SHG Federations In India - Sa-Dhan

A Study Report On 

SHG Federations In India 

Emerging Structures and Practices 

Sa-Dhan 

The Association of 

Community Development 

Finance Institutions 

July 2004

© Copyright Reserved Sa-Dhan 

July 2004 

Published by: 

Sa-Dhan Microfinance Resource Centre 


12 & 13 Special Institutional Area 

Shaheed Jeet Singh Marg, New Delhi- 110067 

E-mail : sa_dhan@mantraonline.com 

Website : www.sa-dhan.org 

Typeset by: 

Anil 

Printed in India by: 

Sahara Renewal 

Cover Sketches by 

Poonam Jutshi 

We are thankful to US Agency for International Development (USAID) for making this publication possible.

ACKNOWLEDGEMENT 

This report is the result of composite effort 

and support of various stakeholders in the Micro- 

Finance Sector. 

We would like to put on record our deep appreciation 

of the efforts and contribution of the participating 

organisations who nominated their experienced team 

members for assisting the study. The study would have 

not been completed without the co-operation of SHG 

members, federation leaders and their promoting 

institutions who willingly and enthusiastically shared 

their experiences for a wider public debate. 

We would like to put in record our deep respect for the 

study team for their persistent efforts during and after 

field visits for gathering and decoding the data. The 

team consisted of, Kalpana Pant, Team Leader 

(Chaitanaya), Milind Bokil (DST), Vidya 

Ramachandran (MYRADA), Saleela Patkar 

(MYRADA), Rama Krishna (OUTREACH), Sukanta 

Sarkar (PRADAN), Rakesh Pandey (Shramik Bharati), 

Bipul Borah (RGVN),Komal Parmar (FWWB) Achla 

Savyasaachi, Niraj Kumar, Langsung T Mate, S N 

Lakshminarayana, Nilesh Arya (Sa-Dhan Team). 

We especially thank members of the Advisory 

Committee: Dr. Anup Dash (CYSD); Dr. Sankar Datta 

(IGS); Mr. C.S. Reddy (APMAS) and Ms. H. Bedi 

(DST) who guided the research team in the course of 

study. 

We would like to acknowledge the intensive work done 

by the report-writing team comprising of Dr. Sanjiv 

Phansalkar, Ramesh Arunachalam, Vinod Jain and 

Achla Savyasaachi in analysing and presenting the report 

in public domain. 

We express our gratitude to NABARD, SIDBI 

Foundation for Micro Credit , Housing Development 

Finance Corporation, State Bank of India, Bankers 

Institute for Rural Development, Reserve Bank of India, 

Prime Minister Office and The World Bank India Office 

for sharing their valuable views about Federations. 

We acknowledge services provided by Dr. Ajay Tankha 

and Ms. Pritha Sen in editing the manuscript. We also 

appreciate persistent efforts of Garima Singh and 

Langsun T. Mate in coordinating the editing and 

publication of the final report. 

We would also likes to thank Langsun T. Mate and 

Nilesh Arya for overall co-ordination of the study. 

Finally, Sa-Dhan is deeply grateful to Canadian Cooperative 

Association which helped generously by 

funding the study. 

We trust that this publication will be helpful in building 

a common understanding on the existing federations 

among practitioners, bankers, policy makers, donors 

and other agencies involved in building peoples’ 

institutions. 

Mathew Titus 

Executive Director 


July 2004

PREFACE 

Taking the Self Help Group movement forward and 

in response to organisational and operational 

challenges faced by SHGs, some of the Sa-Dhan 

members have pioneered apex bodies called ‘SHG 

Federations’. Following the foot-steps, a large number 

of member organisations are replicating successful 

federating models in different socio-economic and 

political backgrounds which has led to multiple systemic 

and operational concerns regarding the formation and 

promotion of these bodies. 

As “Federation” is a new classification in the microfinance 

(MF) sector in the country, there is very little 

recorded information on this form of institution. As 

stated above, our country has a great socio-economic 

and political diversity. The legal framework offered to 

federating structures differ from state to state, the 

communities associated with federations have different 

livelihood options and social systems. Even the strategic 

focus of the promoting institutions (PI) differ; for 

instance, some PIs focus only on MF; while some also 

undertake different developmental activities. Hence, 

the mission and vision of the federations differ. 

The lack of information on structures of existing 

federations, role of federations in the development of 

SHGs, role of PIs, processes pursued for promoting 

federations and institutional needs of federations 

for becoming viable and self sufficient community 

based institutions leave a large gap for proper 

conceptualization of a federation. The organisations 

trying to replicate successful models of federations are 

idolizing the frame works of the federating systems 

without an option to compare it with other existing 

models which might suit them or can be modified as 

per their needs. 

The Sa-Dhan members and other players of MF sector 

have repeatedly raised these concerns at different 

platforms. Given the generic nature of the issues related 

to SHG federations, Sa-Dhan took the challenge of 

conducting the arduous study at the national level to 

come up with a research document discussing the 

characteristics and practices among federations and their 

promoting institutions. 

The study aims to enable PIs, community leaders and 

stake holders to understand and comprehend nuances 

of federating structures of SHGs across regions with 

varied experience on approaches and models.

CONTENTS 

1. Glossary ..............................................................................................................i 

2. Executive Summary ............................................................................................ v 

3. Introduction to the Study ..................................................................................13 

4. SHGs and their Federations as Vehicles of Economic Empowerment: 

A Historical Background ...................................................................................20 

5. Issues in Group Behavior: A Review of the Literature ..........................................24 

6. Federations Studied...........................................................................................31 

7. Analysing and Understanding SHG Federations .................................................53 

8. Financial Analysis of Federations .......................................................................67 

9. Stable Group Conditions: An Assessment of SHG Federations .............................87 

10. SHG Federations: Lessons and Emerging Practices ..............................................93 

11. ANNEXURE I : Views of Key Stakeholders About the Federations .................... 102 

12. ANNEXURE II : Partaker Promoting Institutions and Federations .................... 104 

13. ANNEXURE III : Sa-Dhan Federation Study Guide to Field Visit Reports......... 105 

14. Bibliography................................................................................................... 108

GLOSSARY 

I. Organizational Acronym 

AAA - Amchi Amcha Arogyasathi 

ADSGAF - The Association of Deep Sea Going Artisanal Fishermen 

ALF - Area Level Federation 

AMSSL - Adarsha Mahila Sahakar Samakhya Limited 

ASA - Activists for Social Alternatives 

ASSEFA - Association of Sarva Sewa Farms 

AWARD - Association of Women’s Action for Rural Development 

BAIF - Bharatiya Agro Industries Foundation 

BSS - Bharat Sevak Samaj 

CARE- India - Co-operative for Assistance and Relief Everywhere 

CCA - Canadian Co-operative Association 

CSG - Community Service Guild 

CHASS - Changanacherry Social Service Society 

CIDA - Canadian International Development Agency 

DST - Development Support Team 

FWWB - Friends of Women’s World Banking 

FGC - Fraternal Green Cross 

FWS - Fishermen Welfare Society 

GRAM - Gram Abhyudaya Mandali 

GV - Grama Vikash 

GIC - General Insurance Company 

GMO - Grameen Mahila Okutta 

GMSS - Grameen Mahila Swayamsidha Sangh 

GVS - Gram Vikash Samity 

GCMMF - Gujarat Co-operative Milk Marketing Federations 

HUDCO - Housing & Urban Development Corporation 

HDFC - Housing Development Finance Corporation 

IFAD - International Fund for Agricultural Development 

IRMA - Institute for Rural Management, Anand 

LEAD - League for Education and Development 

LIPICA - Lower Income People’s Involvement in Community Action 

LAGS - Limeswari Adivasi Gana Sangathan 

MYRADA - Mysore Resettlement and Development Agency 

MBTs - Mutual Benefit Trusts 

MSB - Mohila Sanchay Bhoral 

MS - Mahila Samajams 

MFFS - Malabar Federation of Fishermen Societies

NABARD - National Bank for Agriculture and Rural Development 

PRADAN - Professional Assistance for Development Action 

PMS - Primary Mahila Samity 

PANI - People’s Action for National Integration 

PEDO - Peoples’ Education Development Organisation 

PPI - Penngal Pannokku Iyakkam 

RRBs - Regional Rural Banks 

RMK - Rashtriya Mahila Kosh 

NBFCs - Non-Banking Financial Companies 

RGVN - Rashtriya Gramin Vikash Nidhi 

SDC - Sipajhar Diamond Club 

SNVF - Sthree Niketh Vanitha Federation 

SIFFS - South Indian Federation of Fishermen’s Societies 

SPMSB - Santi Pragati Mohila Sanchay Bhoral 

SS - Shakhi Samity 

SIDBI - Small Industries Development Bank of India 

SSFWU - South Saikul Federation & Weaver’s Union 

SDC - Swiss Development Co-operation 

SMS - Sree-Ma Mahila Samity 

SMS - Samyukhya Mahila Samity 

SMBT - Sarvodya Mutual Benefit Trust 

SNFL - Sarvodaya Nano-Finance Limited 

SJSK - Sarva Jana Sewa Kosh 

TDMS - Tezpur District Mahila Samity 

TDFF - Trivendrum District Fishermen Federation 

UTI - Unit Trust of India 

UNICEF - United Nation International Children Fund 

UNDP - United Nations Development Programme 

VS - Vanitha Sangams 

WOTR - Watershed Organisation Trust 

YVP - Yuvak Vikash Prabodhini 

II. 

General Acronyms 

AFARM - Action for Agricultural Renewal in Maharashtra 

APMACS - Andhra Pradesh Mutually Aided Co-operative Societies 

AUS - Anchalik Unnayan Sanghs/ Local Development Committee 

BoD - Board of Directors 

BDO - Block Development Officer 

CBOs - Community Based Organisations 

CEO - Chief Executive Officer 

CLF - Cluster Level Federation 

CDFIs - Community Development Finance Institutions 

CFs - Common Funds 

CUs - Credit Unions 

DWACRA - Development of Women and Child in Rural Areas

DCB - District Co-operative Banks 

DRDA - District Rural Development Agency 

EC - Executive Committee 

EMI - Equated Monthly Installment 

FD - Fixed Deposit 

GB - General Body 

GDCA - Global Distinctive Competitive Advantages 

GWF - Group Welfare Fund 

IGP - Incomes Generating Programme 

IOFs - Investor Oriented Firms 

LDCA - Local Distinctive Competitive Advantages 

MACS - Mutually Aided Co-operative Societies 

MFD - Microfinance Division 

MOF - Members Oriented Firm 

MFIs - MicroFinance Institutions 

MCH - Mother and Child Health 

MRCP - Maharashtra Rural Credit Programme 

MISs - Management Information Systems 

NPA - Non-Performing Assets 

NGO - Non-Governmental Organisation 

NRM - Natural Resource Management 

OBM - Out Board Motor 

OBCs - Other Backward Classes 

PRI - Panchayati Raj Institutions 

PCO - Project Co-coordinator 

PACS - Primary Agricultural Co-operatives Societies 

PLF - Project Level Federation 

PDO - Project Design Outlay 

PRA - Participatory Rural Appraisal 

PD - Project Director 

PAR - Portfolio at Risk 

PIs - Promoting Institutions 

RCH - Reproductive Child Health 

SCs - Scheduled Castes 

STs - Scheduled Tribes 

SDI - Subsidy Dependence Index 

SHGs - Self-Help Groups 

TASS - Technical Assistance Support Services 

TCs - Transaction Costs 

TN - Tamil Nadu 

TD - Thrift Deposit 

UMAP - Unique Member Allegiance Propositions 

VWC - Village Watershed Committee 

VDC - Village Development Committee 

VNA - Village Network Agent 

VOs - Village Level Organizations

EXECUTIVE SUMMARY 

1. Introduction 

● 

● 

● 

Seeds of SHG movement were sown in Indian soil 

way back in 1970’s by some determined and 

foreseeing individuals, but the movement took off 

after NABARD introduced Bank Linkage Policy. 

The growing size of SHGs had made it difficult 

for PIs to support them the way it was done earlier. 

Moreover, with the passage of time member of 

SHG learn to manage their groups independently. 

Here a twin need arouse, one is of venturing into 

new geographic areas and second is to give more 

autonomy to the Self Help Groups. 

PI experimented with the concept of federating 

SHGs at different level, thereby reducing its 

control and role in SHGs which were already 

mature. PIs saved time and manpower for direct 

monitoring of member groups thus saving 

resources for excavating in newer regions. 

2. Objectives of the Study 

● 

The objective of the study was to develop 

comprehensive understanding of SHG 

federations by identifying emerging practicing 

on different aspects of federations. The study 

tries to highlight, forms and structures of 

existing federations, the role of federations in 

development process of SHGs, promotional 

support required by federations and areas of 

concern. 

3. Methodology 

● 

In total twenty seven federations were studied. Of 

which, thirteen were from Southern region, three 

● 

● 

● 

● 

● 

● 

● 

● 

from Western, five from Northern, three from 

Eastern and another three from North Eastern part 

of the country. 

Before starting field work a preliminary workshop 

was organized to understand the basics of 

federations. 

A team of Senior practitioners were selected to act 

as advisory committee which guided the study and 

its team as a whole. 

Five teams of two members each were formed to 

undertake field work. 

It was decided to conducted in-depth interviews 

of practitioners from promoting institutions of 

federations, leader of SHGs, capacity building 

institutions, policy-makers and financial 

development institution. 

Case studies were developed on structure and 

functioning of federations. 

Secondary data regarding financial health of the 

federations were collected to analyse financial 

sustainability. 

Sa-Dhan research team developed an in-house 

Rating System for finding locus of control / 

governance among the studied federations. 

The study team used six ratios for analysing 

financial sustainability of the federations. They are 

Portfolio at Risk, Arrears Rate, Cumulative 

Repayment Rate, Operating Cost Ratio and Total 

Cost Ratio and Subsidy Dependence Ratio.

4. Limitations of Study 

● 

● 

● 

The sample selected for study was unevenly 

distributed across the country. 

Majority of the federations are in a nascent stage 

and hence, their operational systems are still not 

well defined. This constrained the team to 

comprehend the concerns of SHGs, federation 

leaders and promoting institutions. 

The practitioners involved in the study team had 

different view as well as levels of exposure on 

federations which were carried as pre-notions. 

Hence, lacks of uniformity in reporting styles & 

content. 

5. Findings of the study. 

5.1 General Information on the Federations 

Studied. 

● 

● 

● 

● 

As per the study, the most matured SHG 

federation was formed way back in 1982 but 

almost all the federations started financial 

operations only after 1995. 

Majority of the PIs started with social initiatives 

and graduated into micro finance activities. 

Federation can have unitiered as well as multitiered 

structures. SHGs can be affiliated to Village 

organisation (VO), VO to cluster and cluster to 

area level federations. 

Only nine federations were registered entities. The 

option explored for registration so far are - MACS, 

Trusts or Society. 

5.2 Understanding SHG federations. 

● 

● 

Based on the in-house rating tools, the study came 

out with a matrix proposing typology of 

federations studied. The typology is based on the 

governance pattern and services provided by the 

federations to the members. As per the mentioned 

criteria there are four kinds of Federations. 

Q1: Federations engaged in financial as well as 

non financial activities and have external locus of 

control. PI play vital role in these kinds of 

● 

● 

● 

organisations, they provide every possible support 

to the federations and take all the decision on their 

behalf. These federations are involved in financial 

as well social or non-financial activities. They have 

greater financial and social sustainability and 

linkages with external environment and large 

geographic coverage. 

Q 2: Federation involved in financial as well nonfinancial 

activities but have internal locus of 

control. These organisations are fully member 

managed. In due course of time, the PIs have 

moved out of management of the federation and 

the staff on deputation is absorbed by federation. 

These federations are involved in providing 

financial as well as social services to members. They 

rank high on social sustainability but score low 

on financial sustainability. The MF operations are 

quite open and are not implemented rigorously. 

Q 3: Federation involved in non-financial activities 

and with external locus of control: these 

federations do not engage in any financial activities 

and are generally a representative platform. These 

are completely supported by PI. The PI provided 

technical and financial support to the federation 

which in term pass these facilities to SHG 

members 

Q4: Federations involved in non financial activities 

and have internal locus of control. These 

federations are into activities that are facilitating 

members for bank linkage. They also provide 

technical support to the member SHGs. 

5.3 Financial Analysis 

● 

● 

● 

● 

In total seven federations were considered for 

financial analysis. Application of key delinquency 

tools like portfolio tracking and ageing of loans 

are largely absent with a few exceptions. 

Half of the federations studied had Portfolio at 

Risk at more then 40% in year 2002. 

All except one federation were operationally 

sustainable in year 2002. Two federations were not 

financially sustainable as per 2002 records. 

Financial sustainability of the federations, as 

measured by SDI, is found to be quite low. 

vi

● 

Federations have high operating costs. They have 

large investments in fixed assets and use subsidized 

and high cost sources of capital. 

that this dichotomy is recognised for real and 

strategies are formulated to set the process on the 

rails. 

● 

The federations have poor portfolio rotation, 

which results in less than optimal earnings. 

5.4 Group Dynamics 

● 

● 

● 

● 

● 

Doharty and Jodha model of group dynamics was 

considered for finding out intangible structure of 

the federations. 

In Q1 type of federations there is no cash 

remunerations to the leader but by social 

recognition. These type of federations score high 

on all the group parameters. 

Q2 type of federations are good in all parameters 

but do not provide structural guarantees and 

collective good for members. 

Q3 type federations are in very nascent stage and 

have no standard set of procedure and system. 

There is neither clarity on collective and 

organisational good nor on functional identity and 

individual profit among the members. The 

federations are in response to the wishes of PI and 

would last as long as PI invests in them. 

In Q4 type federation, collective good is restricted 

to SHG level but at a higher level, it does not 

have functional importance. They require PI to 

continuously invest in the member for a long time 

so that members do not break the groups. 

6. Challenges 

● 

Inside Out Side Dichotomy: 

The professionals in the PI take the lead in setting 

up systems and norms and liaise with external 

agencies while leadership drawn from the 

membership manages the ‘inside’ interface in the 

area of providing the much needed group 

solidarity, identity and social assurance to 

individual members. This dual characteristic has 

been referred to here as the ‘inside-outside 

dichotomy’. Since most PIs profess to enable the 

federations to manage their affairs, it is desirable 

● 

● 

● 

Similarly, the action agenda of the federations can 

be defined by the PI or external agencies or it can 

evolv through leadership of the federations. If the 

former happens, there is no guarantee that the 

agenda will address the real, felt needs of the 

community. Patronage centrality that is giving 

priority to the felt and real needs of the 

membership while taking decisions is likely to be 

enhanced with greater internal control. This will 

also enhance performance. The evidence of this is 

the well functioning of federations falling under 

Q-2. 

Federation as Communities of Practice 

The strengths of PI leadership and staff, leadership 

at federations and SHG members vary within as 

well as across federations. Apart from becoming 

conduit for channelising funds, the main role of 

federations perhaps can be to act as a platform to 

bring together the expertise and strengths of the 

different actors mentioned earlier. Thus 

federations perhaps have greater value as platforms 

for solving the problems of the women members 

of the SHGs whether in mF or other fields. 

Federations are Evolving Organisations 

In a sense, all vibrant organisations are evolving 

and there are distinct and identifiable phases 

through which federations seem to transit. To an 

extent, this evolution is naturally shaped by the 

ideology and outlook of the PI. The prescriptions 

on best practices or other actions need to be 

interpreted keeping this evolution in mind. What 

is suitable for one level of evolution may be a shade 

premature for another and so on. 

Federations are Organisations in their Own 

Right and not mere Instruments 

The coming together of SHGs in one federation 

creates an aggregation that is quite useful for

● 

● 

organisations that wish to work for poor women 

as they can communicate with larger target group 

members at lower costs. In a certain sense, all these 

external agencies seek to use the federations as mere 

instruments to push their agenda. PIs as well as 

external agencies must consider ways of 

collaborating in a more true sense of partnership 

with the federations by attempting to identify the 

priorities of the federations and their members, 

perhaps persuade them to incorporate the external 

agency’s programme in their agenda, give them 

time to consider the new activity after consulting 

the membership and adjust the modus operandi 

to suit the federations. 

How Relevant is the Concept of Financial 

Sustainability for Federations? 

