on a large scale. PRADAN, MYRA-
DA, DHAN, and CARE are some prominent
NGOs which pioneered SHG federations in
multiple states. There are a number of prominent
state specific SHPAs, which promoted and pio-
neered SHG federations in their respective states.
Some of the federations evolved themselves into
NGOs and MFIs. These NGOs and MFIs in turn
promoted more federations and strengthened ex-
isting federations.
In India, there is no official or authentic data
on SHG federations. For the last few years, AP-
MAS has been compiling SHG federation data
from sources such as websites and direct contact
of promoting and resource agencies4. Since this
is a voluntary effort there is a risk of misquoting
some of the federations in the country. As per the
latest APMAS data (July, 2010), the number of
SHG federations in the country is 163,852 (Ta-
ble 2.2). Out of these, 158,166 are primary level
federations (PLFs). There are marked variations
in these PLFs. The PLFs are organised at village
or sub-village level (as in A.P. by SERP and in
Kerala by Kudumabasress), at cluster level (as in
most of the states), at Electoral Booth level (as
in West Bengal), at slum level (in many urban
areas). In some areas PLFs registered the Mahila
Contents | 7
 Table 2.2: Regional spread of SHG - Federations as on 31st July 2010

Regions No. of Primary No. of Secondary No. of Tertiary Total Federations % of Total
Federations Federations Fed-erations
Northern Region 320 39 - 359 0.22
North-Eastern 186 16 1 203 0.12
Region
Eastern Region 65,107 2,696 72 67,875 41.43
Central Region 4,781 238 2 5,021 3.07
Western Region 8,269 6 - 8,275 5.05
Southern Region 79,502 2,549 33 82,085 50.1
Total 158,166 5,578 108 163,852 100

banks (DRDA and NGO promoted in A.P.) as
for profit mutual benefit trusts (e.g. SNFL) for
an effective interface between SHGs and higher
level organisations like SLFs (e.g. SERP). These
became crucial links in the SHG institutional
structures with an independent agenda. Most
PLFs remained very informal and rudimentary
structures, often without any books of accounts,
independent income, separate office, yet playing
critical roles in implementation of SLF or SHPA
agenda and as channels between SLFs, SHPAs,
SHGs and its members. There is a skewed growth
of federations across the country. Out of a total of
163,852 federations, a little over 50% federations
are in South India and 41% are in East India. In
fact, West Bengal, Andhra Pradesh, Kerala and
Tamil Nadu account for nearly 80% of the to-
tal federations. West Bengal and Andhra Pradesh

Table 2.3: Services offered by SHG Federations

Financial SHG strengthening (or supporting) Services

Credits (or loans) Auditing of SHGs
Savings Grading (or appraising)
Insurance Book keeping
Pension Training
Housing loan Monitoring
Hire purchase Bank linkage and other linkages
Problem solving

Business development/ Livelihood Services Social (or developmental initiatives)

Marketing services Domestic violence
Processing and value addition Child marriages
Business plan development Gender discrimination
Promotion of entrepreneurship Child labour programme
Livelihood opportunities for members Social discrimination
Cattle management Rights and entitlements
Supply of inputs E.g. agriculture inputs Drinking water
Bulk purchase of required material Health initiatives
Family counselling centres
Anti-liquor campaigns

8
alone account for about 60% of the total federa-
tions (Table 2.2).
2.4. Functions of SHG Federations
Federations have been providing a number of
services to SHGs and individual members. These
could be grouped into 4 categories; institutional
development, financial intermediation, liveli-
hoods enhancement or business development
services, and social intermediation. Table 2.3 has
a list of services under each of these categories.
Like all CBOs in different parts of the world, fed-
erations also offer multiple services to member
SHGs, which are in their initial years and began
specialisation during the process of maturing and
changing conditions. For instance, many federa-
tions in South India were involved in financial
intermediation. As banks provide adequate and
timely credit in many parts of South India, some
of those federations cease their financial opera-
tions (see e.g. Kottaisamy, P and S. Nirmala, (un-
dated)) (See References section for Study details).
Similarly, some federations were forced to take
up financial intermediations, even at the cost of
neglecting their core function of social interme-
diation due to the apathy of bankers. Some fed-
erations have limited financial intermediation or
business to earn sufficient funds for meeting op-
erational costs. Some federation structures clearly
define roles of the different federation layers. In
a few cases, separate institutional structures have
been promoted to take up different sets of ser-
vices.
2.5. Promotion of SHGs and SHG
Federations
The spectacular growth of SHG institutions is
the result of innovative and constant support of
SHPAs, resource organisations, NABARD and
other policy makers. The SHPAs include a variety
of players such as village or community volunteers,
farmers clubs, SHG federations and other CBOs,
banks, government departments, municipalities,
and dedicated promoting agencies sponsored by
state governments. Being most innovative and the
largest set of SHPAs, NGOs are pioneers of the
SHG movement. However, official agencies pro-
moted the largest number of SHGs in most of the
states and the country as a whole. Many official
agencies and NGOs adopted the SHG model to
accomplish their own goals. In fact SHG institu-
tions became a flagship model for poverty alle-
viation for the Government of India (GoI) and
many state governments. The Ministry of Rural
Development, GoI, has adopted the SHG model
in its flagship poverty programme of Swarnjay-
anthi Grameen Swarojgar Yojana (SGSY), which
has been expanded and redesigned as the Nation-
al Rural Livelihood Missions (NRLM). Similarly
states like Andhra Pradesh and Kerala adopted
the SHG model with stupendous success in their
poverty alleviation programmes.
2.6. Funds for Promotion of SHGs and
Federations
NABARD is the principal source of funding for
strengthening SHG bank linkages. Since the in-
ception of the SHG Banking programme, i.e.
from 1992 up to March 2010, NABARD pro-
vided ` 1.08 billion to 2,911 SHPAs for pro-
moting 492,276 SHGs (NABARD, 2010). The
average amount was found to be ` 2,200 per
SHG. NABARD provided support to a variety
of SHPAs like Cooperative Banks, Regional Ru-
ral Banks (RRBs), NGOs, Farmers Clubs and
Individual Rural Volunteers (IRVs). It has been
sharply focussing on underserved states and re-
gions. NABARD has been increasing the promo-
tional amount significantly in recent years. Fur-
ther, NABARD has been facilitating training and
exposure to numerous primary and secondary
stakeholders year after year. A total of ` 99.3 mil-
lion (NABARD, 2010) was spent on providing
training and exposure in 2009-10. Another im-
portant source of funds is the SGSY programme
of Government of India.
Apart from the Government of India funds, some
state governments like Andhra Pradesh, Kerala,
Maharashtra, Orissa, Madhya Pradesh and Bi-
har have mobilised significant funds from other
sources, including assistance from bilateral and
multilateral funding agencies. For instance, SERP
(Government of Andhra Pradesh) invested nearly
` 23,000 per SHG. By including SERPs total or-
ganisational cost, this amount could be well over
Contents | 9
 ` 30,000 per SHG. These states have been hiring
the services of professionals and NGOs to pro-
vide quality support to SHG institutions. Some
of these states are able to bring together many
development programmes through SHG institu-
tions.
Thousands of NGOs including some MFIs in-
vested substantial amounts in promotion of
SHG institutions. While prominent NGOs like
MYARADA and PRADAN are able to mobilise
more than ` 10,000 per SHG, smaller NGOs
have to cope with `500 per SHG. Many NGOs
adopted SHG institutions in their development
projects like agriculture development, health
awareness and HIV/ AIDS awareness. They were
able to allocate some portion of those project
funds for promoting and strengthening SHG in-
stitutions. Some MFIs have also been investing
5.2 mn significant amounts in the promotion of SHG
institutions as part of their business or develop-
people in A.P. ment goals. Though banks are reaping consider-
subscribed for able benefits from SHG banking, they are invest-
the insurance- ing very little in SHG institution building.
cum-pension
scheme Abhay
Hastam. A 2.7. Impact of SHGs and SHG Banking
huge
93% If the growth rate of SHG-Bank Linkage is im-
pressive, its impact is amazing. Most of the stud-
of them ies on the impact of SHGs and SHG Banking
belonged to focused on the benefits accrued to the primary
the SC, ST, members but over-looked the benefits accrued
OBC or other to various mainstream institutions including
Minority SHPAs. Among the mainstream institutions, the
Communities. banks are deriving significant benefits.
2.7.1. Impact of SHGs and SHG banking
on primary members
A number of studies pointed out that SHG -
Banking has resulted in a significant decline in
poverty among SHG members. It also resulted in
a significant decline in SHG members depend-
ency on moneylenders and other informal credit
5. See e.g. the October 2010 progress report of the programme in rural AP
(http://www.rd.ap.gov.in/IKP/IKP_Prog_report_Oct_2010.pdf).
10
sources. Even most critical studies pointed out
that SHG - Banking resulted in the smoothen-
ing of basic consumption of the poor and helped
members to tide over their economic emergen-
cies without jeopardizing their future. According
to an APMAS 2009 study, the SAGs/ SHGs of
MYRADA have demonstrated the potential so-
cial and economic benefits of long-term mem-
bership in quality SHGs institutions. Members
have about 10 years of SHG membership. Each
member was able to create assets worth about `
150,000, experienced diversity in his/her liveli-
hoods and significant improvement in his/her
economic conditions. Women experienced a
significant improvement in the gender relations
in the family and society. SHGs involvement is
being sought in local governance. SHG member-
ship resulted in increased confidence to deal with
the outside world especially with banks and of-
ficials. It also resulted in members mobility and
their involvement in family decisions and their
access to family income and resources. Interest
rate in the informal market declined from 60%
to 24%. Moneylenders operation style has im-
proved significantly, including provision of col-
lateral free loans.
SHG members in Andhra Pradesh realised most
of the potential benefits of the SHG institution.
SHGs in the state have been getting loans from
banks more liberally compared to other states
(see e.g. Table 2.4). The SHG members also saw
several livelihoods and social benefits rise on a
much higher scale compared to their counter-
parts in other states. This was the result of the
heavy investment made by the state government
in institutional building and constant and appro-
priate support. The state government has been
providing subsidies and other incentives linked
to better performance. It also disclosed its pref-
erences of SHG members and institutions. Two
instances are: interest subsidy is linked to regular
repayment of bank loans, and a comprehensive
insurance-cum-pension scheme (Abhay Hastam)
which matches the contribution equal to the
subscription. In every way the accomplishments
of the Andhra Pradesh SHG programme are re-
markable5.
2.7.2. Impact of SHGs and SHG Banking
on banks
Evidence from many parts of the country suggests
that the SHG Bank Linkages not only helped the
groups and members but also the banks. Opti-
mum utilisation of their vast network of rural
branches was noted. Many rural bank branches
especially RRBs, and to some extent cooperatives,
have turned around in their profits due to SHG
banking. About one-third of Primary Agricultur-
al Cooperative Societies (PACS) in West Bengal
have turned around due to SHG banking. Most
rural bank branches in Andhra Pradesh have over
50% of their portfolio in SHGs. In some branch-
es, the same is over 75%. In rural areas the Credit
Deposit Ratio is more than 100%. In one of the
district level bankers meeting, it was cited that
90% of total profit in rural bank branches is a
result of SHG banking.
2.7.3. Impact of SHGs and SHG Banking
on other stakeholders
SHG banking has a profound impact on many
secondary stakeholders. According to NABARD
Status of Microfinance in India 2009, the SHG
Bank Linkage Programme has transformed the
whole range of institutions government, banks,
NGOs and development institutions, in their
approach towards the development of the poor.
The socio-economic aspect on the rural poor is
enormous There have been seen changes in the
policy environment for SHGs in the recent years.
Many State Governments, Gov-ernment of India
agencies and international bodies have launched
several livelihood programmes with SHGs as de-
livery channels. Among other things, MFIs are
expanding their horizon of services through the
SHG route.
2.7.4. Social impact
As a result of SHG membership, there is marked
improvement in womens mobility, their role in
the family, society and local governance. In an
APMAS workshop in 2008, the primary mem-
bers described SHG institutions as their identity,
strength and means to build capacities and skills,
and space to express their views and method to
fulfil their dreams. This is one programme which
has been reaching the real poor and needy in the
most backward and interior areas. To further il-
lustrate this, in A.P. about 5.2 million members
joined the comprehensive insurance-cum-pension
scheme known as Abhay Hastam. Out of these,
about 60% were from structurally poorer com-
munities known as Scheduled Caste (43.45%)
and Scheduled Tribes (16.28%); and 31.31%
were from Other Backward Classes; 2.12% were
from Minority Communities and only 6.84%
from Open Communities. Many states use SHG
institutions to implement various programmes
like Public Distribution System (PDS), moni-
toring work and payments under the Mahatma
Gandhi National Rural Employment Guarantee
Scheme (MGNREGS), distribution of old age
and destitute pensions, micro insurance pro-
grammes etc. Evidence from different parts of
the country suggests that involvement of SHG
institutions in implementation of these schemes
resulted in significant improvement in their im-
pact. Thousands of NGOs evolved and diversified
into MFIs, thus not only meeting the financial
needs of the primary members, but also generat-
ing funds to meet their own operational and ex-
pansion related expenditures. Some of them have
grown up into large scale commercial MFIs.
2.8. Challenges
Though SHG institutions demonstrated their po-
tential and there is an all-round interest and sup-
port from different stakeholders, they still face se-
vere challenges. These include apathy on the part
of bankers, policy contradictions, less and inap-
propriate promotion funds and support, unequal
competition from commercial MFIs, insensitive
SHPAs, inadequate training and capacity build-
ing material and infrastructure etc. Some of these
are elaborated below:
2.8.1. Banks apathy
Banks apathy is the most critical challenge SHG
Contents | 11
Table 2.4: Regional distribution of SHG bank credit linkage
during 2007 08 and 2010 -11 (amount is Rs. in lakhs ) 6

Region 2007-08 2008-09 2009-10 2010-11

SHGs Amount SHGs Amount SHGs Amount SHGs Amount
Northern 33,680 19,147 42,688 30,243 37,375 30,633 42,493 37,752
North-Eastern 29,119 14,871 35,506 24,642 48,854 28,452 39,307 32,096
Eastern 224,937 104,584 236,789 123,767 277,446 154,019 247,624 161,950
Central 72,748 48,797 101,060 78,141 77,846 63,210 48,734 60,755
Western 90,441 42,329 125,173 58,393 149,130 64,698 91,954 62,591
Southern 776,847 655,198 1,068,370 910,166 995,718 1,104,054 726,022 1,099,629

AP 7
406,386 387,976 636,816 550,860 564,089 670,664 367,420 620,919
TOTAL 1,227,772 884,926 1,609,586 1,225,351 1,586,369 1,445,066 1,196,134 1,454,773

As a percentage of column total in %

Northern 2.74 2.16 2.65 2.47 2.36 2.12 3.55 2.60
North-Eastern 2.37 1.68 2.21 2.01 3.08 1.97 3.29 2.21
Eastern 18.32 11.82 14.71 10.10 17.49 10.66 20.70 11.13
Central 5.93 5.51 6.28 6.38 4.91 4.37 4.07 4.18
Western 7.37 4.78 7.78 4.77 9.40 4.48 7.69 4.30
Southern 63.27 74.04 66.38 74.28 62.77 76.40 60.70 75.59

AP 33.10 43.84 39.56 44.96 35.56 46.41 30.72 42.68

TOTAL 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

institutions are facing. The members can sur-
mount any number of challenges, provided they
get credit. Though SHG Banking emerged as the
worlds largest community based microfinance
model and grew at phenomenal rates over the
years, as a whole it remained very small in the
overall portfolio of banks. Therefore, most of
the bankers are not able to see its potential. As
a result, SHG banking is thriving only in a few
pockets in the country, especially in the South.
In fact, Andhra Pradesh has the lions share in
overall SHG banking in the country (see Table
2.4). The data clearly shows that SHG Banking is
significantly lagging in most states. Growth rate
in SHG banking in the country is slowing down
significantly as compared to MFIs. The major rea-
son for this scenario is apathy and inability on the
part of banks to recognise the potential. Unfor-
tunately bankers in most parts of the country do
not see the business opportunity of banking with
the poor through SHGs. Banks often cite staff
shortage as a reason for not being able to engage
with SHGs. Also, though a large number of edu-
cated youth of the country are unemployed, yet
banks are unable to follow through a profitable
business due to staff storage.
2.8.2. Policy contradictions
As mentioned above, many SHPAs adapted

6. 1 lakh is equal to 0.1 million

7. Total is included in the southern region total, and in general/ country total via the Southern region total
8. As a part of the present study, the study team posted a query on UN Solution Exchange. One of the major sug-gestions given by
the members is that SHG institutions need to be promoted and strengthened based on original values and vision, i.e. recent drift
in the mission needs to be reversed (Solution Exchange, 2010).