Sources for revenue for a federation include joining 

and annual membership fees, service charges, 

interest spreads and fee-based incomes from 

services such as insurance. The direct expenses are 

about maintaining establishment, paying salaries 

of staff and honoraria of resource persons, 

conduction of training programmes etc. The 

attempt ought to be to meet all these expenses from 

the revenues so generated. Considering this facet 

of their work, financial sustainability can be 

achieved once federations have fully matured and 

have transformed through several phases. 

Importance of Capacity Building 

Not all PI are sufficiently well-equipped to identify 

the precise capacity building needs of their 

federation and the SHG or to undertake the 

● 

necessary activities. Often the biggest capacitybuilding 

investment required is in the process of 

selecting and training staff for grassroots 

mobilization. Linked to this is the motivation and 

satisfaction level of the staff operating at the cutting 

edge. This is often achieved in the PI by the 

leadership working very closely and informally 

with the people and thus leading by action. 

A key variable in the capacity-building process is 

how the staff of the PI interacts with the members. 

The demonstration effect of the quality and 

method of interaction has an enabling effect on 

the members. Hence, it may be necessary for 

capacity-building organisations to increase the 

capacities of these federations. It is all the more 

important in the context of regions like the east 

and north-east, where the federating process is in 

its infancy. 

Role Change or Withdrawal Policy 

The attitude and vision of the PI has an important 

role to play in building capacity and leadership 

within the community. If the PI wants to gradually 

pass on the reins of control to the community and 

finally withdraw, it will ensure the transition 

through different processes. Exposure visits to 

communities with similar backgrounds lay the 

ground for the emergence of future leaders. 

Imparting training in account-keeping and 

maintaining of records is another activity which 

helps SHG members develop an understanding 

of formal procedures, seminars on various topics 

ranging from social issues to roles and 

responsibilities of SHG leaders and functionaries 

create greater awareness. 

12 

SHG Federations in India: Emerging Structures and Practices

CHAPTER1 

Introduction to the Study 

This report is the product of an intensive study of 

27 Self-Help Group (SHG 1 ) federations promoted 

by non-governmental organisations (NGOs) across the 

length and breadth of the country. Ideologically, 

federations are need based forums of SHGs to step-up 

need based economic and social development through 

collective efforts. As per standard definition, SHG is a 

small voluntary association of poor people, preferably 

from the same socio-economic background. They come 

together for the purpose of solving their common 

problems through self-help and mutual help. The SHG 

promotes small savings among its members. The savings 

are kept with a bank. This common fund is in the name 

of the SHG. Usually, the number of members in one 

SHG does not exceed 20. 

A large number of Sa-Dhan’s member organisations have 

been the pioneers in channelising the availability of 

microfinance (mF) through SHGs. These organisations 

are presently engaged, inter alia, in taking the SHG 

movement to the next level of growth. Some of them 

have pioneered SHG apex bodies in response to 

organisational and operational challenges faced by 

SHGs. A large number of organisations are in the 

process of replicating successful federating models in 

regions with diverse socio-economic and political 

backgrounds. This has led to multiple systemic and 

operational concerns regarding the formation and 

promotion of these federating bodies. 

Given the generic nature of the issues and concerns 

related to SHG federations and their emerging 

importance in the life trajectory of the SHG model, 

the need to define, understand and unravel complexities 

with regard to SHG federations proved imperative. 

Sa-Dhan initiated a study to bring to the forefront the 

work in progress in the area of SHG federations at 

different levels and identify the emerging practices in 

order to facilitate the further growth of such initiatives. 

The study thus concentrated on federated structures of 

SHGs that are engaged in financial intermediation in 

India. Anchored by Sa-Dhan, and with the active 

participation of its member organisations, the exercise 

was generously supported by the Canadian Cooperative 

Association. It took into consideration the concerns and 

responses not only of the NGO sector and of SHGs, 

but also that of other stakeholders such as the donor 

community, commercial banks, other state agencies and 

the highest policy-making bodies in the country. 

What emerged from the study was evidence of the 

existence of varied federated structures of SHGs with 

differing agenda, processes, organisational framework 

and layers that were being coordinated by a host of local 

1 

MYRADA: A self help group promoted by MYRADA is homogeneous, non-party-political, and small in size (< 20 members) and voluntary. 

The members espouse the value of self-help for socio-economic development and in order to achieve sustainable socio economic development 

must possess the required knowledge, aptitudes, skills and systems for management of their operations 

PRADAN: A SHG is a group of 10-20 people, who meet at regular intervals, to pool in their savings and create a common fund. The money 

in this fund is then lent out by the group to individual members, at an interest rate that is decided beforehand by the group. 

13

stakeholders and in diverse scenarios. The diversity of 

the federated bodies across the regions was as rich as 

the richness of SHGs themselves. In this scenario, the 

presentation and dissemination of the study findings 

was a challenge. It was felt that if the study findings 

were to serve a useful purpose, they needed to be 

presented in a manner that would encourage 

practitioners of the SHG movement to read, debate, 

challenge and, hopefully, to appreciate the insights 

thrown up by the report. It has therefore been Sa-Dhan’s 

endeavour to present the research findings in a manner 

that combines ground realities with the more scholarly 

analyses on the varied nature of federations as has 

emerged from the study. 

It should be recognised that an exercise of this kind 

might give rise to certain contentious findings. The 

organisations, which consented to the study on the 

SHGs and the federations supported by them, would 

also perhaps differ on some issues. But the 

interpretations have been done in good faith and after 

much deliberation. The study does not aim to either 

commend or condemn any of the practices highlighted 

in these examples, or for that matter assign any 

exclusivity to them. 

2. Objective of the Study 

Federation is a new classification in the mF sector in 

the country and hence there is very little recorded 

information on this form of institution yet. The study 

was therefore initiated with the objective of developing 

a comprehensive understanding of SHG federations 

through identifying emerging practices in the different 

types of federations. The clear purpose of undertaking 

this exercise was to bring to the public domain the 

available experience and information on SHG 

federations. The aim was to enable promoting 

institutions (PIs) and community leaders to understand 

and comprehend nuances of federating structures of 

SHGs. 

Based on the initial meetings with various stakeholders, 

the following broad areas were identified to facilitate 

further understanding in order to promote and 

strengthen sustainable federations of SHGs: 

● 

● 

● 

● 

● 

Forms and structures of existing federations 

Role of federations in the development process of 

SHGs 

Promotional support required by federations (role 

of the PIs) 

Generic understanding of the process pursued for 

promoting federations 

Areas of concern vis-à-vis operational and 

institutional needs of federations for becoming 

viable and self-sufficient community-based 

institutions 

3. Methodology 

While designing the methodology, Sa-Dhan encouraged 

its member organisations to participate in this arduous 

yet rewarding process. The rationale behind this exercise 

was that some of them were already in the process of 

forming federations or engaged in capacity-building 

efforts to promote and strengthen these bodies. It was 

perceived that the practitioners would be able to capture 

the practical nuances that would be otherwise missed 

out. At the same time, it was aimed at initiating cross 

learning among practitioners from across regions with 

varied experience on approaches and models. 

The study team undertook extensive field visits to 

different parts of the country and, under the aegis of 

Sa-Dhan, organised consultative workshops with its 

members to develop and refine the study parameters. 

In these exercises many of the pre-study notions of the 

team on the different aspects of process as well as features 

of federations were redefined, while many were further 

strengthened. These observations then proved to be the 

guiding tools in the preparation of the detailed study 

framework. Some of the observations made by the team 

were as follows: 

1. A federation is not a spontaneous social institution 

emerging out of the people’s initiative. It has to be 

consciously promoted and nurtured by a 

development organisation. On the contrary, other 

contemporary efforts assumed people’s initiatives 

to be the core for promoting federations. 

14 



2. The federation is a cooperative activity and the 

conventional idea of cooperation is latent in the 

federation but the structure is an advancement over 

the conventional arrangements. Hence, 

representative and participatory processes govern 

it. The board of directors is the decision-making 

body which is accountable and answerable to the 

members. 

3. The objective behind the federation is uniform 

but it has the potential to manifest in different 

forms. Hence, different models of federations have 

come into existence all over the country. 

4. A federation is an association of autonomous 

bodies called SHGs. Although it is an apex body, 

it cannot exist independent of the SHGs. In the 

ultimate analysis, it serves the interests of its 

constituent members. 

5. A federation is established to add synergy to the 

operations of the SHGs and to increase their 

financial effectiveness. It is neither a burden nor 

an encumbrance to the SHGs. 

6. The federation’s primary function is to enlarge the 

financial sphere of the SHGs but it assumes a 

number of non-financial functions due to its 

representative and social character. 

7. As SHG federations are a relatively new concept, 

the operational arrangements are slowly evolving. 

There is considerable scope for improvement as 

well as systematisation. 

8. The effectiveness of federations depends not only 

on the financial turnover achieved but also on the 

quality of services provided to the members. 

Hence, for promoting and nurturing the idea of 

federations, best practices needed to be studied 

and the lessons disseminated. 

3.1 Techniques of Data Collection: After 

building on the initial understanding of a 

‘federation’, the study team formulated the 

study design which proposed collection of 

primary as well as secondary data for the 

study. 

3.1.1 Primary Data Collection: It was agreed 

among the team members that an intensive 

participatory survey was needed to ascertain 

the opinion of the various stakeholders in 

the federating process. The quantitative as 

well as qualitative data collected from the 

survey would help in getting in-depth 

information of processes, governance, 

structure, services and operations in an 

entity called the ‘federation’. The various 

stakeholders identified for interviews were 

SHG leaders, federation members, PIs, 

academicians, capacity-building 

institutions, policy-makers, development 

financial institutions and practitioners. A 

guide to fuld reports is attached as 

Annexure-III. 

3.1.2 Secondary Data: It was proposed to collect 

literature from the federations studied to 

determine their financial and social 

sustainability. The researchers were asked 

to collect relevant data for at least one year. 

Annexure III-Part 5 presents the list of 

variables for which secondary data was 

collected from the federations. 

3.2 Sample Selection : The study attempted to 

look at the federating experience across all 

the five regions of the country. The 

following criteria were laid down for 

selecting federations for the purpose of the 

study: 

● 

● 

Federations of SHGs that are facilitating 

or engaged in mF activities - savings, credit 

or insurance, irrespective of whether they 

are registered or not. 

A federation with a life span of three years 

(this condition was relaxed in some regions 

where the promotion of federations was still 

a nascent activity). 

15

● Federations with a minimum size of 100 

SHGs (this condition was again relaxed up 

to 50 SHGs in view of the nascent character 

of the phenomenon). 

● An attempt was made to capture the full 

diversity. 

As federations are most developed in the four southern 

states - Kerala, Tamil Nadu, Karnataka and Andhra 

Pradesh - 13 cases, comprising the majority, were studied 

from the region. Other regions covered by the study 

were West (3 cases), North (5 cases), East (3 cases) and 

the North-East (3 cases). The study also examined the 

financial data of seven selected federations in detail 

through a parallel team comprising finance experts. The 

list of federations studied is attached as Annexure-II. 

3.3 Statistical and Financial Tools Applied 

3.3.1. Rating System for Measuring Non- 

Financial Performance: Finding Locus of 

Control Among the Members. 

● 

● 

● 

● 

● 

● 

● 

The following seven factors were considered 

in deciding locus of control: 

Criterion 1: PI representation in the 

governing board of the federation; 

Criterion 2: Number of PI staff placed 

among the federation staff,practitioners ; 

Criterion 3: Role of PI in deciding the 

format, structure and role of federations; 

Criterion 4: Whether the members were 

involved in the preparation of the federation 

budget; 

Criterion 5: Attendance and substance of 

the proceedings in the meetings of the 

governing board of the federations; 

Criterion 6: Funding strategies of the 

federations; 

Criterion 7: How close the PI was to 

withdrawal from the federation 

Each federation studied was assessed on the above 

parameters. Each parameter was evaluated on a fivepoint 

scale. We accorded double weightage to the first 

three of the above criteria as compared to the rest. Thus 

the federations were evaluated on a total of 50 points 

Higher scores indicated greater role and control of the 

PI in the management of the federation. Federations 

that scored more than 25 were categorised as having 

external locus of control. 

Data culled out from the federation matrix was used to 

categorise the federations. Using the above criteria, the 

different federations studied were then classified into 

the two categories. A word of caution as stated before, 

the situation pertaining to federations is dynamic and 

constantly evolving. Hence this categorisation also 

remains open to change. The scores of each federation 

studied are given in Table 5.1.of chapter 5. 

3.3.2 Financial Tools 

The finanial team decided to financially analyse only 

seven of the 27 federations studied because of data 

constraints. The team used a set of key indicators to 

study financial sustainability of the do we need 

federations. Box 6.1 in Chapter 6 lays down the 

formulae used in calculation of these indicators. The 

ratios considered for financial sustainability are as 

follows: 

1. Portfolio at Risk 

2. Loan Arrears Rate 

3. Cumulative Repayment Rate 

4. Operating Cost Ratio 

5. Total Cost Ratio 

6. Subsidy Dependence Index 

3.3 The Research Team 

The entire process was supported by an advisory team 

consisting of senior persons from the mF sector in India, 

a team of financial experts, five study teams of two 

members each and a writing team. The study teams 

comprised members from Chaitanya, Mysore 

Resettlement and Development Agency (MYRADA), 

Professional Assistance for Development Action 

(PRADAN), Rashtriya Grameen Vikas Nidhi (RGVN), 

OUTREACH, Development Support Team (DST), 

Shramik Bharti, Friends of Women’s World Banking 

(FWWB) and Sa-Dhan. 

16 



4. Planning and Monitoring Process 

The decision to engage practitioners to undertake the 

study threw up many challenges. They were from 

different regions with different kinds of individual 

capacities and exposure on federations. In order to bring 

uniformity in the data collected from the field, a content 

and process monitoring framework was developed to 

guide the progress of the study. The content framework 

detailed the core issues to be considered by the study 

team. This was done in consultation with the study and 

the advisory teams. . To reduce the time of interaction, 

the primary data collection sheets –Part (A) for PIs and 

Part (B) for federations were sent to all the selected 

federations and their promoting NGOs before they were 

actually visited by the study team. 

A pilot test was administered to ascertain the 

appropriateness of the framework in the Ranga Reddy 

and Mahaboob Nagar districts of Andhra Pradesh. 

Based on the outcome of the pilot test, core issues of 

the framework were further improved and detailed out. 

Figure 1: Planning and Monitoring System for the Study 

FORMATION 

OF THE TEAM 

FIELD TESTING OF DATA 

COLLECTION TOOLS 

CONSULTATIVE WORKSHOP & 

FORMATION OF ADVISORY COMMITTEE 

LITERATURE REVIEW & 

DEVELOPING ASSUMPTIONS 

PREPARATORY MEETING 

FOR FIELD VISIT 

FIRST PHASE 

OF THE FIELD STUDY 

SECOND PHASE 

OF THE STUDY 

FINAL PHASE 

OF THE STUDY 

CONSTITUTION 

OF THE FINANCIAL TEAM 

17

The interim findings of the study were presented at a 

national workshop held in New Delhi on December 

3, 2002 attended by practitioners, policy-makers, 

bankers, donors, support agencies including 

consultants and other stakeholders. The aim of the 

workshop was to get the views, concerns and feedback 

of the different constituencies on the initial findings. 

The implicit purpose was to bring the issue of SHG 

federations to the centre stage of development thinking 

in mF and community development since SHG 

federations can function as significant sustainable 

community institutions for poverty alleviation and 

empowerment of the disadvantaged. 

5. Limitations of the Study 

Despite the elaborate process involved in developing 

the study framework, it is still characterised by certain 

limitations. The nascent stage of the federations served 

as a constraint at times to comprehending in full the 

concerns of SHGs, federation leaders and PIs vis-à-vis 

the objectives of the study. The questions included in 

the field survey were largely devised from the 

experience of the study team members. The PIs 

provided much of the information since, in many cases, 

linguistic and literacy barriers prevented prolonged 

interactions between the team members and federation 

leaders and SHG members. 

With the Southern region being the leader in the 

growth of the mF sector, the sample was highly skewed. 

Out of 27 federations studied, 13 federations were 

from the four Southern states. Lack of standardisation 

of accounting concepts further restricted the financial 

sample to seven out of 27 federations. The sensitivity 

of the financial data, especially those related to 

portfolio quality and key ratios, required the financial 

team to adopt an approach of critical analysis without 

invading the freedom and autonomy of any of the 

federations and PIs. 

The engagement of practitioners in the study team and 

the scattered sample of federations from the five regions 

posed a challenge to content management. The study 

team members paid varied attention to the agreed 

questions based on their own experience and their 

institutional philosophy. This, along with their 

different (often inadequate) writing skills, led to 

information variations in each of the case studies. And 

despite all the efforts to put down only the study team 

members’ observations, the writing team might have 

interpreted the information provided in the case studies 

as per their understanding and views. 

6. Organisation of the Report 

This report has been divided into an Executive 

Summary and eight chapters and provides a detailed 

account of the outcomes of the study. 

Chapter 1 comprises the objective of study, methodology 

and planning and monitoring processes for the 

study. 

Chapter 2 discusses the current state of the SHG 

movement in India. It reveals various scenarios that 

point to the serious need for consolidating and taking 

the SHGs to the next level of association and aggregation. 

Chapter 3 looks at various theoretical frameworks that 

have been used by different scholars for studying group 

behaviour. This chapter presents experience gleaned 

from well-developed and tested models of community 

institutions. Though SHG federations as a phenomenon 

are still quite new and it might seem premature 

to apply any of these theoretical frameworks, these 

frameworks have been introduced in order to understand 

SHG federations as community institutions. 

18 



Chapter 4 details the basic information about each of 

the 27 federations studied. This includes information 

on when the federation was formed; whether mF was 

a part of the intervention since the beginning or was 

it introduced subsequently; the number of groups covered; 

the different layers of the federating structure; and 

the legal forms adopted at different levels of federations. 

Chapter 5 provides an analysis of SHG federations 

based on their primary functions and locus of control. 

It describes different types of federations emerging 

from the study and their characteristics. It also provides 

a qualitative performance analysis of the studied 

federations. 

Chapter 6 looks at the status of financial sustainability 

in the mF-moF federal system. This effort is aimed at 

analysing whether the federations had reached operational 

sustainability and whether they could be financially 

sustainable. More importantly, the exercise was 

carried out to understand what prevented them from 

reaching financial sustainability or operating 

sustainability. The chapter looked at the financial 

sample and discussed in detail their performance on 

the financial parameters. 

Chapter 7 involves a comparative analysis and looks 

at how federations of one type or another fare on different 

framework parameters. 

Chapter 8 discusses lessons emerging from the study. 

The study has refrained from recommending best practices 

based on these lessons. Federations being a recent 

phenomenon, they have yet to emerge as a tested and 

accepted model for creating sustainable communitybased 

institutions for financial intermediation. Also, 

they are at different levels of development in different 

regions. It was felt that recommendation of best practices 

at this juncture might, therefore, curb the potential 

of the organisations to develop along different paths 

for long-term functioning. 

19

CHAPTER2 

SHGs and their Federations as Vehicles 

of Economic Empowerment: A Historical 

Background 

1. SHGs as Building Blocks 

The SHG movement started in the Seventies as a 

small effort on the part of a few determined and 

enterprising people and organisations. Among the 

pioneers in the field were NGOs like the Association of 

Sarva Sewa Farms (ASSEFA), MYRADA and 

PRADAN. 

Subsequently, SHGs served as a platform for NGOs to 

implement numerous development programmes for 

social and economic empowerment. Some names 

commonly used for such groups or platforms are 

gramsabha, yuvak mandali and mahila mandali. Many 

such groups were engaged in channelising development 

assistance to the villages. These bodies functioned as 

socially legitimate fora to help identify ‘beneficiaries’ 

for specific schemes, undertaking activities of common 

interest, assisting and following up on recoveries of loans 

made to members and revolving the recovered money 

for continuing assistance to the community. These can 

be considered the prototype of the SHG movement. 

Over a period of time, these forerunners of SHGs started 

managing their own savings and credit programmes. 

It took the movement about two decades to gather 

momentum. In 1992 SHGs emerged as important 

players in the microfinance (mF) sector when NABARD 

introduced a pilot programme linking SHGs and banks 

(Self-Help Group Bank Linkage Programme) to enable 

poor households access the mainstream banking 

network and meet their financial needs. However, only 

32,995 SHG bank linkages could take place during the 

period from 1992-99. The programme received a boost 

in the year 1997 at the World Micro Credit Summit in 

Washington D.C., US when a global target was set for 

supporting 100 million of the world’s poorest families, 

especially women, with micro credit by 2005. 

Taking a cue from the targets set during the Summit, 

NABARD announced that the SHG bank linkage 

programme would be expanded to cover 20 million 

households by 2008. By 1999-2000, 1,14,775 SHGs 

were linked to mainstream banks. Thereafter the number 

escalated exponentially. By the end of March 2004, 

10,79,091 SHGs, with 90 per cent membership 

comprising women, were linked to the mainstream 

banking system with a 95 per cent repayment 

performance of loans from SHGs to bank branches. 

The credit flow went up from Rs 571 million during 

the period 1992-99 to Rs 11917.1 million by the end 

of March 2004. 

The phenomenal success of the SHG model in terms 

of outreach and repayment rate encouraged the central 

and state governments to use SHGs (as an entry point 

to reach the target population) as part of poverty 

reduction programmes. Today SHGs are increasingly 

being seen as an important vehicle for social and 

economic empowerment of marginalised communities, 

especially women. Banks other than NABARD have 

also begun to see the usefulness of SHGs in meeting 

their priority sector lending ‘targets’. 

The efforts of over 2,800 partner agencies have 

contributed to this growth of the SHG movement. Of 

20 


SHGs and their Federations as Vehicles of Economic Empowerment: A Historical Background 

the total groups linked till the end of March 2003, 72 

per cent were facilitated by NGOs. Forty-eight 

participating banks, 19 Regional Rural Banks (RRBs) 

and 264 cooperative banks have partnered with the 

SHG movement so far. 

In year 2003, a majority of the approximately seven 

lakh linked SHGs are concentrated in the southern states 

of the country with just two states, Andhra Pradesh 

and Tamil Nadu, accounting for more than 60 per cent 

of the SHGs linked to the banks 

Table 2.1: Growth of the SHG Movement in India 

Particulars March’ 00 March’ 01 March’ 02 March’03 

No. of SHGs linked during the year 81,780 149,050 197,653 255,882 

Growth in SHG-bank linkage 338% 82% 33% 29% 

Total no. of SHGs linked 114,775 263,825 461,478 717,360 

Total no. of NGOs involved 718 1,030 2,155 2,880 

Total Bank Loan (Rs Million) 1,929.82 4808.79 10,263 20,487 

Growth in loan disbursement 238% 149% 113% 87% 

Average loan per SHG (Rs Million) 16,814 18,227 22,240 28,560 

Bank-SHG-Members 14% 13% 16% 20% 

Bank-NGO (Facilitator)-Members 70% 76% 75% 72% 

Bank-NGO Fin. Intmd.-SHG-Members 16% 11% 9% 8% 

Source: NABARD Annual Reports1999-2000, 2000-2001, 2001-2002, 2002-2003 

2. Need for Consolidation of SHGs: The 

Emergence of Federations and Related 

Concerns 

The proven credibility of SHGs in terms of outreach 

and repayment rate and the growing NGO experience, 

has speeded up the pace of SHG formation. As the 

numbers grow with the continuous addition of new 

groups, the degree of NGO involvement and even 

direct contact with the groups greatly diminishes. The 

growing size of SHGs poses a challenge before the 

promoting institutions (PIs) in terms of sustaining the 

guidance and capacity-building inputs that they have 

been providing earlier. They are unable to provide 

groups with the same quality of inputs as they did 

earlier. 

The constraints on account of the small size of SHGs 

are becoming more apparent. The findings of the 

NABARD working group on setting guidelines for 

financing SHG federations/MACs/ mFIs for Andhra 

Pradesh also shares that SHGs still experience difficulties 

in leveraging funds from the formal banking sector. 

Their small size leads to low generation of internal funds, 

which retards their ability to meet the financial needs 

of the members from their own savings or to leverage 

funds from banks. Their ability to negotiate with higher 

level structures and to gain bargaining power is limited. 

(See APMAS assessment findings on status of SHG 

federations in Andhra Pradesh). Mainstream banking 

sector response continues to be apathetic to the micro 

credit needs of these SHGs. Where the branch manager 

is conversant and supportive of the linkage programme, 

SHGs get linked. These challenges are more acute in 

souther states where 80 percent of the loans disbursed 

to SHG member are through bank linkages and differ 

only in degree and scale in other regions. 

Further, it is imperative to build people’s institutions 

that can eventually and independently carry forward 

the social and economic empowerment agenda 

integrated in the SHG model. This is crucial for 

21

allowing NGOs to move on to newer geographical areas. 

The findings of the NABARD working group towards 

setting guidelines for financing SHG federations/ 

MACs/ mFIs for Andhra Pradesh also suggest that the 

difficulties experienced by SHGs in leveraging funds 

from formal banking institutions would necessitate 

constant refining and updating of their linkage 

strategies. 

These issues have opened new horizons before the SHG 

movement. Some of the NGOs have begun to think of 

setting up an apex level body that is able to take on 

many of the NGOs tasks, thus enabling it to utilise its 

limited resources in the most judicious manner. Much 

iteration has been tried for aggregating SHGs at the 

village, cluster and district level. It originates from a 

systemic convenience in which a manageable number 

of contiguous villages where an NGO has been active 

are formed into a cluster. The Cluster Office (CO) deals 

with the village groups and through them channelises 

development assistance to the group members. Often 

the CO needs to do very similar things in all the groups 

functioning in a particular cluster and hence finds it 

convenient to hold meetings with all the group leaders 

at the same time. The frequent meeting of SHG 

members at the CO is the platform for informal 

exchange of information between large numbers of 


In a few cases, groups have come together informally 

either on a particular issue, in situations of crisis or for 

exchanging information and experiences through joint 

meetings. In such cases the initiative for a collective 

organisation comes from the SHGs themselves. A 

federal entity of a number of groups may bring in 

administrative convenience for implementing 

government departments. 

Federating appears to be an important tool for 

overcoming the constraints emanating from the small 

size of SHGs and this in some cases appeared to be the 

main motivation for groups to come together. 

Federating the groups (whether formal or informal) at 

cluster and apex levels provides an intermediary between 

the NGO and the new groups while SHGs serve as 

primary units. 

In response to the emerging need for federating SHGs, 

practitioners and other stakeholders looked at the 

existing experiences of forming community-based 

institutions and their roles in providing financial 

services. Women’s Thrift Cooperatives (WTCs) 

promoted by the Cooperative Development Foundation 

(CDF) since 1986 in Rangareddy district of Andhra 

Pradesh was among the most studied models by the 

early federation promoters. CDF initiatives were 

primarily based on the cooperative model and their 

design did not permit the influx of external finance. 

This to a certain extent is contrary to the objective of 

SHG federations, which could be both registered and 

unregistered and could be used to further strengthen 

bank linkage. 

CARE initiated its mF activities in the early 1990s in 

Chevella and nearby mandals of Rangareddy district, 

and has established a three-tier federation structure of 

SHG-cluster-federation. PRADAN promoted Sri 

Padmavathi Mahila Abhyudaya Sangham in Tirupathi 

in the year 1992. MYRADA has promoted unregistered 

federations of 15-25 SHGs, which focus primarily on 

solidarity building, delinquency management and 

dealing with social issues. 

D. Rajasekhar studied (1994) six organisations to 

understand and learn the approaches, systems and 

experiences of NGOs involved in savings promotion 

and credit provision to the poor. He also looked at the 

federating activities and concluded that federating is 

an evolutionary process and should only be undertaken 

when members express preference for it. According to 

him, federations assume a critical role in the 

development of income-generation programmes by 

‘cushioning the adverse effects that market mechanisms 

and other institutions would have on small producers’. 

22 


SHGs and their Federations as Vehicles of Economic Empowerment: A Historical Background 

In 1996, FWWB carried out a cross organisational study 

of some emerging federations, titled India’s Emerging 

Federations of Women’s Savings and Credit Groups, and 

defined federations as “an association of autonomous 

bodies united for common perceived benefits”. The 

federations studied by FWWB were some of the early 

ones that pioneered the concept of bringing together a 

number of SHGs. These were Grameen Mahila 

Swayamsiddha Sangha (facilitated by Chaitanya during 

1991-92), Mahila Sewa Association (promoted by 

SEWA and started functioning in December 1992), 

Grama Vidiyal (promoted by ASA in 1993) and 

federations promoted by MYRADA and PRADAN. 

In September 2000, a state level convention was 

organised by CARE in Hyderabad to arrive at a common 

consensus on the norms, functions, processes and best 

practices through deliberations about the policy level 

constraints in the promotion of sustainable apex level 

institutions. The deliberations at the convention 

concluded that federations should be ‘need-based’ and 

be able to provide diversified support (financial and 

social) to the groups. 

The NABARD working group assumed the following 

benefits of the emergence of federations from the 

bankers’ point of view: 

❖ 

❖ 

❖ 

❖ 

❖ 

Coordinate and manage effective animator/ 

bookkeeper system 

Promote effectiveness in functioning of SHGs 

Dovetail capacity building with livelihood 

promotion and income generation 

Facilitate and monitor credit linkages with banks 

and other mFIs 

Further reduce the transaction costs of banks in 

financing rural poor. 

Thus, SHGs in their growth trajectory have reached 

the next levels of aggregation, which are appearing in 

multiple models and layers in order to resolve socioeconomic 

issues of poor households and their 

enterprises. In view of the size and scale that is required 

to deliver mF services to millions of households spread 

all across India, practitioners and other stakeholders are 

struggling to unravel many aspects of these SHGs and 

their federations. These efforts are leading to replications 

of successful models across states without an 

understanding of what functioned well, what failed to 

pick up and the factors that were imperative for the 

model to succeed. Moreover, efforts to promote hybrid 

structures are in progress even at the cost of serious 

friction created by these often ill-informed growth 

models, resulting sometimes in the disintegration of 

even basic units such as SHGs. 

23

CHAPTER3 

Issues in Group Behavior: A Review of 

the Literature 

The purpose of the literature review is to summarise 

perspectives that might have a direct bearing on 

the class of organisations dealt with in this study and to 

prepare a framework through which one could have a 

better understanding of their behavioural patterns. The 

components of the various frameworks covered by the 

review and their analyses are subsequently used for 

understanding the federations as actually examined in 

the study. 

The question arises — when do groups work well? It 

goes without saying that SHGs must function well for 

their federations to function efficiently. Therefore, the 

two phenomena — when and why SHGs function, and 

why and when their federations would work well — 

have been examined together. 

Self-Help Groups, and to a large extent their federations, 

are essentially organisations working primarily for the 

benefit of the group members. They are mostly owned 

by the member-users of their services or claimed to be 

controlled and managed by the members themselves. 

They are thus similar to cooperatives and associations 

and are member-oriented firms (MoFs). When looked 

at in their social context, management of MoFs is a 

formal embodiment of group action. It is therefore 

necessary to understand the formal economic logic that 

governs MoFs and their management. It is also 

important to understand the determinants of group 

action. 

1. Group Development 

According to Tuckman 1 and Jensen M 2 . when people 

work in groups, there are two quite separate issues 

involved. The first is the task and the problems involved 

in getting the job done. Frequently this is the only issue 

that the group considers. The second is the process of 

the group work itself: the mechanisms by which the 

group acts as a unit and not as loose rabble. However, 

without due attention to this process the value of the 

group can be diminished or even destroyed; yet with a 

little explicit management of the process, it can enhance 

the worth of the group to be many times the sum of the 

worth of its individuals. 

It is common to view the development of a group as 

having four stages: 

● 

● 

● 

● 

Forming 

Storming 

Norming 

Performing 

Forming is the stage when the group first comes 

together. Everybody is very polite and very dull. Conflict 

is seldom voiced directly and, if done, is mainly personal 

and definitely destructive. Since the grouping is new, 

the individuals will be guarded in their own opinions 

and generally reserved. This is particularly so in terms 

1 

B Tuckman was Professor, General Professional Studies, College of Education, Ohio State University. 

2 

M Jensen was professor Emirates at Harvard University and have worked with Tuckman to proposes various theories related to group 

behaviour and dynamics. 

24 


Issues in Group Behavior: A Review of the Literature 

of the more nervous and/or subordinate members who 

may never come to the forefront. The group tends to 

defer to a large extent to those who emerge as leaders. 

Storming is the next stage, where factions form, 

personalities clash, no one concedes a single point 

without rigorous brain storming. Most importantly, very 

little communication occurs since no one is listening 

and some are still unwilling to talk openly. There may 

be instances of seething sarcasm, invective and 

innuendo. 

Then comes the Norming. At this stage the sub-groups 

begin to recognise the merits of working together and 

the in-fighting subsides. Since a new spirit of 

cooperation is evident, every member begins to feel 

secure in expressing his or her own viewpoint and these 

are discussed openly with the whole group. The most 

significant improvement is that people start listening 

to each other. Work methods become established and 

are recognised by the group as a whole. 

And finally, performing. This is the culmination, when 

the group has settled on a system, which allows free 

and frank exchange of views and a high degree of support 

by the group for each other and its own decisions. 

(Gerald M Blair 3 ) 

2. Groups as User-Controlled Organisations 

Social as well as economic researchers have looked at 

the basic concepts of MoFs or groups and advanced 

several theories that can be applied to user-controlled 

organisations such as SHG federations. Mancour Olson 

in his Logic of Collective Action looks at all group actions 

that are aimed at achieving collective goods. Olson is a 

shade pessimistic about group action. His contention 

is simple: bringing forth group action is easy, much 

easier than sustaining it on a regular basis. The reason 

is that group action comes about when there is a 

‘common enemy’, that is, an issue which concerns every 

one and quite severely. Each one of the potential 

beneficiaries is searching for a solution to the problem. 

For some of them, the trouble of actually doing 

something about the ‘common enemy’ becomes well 

worth the benefit they expect to get. In formal terms, 

the private benefits of bringing in a collective good far 

exceed the private costs, and the individual is willing to 

work alone not caring if every one else will also benefit 

by his action. 

The problem lies in sustaining group action. Once the 

collective good has come about, every one can partake 

of it even if he or she does nothing to maintain it. But 

some one has to do the job of maintaining the collective 

good. Community centers or any common space 

developed by a local panchayat must be maintained. 

Trade unions must remain funded. Cooperative stores 

have to be managed. SHG accounts must be kept, 

recoveries made, money deposited in banks and so on. 

Such activities need attention, time, effort and money. 

Each member thinks, “why should only I do this?” And 

it does not stop here. Even if someone does take the 

responsibility, others have to cooperate. They, however, 

are averse to cooperation if it means adjusting their own 

behavior to suit others. 

Thus, ensuring compliance is a major task. Why should 

any one agree to do this? Olson’s answer is “for sidepayments” 

(that is, some form of private benefit which 

only the individual willing to take on the responsibility 

of sustaining the collective good gets.). An individual 

will agree to run an association because he/she gets 

recognition. In some cases, the “side-payment” may be 

explicit cash or a similar benefit in kind. If there is no 

side payment of any kind, not only of social deference, 

recognition or prestige, the chances are that either the 

collective good will soon be privatised or else, it will 

degenerate. The lesson is clear: there is an inevitable 

need to make side-payments to those who continue to 

work towards maintaining the collective good. 

3. Conditions for Stable Group 

Sociologists are of the opinion that tasks are best carried 

out by small groups. This is so because they allow active 

participation and contribution of the members since 

3Gerard M Blair was a Senior Lecturer in VLSI Design and Project Management in the Department of Electrical Engineering, The University 

of Edinburgh, Scotland UK. His work includes Teams and Groups, Presentation Skills, Time Management, Quality in the Team, Writing 

Skills, Delegation, Managing People, Oral Communication, Project Planning. 

25

the interaction and/or transactions take place face to 

face. This engenders assurance and confidence in the 

process. Secondly, it allows space and time for 

confidence-building measures or processes to play out. 

In general, social pressure and social incentives operate 

more in groups of smaller size, so that the members can 

have direct contact with one another. 

Professor Leon Festinger, a social psychologist, observes 

that “attraction of group membership is not so much 

in sheer belonging, but rather in attaining something 

by means of this membership.” 4 Georg Simmel 

explicitly stated that smaller groups act more decisively 

and use their resources more effectively than large 

groups. He opines that “small, centripetally organised 

groups usually call on and use all their energies, while 

in large groups, forces remain much oftener potential.” 5 

There is, however, one case in which incentives may 

well be able to bring about group-oriented action in a 

large group. This is the case of a ‘federal’ group - where 

a group is divided into a number of smaller units, each 

of which has a reason to join with the others to form a 

federation representing the large group as a whole. If 

the centralised or federated organisation provides some 

service to the smaller constituent organisations, they 

may be encouraged to use their social incentives to get 

the individuals belonging to each small group to 

contribute towards the achievement of the collective 

goals of the whole group. Thus organisations that use 

selective social incentives to mobilise a latent group to 

be interested in a collective good must be a federation 

of smaller groups. 

The structure of the SHGs and cluster/federations of 

SHGs adopt the small group and large group 

characteristics. While the cluster and federations are 

large groups of people, they continue to have smallgroup 

characteristics. 

In a seminal paper, ‘Conditions for Group Action 

among Farmers’ V.S. Doharty and N. S. Jodha 6 

conclude that “local group action can only be based on 

rules, which establish a society of reciprocity rather than 

redistribution, with respect to the resource or activity 

involved. Willing participation can only arise if the 

resource in question works in the same way for all its 

users, and if each has the right and opportunity to protect 

individual member interests vis-a-vis the other users”. 

They enunciated the following seven conditions for 

successful group functioning: 

● 

● 

● 

● 

● 

● 

● 

Collective good 

Organisational good 

Individual profit 

Compensatory profit 

Functional identity 

Appropriate group size 

Structural guarantees 

A collective good is identified by the fact that every 

member of a group has the equal right to its 

consumption. If available to one, it is available to all. 

However, here reference has been made to those goods 

that can be utilised by all the members and benefit each 

one individually. Collective goods are defined with 

respect to specific groups and to initiate group action it 

is important to identify a group for which the provisions 

of true collective good are possible. 

The potential for collective good is not in itself a 

sufficient reason for group action. The organisational 

good must only be available when the potential 

beneficiaries organise themselves to procure it. 

Individuals will subscribe to group action on a sustained 

basis only if there is potential for individual profit. As a 

rule of thumb, one could suppose that the required level 

of individual profit to a member of the group is about 

equal to the percentage return on investment required 

to motivate the establishment of an individual business 

in the same area where the group action is proposed. 

Compensatory profit is compensation for putting more 

time and effort than others do in the group for it to 

4 

Leon Festinger, “Group Attraction and Membership,” in Group Dynamics, 1953, P. 93. 

5 

Georg Simmel, The Sociology of Georg Simmel, trans. Kurt H. Wolff, Free Press, 1950 

6 

ICRISAT, Occasional Paper 19, 1977 

26 



function and deliver its intended benefits. The 

compensation may not always be economic incentives 

but in terms of social recognition and prominence to 

the group leaders. People are sometimes motivated by a 

desire to win prestige, respect, friendship, and other 

social and psychological objectives. Social sanctions and 

social rewards are ‘selective incentives’ that can be used 

to mobilise a latent group. Cooperative individuals can 

be invited into the core group while recalcitrant 

individuals can be ostracised. Social incentives should 

be analysed in much the same way as monetary 

incentives. They are important mainly in small groups 

and play a role in the large group only when the large 

group is a federation of small groups. 

If individual members have diverse reasons for being in 

the group it lacks functional identity. Lack of functional 

identity prevents common interest in maintenance of 

the system and defeats the very purpose of the group’s 

existence. 

Appropriate group size is a function of task and 

technology and is important for the group to perform. 

Another important factor, which engenders cooperation 

among members, is permanence of the structure. Who 

would want to entrust their money (or even time and 

effort) to a structure that is likely to cease to exist any 

time? Systems and method of providing structural 

guarantees is an important determinant of stability of 

the group. 

4. Theory of Linkage Dependent Cooperatives 7 

Formal cooperative federations are the closest parallels 

to the SHG-federations. Both are community-based 

democratic structures, managed and run by the users 

for their own benefit. While the cooperative movement 

has fallen into disrepute today, there are also 

phenomenally successful and outstanding examples that 

can be cited. The most well-known and admired being 

the Gujarat Cooperative Milk Marketing Federation 

(GCMMF) of Amul fame. A fair deal of research has 

been done on the cooperatives and their federations to 

understand the factors behind their success or failure. 