12
SHGs to accomplish their own goals. It helped
and also hampered the growth of the SHG move-
ment in the country. Due to widespread adoption
by many stakeholders, some investment was made
for SHG institutions promotion and strengthen-
ing. On the downside, almost all of these SHPAs
focused on accomplishing their projects goals
rather than developing SHG institutions as truly
member-owned and member-managed institu-
tions. SHG institutions were adopted as a basic
tool for implementation of different projects.
But the focus was invariably on secondary is-
sues of livelihoods enhancement and empower-
ment of marginalised people without addressing
the primary issue of institutional strengthening8.
Most of the government-sponsored programmes,
which adopted SHG institutions, were success-
ful by maintaining a positive correlation with
the quality of the SHG institution they were
promoting.
Most programmes sponsored by the Government
of India like SGSY, Swayamsidha, Swa Shakti
have had limited success. One major obstacle
is the incompatibility of the SGSY programme
with the SHG Banking Programme. The SHG
Banking Programme is aimed at financial inclu-
sion, i.e. providing financial services to those sec-
tions which were until now un-reached and un-
bankable, designed to run purely on commercial
terms. Whereas, the SGSY programme is aimed
at poverty alleviation through the promotion of
entrepreneurship and self-employment with capi-
tal subsidy, and it runs on state subsidy. Wide-
spread corruption in the SGSY programme has
adversely affected the repayment to banks, which
in turn has had a negative impact on the SHG
Banking Programme. It has been elaborately dis-
cussed in ENABLE (2009). It also causes a drift
in the primary stakeholders focus from self-help
to subsidies and grants.
Another challenge faced by the sector is centrali-
sation and standardisation of SHG institutional
promotion and functioning, especially by the
government agencies. SHG institutions, like any
other peoples institutions, need flexibility in their
evolution as per the local context. Usually devel-
oped at the central level, most official SHPAs
strictly observe the standard procedures while op-
erating SHG institutions, leaving very little space
for members to manage the institutions accord-
ing to their own agendas.
As banks are reluctant to lend to SHGs in many
parts of the country, the concerned SHPAs are di-
rectly taking up or encouraging their federations
to take up the financial intermediation. In some
Contents | 13
 parts of the country it has been noticed that these
SHPAs and federations are unable to meet all the
financial needs of SHGs. Most of them are also
not facilitating direct SHG Bank Linkage due to
conflict of interests.
Ever since RBI notified commercial microfinance
lending as priority sector lending, many banks
prefer lending to MFIs instead of SHGs. Banks
believe that it is more convenient and cost effec-
tive. But recent defaults and crisis in some MFIs
highlighted the risks in this route. Further, the
end users or farmers have to pay very high rate
of interest in this model, leaving them with very
little margins and surplus.
2.8.3. Promotional funds
As mentioned above, important sources of fund-
ing for promotion of SHGs and federations are
NABARD, Government of Indias SGSY and
other programmes, some state governments
(which mobilised funds from sources other than
GoI, such as from bilateral and multilateral agen-
cies), national and international donors, NGOs
and some MFIs who invested funds from their
own sources. Though banks have a large stake in
SHGs, they have invested very little. All these
sources together have provided a very small per-
centage of funds required. As a part of this study,
a one-day workshop was organised in June 2010
at Hyderabad. Almost all participants pointed
out that investment made for the development of
this sector were quite inadequate. While summa-
rising the proceedings of the workshop, Mr. C. S.
Reddy said that SHG institutions received only
a fraction of the required funds for their devel-
opment. As a result, the institutions were unable
to grow positively (APMAS, 2010). Apart from
overall inadequacy of funds, there are problems
of wider inequalities and accessibility. There are
some SHPAs which have more than ` 30,000
per SHGs and some SHPAs with only ` 500 per
SHG promotion.
Among all funding sources, NABARD and GoIs
9. Major reason for the wide gap between NABARDs sanctioned amount and release amount is the non-cooperation of banks.
NABARD releases are linked with SHG formation, SB account opening and credit linkage. Unless the promoted SHG opened an
SB account and got credit linkage the 2nd and 3rd installments would not be released. Most of SHGs experience inordinate delay
in opening of SB account and credit linkage and some SHGs never get credit linkage.
14
SGSY are principle sources. Both have certain
problems. While NABARD allocated over `1 bil-
lion for promotion of SHGs since their inception,
it has released just about ` 400 million9. In case
of SGSY, many prominent NGOs did not get
funds. Though` 10,000 per SHG was allocated
for promotion and capacity building, in most of
the cases the amount was not spent. Funds were
diverted for centralised activities. Further, under
SGSY the major focus was on economic activity
oriented trainings and institution building was
grossly neglected. Further, both these sources did
not provide funds for integrated development of
SHGs and federations.
Only some state governments that are able to mo-
bilise additional funds, prominent NGOs and a
few MFIs are able to invest in promotion of SHG
federations. The current funding patterns of NA-
BARD and SGSY do not have provision for pro-
motion of SHG federations. Though NABARD
announced support for strengthening of non-
financial federations in 2007, very little assistance
has been provided so far. In the proposed NRLM,
there is sharp focus on promotion of SHG fed-
erations. In some states, DRDAs have promoted
significant number of federations. Some of the
MFIs also promoted SHG federations as per their
business plans.
2.8.4. Inadequate human resources and
capacity building infrastructure
As SHG institutions have evolved in recent times,
there are not many prior experiences, expertise
and resource materials. Most of the SHPAs have
been stressing on learning by doing. Further,
many government agencies have been working
on achieving targets. People working on sensitive
issues like building of community-based organi-
sations such as SHGs need to be well trained and
oriented. There is insufficient infrastructure for
training and capacity building of SHPAs.
Chapter 3
Field Studies of SHGs and
their Federations
3.1. Overview on the Field Work
The study team supported by its partners in dif-
ferent regions executed several field studies. These
became the central source for the study. The study
covered a purpose-oriented sample of 12 SHG
structures10 from 6 States. The selection criteria
were:
(1) Support by leading promotion agencies of the
country
(2) Outreach of the structure into different re-
gions
(3) Willingness to participate and support efforts
of the study team
10. In this study, the term SHG structure means the group of SHGs and (multi-level) Federations owned by them. If the
term Federation structure is used, it describes the multi-level federation system joint to the SHG structure providing support
services to the SHGs and SHG members respectively.
Based on information available and support by
members of ENABLE, it was aimed at identifying
SHG structures of different models. SHPAs were
identified respectively, all of which had different
stages of development, socio-economic and en-
vironmental conditions. Table 3.1 contains basic
description of the sample SHG structures covered
during the field visits.
The purpose of this fieldwork was to learn from
each of these SHG structures about visions, strat-
egies, institution building, functions, services,
and performance as well as about good and criti-
cal practices, challenges and perspectives, and to
identify needs for external support. The study
Contents | 15
 team interacted in each case with one block-level
federation, two village-based cluster federations,
and four member SHGs (two each from the
two cluster federations) joint in this block-level
SHG structure. If possible, district or state level
federations were involved as well. These interac-
tions with SHG members, SHG representatives
and federations office bearers, federation man-
agement and staff were concluded with discus-
sions among promoter agencies, regional repre-
sentatives of NABARD, and branch managers of
banks.
Even if the task of the field visits was not to con-
duct a complete assessment or grading of the
SHG structures, the study team applied APMASs
rating system GRADES. It enabled the team to
collect systematic information and data on issues
like internal systems, governance, resources, ser-
vices, recoveries, profitability, and financial self-
sufficiency. After collecting, this data was analysed
and discussed. Applying GRADES is usually a
very complex and time consuming procedure.
Therefore, the team chose a limited GRADES ap-
proach, allowing for completing field interactions
very quickly. Valuable insights were gained in this
manner which helped in updating and confirm-
ing the results from the interaction.
3.2. Brief Narrative Description of Sample
Federations
At times some of the structures like MYRADAs
CMRC, Bagnan BCC and SNFL SMBT are not
referred to as typical SHG federations. However,
all these structures are treated as SHG federations
in this report. Although most of the institutions
are old and established before 2005, the federa-
tions in Rajasthan and U.P. are of recent origin.
Out of 12 sample structures, 9 are 3-tier11 and
3 are 2-tier structures. The federation structure
of SKRDP is also of 3-tier. In fact, SKDRDP
claims itself to be a federation of federations and
provides excellent financial services to its mem-
ber SHGs. Each sample federation is described
briefly in Box 3.1.
11. Due to some gaps in the collected information, only one PLF of SKDRDP was used in this chapter. However, learning of SLF
and financial and other services of SKDRDP are also used appropriately in this report.
16
Box 3.1: Brief Description of
Sample Federations
1. Janatha MACS of ASP, AP:
This is a Mandal (sub-district) level federa-
tion, registered under APMACS, 1995. It
borrows predominantly from Ankuram
Sangha Poram (ASP), an apex federation,
and lends to SHGs. Practically it lends to
members through SHGs at 21% inter-
est. It does not have interest spread, and is
completely dependent on Ankuram Sangha
Poram (ASP) for its operational costs. The
Board members gave complete freedom to
the staff to run MACS. As of now, ASP has
severe defaults and repayment problems and
has stopped its microfinance operations.
Janatha MACS is one of the very few func-
tioning MACS of ASPs 100-odd member
MACSs. Janatha MACS itself is operating
with very limited funds. Almost all members
of ASPs SHGs are also members of SERP
promoted SHGs and some of them are also
members in some MFI promoted JLGs. A
free hand is given to the staff in the man-
agement of MACS and individual lending
thereby neglecting the SHGs; these are per-
haps some critical factors for the failure of
MACSs and ASP.
2. Sri Chaitanya MS of SERP, AP:
This is a SERP promoted Mandal (sub-dis-
trict) level federation, registered under AP-
MACS, 1995. SHGs are getting very good
financial services including large credit from
banks and federations, insurance and pen-
sion from the government and also access-
ing many other government programmes.
However, the SHG institutions are not able
to address many social issues like men hav-
ing alcohol dependency, because their agen-
da is set externally. Though SERP staff does
not have the authority to sign cheques, they
can influence the functioning of federation,
village organisations and SHGs12. There is
no rotation of leadership or legal compliance
for years at a stretch. Recently, they have in-
troduced community auditing at SHG level,
which also includes impact auditing. Commu-
nity audit has had a dramatic impact on the
members awareness about the financial posi-
tion of their groups.
3. HD Pura CMRC of MYRADA,
Karnataka:
MYRADA developed Community Managed
Resource Centres (CMRCs) to provide all nec-
essary services to SHGs, other CBOs and in-
dividuals. MYRADA wanted a permanent and
formal institution which would be accessible
to the community as and when required. CM-
RCs have good infrastructure like computers,
internet, photo-coping machines, committed
and qualified staff and a number of CRPs.
MYRADA provided some corpus, which earns
some regular income for CMRC. They raise
most of their resources by charging a fee for
services. It also regularly accesses many govern-
ment schemes and sponsorships. The primary
stakeholders are empowered through well or-
ganised capacity building and member friend-
ly processes and programmes. The primary
members are thoroughly involved, and have
achieved considerable success in strengthening
of SHGs, lobbying for prohibition, curbs on
liquor sale and consumption, addressing gen-
der inequalities, accessing government pro-
grammes, cleaning and greening of local en-
vironment, strengthening of local governance,
etc. Primary members played a critical role in
getting land for construction of CMRC build-
ings. However, the primary members have a
limited role in the administration of CMRC.
4. Kaniyoor federation of SKDRDP, Kar-
nataka:
SKDRDP promoted over 116,000 SHGs,
including farmers groups; over 3,400 (village
level) PLFs and 34 (block level) SLFs. SK-
12. One of the reasons for the large influence of SERP personnel over SHG institutions is that SERP/ Government has
provided over Rs. 7 million corpus to each of MSs and providing many other tangible benefits like matching con-tribu-
tion to the Pension-cum-Insurance premium; interest subsidy, etc.
DRDP lent directly to members through their
SHGs. The federation structure appraises and
approves loan applications and is involved in
recovery of bad debts, transfer of technolo-
gies, skills and celebrations of festivals and
functions. SKDRDP provides loans liberally
since the 12th week of formation of SHGs. It
provides multiple and synchronised loans to
each member to meet his/her diverse needs.
De-linking of loans to savings amount, mul-
tiple loans, and lower instalment amounts
de-linked with loan linked Income Generating
Activity (IGA), providing loans for many non-
productive purposes are some unique features
of SKDRDP mF operations worth emulation.
Another unique feature of SKDRDPs mF op-
eration is that it lends to relatively larger size
groups, i.e. 15 to 20 member SHGs. It reduc-
es the operation costs of SKDRDPs mF op-
erations. Another unique feature is that it ar-
ranges direct transfer of consolidated monthly
loan instalment from SHG accounts to the
SKDRDP account. However, SHGs collect
weekly instalments from their members and
deposit the same every week in their bank ac-
count. SKDRDP accesses funds from many
government departments and programmes
like SC/ ST corporations and SGSY and uses
the programmes support optimally and inno-
vatively. Each farmer is assisted to draw his/
her five year plan and realise the same. Credit,
training and technology transfers are linked to
the individuals five-year plans. SKDRDP is
very conscious of the interest rate. It lends at
a maximum of 9% flat interest rate. If it gets
loans at lower interest, it passes on the benefit
to the members. Liquor de-addiction is one of
the priority activities of SKDRDP and its sister
organisations. SKDRDP promotes a separate
corporate structure to market the products of
SHG members. It provides all kinds of train-
ing, capacity building and professional support
freely. However, SHGs and federations have to
meet their entire operational costs from their
Contents | 17
 own funds.
Kaniyoor federation is a village level organisa-
tion. It has SHGs and farmers groups as mem-
bers as well. Both men and women participate
in all meetings without any inhibitions. A sub-
committee consists of current and previous of-
fice bearers and visits all SHGs, resolves their
problems, grades them and assesses their credit
and other needs and reports to the representa-
tive general body (RGB)/ executive committee
(EC). Though it plays a critical role of approv-
ing loans and transferring technology, it re-
mained as an informal body without registra-
tion, books of accounts and a regular budget.
5. Saheli Samithi of (PRADAN), Rajasthan:
The federation was established to support and
sustain SHGs and clusters promoted by the
Government of Rajasthan under the District
Poverty Initiative Project (DPIP). Government
of Rajasthan involved PRADAN, a renowned
NGO, in its DPIP programme to strengthen
the groups in this area. PRADAN introduced
Artificial Insemination (AI) to improve the
quality of livestock of DPIP beneficiaries and
other livestock rears in the area. It generated
a significant amount through fee based AI
and other services. As withdrawal strategy,
PRADAN promoted the federation Saheli
Samiti, appointed one of its ex-employee as
an Advisor and provided a corpus of ` 1 mil-
lion from the accumulated service fee. Apart
from providing the institutional development
support to SHGs and clusters, the federations
functions are:
(1) Micro-credit from its corpus provided by
PRADAN,
(2) Artificial insemination to improve the live-
stock quality (for a fee),
(3) Promotion of new SHGs,
(4) Book-keeping and MIS to member SHGs
through PRADANs Computer Munshi
13. The scenario was aptly articulated by Mr. Rajesh Singhvi of Ibtada at the workshop organised,
the study team. See APMAS, 2010.
14. Attached to certain purposes like purchase of small ruminants, construction and improvement of houses and sanitation
18
software,
(5) SHG Banking,
(6) Training livelihood enhancement and pro-
motion,
(7) Linking members and SHGs with the cor-
porate sector and mainstream institutions,
and
(8) Other need based services.
Due to the poor bank credit linkages, the qual-
ity of SHGs is declining steadily and major-
ity of primary members have limited interest
in SHGs and the federation. The federation
manager and advisor have to play a major
role in the functioning of the federation. As
it was registered as a trust, it is facing severe
constraints in its microfinance activity, and
exploring the possibility of converting into a
financial cooperative.
6. Savera federation of Ibtada, Rajasthan:
The major objective of the federation is so-
cial intermediation; to obtain gender equity
through girls education, awareness generation
and initiating womens organisations. Due to
the indifference shown by bankers, the federa-
tion is forced to take up financial intermedia-
tion. The primary members have limited ex-
pertise in managing financial affairs and hence
are heavily dependent on the promoting agen-
cy and its own staff. This also adversely affect-
ed the federations major goal of social inter-
mediation13. The promoting agency accessed
subsidy, but attached14 funds and provided
the same to the federation for on-lending to
SHGs and members for specific purposes. The
SHPA and federation are also arranging SHG
MFI linkages to meet the members credit
needs. The federation is seriously considering
converting itself into a financial cooperative to
mobilise savings from the members and ful-
fil the financial and credit needs of the mem-
bers. Due to very good capacity building and
awareness, provided by the SHPA, the primary
members have a real sense of ownership about
their institutions. Through financial services,
the federation helped many of its members
to redeem their land from mortgages and im-
prove their housing and hygiene conditions.
The federation is also contributing to the cause
of strengthening SHGs and clusters and im-
proving local drinking water supply, agricul-
ture inputs and livestock rearing.
7. JTWDS of Don Bosco, Tamil Nadu:
Jawadhi Tribal Women Development Society
(JTWDS) was formed in 1997 along with
Men Society by Don Bosco to enable the local
tribal community to participate in developing
their hills and forests. JTWDS participated in
bidding for a lot of development works and
executed it successfully. Over the years, the
JTWDS acquired a number of assets through
purchase and leasing, earning good returns and
helping the members. Since mid-1990s, Don
Bosco has also been organising SHGs and PLP
at the village or cluster level and one SLF of all
groups in its operational area. It has converted
the JTWDS as the executive arm of SLF. Don
Bosco has been facing stiff competition from
government departments and other SHPAs
in promotion of SHGs in the region. Almost
all SHGs in the area got converted into SGSY
groups in order to receive one time RF and
project subsidy. As a result, there are severe
repayment problems and banks are reluctant
to lend to SHGs and SGSY groups. Though
Don Bosco ensured complete loan repayment
of its groups, the banks are not willing to lend
even to the Don Bosco groups. While repaying
the bank loans, the groups savings were also
used. Most of group members are not aware of
these issues. The overall awareness level of pri-
mary members is very poor and they are heav-
ily dependent on Don Bosco for day to day
functioning of their institutions. Don Bosco
provides all necessary support to the groups,
including corpus funding to the SLF for on-
lending, improved production methods, value
addition, marketing of members production
such as fish, flowers, fruits, vegetables, NTFP,
maintenance and operation of capital items
like trucks, mills, tent houses, etc. Don Bosco
is also in the process of developing a brand
for products made by the tribal community.
8. SMBT of SNFL/ ASSEFA, Tamil Nadu:
Maduranthakam Sarvodaya Mutual Benefit
Trust (MSMBT) was registered under the In-
dian Trust Act as a profit earning and tax pay-
able organisation. The objectives of the MS-
MBT are:
(a) To empower women,
(b) To provide financial services, and
(c) To link the poor with major financial in-
stitutions.
It was formed with a share capital provided
by SHGs and governed by a seven member
Board of Directors. Out of these, six repre-
sent SHGs and one is a nominee of ASSEFA/
SNFL, who is also the Chairman of MSMBT.
While its main function is to promote new
SHGs, SMBTs foremost aim is to include
all economically challenged women in SHGs.
In spite of this, SMBT on an average has less
than 2 SHGs per village in its operational area.
This shows that perhaps SMBT is promoting
SHGs only with select members who have a
loan absorption capacity at a higher interest
rate, rather than the economically challenged.
Since its operational area is close to Chennai,
there is a lot of demand for their products and
services among the local people. Also, local
people have a good loan absorption capacity.
But SMBT is not able to meet the credit needs
of the members because of its rigid credit
norms. At the same time, it is not facilitating
direct SHG Bank Linkage. It might be because
of the fear that members would over borrow
and may default. SNFL and SMBT maintain
that they are fulfilling the credit absorption
levels of the members. However, the research
team learned that members credit needs are
not fulfilled. SHG members are well informed
and are managing their internal funds well. In
some instances members got larger loans from
their own funds. As only the grants, subsidies
and surpluses of SHGs were converted into
share capital of SMBT (with or without the
knowledge of members); the SHGs and pri-
Contents | 19
 mary members have only a limited stake in
SMBT15. The role of the six Board representa-
tives is inadequate in the overall management
of SMBT. It appears that there is good division
of roles and responsibilities between the chair-
man, staff and elected Board members as per
each groups competence.
9. Sakti Mahila Samakya of RGMVP, Uttar
Pradesh:
Sakti Mahila Samakya (SMS) was formed in
2008 09. Its operations cover the entire Rahi
block of the Raebareli district. As of March
2010, SMS had 26 member village organisa-
tions (VOs) and 1,085 member SHGs cover-
ing 13,569 members and families. Total sav-
ings of all member SHGs was over ` 6.21
million. The federation does not provide fi-
nancial services to member SHGs. Its major
functions are:
(1) To remove poverty;
(2) To strengthen VOs;
(3) To address issues that VOs cannot solve.
As of March 2010, 789 member SHGs got
the 1st phase linkage. The average loan size
is ` 43,146. In the 1st phase, a minimum of
` 25,000 is sanctioned by the bank as Cash
Credit Line (CCL) for up to ten times the sav-
ings of the group for 3 years. In the 2ndphase,
banks provide loans known as Total Financial
Inclusion (TFI) for the threefold purpose
(a) for income generating activity (IGA),
(b) for non-productive purposes like consump-
tion, health, education, ceremonies, etc. and
(c) for swooping of old high cost debts.
The SHPA is working successfully with banks
for enhancing the credit flow. Through SHG
institutions, the SHPA is addressing many so-
cial and livelihood issues, albeit on a low scale,
successfully. However, the overall quality of
the SHG structure is far from satisfactory, es-
pecially at the lower level, i.e. SHGs that make
the foundation of the SHG structure. The pri-
mary members have little sense of ownership
over their institutions. The SHPA and internal
staff are apparently playing a major role. There
is a wide variation in the awareness levels of
leaders and ordinary members of SHGs.
10. Shakthi MF of Shramik Bharati, Uttar
Pradesh:
Sakti Mahila Federation (SMF16 ) was regis-
tered in 2007 08 as a Society. Its operational
area includes 212 villages/ hamlets in 86 Pan-
chayats in the Rasoolabad block. As of March
2009, SMF had 102 member SHGs. The to-
tal savings of all member SHGs was over `
1.44 million and loan outstanding of its entire
member SHGs was over ` 1.78 million. All
SHGs had bank accounts and 92 SHGs had
credit linkages. In spite of this the average loan
size is quite low. The federation does not pro-
vide financial services to member SHGs. Its
major functions are:
1. Promotion of new SHGs (to augment its fee
based income and membership fee, which is
the major source of its income/ corpus)
2. To provide services like book keeping, audit-
ing, supply of stationary etc. on a fee basis
3. Increase awareness of members and resolve
problems of member SHGs
4. Lease out agriculture implements through
member clusters and SHGs
5. Bulk purchase of different products from
other federations, institutions of Sharamik
Bharathi (SB) and from the market and sell
the same to its members and others
SHPA has promoted a very good federation
despite many challenges like a crunch of re-
sources, low awareness levels of members,
poor infrastructure, ineffective government
and poorly informed bankers. Board members
and staff of the federation have a strong sense
of ownership and belongingness. SHPA has a

15. Share capital in SMBT is not directly raised from SHGs/ members, i.e. their savings or direct and transparent collection.
Instead the share capital was collected from grants/ subsidies received by the SHGs from donors and others and interest and
other incomes earned by the SHGs. It appears that most of SHG members are not fully aware of these transactions
16. The actual name of the federation is SaktiMahilaSamiti (SMS). To differentiate this federation from that of RGMVPs
SMS, this federation is called as SaktiMahila Federation (SMF) in this report.

20
representative on the Board (EC) of the fed-
eration. It appears that there is a thin line be-
tween the federation and the SHPAs field of-
fice. Though the SHPA staffs audits the SHG
account, it is not discussed in SHG meetings
and members are not aware of the audit state-
ment and its details. Banks do not cooperate
due to repayment problems in SGSY pro-
gramme. Banks are also not able to distinguish
between normal SHGs and SGSY groups.
11. Bagnan-I of Mahila Bikas, West Bengal:
The origin of the Mahila Bikas could be traced
to the Literacy Campaign of 1993. The local
literacy centre provided literacy, general aware-
ness and taught self-reliance to women. As a
self-reliance measure, skills of women were
upgraded under the TRYSEM programme.
Women were organised into SHGs in 1995
under the DWACRA programme. All these
were initiatives of the official agencies. Some
internal members took lead in sustaining the
SHGs beyond the project period. Some indi-
vidual officials and NGOs helped local women
leaders for further development of the SHG
structure. DWACRA Group Samannaya
Samity (DGSS) (Production and Marketing
Federation) was formed in 1996 to provide
production facilities to SHG women and mar-
keting facilities for their products. In 1997,
Bagnan I Mahila Bikash Co-operative Credit
Society Limited (BMBCCL) was registered as
a MFI of SHGs with ` 100,000 share capital
contributed by 589 members belonging to 47
SHGs. The major objectives were to provide
savings and credit services to members. Since
1997, Mahila Bikash Credit Cooperative has
been functioning admirably, providing finan-
cial services on an ever increasing scale and
continuously earning profits. It has also been
regularly paying interest on members sav-
ings and dividend on members share capital.
In 2002, Mahila Bikash promoted a NGO
known as Bagnan Gramin Mahila Sammilon
(BGMS) to work on issues like education,
health, environment and womens issues for
the benefit of its members in particular and all
the people in its operational area in general.
BMBCCL provides about 10% of its net profit
to BGMS for its social services. Though on a
small scale, BGMS also mobilises funds and
programmes from official agencies for its op-
erations. Mahila Bikash is a unique organisa-
tion with three separate wings to handle three
separate activities, i.e. DGSS for production
and marketing, BMBCCL for microfinance
activity and BGMS for social services. Though
the same leadership promotes these three or-
ganisations with membership/ clientele, they
have separate governing Boards and staff. A
Core Committee (CC) was set up in 2003 to
synergise the functions of the three organisa-
tions. Chairperson, Secretary and Chief Func-
tionary of the three organisations are members
in the CC. Mahila Bikash has provided direct
employment, including commission agents, to
about 100 local women, and provided voca-
tional training and placement services to many
people.
Though BMBCCL has SHGs as members and
it mobilised its initial share capital from SHGs,
it provides its savings and credit services to in-
dividuals, both members and non members
of SHGs. As of October 2009, BMBCCL had
19,158 individual clients. Out of these 13,371
were associated with 910 SHGs and others
were non-SHG members. Its share capital was
` 10.23 million. It provides a variety of savings
products such as savings deposits, including
compulsory savings (thrift) by SHG members,
monthly income savings (MIS), daily savings,
recurring deposits, fixed deposits, and loans
to a number of purposes. There is a huge dif-
ference in the level of awareness of the leaders
and that of other members and their involve-
ment in the functioning of their institutions at
all levels. As the cooperative retains the SHGs
thrift, which is just `10 per month per mem-
ber, there is no internal lending. The coopera-
tives effective lending rates are on the higher
side and apparently not able to meet all credit
needs of members. It is not interested in ac-
cessing funds from outside that may be avail-
able at cheaper rates.
Contents | 21