Tushaar Shah, as part of the massive networked research 

on rural cooperatives undertaken by IRMA (Institute 

of Rural Management, Anand), developed and tested 

the ‘Theory of Linkage-Dependent Cooperatives’ using 

100 case studies over three years. The theory argues that 

the success of a cooperative, at the village level or the 

entire federal system, depends upon how effectively it 

serves the purpose central to its user members; and how 

effectively it does this depends critically on how well it 

gets designed to do so. Successful cooperatives 

constantly strengthen the patronage ties with members 

by constantly building and offering a range of Unique 

Member Allegiance Propositions (UMAP). 

Shah postulates that every cooperative has a certain 

‘design potential for performance’ determined by the 

business system in which the cooperative operates, and 

the size, characteristics and resource endowments of its 

domain. This design potential is best taken as given in 

the short run, although in the long run the design 

potential itself may increase in response to a successful 

cooperative. He views the cooperative to consist of five 

sub-systems: governance structure, operating system, 

micro-environment, critical linkages and patronage 

subsystem. The actual performance of the cooperative 

is determined by the performance of each of these five 

components which, in turn, is affected by a set of 

mediating variables as under. 

4.1 Determinants of Performance 

4.1.1 Governance Structure 

Governance structure refers, essentially, to the 

board and the chairman of the cooperative. Its 

primary function in a cooperative is to aggregate 

member preferences and represent this aggregate 

in formulating goals, policies, and decisions 

pertaining to the patronage interests of its 

members. Two features of the cooperative 

governance structure are crucial to high 

performance: 

7 

Tushar Shah, Making Farmers’ Cooperative Work - Design, Governance and Management, Sage Publication, 1995 

27

● 

● 

Internality of Locus of Control - This 

indicates the extent to which a cooperative’s 

governance structure feels responsible and 

empowered to take and carry out decisions 

necessary for ensuring proper functioning 

of the cooperative. A governance structure 

that feels powerless breeds underperformance 

and impermanence. 

Patronage Cohesiveness - Even with 

internal locus of control, the efficiency with 

which a cooperative’s board promotes the 

aggregated patronage interests of the 

members is the central feature of a wellperforming 

governance structure. This is 

called patronage cohesiveness. A patronage 

cohesive board is responsive to patronage 

issues important to members. 

4.1.2 Operating System 

The cooperative’s performance depends to a 

considerable extent on a) its operating efficiency; 

b) patronage responsiveness of the operating 

system; and c) how effectively is the operating 

system able to protect the integrity of the membercooperative 

relationship. 

Operating efficiency is an all-encompassing term 

aggregating not only technical and economic 

efficiencies but also the skill with which the 

management harnesses opportunities to value-add 

and generate a surplus. 

● 

● 

Patronage Responsiveness: Patronage 

responsiveness suggests the extent to which 

the operating system is responsive to the 

patronage needs of the members. 

Integrity of Member-Cooperative 

Relationship: Protecting the integrity of the 

member-cooperative relationship involves 

two things: first, ensuring the honesty of 

the transactions between members and the 

cooperative; second, of maintaining 

instrumentality between contributions 

made by a member and the rewards that 

the member is then entitled to. 

The design potential for performance is the interactive 

outcome of the working of each of these five subsystems. 

Under-performance in any one sub-system can 

reduce the overall performance of the cooperative. 

Similarly, under-performance in one can be offset 

somewhat by the high performance of another variable. 

4.1.3 Critical Linkages 

The linkage of the cooperative with the federal 

structure is of critical value and a determinant of 

cooperative performance. It has two mediating 

variables: 

● 

● 

Competitive Advantage: Critical linkage 

with federal cooperatives provides village 

cooperatives access to global distinctive 

competitive advantages (GDCA). These 

they can use to offer their members better 

terms of business relative to local 

competitors. The federal cooperative is able 

to offer GDCA by harnessing economies 

of scale, pooling risks, securing access to 

complex capital-intensive technologies and 

by exploring distant markets and new valueadded 

opportunities. 

Performance Demand and Performance 

Support: The field unit’s impact on the 

village cooperative’s performance is 

powerful and beneficial when the demands 

made are high and the support offered by 

the former is tightly linked to the 

performance shared by both. The federal 

cooperative’s field unit is able to exercise a 

powerful influence on the governance 

structure and the operating system of the 

village cooperative both by making 

demands and offering support. Demands 

are made by setting targets for business 

28 



volume, profitability, membership, credit 

recovery, etc. Support is offered in the form 

of resources, training, technical and 

managerial guidance, and logistics. 

The extent to which a federal system is able to provide 

high quality critical linkages - in the form of GDCA as 

well as performance demands and support - to its 

member cooperatives is influenced by: 

a) its design potential for performance 

b) its patronage orientation 

c) its operating efficiency and 

d) its coordination effectiveness 

High design potential for performance and patronage 

cohesive governance at the level of the federal system 

are necessary and sufficient conditions for the village 

cooperative to receive strong and high quality critical 

linkages from the federal system in the form of GDCA 

and performance demands and support. 

4.1.4 Micro Environment 

The micro-environment in which the village 

cooperative exists consists of two subenvironments: 

the socio-political system and the 

competitive system. The first affects the 

cooperative’s governance structure, and the second, 

its operating system. The interaction between the 

cooperative and the local socio-political 

environment can be enabling or disabling. High 

performing cooperatives are somehow able to 

build selective insularity that buffers it from 

dysfunctional interactions with its immediate 

environment. The quality of selective insularity 

that a cooperative is able to build will depend on 

the ‘patronage cohesiveness’ of its board. Thus the 

micro-environment can be listed to consist of the 

following three mediating variables: 

● 

● 

● 

Nature of micro environment 

Intensity of competition 

Selective insularity 

The ease with which a cooperative is able to deal 

with its local competitive environment depends 

largely on the quality of the Local Distinctive 

Competitive Advantages (LDCA) it is able to build 

through its operating efficiency as well as the access 

it has to the GDCA from its critical linkages with 

the federal system. 

4.1.5 Patronage System 

The patronage sub-system includes the users of 

the cooperative’s services and their household 

economies. Two characteristics of the patronage 

system that affect the design of potential for 

performance of a cooperative are: patronage 

potential and centrality potential. High patronage 

and centrality potential suggests high design 

potential for performance. 

● 

● 

Patronage Potential: Patronage potential is 

the volume of business the cooperative can 

potentially command under reasonable 

performance. Patronage potential 

determines the economic viability and 

strength of the cooperative. 

Centrality Potential: Centrality potential 

in contra-distinction denotes the degree to 

which a reasonably well-performing 

cooperative can become central to its 

business, its membership and its domain 

because it provides services that its members 

value. Centrality potential determines the 

level of stake and involvement the 

community will have in building and 

nurturing a high performing cooperative. 

4.1.6 Transactions Cost Economics View of 

MoF 

An interesting, if very clinical, view can be taken 

by using the concepts of transactions cost 

economics. Costs involved in any transaction (say, 

a woman borrowing money from a moneylender) 

are essentially of three types: search, monitoring 

29

and enforcement. Costs are incurred by both the 

parties on either side of the transaction. Just as a 

poor woman must ‘search’ for a Good Samaritan 

who will lend her money, the latter must be able 

to monitor the poor woman’s income, cash-flow 

and hence repayment of principal and interest. 

And while the woman must be able to ensure that 

he actually returns the bit of silver she has pawned, 

he must be able to enforce full repayment. In 

general, women members will join and remain in 

an SHG if the transactions costs (TC) associated 

with saving and obtaining credit from the group 

are lesser than available sources. This entry-level 

condition seems to be very easily fulfilled given 

the worries of safekeeping of savings and obtaining 

reasonably priced small instalments of debts for 

flexible end-use in rural and urban areas for the 

poor. In fact, the traditional moneylender performs 

far better on transaction costs than formal 

institutions and now we find, by way of the 

revealed preference of lakhs of women, that SHGs 

are better than the traditional moneylender. 

Understanding the basic pattern of economic 

exchange that governs long-term viability of the 

group is a bit more complex. Several issues 

mentioned below plague the maintenance of a 

collective good. 

● 

The first is the free-rider problem. What does 

one do if a member simply enjoys a 

collective good and does not abide by the 

norms? The group handles this by enforcing 

rigorous discipline on the lending and 

recovery side. Many groups do not give even 

● 

● 

● 

● 

emergency loans to those members who 

remain absent at many meetings and do not 

save regularly. Social ostracism and pressure 

ensures recovery. 

The second issue is regarding rewards or 

their absence for regular and loyal users of 

services. Groups have to find out possible 

rewards for useful and loyal members. It 

also needs to devise mechanisms for 

awarding punctual and regular attendance 

at meetings. 

The third issue, (not so much relevant here) 

is about apportioning ‘profits’ or surpluses 

(what TC economics calls ‘residues’) in 

managing an economic activity for the 

group. Defining norms that govern rights 

to surpluses is important for long-term 

survival of all economic organisations. 

The fourth is the important issue pertaining 

to viability of the activities undertaken by 

the group. Clearly, when the receipts exceed 

outgo period after period and predictably, 

the group is operationally sustainable. 

Finally the fifth is the issue of ‘alignment’. 

This comes into the picture when the 

members are expected to make 

contributions in more than one manner and 

when they get more than one kind of 

benefit. It becomes significant only when 

the size of the benefits rises. 

30 


CHAPTER4 

Federations Studied 

This chapter presents basic information about the 

federations studied for the purpose of this report. 

It intends to familiarise readers with the entities that 

are emerging now and, more importantly, to heighten 

awareness about the great degree of diversity that exists 

among SHG federations today. 

The information in this chapter is presented in a tabular 

form in Table 4 A, 4B, 4C, 4D & 4E, abstracting the 

more salient features across federations. It must, 

however, be remembered that there are several instances 

of a single PI promoting a large number of federations 

and at different levels. In such instances, names of 

federations have been dropped. Also, in these cases, the 

date of formation of the federation would represent the 

date of start of the federating process, since some 

federations may have been formed subsequent to that 

date and some indeed would be under formation. While 

looking for an information on a specific federation 

promoted by a specific PI, all the tables i.e., 4A, 4B, 

4C, 4D & 4E at the end of the chapter should be 

consulted. 

The data provided in Table 4A covers information on 

different aspects of the federations studied such as their 

outreach, operational structure, legal form, sources of 

revenues, the activities in which the federation is engaged 

and the time taken by the basic units, i.e. SHGs, to 

federate. Apart from these, the following factors have 

also been taken into consideration: 

● 

● 

The type of PI associated with each of the 

federations studied 

The duration of microfinance operations 

● 

● 

● 

● 

● 

● 

The year the federation was established- the age of 

the federation? 

The size of the federation in terms of number of 

groups associated with it 

The structure of mF operations 

Legal form adopted for the federating activities 

The social and financial activities in which the 

federation is engaged 

The sources of revenue of the federations 

From Table 4A, it is apparent that the earliest formed 

federations among the surveyed ones is PPI Cuddalore, 

set up around 1980. However, a bulk of the studied 

federations was initiated sometime around 1990. The 

earlier organisations were formed with a more inclusive 

agenda and gradually focused on SHG-mF activity. 

Most promoting NGOs are much older than the start 

of their mF activity and this in turn pre-dates the 

federations they have floated. This is to be expected, 

since the NGO may have first been working in other 

thematic areas, and then taken to SHG activity and, 

having done so, later decided to federate the SHG. 

Interestingly there are three exceptions, with regard to 

NGOs, even to this rule: Adarsh, Outreach and 

Chaitanya. These promoting agencies had a clearly and 

sharply defined focus on SHGs and mF as at least the 

entry point activity, if not as the sole purpose of their 

work. 

By analysing data collected from case studies of 

federations, there are federal bodies at village, block and 

the district level within the area of operations of different 

NGOs. Interestingly, some NGOs have chosen to form 

multi-tiered federal bodies. SHGs can be affiliated to 

31

village organisations (VO), VOs to clusters and clusters 

to area-level federations. In fact, there is much diversity 

in these patterns. Further, PIs have been known to shift 

from one pattern of federal structure to another for 

various pertinent reasons. This shows how vibrant and 

dynamic the SHG movement currently is. Instead of a 

standard ‘blue-print’, people are experimenting with 

what suits their specific needs and styles of working. 

However, it was felt that in all humility the study should 

refrain from imposing any judgement on as to which 

form is the best for the SHG movement. 

The table 4A also throws light on another important 

facet: the number of groups formed by the PIs and 

hence, the eventual number of women members varies 

hugely. There are very large federations of the type 

formed by LEAD or ASA that have hundreds if not 

thousands of SHGs affiliated to the system. On the other 

hand, there are small organisations in the East and 

North-east that have just begun their SHG operations 

and consequently have very few SHGs associated with 

their federations. 

As seen in Table 4B, there can be several layers of 

‘intermediary federal structures’ between the apex 

federation and the SHG. There are several cases of four 

layers. In the case of ASA, there are as many as five 

layers. This reinforces the complexity and variety of 

choices exercised by PIs. Here we describe the reality, 

and in subsequent sections, we discuss what tends to 

influence the choice of such structures. In almost all the 

cases the base layer—the SHGs—are informal associations. 

They are not ‘bodies corporate’ and have no legal personae. 

Nine of the 27 cases studied were registered entities. 

The choices varied between a Mutually-aided 

Cooperative Society (MACS), Trust or Society. This 

indicates the emergent nature of the organisation rather 

than the deliberate choice of the PIs. It was noticed 

that in most cases it was intended to eventually register 

the apex tier. Currently, there is some indecision 

regarding the appropriate legal format. The table 

presents the process of formation of the general body 

of these federations. The preferred option seems to be to 

empower each member woman to be a direct member up 

to the cluster level but have representative membership at 

higher levels of federal organisations. 

Table 4C also shares the ‘social intermediation roles’ 

being played by the federal organisations as seen by the 

study. These entries sum up the responses about roles 

of federal organisations as given by the NGOs 

themselves and hence pose a danger of being a mix of 

reality and ideal construct. Largely NGOs preferred not 

to consider the federations as ‘post boxes’. This seems 

to be counter-intuitive. It appears eminently sensible 

to make the federations hubs of communication. Being 

proximate, both socially and spatially, they can then 

relate more easily with the SHG members. For some 

reason, this does not appear to be the case. Strenuous 

efforts to inject a “suis generic” existence to federations 

appear to have been made. Each type of organisation 

has its own personality and so do the NGOs. Most 

federations seem to act as pressure groups for and on 

behalf of women. Advocacy roles are claimed on a range 

of issues from alcoholism and in-family oppression of 

women, to natural resources management. About 20 

federations seem to be engaged in some developmental 

programme (other than mF). Education, health and 

livelihoods are the most preferred themes. 

The table 4-D shows the various mF-related roles the 

federations perform: 

● 

● 

● 

● 

● 

Training of members 

Audit of the SHG accounts 

Assisting the SHGs in book-keeping 

Directly lending to the members or the SHG 

Assistance in recovery of loans 

The chief focus of the federation becomes apparent from 

the degree of commitment to these roles. If a federation 

undertakes all of the above functions, it can be argued 

that it is essentially engaged in mF operations. A 

federation which does not undertake any of these may 

be nascent, but otherwise clearly focused on other 

benefits of bringing the members together, such as the 

social roles described earlier. Table 4C & 4D also show 

that while there may be different degrees of engagement 

in these two types of tasks, there is no hiatus or mutual 

exclusivity about them. 

The table 4E shows the various sources of revenue of 

the federations. The main sources of revenue as 

mentioned in Table 4E are: membership fee, service 

charges and retention of interest spread. This data is 

32 



incomplete since it is limited by the precision with which 

it could be collected. Secondly, it is important to 

understand their operating sustainability, only if one 

were primarily concerned with federations engaged in 

mF operations. Many federations are in fact engaged in 

non-financial roles and some of them exclusively so. 

Clearly, the extent to which they can generate revenues 

will differ from the extent to which federations involved 

in financial transactions with SHGs and/or members 

can. The latter can augment income by measures such 

as charging and recovering fees etc. It may be more 

productive to appreciate the range of avenues being used 

by the federations to generate revenues, rather than 

making a judgement on the ability of a specific 

federation to derive revenues from its routine functions. 

Table 4-A 

Basic Relative Information about Pls. & Federations 

Name of the 

federation 

SOUTH 

Karnataka 

Name of the 

PI 

Year of NGO 

start 

Year of MF 

start 

Grameen Mahila Grama Vikas 1980 1994 1997 

Okkuta (GMO) 

Year of Estb 

of Fed 

Sangamam, Hosur Outreach 1993 1993 Cluster-1996 

Fed (project / 

bl level)- 2002 

Sarvodaya Okkoota, Myrada 1968 mF only by 

H.D. Pura 


Myrada does 

not engage in 

mF. Federations 

also not 

engaged in mF. 

Tamil Nadu 

# Fed staff other than 

NGO staff 

Fed working independently 

since june 2002 

and has its own staff. 

The staff includes 17 

full-time staff and nine 

paid volunteers, including 

administration staff. 

One member designated 

on voluntary 

basis 

1 Bookwriter, 1 Health 

Promoter 

Current # groups in 

Federations (Av if 

there are many) 

275 

222 

19 

Bhawani Mahasabai, LEAD 1987 1991 CLF started in 

Panjapatti (BMP) 

1993 and ALF 

started in 

1996. 

Grama Vidiyal Activits for 1986 1993 1993 

Social Action 

(ASA) 

No 

(Branch staff -7/ 3 

Federation leaderFed/ 

NGO employees) 

Cluster - maximum of 

35 SHGs. Area Fed- 4 to 

15 clusters 

3300 

PPI Cuddalore Community 1980 1982 1995 

Service Guild 

Sarvodaya Mutual ASSEFA 1969 1999 2001 

Benefit Trust. Chennai 

3 hired and 3 deputed 

from NGO 

8-12 staff per MBT 

depending on the 

coverage and location 

70 

4065 

33

Name of the 

federation 

Name of the 

PI 

Year of NGO 

start 

Year of MF 

start 

Year of Estb 

of Fed 


NGO staff 




Kerala 

SHREYAS 1979 1986 - as 1998 

credit unions 

2 / federation 

28 

Sthree Niketh Vanitha TDFF/SIFFS 1980 1990 1993 

Federation (SNVF) 

AWARD CHASS - 1966 1996 - started 1990 

Changanacherry 

Self-help 

Social Service 

Groups 

Society 

(mostly of 

women) 

All Bharat Sevak 1952 1987 2000 

Samaj (BSS) 

Andhra Pradesh 

Adarsha Mahila Adarsh Mahila 1995 1995 VO -Fed- 

Sahakar Samakya Ltd. Samakhya 1997 Cluster 

Jakranpalli Dalitha GRAM 1980 1994 1999 

Mahila Intideepam 

Mutually Aided 

Co-operative Society, 

Ltd. 

WEST 

Maharashtra 

Grammen Mahila Chaitanya 1993 1993 1993 

Swayamsiddha Sangha 

(GMSS) 

Samyuka Mahila 

Samiti (SMS) WOTR 1993 1995 Varies 

SAMUHIK Mahila Amchi Amchya 1984 1991-1992 1998 

Bachat Gat Parisar Arogyasathi (i.e. start of 

Sangh-KORCHI (AAA) formation 

of SHGs) 

PRAGATI Mahila Amchi Amchya 1984 1991-1992 2000 

Bachat Gat Parisar Arogyasathi (i.e. start of 

Sangh-Devpayli (AAA) formation of 

SHGs) 

No PI staff1- 

coordinator4-Regional 

coordinators2-Women 

animators 

None 

123 

Village network 

assistant at the village 

level paid by VO and 

community volunteers 

paid by federation at 

the mandal level 

2 

6 

No independent staff 

No staff engaged by 

the federations yet. 

No staff engaged by 

the federations yet. 

50 

1147 

35 

284 

200 

241 

6 to 10 

18 

23 

34 



Name of the 

federation 

NORTH 

Rajasthan 

Name of the 

PI 

Year of NGO 

start 

Year of MF 

start 

Sakhi Samiti PRADAN 1983 1990 1993 

Federation of Serva ASSEFA 1984 1998 2000 

Seva Nidhi 

Banswara 

Foundation, Garhi 

Women;s Federation PEDO 1980 1988 1999 

for Micro Finance 

(WFMF) 

Uttar Pradesh 

Sankul Shramik Bharti 1986 1989 2001 

Lok Sangha Peoples Action 1989 1994 2001 

for National 

Integration 

(PANI) 

EAST 

Year of Estb 

of Fed 


NGO staff 

4 persons hired by Fed 

24 staff 

Not till date 

Project staffProject Staff 

is also NGO staff, there 

is no Fed Staff 

NA 




175 

274 

708 

30 

Bet 10-15 

Orissa 

MA BANK ADHIKAR 1991 1996 1999 

LImeshwari Adivasi LIPICA 1989 1992 1995-6 No 

Gana Sangathan 

Federations are 

(LAGS) 

not exclusively 

for MF 

West Bengal 

Sreema Pragati Sreema 1972 Started in 1974. 2003 

Mahasangh Mahila As a separate 

(Ranaghat -2 Block) Samity division started 

At the time of the in 2000 

study the federation 

did not exist. 