12. UBTMS of CHDI, West Bengal:
UBTMS was conceived in 1999 to sustain
the SHGs promoted under the Indo-Dutch
collaboration project North Bengal Tarai
Development Project (NBTDP). It was
formed in 2000 and registered under the
Society Act in 2002. As of October 2009, it
had 601 member SHGs and 7,861 prima-
ry members and families. It was operating
in 72 villages covered by 2 municipalities,
spread in 12 blocks within 3 districts. All
601 member SHGs were organised into 46
cluster federations known as sub-committee
clusters. The federation has 4 full-time em-
ployees and all clusters (leaders) operate as
its paid development workers17. Out of 601
member organisations, 510 SHGs got loans
from the federation at one time or anoth-
er. Although all 601 member SHGs have
opened bank savings accounts, a very small
percentage of member SHGs received loans
from the banks because of non-cooperation.
The biggest problem faced by member SHGs
is receiving loans from banks. The loan
amounts are less and time between loans is
long. Even sympathetic bank managers in-
sist on viable projects for financing18. They
do not understand that the poor need credit
not only for IGA, but also for other needs
including maintenance of their only capital/
resource human capital/ resource. This is
one of the very few financial federations that
are also facilitating direct SHG Bank link-
age. The federation has very little funds to
lend to the members SHGs and individual
members and is not at all able to meet the
credit needs of members. It did not get reg-
istered as a cooperative in order to avoid un-
necessary interventions in its functioning.
Due to its current legal status, it is unable to
mobilise savings from its members. It is con-
stantly rationalising its operational area to
keep its operational costs at a minimum. The
Board members have limited understand-
ing about the functioning of the federation.
The President, who is the representative of
SHPA, and the staff play a major role in the
management of the federation.
22
3.3. Major observations and findings from
the sample structures
Detailed comparative analysis of the sample
structures is given in Appendix 1. Some of the
major observations and findings from the sample
SHG structures are summarised below:
In all sample federations, SHPAs played an impor-
tant role in the shaping of the structure, functions
and their style of functioning. Given the poor
awareness and capacities of the primary members,
the proactive role of SHPAs is perhaps inevita-
ble. However, the resources available with SHPAs
determine the role transformation between the
primary stakeholders and SHPAs. There is clear
division of functions between SHPAs and pri-
mary members. While SHPAs look after financial
management, review of staff performance, office
management, management of external relations
including legal compliances, etc.; primary mem-
bers monitor the functioning of SHGs, provide
need based support, resolve conflicts within and
between groups and help in the recovery of bad
debts etc.
There is less interest and enthusiasm among the
primary stakeholders, especially among the poor-
er members, to take up leadership roles at SHG
and federation level. A system to pay salaries and
honorarium to the leaders may encourage the
members to take up leadership responsibilities.
17. The federation claims that the clusters act as its agents and
the loan amount is routed to members through clusters and
SHG. But the amount does not enter into cluster books. In
federation books it is shown as service charges paid to cluster
leaders.
18. Mr. Aloysius Fernandez, one of the pioneers of SHG
Banking said in the workshop on National Rural Livelihood
Mission that path breaking decisions about SHG Banking
were taken in the early 1990s. The crucial decisions were: (a)
Lend to unregistered bodies SHGs, (b) Lend without ask-
ing purpose (do not compel people to tell lies), and (c) Lend
without collateral. The poor, whose current income is, usually,
less than their current expenditure/ consumption, need credit
to tide over the shortfall in their basic consumption. SHG
banking could provide this credit at affordable rate of interest
and enable the poor to save considerable amount in interest
payment on their high cost borrowing. Thus the poor peoples
credit need for consumption/ so called non-productive purposes
is more important than the production purposes.
The primary members have much more organi-
sational and managerial capabilities than that as-
sumed by the SHPAs.
Almost all sample federations have very few fi-
nancial resources for on-lending and other activi-
ties. The average assets values is about ` 1.16 mil-
lion per federation and average assets value per
member is a little over ` 2,000 (see Appendix 1).
However, there are marked variations among the
sample federations. With just moderate level of
funds, even the predominantly financial federa-
tions are able to provide only small size loans to
most of their members, or relatively bigger loans
to a small fraction of their members at any given
time. Out of the 12 sample federations only two
have directly borrowed from banks for on-lend-
ing and others are contended with SHPAs and
apex federations support and loans. Funds are
predominantly used only for lending to mem-
bers, followed by own building, inventory and in-
vestment in apex federations. The average yearly
income of all sample federations is ` 1.5 million,
which is much higher than the typical average
income of SHG federations in India (usually in
the range of ` 0.3 to ` 0.5 million). This average
figure was pushed up by the presence of a special
structure like Bagnan - BCC, which emerged as a
cooperative bank.
Though financial intermediation is not an impor-
tant activity in most of the sample federations,
the interest on their lending constitutes a sub-
stantial part of their total income. The income
earned through interest constitutes over 90% of
the total income in 3 federations; between 51%
and 70% in 2 federations and between 24% and
36% in 3 federations. This shows the potential of
mF to generate funds for operational sustainabil-
ity of the peoples institutions and to meet their
social intermediation requirements. The second
source of income is the service and membership
fee collected by the federations. Grants and dona-
tions are the third source of income. It is widely
believed that the interest earned through financial
intermediation is the easiest way to raise funds
internally. However, many pioneer institutions
like MYRADA, DHAN Foundation and PEDO
Contents | 23
 argue that if federations earn their operational
costs through their own microfinance operations,
their accountability towards their member or-
ganisations could be jeopardised. If the members
make direct contributions towards operational
cost of the federation they may develop an own-
ership stake over their federations and may moni-
tor the federations functions, quality and appro-
priateness of their services. It should be noted that
SHGs and members alone are contributing towards
the operational costs of federations in both of these
models, i.e. either through interest spread or direct
(cash) contributions.
Most of the sample federations have moder-
ate human resources in the range of five to ten
staff members. However, some federations have a
large pool of service persons. It was observed that
primary members tend to delegate more respon-
sibilities, including day to day functioning, to
paid workers since there is no shortage of them.
In most of the federations that were visited, the
key functionary was being paid by the SHPAs.
In turn, the principle functionary became an in-
strument in the hands of SHPA to control the
federation.
Adequate and regular income from internal
sources is essential for the sustainability of insti-
tutions and their activities, especially social inter-
mediation. In some cases, particularly in Rajas-
than, federations are forced to take up financial
intermediation by the bankers who are apathetic
towards SHG banking. Apart from fulfilling the
credit needs of members and SHGs, some fed-
erations are accessing donor or government pro-
grammes for bridge funding and/ or soft loans to
members.
1. Most of the sample federations have a relatively
higher Portfolio at Risk (PAR). However, none
of the federations reported any major recovery
problem. It implies that mainstream financial
sector indicators like recovery rate and PAR
need to be modified or new indicators have
to be developed for the Community Man-
aged Financial Organisations (CMFOs). Un-
like mainstream financial institutions, CMFOs
have social capital to recover all their debts and
have empathy for members difficulties and
24
adopt flexibility in recovery.
2. Except SKDRDP, no other sample federation
is able to meet its members credit needs. Also,
all other sample federations are giving only one
loan at a time. In these federations, irrespective
of their urgency, members cannot access a new
loan until they fully repay the previous loan.
3. Except SERP Sri Chaitanya, lending opera-
tions of all other sample federations are indi-
vidual member centric. These federations di-
rectly transact with the individual borrowers.
These practices result in higher operational
costs and higher risks. However, some struc-
tures like SKDRDP are able to effectively use
the SHG institutional structure in their default
management.
4. Only two sample federations provide loans for
multiple purposes, including the consump-
tion loans. Others provide either for income
generating activities (IGAs) or specific purpose
loans.
5. In four federations, which have a major focus
on financial intermediation, the YoP varies
from 15% in Bagnan BCC to 22% in ASSE-
FA/ SNFL SMBT. The financial cost ratios in
these four federations vary from 6% to 14%. It
is lowest in Bagnan, where all funds are mobi-
lised from internal sources (shares, savings, and
deposits)
6. Average number of SHGs per staff varies from
5 to 134. Most federations have around 20
SHGs for every staff. This shows that sample
federations have relatively more number of
staff to serve the SHGs and clusters. However,
majority of the staff is recruited locally and
have low skills and low pay. The four federa-
tions focusing mainly on financial services have
salaries of less than 7.46% of their loan out-
standing. In fact, in three of these it is even less
than 4%. In other federations, it varies from
0.2% to 39.3%. Due to a low loan portfolio
and the provision of non-financial services the
ratio is considerably high in MYRADA, Ibtada
and Don Bosco.
7. The operational income is higher than the ex-
penses in only four of the ten sample federa-
tions whose data was available. Of these four,
only two federations, viz. MBCC and SMBT
are able to meet their operational expenses. Out
of 11 federations that have plans and budgets,
8 federations are able to meet their operational
expenses from their own operational income
and the grants/ service fee they receive from
their SHPAs.
8. The federations proved to be the most cost ef-
fective and efficient mode to provide financial
ser-vices to the members, because they have
low overhead costs and use the services of the
social capital/ SHGs in their microfinance op-
erations
9. Mobilisation of internal funds would reduce
the financial cost of federations and also result
in economisation of existing infrastructure and
HR. However, there are no effective checks and
balances to protect members savings in most
of the federations. Mobilisation of funds from
internal sources would also enhance the federa-
tion leadership and management accountabil-
ity towards their member organisations and
members
10. The legal status of most of the sample federa-
tions neither permits mobilisation of savings
and funds from members nor has adequate
protection measures
11. Sustainability and relevance of SHG federa-
tions will largely depend on appropriateness,
quality, and adequacy of the services provided
by the federations to their constituents, i.e.
village/ cluster federations and SHGs. Field
evidence suggests that federations are:
Providing services cost effectively and with
minimum leakages
Providing multiple services
Addressing the larger issues, which cannot
be tackled by SHGs/ cluster
Linking with mainstream institutions and
government
Becoming the major source of information,
especially about opportunities
12. In the field visits, the research team observed
all the above practices. At the same time, the Unlike mainstream
team also noticed certain limitations. These financial
are: institutions,
CMFOs have
Most of the services provided by the fed- social capital
erations are inadequate due to external con- to recover all
straints such as low investments in capacity their debts and
building, bankers non-cooperation in SHG have empathy
bank linkage, fewer funds for on-lending, for members
restrictions imposed by the promoting agen- difficulties and
cies etc. Limitations of promoting agencies adopt flexibility in
also became limitations of the federations recovery.
Quality of services influences the quality of
SHGs and their interest in federations
External influence on the federations bas-
ket of services was observed in most sample
federations
13. Most of the federations in the country are
providing multiple services to their con-
stituents and members. The services could
be grouped into four broad categories, viz.
financial, SHG strengthening or sector devel-
opment, business development or livelihood
enhancement, and social development
14. Except SKDRDP, all other sample federations
have been providing limited credit services
such as small size loans, one loan at a time,
loan amount linked to savings amount or
purpose, fixed instalments/ periods, etc.
15. Out of 12 sample federations, four federations
do not facilitate SHG Bank Linkages. At the
same time, three out of these four were not
able to fulfil the credit needs of their SHG
members. Four out of the remaining eight
have active SHG Bank Linkages. Average
loan size per member varies from ` 462 in SB
- SMF to ` 40,652 in SERP Sri Chaitanya
MS, varying nearly a 100 times. This shows
the dismal performance of SHG banking as
well as its potential. It clearly shows that the
bankers in North India do not have proper
orientation about SHG banking and do not
see any business opportunities in SHG bank-
ing.
16. 
As federations have limited funds for on-
Contents | 25
 lending and SHG banking has not reached
desirable levels, SHG internal loans are cru-
cial in majority of the sample federations. A
couple of sample federations are impounding
the members savings and are not allowing
or facilitating internal lending. Impounding
of savings by banks is also vague in few in-
stances. Lack of trust among members among
other constraints is also hampering the inter-
nal lending in few instances.
17. Ten out the twelve sample federations have
been providing loans at relatively low inter-
est rates. The reasons include grants and low
cost funds, SHG model, less overhead costs
etc. The only exception is UBTMS, which is
lending at 30%. The major reason is that it
operates in a large and challenging terrain and
its current scale of operations is too small.
18. Out of 12 sample federations, only four fed-
erations provide voluntary savings services
along with normal thrift and all others are
collecting just thrift from members. Only
Bagnan Mahila Bikash provides real savings
services. Mobilisation of savings requires
additional safeguards like annual auditing,
26
transparency, fool-proof internal systems and
bookkeeping, and measures to attract depos-
its like interest payment on savings and de-
posits which most of the sample federations
and SHGs lack in. To attract savings, at least
larger thrift rates, SHGs and federations need
to pay interest on the thrifts, conduct auditing
of books by community auditors or reconcile
their annual financial transactions and appro-
priate their profits and losses annually. When
the research team suggested these measures
in one of the SHGs of Shramika Bharati, the
members who appeared to be illiterate and ig-
norant, said if these practices were introduced
they would readily increase their thrift rates.
19. Eight out of twelve sample federations have
arranged insurance cover to their members
from insurance companies. It is a well-known
fact that in India insurance is sold and not
marketed. Members are usually not well-in-
formed about the terms and conditions of the
insurance products beforehand
20. Some federations and SHPAs have their own
insurance or social security programmes.
21. 
Among all sample federations, SERP has
 a comprehensive insurance-cum-pension
scheme known as Abhaya Hastham, with
subsidy from the SHPA/ state government.
Bagnan - MBCC collects ` 10 per month
from each member and retains it until the
member withdraws her membership, which
usually may take place in her old age. MBCC
pays 7% interest on these savings and returns
to the members as retirement benefit or re-
tains the amount as monthly income deposit
and pays the monthly income/ pension to the
members.
22. The research team observed practices of hiring
and leasing at two federations.
23. The institutional development services pro-
vided by the federations could be grouped
into five broad categories, viz.
(1) awareness generation, promotion of new
SHGs, revival of defunct groups and
strengthening of existing SHGs;
(2) providing training and support services,
monitoring and grading;
(3) auditing;
(4) SHG bank linkage; and
(5) linkage with government and mainstream
institutions
24. Overall awareness levels of members are very
good in all sample federations. In almost all
sample federations either federation/ SHG
leaders or CRPs are involved in promotion of
new groups or in revival of defunct groups.
Most federations are working for full cover-
age covering all families in their operational
areas. A few have been working toward fully
covering their target population like poorest
of the poor, SC, ST, minorities etc.
25. Audit is the key for securing funds, account-
ability of management and transparency
of transactions. APMAS in its Sector Own
Control (SOC) in Kamareddy cluster dem-
onstrated that community members (non-
technical persons) could be trained in con-
ducting the SHG accounts audit. In SERP
Sri Chaitanya MS, the community auditors
conduct the SHG audit. This audit also in-
cludes impact audit. In few other federations
the audit is conducted for the external pro-
fessional or SHPAs, where primary members
play a restricted role and have limited aware-
ness. In other sample federations no SHG
level audit is being conducted
26. Just having books audited is not sufficient;
members should be aware of the audit state-
ments and summarised financial transactions
should be discussed in special meetings and
profits and losses should be appropriated an-
nually. No such practices were observed in
most of the sample federations.
27. It was observed that many clusters and federa-
tions are collecting regular thrift from SHGs,
just as a binding measure. However, many of
the clusters and federations do not know how
to use this. A few clusters have returned part
of the savings to the SHGs.
28. Most of sample federations have good linkages
with government departments, programmes
and projects; private sector companies; in-
surance companies; corporate hospitals; civil
society organisations etc. Such linkages are
optimised in SKDRDP.
29. It should be understood that livelihood fi-
nance is quite different from microfinance.
Livelihood finance may consist of a series of
inter-linked and timely (micro) credits. In
other words, credit should be linked to the
timeline of member/ family level or group
level planning. Among 12 sample federa-
tions, only SKDRDP had such comprehen-
sive credit planning.
30. Efforts of all sample federations in livelihood
enhancement and promotion are grouped
under five categories, viz.
(1) promotion of individual livelihoods,
(2) group enterprises,
(3) vocational training and placement,
(4) market support to SHG members pro-
duction/ products, and
(5) bulk purchase for the benefits of SHG
members
31. 
All over India, the performance of group
Contents | 27
 level enterprises is average. Therefore, it is
not surprising to find only a few federations
with group level enterprises. At least 10 fed-
erations are involved in providing vocational
training for placements. A few have the very
good foresight to provide training in non-
farm vocations.
32. Neglect of marketing often lead to the fail-
ure of many livelihood projects. Among the
12 sample federations, only SKDRDP had
a comprehensive strategy to provide market
linkages for rural womens products. Almost
all sample federations are involved in bulk
purchases to meet the demands of their mem-
bers, obtaining considerable savings in prices
and efforts in the process.
33. All sample federations are working on gender
and other related social issues. However, the
focus on each activity depends on the SHPAs
policy and availability of external support.
For instance, anti-alcohol movement be-
came a large base for the SHG movement in
Andhra Pradesh. Though now the SHG insti-
tutions are not focusing on this critical issue,
because even though the state supports the
SHG movement it also hugely benefits from
the alcohol sale.
3.4. Performance of Member SHGs
In the sample federations it was found that the
performance of SHGs is closely related with
SHPAs vision of building institutions of the poor
as well as quality , adequacy and appropriateness
of services that members receive from the SHG
institutions. In sample federations, the primary
stakeholders involvement in governance and
functioning of SHG institutions is influenced by
the following factors:
1. A higher level of ownership was observed in
federations where the poor SHPAs delegated
functions to primary members.
2. Apart from delegating functions and powers,
the quality of services that the primary members
get would determine the quality of their involve-
ment in the governance of their institutions.
3. Monetary and other contributions made by
primary members towards their institutions is
another factor that determines their quality in-
28
volvement in governance. For instance, the SHGs
of MYRADA contribute about ` 4,000 per an-
num to meet the operational expenses of their
CMRCs. Similarly, SHGs of Shramik Bharati
and Ibtada also contribute significant amounts
towards operational costs of their federations. In
these institutions primary members have higher
stakes. On the other hand, in ASSEFA/ SNFL the
grants and subsides of SHGs were converted as
their share capital in their SMBT with or without
the knowledge of the concerned SHGs and their
members. Hence, members do not feel that they
own the SMBT, though they hold over 95% of its
share capital.
4. Yet another factor determining their involve-
ment in governance is their investment in capac-
ity building of primary members. SERP is an
example for this. However, SHPAs clarity on in-
vestment towards institution building increased
the involvement of primary members in the man-
agement and functioning of SHG institutions.
MYRADAs CMRC and Savera federation of
Ibtada are examples for this observation.
The overall positive performances of sample
SHGs, which influence the performance of each
sample federation, are summarised in Appendix
1 and illustrate brief suggestions from each fed-
eration. Though in some federations services are
quite inadequate, SHG members are keenly in-
volved in the SHG fold due to lack of any other
alternatives. In most of the institutions leadership
rotation is a serious issue. Therefore, it is suggest-
ed to introduce automatic leadership rotation at
the SHG level, as practiced in MYRADA. Fur-
ther, most of the institutions are heavily depend-
ent on SHPAs staff for their day-to-day func-
tioning. Primary members do not have the skills
and tools for self-regulation. APMAS, SERP and
DGRVs Kamareddy pilot project on SOC has
a number of tools and self-learning material for
self-regulation.
In chapter 5, learning of the sample structures
and overall sector progress is compared with the
cooperative principles which enable the coopera-
tives and CBOs to attain sustainability. Chapter
4 precedes this with the cooperative principles
and their potentials along with the sustainability
framework.
Chapter 4
Cooperative Principles for Sustainability
of SHG Institutions
The major objective of this study is to provide
practical strategic guidelines for the sustainabil-
ity of SHG institutions. Towards this end, first
the conceptual issues and principles necessary
for sustainability are discussed in this chapter.
In the next chapter, experiences of the Indian
SHG institutions are analysed against the sus-
tainable framework and cooperative principles as
described in this chapter.
4.1. Sustainability framework
As mentioned above, sustainability of SHG in-
stitutions and structures is the core of this study.
These are defined at Box 4.1.
The sub-categories of the sustainability framework
are further elaborated in terms of core elements
or principles. The core elements or principles of
Contents | 29
 Box 4.1: Sustainability and its Sub-categories
In the specific context of the SHG movement and the
federating process, sustainability in this study is de-
fined as follows:
SHG members display ownership and conduct ef-
fective self-governance and self-control
Federations meet current and future needs of both
their member SHGs and SHG members
SHGs and members are using these services and
benefiting from them
Federations are not-for-profit but still economically
effective and efficient
Federations are aware of the importance of integrity
Federations comply with legal and regulatory provi-
sions
Federations operate independently, however, may
get technical and financial assistance from SHPAs
Based on this definition, the study further differ-
entiates this broad term. It clearly sees four major
sub-categories of sustainability:
System/ organisational sustainability
This characteristic of sustainability is specific for Self-
Help Groups or cooperative organisations. It depends
essentially on the member base (owners and customers
of Self-Help Groups or cooperative organisations) as
well as on the awareness and capability of members to
effectively operate the organisation according to the
principles of self-help, self-administration and self-
responsibility.
Economic/ financial sustainability
The sub-category economic/ financial sustainabil-
ity focuses on the purpose and mission of Self-Help
Groups or cooperative organisations to meet the com-
mon economic, social and cultural needs and aspira-
tions of their members through a jointly owned and
democratically controlled organisation/ enterprise.
Though typically being not-for-profit organisations,
they have to operate according to economic princi-
ples in order to achieve and ensure sustainability.
This means that they have to generate profit and even
surplus.
30
Legal/ regulatory appropriateness
As any other organisation or enterprise, federations
need an appropriate legal and regulatory framework
providing sufficient space for system development
and operations in order achieve sustainability. Such a
framework has to assure an equal level playing field
for competition with other organisations and enter-
prises. At the same time, it has to take into account
the specifics of jointly owned and democratically con-
trolled Self-Help Groups or cooperative organisations.
However, SHG members and their federations have
the obligation to properly organise member govern-
ance and Sector-Own Control, thus ensuring integrity
and compliance with legal and regulatory provisions.
Adequate promotion/ facilitating
This category reflects the impact of
(i) S ystem Development Promotion,
(ii) ( Service and Business Development
Promotion, and
(iii) S ector-Own Promotion.
Furthermore, it also comprises of the willingness and
ability of the federation structures to share and scale-
up experience with other federation structures. Sector-
Own Promotion can be both supplementary and/or as
an alternative to SHPA support. If well-organised and
properly institutionalised, this could very well result
in an institutionalised sector-own self-learning pro-
cess, contributing significantly to sustainability.
Although separated above for the purpose of defini-
tion, all characteristics at any time should be equally
and simultaneously taken into consideration, as they
are interrelated. In fact, in order to achieve long-term
sustainability, SHG structures should pay attention
to all four sub-categories. Of course, there might be
good reason to focus development efforts temporarily
on one or the other category. The reason might prob-
ably be a specific urgency or a lack of resources. Yet as
soon as possible, attention should then be shifted onto
the other sub-categories as well.
sustainability are illustrated further through the
experience of the international cooperative move-
ment in general, and the German cooperative ex-
perience in particular.
4.2. Cooperative Character of SHG Institutions
According to the general understanding and vi-
sion of the SHG movement in India, SHG insti-
tutions follow the same principles as cooperative
organisations. This can be applied to both SHGs
as grass-root, self-help organisations as well as for
SHG federations, even if not registered under co-
operative laws. Like rudimental (early/ informal)
cooperative units, SHGs established and owned
by their members pursue common economic
and/ or social interests. They follow typical, gen-
erally accepted cooperative rules of self-help, self-
administration, self-control and mutual support.
The definition of cooperatives and their potential

Box 4.2: Definition and Potential of Cooperatives

The internationally accepted common understanding of
cooperatives is defined in Recommendation No. 193 of the
International Labour Conference, conducted by the Inter-
national Labour Organisation (ILO) in 2002. According
to this declaration a cooperative means an autonomous
association of persons united voluntary to meet their com-
mon economic, social and cultural needs and aspirations
through a jointly owned and democratically controlled
enterprise. The ILO conference further declared that the
identity of cooperatives is based both on:
(a) C
 ooperative values of self-help, self-responsibility,
democracy, equality, equity and solidarity as well as
ethical values of honesty, openness, social responsibil-
ity and caring for others.
(b) Cooperative principles as developed by the interna-
tional cooperative movement of voluntary and open
membership, democratic member control, member
economic participation, autonomy and independ-
ence, education, training and information, coopera-
tion among cooperatives, and concern for community.
About 150 years of experience of cooperative systems
from all over the world indicates that:
1. They have impressively proved their ability to develop
under different circumstances and challenges into suc-
cessfully operating, well-performing, and economically
sustainable organisations and/or enterprises.
2. According to the broad spectrum of cooperative pur-
poses and depending on the needs of their members,
they provide a wide variety of services and support to
their owners and customers. These services range from
financial, business, livelihood, to social and cultural
services.
3. Cooperative structures are particularly able to alleviate
poverty and empower economically and socially disad-
vantaged segments of the population. However, con-
sidering cooperatives as institutions for the poor only
would be much too narrow.
4. A specific strength of cooperatives is the fact that phys-
ical and/or legal persons can cooperate and unite to
organise and improve their common economic and
social situations, without losing their personal or legal
independence.
5. Adaptability and flexibility have made cooperative
organisations specifically relevant even in todays ad-
vanced economies, where cooperatives belong to the
mainstream and are part of the national economy as
well as (business) culture.
6. Driven by the commitment and the awareness of the
members, combined with proper institutionalisation,
they are capable of appropriately ensuring the eco-
nomic and social development of their members and
customers, and providing support for further improve-
ment through products and services customized to new
needs, as well as to internal and external challenges.
7. At the beginning and in their very rudimental form,
cooperatives often operate as multi-purpose coopera-
tives. They have very simple governance and institu-
tional structures. However, with the improvement
of economic and social situation of their members,
cooperatives are usually confronted with the demand
of more qualified and complex products and services.
In order to meet new managerial and organisational
challenges, cooperatives tend to then diversify at the
primary level and begin to slowly set-up supporting
structures at the secondary level (cooperative federa-
tions, apex institutions, etc.)

Contents | 31
 are briefly described in Box 4.2.
4.3. Cooperative Experience
A huge variety of well operating and institution-
alised cooperative systems exist around the world.
These are determined by their specific historical
background, political, economic and socio-cul-
tural environment. They have a proven record
of successfully contributing to meet specific eco-
nomic and social challenges of their countries.
Most of the successful cooperative systems have
the following fundamental features in common:
1. Self-help, self-administration, self-responsibili-
ty and mutual support
2. Member-owned and controlled; and commit-
ted to the members of the community, without
state interference
3. Performing as not for profit but observing
economic criteria in their functions
The experience of the German cooperative or-
ganisation, represented by Deutscher Genossen-
schafts- und Raiffeisenverband e.V. (DGRV),
which is one of the most successful cooperative
structures in the world, was used to recommend
32
sustainable principles and practices for the In-
dian SHG movement. The German cooperative
organisation was chosen since the study team al-
ready had in-depth knowledge, and also because
there is great relevance of the same for this model
in the Indian context. DGRV has already demon-
strated this through its collaboration with NAB-
ARD and with APMAS, providing advisory ser-
vices to the cooperative banking reform and SHG
movement. Particularly, the above-mentioned
SOC pilot project has given deep insight into the
transferability contributing to solve SHG issues
through sharing and scaling up. Salient features
of the German Cooperative Model are summa-
rised in Box 4.3.
The experiences of Indian SHG movement are
analysed in the next chapter against the sustain-
ability framework and its core components and
cooperative principle discussed above.
Box 4.3: Main structural features of
the German Cooperative Model
1. Common cooperative vision, policy and
strategy
2. Cooperative services with respect to mem-
ber needs and interests and to economic
criteria and market conditions
3. Wide range of economic activities provid-
ed by specialised cooperatives
4. Strong decentralised network of coopera-
tive retail banks
5. Bottom-up structured and controlled inte-
grated system of primary cooperatives and
commonly established secondary institu-
tions
6. Strict institutional separation between
business and other secondary services
7. Permanent, systematic, needs-oriented ca-
pacity building by Sector-Own systems/
institutions
8. Sector-Own control and stabilisation,
compulsory cooperative audit
9. Adequate legal framework with sufficient
space for members self-regulation; no
state interference; level playing field
10. Viewing themselves as an integrated part
of the general economy and society
Chapter 5
Core Elements of Sustainability and
Indian SHG Structures

5.1. Introduction (ii) research of secondary sources, and

Each of the four sub-categories of sustainability
consist of a wide range of internal and external el-
ements, all of which contribute to achieving and
ensuring sustainability. Some of these might be of
crucial importance, others could, depending on
the situation, perhaps be disregarded for a certain
period. Based on
(i) results of the case studies,
(iii) study of international good cooperative prac-
tices,
this study has identified and compared some ele-
ments for each sub-category which appear to be
the most important ones. These factors or ele-
ments will be referred to as Core Elements.
Relation between Sustainability, Sub-categories,
Core Elements, and Good or Critical Practices21
is presented in Figure 5.1.

21 Good as well as critical practices contributing or not contributing to federation sustainability need to be identified and veri-
fied. Instead of using the term bad practices, the research-team prefers to use the term critical practices. This seems to be more
appropriate for the process of federation-development, especially when it is still in a nascent stage and more or less characterized
by trial and error. In such a situation, it is too early to qualify a practice observed as bad, as long-term or final impact of this
practice of sustainability cannot be foreseen or evaluated. Critical practice means that the final evaluation is being left open for
the moment and it is recommended to keep this practice under critical review and long-term observation.

Contents | 33
 Figure 5.1
Sustainability
Sub-categories of Sustainability
Core Elements for each Sub-category
Good and Critical Practices
5.2. System and Organisational
Sustainability
As for any member-based self-help organisation,
membership and self-governance are the main
factors determining the sustainability of the SHG
structure. In order to be able to effectively carry
out functions of self-governance, it is necessary
that appropriate institutional structures, opera-
tive accountancy and auditing systems, as well
as qualified management and trained personnel
should be put in place. The core elements related
to systems and organisational sustainability are
presented in Box 5.1. The cooperative principles
and Indian SHG experience with respect to sys-
tems and organisational sustainability are pre-
sented in Box 5.2. Below, some of these issues are
discussed briefly:
5.2.1. Membership
As most of the SHPAs are positively discriminat-
ing against the poor and vulnerable sections, the
membership in SHG institutions is often con-
22. Joint Liability Groups (JLGs) are groups promoted by the Microfinance Institutions (MFIs), which follow the Bangladesh
Grameen model for lending purpose.
34
ditionally open. In that sense the cooperative
principle of open membership is in some sense
violated in Indian SHGs. This is the result of a
strongly built correlation between SHG institu-
tions and direct poverty alleviation goals. As men-
tioned above, considering cooperatives as institu-
tions for the poor only would narrow the scope;
and restricting the scope of SHG institutions for
women empowerment alone will undermine their
full potentials. Even though Indias SHG mem-
bership has grown at a phenomenal pace and
emerged as the worlds largest community based
microfinance model, there are issues of coverage,
especially the poorest of the poor (POP). Nation-
al level evidence shows that POP have opted out
of SHGs because of migration and conditions like
regular payment of thrift and repayment of loan
instalments. This makes experts question the apt-
ness of SHGs for POP. There is a critical issue of
multiple memberships, i.e. one person with mem-
bership in more than one SHG/ JLG22. This prac-
tice reflects that members adopt different strate-
gies to acquire adequate and appropriate services.
Further, there is an issue of competition among
multiple SHPAs in the same area. The competi-
tion between SHPAs and MFIs is widespread.