NORTH-EAST 

Assam 

Tejpur Dist Mahila Tejpur Dist 1928 1994 1928 

Samity TDMS Mahila Samity 

(TDMS) 

Mallapara Cluster Sipajhar 1930 1997 2002 

Diamond Club 

Manipur 

SHG federation Fraternal 1982 1999 2001 

FGC- VVD Green Cross 

partner villages 

Nil 

2 NGO staff for each 

federation 

2 

_______ 

No 

219 

187 

2000 

40 

4 

24 

35

Table 4-B 

Intermediaries Between Apex Federation & SHGs 

Name of the 

PI 

SOUTH 

Karnataka 

Layers Between 

apex Fed and 

SHG 

Structure of MF 

Operations 

Legal Format 

at First Level 

Legal Format 

at Second 

Level 

Grama Vikas One SHG>Cluster> Informal SHG informal - 

Federation cluster 

Outreach No SGH> cluster informal - informal - 

SHG cluster 

Myrada None MF only by SHGs. None, None, 

Myrada does not informal informal 

engage in MF. 

Fedns. also not engaged 

in MF. 

Tamil Nadu 

LEAD 

Activists for 

Social 

Alternatives 

(ASA) 

One 

Four 

SHG> cluster level Federation 

> Area Fed.> 

SHG - 

informal 

SHG/ centers/ informal SHG 

clustes>Fed of cluster/ 

branch> Fed of branches/ 

Franchise> Fed of 

branches/ Franchise> Fed 

of Franchise / ASA 

Affiliates 

Cluster - 

informal 

Informal - 

cluster (it has 

no financial 

function) 

Legal format at 

third level, if any 

Reg. Society 

informal - fed 

N.A. 

Area Fed - reg. 

Trust 

informal branch 

level federation 

Membership of 

General Body 

Indirect - SHGs are 

members of the Fed. 

SHG represented by 2 

members in GB. 

Women direct members 

of Cluster. 

19 SHGs (2 representatives 

from each member 


2 members from group 

represent CLF and from 

CLF 3 members represent 

ALF 

Direct representation 

through leaders at successive 

levels 

The 

Community 

Services 

Guild 

One 

SHG>Cluster>Fed (1st 

leve=SHG2nd= Cluster 

Fed. 3rd=Apex Federation) 

informal SHG 


cluster (it has 

no financial 

function) 

Reg society 

Indirect - Membership 

of SHGs 

ASSEFA 

Chennai 

None 

SHG(>cluster)> Mutual 

benefit Trust> Finance co 

(NBFC) 

Nil 

Registered as 

Mutual 

Benefit Trust 

Registered as a 

company - NBFC 

Indirect membership. 

SHGs are members of 

the Trust and Trust are 

shareholders in the Co. 

36 



Name of the 

PI 

Kerala 

Layers Between 

apex Fed and 



Operations 

Legal Format 

at First Level 

Legal Format 

at Second 

Level 


third level, if any 

Membership of 

General Body 

SHREYAS 

TDFF/ 

SIFFS 

CHASS - 


Social 

Service Society 

Bharat Sevak 


None 

None 

One 

Nil 

SHG -federationsociety/ 

SHG>Fed>PI 

SHG > Mahila Samajan 

> AWARD 

Members SHG 

Federations (MFI) BSS 

informal - 


Reg. society 

SHGs are unregistered 

SHGs are unregistered 

Registered as 

society 

Reg. Society 

Mahila 

Samajams - 

Registered 

Soceity 

Unregistered 

Nil 

None 

AWARD - Regd. 

Society 

- 

SHGs are members 

Society/SHGs are 

members of the Fed 

All Mahila Samajams 

21 


Adarsh 

Mahila 

Samakhya 

Two 

SHG>village org> 

cluster> Fed 

informal - 


informal VO 

Informal - cluster 

Indirect - 2 reps from all 

the groups in general 

body 

GRAM 

None 

SHG - MACS 

Informal 


Registered 

Under A.P 

MACS Act 

1995 

Jakranpalli MACS 

is a member of district 

federation 

which is also registered 

under the 

same legal frame 

work. The district 

federation is 

mainly supporting 

in policy and advocacy. 

All the shareholders are 

members of general 

body, meet once in a 

year. The representatives 

of village organization of 

SHGs called representative 

general body members. 

They meet once 

every month. 

WEST 

Maharashtra 

Chaitanya 

WOTR 

One 

One 

Fed - SHG - Cluster 

SHG>Village level > 

Cluster > Federation 

informal SHG 

informal - 


Informal cluster. 

Has emerged 

later as nos of 

gps expanded 

Informal - Fed 

(some times registered.) 

Reg as society & 

Trust 

Not applicable 

Group members are direct 

members of the Fed. 

Two reps from each SHG 

are members of the Fed 

Amchi 

Amchya 

Arogyasathi 

(AAA) 

One 

SHG > Village > Cluster 




2 Members per SHG (the 

President and Secretary of the 

SHG) are that SHGs 

representative's in the federation. 

Amchi 

Amchya 

Arogyasathi 

(AAA) 

One 

SHG > Village > Cluster 




2 Members per SHG (the 

President and Secretary of 

the SHG) are that SHGs 

representatives in the federation. 

37

Name of the 

PI 

Layers between 

apex Fed and 



operations 

Legal format 

at first level 

Legal format 

at second level 


third level l if any 

Membership of 

General Body 

NORTH 

Rajasthan 

PEDO 

One 

SHG>Cluster>Circle> 

Federation (proposed) 





SHGs are members 

Cluster - has SHG leaders 

? Circle- leaders of 

cluster SHGs are cluster 

members. Cluster leaders 

are circle executive 

members. 

PRADAN 

One 

SHG>cluster >Fed 

Informal SHG 


cluster 

Reg society 

Indirect -Representative 

membership 

ASSEFA 

Banswara 

One 

Federation of Nidhi 

foundation - SHGs 



None 

Registered from 

the head office as 

Sarva Seva Kosh 

Ltd. Under Company 

act of 1956 

All members of the of 

the Nidhi foundation 

are genera lbody of the 

federation 

Uttar Pradesh 

Sharamik 

Bharti 

None 

SHG-Sankul 



NA 

Representation at 

Sankul 

Peoples 

Action for 

National 


(PANI) 

None 

SHG-Village level Fed 



NA 

Two reps from each 


EAST 

Orissa 

ADHIKAR 

One 

SHG-CLF-FED. Fed. Is 

at block level.CLFis 

formed taking 3-4 

Panchayats. 




cluster 

Not registered. 

Two Representative 

member from each 

group219 X 2 = 438 

LIPICA 

None 

SHG > Fed. 

Informal SHG 

Registered as 

society S.R. 

Act in 1860 

None 

Indirect- 1 member 

from each group is in 

the Fed 

38 



Name of the 

PI 

Layers between 

apex Fed and 



operations 

Legal format 

at first level 

Legal format 

at second level 


third level l if any 

Membership of 

General Body 

West Bengal 

Sreema 

Mahila 

Samity 

Two 

SHG > GVS > AVS > 

Fed. 

Unregistered 

Unregistered 

Unregistered 

Apex Committee - 16 

membersFederation - 

13 members + 2 SMS 

representatives as associate 

members (no voting 

rights) 

NORTH-EAST 

Assam 

Tejpur Dist 

Mahila 


(TDMS) 

None 

PMS are large societies 

with membership ranging 

from 50 to 300 

women. 

Reg. Societies 

Reg as society 


120primary mobile 

10,000membership at 

TDMS 

Sipajhar 

Diamond 

Club 

One 

SHG > Cluster > Fed. 

___ 

____ 

___ 


Manipur 

Fraternal 

Green Cross 

One 

SHG > Village level >Fed 


None 

None 

All the SHG members 

are general body.A 

representative from 

each village constitute 

the executive 

committee. 

39

Name of the 

Federation 

SOUTH 

Karnataka 

Grameen 

Mahila 

Okkuta 

(GMO) 

Sangamam, 

Hosur 

Sarvodaya 

Okkoota, 

H.D.Pura 

Tamil Nadu 

Bhawani 

Mahasabai, 

Panjapatti 

(BMP) 

Grama 

Vidiyal 

PPI 

Cuddalore 


Mutual 

Benefit 

Trust. 

Name of the PI 

Grama Vikas 

Outreach 

Myrada 

LEAD 

Activists for Social 

Alternatives (ASA) 

The Community 

Services Guild 

ASSEFA Chennai 

Table 4-C 

Social Intermediation Roles of the Apex Federation 

Operating as and on Behalf 

of NGO as a Hub of 

Communication 

No 

No 

Fedn. may act as communication 

hub but not only for PI but 

also on behalf of others. Besides, 

Fedn. also has other independent 

agenda. 

No 

YES 

No (They are themselves the 

NGO and the federation.) 

Promoted by the NGO, 

ASSEFA. The MF operations 

are fully handled by the Mutual 

Benefit Trusts. 

Advocacy on Social Issues 

Strongly advocates livelihoods, 

basic needs, empowerment and 

good governance and NRM 

issues at various levels such as 

PRI, district administration and 

the State Government. 

Mobilised- old age pension, 

marriage assitance, roads, street 

light, etc. - But these are 

sporadic activties 

Yes, high thrust on advocacy. 

Yes- on alcoholism, wife 

beating, desertion cases and also 

linkages with govt. programs . 

Child Rights Protection and 

promotional projects, Campaign 

against child labour and 

Dalit Women Development 

Programmes 

Yes 

Yes - local issues are taken up by 

the clusters (and at times, with 

good success.) 

Non financial activities form an 

important part of the agenda of 

the trust. Advocacy and other 

social issues are being taken up 

at the local level and on a case 

to case basis. 

● 

● 

● 

● 

● 

● 

● 

Other Developmental Roles 

Community Development 

Women's health 

Girl Child education 

Institution building for rural 

women 

State-level Networking with 

other federations 

Capacity building for SHG and 

federation members 

Convergence between federation 

and government agencies 

Bulk purchase to agri inputs 

Formation of new SHGs.Training 

programmes for SHGs on demand 

Organising SHG auditsRe-enrolment 

of school dropouts Organising 

health campsPromoting/managing 

plantations Organising grama sabhas 

Mobilising programmes from government, 

Anti-liquor campaigns 

Campaign against Liquor usage, 

Disability Development 

programmes, Child rights protection 

and promotional projects, Campaign 

against Child labour and Dalit 

Women Development Programme - 

all at State level and National level. 

Campaign against sex select, Female 

child abortion, Female child 

infanticied. 

Right based issuesRunning a matriculation 

school for fed 

membersEnterprise training program 

Various activities to do with community 

development, social support, 

solidarity and empowerment, etc. 

No 

40 



Name of the 

Federation 

Uttar Pradesh 




Communication 



Haritha / 

Pournami 

SHREYAS 

Yes 

Yes 

Yes 

Sthree 

Niketh 

Vanitha 

Federation 

(SNVF) 

TDFF/SIFFS 

No since NGO not in picture 

1) Awareness family planning 

& environment 2) Welfare act. - 

ration card, literacy, info on 

schemes, etc. 

Production units - ice plants, boat 

building centres 

AWARD 

CHASS - 



Society 

Yes 

Very high; related to women's 

empowerment 

Livelihoods and Income Generation; 

skill training 

All 

Bharat Sevak 


Yes 

Yes 

Water and sanitation programme, 

Natural Resource Management 


Adarsha 

Mahila 

Sahakar 

Samakya 

Ltd. 

Jakranpalli 

Dalitha 

Mahila 

Intideepam 

Mutually 

Aided Thrift 

and Credit 

Cooperative 

Society 

Limited 

Adarsh Mahila 


GRAM 

Abhyudaya 

Mandali 

No. All the profits generated in 

the business are going to the 

members only and the 

organisation supporting the federation 

is only facilitating. But 

NGO is providing hand holding 

support and so the line looks 

very thin. 

Operating for themselves (for 

their own SHGs) and on behalf 

of them. 

Compared to financial activity 

the social activities are very less. 

But conscious efforts on health 

and education are there. 

Active in abolishing child labor. 

Active in family counseling. 

Campaigning for non-traditional 

income opportunities for the 

poorest of the poor as a real income 

enhancement process. 

Involved in govt. prog, Implementing 

govt. supported residential bridge, 

school and reproductive child health 

programs. 

Active partner in the district 

federation for affirmative policies. 

Advocating for women friendly 

infrastructure. On behalf of District 

federation attending conflict 

resolution in neighboring (Mandals) 

MACS. Took up consumer service to 

members 

41

Name of the 

Federation 

WEST 

Maharashtra 

Grammen 

Mahila 

Swayamsiddha 

Sangha 

(GMSS) 


Chaitanya 



Communication 

No - there is conscious effort 

to develop Fed independently 

from the beginning 


Yes. Federation is also involved 

in building linkages with various 

government departments like 

agriculture, social forestry, for 

the benefit of members 


Educational assistance to needy 

and deserving students among the 

members, Legal aid and counseling 

center, Providing seeds and other 

inputs under the Kitchen garden 

program, Supplementary 

education programs for adolescent 

girls with a dual purpose of 

educational and personality 

development, Entrepreneur 

development program, guidance 

and counseling on Animal 

Husbandry Insurance is a Major 

Component of the Federation's 

Financial Services. 

Samyuka 

Mahila 

Samiti (SMS) 

WOTR 

Yes 

Partially 

Poultry and IG activities 

SAMUHIK 

Mahila 

Bachat Gat 

Parisar 

Sangh- 

KORCHI 

Amchi Amchya 

Arogyasathi (AAA) 

To some extent 

Agitation against increasing in 

the rate of goods in ration shop 

(Govt.), Antiliquor movement, 

anti draught movement, To get 

facility of urinal for women at 

commonplace. 

Marketing of Herbal Products 

with Aamhi Aamchya Aarogya 

Sathi Support. 

PRAGATI 

Mahila 

Bachat Gat 

Parisar 


DEVPAYLI 

Amchi Amchya 

Arogyasathi 

(AAA) 

To some extent 

For utilization of 10 % Gram 

Panchyat fund for the women 

issues., Antiliquor movement,… 

Nil 

NORTH 

Rajasthan 

WFMF 

PEDO 

No 

The local institution has become 

not only the centre for economic 

development but also for the 

holistic development of the 

members and their families in 

general and for women members 

in particular 

Education, health, income 

generation, forestry, animal 

husbandry, irrigation 

Sakhi Samiti 

PRADAN 

No 

Issues such as Land disputes, 

social forestry etc. 

Dairy development 

ASSEFA 

Banswara 

Trying to act 

Against social ill practices, 

Resolving family disputes, 

Health & Education 

42 



Name of the 

Federation 

Uttar Pradesh 




Communication 




Sharamik Bharti 

Yes 

Yes - beginning 

Helping to get civil amenities 

Lok Sangha 

Peoples Action for 

National 


(PANI) 

No 

High social mobilization. Work 

very closely with local government 

agencies and Panchayat 

Federation leaders are also taking 

active part in decision-making. 

They are involved in micro-level 

planning. 

EAST 

Orissa 

MA BANK 

ADHIKAR 

Coordination linkage with 

Bankers. 

Yes 

Participation in forest protection, 

education programme, health 

programme. 

Limeswari 

Adavasi Gana 

Sangathana. 

LIPICA 

Fixes village loan targets as 

per availability of funds 

with NGO 

Yes - takes up land related issues 

of tribals and other local legal 

issues. 

Linkage with dist. admin. for taking 

advantage of diff. schemes 

West Bengal 

Sreema Pragati 

Mahasangh 

(Ranaghat -2 

Block) At the 

time of the study 

the federation 


Sreema Mahila 


The cluster level is acting as 

a information channel between 

the members and the 

NGO 

Family counseling, Awareness 

Workshops 

Health and Sanitation, Diseaster 

and preparedness, Training 

NORTH-EAST 

Assam 

Tejpur Dist 

Mahila Samity 

TDMS - is 

federation of 

women samities 

Tejpur Dist 


(TDMS) 

NO - Fed is like an NGO 

yes in planning 

Takes up legal rights advocacy 

Development of handloom and 

handicraft, education, health & marketing 

support 

Mallapura 

Cluster 

Manipur 

Sipajhar Diamond 

Club 

Construction of low cost 

sanitary, reproductive and child 

health care programme 

Leadership Development, Awareness 

training on Cluster / Federation formation, 

income generation activities, 

promotion of self-help groups, , flood 

and earthquake relief, environment, 

sports, running music school and production 

of monthly Newsletter 


FederationFGC- 

VVD partner 

villages 

Fraternal Green 

Cross 

No- too early to comment 

Workshop three times in a year 

for identified issues. 

Special package programme for destitute 

/ poor women (Interest free 

loan) 

43

Table 4-D 

Micro-Finance Related Roles of the Federtions 

Name of the 

Federation 


Training - Do the Fed 

Members themselves 

provide Training? 

Audit 

Help in book 

keeping 

Recovery follow up 

Provide loans to 

SHG/ Individual 

Members 

SOUTH 

Karnataka 

Grameen 

Mahila Okkuta 

(GMO) 

Grama Vikas 

GMO teams provide 

training to SHG 

members in bookkeeping 

group dynamics 

and health. 

Federation leaders 

provide training to 

other federations in 

federation concept 

and formation techniques. 

Federation has its 

own external auditors 

as also internal 

auditors. All SHGs 

undergo internal 

audit every quarter 

and external audit 

annually. 

While 245 groups 

are assisted by federation 

staff in bookkeeping, 

30 groups 

have SHG members 

or young educated 

women in villages as 

book-keepers 

Members of the 

group at SHG level 

and at the federation 

level. IGP Coordinators 

of the federation 

monitor and maintain 

ledgers on loan 

recoveries. 



Hosur 

Outreach 

Carry out SHG 

group trainings 

Carry out financial 

audits of CLA and 

SHGs. The auditors 

are internally trained 

and the Federation 

and SHGs pay the 

salary. 

Is done and maintained 

by the SHG 

Leaders 

Clusters are responsible 

for recoveries 

and when inst. Is due 

it has to pay even if 

SHG has not paid to 

cluster. 

Clusters provide loans to 

SHGs (though these are 

raised by the NGO) 


Okkoota, 

H.D.Pura 

Myrada 

They do. They have 

a cadre of master 

trainers. 

Annually by PI and 

six-monthly by 

internal auditor. 

Require no external 

help. 

Yes, if there are dues 

from member SHGs 

to banks. Also assists 

SHGs on request to 

recover dues from 

members. 

No. Only recommends 

member SHGs for linkage 

with other financial 

institutions. 

Tamil Nadu 

Bhawani 

Mahasabai, 

Panjapatti 

(BMP). 

LEAD 

No 

No 

Yes 

Clusters - responsible 

for recovery of loans. 

Area Fed - do not 

have any direct role 

NGO provide loan to 

SHG/ Federation. BMP 

act as a facilitator for 

transfering of funds 

(Bulk Loan & Bank 

Linkage) from LEAD/ 

other commercial banks 

to the members of Self 

Help Groups (SHGs). 

Grama Vidiyal 



No 

No 

No 

The Branch employed 

field officers 

collect the repayment 

every week. In the 

case of default the 

Cluster, federation 

do the follow up for 

recovery 

Loans are provided by 

the GV Branches directly 

to the Individual 

members- Further loans 

will be provi]ded depending 

on 

theIndividuals repayment 

record 

44 



Name of the 

Federation 




provide Training? 

Audit 

Help in book 

keeping 




Members 

PPI Cuddalore 

The Community Services 

Guild 

Not really 

Yes (They organise 

their own but SHG 

accounts are not 

audited.) 

No 

Yes 

Loans to SHGs (Yes. To 

individuals through 

SHGs.) 


Mutual Benefit 

Trust 


Provides training 

mostly on financials, 

systems, procedures, 

etc. 

Carries out regular 

audits 

Provides adequate 

help in book keeping 

Both MBT and field 

staff are in charge of 

recovery and followup. 

It is not a model of community 

owned and 

managed institution, 

highly professional, 

community has little 

stake in the federation 

Kerala 

Haritha / 

Pournami 

SHREYAS 

No Outside expertise 

is sought some times. 

Carry out internal 

and external audit 

Yes 

Yes Recovery is initiated 

by SHGs 

Federation provides 

loans to individual 

members directly and to 


TDFF/SIFFS 

AWARD 

Provided training to 

SHGs and societies 

CHASS - 

Changanacherry Social 

Service Society 

Yes 

Yes, in some 

instances 

Audit of the 

federation is done by 

external chartered 

Accountant 

An external person Yes 

paid by the 

Federation does 

Audit. Auditing is 

done one in year 

Book keeping of the 

federation is dome by 

collection agents but 

facilitated by the federation 

staff 

Loans are routed 

through the Federation, 

hence follow-up 

is done through the 

federation 

Recovery follow up is 

done by the Federation 

leader themselves 

Provide loans to Individual 

members only 

and final decision for 

disbursement is in the 

hands of the promoting 

Institutions 

No 

All 


Adarsha Mahila 


Samakya Ltd. 

Jakranpalli 

Dalitha Mahila 



Thrift and 

Credit 

Cooperative 

Society Limited 

Bharat Sevak Samaj 

(BSS) 

Adarsh Mahila 


GRAM Abhyudaya 

Mandali 

Yes 

Provides training on 

SHG and VO management 

and book 

keeping 

The federation members 

themselves providing 

training to 

new groups 

Yes 

Through its CVs 

Through VNA 

responsibility is 

primary. The 

accounts of the 

federation are 

audited by CA 

Audit is once in a year 

by external auditors. 

Annual returns filed 

with authorities. An 

external CA audits 

and paid by the 

MACS itself 

Yes 

Through its CVs 

Through VNA 

responsibility is 

primary 

Initially only PI staff 

were doing bookkeeping, 

now it is 

done by their own 

staff 4 assisted by 3 

staff seconded by PI 

Yes 

By SHG & VO 

Recovery position reviewed 

in the 

monthly representative 

general body 

meetings and followed 

up if there are 

any defaults. MACS 

adapted provisioning 

for bad debts according 

to age of default. 

Yes 

Yes - directly to the 


Loans provided to individual 

members recommended 

by SHG and 

Village Organisation. 

Repayment responsibility 

taken by SHGs only. 

Now MACS is amending 

its byelaws to promote 

SHGs of shareholders 

and to recognize 

them as branches of 

MACS to give legal status 

of membership to 


45

Name of the 

Federation 




provide training? 

Audit 

Help in book 

keeping 




Members 

WEST 

Maharashtra 

Grammen 

Mahila 

Swayamsiddha 


(GMSS) 

Chaitanya 

Federation provides 

training to new 

groupp members and 

group leaders. It 

trains the accountants. 

Fed does regular six 

monthly audit of 

groups 

Yes 

By fed staff and leaders 

Fed provides the individual 

loans to members 

thro SHG and cluster at 

24% pa 


Mahila Samiti 

(SMS) 

WOTR 

No 

No 

It is done by any person 

( daughter or sons 

of the members of the 

SHGs) who is educated 

Yes 

No NGO channels 

loans to SHGs 

through SMS 

SAMUHIK 

Mahila Bachat 

Gat Parisar 

Sangh-KORCHI 

Amchi Amchya 


Not yet 

Done by members of 

another federation 

To some extend. 

They themselves 

monitor book 

keeping. 

Recovery is done 

through SHGs 

Yes 

PRAGATI 

Mahila Bachat 

Gat Parisar 

Sangh-Devpayli 

Amchi Amchya 


Not yet 

Done by members of 

another federation 

To some extend. 

They themselves 

monitor book keeping. 

recovery is done 

through SHGs 

19 SHG &7 Individual 

member. 

NORTH 

Rajasthan 

WFMF 

PEDO 

Yes, they do on basic 

principles of groups 

and the function of 

the leaders 

Audit carried out by 

the staff of the NGO 

Bookkeepers are hired 

and paid by the group 

members but at the 

cluster and circle level 

it is done by the staff 

of PEDO 

The field co-coordinator, 

accountant, at 

the cluster and circle 

level regularly monitor 

At the circle and cluster 

level individual loan is in 

vogue. Federation is yet 

to be established 


PRADAN 

Yes 

External auditor 

Yes 

Yes - done by clusters 

Yes to the SHGs recommended 

by clusters 

Federation of 

Sarva Sewa 

Nidhi 

Foundations, 

Garhi 

ASSEFA Banswara 

Training to SHG 

members on maintaining 

the SHG- 

Training to members 

on how to mobilize 

funds - Training 

for leadership development 

for SHGs 

NGO 

Yes 

Yes 

Both to groups and Individual 

member 

46 



Name of the 

Federation 




provide training? 

Audit 

Help in book 

keeping 




Members 

Uttar Pradesh 


Shramik Bharti 

No 

No 

No 

No 

Yes - small amounts out 

of savings 



National Integration 

(PANI) 

No 

NA 

No 

Done by SHGs 

Not yet 

EAST 

Orissa 

MA BANK 

ADHIKAR 

Training provided by 

the Promoting 

instution - 

ADHIKAR 

Yes 

By Adhikar 

Yes By Adhikar 

Yes 

To SHG 

LImeshwari 

Adivasi Gana 

Sangathan 

(LAGS). 

LIPICA 

No 

No 

LIPICA staff support 

on maintaining 

records at village level 

and federation level. 

By NGO staff and 

presently the member 

of fed. Assists. 

No NGO gives loans 

to individuals directly 

The decision of selection 

of beneficiaries are done 

by fed. 

West Bengal 


Mahasangh 

(Ranaghat -2 

Block) At the 

time of the study 

the federation 


NORTH-EAST 

Assam 



VVD partner 

villages 

Sreema Mahila 


Tejpur Dist 

Tejpur Dist Mahila 


Samity (TDMS) 

TDMS - is federation 

of women 

samities 

Manipur 


Club 

Fraternal Green 

Cross 

No. In future it can 

happen 

Provide training in a/c, 

book keeping, management 

of operations, how 

to ensure repayment 

No 

Not as yet 

No 

Carry out audit 

Auditing of the cluster 

is done by the staff of 

the SDC 

Carried out by the 

NGO staff 

No 

TDMS staff provide 

support in book 

keeping 

Book keeping is done 

by the staff of SDC 

Book keeping done 

by the federation 

leaders 

Not by federation. 

But by the GVS , 

sometime by the AUS 

The SHG member 

themselves sometime. 

By SDC 


takes place during 

quarterly 

scheduledmeeting of 

the federation The 

follow up in the field 

is done by SHGs 

No. The microfinance 

division of Sreema 

Mahila Samity provide 

loans to SHGs 

No 

SHGs and Individuals 

members 

Federation provide loans 

to individual members 

through SHGs.Size of 

loan begins with minimum; 

gradually increase 

according to their performance. 

47

Table 4- E 

Sources of Revenues of the Federations 

Name of the 

federation 


Fed growth in 

turnover/loans/ 

deposits/savings 

Support in 

Computerisation of 

Fed and SHG a/c 

Membership fee 

Federations service 

charge to SHG/ 

members 

Retention of interest 

spread by Fed if any 

SOUTH 

Karnataka 

Grameen 

Mahila Okkuta 

(GMO) 

Grama Vikas 

While federation 

accounts will be 

computerized this 

year, Computerizing 

accounts of SHGs is 

being contemplated 

Each SHG pays Rs 

200 as membership 

fees annually 

No service charge to 

SHGs members but 

keeps a margin of 

15% on printing 

books and stationeries 

for SHGS 

GMO charges 24% interest 

on loans given 

from its Revolving Fund 

to SHGs for IGPs 


Hosur 

Outreach 

Not much 

Rs200 per SHG as 

admission fees and Rs 

25 per member at 

cluster. Fed - one time 

Rs 20 per member 

No 

Cluster - 5% 

SHG - 4%as interest 

spread: Sidbi to outreach 

at 11% to cluster at 15% 

to SHG at 20% and 

SHG to member at 24% 

(Fed not part of financial 

chain at present) 

OUTREACH yet to decide 

the role of Federation 

in Micro-finance 


Okkoota, 

H.D.Pura 

Tamil Nadu 

Bhawani 

Mahasabai, 

Panjapatti 

(BMP) 

Myrada 

LEAD 

Fedn. is not engaged 

in MF activities. Collects 

money from 

members as follows 

:Rs. 200 per group 

per year for Women's 

Day.Rs. 25 per group 

per month as 'savings' 

for fund development 

Federation growth in 

Turnover : 

95.83%Loans: 

98.75%Deposits: 

44.67%Savings: 

21.13% 

Not yet. 

Yes 

Rs.1,000 per group at 

the time of 

joining.Rs.250 per 

SHG per year towards 

renewal of 

membership. 

Started to have resources 

for cluster 

Fed. (shift to MFI 

mode) Entrance fee- 

50, mem fees-Rs 2-5/ 

mem/month 

Rs. 175 per group per 

year for auditsRs.5 

per group per month 

as bookwriting 

charges 

1. Service Charges 

Rs.50-150 per SHG per 

month on 

2. Bank laon- Upfront 

fee 1% of Bank Loan 

3. Documentation 

Charges 1% of Bank 

Loan Monthly Subscription 

Rs.20 per SHG 

No 

No 

Grama Vidiyal 



Loan Outstanding 

Rs. 12.48 crores 

Savings is Rs 3.78 

crores 

Yes 

Nil 

Do not deal with 

financial matter, 

since the SHGs 

promoted by ASA 

are Grameen Model 

Total income isretained 

by the federation 

48 



Name of the 

federation 


Fed growth in 



Support in 






members 



PPI Cuddalore 

The Community 

Services Guild 

Loan Outstanding= 

Rs. 1164000 

Yes 

Rs 30 per member 

annually 

No Sandha Subscription- 

Rs. 20 per group 

per annum 

Yes 13% is retained by 

the federation 8 % is retained 

by SHG 


Mutual Benefit 

Trust. 


Loan Outstanding 

of all SMBTs Rs. 

970.13 lakhs as on 

March 31, 2003. 

Yes 

SHGs gain entry to 

the General Body of 

the MBT by paying a 

one-time membership 

fee of Rs 1000. 

MBTs hold the equity 

shares in the NBFC 

ranging from Rs. 1 

lakh to Rs. 90 lakhs. 

The federations collect 

a nominal fee for 

documentation from 

the SHGs. The federations 

provide service 

to the SHGs 

from the interest 

spread. 

The company, 

Sarvodaya Nano Finance 

Limited is lending 

to the federation at 12% 

for any kind of activities 

and the federation is onlending 

at 24% flate rate 

while, the interest rate 

for dairy related activities, 

it charges 15%. 

Kerala 

Haritha / 

Pournami 

SHREYAS 

25% / year 

(AS PER Ngo) 

Planning 

Monthly contribution 

by SHG members 

- Rs. 100 / Head 

No 

No intrest is retained - 

the interest is distrusted 

as bonus every year. 

Sthree Niketh 

Vanitha 

Federation 

(SNVF) 

TDFF/SIFFS 

Fed. Loan 

Oustanding-17 lakhs 

PI Loan Outstanding 

- 2.12 crores 

No 

Primary society gives 

annual membership 

fees of Rs 100 

Interest spread of 2% 

on loans on lent to 

societies or SHG 

Yes - 2% interest 

Spread 

AWARD 

CHASS - 



Society 

NA 

Very rudimentary; 

M&E systems are 

with CHASS 

For AWARD - Rs. 

100 per year /MS - 

Rs. 50 per annum 

and Re. 1 per month 

per SHG member is 

the fee for Mahila 

Samajams 

Charged to donors 

and not SHGs - for 

any projects 

mobilised 

No 

All 

Bharat Sevak Samaj 

(BSS) 

13 crores (approx) 

Yes 

No 

No 

5% 


Adarsha Mahila 


Samakya Ltd. 

Adarsh Mahila 


Loan Outstanding= 

Rs. 24 laks 

Through external 

support only 

Rs 300 as share in 

the Fed 

As interest spread; 

6% int. On the Rs 

35 lakhs given to 

VO by UNDP; 2% 

on gp loans; resource 

person fees 

VO to SHG at 24% 

Interest of 1.5 per 

month at all levels. This 

is because the Federation 

mainly earn interest 

from the restaurant and 

shopping complex and 

other charges from the 

resource available with it 

( example- for exposure 

thay charge Rs. 5000 per 

day; boarding and lodging 

are paid to the federation 

separately. 

49

Name of the 

federation 


Fed growth in 



Support in 






members 



Jakranpalli 

Dalitha Mahila 



Thrift and 

Credit 

Cooperative 

Society Limited 

GRAM Abhyudaya 

Mandali 

Ongoing 

forAccounting and 

MIS 

Rs 25 + 100 as share 

capital 

2 % in case of bank 

link 

7% 

WEST 

Maharashtra 

Grammen 

Mahila 

Swayamsiddha 


(GMSS) 

Chaitanya 

Yes, ref financial 

details 

Computerised at Fed 

level 

Each member pays 

Rs 2 as annual fee 

to Fed. This 

contribution is 

raised separately by 

SHGs besides their 

savings 

Sv. Charge of 2% on 

all loans to 

members; 

Yes - interest spread of 

13 to 18 % depending 

on the sources of funds 


Mahila Samiti 

(SMS) 

WOTR 

Constrained 

No 

Depend on the 

particular SMS 

None 

None 

SAMUHIK 

Mahila Bachat 

Gat Parisar 


KORCHI 

Amchi Amchya 


Loan 32,000Saving- 

8,125 R.F.- 91,000 

Marketing-16,127 

Ad.fee-1,350 Intt. 

(loan)-515 Intt. 

(Saving)-1255 

Turnover-1,50,370 

Rs. 

Not yet. 

Rs. 75/- per SHG as 

joining fees. Rs. 3 

per member of 

SHG Saving 

monthly. 

Federation charge 

only audit fee to 

SHG during audit. 

Nil 

SAMUHIK 

Mahila Bachat 

Gat Parisar 


KORCHI 

Amchi Amchya 


Loan 32,000Saving- 

8,125 R.F.- 91,000 

Marketing-16,127 

Ad.fee-1,350 

Intt.(loan)-515 

Intt.(Saving)- 

1255Turnover- 

1,50,370 Rs. 

Not yet. 

Rs. 75/- per SHG as 

joining fees. Rs. 3 

per member of 

SHG Saving 

monthly. 

Federation charge 

only audit fee to 

SHG during audit. 

Nil 

50 



Name of the 

federation 


Fed growth in 



Support in 






members 



NORTH 

Rajasthan 

WFMF 

PEDO 

2.80 crore p.a. 

Yes 

Rs. 50 per year/ member25% 

of group 

member's membership 

fee paid to federation 

Rs. 25 for loan processing 

per loan (any 

amount) 

12% 


PRADAN 

Yes, at federation 

level 

Group pays Rs.1000 

on joining. 

Rs. 50 per year being 

charged to each group 

for meeting expenses 

of meetings with 

planning agenda 

18% 24% Federation 

à SHG à Member 

Federation gives 6% 

p.a. on deposits. 

Therefore, it effectively 

retains 12% interest 

ASSEFA 

ASSEFA Banswara 

Loan outstanding 

Rs. 179622:Saving 

Mobilised Rs. 

944604; Principal 

due Rs. 961383; 

Total amount 

disbursed-Rs. 

20926830 

Yes 

Rs. 5 per members 

No 

Federation à 15% 

SHGs à 15% 

members. Federation 

8% as 7% goes for 

operating expenses. 

This 8% again goes 

back to the community 

fund. 

Uttar Pradesh 


Shramik Bharti 

Yes growing slowly 

Not yet 

Rs 50 for admission 

fee per group 

Nil 

Yes 6% 



National Integration 

(PANI) 

No 

None 

None 

None 

EAST 

Orissa 

In the name of 

block 

ADHIKAR 

No 

Rs. 200 per SHG 

No. 

Fedn.3-6% 

In the name of 

the area. 

LIPICA 

No 

Membership Fee on 

federation level is 

Rs. 2/- ( Rupees Two 

only ) per family 

per month. 

No 

Fed. is not involved in 

direct lending 

51

Name of the 

federation 


Fed growth in 



Support in 






members 



West Bengal 


Mahasangh 

(Ranaghat -2 

Block) At the 

time of the 

study the 

federation did 

not exist. 

Sreema 


Mahila 

No 

No 

No 

No 

No 

NORTH-EAST 

Assam 

Tejpur Dist 


TDMS - is 

federation of 

women samities 

Tejpur Dist Mahila 

Samity (TDMS) 

The SHGs render 

TDMS 10% of their 

profits every 3 or 5 

years. 

Yes 

Rs.50 as regd. Fee& 

Rs. 30 annually. 

No 

No 


Club 

_______ 

________ 

Not decided 

none 

none 

Manipur 



VVD partner 

villages 

Fraternal Green Cross 

2 times loan recycle1 

time 

depositQuarterly 

saving from Nov. 

2001 

Not yet 

Rs. 5 per member 

As the federation is 

at the initial stage 

there is no such 

charges from the 

members whereas 

provision of TA to 

the Executive 

members 

@ 2% p.m. 

52 


CHAPTER5 

Analysing and Understanding SHG 

Federations 

1. Aggregation and Analysis of Federations 

The 27 SHG federations studied in this report capture 

much of the variety that exists in the federating process. 

Though many design features and processes of SHGs 

that have been around for a decade have become 

accepted standards, the federations are a reflection of 

the evolving experience of the PI in response to the 

local situation instead of being water-tight models of 

standardisation. There is a distinct flavour of 

experimentation and of constant innovation in different 

aspects of the evolving SHG federal bodies. 

The structure and functions of the federations are 

primarily linked to the vision of the PI and the local 

conditions, opportunities and exposure. In fact, it 

becomes difficult to segregate federations from the PI 

with the two working almost seamlessly together. In 

order to have a deeper understanding of federations, it 

is important to understand its different aspects and the 

patterns that emerge due to varying combinations of 

these specific features. 

To overcome this challenge of wide variation and to 

identify underlying patterns, 85 different nuggets of 

data were culled out of each of the 27 cases studied to 

produce the 27 X 85 matrix. This was called the 

Federation Matrix. The want of comprehensive data 

on some cases meant that not all the cells of the matrix 

could be filled. Nevertheless, the Federation Matrix 

offered a way to analyse, identify patterns and draw 

generalisations. These data points related to the 

following broad categories: 

i. Basic Federation Data: Year of initiation, number 

of groups, number of members, geographic 

coverage, roles and functions performed by/ 

through the federation, whether only finance or 

finance plus other activities like livelihood 

promotion, social issues. 

ii. 

iii. 

iv. 

Structure of mF Operations: Number of tiers of 

SHG aggregation, link between levels, nature of 

membership at different levels, legal form of 

different tiers, changes in legal form. 

Governance: Constitution of Governing Board/ 

Executive Committee at different levels/tiers; 

frequency, attendance, and agenda of meetings. 

Financial Functions and Income of Federal 

Structures: Savings, deposits, other collections, 

different loan products, service charges, interest 

spread at different levels, subsidisation, procedures 

for defining member stakes. 

v. Internal Working: Internal discipline, rigour, 

meeting quality, manualisation of procedures, 

procedure of leadership selection, change in 

leadership, role of external advisors and donors in 

decision making, budget preparation and 

discussion, transparency. 

vi. 

Staffing: Number of staff members in the 

federation, number of PI staff deputed part-time 

and/or full-time to the federation. 

53

vii. 

Growth: Increase in number of groups, deposits, 

turnover, other economic activities and services, 

future plans. 

viii. Different tasks of the federation: Advance loans, 

raise finance, form new groups, group monitoring, 

recovery follow up, logistic ease to PI, training site, 

training functions, support in book-keeping, 

audit, insurance, local supply, operationalising 

bank linkage, advocacy on social issues. 

ix. Basic data about the PI: Year of registration of PI, 

year of starting mF activities, centrality of mF 

activities in relation to other activities, profile of 

other activities. 

x. Other functions/tasks of PI: Leadership training, 

exposure, training in accounts, loan appraisal, 

social aspects, support in insurance, 

computerisation. 

xi. 

Assessment by the Study Team: Transparency, 

sustainability, inferred motivation of the PI to form 

a federation, and overall assessment. 

Using the Federation Matrix, a typology of federations 

was arrived at. 

2. Typology of Federations 

The Sa-Dhan study has classified the SHG federations 

visited by the study team into two broad categories 

according to the primary functions and type of 

governance of the federation. 