Box 5.1: Core Elements of System/
Organisational Sustainability
Membership
Broadness, outreach, proximity
Sustainability
Composition
Governance
Member-based
Soft factors
Norms and standards
Institutional structure and procedures
Accountancy, Internal Control, Audit
Management, Staff
5.2.2. Governance
Formal presence of SHPAs in the Boards of SHG
federations is widespread. Such presence and sup-
port of SHPAs is necessary in the initial stages.
However, the role transformation between SHPAs
and primary members depends on the resources
available with the SHPAs. While those SHPAs
with sufficient resources relieve SHG federations
of many functions, those SHPAs with insuffi-
cient resources delegate as much responsibility
to the primary members as possible. The feel-
ing of ownership towards SHG institutions and
their process, norms and standards depends on
SHPAs strategies, and not just on their resources
and the capacity building inputs. Involvement of
primary members in the development of invita-
tional norms, standards, etc., has had a positive
impact on their understanding of and adherence
to SHG institutions. Since there is no compen-
sation for the time members spend on SHG re-
lated work, primary members hold back exten-
sive participation in governance and management
of the SHGs. Introducing payments to SHG
leaders may encourage primary stakeholders
from poorer sections to take up leadership re-
sponsibilities and play an active role in the gov-
ernance and management.
5.2.3. Institutional Structure and
Procedures
While the model or the cooperative principles
suggest that institutional structure and processes
should be bottom up and based on members felt
needs, management capabilities and economic
principles; SHG structures in India are largely
facilitated externally, with top down approaches.
External initiative and support by SHPAs should
always be regarded as temporary, helping to kick-
start local SHG initiatives which lead to quick
visible results. There is a need to identify a road
map for transferring the role to SHGs, where they
can build on the initiatives taken by the SHPAs.
The cases studied by the research team have
demonstrated that completeness, accuracy, and
effectiveness of procedures can be significantly
improved if SHG members and office-bearers are
themselves actively involved in developing, im-
plementing and conducting the procedures. Sim-
ilar positive impacts have been achieved through
proper organization of mutual data flow and in-
formation dissemination. Both have improved
the general understanding and skills as well as
the sense of ownership and awareness, which en-
able SHG members and office-bearers to conduct
self-administration and self-control of the SHG
structures.
5.2.4. A
 ccountancy, Internal Control and
Audit
There is an increase in computerisation in order
to increase effectiveness of the procedures and to
accelerate processing. Usually, these institutional
tools are developed and implemented by SHPAs.
Therefore, they are more focused on the interests
of the SHPAs, rather than being adapted to the
needs and capacity of SHGs. Sometimes even
the management and processing of some tools,
like accounting, planning, budgeting and inter-
nal control and audit, remain in the hands of
SHPAs and their staff. As a result, the procedures
are mostly professionally designed and have to be
operated accordingly. This can be a problematic
challenge for SHGs due to insufficiently trained
staff. Sometimes SHPA staff and resource per-
sons undertake accounting and internal control
of SHGs, and SHG institutions have not been
Contents | 35
 able to fulfil their duties with the expected profes-
sionalism and correctness. Among other reasons,
insufficient staff capacity, limited skills and lack
of awareness are some of the noted causes.
5.2.5. Management and Staff
Separating functions of SHPAs or professionals
and primary members based on their strengths is
a good practice that is followed. While SHPAs or
their representatives look after financial manage-
ment, review of staff performance, office man-
agement, and management of external relations
including legal compliances; primary members
monitor the functioning of SHGs, provide need-
based support, resolve conflicts within and be-
tween groups and help in recovering bad debts.
More advanced duties such as monitoring, inter-
nal control, and external auditing remain within
the responsibility ambit of the promoting insti-
tutions. They are being planned and conducted
by their own staff or resource-persons. The strong
involvement of SHPAs carries the risk that ini-
tiatives and self-help capacity of SHG members
and office-bearers will decrease over time and may
even be lost. This would seriously endanger all ef-
forts aiming at achieving sustainability.
The required qualification and number of human
resources are often not yet available. Reasons are
primarily illiteracy, a generally low level of educa-
tion and as a consequence a lack of appropriate
professional experience. External recruitment of
staff is not considered as an alternative solution
because of a shortage of financial resources, lack of
adequately skilled external human resources avail-
able in the labour market, and the fear to become
dominated by and dependent on outside profes-
sionals. Where SHPAs have provided extensive
preparatory capacity building and training, SHG
members and office-bearers have been enabled to
conduct at least basic duties of governance and
administration by themselves. SHG members
and leaders need immediate capacity building re-
garding loan track processing, accountancy, plan-
ning, budgeting, monitoring, and internal audit.
An excellent concept and practice is that of a
Community Resource Person (CRP) and is worth
replicating. A critical issue is the fact that the re-
source persons/ community activists feel and act
36
as SHPA staff, at least as long as they are selected,
directed, and paid by the SHPAs. Therefore, it is
a good practice, which the research team observed
in several cases, that these experts are being trans-
ferred step-by-step to the SHG institutions, thus
becoming SHG staff.
5.3. Economic/ Financial Sustainability
Successfully performing sustainable cooperative
systems all over the world have the following cen-
tral features in common:
(i) clear, commonly approved and adopted
vision and strategy for sector development, func-
tions, institutions, resources, operations, perfor-
mance goals, and future perspectives;
(ii) a wide range of products and services
provided to members and customers meeting
their needs and demands, performing as not for
profit but observing economic criteria to pro-
mote members and customers and improving
their economic and social situation;
(iii) pooling common interests and resources
and benefiting from the advantages of division
of functions through a multi-level structure with
clear allocation of roles and functions.
In India, these core factors apply to SHGs and
their institutions. They are and will be of central
relevance in order to achieve economic and finan-
cial sustainability. The core elements of economic
and financial sustainability are listed in Box 5.3.
Box 5.4 describes the international and Indian
SHG experiences.
5.3.1. C ommon vision, Strategy and
Planning
Initiating, coordinating, and supporting the stra-
tegic planning process as well as monitoring the
implementation by the SHGs and SHG institu-
tions involved, are usually the tasks of a higher
level federation. However, the elaboration and
continuous further development of the sector-
based strategy and planning need to be conducted
bottom-up, involving the SHG so that they get a
chance to express their expectations, needs, pos-
sible contributions, limitations, etc. Such a bal-
anced combination of top-down and bottom-up
approach will ensure that intentions and needs
Box 5.2: International cooperatives vis--vis India SHG experience with respect to
Systems and Organisational Sustainability
Model/ Cooperative principles
Membership
1. Open membership policy focussing on common
interests
2. Active member acquisition against drain due to
natural factors like deaths, migration, etc.
3. Awareness of proximity to members
Governance
1. Bottom-up member responsibility for (1) decision
making, (2) administration, (3) internal regulation,
(4) internal control, and (5) securing stability of
multi-level systems
2. Fostering soft factors (sense of ownership,
awareness, etc.)
3. Caring for acceptance and awareness of commonly
approved norms and standards
Institutional Structure and Procedures
1. Oriented to the objectives and purposes
2. Being manageable and controllable by the owners
3. Ensuring availability of adequate human and
financial resources
4. Operating according to economic standards
5. Responding flexibly to changes of member and
customer needs, market conditions and other
relevant external influences
Accountancy, Internal Control and Audit
1. Fully integrated and transparent accounting,
managed by the SHG institutions and primary
members
2. Primary members and office bearers have
sufficient knowledge about accounting, internal
controls and auditing
3. Systems are meeting the respective requirements
of the different tier-institutions and their
development stages
Indian SHG experience/ Field observations
1. Mostly focussed on the poor, women and vulnerable sections
2. Self-selected better performing groups
3. Most of the groups are formed with externally decided criteria
4. Competition among SHPAs
5.Dual membership
6. Members desertion due to inadequate and inappropriate
services and personal constraints such as migration and inability
to pay/ repay as per strict timeline
1. Good division of functions between SHPAs staff and primary
members as per their strengths. However, members governance
potential is often not sufficiently mobilised
2. Formal presence of SHPAs on the Boards of SHG federations
and cheque power constrain scope for self-governance
development
3. Role transfer depends on the resources of SHPAs
4. Reluctance of many primary members to take up leadership
5. Direct involvement of members and office-bearers in
elaborating and introducing norms and standards of governance
has considerably increased acceptance and awareness. However,
imposition of externally designed norms and standards are
widespread with consequent negative implications
1. Though over 90% of the multi-level federation structures
are Primary Level Federations (PLF), there is a strong case for
developing higher level federations, of course as per the needs
and at the appropriate time
2. Top down approach has been predominant in the promotion of
federations, in contrast to the bottom-up approach, fundamentally
for Self-Help organisations
3. Normally SHPAs function as the de facto leader and manager
of SHG institutions hampering self-help awareness
4. Procedures so far have primarily been focused on keeping the
whole system operational and manageable in areas such as loan
and savings tracking systems, data collection, information flow
and dissemination, accounting, and internal control and auditing
Data and overall information flow is well-organised upwards
from the single SHG via the federations to the SHPA, but it is far
from being satisfactory when it comes to the downward flow
1. To a large extent, accountancy, internal control and audit are
still within the authority of the SHPAs
2. Often, PLFs do not have books of accounts. A couple of SLFs
also do not have books
3. Computerisation of accounts is helping the SHPAs for effective
monitoring. But the primary members are not able to comprehend
the processes and information
Contents | 37
 Model/ Cooperative principles
Accountancy, Internal Control and Audit
. 5.In some cases, even the SHPAs are not fully able to
Management and Staff
1. Managing and operating SHG affairs are primarily
within the responsibility of SHG members
2. Mobilising and pooling members own managerial
capacity and skills have priority
3. Sector-own human resource development and
training system
felt by the SHG members are properly recog-
nised by the next-tier institutions and can then
be transferred into concrete actions taking into
account members interest and system capability.
Each stakeholder involved will maintain transpar-
ency in the overall sector development and in his
own contributions and responsibilities for achiev-
ing commonly approved sector targets.
In the Indian SHGs, the SHPAs play a predomi-
nant role in vision building, strategy development
and the planning processes. The top down ap-
proach followed so far for initiating and support-
ing the SHG movement would rarely have had
an alternative; considering the difficult pre-con-
ditions commonly found in the country as well
as the complexity of ensuring sustainability. This
is at least definitely true for the start-up phase.
Henceforth, this sector development approach
needs to be balanced step-by-step and finally even
needs to be replaced by an increased involvement
of the SHGs and SHG institutions themselves.
They have to show ownership towards the con-
cept of elaboration and management in order
to achieve sufficient understanding, agreement
and acceptance among SHGs and SHG institu-
tions. A commonly accepted articulate long-term
sector vision and strategy jointly developed by
SHGs and their institutions should be available
38
Indian SHG experience/ Field observations
4. SHG members are not yet able to fully comprehend the
accounts and auditing
comprehend the accounting and auditing due to inadequate
training and resources, including time constraints
1. Division of functions as per their respective strengths is
followed as a good practice
2. Primary members organisational and managerial capacity is
much higher than that assumed by the SHPAs
3. The concept and practice of a Community Resource Person
(CRP) has been an innovation and is worth replicating. However,
its undesirable consequences need to be overcome
4. Most of the SHG federations are employing internal or SHG
members as staff. Though they have limited skills and capacity,
they have a strong commitment
5. Difficult to get and retain quality HR from the market
6. CRPs could be considered as Sector-Own HR
at the end of the process. It will serve as the basis
for comprehensive planning of respective SHG
structure, which will be crucial for proper man-
agement and control over future development
and performance of the system. Furthermore, the
availability of a global vision, strategy and plan-
ning document will enable the involved SHGs
and SHG institutions to orientate their indi-
vidual strategies, plans and activities according to
these sector-wide targets. In this manner, it will
be possible to establish a well-balanced and suc-
cessfully performing decentralised system. The
cooperative or model principles and Indian SHG
experiences are summarised in respect to vision,
Box 5.3: Core Elements of Economic/
Financial Sus-tainability
Common vision, strategy, planning
Functions and structures
Sector development service
Financial service
Livelihood/non-financial business service
Social service
Institution building
Resources and performance
Box 5.4: Model/ Cooperative Principles and Indian SHG Experiences with Respect to
Economic Sustainability: Common Vision, Strategy and Planning; and Functions
and Structures
Model/ Cooperative Principles
Common Vision, Strategy, Planning
1. Creating a sense of ownership, awareness
and self-responsibility among SHGs and their
institutions
2. Achieving general transparency about
SHGs own perceptions, intentions and
potentials, needed by internal and external
stakeholders for their own planning and
contributions
3. Mobilising the advantages of division of
functions and well-matched coordination
within the multi-level SHG structures
Principle of Subsidiary: Higher-tier structures
in cooperative organisations support and
supplement their member organisations with
services that:
1. Allow overcoming the inherent limitations
of small, unregistered, standalone
organisations
2. Enable members organisations to meet the
needs felt by their members
3. Make the multi-level structure financial
viable, self-reliant, and sustainable
strategy, structures and functions in Box 5.4.
5.3.2. Functions and Structures
The successful operation of cooperative organisa-
tions lies in the strength of well organised, well
performing higher-tier structures that support
primary cooperatives, enabling them to pro-
vide proper services to their members and cus-
tomers. It is very common in such cases to talk
about the bottom-up-structured integrated co-
operative systems. This term particularly char-
acterises system-ownership and governance by
the cooperative members. It also indicates suit-
Indian SHG Experience/ Field Observations
1. So far the conceptual, functional and institutional development of
SHG structures in India has been determined or at least dominated by
the SHPAs, based on general political objectives such as alleviation of
poverty, empowerment of women, and improvement of the economic and
social situation of poor people in rural (urban) areas
2. Consequently, SHG members and institutions have mainly felt as being
recipients rather than active owners and managers of their institutions
3. In all sample structures there is a shared vision and common
understanding between SHPAs and Board members about the purpose
and functions of SHG institutions
Functions and Structures
1. In most sample structures, there is clear division of functions at each
level in the SHG structures
2. As PLFs and clusters are not yet fully developed, the SLFs at times
perform the functions of PLFs
3. The principle of subsidiary has not been fully put in practice in most
of the structures
4. As SHPAs employ a number of CRPs to support the SHG structure,
they often represent SHPAs. Many SHG members leave even the basic
functions such as organising meetings, depositing money in the bank, in
the hands of CRPs or service providers
5. SHPAs are actively involved in most of the SHG structures functions at
different levels
6. There is some duplication of functions at PLFs and SLFs
able interactions between the tiers with regard
to sector communication, policy, strategic plan-
ning, institution building, activities, processing,
control and stabilisation. Integrated cooperative
systems have a worldwide proven record of suc-
cess. Therefore, it is recommended to use these
experiences as guidelines for further federating of
SHG structures. The principle of subsidiary is
the basic rule of any bottom-up structured Self-
Help Organisation or cooperative system. This
means that federations are defined as support-
ing and supplementing lower-level SHG insti-
tutions. They shall takeover such functions and
services which cannot be performed by the indi-
vidual member SHG or which cannot be offered
Contents | 39
 economically. Accordingly, during the federating
process the following federation functions have to
be kept in focus:
(1) Sector Development Services
(2) Financial Services
(3) Livelihood or Non-Financial Business Services
(4) Social Services
5.3.2.1. Sector Development Function
All sample federations are doing extremely well
in respect to Institutional Building Services
(IBS). Though the primary members have certain
strengths in these services, they need certain addi-
tional inputs like community auditing and checks
and balances to protect institutional resources,
regular elections, rotation of leadership, democ-
ratisation of SHG and federation functioning,
etc. The Kamareddy pilot programme on SOC
has many insights, practices and tools for build-
ing the capacities of primary members enabling
them to take charge of their institutions. Some of
the identified good and vital practices are listed
below:
Good practices
1. Good coverage with focus on the poor and
poorer areas
2. Role transformation taking place in some fed-
erations. Roles and responsibilities are being
distributed between professionals (SHPA/ fed-
eration staff) and primary members as per their
expertise
3. Almost all federations are developing and using
some kind of social capital or CRPs for pro-
motion of new SHGs, resolving of conflicts in
SHGs, awareness building, technology trans-
fers, book keeping, auditing, etc.
4. Quality of SHGs depends mostly on the vision
of the SHPA, degree of role transformation
and quantum and appropriateness of benefits
received by members. It should be less depend-
ent on the quantum of the capacity building
inputs
5. SHG level auditing in some federations
6. Community auditing is being practiced in few
7. Development of more than sufficient para-pro-
fessionals is taking place in a few federations
40
Critical practices
1. In some federations, there is no role transfor-
mation and in some federations it is taking
place by default
2. Competition among SHPAs is a serious issue
leading to multiple memberships in few and
splitting or deserting of groups in some federa-
tions
3. Imposition of external norms is more common
4. A few have SHG level auditing; but do not
have an AGM to discuss audit reports and for
appropriation of the profit and loss
5. Dilution of audit in a few cases is taking place
6. The main financial federations are not encour-
aging direct SHG banking due to conflict of
interest
7. In some SHGs, there are no active bank loans
due to poor awareness of banks and problems
with SGSY. In the absence of Bank Linkage,
any amount of capacity building or awareness
generation will not yield the desired results
8. Quantum of inputs given to the federations
depends on the availability of SHPA resources.
Most SHPAs have fewer dedicated resources
for capacity building and they are forced to
bring resources from many other projects,
which results in compromises in their institu-
tional building processes
5.3.2.2. Financial Services
In some structures, the federations limit their
financial services to mainly intermediating and
promoting SHG access to the Bank Linkage
Programme. Conversely, other structures prefer
providing financial services to SHG members
through a Sector-Owned financial corpus created
by internal savings and/ or SHPA grants or state
programmes; thus, marginalising the Bank Link-
age intermediation. A third, and more advanced
group has already established a professional mi-
crofinance function. The range of this function
entails both microcredit services based on exter-
nal financial resources (from the banking sector/
MFIs/ state programmes) as well as full-fledged
microfinance services mainly based on sector-own
financial resources and mobilised through savings
and deposit services. In each case, there might be
internal and external reasons to choose one or the
other financial service model. However, if assessed
from the point of view of the overall objective to
achieve financial viability, self-reliance, and sus-
tainability of the entire system, the third model
is to be clearly preferred. Furthermore, success-
fully operating cooperative organisations in other
countries are generally characterised by a strong,
well-developed and comprehensive financial ser-
vice component.
However, providing proper financial services
needs sufficient resources; both financial as well
as human resources (professionally skilled and
experienced management and staff). Therefore,
an evolutionary approach for its gradual growth
should be foreseen. It is important to begin im-
mediately and incorporate this function in the
discussions related to defining the vision and fu-
ture strategy for sector development. One of the
SHG structures has successfully taken up this is-
sue by advancing its financial services programme
towards this direction, and is suitable for replica-
tion. The good and critical practices in the sample
SHG structures regarding the financial services
are summarised below:
Good practices
Most of the sample federations are providing
much needed financial services at affordable
cost
One structure is providing range of innovative
and effective credit services
One federation is providing many savings and
deposit products
Many have 3rd party insurance contracts
A couple of federations have pensions and re-
tirement benefits
Hire-purchase and asset leasing facilities were
seen in a few
Some have their own social security programmes
Critical practices
Except one, all other federations only have
thrifts, no voluntary savings
In most of the federations, SHGs do not have
the practice of paying interest on thrift and
savings; but some have periodical payments of
dividend or bonus on the thrift
Very few federations have SHG auditing, dis-
cussion of audit reports and appropriation of
the annual profit and loss
In some federations, members are not fully
aware of the terms and conditions of 3rd party
insurance; there is some element of coercion
5.3.2.3. Livelihood and Non-Financial
Business Services
In many countries worldwide, the livelihood and
non-financial business services played an impor-
tant role since the early beginnings of the coop-
erative organisation. But even today, for instance
in Germany, cooperative livelihood and business
service activities can be found in a wide range,
comprising of agriculture, trade and handicraft
input and marketing services, livestock breed-
ing and trade, milk and meat processing, farm
processing, retail and wholesale trade, IT and
accounting-services, medical services, schools,
housing etc. All of these cooperative service op-
erations are organised according to cooperative
principles and are strictly following economic cri-
teria. In most of these operational areas, coopera-
tives have been able to reach a market position al-
lowing them to serve as countervailing powers in
the very interest of their members and customers.
Co-operating with neighbouring SHG structures
or pooling common interests through federating
on the higher level will strengthen bargaining
power and market position. This seems to be par-
ticularly relevant for efforts aiming at establish-
ing forward and backward linkages for SHG and
cooperative livelihood. The development of this
function should therefore definitely be included
in further SHG strategic planning processes.
Almost all sample federations are very active on
livelihood promotion and enhancement. Howev-
er, the efforts of many federations are hampered
by lack of Bank Linkages and insufficient funds
with federations. Each of the sample federations
is making some innovations, and context specific
interventions. However, the performance of SK-
DRDP in livelihood enhancement and promo-
tion is praiseworthy and can be easily replicated.
The good and critical practices of sample SHG
structures are:
Contents | 41

Good practices
1. Skill up-gradation in many cases
2. Placements by some SHG structures
3. Successful micro-enterprises and support ser-
vices
4. Marketing of SHG products in a few cases
5. Brand development by a few structures
6. Food security and social security is seen in a
few instances to cope with emergencies and
distress
7. Livelihood enhancement financing by most of
financial federations
8. A few took full advantage of several govern-
mental programmes
Critical practices
1. More focus on marketing of external products
and relatively less on marketing of the mem-
bers products
2. The impact of market interventions is not as-
sessed in some cases
3. Externally developed agenda could be observed
in some cases
42
4. Failures of micro-enterprises were noticed in
few cases
5. Stand-alone approach is still predominant, co-
operation with neighbour SHG structures at
the very beginning
5.3.2.4. Social Services
Unlike cooperative structures in other countries,
social service is a core activity of the SHG federa-
tions. It addresses women empowerment as the
main objective of the Indian SHG movement.
This does not mean that in other countries self-
help or CBO structures are not utilised for suc-
cessfully conducting social services. Contrarily,
they usually operate in parallel systems, not nec-
essarily registered as cooperatives. Almost all sam-
ple federations are working on gender and other
related social issues. However, the focus on each
activity depends on SHPAs policy and availability
of external support. For instance, the anti-alco-
hol movement became a large base for the SHG
movement in Andhra Pradesh. But now the SHG
institutions are not focusing on this critical issue;
because even though the state is a major support-
er of the SHG movement, it also largely benefits
from the alcohol industry. Some of the good and
critical practices are:
Good practices
1. Total focus on women empowerment in some
federations through girl education, awareness,
networking and solidarity
2. Anti-alcohol campaigns and alcohol de-addi-
tions camps in a few federations
3. Creating assets in the name of women
4. Collecting donations for and taking care of or-
phans, poorest of the poor, destitute, etc.
5. Voter awareness and local governance
Critical Practices
1. External agenda in many federations
2. Not addressing critical issues in some instances
3. Not able to generate funds to promote their
own agenda
The cooperative or model principles and Indian
SHG experiences regarding services are summa-
Box 5.5: Model/ Cooperative Principles and Indian SHG Experiences with Respect to Economic
Sustainability: Services
Model/ Cooperative Principles
1. Lobbying and advocating common interests of
member SHGs
2. Initiating, coordinating, and monitoring
sector-strategy and planning
3. Organising and ensuring sector-wide mutual
information and data-flow
4. Developing sector-norms and rules,
monitoring awareness
5. Promoting regular update of internal
structures, procedures and techniques
6. Providing advisory and training services for
capacity building
7. Hiring additional professional external
services on sharing basis, thus achieving
advantages of scale
8. Organising as well as managing Sector-Own
Control, Audit and stabilisation of systems
The financial service function was a central
element of the federating process in many
countries, such as in Germany. The aim is
to better meet increasing financial needs of
members and to support and supplement
services according to the demand of member
institutions. The following support is provided:
1.. Providing loans to member organisations and
to their members- both for income generation
as well as for consumption purposes
2. Providing savings and deposit services to
members (and non-members)
3. Mobilising external refinancing resources
4. Intermediating bank linkages and access to
state supported finance programmes
5. Organising and supporting both application
and reimbursement procedures
6. Providing payment transaction services,
card services, remittance services for migrant
workers etc.
7. Intermediating insurance contracts
Indian SHG Experience/ Field Observations
Sector Development Services
1. In most cases, the availability of these services is still in a very early stage of
development
2. Though in the initial stages, the sample federations and structures are providing a
number of sector development services. These services could be grouped into five broad
categories: (1) awareness generation, promotion of new SHGs, revival of defunct groups and
strengthening of existing SHGs; (2) providing training and support services and monitoring
and grading; (3) auditing; (4) SHG Bank Linkage; (5) linkages with government and
mainstream institutions
2. The overall performance of sample federations varies quite a lot, depending on the
resourcefulness of their respective SHPAs
3. SHPAs still play a major role in this category of services. Apart from uneven resource
availability, SHPAs have unequal and context specific capacities to provide this category of
services
4. Each sample SHG structure and other renowned SHG models in the country have certain
unique and very interesting sector development services. Kamareddy SOC has almost all
sector development tools and practices. There is good scope for mutual learning
2. The overall performance of sample federations varies quite a lot, depending on the
resourcefulness of their respective SHPAs
3. SHPAs still play a major role in this category of services. Apart from uneven resource
availability, SHPAs have unequal and context specific capacities to provide this category of
services
4. Each sample SHG structure and other renowned SHG models in the country have certain
unique and very interesting sector development services. Kamareddy SOC has almost all
sector development tools and practices. There is good scope for mutual learning
Financial Services
1. SHG federations are able to provide limited but critical financial services to their members.
SHG structures in India are legally permitted to mobilise savings from their members
2. Banks and SHPAs do not trust the capacities of the federations to provide financial
services. Because of this mistrust, federations are unable to mobilise enough resources from
SHPAs for on-lending
3. Even SHG Bank Linkage is underperforming due to vitiated environment in the country,
particularly in the non-southern states
4. Only one of the sample SHG structures is providing a full range of savings and deposit
services
5. Most of the SHG structures are under-utilising the potential of thrifts. There are no
incentives for higher thrifts and savings and no mechanisms to protect the members savings
6. Almost all SHG structures have third party insurance contracts. However, most of the
members are not clear about the insurance contracts
7.There are few but interesting experiences about pensions, assets purchase and leasing
8. No remittance services
9. Few technology innovations and options
10. SHG members have much more managerial capacities to provide financial services
than those assumed by secondary stakeholders. To realise those potentials, the financial
intermediation needs to be promoted on cooperative principles, rather than modern
microfinance principles and practices
Contents | 43
 Model/ Cooperative Principles
1. In most of these operational areas,
cooperatives have been able to reach a
market position allowing them to serve as
countervailing powers in the interest of their
members and customers
2. Cooperating and federating with neighbouring
cooperative structures strengthens bargaining
power and market positions. Developing forward
and backward linkages to input and marketing
organisations.
3. Initiating and supporting the establishment
of working units for common production and
processing facilities
4. Intermediating access to government
livelihood programmes and projects as well as
providing support during their implementation
5. Participation in local development
programmes like watershed, drinking water,
sanitation, awareness on health issues and
adult literacy
1. Cooperative organisations in other countries,
such as Germany, regard themselves
predominantly as business organisations,
having the task to support business and income
generation activities of their members. Other
aspects such as improvement of the social
situation are indirectly addressed.
2. However, in these countries usually a variety
of different institutional networks such as
Self-Help groups on village level, civil society
organisations, private trusts, trade unions,
churches, political parties, etc. take care of
social issues
3. These social organisations are operating
complementarily to the public social networks
4. Activities are based on member contributions,
service fees, private donations, grants from
stakeholders, and government financed social
programmes
5. They are usually not registered under
cooperative laws and are not affiliated to
cooperative organisations. However, like
cooperatives, these institutions have to perform
as not-for-profit, but nevertheless effectively
and economically efficiently
24. SHG leaders articulated these in the national conference on SHG federations in February 2008, organized by APMAS et al,
at Hyderabad.
44
Indian SHG Experience/ Field Observations
Livelihood Services
1. Efforts by all sample federations involved in livelihood enhancement and promotion are
grouped under five categories: (1) promotion of individual livelihoods, (2) group enterprises,
(3) vocational training and placement, (4) market support to SHG members production and
products, and (5) bulk purchase for the benefits of SHG members.
2. Current loan size available from federations and bank linkage is not sufficient to take up
any new economic activities. They are only sufficient to be used as a supplementary credit
source for the members current micro-enterprises and other uses.
3. In sample federations too much emphasis was given to IGA, without the corresponding
livelihood credit plans. Only SKDRDP has a comprehensive credit plan corresponding to
livelihood plans.
4. A few sample SHG structures have very interesting practices such as technology
transfers, common production facilities, training and placement, training and promotion of
IGA, accessing government and donor support, infrastructure development, marketing and
branding, assets purchase and leasing. However, most of them are isolated examples and in
the initial stages, but have demonstrated their potential. There is very good scope for cross
learning. SKDRDP has excellent learning and experiences that can be used for replication.
Social Intermediation
1. One of the major objectives of the SHG movement is to achieve gender equity. Primary
members - the poor women who were covered under SHG institutions, considered their
institutions as their - (a) identity; (b) strength; (c) means to build capacities and skills;
(d) space to express their views and (e) method to fulfil their dreams24. Perhaps, the SHG
programme is one of the very few programmes reaching the real poor. The SHG movement
is predominantly a movement for and by women, benefiting millions of women and in turn
contributing for a positive change in their families and societies. In this context, all sample
federations are expected to work on issues faced by women such as domestic violence, girl
child education, equal rights to women, mens alcohol addiction, womens health and hygiene,
etc.
2. Each sample SHG structure has been focusing on these critical social issues in its context
3. SHPAs play an important role in deciding the social intermediation agenda of the SHG
institutions
3. Given the overall poverty levels and initial stages of the SHG structures, the funds from
social services have to come from donor or SHPAs grants, donations and income from the
microfinance operations
4.Integration of social intermediation and microfinance operations may not be a prudent
practice. Only one of the sample SHG structures has separate institutional structures for
social intermediation
rised in Box 5.5
5.3.3. Institution Building
Important elements of the institutional structure
and procedures of SHG systems and cooperative
organisations have already been defined. The chal-
lenge now is to properly assign these functions to
such a multi-level federation structure which is
identified as a good SHG or cooperative practice.
The criteria for guiding institution building are
(a) sector vision, (b) guaranteeing highest possi-
ble effectiveness and efficiency of the multi-level
system as a whole, (c) insuring a high level of sec-
tor integration and coherence, (d) enabling all re-
sponsible actors within the system to manage and
control sector activities, and (e) a clear separation
between business and social services and the de-
velopment function (including control and audit
services).
The approach to separate different institutional
functions has become very common in the coop-
erative movement worldwide. It enables the coop-
erative institutions to properly meet the advanced
needs of cooperative members and customers. It
also allows a quick response to changed socio-eco-
nomic and environmental conditions. Therefore,
it can be regarded as a generally accepted good
cooperative practice.
In India, even though institutional building of
federations is still in its early stages, some federa-
tions have already chosen a similar institutionalis-
ing policy for their functions. As demonstrated in
the case studies, they are implementing a three-
fold institutional model at the highest federation
level, although different institutional concepts are
being used. The approach comprises of specialised
federations and institutions for three of the four
service functions described above. So far, only the
development service function remains excluded.
5.3.4. Availability of Resources and
Performance
Having already identified the availability of ap-
propriate human resources as a core element, it is
important to stress particularly on the following:
The need for skilled management and profes-
sional staff that will continuously increase and
ensure advanced governance and management
and address operational challenges
The recruitment should primarily be based on
sector-own human resources; however, exter-
nally recruited professional staff will be needed
to bridge some of the gaps
To increase the number and quality of staff,
additional financial resources will be required
for capacity building and training, compensa-
tion payments to SHG office-bearers for their
engagement on SHG governance, as well as ap-
propriate salaries for professional management
and staff
Availability of sufficient financial resources is an-
other big challenge for SHG structures. A sig-
nificant problem area is proper equipment with
financial resources for lending activities as well
as for conducting non-financial business servic-
es. The experience of some financial cooperative
organisations in India and other countries dem-
onstrates that Self-Help Groups and cooperative
organisations are able to mobilise adequate fi-
nancial resources themselves from their members
and customers through active acquisition of sav-
ings and deposits even from a poor clientele (See
CGAP, 2010). The team has met one SHG struc-
ture the Bagnan model in West Bengal, which
offers a variety of savings and deposit products to
both members and non-members and restricts
its lending within the mobilised funds. This type
of institution is not uncommon in India. One
unique feature of these institutions is that they are
content with small funds. Given the low levels of
awareness and managerial capabilities of primary
members, functioning with limited funds may
be a better strategy, at least in the initial phases.
With this process they could:
Strengthen the cooperative lending capacity
Meet the urgent credit needs of the community
and also the demand for services others than
borrowings
It has always been the policy of the German co-
operative financial sector to additionally facilitate
access to external financial resources and govern-
ment financial programmes in the interest of
Contents | 45
 their members and customers. The policy to ac-
cess government support, including financial sup-
port exists for SHG federations, both NGO and
the government promoted federations. However,
the MFIs in India usually do not mix their mi-
crofinance operations with the government sup-
port and subsidies. In the sample federations, the
SMBT of SNFL does not access any government
programmes or assistance.
The case studies show that many federations
have already achieved financial self-sufficiency.
Particularly, financial federations have demon-
strated their ability to recover their financial and
operational costs through a margin of interest
and service fees. Many others, which are either
multi-purpose or non-financial, are recovering
some of their operational costs through member
contributions and fees. In these cases, the remain-
ing deficits are covered through cross subsidising
by the interest margins resulting from financial
activities and/or through grants from SHPAs,
and fees for acting as implementing agencies of

Box 5.6: Model or Cooperative Principles and India SHG Experiences with Respect to Economic
Sustainability: Institution Building & Resources and Performance

Model or Cooperative Principles Indian SHG Experience and Field Observations

Institutional Building
1. Existence of a long-term sector vision, strategy and
planning, which may serve as guidelines in the institution-
building process
2. Vertical and horizontal division of functions between various
institutions within the system, guaranteeing highest possible
effectiveness and efficiency of the multi-level system as a
whole
3. Well-organised vertical and horizontal interaction, co-
operation, and mutual support insuring a high level of sector
integration and coherence
4. Transparency on organisational structures and procedures,
enabling all responsible actors within the system to manage
and control sector activities
5. Clear separation of business and social services from the
development function (including control and audit services) in
order to avoid conflict of interests.
1. Institutionalisation of different services of SHG structures is in nascent
stage. Though some vertical division of functions could be seen, the horizontal
division is conspicuous by its absence
SHPAs are playing an important role in the institutionalisation process. Among
the different categories of services, sector development services are still
predominantly with the SHPAs.
In some sample SHG structures, SHG federations, especially the SLFs are
entrusted with a number of functions that are beyond their capacities. At
different layers of SHG federations, sub-committee systems could be seen to
discharge different categories of services or functions. However, the sub-
committee systems are ad hoc arrangements and ineffective in many cases
Among sample SHG structures, only Bagnan BCC has different institutions to
undertake the various categories of functions
A few renowned SHPAs have developed different structures and institutions
such as producers companies, commodity cooperatives, along with SHG
federations to take up the livelihood services

Resources and Performance

1. Availability of appropriate human resources
2. Mobilising sufficient financial resources and economising
their usage
3. Accountability towards the application of resources and
performance
1. Even though the competencies are only average in SHG structures, the
staff is highly committed. They are unable to attract and retain qualified
professionals because of low capacity to pay and non-availability of
professionals in the market
2. In many sample federations the key staff members are from SHPAs. This
has potential to undermine the self-help and institutional autonomy in SHG
structures. Even CRPs paid by SHPAs could have a negative impact on the
feeling of ownership among SHG members
3. Most of the SHG federations have inadequate resources for on-lending and
other purposes. Still, they provide critical services to the members in the
context of wide scale financial deprivation
4. Some of the resources with sample federations are tied funds; hence, need
to be utilised for particular purposes only, irrespective of members needs and
interests
5. Certain legal provisions also have certain restrictions on microfinance and
business operations
6. Even with numerous and complicated constraints, SHG federations are able
to provide valuable services through most cost effective methods because
of inherent strengths of the SHG model and low cost operations based on
adherence to cooperative principles instead of modern microfinance practices

46
government programmes. This policy to recover
the cost of federation activities is to be considered
as an acceptable response to the current develop-
ment stage of many SHG structures. However, it
seems to be recommendable to review practices of
cross-subsidising which are currently very com-
mon, particularly in multi-purpose federations:
cross-subsidising deficits in one service function
with surpluses in another reduces transparency
and makes the control of effectiveness and effi-
ciency more difficult.
5.4. Appropriate Legal and Regulatory
Framework
SHG federations need an appropriate legal and
regulatory framework enabling them to fulfil
their role and purpose and to achieve sustain-
ability. Appropriate legislation and regulation is
not only essential to form the internal constitu-
tion, structure, and processing of SHG systems,
but also important to gain confidence within the
SHG movement. It is also crucial for achieving
the necessary acceptance outside the SHG sector,
as for example by the SHG target-clientele, busi-
ness partners, promoting institutions, and the
public at large. The legal or regulatory issue will
become even more relevant over time as the SHG
structures advance further. The early availability
of a proper legal and regulatory framework may
contribute to their success and their positioning
in the mainstream. On the other hand, inap-
propriate legislation and regulation may hamper
Self-Help and cooperative organisations to devel-
op and achieve sustainability, or may even destroy
Self-Help initiatives and cooperative reform ef-
forts. In this section, issues related to appropriate
legislation, self-regulation and external regulation
are discussed. The model or cooperative princi-
ples and Indias SHG experience in regard to leg-
islation and regulation are presented in Box 5.7.
5.4.1. Appropriate Legislation
In India, there are several laws under which the
SHG federations could be registered. These are
27. The German Cooperative Associations, which are comparable with the development service federations, are registered
as associations according to the Civil Code (BGB) similar to the registration of SHG federations under Society Acts
(not-for-profit-organizations).
- Societies; Trusts Private Trusts and Public
Trusts; Section 25 Company; Non-banking Fi- Long-term
nancial Corporations (NBFCs); Traditional Co- experiences of
operative Societies; Mutual Aided Cooperative other countries
Societies (MACS); Multi-state Cooperative So- underline
cieties; Cooperative Banks and Producers Com- that Liberal
panies. In general, people are scared of legal is- Cooperative laws
sues especially the official interventions in their are well fitting
lives and the institution. Most of the institutions for business
want to be free from government regulations and activities of
interferences. Therefore, the most preferred legal member-based
forms are non-registration or registration with Self-Help
least regulation and interference, even though organisations.
such registration may not be suitable for their
business. For instance, many financial SHG fed-
erations in north India are registering as societies
and public trusts instead of cooperatives, which is
more suitable for their business.
As the SHG structures mature there is need for reg-
istration under a suitable act. Liberal Cooperative
Act may be highly suitable for SHG federations,
especially the federations involved in financial
and livelihood services. Long-term experiences of
other countries underline that Liberal Coopera-
tive laws are well fitting for financial as well as for
non-financial business activities of member-based
Self-Help organisations. In Germany the coop-
erative law is suitable for both financial and non-
financial cooperatives (primary and higher-tier
institutions).27 More than 120 years old and with
only few amendments ever since, the relevance of
this law has remained strong for both organisa-
tions in their initial stages or the well-developed
ones. This is because it provides good legal frame-
work conditions and ample scope for members
decisions, by-laws and equal-level-playing-field
with non-cooperative organisations and enter-
prises. However, about two-thirds of states in the
country do not have the MACS Act.
5.4.2. Self-Regulation
SHGs and cooperative organisations are suitable
for self-regulation, i. e. to be governed and con-
trolled by their members and customers. This is
Contents | 47
 one of their important characteristics and a spe-
cific strength.28 This applies to the Indian SHG
movement as well. Therefore, the implementa-
tion of self-regulation or sector-own control
as called in this study has been duly in the
centre of attention from its beginning.
Many cooperative systems worldwide have dem-
onstrated that sector-own control of member-
based self-help or cooperative organisations can
operate with high effectiveness. The performance
of Indian SHG institutions and sample SHG
structures is quite dismal with respect to self-reg-
ulation (see Box 5.7). As mentioned before, given
the poor awareness and limited managerial skills,
SHPAs have to play a pivotal role in all aspects of
formation as well as the day to day management
of SHG institutions. The major issue of concern
is that in many instances SHPA resources deter-
mine the role transformation between SHPAs,
primary members and the agenda of SHG insti-
tutions.
5.4.3. External Regulation
According to well-founded international experi-
ence, it is generally accepted that for Self-Help
or cooperative organisations availability of an ef-
fective sector-own control is necessary, but is not
sufficient if they are providing financial services.
Therefore, in addition to sector-own control, it
is necessary to expose them to regulation and su-
pervision of the financial sector by financial au-
thorities. This usually entails: setting norms and
standards for financial institutions, licensing, off-
site monitoring, on-site inspections and ad hoc
audits and sanctioning. For achieving adequate fi-
nancial regulation and supervision of federations
and SHG structures, some specific aspects should
be taken into consideration by the financial au-
thorities:
SH networks are decentralised, bottom-up
multi-tier systems of different sizes and varying
financial service programmes, often located in
remote areas
SHG institutions belonging to these networks
are linked to each other through ownership
relations, division of functions, economic and
social interdependencies, and obligation of mu-
tual support
Financial federations (including multi-purpose
federations providing financial services) are
integrated parts of these structures (not stand-
alone financial institutions)
The identity of SHG members as owners and
customers and their dependency on the finan-
cial viability and sustainability of the SHG
system enhances their self-interest on effective
regulation and control
In order to achieve effective and economically ef-
ficient regulation and supervision, the financial
authorities should primarily base their activities
on the sector-own control systems of SHG struc-
tures. In other words, financial authorities, such
as RBI and NABARD, should interact with the
SHG sector-own control.29 Interaction means
that the financial authorities should be:
(1) Setting regulatory norms and standards for
financial services to be fulfilled by the SHG
federa-tions when applying for licenses to un-
dertake financial services
(2) Promoting the establishment and further de-
velopment of the sector-own control mecha-
nisms and their implementation both through
control and intensive communication with
the SHG institutions in charge as well as by
setting norms and standards adapted to the
specific needs of the SHG sector
(3) Reducing self-regulatory and supervisory ac-
tivities mainly to monitor the results of the
sector-own-control and the effectiveness and
correctness of SHGs sector-own control
mechanisms
(4) Limiting direct surveillance interventions

28. In this study, the term regulation is reserved for the external control or surveillance (licensing and supervision) of financial
institutions through the financial authority (RBI/NABARD). Instead of self-regulation of the SHG-sector, the terms self-govern-
ance and sector-own control will be used as described earlier in this study.
29. Sometimes the term delegated supervision is used for this kind of indirect supervision through financial au-thorities. The
study team agreed to avoid this term because the regulation/ supervision is to be seen as the duty of the government/ financial
authority, which cannot be delegated to a private organization. Therefore, the study used the term interaction in the sense defined.

48
 primarily to supplement actions in the case
of specific issues to be solved such as of non-
compliance of regulatory norms or of default
risks
(5) Collaborating with the SHG institutions in-
charge of sector-own-control in cases of de-
fault risks, rehabilitation, and sanctioning
Besides regulation and supervision through the fi-
nancial authorities, financial federations (includ-
ing multi-purpose federations providing financial
services), like any other federations, are underly-
ing the statutory regulation by the registrar as per
their respective legal status.
Even very effective self-control and external regu-
latory activities cannot fully prevent any risks. As
a consequence, the establishment of a protection
or stabilisation system aimed at avoiding or com-
pensating such kind of losses (or at least limiting
Box 5.7: Model or Cooperative Principles and India SHG Experiences with Respect to
Economic Sustainability: Appropriate Legal and Regulatory Framework
Model or Cooperative Principles
Appropriate Legal and Regulatory Framework
1. Provide space for self-initiative, self-governance,
further federation development and performance
2. Take into account different roles and purposes of
federations
3. Ensure level-playing-field with other organisations
and enterprises
4. Promote legal compliance
5. Encourage confidence building internally and
externally
Self Regulation (Sector-own Control)
Important self-regulation practices and tools are:
1. Primary members total involvement in development
and adherence of institutional norms and standards
2. Ultimate authority with the primary members
3. Regular (off-site) monitoring and rating
those to a specific limit) is necessary, in-line with
good international practice. All stakeholders of
the SGH sector, the financial regulator, and the
legislator should jointly develop the design and
modus operandi for such a system. Sharing in-
ternational experience might contribute to find-
ing appropriate solutions to important challenges
such as:
(1) Stabilisation and protection needs
(2) Availability of adequate resources
(3) Design of the institutional setting
Protection or stabilisation will become more rel-
evant as the federations initiate savings mobilisa-
tion (deposit insurance). It is a good international
practice that even non-financial cooperative
structures have established stabilisation systems
specially tailored to their needs.
Indian SHG Experience and Field Observations
1. Out of 12 sample SHG federations 2 are not registered, 2 are
registered as MACS, 4 as Societies, 3 as Trusts and 1 under Old
Cooperative Act.
2. Out of 12 sample SHG federations 2 are not registered, 2 are
registered as MACS, 4 as Societies, 3 as Trusts and 1 under Old
Cooperative Act.
3. One prominent federation is registered as a Trust and carries
out microfinance operations. It records the transactions as grants
and donations in its books
4. To access the funds from international donors, one federation
got registered under FCRA
5. Though MACS has less government regulation and interference,
it is enacted in only eleven states, i.e. about one-third of states
Institutional norms and standards are developed externally
and are centralised without adequate participation of primary
members
SHPAs dominate the management of SHG institutions. This
practice is a major cause for the collapse of Ankuram Sangha
Poram (ASP) and hundreds of MACS in AP.
Rotation of leadership is far from satisfactory. Adequate
remuneration could be paid to the leaders to attract leadership
from poor and weaker sections and make leadership
accountable.
Contents | 49
 Model or Cooperative Principles
4. Regular financial, management and governance
auditing at every level
5. Conducting Annual General Body meeting (AGM)
without fail
6. Regular elections and leadership rotation
7. Legal compliance
8. Separation of development and regulation functions
and institutions
External Regulation and Supervision
1. Self-regulation in self-help or cooperative financial
organisations is a necessary but not a sufficient
condition. Therefore, in addition to sector-own control,
it is important to make them subject to regulation
and supervision through the financial authorities
2. In order to achieve effective and economically
efficient regulation and supervision, the financial
authorities should primarily base their activities on
the sector-own control systems of SHG structures.
3. Even very effective self-control and regulatory
activities cannot fully prevent any risks. Stabilisation
systems aiming at avoiding or compensating such
kind of losses are needed.
4. The registrars control is limited to supervising the
establishment and internal constitution with respect
to legal compliance.
5.5. Adequate Promotional Support
Three core elements can be identified, which con-
tribute directly to adequate promotional support
of the SHG sector:
(1) System-development promotion
(2) Service or business-related promotion
(3) Sector-own promotion
5.5.1. System-Development Promotion
The promotion of system-development comprises
of development and implementation, institution
and capacity building, managerial and organisa-
30. NABARD is already playing the dual role in respect to the Cooperatives Banks. This may be one of the reasons for the poor
performance of Cooperative Banking Institutions in the country.
50
Indian SHG Experience and Field Observations
Current registration pattern requires very little legal compliance.
Even in AP, where federations registered under MACS, legal
compliance was very poor till recently. However, the situation is
improving because of a special drive by SERP.
The primary members have limited awareness about audit
reports. In most cases, they have received no feedback on audit
reports and have not had the opportunity to discuss the same.
Comprehensive SOC experiences available for sharing in the
Kamareddy pilot.
1. As of now there is no external regulatory framework. Like any
other financial intermediary, SHG institutions need regulation. The
failure of ASP in the sample structures and many MACS in AP
warrant an urgent need for regulation. However, while developing
such a regulation framework, the unique features of SHG
structures such as bottom-up, multi-level structures, integrated
financial services with other services and SHG members as
owners as well as clients, need to be kept in mind.
2. Most likely NABARD may be entrusted with the external
regulation tasks. NABARD is already involved in the sector by
providing development support and further involvement as a
regulator may lead to the conflict of interest.30
3. As of now there is no effective SOC at the higher level.
Institutions like Paryavekyaka Samakya in Kamareddy pilot
need to be developed, not only to supervise the internal SOC
processed but also to discharge effectively the interaction with
the financial authorities
4. Measures like deposit insurance and system stabilisation are
essential to provide effective saving services and protect the
members savings and deposits. The failed MACS underline the
need for such protection measures.
tional support and financial assistance to SHGs
and their federations. In each SHG system, their
own institutional framework, managerial and or-
ganisational structure, operations and processing
are mainly formed according to the vision, strate-
gy, advisory and financial capacity of the SHPA in
charge. For most of the SHG structures visited by
the study team, SHPAs promotion-services still
remain dominant and essential. SHG members
themselves have mostly been involved as recipi-
ents of the promotional support but not as own-
ers and decision makers in developing the promo-
tion strategy and its implementation. Even direct
interventions into the federations governance,
management and activities sometimes occur. Par-
ticularly, the sector control, including internal
audits, is mostly conducted by the SHPAs. Dur-
ing the starting phase, this SHPA policy appears
to be reasonable and surely necessary in order to
respond adequately to the lack of basic knowl-
edge, experience, governance, and professional
capacities among SHG members. However, some
critical consequences for the sustainability of the
SHG development need to be taken into consid-
eration:
(1) Persisting SHPAs dominance in the SHG de-
velopment process hampers the mobilisation
of SHG self-help capacity
(2) Leaving SHG members mainly as recipients
may increase their dependency on SHPAs
promotion and reduce the willingness to de-
velop their own initiatives and activities
(3) Continuing SHPAs direct involvement in
federations governance, management, and
operations prevents SHG members from tak-
ing over ownership, leadership, and responsi-
bility
But as the case studies demonstrate, the trans-
formation process is still in its early phase. Fur-
thermore, the various SHG structures are in very
different stages of development. However, experi-
ence shows that SHGs often have more self-gov-
ernance and self-administration capacity available
than assumed by the SHPA. Therefore, SHPAs
should try and gradually ease their influence and
control early enough. They should trust more in
the SHGs capacity, and appropriately transfer
duties and responsibility to the SHG structures.
One of the critical practices observed is the strong
control that SHPAs have over SHG structures
and their insistence to implement their own vi-
sion. Such conduct increases risks like:
(1) SHG development will be one-sided, depend-
ing on the respective SHPA, its specific model
vision and strategy, limited managerial and
professional skills, and inadequate funding
(2) Both SHPA and SHG structure do not con-
sider the positive or negative experiences of
other promoters and SHG structures which
would only improve their own system
(3) Complementary support programmes of oth-
er SHPAs, like NABARD programmes con-
tributing to SHG capacity building and in-
vestment will not be sufficiently disseminated
and used
(4) Promotional programmes remain uncoordi-
nated, reducing or counteracting impacts on
sustainability
Networks like ENABLE have a positive impact
on sharing and up-grading cooperation among
SHPAs. The same applies to the exchange of ex-
periences on internet through expert forums and
queries such as Solution Exchange. Both are use-
fully supplementing intensive conference activi-
ties.
As observed during the field studies, knowledge
on available promotional programmes and the
coordination between different promoting stake-
holders is still a serious issue, which needs to be
solved in order to ensure adequate and comple-
mentary support. For example, SHG representa-
tives were either not aware or were inadequately
informed about NABARD programmes that are
designed to support SHG development in ad-
dition to the SHPA assistance. As the National
Conference on SHG Federations in Pune, March
2010, pointed out, current support programmes
of NABARD and governmental institutions still
focus exclusively on SHGs without taking the
specific promotional needs of the federations
Contents | 51
 Box 5.8: Model or Cooperative Principles and India SHG Experiences with Respect to
Economic Sustainability: Adequate Promotional Support - System Development
Promotion

Model or Cooperative Principles Indian SHG Experience and Field Observations

1. Meet the interests and needs felt by the
SHG members
2. Take into consideration resources
available within SHGs
3. Integrate the recipients into project
development and implementation,
transforming their role from the start as
owners and leaders of the promotion project
4. Avoid any external interference which
could counteract self-help development
5. Mobilise sufficient advisory and financial
resources as well as time for project
realisation
6. Ensure compatibility between several
promotional efforts
1. Felt needs of the primary members are not always the focus of
SHG institutional promotion.31 Implementation of some pre-decided
development projects or sustainability of already implemented projects
and programmes were also found to be the drivers of the SHG movement
2. The full potential of SHG members investment and managerial
capacities were not generally mobilised. Suitable tools and practices are
not employed for the same.
3. Very few SHPAs have clarity on member-owned, member managed
institutions that meet the needs of members. There are hardly any
methods, practices and tools for the primary members to take charge of
their institutions. There is urgency to demystify the concepts and practices
like auditing, internal controls, MCP etc. and anchor them to peoples own
concepts, terms and practices.
4. Overall available promotional and loan funds are quite inadequate
compared to the requirement and are quite unevenly distributed among
the regions and institutions There is severe dearth of HR, resource
materials and resource organisations.
5. There are many promoting agencies in some regions. Competition
could be seen between Government Agencies (GAs) and Non-Government
Agencies (NGOs); between GA and GA; between NGO and NGO; and
between SHPAs and MFIs. In some regions severe competition could be
seen among all kinds of SHPAs, SHG federations, MFIs and other service
providers including banks.
6. There is good scope of learning from each other. However, there are
very few opportunities for mutual learning among different SHG structures
and SHPAs

properly into consideration. stabilising attractiveness as well as acceptance of

The model or cooperative principles and Indian
SHG experiences in respect to system develop-
ment promotion are presented in Box 5.8.
5.5.2. S ervice or Business-Related
Promotion
Another promotional core element is the service
or business related impact. Service or business
related promotion can also be described as pro-
motion through training on the job or learn-
ing by doing. Their effects may be fourfold: (i)
extending and enriching the scope of the service
and business functions, (ii) contributing to ef-
fectiveness and economic efficiency, (ii) promot-
ing system development, and (iv) increasing and
SHG structures.
Learning by doing, according to all experiences,
has usually a high promotional effect. In contrast
to the formerly described system-development
promotion, which has mainly been dominated by
the SHPAs, this promotion will be characterised
in principle by partnerships based on a level play-
ing field and on transparent contractual relations.
On the one hand, the promotional effect depends
on the willingness and capability of federations to
extend and enrich their support services to mem-
ber SHGs, on the needs felt by SHG members
and on the competitiveness of the contractual
conditions. On the other hand, the promotional
effect is subject to influence by (public and pri-

31. Normally, in India, the Participatory Research Appraisal (PRA) is carried before initiating any grassroots development pro-
grammes/ projects including SHG institutional development. However, most of the PRA exercises are organised on the pre-decided
project/ programme context rather than local context or general peoples conditions. In other words PRAs are conducted in take it
or leave it mode without any alternatives/ options. As a result almost all the PRA exercises get local/ community affirmation