The first category consists of federations which are solely 

involved in financial activities or which strategically take 

up livelihood, social and women’s empowerment issues 

in addition to their finance functions. A second category 

or the ‘non-financial type’ of federations was identified 

which are not involved in any type of financial activities 

and essentially perform social roles. However, it has been 

seen that those SHG federations which undertake 

financial operations within communities have, at some 

time or the other; been required to engage in nonfinancial 

functions in one form or the other (the degree 

may be less or more in different federations). It is 

therefore that the federations undertaking financial 

operations were brought under the same category with 

the federations undertaking finance plus operations. 

On analysis thus, two categories of federations appeared: 

● 

● 

Federations focusing on mF services 

predominantly and carrying out other support 

services. 

Federations involved in non-finance activities. 

The locus of control in the federations is the second 

dimension on which one can differentiate between the 

apex bodies. This locus of control strongly influences 

the character and performance of the federation. It is 

possible to figure out who is the prime mover in the 

federations - members or the PIs - by looking at who 

takes critical decisions. Interactions with the group 

members and leaders are also revealing. 

Consequently, federations may be segmented according 

to the management control. This segmentation is 

applicable to non-financial federations also. 

● 

● 

Federations with external locus of control (external 

to the members and usually in the hands of the 

PI). 

Federations with locus of control in the 

membership. 

Combining these two dimensions, the study categorised 

federations into four types. These categories of 

federations are represented in Figure 1. 

Fig. 1 : Typology of Federations Engaged in Financial 

and Non-Financial Functions 

Q = Quadrant 

External locus 

Of control 

Internal locus 

of control 

Q-1 Q-3 

Q-2 Q-4 

Finance & 

Finance plus 

Non-Finance 

All the federations studied were classified in the four 

segments presented above. This was done by using the 

data presented by the practitioner-researchers who 

54 


Analysing and Understanding SHG Federations 

visited and conducted the studies by interacting with 

SHGs, federations and staff and leaders of the PI. It is 

important to note that this classification is of an 

immediate nature. It certainly does not reflect the longterm 

intentions or strategies of the federations or the 

PIs. Nor does it imply pigeonholing the federations into 

a specific category for all times to come. This 

categorisation is basically done to enhance common 

understanding of federations and the federating 

processes under way. 

3. Scales for Rating Locus of Control 

The following seven factors were considered in deciding 

locus of control: 

● 

● 

● 

prepared and discussed with members 

Criteria 5: Attendance and substance of the 

proceedings in the meetings of the Governing 

Board of the federations 

Criteria 6: Funding strategies of the federations 

Criteria 7: How close is the PI to withdrawal from 

the federation? 

Each federation studied was assessed on the above 

parameters. Each parameter was evaluated on a fivepoint 

scale. We accorded double weightage to the first 

three of the above criteria as compared to the rest. Thus, 

the federations were evaluated on a total of 50 points. 

Federations that scored more than 25 were categorised 

as having external locus of control. 

● 

● 

● 

● 

Criteria 1: PI representation in the Governing 

Board of the federation 

Data culled out from the Federation Matrix was used 

to categorise the federations. Using the above criteria, 

Criteria 2: Number of PI staff placed among the the different federations studied were then classified into 

federation staff. 

the two categories. A word of caution: as stated before, 

Criteria 3: Role of PI in deciding the format, the situation pertaining to federations is dynamic and 

structure and role of federations 

constantly evolving. Hence, this categorisation also 

Criteria 4: Whether the federation budget is at all remains open to change. The scores of each federation 

studied are given in Table 5.1. 

Table 5.1: Locus of Control Scoreboard 

Name of the Fed Name of PI Region Cri.1 Cri 2 Cri 3 Cri 4 Cri 5 Cri 6 Cri 7 Total* Control 

BMP LEAD S 2 4 4 2 2 2 4 30 PI 

Haritha SHREYA S 4 2 3 1 3 2 4 28 PI 

SNFL ASSEFA-TN S 4 4 4 2 2 1 4 33 PI 

JIML GRAM S 1 4 4 4 3 2 3 30 PI 

MFI-Council BSS S 3 3 4 3 3 2 3 31 PI 

Gram ASA S 4 4 4 3 3 2 3 35 PI 

AMSS L Adarsh S 1 4 4 3 2 2 4 29 PI 

PPI CSG S 1 1 1 2 2 1 1 12 Mem 

AWARD CHASS - S 5 5 4 3 3 4 4 42 PI 

Hosur Fed Outreach S 1 1 4 2 1 2 3 20 Mem 

SNVF SIFFS S 3 1 2 2 3 2 2 21 Mem 

GMO Grama V S 1 3 2 3 2 2 2 21 Mem 

SSM Myrada S 1 1 3 3 2 2 1 18 Mem 

SMS WOTR W 1 4 4 2 2 5 5 32 PI 

GMSS Chaitanya W 1 1 3 2 1 2 2 17 Mem 

Cluster AAA W 1 2 3 3 2 3 4 24 Mem 

Sakhi PEDO N 2 5 4 3 2 2 3 32 PI 

55

Name of the Fed Name of PI Region Cri.1 Cri 2 Cri 3 Cri 4 Cri 5 Cri 6 Cri 7 Total* Control 

NF ASEFA-R N 4 3 4 3 2 3 3 33 PI 

Sankul S. Bharti N 1 4 5 4 4 4 3 35 PI 

SS PRADAN N 1 1 1 2 2 1 1 12 Mem 

Lok S PANI N 2 2 3 4 2 4 4 28 PI 

LAGS LIPICA E 2 3 4 3 2 3 3 29 PI 

Ma Bank ADHIKA E 2 4 4 3 3 3 4 33 PI 

AVS SMS E 2 2 4 3 2 3 4 28 PI 

SSFWU FGC NE 4 1 4 3 2 4 4 31 PI 

TDMS TDMS NE 3 4 4 3 3 3 3 34 PI 

● 

● 

Criteria 1-3 carry twice as much weight. The entry 'PI' in the Control column (last column) indicates external locus of control, else 

internal. 

Codes for geographical regions: S- South, NE- North-East, N-North, E- East, W- West Combining the assessment on primary function 

and the locus of control, different federations studied are thus categorised as in Fig.2 below. 

Fig. 2: Federations in Different Quadrants of Typology 

External Locus 

of Control 

Internal Locus 

of Control 

Q-1 

● 

● 

● 

● 

● 

● 

● 

● 

● 

● 

● 

● 

● 

● 

ALF (LEAD) 

Graam Vidiyal (ASA) 

Harita (Shreyas) 

SNLF (ASSEFA-TN) 

AMS (WOTR) 

MA Bank (Adhikar) 

MFI Council (BSS) 

MAC (GRAM) 

Nidhi Foundation (Assefa-Raj) 

AMSS Ltd (AWS) 

Sakti (PEDO) 

TDMS 

Shankul (Shramik Bharti) 

Mollapar Cluster Federation (SDC) 

14 FEDERATIONS 

Q-2 

● 

● 

● 

● 

● 

● 

PPI (CSG) 

Sakhi Samity (Pradan) 

GMSS (Chaitanya) 

GMO (Grama Vikas) 

SNVF (SIFFS) 

Margdarshni Fed., Husur, (Outreach) 

6 FEDERATIONS 

Finance and finance plus 

Q-3 

● 

● 

● 

● 

● 

AWARD (Chass) 

Lok Sangha (PANI) 

AVS (SMS) 

FGC 

LAGS (LIPICA) 

5 FEDERATIONS 

Q-4 

● 

● 

Cluster Fed (Myrada) 

Cluster Fed (AAA) 

2 FEDERATIONS 

Non-finance 

56 



Following the grouping of SHG federations in the two 

types of financial and two types of non-financial 

categories, it is reasonable to impute a degree of 

homogeneity between federations belonging to the same 

category. A comparison of other features within the same 

category leads to the identification of certain patterns. 

The classification exercise would seem both justified 

and useful should the behaviour be similar in the same 

category but quite different across categories. 

4. Dominant Characteristics of the Organisations/ 

Federations in Different Categories 

The dominant features of each type of federation have 

been summarised in the following section and discussed 

in detail in subsequent sections. 

4.1 Federations Engaged in Financial and Nonfinancial 

Activities 

Q-1: Finance and Finance Plus & External Locus of 

Control 

It is emphasised here that the term ‘external locus of 

control’ does not connote any value judgement at all 

but merely describes the extant reality. This is the most 

populous category. Almost half the study sample falls 

in this category of federations dominated/managed by 

PIs. Other important features are: 

● 

● 

● 

● 

Seven out of the total sample of 14 federations 

falling in this category are from the southern 

region of India. 

The geographic coverage varies from a 

number of blocks to a few districts. 

The sample shows large outreach ranging 

from 5,000 to 80,000 members. Those 

federations that are focussing on financial 

operations are demonstrating outreach in the 

range of 20,000-80,000 members. 

These organisations seem to be adding 

members per year in the range of 600 to 3,000 

and the rate is increasing. 

One conjecture is that a single-minded focus on mF 

enables the PI to spread its operations on a large scale. 

Most decisions are taken by the top management in the 

PI and communicated to the rest of the organisation. 

These include crucial matters such as revision of interest 

on loans to members. Participative processes to consult, 

involve or take the members along in such decisions 

seem to be followed rather infrequently. Members have 

little control over the affairs, even if they are represented 

in the governance structure. Large numbers and the need 

to make operations efficient seem to make participation 

a difficult matter. 

In the training programmes, the members are informed 

about these decisions and procedures to be followed in 

future. Often the leaders feel privileged at being 

informed about these decisions before others and readily 

explain them to others in the training programmes. 

PIs adopt primarily two structural strategies to achieve 

wide coverage. As per the first strategy, they create a 

large number of cluster-level forums or other federal 

structures in proximate villages. The number of villages 

included in one cluster may vary depending on 

population and SHG density. The cluster federation 

does loan appraisal, monitors utilisation and repayment, 

provides loan guarantees, etc. Services of the leaders of 

the cluster forums are usually voluntary and unpaid. 

They thus become low cost extensions of the PI. The 

advantage that members get is continuous access to mF 

services. 

Any cluster of women at the local level creates and builds 

local identity and generates social energy. The cluster 

federations may sometimes take up some social issues 

in response to a felt need. But this seems to occur as an 

exception rather than by design or as a thought-out 

strategy for empowerment. 

The second type of structure to achieve a wide reach is 

to create multi-tier community organisations. The 

cluster-level federations are consolidated at the block 

or mandal level, the block/mandal units are federated 

at the district level and so on. Thus, there may be even 

five-tiered structures as has been seen in one case. In 

such federations, the community leaders in the apex 

federation tend to be far removed from the primary 

members. Deliberations at the apex levels are perhaps 

complex and federation leaders are hardly able to 

57

influence the decision-making. The PI has primary 

control and often the community representatives may 

legitimise this control. 

In both the cases, the primary role of the federations is 

to carry out loan assessment, monitor credit utilisation 

and provide loan guarantees. In some cases, we see that 

federations provide the share capital in the form of 

savings or become conduits for the donor money that 

is used to create the share capital. 

The routine operations are flexible and not frozen in 

time. Yet during their currency, the rules are 

implemented rigorously. Procedures are often 

manualised but change according to need. Since the 

reach is extensive, changes are brought about by 

decisions taken at the top (with macro considerations) 

and are implemented down the line as an order. There 

is little informality as the orders are issued in writing. 

The junior staff and community leaders are hardly able 

to influence the decisions. 

Large organisations working towards a sharply-defined 

task focus more on efficiency. Systems management, 

computerisation and MIS in SHG-related mF 

operations progress best in such organisations. 

Computerisation has been able to achieve surprising 

levels of integration despite all the operations happening 

in the field. Management reports are swift in identifying 

the problem areas and quick corrective action is taken. 

The PIs taking this route can think of achieving 

sustainability of their mF programme from the interest 

spreads by charging interest rates appropriately. 

However, operating sustainability at each level, based 

on interest spreads alone, is a difficult proposition. The 

community leaders have to provide unpaid services. The 

PI-federation structure is a relatively low-cost option 

for providing financial services to the poor. 

Q-2: Finance and Finance Plus & Internal Locus of 

Control 

Six of the 27 federations studied belong to this category. 

Engaged in finance and finance plus activities, they are 

fully managed by the members. In two cases, the PIs 

have withdrawn completely. Thus, there are no PI staffs 

in these two federations. People who worked in the PI 

earlier have now been completely absorbed in the 

federation and draw their remuneration from it. In other 

cases, the federations have become fairly independent 

of the PI or perhaps they are evolving in a way that 

would make them member managed. The members 

decide on most issues and the PI primarily facilitates 

the process. These federations are not yet as independent 

so as to assert or even warrant complete withdrawal of 

the PI. 

In these federations, the coverage ranges from 2,000- 

5000 members with an exception of coverage of 30,000 

members. Their scope is largely limited to a compact 

geographical area of a block. It is clear that the 

federations have been experiencing slow growth by 

adding about 15 to 200 SHGs annually. 

These federations engage in mF-related roles such as 

credit assessment and monitoring repayment. They lay 

a lot of stress on social issues. Accessing government 

services, women’s empowerment, education and health 

are the more commonly chosen non-mF activities. These 

federations have a three-tier structure with SHGs, cluster 

federation and a block/district level federation. Most 

of the time all the tiers of the federation structure are 

found to be quite vibrant and energetic. Those tiers 

that are not engaged in the financial operations generally 

tend to slow down. With support of the leaders in the 

apex organisations, the leaders of the cluster federations 

are active on the social front. 

The mF operations are quite open and flexible and are 

not implemented rigorously. Members are able to 

persuade their respective groups to be lenient to them. 

There is a high degree of mutuality about this. It appears 

to be more difficult to maintain financial self-discipline 

than enforcing discipline when monitored by an external 

agent. This weakening of self-discipline is all the more 

pronounced if the funds are external. 

One of the federations where the PI has withdrawn is 

facing a serious existential crisis on account of 

competition from government schemes and the inability 

of the federation leaders to explore new opportunities. 

This federation however maintains a buffer fund to tide 

58 



over the delay in bank loan disbursement and provides 

a bridge loan so that the group has the money when it 

needs it. The operations in these cases are sustained at a 

relatively low level of equilibrium. However, there is 

need for some external agency to provide strategic 

support to the federations. Village women feel 

constrained in dealing and networking with the external 

world entirely on their own. They miss the benefits of 

the latest developments, innovations and technologies 

that are available in the mF sector. Women leaders have 

thus expressed the need for periodic external support 

and are ready to pay for the cost of the service. 

Where the PIs have not withdrawn, they lay greater stress 

on training community leaders and on their exposure. 

They involve them closely in the decision-making 

process which is chiefly by consensus. The cost of 

operations is borne by the PIs. Only a part is recovered 

as service charges or through interest spread available 

on the loans extended. 

4.2 Federations in Non-Financial Functions 

Q-3: Non Finance & External Locus of Control 

There are quite a few federations that are not (yet) 

involved in financing activities. However, the groups 

as well as the PIs provide savings-and-credit services. 

These federations are still quite dependent on the PIs 

for directions, day-to-day operations and sustenance. 

Federations in this category are in their nascent stage. 

They are currently working on diverse (non-financial) 

issues which seem many in number and basically defined 

by the strongest felt needs of the members. The issues 

include: 

● Land alienation among tribal communities 

(federations try to restore the land rights 

through proper documentation) 

● Empowering dalit and other marginalised 

communities by bringing them together on a 

common platform 

● Integrated village planning 

● Preventing violence against women 

Some federations were organised with a view to take up 

mF functions. But they are still too new to venture into 

the financial arena. 

As of now, these federations are completely supported 

by the PI. The hypothesis is that a) these federations 

would seek greater self-reliance as they mature; and b) 

they would invariably take up financial functions. Some 

are already actively considering such options. As 

federations mature, they would eventually become 

proper financial intermediaries as in Q-1. 

The member coverage of the PIs pursuing these models 

varies from 500 to 30,000. The reach of federations in 

this quadrant varies from a few villages to a number of 

districts. As of now, the structure varies from two to 

three levels. 

Q-4: Non Finance & Internal Locus of Control 

Two federations out of the 27 studied are member 

managed and controlled and are not engaged in any 

financial functions. They are simple two-level structures 

of SHGs and cluster federations. Cluster federations 

cover a few villages and often are limited to just one 

panchayat. The membership varies from 100 to 250. 

All the members in the cluster are fully aware of the 

functions and tasks their group leaders do. Federations 

support the groups in bank linkage and similar 

networking to access government programmes from the 

blocks. They also help out in bank loan recoveries, since 

these have repercussions on other groups if one of them 

defaults. The leaders provide voluntary services. These 

are low-cost social structures that can take up some other 

social programmes. 

Closer investigation reveals that even these federations 

aim to become sustainable. They have figured out that 

they must get into financial functions to be able to 

generate some income. Unless these federations plan 

for long-term sustainability, they are unlikely to remain 

vibrant for long. They may have their lives tied up with 

the duration of the PI’s work in that area. 

59

Features 

Table 5.2 Comparative Information for all the Four Quadrants 

Finance and Finance Plus 

External Control: Q1 

Federation Type 

Non Finance 

Internal Control: Q2 External Control: Q3 Internal Control: Q4 

Nos of PO promoting 14 6 5 2 

Average age of PO (month) 28 17 22 26 

MF intervention (yrs) 9 12 7 12 

Yrs bet start of MF & fed formation 7 5 4 4.5 

Average age of federations 4 7 3 7.5 

Outreach of PI (no.) 2000 to 80000 1300 to 5000 500 to 30000 8000 

Outreach of PI - area Few districts- Few districts Varies widely Few districts 

Number of apex feds 106-120 1-8 1 Many 

Tiers in the federation 2-5 3 2-3 2 

Flexibility Yes Yes Yes Yes 

Rigour Yes Yes Yes No 

Manualisation of procedures Yes Yes No No 

Legal form Trust, MAC, Society, Society Informal/ society Informal 

company 

Region Mainly South, North, West East, NE, North, South, West 

North and NE and South South 

Table 5.3: Features of Promoting Institutions and Federations 

PI 

federation 

Initiation (yr) mf 

Age of the PI 

Yrs of MF 

Out Reach 

Members/ yrs 

Est. of Fed 

Years between 

MF & Fed. 

Lead ALF 1991 15 11 25000 2273 1996 5 20 3 2 bl Flexible Rigorous Yes Trust south 

ASA GV 1993 16 12 31000 2583 1993 7 1 5 - Flexible Rigorous Yes Trust south 

Shreyas Harita 1986 23 16 40000 2500 1998 12 84 2 12 bl Flexible Rigorous Yes Society south 

ASSEFA Nano Fin 1999 33 13 61300 4715 2001 12 1 4 30 bl Flexible Rigorous Yes Company south 

WOTR SMS 1995 9 7 20000 2857 1998 3 106 2 24 dist Flexible Rigorous Yes Society west 

GRAM MAC 1994 22 8 31536 3942 1999 5 14 3 19 bl Flexible Rigorous No MAC south 

Adhikar MA Bank 1996 11 6 3380 563 1999 3 1 3 Flexible Moderate Yes Informal east 

BSS MFI/Council 1987 50 5 80000 16000 2000 61 2 3 dist Flexible Rigorous No Informal south 

ASSEFA Nidhi F. 1998 18 4 4720 1180 2000 2 137 2 3 bl Flexible Flexible No Reg north 

Adarsh AMSS Ltd 1995 7 7 4000 571 1997 2 1 4 1 bl Flexible Rigorous No MAC south 

PEDO WFMF 1988 21 14 5200 371 1999 11 1 3 3 bl Flexible Rigorous Yes informal north 

TDMS TDMS 1994 74 8 5300 663 1928 -66 1 2 3 bl Flexible Flexible Yes Society northeast 

Shramik B Sankul 1989 16 13 3826 294 2001 12 11 2 6 bl Unflexible Flexible Yes Informal north 

SDC Mallapur Cluster 1997 72 5 2000 400 2000 NA NA NA 2 bl Flexible Rigorous No NA northeast 

CSG PPI 1982 22 20 1300 65 1995 13 1 3 1 bl Flexible Flexible Yes Society south 

PRADAN Sakhi Samiti 1990 19 12 2100 175 1993 3 1 3 1 bl Flexible Flexible No Society north 

No. of apex org. 