52
vate) partners and contractual organisations.
Promotional support measures related to the ser-
vices of federations and business needs should be
tailored adequately in order to achieve maximum
effectiveness. If this is guaranteed, taking into
consideration the capacity of SHG federations,
they will additionally contribute to fortify posi-
tive effects on SHG-development. Accompanied
by specific promotion or coaching activities by
partner organisations and/or the SHPAs, this will
ensure proper service and product introduction
and usage. Both aspects are similarly relevant for
all the three areas of federation activities, viz. fi-
nancial, livelihood and social development. These
are further elaborated below.
Financial Services
With regard to the promotional effects of finan-
cial services, the SHG Bank Linkage Programme
supported by NABARD has been in focus so
far. The study team was informed that the main
reason for making the Linkage Programme man-
ageable for SHGs and enhancing the bargain-
ing power against banks is to organise mutual
support and pool in common interests through
setting up of federations. These aspects are also
relevant for other financial services such as gov-
ernmental credit programmes for SHGs and their
respective SHG members, refinancing contracts
with mainstream banks and MFIs for on-lending
to SHGs, collaboration with micro-insurance
companies, etc.
As observed by the study team, participation in the
Linkage Programme differs significantly among
different SHG structures, even in the same states.
Reasons for non-participation can be found on
both sides, i.e. banks as well as SHGs. The role of
federations, conducted mostly by (informal) clus-
ter federations, is still limited to support member
SHGs in preparing loan applications and nego-
tiating with the banks. Block-Level Federations
willing to undertake financial intermediation
are often not directly involved in the Linkage
Programme and its accompanying promotional
activities. Modifying the Linkage Programme
and developing it further into a comprehensive
step-up concept which aims at reaching block-
level or even higher level federations should be
considered; if they are interested and prepared to
undertake financial services on their own. Once Despite all the
the SHG system is adequately prepared, expand- limitations,
ing financial resources to supplement the service federations are
programmes of federations will increase access to providing much
proper credit services and reduce the dependency needed critical
on financial or grant providers. financial services
to their members.
Despite all the limitations and challenges, federa- In some regions
tions are providing much needed critical finan- federations
cial services to their members. In some regions become sole
federations become sole providers of financial providers of
services. Federation financial services are more financial services.
affordable compared to MFIs, input suppliers
and informal sources. Therefore, federations need
to be capacitated to provide financial services in
needy regions. As of now, SHPAs and the gov-
ernment are important sources for federations to
fund on-lending. Often, these grants increase the
direct involvement of SHPAs in the function-
ing of federations with unwanted consequences.
Further, federations become less accountable to
SHGs and more bound to SHPAs or the govern-
ment because of these grants. Such grants may be
routed through SHGs as their share capital with
conditions like payment of annual bonus or divi-
dend to SHGs.
Livelihood or Non-Financial Business Services
Like financial services, the livelihood services
are essential for people to overcome poverty and
achieve economic prosperity. In Germany for
instance, from the early beginnings of the coop-
erative movement, livelihood activities had been
as important as financial services. They have sig-
nificantly contributed to the improvement of the
economic and social situation in rural as well as
urban areas. Till today, most German farmers and
craftsmen are members of non-financial coopera-
tives, using them for input, processing, and mar-
keting support services.
As of now, like in providing financial services, the
SHG federations in India also have certain chal-
lenges in providing livelihood services such as
appropriateness of services, limited financial and
technical expertise, and inadequate advisory and
other support. Further, lack of appropriate in-
stitutional structures also hamper these services.
Almost all sample SHG structures are providing
livelihood services ranging from bulk purchase,
Contents | 53
 technology transfers, common processing facili-
ties, group enterprises, marketing of SHG prod-
ucts and also branding of SHG products. Though
there are a few very interesting experiments such
as separate institutional structures for livelihood
promotion in the case of SKDRDP and Bagnan;
branding of SHG products at SKDRDP and JT-
WDS; and technology transfer and trainings at
SKDRDP and PRADAN Saheli Samithi, the
livelihood services are in nascent stages in most
of the sample structures. Further, the Commu-
nity Resource Persons (CRPs) are one interesting
livelihood extension innovation in RGMVP and
other few sample federations that are worth rep-
licating.
However, the SHG federations often lack suf-
ficient knowledge, skills and financial resources
which could enable them to adequately organise
and institutionalise the support to their member
SHGs. Therefore, in order to provide effective
advisory and financial assistance to federations
interested in livelihood or non-financial busi-
ness (seed capital) it is essential to mobilise ex-
ternal promotion. However, this should not be
addressed to SHPAs only, but should include
contractual and other business partners of the
federations. Usually, it is in the interests of both
sides, the federations as well as their partners, to
develop a sustainable basis for accurate, trustwor-
thy, and economically efficient partnerships.
Social services
Generally, SHPAs promote social services by
granting financial assistance and/or by assigning
Community Resource Persons. Accessing and
participating in government schemes and ser-
vices which improve the social situation of the
rural poor, and women in particular, is another
important part of social services provided by
SHG structures. Sometimes these governmental
schemes and services are supplemented by similar
social service projects offered by NGOs. The pro-
motional effects on SHG structures while under-
taking these duties are significant. In particular,
it enriches social service programmes offered by
SHGs if they provide access to additional, ur-
gently needed services to certain groups of their
32. C.f. policy recommendation of the Pune Declaration.
54
member-base. Furthermore, assuming that con-
tractual conditions are adequate, the programme
extension will also contribute to the economic
sustainability of the SHG structures. In order to
properly mobilise these promotional effects, some
aspects need to be taken into consideration:
(1) Lack of transparency about available govern-
ment and NGO social schemes and services
hampers SHGs access to these programmes.
Therefore, the programmes objectives, con-
tents, conditions, organisational procedure,
etc. need to be effectively disseminated by the
providers
(2) Participating in governmental social schemes
and services should be based on contracts
characterised by a level-playing field between
the partners promoting self-administration
and self-responsibility of the SHG move-
ment. Contracts should include remunera-
tion, thus adequately compensating the fed-
erations for providing support services to
SHGs and respective SHG members. SHG
structures should not be used as channels or
quasi-governmental agencies for the delivery
of government schemes and services.32
(3) Participation in and implementation of social
schemes and service programmes should ad-
equately respond to the needs of SHG mem-
bers.
(4) 
While ensuring proper programme imple-
mentation, the provider should offer appro-
priate introductory and stand-by support to
the SHG structure.
(5) In order to adequately respond to these as-
pects and to improve programme effective-
ness, involvement of federations at least at
block-level, or if possible, even at district or
higher level is desirable.
The model or cooperative principles and Indian
SHG experiences and field observations regard-
ing service and business related promotion are
summarised in Box 5.9.
5.5.3. Sector-Own Promotion
It can be clearly observed among important coop-
erative organisations that self-promotional activi-
Box 5.9: Model or Cooperative Principles and India SHG Experiences with Respect to Economic
Sustainability: Adequate Promotional Support: Service and Business Related Promotion
Model or Cooperative Principles
1. Financial intermediation is the natural agenda of SHG
federations. As effective financial inclusion has proved to be
one of the most critical livelihood services, SHG federations
have to be supported to provide financial services most
effectively
2. Given the complexity and rigorousness of financial
management, federations operations have to be limited, i.e.
turnover, loan size, etc. Cooperative principles should govern
the financial intermediation and functions of federations.
Instead of short-term profit maximisation, focus should be on
the welfare of the client-member relationship and long- term
gains and institutional sustainability33
3. Federations may have diverse sources of credit and funds
for their lending operations. However, mobilisation of internal
savings and deposits may be given importance
4. Introduction of other financial services such as insurance,
pensions, remittance, etc. may be depended on primary
members informed decisions
Livelihood Services
1. Livelihood services are equally, if not more, important to
all other services. They have significantly contributed to the
improvement of the economic and social situation in rural as
well as urban areas.
2. Till today, most German farmers and craftsmen are
members of non-financial cooperatives, using them for input,
processing, and marketing support services.
3. For sustainability, these services have to generate
necessary resources through service fee and price spread.
4.Many access all available support and assistance, along
with accessing the markets effectively.
5. Clear agreements between SHPAs, suppliers and
federations are desirable in delivering these services.
33. Because of this principle, the cooperative banks in Europe are not (or not so much) affected by the recent financial crisis
Indian SHG Experience and Field Observations
Financial Services
1. Facilitation of SHG Bank Linkage is one of the most crucial tasks of SHG
federations in most sample structures. However, federations are unable to
deliver this function since banks are not enthusiastic about SHG Bank Linkages
2. As savings or thrift proved to be one of the vital binding factors in
federations, many federations are collecting thrifts from SHGs. However, some of
the federations are not able use the funds effectively and a few have returned
the money to SHGs occasionally. These funds could be used as collateral for
SHG banking.
3. Some sample federations have taken up financial intermediation to address
critical and basic financial needs of their members. Others have taken it up to
earn the necessary resources to meet federations organisational and functional
needs. And a few have taken it up to channelize government or donor funding
support.
4. SHPAs are playing a major role in the management of financial services,
which also proved to be the undoing of a few federations like ASP and other
failed federations (MACS). For sustainability and effective functioning of financial
federations and services, the primary members need to be capacitated and
friendly systems (cooperative principles/ philosophy) need to be introduced.
5. Grants from SHPAs and the government are important sources of funds for
federations to use for on-lending. Often, these grants increase direct involvement
of SHPAs in the functioning of federations, with unwanted consequences. Further,
these grants decrease the federations accountability towards the SHGs and
they tend more towards SHPAs and the government. Such grants may be routed
through SHGs as their share capital with conditions like payment of annual
bonus or dividend to SHGs.
6. Only one sample SHG structure has real savings or deposit services. There are
no appropriate savings or deposit protection framework and incentive structures
to mobilise savings and deposits from members and non-members.
7. In most of the sample SHG structures third party insurance contracts were
apparently sold (forced), not marketed.
1There are very interesting and useful livelihood services facilitated and
supported by SHPAs, such as common marketing, separate institutional
structures, bulk purchases, common production and processing facilities, leasing
out of farm equipment, branding, hire-purchases, technology transfer, trainings,
skill development, etc. However, these services are too few and limited to one
or two locations or SHPAs. Still these services appeared to be more prevalent
and proved to be useful to members.
2. SHPAs play a crucial role in the basket of services, which in turn is
determined by their resource position and philosophy.
3. Except in SKDRDP, there is not much distinction between microfinance and
livelihood finance in the sample SHG structures. However, in few structures
there are dedicated financial assistances for certain IGAs.
4. Some of the agriculture related services require involvement of men or the
family. Only SKDRDP is working with men groups along with women SHG groups.
5. Support from SHPAs and other resources are predominantly being used for
providing livelihood services.
6. Most of the sample structures in principle are, accessing support from all
kinds of sources such as government, corporate sector and donors. But SMBT of
SNFL is not accessing government support/ programmes.
Contents | 55
 Model or Cooperative Principles
1. Internationally, almost all financial and livelihood
cooperatives are only indirectly involved in providing social
services.
2. However, parallel comprehensive networks of Self-Help,
cooperative, and charity organisations focus directly on social
services.
3. Exact basket of the social services has to be determined
according to the local community context.
4. Resources for these services have to be mobilised
transparently by the federations. Concealed cross
subsidisation from microfinance or other income generating
services may not be desirable.
5. Clear agreements between SHPAs, suppliers and
federations are desirable in delivering these services.
Indian SHG Experience and Field Observations
Social Services
Social intermediation is one of principal functions of SHG federations. However,
federations are unable to provide adequate services, because of various limita-
tions. The effectiveness of the federations social ser-vices may also depend on
the success of their financial and livelihood services.
Most sample SHG structures have their own social security services.
SHPAs have been playing a major role in the basket of social services. Health
awareness is quite prevalent and very useful to the members.
Support from SHPAs and other sources are predomi-nantly being used in
providing these services.
Most of the sample structures in principle are accessing support from all kinds
of sources such as government, corporate sector and donors. But overall access
levels are far from satisfactory because of several limitations, including less
publicity about available programmes and SHPAs philosophy and capacity.

ties contributed fundamentally to their current
independence from external, in particular gov-
ernmental, interference. This promotion can be
achieved especially through exchange of experi-
ences, mutual support, joint operations, and joint
operating institutions of federations belonging to
different SHG structures.
depend on external (national and international)
technical and financial assistance (especially in
the start-up phase). Growing independence from
external influence as well as the mobilisation of
institutional self-initiative and Self-Help capacity
supports these cooperative organisations in their
efforts to achieve a higher degree of sustainability.

Cooperative organisations, which are operating
successfully today, have mainly relied on sector-
own promotional activities during their develop-
ment. Of course, external or business related pro-
motion has always been acceptable, if available
and supportive of own objectives, but they have
played a subordinate role only. The development
and usage of sector-own promotion usually is the
duty of cooperative second-tier or higher level in-
stitutions. However, it is and should be based on
decisions of as well as be controlled by the affiliat-
ed primary institutions and could then be imple-
mented with their own financial contributions.
Other cooperative organisations either newly
established or in the process of reforms, often
Promotional interaction like exposure visits, ex-
change of resource persons and practitioners, na-
tional conferences etc. can be taken as examples.
However, mainly due to the huge socio-economic
and geographical problems with which SHG
members are confronted, these initiatives still
remain rudimental and mostly depend on the
availability of SHPA and governmental support.
But the high commitment shown by SHG rep-
resentatives who have participated in these in-
teractions, the intensive discussions within the
SHG structures on lessons learnt, and concrete
significant results which had been demonstrat-
ed to the study team confirm the prominence of
Sector-Own promotional efforts for SHG-sector
development and sustainability.

34. It is not just implementation of a set of tools and practices. It is the process of implantation in which the primary members play
all-important roles including decision making, and external stakeholders remain as facilitators and advisors. With similar visions
some SHPAs have accomplished stupendous success in promotion of high quality, effective and sustainable SHG institutions. See
the case of PEDO in APMAS and CmF, 2006.
35. APMAS, under Kamareddy SOC pilot project, prepared with DGRVs financial support, a set of 15 self-learning and self-
doing booklets covering different aspects such as savings, loans, auditing, interest rate setting, book keeping, etc. These books have
been translated into Hindi, Telugu, Marathi, Bengali, Gujarati and Kannada by ENABLE network member organisations.

56
The Kamareddy pilot sheds light on an additional
aspect of Sector-Own promotion. The implemen-
tation34 of an effective Sector-Own control and
stabilisation system, if properly institutionalised,
enables SHG-structures to induce a permanent
internal self-learning process of the sector. Anoth-
er important step towards effective and efficient
Sector Own promotion is to systematically ana-
lyse Sector-Own control and stabilisation results
by using them to supplement, modify or intensify
efforts of SHG development.35 Well-operating
Sector-Own self-learning processes have a proven
positive impact on the success of many coopera-
tive systems worldwide.
Different SHG structures are still generally op-
erating as standalone organisations, mainly rely-
ing on their own (and on their SHPAs) capacity
and resources. Consequently, it may happen that
they are confronted with capacity constraints,
limiting them in providing essential services to
SHG members. These can be, for example in the
involvement in governmental promotion pro-
grammes, undertaking new business services, re-
sponding to training needs, etc. In many cases the
federation building stops with the establishment
of block-level federations. Efforts to establish dis-
trict-level or even apex federations, which could
link and serve different block-level structures, are
not undertaken. This practice of remaining de-
centralised may only be acceptable, in particular,
during the early start-up phase, thus allowing
members to maintain their commitment, and
to ensure controllability of the institutional set-
up. Insufficiencies of the institutional set-up and
deficiencies in the capacity of existing federation
structures need to be accepted in the present situ-
ation. However, there is an urgent need for high-
er-level structures to properly support the SHGs
and their members. Therefore, some possible in-
terim solutions are listed, which could however
serve as permanent practices:
Contractual arrangements between different
SHG structures aimed at jointly implementing
government and other support programmes for
SHG members: one of the contract partners
could take the role of programme leader, acting
on behalf of the other structures, coordinating
and supporting programme implementation.
Collaboration between SHG structures aimed
at commonly undertaken business operations:
Contents | 57
 Box 5.10: : Model or Cooperative Principles and India SHG Experiences with Respect to
Economic Sustainability: Adequate Promotional Support: Sector Own Promotion
Model or Cooperative Principles
1. The role of promoters has to change
over time according to the progress made
in SHG development. Leadership and
responsibility of sector development will
be assigned more to the SHGs and their
federations. SHPAs will transform from
promoter to facilitator.
2. Promotional interaction like exposure
visits, exchange of resource persons and
practitioners, national conferences etc.
may facilitate good Sector Own Promotion.
3. Networking among SHG federations;
joint implementation of various
developmental and sector development
programmes by the federations; and
common use of secondary institutions
such as training facilities, CRPs, etc. foster
Sector Own Promotion.
4.Initiating and organising Sector Own
Promotion activities could be effectively
conducted by federations beyond the
block-level.
a consortium rather than a stand-alone struc-
ture would be able to negotiate proper business
contracts with mainstream banks and corporate
organisations based on improved bargaining
power.
Clustering of different SHG structures in or-
der to develop and implement new services,
procedures, and organisational structures: The
Kamareddy cluster pilot may properly demon-
strate the usefulness of this solution.
Common use of secondary institutions such as
training facilities, data processing, auditor ca-
pacity, stabilisation systems etc.
58
Indian SHG Experience and Field Observations
1. The mutual promotion of SHGs for initiating and establishing new SHGs is
the most common case, enabling the spread of the Self-Help idea and the
extension of the SHG networks. SHG institutions proved to be the most cost
effective method for sector development.
2. Exchange of experience and mutual support within a single SHG structure,
facilitated by the higher tier institutions, can also be found. Especially, the
village-based cluster federations have proved to be a suitable basis for
sector-internal self-learning and mutual-support activities.
3. There is great potential for mutual learning and support of SHG structures
promoted by different SHPAs. It can be positively noticed that a process of
exchanging experience between different SHG structures as well as between
different regions has already started.
4. In the sample SHG structures, the transformation process is still in an
early phase. Furthermore, the various SHG structures are on very different
development stages. The SHPAs resources and philosophy determine the
transformation process. SHPAs, with the right vision are able to promote
high quality, effective and sustainable institutions.
5. There is a widespread mistrust about the primary members ability to
manage their institutions and functions. However, the primary members have
far more potential and capabilities than presumed by others.
6. To bring out the best in the primary members, a system of adequate
compensation for the time devoted by the primary stakeholders, needs to be
introduced. Further, the SHG institutions need to be developed based on the
context of local resources and cooperative principles.
All these sector-own promotional activities un-
derline the importance and the central role of
federations in this process. So far, at least some
of the duties mentioned have been conducted by
SHPAs. However, with the stepwise withdrawal
of SHPAs from promoting their SHG structures,
the SHGs and their respective federations need to
face these challenges and make efforts to develop
solutions with their own resources. The model or
cooperative principles and Indian SHG experi-
ences and field observations regarding service and
business related promotion are summarised in
Box 5.10.
Chapter 6
Summary and Strategic Conclusions
Indian SHG movement proved to be one of the
worlds largest and most successful networks of
community based organisations. With about 97
million members/ households, approximately 7.5
million savings linked to SHGs, ` 70 billion sav-
ings in banks and about 4.8 million SHGs with
` 312 billion total loan outstanding (as of March
2011; NABARD, 2011), Indian SHG Bank
Linkage has emerged as the worlds largest com-
munity based microfinance model. However, the
sector is facing several critical challenges such as
policy contradictions, unenthusiastic banks, less
promotional support, inadequate capacity build-
ing infrastructure and sustainability.
According to the general understanding and vi-
sion of the SHG movement in India, SHG insti-
tutions in spirit are cooperative organisations with
a major focus on women. Globally in the last 150
years cooperative systems have proven to develop
under different circumstances and challenges,
transforming into successfully operating eco-
nomically sustainable enterprises. Those Indian
SHG institutions that adhered to the cooperative
principles were successful and achieved sustain-
ability. Bagnan Credit Cooperative is an excellent
example. Yet, most SHG institutions in India are
adopted by government agencies and converted
into profit making organisations or are promoted
by NGOs as microfinance institutions. In both
these cases, the potential of SHG institutions was
not realised and their sustainability remains un-
certain. To realise the full benefits of SHGs and to
make them sustainable, the SHG structures may
be promoted with cooperative principles and val-
ues with minimal or no external or government
support and interference. The SHG institutions
may be allowed to develop on cooperative values
and principles with open membership in different
sectors and regions. Most of the successful coop-
erative systems have the following fundamental
features in common:
1. Self-help, self-administration, self-responsibili-
ty and mutual support
2. Owned and controlled by members and com-
mitted to the members of the community,
without state interference
Contents | 59
 3. Operating as not for profit but observing eco-
nomic criteria in their functions
As per model cooperative or Self-Help institu-
tional principles, primary members have to be
involved from the beginning in the formation
of vision and strategy and institutional building;
have to take charge of their institutional govern-
ance, management and functions; have to mo-
bilise and contribute all necessary resources etc.
However, SHPAs are playing a dominant role in
promotion, governance, management and func-
tions of Indian SHG structures. The primary
members are highly dependent on SHPAs for
advice, resources and personnel. Although, given
the general illiteracy, poor awareness and poverty,
there are no alternatives to the dominant role of
SHPAs, at least in the initial stages. The current
process in developing SHG institutions and their
implications are:
1. While SHG institutions need to be promoted
as self-help institutions of the members, for
the members, by the members, they are pre-
dominantly being promoted as profit making
organisa-tions. Possible reasons for this are:
a. Communication gaps within SHPAs and/ or
lack of skills and expertise of field staff
b. Target approach, which may compel the com-
promises in processes and adoption of short-
cuts to lure the members and inclusion of non-
target members
c. Lack of resources with SHPAs
d. Absence of clear vision, strategies and expertise
within SHPAs
2. 
The position of resources and funds with
SHPAs often determines the pace and process-
es of role transformation between SHPAs and
primary members
3. The primary members seldom have a feeling of
ownership towards SHG institutions and are
reluctant to increase their stakes, contributions
36. Bangladesh has very high rate of poverty despite extensive as well as intensive microfinance availability for a very long period.
37. The Bagnan Credit Cooperative is able to provide credit at around 14% - 15% rate of interest, without any grants and exter-
nal assistance.
60
and involvement and prefer to remain as ben-
eficiaries
To promote quality SHG institutions, SHPAs
need adequate resources, time and capacity
building, espe-cially on issues related to SOC to
increase and enable the primary stakeholders
stakes and involvement in SHG institutions.
Financial intermediation is the natural function
of SHG federations. Despite so many challenges,
the SHG structures, in the Indian sample, are
able to provide many critical services, especially
financial and livelihood services. The MFIs are
often projected as a better alternative compared
to financial federations for providing financial
services. In fact, MFIs are in no way competi-
tors of the financial federations. With effective
lending rates of 30% to 40%, MFIs can at best
provide emergency credit and misguided con-
spicuous consumption credit, but development
credit. Even with the credit at 26% rate of in-
terest (as recommended by the Malegam Com-
mittee), people may not find many viable Income
Generating Activities (IGAs) to repay 26% and
retain all the (benchmark) returns due to their
own labour, fixed assets and other investments
and inputs. While paying high interest rates on
borrowed funds, invariably the MFI clients may
not be recovering their rightful dues. Hence, they
remain poor and vulnerable, even after many
cycles of borrowing from MFIs and other high
cost sources.36 The recent crisis in the MFI sector
confirms the same. The financial federations are
providing credit to their members at much cheap-
er rates compared to MFIs. It is not just due to
subsidised funds and grants.37 The financial fed-
erations operate with low overhead expenses, be-
cause they manage the last mile connectivity with
social capital, rather than (highly) paid staff. SHG
institutions proved to be effective and having
very useful social capital, which is essential, just
like physical capital, in the development process.
Hence, the state has to invest in the promotion of
SHG institutions. In this way, the promotional
costs may be treated as development investment.
As direct SHG Bank Linkage eluded most of the
states and sections, especially the needy states and
social categories, financial services rendered by
the SHG federations are indispensable.
As of now in most of the financial federations,
primary members are not able to take charge and
the SHPAs and its staffs are playing the predomi-
nant role in management of the institutions and
functions. The possible reasons for this are:
1. Inadequate investment in the capacity building
of the primary members
2. SHPAs lack of trust on the ability of primary
members to manage the financial functions
and institutions, hence no role transformation
3. Other stakeholders such as NABARD and
banks also do not trust the abilities of SHG
women to manage financial federations and
services. NABARD is yet to accept the pro-
posal of allowing financial intermediation by
the SHG federations.38 Banks are also sceptical
about the abilities of SHG federations to man-
age financial services. As a result, the SHPAs
remain important sources of funds for many
federations, which may compel them to in-
volve rather deeply in the functioning of the
federations.
4. Because of legal restrictions, some of the fed-
erations are not able to mobilise savings and
deposits from their members and member or-
ganisations in some states and continue to de-
pend on SHPAs.
5. In most of the federations the financial services
are based on microfinance practices, at times as
per the dictates of the computer programmes,
instead of the cooperative values and princi-
ples.
This clearly suggests that financial intermediation
by SHG federations is absolutely necessary. The
moot question is not whether SHG federations
(are) suitable or not for financial intermedia-
tion, but how to make the SHG federations
as providers of effective financial services. Na-
38. In September 2007 notification, NABARD proposed to provide financial assistance for strengthening of only
non-financial federations.
tionally and internationally, evidence suggests
that the primary members have much higher Because of legal
organisational and managerial capabilities than restrictions,
presumed by others. Perhaps the primary stake- some of the
holders have better context specific knowledge federations
and are rightly placed to build further on the lo- are not able
cal development processes. To mobilise and pool to mobilise
the managerial capabilities from all sections of savings and
primary members, a system of compensation for deposits from
the time dedicated for functions in SHG Insti- their members
tutions may be introduced to the leaders, with and member
the condition of compulsory rotation of leader- organisations in
ship at specified periodicity. The following sup- some states.
port and facilitation may enhance the effective
financial inclusion through financial federations:
1. NABARD may extend funding support to fi-
nancial federations, by amending its Septem-
ber 2007 guidelines.
2. NABARD and Government of India may
encourage the promotion of new SHG insti-
tutions on cooperative values and principles
and increase the primary members stakes and
involvement in existing SHG institutions,
through self-regulation practices and tools.
3. Banks may be encouraged to invest in promo-
tion and strengthening of SHG institutions,
including financial federations.
4. NABARD may actively facilitate Federation-
Bank linkages by obtaining necessary guide-
lines from RBI, orientating banks through
capacity building, refinancing, credit guaranty
etc., and arranging external regulation, includ-
ing safety measures which are aligned to Sec-
tor-Own control and stabilisation.
There is no doubt that primary members have the
inherent capabilities to manage financial services.
However, they have limited and context specific
knowledge and expertise. They may manage fi-
nancial services better on the cooperative values
and principles. Although, over time they may im-
prove their managerial capabilities and may un-
dertake complex functions. To start with, limited
financial services by the SHG federations may
be initiated in the financially excluded states and
Contents | 61
 regions, with context specific cooperative values
and principles. Over time the scope of financial
intermediation may be increased. Finally, SHG
federations may be qualified for conducting full-
fledged retail banking services as it is proved by
successfully operating sustainable cooperative fi-
nancial systems world-wide.
Like financial services, livelihood services are also
a core function of cooperatives around the world.
A variety of very interesting and effective liveli-
hood services could be seen in SHG institutions
across the country. Yet, most of them are confined
to isolated institutions. Networking and/or feder-
ating with other SHG structures would be very
effective in providing valuable and more effective
livelihood services. Through such networking,
cooperatives in many countries have been able to
reach a market position allowing them to serve
as countervailing powers in the interest of their
members and customers. Clear contractual ar-
rangements with SHPAs and partners are neces-
sary.
Unlike most of the international cooperative or-
ganisations, Indian SHG institutions are rightly
involved directly in social intermediation. Net-
working with other SHG structures and clear
contractual arrangements and transparent fund-
ing arrangements are required for effectively per-
forming this vital function and accomplishing
institutional sustainability.
As of now, majority of the SHG structures are
providing multiple services. However, over time
separation of functions and institutions is neces-
sary to gain more in-depth expertise and to pro-
vide advanced services to members in the future.
There is vast scope for mutual learning from each
SHG structure across the country. SHG insti-
tutions need a variety of interactive forums for
learning from each other and collaborating with
each other.
62
The study results so far indicate no clear prefer-
ence for a specific strategic model of existing fed-
eration structures or of promotion policy among
the cases analysed. This is well justified because:
(i) the field studies show that federation build-
ing is generally still in progress and mostly at
an early stage. Therefore, the results achieved
so far, though significant, might be still con-
sidered as preliminary and not yet sufficiently
comprehensive.
(ii) The SHG structures visited are strongly rooted
in and influenced by their specific socio-eco-
nomic environment. SHG members belong-
ing to these structures are generally commit-
ted to their present system and familiar with
its organisational structure and procedures.
Shifting to another model would raise un-
necessary risks of non-acceptance, additional
(new) need of capacity building, additional
promotion efforts etc., without ensuring bet-
ter results towards sustainability.
Nevertheless, varied comprehensive experiences
as well as good and critical practice gained and
proven by the SHG sector and by its promoters,
are well qualified to meet the strategic challenges.
To include appropriate long-term experience of
well-operating, mature cooperative organisations
in India and from other countries as well, should
be supportive in this process. These lead to the
conclusion that combining both, experiences
from within the SHG Sector and its promoters
and proven principles of the cooperative organi-
sations, results in a cooperative-oriented model of
SHG structures ready for replicating, sharing, and
scaling-up as well as for preparing and maintain-
ing sustainability of the SHG movement. Based
on this cooperative model SHG structure, a set
of practical guidelines or a strategic road map has
been developed. This will help the SHGs and their
federations, supported by the respective SHPAs,
to elaborate a common vision, strategy and plan-
ning for the further development to achieve and/
or secure sustainability (Appendix 2).
Appendix 1
Cross Analysis of Sample SHG Federations
and Structures
Total assets of sample federations as per their latest Balance Sheets (in `)

Federation Total Assets Value Assets per SHG Assets per member
ASP Janatha MACS 1,968,762 16,137 1,643
ASSEFA/ SNFL - SMBT 18,948,635 70,969 3,788
Don Bosco - JTWDS 241,703 1,726 127
CDHI - UBTMS 8,476,213 16,620 1,078
Bagnan - BCC 67,396,794 74,062 5,041
Ibtada Savera 2,153,684 16,440 1,478
Myrada HDP CMRC 1,838,918 39,976 2,407
PRADAN Saheli Samiti 30,668 210 15
RGMVP - SMS 74,696 69 6
SB - SMF 140,063 1,360 107
SERP Chaitanya MS 26,479,932 28,321 2,406
SKDRDP Kaniyoor - -

Average 11,613,643 29,083 2,189

Source of income in sample federations

Name of Total income % share in total income

federation (in `)
Interest on mF Service fees Income on Grants/
Investments donations
ASP Janatha 436,778 70 6 0 24
MACS
ASSEFA/ SNFL - 3,492,020 98 1 1 -
SMBT
Bagnan - BCC 7,659,059 93 4 3 -
CDHI - UBTMS 1,490,554 90 5 5 -
Don Bosco - 6,886 51 44 6 -
JTWDS
Ibtada Savera 401,638 36 64 - -
Myrada HDP 219,698 33 63 1 3
CMRC
PRADAN Saheli 686,889 - 73 0 27
Samiti
RGMVP - SMS 189,337 - - - 100
SB - SMF 132,096 2 98 - -
SERP Chaitanya 3,635,705 24 1 3 72
MS
SKDRDP - -
Kaniyoor

Average income 1,668,242

Contents | 63
 Human resource in the sample federations

Federation Total staff Local staff Who pay the salary Remarks
ASP Janatha MACS 2 1 SHPI Staff has total domination over the
federation (Fed)
ASSEFA/ SNFL - SMBT Chair+ 12 3 SHPI pay Chairmans salary It is spending significant amount
& Fed. pays for rest the of on staff salaries
employees
Don Bosco - JTWDS 7 6 Federation Dependent on SHPI for professional
support
CDHI - UBTMS 4 staff + 46 46 SHPI pays 4 employees & Cluster leaders act as agents
agents Fed. pays commission to 46 and get paid. There is not much
facilitators leadership rotation
Bagnan - BCC 62 60 Federation Availability of a large number of
staff made the primary members
compla-cent
Ibtada - Savera 6 6 The Fed. and its sister Fed. Not able to retain the staff
jointly pays staff salary
MYRADA HDP CMRC 9 6 Federation Fed. pays the manager salary
through SHPI
PRADAN Saheli 6 6 Federation Fed. manager is a veterinary
Samiti doctor. Veterinary services are
predominant services of Fed.
RGMVP - SMS 45 45 SHPI Dependent on SHPIs staff for pro-
fessional support. Availability of
a large number of staff made the
pri-mary members complacent
SB - SMF 5 5 Federation Dependent on SHPIs staff for pro-
fessional support
SERP Chaitanya MS 7 5 SHPI pays the APM salary Staff has larger influence over
and Fed. pays the others Fed., VO and SHGs, especially at
higher levels
SKDRDP - Kaniyoor 1 1 SHPI SHPI also provide many other pro-
fessional support

Loan portfolio of sample federations (in `)

ASSETS Loan portfolio Recovery rate in % Portfolio At Risk > 90 days

ASP Janatha MACS 1,615,043 79 12
ASSEFA/ SNFL - SMBT 15,501,335 99 -
Bagnan - BCC 46,274,025 85 16
CDHI - UBTMS 7,163,179 83 10
Don Bosco - JTWDS 221,510 75 85
Ibtada - Savera 1,866,010 89 17
Myrada HDP CMRC 1,258,609 43 84
PRADAN Saheli Samiti - 8539 12
RGMVP SMS - 0
SB SMF - 0
SERP Sri Chaitanya MS 23,569,138 99 1
SKDRDP - Kaniyoor - 89 40
53

Total 97,468,849

64
Status of sample federations on select systems parameters

Federation No. of Information Annual plan Portfolio Default Internal Staff review Loan sanctioning
Accounts flow Quality Management audit process
Report
ASP 1 Two way No Yes SHPI By SHPI Board Strictly followed
Janatha
MACS
ASSEFA/ 1 Two way Yes DCBS Chairman and Monthly by Chairman Strictly followed
SNFL - SMBT CEO SNFL staff
Bagnan - BCC 1 One way Yes Yes Board NO By the board Strictly followed
CDHI - 1 One way Yes Yes SHPI No President Partially followed
UBTMS
Don Bosco - 2 One way No No With the NO SHPI Partially followed
JTWDS support of
SHPI
Ibtada - 1 Two way No Yes With the No Board + SHPI Strictly followed
Savera support of
SHPI
Myrada 3 Two way Yes No Board + 6 monthly by Board + Okkuttas approved
HDP CMRC Manager SHPI Manag-er
PRADAN 2 One way Yes Fed staff Fed staff No Board No loan manual
Saheli Samiti
RGMVP - SMS 1 One way SHPI NA SHPI No books of Board + SHPI No loans
accounts
SERP Sri 3 Two way As per SHPI Yes With the No Board Strictly followed
Chaitanya MS support of
SHPI
SB - SMF 1 One way No NA SHPI No Board No loans
SKDRDP - 1 Two way No SHPI level SHPI No books no SHPI Strictly followed
Kaniyoor audit

39. This recovery rate of loans given from other account

40. This is repayment rate of SKDRDPs lending to SHGs in the sample federation area

Contents | 65
Status of sample federations on efficiency and sustainable parameters

Federation YoP in Service TCR Financial Return on Idle Fund SHGs Salary as Opera tional Financial
% income in % Cost Ratio Assets to Total per % of loan sustainability Sustainability
in % in % in % Assets staff in outstanding in %41 in %
in % no.
ASP Janatha 19 2 23 14 - 11 60 7.46 91 119
MACS
ASSEFA/ SNFL 22 0 18 12 3.84 4 26 3.9 125 125
- SMBT
Bagnan - BCC 15 1 12 6 3.32 1 15 1.4 136 136
CDHI - UBTMS 19 2 26 11 -4.42 2 12 3.5 79 79
Don Bosco - 2 2 3 0 1.21 5 18 39.3 89 89
JTWDS
Ibtada - Savera 8 14 19 0 2.94 12 19 19.5 113 113
Myrada HDP 6 11 19 0 5.29 22 5 21.7 89 92
CMRC
PRADAN - - - 0 - - 29 - 76 105
Saheli Samiti
RGMVP - SMS - - - 0 - - - 165
SB - SMF - - - - 13.6 - 25 111 111
SERP 4 10 11 0.16 2.84 6 134 0.2 40 141
Chaitanya MS
SKDRDP - - - - - - 25 - -
Kaniyoor

Average active loan disbursed per member

Federation Active loans Credit from banks Total members Per member Fed. Per member bank
Disbursed from Fed. loan42 loan
ASP Janatha MACS 2,284,932 No linkage 1,198 1,907
ASSEFA/ SNFL - SMBT 26,269,000 No linkage 5,002 5,252
Bagnan - BCC 75,408,150 No Linkage 13,371 5,640
CDHI - UBTMS 11,362,500 No Active loans 7,861 1,445
Don Bosco - JTWDS 648,000 No Active loans 1,901 341
Ibtada - Savera 4,836,454 No Active loan 43
1,457
Myrada HDP CMRC 1,341,000 782,000 764 1,755 12,219
PRADAN Saheli 2,475,000 No Active loans 2,000 1,238
Samiti
RGMVP - SMS 40,218,273 10,217 3,93644
SB - SMF 545,679 1,182 46245
SERP Chaitanya MS 25,858,235 1,870,000 11,005 2,350 40,652
SKDRDP - Kaniyoor 3,137,000 46
No linkage 210 14,938

41. The operational sustainability and financial sustainability are different from normal operational self-sufficiency (OSS) and financial self-sufficiency
(FSS) used in financial analysis. Here operational sustainability means the ratio of total income earned by the federation to the expenditure incurred by
the federation in a particular year. Financial sustainability is the ratio of income earned by federation plus grants received to total annual expenditure.
42 These figures are average of all members. Actual number of member borrowed is significantly less and actual borrowed amount per borrowed member is
significantly higher than the figures given in the column

66
Status of financial services, other than credit in 11 federations

Federation Savings/ Thrift Insurance of Own social Pension Hire-purchase/

3rd party security leasing
ASP Janatha Thrift & voluntary Yes Cremation
MACS savings in SHGs expenses and fire
and MACS accident relief
ASSEFA/ SNFL - Thrift by members Birla Sunlife 4S programme: No Sewing machines
SMBT in SHGs Subscription by on interest free
member as per instalments
loan size
Don Bosco - Thrift in SHGs No No Leasing of truck
JTWDS for marketing and
lease of rice mill
and other agriculture
processing units
CDHI - UBTMS Thrift by members Tata AIG life APATKALIN FUND:
in SHG insurance Subscription by
covered 1,500 member `10 p.a.
Bagnan - BCC SHGs thrift is No BCC contributes Retain the thrift
retained in SHPA, 10% of its net amount, pay
comprehensive profit for social higher interest
savings and services and give as
deposit service retirement benefit
Ibtada - Savera Thrift Plus special Yes
savings in SHGs
& Fixed amount
thrift in Clusters
Myrada HDP Thrift Plus special Yes Hire purchase
CMRC savings in SHGs & furniture and other
thrift in Clusters durables
PRADAN Saheli Thrift in SHGs Yes
Samiti
RGMVP - SMS Thrift in SHGs, No Voluntary
VO/ GS and BS contribution by
members
SB - SMF Thrift in SHGs No No No Leasing of
agriculture
implements
SERP Chaitanya Thrift in SHGs and Abhaya Voluntary Abhaya Hastham
MS in VO Hastham contribution/ pension cum
pension cum subscription ` insurance scheme
insurance 50 p.m. by SHGs
scheme47 in VO
SKDRDP - Thrift in SHGs; LIC Jeevan Has own micro- Finance purchase
Kaniyoor 66,000 SHGs have Madhur insurance. No of many transport
SB accounts in rejection policy. vehicles, agriculture
SKDRDP. Taken reinsurance machinery

43. Frustrated by bankers indifference, Ibtada is arranging linkage with a MFI

44. The members figure was for bank-linked groups only. If all SHG members are considered the average bank funds per member
would be Rs. 2,964. Bank provided CCL, it is not strictly comparable with others
45. The members figure was for bank-linked groups only. If all SHG members are considered the average bank funds per member
would be Rs.417. Bank provided CCL, it is not strictly comparable with others
46. Strictly speaking these external funds lend by SKDRDP to members and federations at block and village levels, just facilitate
the process.
47. Abhaya Hastham offers 3 kinds of benefits to its members: 1) Monthly pension on crossing 60 years of age, 2) Death and dis-
ability insurance cover including Scholarship to the children of the women, 3) Lump sum transfer of corpus which is accumulated
in her account is transferred to the nominee in the event of her death.

Contents | 67
Status of Institutional Development Services in sample federations
Federation Promotion of new SHGs
ASP Janatha Total focus on Currently not providing
MACS structurally backward
communities. Not able
to com-pete with SERP
and MFIs.
ASSEFA/ SNFL Focusing on new
- SMBT villages; not focusing
on the real poor; facing
competition from other
NGOs and Government
Bagnan - BCC There is demand for
joining SHGs. Promoting
new SHGs and admitting
new members in existing
SHGs.
CDHI - UBTMS Has large operational
area; Rationalizing
operational areas
by promoting SHGs
intensively in strategic
locations.
Don Bosco - Focusing on the real
JTWDS poor; facing competition
from other NGOs and
Government; Problem
of misinformation; SGSY
loans
Ibtada - Promotes SHGs more
Savera than targets as SHPA
realized potential of
SHGs to realize its vision
MYRADA Leaders are capable of Provides excellent need
HDPura CMRC promoting new groups
and revival of defunct
groups; Rate is slow due
to saturation
PRADAN As the banks are not Computer Munshi;
Saheli Samiti cooperating, efforts
of federation are not
yielding desired results.
Got NABARD grant to
promote 100 new SHGs
48. Says effective rate of interest rate in banks is high due to high transaction costs
68
Support services
No audit
any support to SHGs due
to closure of financial
intermediation by ASP
Very good training,
monitoring and excellent
grading (for lending)
Many cluster leaders
work as employees
and agents to BCC and
provide all necessary
services. As there is no
internal lending, there
are less complications.
Invests considerable
amounts every year
on training; Providing
moderate support
service due to HR
shortage and large
operational area;
Extensively uses the
services of cluster
leaders.
Moderate support
services due to HR
problems and transport
problem; No grading;
SHPA has resources to
provide training and
exposure
Provides very high
quality services to
member SHGs. There is
problem of HR shortage
Audit by Charted
based services on fee;
Leaders also support
SHGs of other NGOs and
Govt.
No audit, though
members are not
able to internalize the
process; Staff oriented;
no serious grading
SHGs audit Bank linkage Linkage with
mainstream
institutions
No linkage is facilitated. Limited extent with
Members also have SC corporation like
member-ship in SERP organisations. With
SHGs other Dalit forums
No audit No linkage48; but it is Very good linkages
not able to meet the with many private
credit needs of the companies, like
members corporate hospitals;
no linkages with
Government
No audit Does not facilitate SHG Clusters deals with
banking as it provides Panchayats and
savings and credit Mahila Bikash take up
services. But it provides larger issues with the
limited credit only. concerned Government
departments
No audit Bankers are not Member of state level
cooperating. Though the SHG forum. Got FCRA
federation is facilitating to get linked with
SHG banking, it has international donors.
conflict of interest. It
is not able to meet
the credit needs of the
SHGs/ members.
No audit SGSY is focussed in Federation is taking
the area; There are up many government
many defaults in contracts in the area
SHGs of other NGOs/
Govt.; Bankers are not
cooperative
No audit Banks are not co- Exposures to
operating; Linking with appropriate institutions
MFI as substitution and projects
Excellent facilitation. Linkage with
Accountant Additional linkage, many companies
if need, with MFI and government
Sangamitra promoted by programmes
MYRADA
Banks are not co- Marketing ITC products
accounts are operating even to open and insurance company
computerized SB account; Members policies
want equal distribution
of loan amount. Do not
take bank loan unless
all want loan.
 Federation Promotion of new SHGs Support services SHGs audit Bank linkage Linkage with
mainstream
institutions
RGMVP - SMS Promoting new SHGs in Using CRP strategy, No audit Excellent facilitation. Linkages with big
missionary zeal. Using which proved to be Got reasonable bank hospitals and many
CRP strategy, which the most cost-effective linkage, where banks other important
proved to be the most method; Process appears are not so cooperative organisations like NDDB
cost-effective method to be compromised to
achieve larger targets;
Standardized tools and
processes
SB - SMF Promoting new SHGs to Provide bookkeeping, SHPI staff does Though the banks Linkages with other
augment the service fee, auditing and other audit. But audit are not cooperat-ing, federations and projects
which is the main source services on fee basis. statements are not federation/ SB is able are established.
of income. As there are Federations earn a dis-cussed in SHGs to provide SB linkage to
no promotional funds, significant part its all members SHGs and
SHPA using some funds/ income from these credit linkage to 90%
services from other services SHGs
projects
SERP Sri Promotions of new SHGs Using CRP strategy; Audit by community Excellent facilitation; Linked with
Chaitanya MS and awareness building created a lot of social auditors. Audit PV; Bank Mitra; TFI etc. many government
have saturated. Using capital like bookkeepers. includes social Banks are taking undue programmes with some
CRP strategy SHGs pay for book impact also. It may advantage discrimination49.
keeper; auditors and dilute the sanctity
bank mitra; but get of the financial
many other services audit
for free
SKDRDP - Continues process; PI provides all services Staff of SHPA does No bank linkage. SHPA PI is linking the SHGs
Kaniyoor promote both women free of cost. SHPA the audit of SHG. is meeting most of the with many government
SHGs and farmers covers all its costs from But SHG members credit needs programmes, insurance
groups its MF operations awareness companies and many
appears to be poor others
regarding audit
statement

49. SHG institutions of seven UNDP MSs in Ananta Maha Samakya were exempted from implementation of some programmes
like distribution old age pension.

Contents | 69
Status of Livelihood Enhancement Services in 11 federations
Federation Promotion of new mE &
en-hancement of existing
LH
ASP Janatha Has separate institutions
MACS known as Anukaram (mE
of farm, off-farm and non-
farm) & Poram (groups of
traditional leather workers)
to promoted mE. ASP
provide all kinds of support
to the members of these
institutions through linking
with government and private
organisations, technologies
up gradations, market tie
ups, etc.
ASSEFA/ SNFL Shops, res-taurants, repair
- SMBT shops; milk animals, sewing
machines
Bagnan - BCC Agriculture
CDHI - UBTMS Limited training in select
livelihood enhancement.
Technology transfer/
innovations are one of the
core areas of SHPA
Don Bosco - Petty shops; fishing
JTWDS
Training in Tai-loring; Screen
printing; handicrafts; food
pro-cessing pickles, jams,
squash, chips, spices
Ibtada - Savera Small ruminants; agriculture
Myrada Worked on the supply of
HDPura CMRC agriinputs; accessing govt.
schemes for the benefit of
members
PRADAN Livestock; breed
SaheliS-amiti improvement
RGMVP - SMS Vermicom posting; organic
farming
70
Group activi-ties Training and Marketing of Bulk purchase
placement members products
Production of Tailoring & other Sewing machines
Agarbatti sticks, need based training
chemicals, safety after assessing the
napkins, candles, etc. potential; Coaching
centres
Has 8 production Provide training in Very few SHG Procure many items
units tailoring; knitting, products are procured from the market and
embroidery etc. and sold through its sell through a shop
marketing channels. and door-to-door
BCC has a separate sale. Also procure
sister organisation raw material
Horticulture; honey
processing; tamarind
& food processing;
rice mills, tempo;
Take up contracts of
public works
Developing an own Required inputs
brand; participate
in exhibitions;
transport facilities to
inaccessible areas to
take their goods to
the marketetc.
Livestock rearing Seeds and other
and agriculture agriculture inputs
improvement
Provided need based Hire/purchase of
training. Placement many items. Runs a
to 100s. Providing shop
MS office application
200 days course
Training in most Marketing of ITC
promising vocations; consumer products
currently in Zari work
and stall feeding of
small ruminants
Agriculture
improvement
 Federation Promotion of new mE &
en-hancement of existing
LH
SB - SMF Agriculture improvement;
intro-duction of new
technologies and
instruments in agriculture
SERP Milk animals; shops;
Chaitanya MS restaurants; purchase
of agri. land; transport
vehicles; agriculture
machinery; IPM
SKDRDP - Facilitates agriculture
Kaniyoor labour exchange; technology
upgradation for new crops,
improved farm practices,
agri-infrastructure
development
Group activi-ties Training and Marketing of Bulk purchase
placement members products
Agriculture related May start in the Agriculture
future implements; products
of other federations
and projects of SB
Bulk milk cooling The project has big The project has IKP has food security
units plans for make the big programme to programme. Under
youth employable market agriculture this programme, VOs
with private public products and NTFP. purchase rice and
partnership. In 2008- 2008 -09, the other essential items
09 placement was project/ IKP handled and provide them to
provided to 183,891 the needy poor on
youth ` 6.11 billion worth credit to ensure the
agriculture and food security in lean
non-timber forest periods
products.50
Promoted over 100 Excellent state of the Promoted a separate Many raw materials
group enterprises in art training centre company for and inputs are being
food items, textiles, provides training marketing hundreds procured in bulk and
chemicals and Rexon in many vocations. of SHGs products. supplied to SHGs/
bags. Technology transfer 2,000 have ownership members for the
is a major function stakes. 5,000 SHGs productions and other
of the federation. supply their products. production units
Promoted separate Have own brand of
groups known as SIRI
Jnana Vikasa Groups
for skill upgradation

50. The marketing initiative of IKP/ SERP apparently is not giving desired results due to centralized decision making and other
reasons. E.g. the margin the VOs get from procurement of paddy and maize for government agencies is just sufficient to meet their
operational costs. As per APMAS (2007) in Nizamabad district, the gross margin in marketing was 2% in 3 out of previous 4 years
and the same was 4% in remaining year. It also could not influence the price fluctuations in the market.

Contents | 71
Status of member SHGs in sample federations and influencing factors
Federation Performance of member Positive factors
SHGs
ASP Janatha Average Total focus on structurally
MACS poor SC, ST, minority, & BC;
Links with lager forums of
same orientation
ASSEFA/ SNFL - Excellent Members have Clear division of roles
SMBT strong sense of ownership between SHPI and SHG
about SHGs. institution. Good awareness
and systems. Separate
meetings for internal
and external funds
transactions. Periodic
bonus payment on savings;
Fed. provide limited but
quality services to SHGs
Bagnan - BCC Above average Good sense of belonging;
good awareness and
services provided by fed.
CDHI - UBTMS Average Focus on poor in interior
areas; Good sense of
belonging.
Don Bosco - Average Focus on poor in interior
JTWDS areas; SHPI provided good
awareness and is helping
in all possible ways.
Ibtada - Savera Good sense of ownership; SHGs have been developed
functioning and around felt needs of
involvement in federation women gender inequalities;
functions girl education, etc. SHPI
provided good awareness
and is helping in all
possible ways
MYRADA HDP Excellent; strong sense Good awareness & training
CMRC of ownership even at provided by SHPI. Major
CMRC level; thorough focus is always on felt
involvement of members in needs of members,
all activities- from CMRC irrespective of challenges
to SHG and other constraints;
Adequate and quality
services; Good linkages
with Govt. programmes;
External auditing of SHG
accounts
PRADAN Below average; bankers Federation is able to Limited financial and other
Saheli Samiti apathy exterminated sustain SHGs and clusters
members interest in SHGs after withdrawal of SHPI.
Fed. is proving very good
AI service and limited
other services.
RGMVP - SMS Average large difference Systematic institutional
between leaders and development process; Very
members in awareness good linkages with many
and involvement mainstream institutions;
good facilitation of SHG
banking; Good awareness
generation on many issues
72
Critical factors
Fed. is not able to fulfil the
credit needs and other services
at desirable scale
Though SHGs own over 90%
of share capital of SMBT, SHG
representatives have less say in
functioning of SMBT. It does not
look like a typical fed.
Limited financial and other
services; large size groups;
No internal lending; over
dependence on fed.
Limited financial and other
services. Not able to provide
SHG bank linkage. But keep
good sums of money in banks.
Limited financial and other
services. Not able to provide
SHG Bank linkage due to SGSY
orientation; Less awareness of
members.
Banks are not cooperating; Not
many members are coming
forward for leadership. Over
dependence on SHPI/ Fed. for
book keeping etc.
SHG members are not able
to take full control of CMRC;
Overdependence on SHPI for
technical functions; Problems
in auditing of SHG accounts;
members feel a bit burdened
by their contributions for CMRC/
fed works
Automatic leadership rotation;
services. Members are not able
to understand the computerized
data. No rotation of leaders
Leadership domina-tion; In the
chain of SHG VS- MS, the
lower tier is relatively weaker
vis--vis its upper tier. Over
dependence on CRPs/ staff.
Suggestions
Facilitate SHG banking.
Introduce automatic rotation of
leadership
Raise SHGs role in decision
making and day-to-day
functions. Linkage with
government programmes is
needed. SHG Bank linkage is
also desirable
Encourage SHGs to save more
in order to extend the lending
capacity. Could have smaller
size groups; SOC tools and
prac-tices.
Facilitate good internal
loan system; SOC tools and
practices. Need to augment
financial services. Automatic
leadership rotation.
Automatic leadership rotation;
introduction of SOC tools and
practices.
Automatic leadership rotation;
introduction of SOC tools and
practices. Need to augment
financial services.
Introduction of SOC tools and
practices; especially community
auditing and discussion on
audit statement and annual
appropriation profit and loss.
introduction of SOC tools and
practices. Need to augment
financial services.
Automatic leadership rotation;
introduction of SOC tools and
practices. Need to augment
financial services. More focus
on SHG strengthening in the
initial stage
 Federation Performance of member Positive factors Critical factors Suggestions
SHGs
SB - SMF Good SHPI provided good Quite inadequate services. Automatic leadership rotation;
awareness and is helping Wide gap between leaders introduction of SOC tools and
in all possible ways within and members in terms of practices. Need to augment
its limitations involvement financial services.
SERP Good Systematic institutional Leadership domination; Less Automatic leadership rotation;
Chaitanya MS development process; Very leadership rotation; Externally introduction of SOC tools and
good linkages with many imposed systems and agenda; practices.
mainstream institutions; heavy dependence on staff in
good facilitation of SHG book keeping and financial
banking; (SHG institutions management
are at times called
beneficiary institutions)
Good awareness generation
on many issues
SKDRDP - Good Clear division of roles Overdependence on SHPI. Automatic leadership rotation;
Kaniyoor between SHPI and SHG Members have less awareness introduction of SOC tools and
institution; Excellent and skills about institution practices.
services by SHPI. Focus is functioning
always on members felt
needs; working with both
men and women groups;
special meetings for skill
development, awareness
generation and socials
issues

Contents | 73
 Appendix 2
Strategic Guidelines to Sustainability of
SHG Structures
The following strategic guidelines should support
the efforts of SHGs, their federations and the re-
spective SHPAs. It elaborates a common vision
and strategy for further development of the SHG
structure to achieve and secure sustainability.
These have to be supplemented by appropriate
planning with clear assignment of tasks, timing
and responsibility for implementation. During
the initial phase, these strategic efforts could re-
main relatively general. But later, following the
step-by-step approach they should be specified
and elaborated in a more detailed manner, along
with the necessary periodical updating. However,
right from the start of the strategic concept, it
should at least fulfil the following main essentials:
Be a bottom-up structure, collectively approved
and adopted by the SHG members (primary
stakeholders)
Take into consideration the needs felt by SHG
members as well as the availability of resources
(internal and external)
Function in coordination with the SHPA, and
eventually other promotional providers with re-
gard to further promotion and facilitation
Foresee the sharing of experience with other
SHG structures (good and critical practices)
In particular, matured SHG structures should
carry out the leadership role for development and
implementation of strategy in coordination with
SHPAs and other promoters facilitating SHG de-
velopment.
In order to add and complete the more general
observations and recommendations made so far,
a concrete set of strategic guidelines or a stra-
tegic roadmap has been derived along the four
sub-categories of sustainability. These have been
derived from the teams own vast national and in-
ternational experience of working in the SHG co-
operative sector. It has been developed based on
74
international best practices as well as the results
of the joint field-work. Thus, the Indian back-
ground and experience has been fully incorpo-
rated. Another important aspect is that although
separate guidelines have been formulated for each
category of sustainability, it will be advisable to
consider the entire set of guidelines, as guidelines
are interrelated and have specific importance.
Suggestions for System/ Organisational Sus-
tainability:
1. The SHG structure should pursue an active
member policy in order to sustain membership
of the SHGs. Furthermore, the formulation of
new SHGs should be actively supported, aim-
ing at extending the outreach and the regional
coverage of SHGs. If necessary, appropri-
ate changes may be made in the institutional
structure to accommodate the special require-
ments of the poorest of the poor and vulner-
able sections
2. Member-based governance should be intensi-
fied through dissemination of a members role
in a member-owned, member-administrated
SHG structure as well as through appropriate
capacity building for office bearers and SHG
representatives. Commonly adopted norms
and standards, which guide members and of-
fice bearers in governance execution, will be
helpful
3. Governance execution and capacity building
will have to be adjusted constantly according
to requirements of advancing multi-level SHG
structures. This will particularly be relevant
when the SHPA is withdrawing or if the as-
signment of professional management needs to
be taken into consideration
4. 
Leadership functions should be adequately
 compensated, thus helping to find suitable
candidates for revolving leadership positions.
A three-year term for office-bearers and rep-
resentatives (of whom only one-third should
be up for election every year) should replace
the one-year tenure common so far. This will
ensure both the impact of effective capacity-
building and the continuity of leadership
5. Based on a long-term positive experience of
Self-Help and cooperative movements world-
wide, the strategic policy of federating SHGs
to bottom-up structured, integrated (inter-
linked) multi-level system should be contin-
ued and adjusted to new requirements and
challenges. The implementation should follow
a step-by-step approach in order to successfully
avoid institutional overdoing and overburden-
ing of the system and its resources
6. SHG members and office-bearers must be in-
volved in the institutionalisation process in
order to ensure the sense of ownership and
transparency towards the whole structure (and
to facilitate learning by doing). The institution
building should increasingly focus on mobi-
lising internal SHG human and financial re-
sources
7. The SHG structure should aim at creating a
transparent division of functions and assign-
ment of responsibilities between federations
(both on different and on the same tiers), ap-
proved and adopted by SHG members and
their representatives. It should strictly follow
the principle of subsidiary
8. Before the establishment and registration of
new federations, the concept of formation
should be audited. Such an audit should com-
prise both the assessment of the (statutory)
founding processes as well as of a start-up com-
prehensive business plan (analysing prospects
for economic and financial sustainability and
compliance with the objectives)
9. The SHG structure should aspire to commu-
nicate and cooperate with other SHG struc-
tures in order to share experiences, to represent
common interests, and to carry out commonly
needed support services. Even the unification
of federations on higher level (cluster, district,
or state level) should be put on the strategic
agenda, responding adequately to the need of
mobilizing economies of scale and synergy ef-
fects, but without losing proximity to the SHG
members and overstressing self-governance
10. In order to become sustainable, an effective
and efficient sector-owned control concept
needs to be implemented. It should comprise
important tools such as transparent account-
ancy, internal control and regular (compul-
sory) audit. In addition, SHG members and
their representatives should conduct sector-
owned control, properly institutionalized,
with their own responsibilities. The sector-
owned pilot project of the Kamareddy-cluster
in AP may serve as a model for replication
11. Sector-owned control needs to be gradually
supplemented by an institutional protection
scheme, which aims to prevent federations
from bankruptcy, thus guaranteeing that
members would not lose their money in-
vested in the SHG structure. This will be of
specific relevance for financial federations
when providing savings and deposit services
to SHG members. The protection (or stabi-
lization) scheme should be financed through
sector-owned contributions, which could
help to reduce the arising of moral hazard
problems. The scheme pre-requires an effec-
tive sector-owned control (s. a.)
12. Managing and operating SHG and federation
affairs should be within the responsibility
of the SHG members and their representa-
tives. Therefore, tasks still being conducted
by SHPAs, should be handed-over step-by-
step into the hands of the SHG structure.
This process will have to be supported by
an adequate sector-owned HR-development
strategy, and by systematic capacity building
activities, focusing in particular on internal
human capacity, but using external advisory
and training assistance as much as possible
13. 
External recruitment of management and
staff for specific functions in the advancing
Contents | 75
 federation structure may be needed. How-
ever, before any external recruitment should
be done, own (internal) SHG representa-
tives and office-bearers should be sufficiently
prepared in order to maintain effective self-
governance
Suggestions for economic/ financial sustain-
ability
1. SHG federations as higher-tier structures will
have to support and supplement their mem-
ber SHGs with services, which i) help SHGs
to overcome limitations inherent for small, un-
registered stand-alone institutions, (ii) enable
SHGs to meet the needs felt by their members,
and (iii) make the SHG structure as a whole
financially viable, self-reliant, and sustainable.
2. In order to make a bottom-up structured, in-
tegrated SHG system sufficiently operational
and performing efficiently, the SHG basis
should democratically assign support service
functions and responsibilities to federations on
each tier. When assigning support service du-
ties to the federations, all of the four federation
service functions should be covered simultane-
ously: i.e.
(i) sector development services,
(ii) financial services,
(iii) livelihood services, and
(iv) social services, with need-based prioritiza-
tion and considering the availability of (in-
ternal and external) financial and human
resources.
3. 
The SHG structure should pay specific at-
tention to the sector-development service
function. This function include lobbying
and advocating common interests; initiating,
organizing, and monitoring sector-strategy/
planning; developing sector norms and rules;
monitoring awareness; providing advisory and
training services; organizing / managing sec-
tor-own control and stabilization (protection).
4. 
As part of the sector-development function
sector-own audit activities should be sepa-
rately organ-ised in order to maintain the in-
76
dependence of auditors and to avoid conflict
of interests with other development service
activities. However, even if separately organ-
ised, the audit union will have to permanently
interact with other federations and federation
functions respectively, aiming at reaching high-
est possible effectiveness and efficiency.
5. The financial service function of the fed-
erations should be carefully developed by a
stepwise realization of financial intermediate
solutions, taking into account the specific chal-
lenges and risks of this function. But it could
be needed and also be reasonable to envisage,
in the long run at least, the development of
federations which carry out a fully-fledged fi-
nancial service function. For conducting this
function it should be focused on higher-level
federations (from block level, better district
level upwards), but properly integrating the
institutional networks below and above. A
fully-fledged financial service function should
mainly be based on sector-own financial re-
sources (own capital, savings, deposits), but it
should also include external financial services
(e.g. of the banking-sector/state programmes),
if available and properly fitting.
6. However, in order to properly respond to the
needs for professional skills and for preventing
specific risks of the financial sector, the follow-
ing aspects should be taken into consideration
during the further development of the finan-
cial service function: (i) sufficient financial and
managerial capacity needs to be available; (ii)
effective techniques for self-governance and
sector-own control/ stabilization need to be
put in place; (iii) a supportive legal / regulatory
framework should be available.
7. The SHG structure should systematically ex-
tend and enrich the livelihood service function
according to members needs. These kinds of
services have a significant impact on livelihood
improvement and in addition very positive ef-
fects on group coherence and awareness. Live-
lihood services will even need to be extended
and will have to go beyond the currently pre-
ferred, but limited outreach on single SHG
structures only. Cooperating with neigh-
 bouring SHG structures or federating on
higher levels might contribute to the further
strengthening of the bargaining power and
market positions, after forward and back-
ward linkages for SHG livelihood/ business
activities will have been established.
8. The social service function is the other core
area of SHG/ federation activities, addressing
directly the improvement of the social situa-
tion and the further empowerment of women.
Social services are very important in daily op-
erations of SHGs/ federations and for inter-
nal coherence. Therefore they need to be in-
tensified. Again, also in this case, cooperating
with other SHG structures, or federating on a
higher level, could help to make access to social
support programmes of the government and/
or other providers easier. As well, it could help
mobilising synergy effects when implementing
these programmes in a coordinated way.
9. 
After having defined important elements
of federations support services, and having
gained approval from a substantial majority
of member SHGs, the service functions need
to be properly institutionalized. Responsi-
bility will have to be assigned to the existing
federations on the different tiers. Even the es-
tablishment of new SHG federations/ institu-
tions could be taken into consideration. The
institutional setting should as much as possible
guarantee highest possible effectiveness and ef-
ficiency as well as a high level of sector integra-
tion and coherence.
10. For being better able to meet all these chal-
lenges, the institutional setting of the federa-
tion structure should fulfil in particular the
following essential requirements: (i) well-
organised vertical and horizontal division of
labour, interaction, co-operation, and mutual
support; (ii) transparency on organisational
structures and procedures, enabling to man-
age and control federation activities; (iii)
clear separation of business-related and social
services on one hand from development and
control services on the other hand.
11. Finally, in the long run at least, the institu-
tionalization of the federation services should
end in the establishment of specialized insti-
tutional structures for each of the different
service functions. In order to respond prop-
erly to growing and diversifying needs of the
SHGs (and their members respectively), it
might be recommendable to begin with the
specialization/ separation of federations on
the highest tier available (i.e. from block-level
or better mandal cluster-level upwards) before
reaching out for lower levels.
Suggestions for Appropriate Legal and Regula-
tory Framework
1. SHG federations should seek for a legal and
regulatory framework being appropriate for
their role and purposes as integrated parts of
self-help organisations, and to their specific
support service functions for the SHGs. This
will not only be essential in order to form the
proper internal constitution, structure and
operations. It will be of similar importance to
gain confidence and acceptance inside and out-
side the SHG structure
2. 
Whereas the higher-level federations (from
block/ mandal-level upwards) usually have a
formal status as legal persons, village-level (clus-
ter) federations have at present in most cases
an informal status only, like SHGs. This status
appears to be acceptable as far as these federa-
tions have only internal advisory, support, and
conflict solving duties for their member SHGs.
However, once these federations extend their
role and take over formal representation duties
of the member SHGs towards the outside, they
will need a formal status, providing them an
own legal identity. Thus it will be possible to
hold shares of higher-tier federations, conduct
financial and non-financial business activities
or external promoting programmes, employ
professional management and staff, and to own
properties and equipment
3. The adequateness of the legal form for fed-
erations depends decisively on their objectives
and aims. For federations, which primarily
provides financial and/ or livelihood/ business
services to their members, registering as a co-
Contents | 77
 operative might be most appropriate, especial-
ly when the cooperative law is a liberal one. If
the federations aim is to provide social services
without undertaking any commercial activi-
ties, a registration as society or trust might be
more useful. The same legal form may apply to
system-development federations
4. In the short-run and for providing quick legal
solutions to some urgent problems, it seems to
be promising to properly use all possibilities of-
fered by the existing legislation in the states.
However, adequate amendments according to
the specifics of the SHG movement should
be initiated and advocated for. Sometimes the
need might be felt to have a separate law for re-
registering SHG federations in order to take all
the specifics of the SHG structures sufficiently
into consideration. However, such a general
solution may lead to some difficulties and even
risks such as inordinate delays. Therefore it
might be preferable to review the legal needs
and to focus on adjusting available laws in or-
der to create an appropriate legal framework
5. When working on or advocating for an ad-
equate legislation for SHG federations, some
essential criteria should be taken into consid-
eration and should be properly addressed:
(i) The law should provide a clear legal frame-
work, nothing more and nothing less, thus
leaving it to SHG members and to their
institutions to substantiate rather general
legal provisions through their own-tailored
by-laws in a more concrete way, taking into
consideration the principles of self-help,
self-governance, self-administration, self-
responsibility and mutual support as best
fitting for their federation
(ii) The law must address and incorporate the
typical characteristics of SHG structures
as member-owned, multi-level interlinked
systems. It should be supportive, enabling
as regards a proper institutionalization and
the integration of the several tiers.
(iii) It should requested by the law that SHG
structures establish and operate sector-
owned control and stabilization mecha-
nisms (sector-owned standards and norms,
common accountancy, reporting/ moni-
78
toring system, audit function, protection
scheme, etc.), in order to govern, control,
and protect themselves and their institu-
tions respectively
(iv) R egular audits of SHG institutions should
be made mandatory by the law. These
compulsory audits should in the long
run at least be (obligatorily) carried out
by sector-own audit institutions authorized
according to general norms and standards
for chartered auditors. But the auditors
have to be specifically skilled in auditing
self-help/ cooperative organisations. The
audit should comprise financial as well
as management audit and should check
the internal monitoring (reporting) pro-
cedures (governance audit)
(v) External regulation and supervision should
strictly observe the need to ensure an equal
level playing field for SHG federations with
non-SHG/ non-cooperative organisations
or enterprises carrying out similar activities
and/or being active in the same field/ sector
(vi) The registrars control should be limited to
supervising the establishment and the in-
ternal constitution (by-laws) of the SHG
institutions with regard to the compliance
with the law
(vii) The law should have to ensure that the
SHG sector remain free of political inter-
ference. Government interference, partic-
ularly into the self-governance and man-
agement of the SHG institutions, has to
be excluded
6. The creation of an effective sector-own control
(self-regulation) system as typical for self-
help/ cooperative organisations will be a neces-
sity in future. An adequate sector-own control
model has been piloted in the Kamareddy
cluster available for sharing and up scaling.
However, it cannot serve alone as a sufficient
condition for the protection of members/ cus-
tomers of the SHG structure as well as of the
general public against the consequences of in-
effective or incorrect sector-own control. Such
a system needs to be supplemented by a proper
external regulation, as applied for non-SHG
institutions with similar commercial or non-
commercial activities
7. External regulation/ supervision is in particular
relevant for financial SHG federations due to
the high risks usually adherent with financial
activities. In order to achieve an effective and
economically efficient regulation and supervi-
sion, the financial authorities RBI/NABARD
should primarily base their regulatory activities
on the SHG sectors own control (and protec-
tion) systems. This external regulation / super-
vision through interaction will need specific
procedures and techniques, which are different
from those used for stand-alone financial in-
stitutions (commercial banks, MFIs, etc.)
8. The interaction between the external regula-
tor and sector-own control, which will have
to be considered as the most appropriate solu-
tion for the external regulation/ supervision of
self-help/ cooperative financial organisations,
should be developed step-by-step along with
the realization of SHG sector-own control
mechanisms. The financial authorities can even
promote the development of sector-own con-
trol (and protection), as for example by setting
appropriate licensing rules for SHG financial
institutions. Over-regulation or even strangu-
lation of the development of the SHG finan-
cial service function must strictly be avoided.
On the contrary, proper access to financial ser-
vices for SHG members needs to be secured
9. 
The interaction of the financial authorities
and sector representatives should cover as well
stabilization/ protection schemes of the SHG
financial sector. This will be necessary because
if once established, sector-own prevention and
rehabilitation efforts against default risks need
to be supported
10. SHG financial institutions should advocate
the establishment of credit bureaus and/or
join them if available aimed to avoid financial
over-burdening of SHGs and their members
respectively through multi-lending by differ-
ent loan providers
Suggestions for Adequate Promotional
Support
1. Achieving adequate promotional support re-
quires distinguish between: (i) system-develop-
ment promotion, (ii) service-/ business-related
promotion, and (iii) sector-own promotion.
SHPAs and other external stakeholders con-
duct the first two promotional core elements.
Though strongly interrelated, both are address-
ing different target areas by using various tools
and resources. The third one comprises pro-
motional efforts of the SHG sector itself. The
focus should always be on activities, which will
contribute to the strengthening of self-help
and mutual support
2. In order to achieve the strongest promotional
impact on SHG-sector sustainability, various
possible promotional measures as well as their
interaction should observe a set of fundamen-
tal principles. At any time it will be essential to:
Meet the interests and needs felt by the SHG
members
Take properly into consideration own re-
sources of SHG
Integrate the recipients into the process of
project development and implementation,
transforming their role as early as possible
into owners and leaders of the promotional
activities
Avoid any interference or co-options which
could counteract self-help development
Mobilize sufficient advisory and financial re-
sources as well as time for project realization
Ensure coordination and compatibility be-
tween several promotional efforts
3. A strategic concept for system-development
promotion by SHPAs should take into con-
sideration that most of the SHG structures are
still in a nascent development stage. They still
need enormous support as own resources of
the SHG sector are limited. However, accord-
ing to progress made in SHG development, the
leadership and responsibility of sector develop-
ment should systematically be more and more
assigned to the SHGs and their federations.
Correspondingly, the SHPAs should step-by-
step transform their role, rather facilitating and
coaching the SHG structures which had prior
been promoted by them
4. In order to properly organise and realize this
Contents | 79
 transformation process, the SHPAs in close co-
operation with the SHG structures, should as
early as possible develop a withdrawal strategy.
This should be as much as possible harmonized
with the sector-development strategy, elaborat-
ed and approved by the SHGs and their insti-
tutions. In addition, a withdrawal strategy for
the finalization of the promotional programme
will have to specify how and who will conduct
the future tasks of facilitating and coaching the
SHG structures. Therefore, it should rather be
a strategy for transformation than for with-
drawal
5. According to this strategic approach, SHPAs
should withdraw from direct interventions into
SHG affairs, as e.g. in federation management
and sector-control (auditing), as well as from
financing federations, especially from provid-
ing permanently grants. Instead, SHPAs sup-
port should focus on capacity building meas-
ures, enabling SHG members to govern and
manage their institutions in own responsibility
and in accordance with the development strat-
egy of the SGH structures. Similarly, in future,
SHPAs should provide financial support in the
form of providing start-up financing and sup-
port to SHG institution building (as e.g. for
setting-up of SHG-sectors audit capacities, es-
tablishing institutional protection schemes, de-
veloping training systems, etc). It might even
be necessary, that SHPAs for a limited period
only continue to contribute to expenses of
federations
6. Sharing experiences with other SHG structures
and commonly scaling-up good practices of
other models should replace a tight and per-
sistent SHPA grip on SHG structures, com-
bined with insistence on the exclusiveness of
the own model vision. SHPAs conferences, co-
operations, and commonly accessible/ open IT
platforms, all of which can already be found,
should be intensified because they are useful
tools for contributing to more coordinated
and effective promotion of SHG development.
Furthermore, the time has come to more and
more integrate the representatives of the (ma-
tured) SHG structures into this exchange as
emancipated partners of this process
80
7. The coordination between different stakehold-
ers needs to be further intensified, aiming at
achieving a common promotion policy and
well-matched support packages. In particular,
support programmes by NABARD and vari-
ous governmental institutions supplementing
SHPAs promotional efforts urgently need to
be disseminated more effectively. Furthermore,
these supplementary support programmes,
which focus so far exclusively on SHGs, should
be changed, taking additionally into proper
consideration the specific promotional needs
of federations. In general, NABARD and the
governmental institutions should launch these
programmes jointly and in close partnership
together with the promoting NGOs as well as
with the SHG structures to be promoted
8. 
Service- business-related promotion, result-
ing from partnerships /linkages between SHG
structures and providers of financial services,
livelihood/ business services, and social service
programmes should be intensified and extend-
ed. Learning by doing will help to mobilize
particularly two effects on SHG development:
(i) the enrichment and extension of services to
SHG members, and (ii) the improvement and
further development of the SHG structures.
Therefore, such a promotion category should
be positioned in the centre of attention, es-
pecially focusing on SHG structures, which
already fulfil some basic standards such as
minimum requirements for undertaking these
activities
9. In order to achieve a maximum of effectiveness
and efficiency, service-/ business-related pro-
motional support measures will have to be tai-
lored according to the needs, the organisational
and absorption capacity of the SHG structures.
Furthermore, they should be accompanied by
specific capacity building or coaching activi-
ties, conducted by the providers/ partners of
service-, business-, and social programmes or
by SHPAs in close coordination with the re-
spective SHG structures. This will contribute
to an increase in the general acceptance by
the SHG clientele as well as to proper service/
product introduction and usage
10. Federations should in future be considered
as adequate partners for service-/ business-
related promotional support activities. There-
fore, service-/ business-/ programme-linkages
to SHG structures, which so far prefer direct
relations to SHGs (by avoiding federations),
should be modified in order to strictly in-
clude federation structures into business- and
programme development, negotiation, im-
plementation, organisation, and control. This
could contribute to significant improvement
of the outreach as well as of the performance
of these linkages / partnerships with SHG
structures. Additionally, it would promote
the further development of these federations,
enabling them to qualify their range of ser-
vices offered to member SHGs, to strengthen
their own economic / financial sustainability
as well as that of SHGs, and to use the capac-
ity building effects for supporting the SHG
movement as a whole
11. 
Service-/ business-related promotion3 all
activities will have to be harmonized with
other promotional efforts as well as with the
development strategy of the SHG structures.
In particular, promotional activities, which
could counteract the impact of other promo-
tional efforts (or which even could affect the
solidity and character of self-help organisa-
tions), will have to be avoided. For example
any governmental waiver policy, which could
undermine the debt moral or even, could
destroy SHG sustainability, will have to be
avoided. Instead, especially NABARD and
governmental institutions should design ser-
vice-/ business support programmes in a man-
ner that proper implementation and usage of
these programmes by the SHG structures will
be rewarded. This would definitely contribute
to promote SHG-sector development
12. SHG structures, supported by SHPAs and
other external stakeholders, are needed to de-
velop and organise step-by-step sector-owned
promotion. In parallel to the withdrawal of
SHPAs, SHGs will be forced to carry out
own promotion, either with or without the
assistance of external facilitators. They will
have to mobilize institutional self-initiative
and self-help capacity. Sector-owned promo-
tion can typically be found among self-help
organisations and has contributed so far to
their independence from external, especially
governmental, interference
13. Already initiated sector-own promotional ef-
forts need to be intensified, extended, and sys-
tematically institutionalized taking into con-
sideration the promotional needs as well as
sector-owned human and financial resources
(and availability of external facilitation). Sec-
tor-owned promotional activities can be: mu-
tual support of SHG establishment, arrange-
ments of exposure visits, exchange of resource
persons with other SHG structures, exchange
of experiences during conferences, common
pilot projects for sharing and up-scaling good
practices, common development, implemen-
tation, and operation of systematic training
programmes. For example the introduction
of sector-owned control and stabilization
mechanisms has proved to an effective and ef-
ficient tool of this self-learning process
14. As to the needs for external promotional
support, the following topics for technical
assistance could be of specific relevance:
Cooperative governance development
Product and service development, in par-
ticular with regard to financial and non-fi-
nancial business, based on members needs
and interests
Institution building of multi-level coopera-
tive organisations
Sector-owned control and protection issues, in
particular auditing and stabilization schemes
Development of training programmes
Legal and regulatory framework and interaction
between financial authorities and sector-owned
control and protection schemes.
Contents | 81
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Contents | 83
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