Levels of PO 

Area Coverage 

Philosophy 

Flexibility 

Discipline Rigour 

Manualisation 

Legal form of 

Apex 

Region 

60 



PI 

federation 

Initiation (yr) mf 

Age of the PI 

Yrs of MF 

Out Reach 

Members/ yrs 

Est. of Fed 

Years between 

MF & Fed. 

Chaitanya GMSS 1993 9 9 5000 556 1993 0 1 3 3 bl Flexible Rigorous Yes Society west 

Grama Vi GMO 1994 22 10 5500 550 1997 5 1 3 3 bl Flexible Rigorous No Society south 

SIFFS SNVF 1990 22 12 4200 350 1993 3 1 2 3 dist Flexible Rigorous No Society south 

Outreach Cluster Fed 1993 9 9 30000 3333 1996 8 8 3 8 bl Flexible Rigorous Yes Not yet south 

Lipica 1992 13 6 2100 350 1996 2 many 2 24 vill Flexible Flexible Yes Society east 

Chass AWARD 1996 36 6 17786 2964 1990 -6 1 3 5 dist inflexible Rigorous No Society south 

PANI Lok Sang 1994 13 8 10337 1292 2001 7 25 2 2 dist Flexible Flexible No Informal north 

SMS AVS 1992 30 10 30914 3091 2002 10 4 3 7 bl Flexible ? No Informal east 

FGC Village Partners 1999 20 3 500 167 2003 3 2 2 46 vill Flexible Rigorous No Informal northeast 

Myrada Cluster Fed 1968 34 14 0 1991 3 229 2 - Flexible Rigorous No Informal south 

AAA Cluster Fed 1992 18 10 8400 840 1998 6 15 2 2 dist Flexible Flexible No Informal west 

No. of apex org. 

Levels of PO 

Area Coverage 

Philosophy 

Flexibility 

Discipline Rigour 

Manualisation 

Legal form of 

Apex 

Region 

5. Qualitative Performance Analysis of 


The quality of a federation is judged by the financial 

and non-financial activities undertaken by it. The next 

section analyses non-financial performance of the 

federations while financial performance is analysed in 

the following chapter. A matrix-based analysis similar 

to the earlier one was done for assessing the qualitative 

performance of the respective federations. The research 

team that visited the federations and assessed them on 

20 different parameters categorised them in four themes 

as presented below. 

● 

● 

Pushing the Boundary: Whether the federation 

has been able to push at the relevant external 

interface like the banks, panchayats, government, 

etc for and on behalf of the communities of poor 

women. 

Impact on the Social Fronts: Whether the 

federations have been able to take up diverse issues 

of social oppression, problems of getting civic 

amenities or address common problems of the 

community. The range of problems taken into 

consideration include safe water (from hand 

pumps/piped water schemes), sanitation, 

education, schools and fair price shops. Whether 

the group leaders and members have begun to 

create space in the local political system by 

contesting the panchayat elections was also taken 

into account. 

● 

● 

Social Sustainability: Whether there is evidence 

of solidarity among the members, and the 

federation has self-management skills like conflict 

management, capacity of leaders, greater group 

allegiance. Whether this is reflected in the growth 

of demand by the members on the federation 

management and in corresponding responsiveness 

on the part of the federation by offering more 

services, etc. 

Governance: Greater control over the governance 

of the federation by the community is considered 

as better performance. This could manifest 

through representation of community members 

in the executive board of the PI, or through other 

parameters as frequency of meetings, transparency, 

budgetary discussions, etc. 

Each factor was graded on a scale of one to 5 to compute 

an overall score representing the quality of performance 

of the federation. The scores denote the relative level of 

performance. Again, this is a snap shot assessment. 

Hence these scores are neither absolute measures nor 

inflexible. The recommendations of the best practices 

would emerge after assessing the soft and hard (financial) 

performances of the federations. 

5.1: Performance Assessment According to Typology 

The scores of the different SHG federations 

studied were aggregated according to the typology. 

These are given in Table 5.4. It has been observed 

that: 

61

● 

Federations with internal locus of control (of 

the type Q2 and Q4) score high in terms of 

qualitative performance. They score high on 

quality of governance and social sustainability, 

as well as in terms of pushing the boundary 

and impacting the social fronts. It was noticed 

that federations that take up women’s 

empowerment and/or livelihood issues along 

with financial intermediation score high on 

governance and, interestingly, on pushing the 

external boundaries, i.e. the banks, panchayats 

and government departments. They seem to 

do well on these fronts by engaging or 

collaborating with the external agencies. A 

pure member-managed federation is however 

unable to tap facilities like government 

programmes to the same degree. The support 

of the PI enables these federations to establish 

and maintain these linkages. 

● 

● 

Federations that are focused on mF and mF 

plus operations and where the PI continues 

to play a dominant role in the management, 

i.e. the Q1 type of federations, score low on 

qualitative performance. Interestingly, they 

score high on social sustainability as 

compared to scores on other parameters. 

The federations that score lowest on 

qualitative performance parameters are the 

Q3 federations (which are non-financial and 

externally managed). These are also the 

federations that are yet to find stable 

trajectories. They are located mostly in the 

East and North-east regions of the country. 

As mentioned earlier, SHG federations in 

these areas are only now beginning to attract 

attention as innovative development 

institutions with a lot of potential. 

Table 5.4: Federation Qualitative Performance Assessment Scores According to Typology 

Type of SHG Federation 

Financial 

Q1 3.2 2.3 2.5 3.4 11.4 

Q2 3.0 3.2 4.2 3.9 14.3 

Non financial 

Pushing the 

Boundary 

Impacting Social 

Fronts 

Governance 

Social 

Sustainability 

Q3 2.3 2.7 2.2 2.8 10.4 

Q4 3.5 3.5 4.0 4.0 15.0 

*: Each item is scored on a scale of 1 to 5. The parameters used for deriving the scores are listed in Box 5.5. 

Sub total 

5.2 Qualitative Performance Assessment According 

to the Region 

The following section discusses the regional 

variation in the performance of SHG federations. 

Qualitative performance assessment scores have 

been aggregated for all the SHG federations in a 

region and given in Table 5.5. Based on this table, 

the following observations have been made: 

● 

The SHG federations in North India score 

highest among all the regions. These 

federations focus a lot on credit plus activities. 

The North Indian federations score high in 

pushing the boundary and influencing the 

social sphere. 

● 

The West and South are not too far behind 

the north. The focus on financial 

intermediation is higher in these federations. 

They seem to achieve this, albeit at the cost 

of social impact and pushing the boundaries, 

especially in establishing linkages with banks. 

Interestingly, as more and more PIs take to 

becoming mF institutions they work less on 

the bank linkage front. Bank linkage provides 

access to members to mainstream institutions. 

If done strategically, it can be quite an 

empowering experience for members. In the 

process of linkage management, they also 

learn to deal with other mainstream 

institutions. 

62 



● 

The Eastern region fares poorly in the rating 

of their federations. This is because of their 

nascent state rather than due to faulty 

strategies. 

● 

The North-East region is only beginning to 

realise the potential of SHGs. Here too, the 

movement is in its early stages as far as 

federations are concerned and hence the latter 

does not notch up any significant scores. 

Table 5.5: Federation Qualitative Performance Assessment Scores According to Typology 

Region 

Pushing the 

Boundary 

Impacting Social 

Boundary 

Governance 

Social 


South 3.0 2.4 3.2 3.5 12.2 

West 3.3 2.7 3.0 3.7 12.7 

North 3.4 3.6 3.0 3.4 13.4 

East 2.7 3.3 1.7 3.3 11.0 

Northeast 2.5 2.0 2.5 2.5 9.5 

Note: Each item is scored on a scale of 1 to 5. The parameters used for deriving the scores are listed in Box 5.5 below. 

Sub Total 

Box 5.1 

Parameters to assess qualitative performance of 

SHG federations 

1. Pushing the boundary 

● Bank linkage 

● Links with govt. programmes 

● Panchayat 

● Representation in govt. forums 

● Any other 

2. Impacting on the social front 

● Action against social oppression 

● Getting civic amenities 

● Representation in PRI 

● Any other 

3. Governance 

● Representation in executive board (of PI) 

● Control of governance over operating system 

● Budget discussions 

● Frequency of meeting 

● Transparency 

4. Social sustainability 

● Solidarity 

● Conflict resolution 

● Increased demand of services 

● Capacity of leaders 

● Use of outside inputs 

● Growth in groups/numbers, 

● Growth in financial aspects- savings, loans 

6. Structure of SHG Federations 

6.1 Evolution of Hybrid Structures 

The evolution of SHG federations in their role as 

providers of mF services to the poor can be described 

as hybrid. The term ‘hybrid’ is used because these 

federations lie in between the people’s institutions and 

the PI structure. They combine the characteristics of 

community-based organisations with those of formal 

organisations. The roles, operational responsibilities, 

management and governance are intertwined seamlessly. 

Some of these issues have already been discussed in the 

foregoing sections. However, the elaboration has been 

done for the sake of illustrating the evolution of hybrid 

institutions. 

In these hybrid organisations, the community leaders 

manage the functions of interfacing with the 

community. In short, they deal basically with the social 

functions. Professional PI staff manages the financial 

functions as well as interact with formal external 

organisations. One aspect of these hybrid organisations 

is that as one moves from the grassroots community 

end to higher tiers of community organisation (at the 

block, district and state level) management control 

passes into the hands of the PI. This happens irrespective 

63

of the governance structure. At levels closer to the 

ground, the representatives of the members seem to have 

a greater say in operations. Their presence diminishes 

as one moves up the tiers of the structure where the 

professional staffs have greater say in determining how 

things are run. This is represented in Figure 5.3 

Degree of 

control 

Figure 3 

Extent of Control on Decisions 

While the above is a common feature of hybrid 

organisations, these organisations are structured 

differently by different PIs. 

Model 1 

State 

Federation 


NGO 

control 

Community 

control 

Sarvodaya Nano Finance Ltd (SNFL) represents an 

interesting hybrid structure that is hierarchical. A 

company owned by block-level mutual benefit trusts 

(MBTs), which are like SHG federations, at the level 

of SHGs and the village, informal clusters are fully 

managed by the community. The decisions regarding 

loans and activities are recommended by the groups. 

At the SMBT (Sarvodaya Mutual Benefit Trust) level, 

however, there is a transition, with ASSEFA staff (also 

represented in the Board of the Trust) playing a greater 

role. Community leaders are also represented on the 

board and can somewhat influence decisions. At the 

level of SNFL, the professional management takes all 

the decisions. The community leaders do not have any 

representation on the SNFL board although a proposal 

to include community leaders in the board of SNFL 

has now been floated. This, as and when it happens, 

will be perhaps be an exercise in tokenism as the social 

distance between the leader and professional board 

members appears to be wide. 

Figure 4 

Schematic View of Structure in SNF SMBT 

SHG Cluster SMBT SNFL 

6.2 Unified Tier Network of Community 

Organisations: 

Other than functional and locus of control, a federation 

can also be classified on the basis of legal entities. If all 

the entities or layers are part of one legal system then 

the federation is called unified tier network. For 

example, the SHG federal structure promoted by ASA 

has five levels starting from SHGs to clusters to branchlevel 

federation (for a block) to a franchise-level structure 

(for a district) and a state-level apex federation 

comprising all the franchises. The wide reach is achieved 

through this unified structure. It is similar in the case 

of Sarvodaya Nano Finance Ltd. 

Multiple Tier Network of Community Organisations 

If different layers or entities in a federation are separate 

legal entities which are informally networked, then the 

structure is called ‘multiple-tier network’ and has many 

two-tier cluster level federations. For example, 

organisations like the Indo-German Watershed 

Development Program (WOTR), Shreyas and Bharat 

Sevak Samaj (BSS) achieve wide reach by promoting a 

large number of simple two-tier cluster level networks 

of community organisations. Thus, so far WOTR has 

promoted 106 cluster federations to provide financial 

services to over 20,000 members. Shreyas has promoted 

84 federations to cover 4,000 members. Similarly, BSS 

provides access to 80,000 clients through 61 federations. 

The former i.e. ASA and SNFL, offer seemingly greater 

scope for relatively ‘tight ship’ management, as they are 

all part of the same system. Shreyas, WOTR and BSS 

offer obviously much greater scope to work through 

PIs and CBOs who may be pursuing independent goals 

but agree to share a platform so far as mF activity is 

concerned. 

7. Role of Federations 

SHG federations clearly play two different sets of roles 

or functions. The first pertains to mF operations and 

64 



encompasses establishment, nurturing, guidance, 

monitoring, financing, etc of groups, assisting in bank 

linkage and so on. The other pertaining to ‘social 

intermediation’ that is acting as a ‘countervailing power’ 

on behalf of the community of poor women in order to 

empower them. Federations engaged in financial 

operations engage in both these functions to a greater 

or lesser degree. The extent to which a role is deemed 

critical seems to depend on the vision of the respective 

federation. The extent or depth to which each role is 

played defines the class to which the federation belongs. 

A choice clearly exists in performance of roles and the 

energies and resources deployed and often these are in 

short supply. So there is a rationing of efforts. Not 

surprisingly, this choice seems to be exercised by the PI 

and not so much by the federation. The former is in a 

position to influence initial postures and set precedents, 

which the federation tends to follow even when the 

umbilical cord is cut. 

We have studied in great detail the different roles played 

by the federations. The proportion of the population 

working towards tasks inherent in a role has also been 

discussed. This gives us the data emergence of dominant 

roles in each type and an understanding of the nature 

of this choice. These roles have been segregated into 

financial and social categories. 

7.1 Roles Pertaining to MF Operations 

The roles pertaining to mF operations that federations 

perform are listed below: 

● Provide loans to members 

● Provide loans to member SHGs 

● Raise finance for mF operations 

● Form new SHGs 

● Provide other financial services 

● Monitor the SHGs 

● Appraise loan proposals by the members/ 

groups 

● Follow up on recoveries 

● Book-keeping of SHGs 

● Audit 

● Operationalise bank linkage 

Different types of federations perform these roles to 

varying degrees. Though there are no watertight 

compartments, we do see a variation across types. This 

we examine in Table 5.6(a). 

We have evaluated the different roles and assigned scores 

to all the federations according to the typology in order 

to have an objective comparison. A score of 1 is given if 

none of the federations in that category perform the 

function listed. Similarly, at the other end, a score of 5 

is allotted if all the federations in that category are 

performing that function. Intermediate scores of 2, 3 

and 4 are allotted if few, half and most of the federations 

are performing that function, respectively. 

Table 5.6(a): Roles Played by 

Federations Pertaining to mF Operations 

Federation type Q1 Q2 Q3 Q4 

Number of federations 14 6 5 2 

Role/Tasks 

Provide loan to members 3 3 1 1 

Provide loan to SHGs 4 5 1 1 

Raising finance for Mf 3 3 2 1 

Form new SHGs 4 4 2 4 

Provide other financial services 2 4 1 1 

SHG monitoring 4 4 2 5 

Loan appraisal 4 5 2 4 

Recovery follow up 4 4 2 4 

Book-keeping of SHG 2 4 2 1 

Audit 2 4 1 1 

Operationalise bank linkage 3 4 2 4 

Score out of 55 35 44 18 27 

Score in per cent 64 80 33 49 

Scoring key: None = 1, Few = 2, Half = 3, Most = 4, All = 5 

The Q2 types of organisations carry out the maximum 

number of financial operations. The federations falling 

under Q1 have also engaged in providing a large number 

of financial services. It is hypothesised that among 

Q1 federations the PIs carry out many of the financial 

functions. 

Non-financial federations are largely facilitating SHGbank 

linkage. As would be expected, federations in category 

Q3 score low. They do not carry out many financial 

functions. This is primarily because these federa- 

65

tions are in their early stages of development. It may be 

too early to stereotype them. The federations in the Q4 

category though seeming to limit themselves to social 

intermediation, provide support to the member SHGs 

to enable them carry out their financial operations effectively. 

These federations end up doing lot of financial 

tasks and score relatively higher than federations in 

Q3. 

7.2 Role Pertaining to Social Intermediation 

The roles pertaining to social intermediation that federations 

perform are indicated below: 

● Provide training to group members 

● Route messages - work as an information 

dissemination centre 

● Provide logistic support to NGO 

● Provide insurance 

● Carry out supply of raw materials 

● Advocate on social issues 

● Other development work 

As in the earlier case of roles pertaining to financial 

intermediation, different types of federations perform 

these roles to varying degrees. Similarly, there are no 

watertight compartments. We do see a variation across 

types. This we examine in Table 5.6 (b). 

It is noticed that finance and finance plus and member 

managed, that is Q2 federations, carry out many social 

intermediation functions. Interestingly federations that 

are managed externally and engaged in financial or nonfinancial 

operations, seem to earn the same score. 

It is notable that most federations carry out significant 

other development works and advocate on social issues. 

This validates the belief that the federations are very 

effective agents for providing social services and 

catalysing social change in their microcosm. 

For comparison of a number of federations in each category 

that carry out financial and social tasks, scores 

are presented in Table 5.6 (c). 

Table 5.8 (c): Role of Federations - Financial 

and Social - Compared 

Federation type/ Q1 Q2 Q3 Q4 


% score - financial operations 64 80 33 56 

% score – social intermediation 54 74 54 69 

We have given scores to different roles according to the 

typology in order to have an objective comparison. The 

scoring key is as in Table 5.6 (a). 

Table 5.7(b): Roles Played by 

Federations Pertaining to Social Intermediation 

Federation type/ Q1 Q2 Q3 Q4 


Role/Tasks 

Fed provides training 3 3 2 4 

Routing messages 4 5 4 4 

Logistic support to NGO 3 2 2 1 

Insurance 2 4 2 4 

Local supply 1 2 1 1 

Advocacy on social issues 2 5 4 5 

Other development work 4 5 4 5 

Score out of 35 19 26 19 24 

Score in percent 54 74 54 69 

Scoring key: None = 1, Few = 2, Half = 3, Most = 4, All = 5 

66 


CHAPTER6 

Financial Analysis of Federations 

This chapter makes an attempt to analyse the various 

aspects and implications of the financial 

performance of the federations. It must be noted here 

that the analysis is restricted to only seven federations 

(undertaking financial intermediation) out of a total of 

27 visited for this study. 

Considering this is just a fourth of the total sample of 

federations, utmost care has been taken to select 

federations which are representative of the sample for 

financial analysis. However, it would still be wiser to 

consider the analysis as indicative rather than conclusive. 

More specifically, this chapter analyses: 

● 

● 

● 

The financial performance and associated 

antecedent and causal factors with regard to 

various categories of federations. 

The specific factors/actions that contribute to 

enhancing the sustainability of the federations. 

The strategies used by the federations to achieve 

financial sustainability and deliver sustainable and 

market-oriented mF services to the clients. 

To provide an outline of the methodology, first the basic 

financial accounting and portfolio statements of select 

federations were obtained for a three-year period, yearending 

March 2000 – year-ending March 2002. The 

data was verified for internal consistency and gaps were 

regularly filled in consultation with the federations, as 

and when required. After all the data was collected, it 

was verified and validated and necessary adjustments 

were made for calculating the financial sustainability 

of the federations. 

1. Introduction 

Organisations serving the twin goals of socio-economic 

upliftment of its members as well as striving towards 

financial sustainability, offer conceptually interesting 

ground for conjecture, speculation and theorising. 

Consequently, the criteria used for assessing the 

performance of federations (undertaking financial 

intermediation) are over and above the criteria used for 

assessing other lending institutions. Though the criteria 

for assessing the performance on financial matters will 

be quite different for both sets of institutions. 

Measures indicating financial performance and 

soundness come in at least two layers. The first layer 

pertains to smooth, tidy and prudent conduct of the 

business of mF. These indicators tell us about operational 

aspects like whether the money meant for lending is 

actually lent or lying idle or invested in a fixed deposit, 

whether the money meant to be recovered was in fact 

recovered on the stipulated day, whether there are 

doubtful or bad debts, and whether the federation is 

spending too much money in running these operations. 

The second layer pertains to financial and treasury 

decisions. It includes things like structure of debt and 

equity, the rate at which money was borrowed by the 

federation, how it is invested and whether the federation 

is building an organisational edifice based on hidden 

67

or explicit subsidies that will last only so long as micro 

credit remains the flavour of the season. The key 

financial assessment parameters used here are as follows: 

• Asset Quality 

• Self-Sufficiency/Sustainability 

• Efficiency 

• Record Keeping and Management Information 

Systems 

2 Process 

In order to arrive at the four selected parameters, the 

financial team undertook field visits to cull out the basic 

data from the federations. The team collected the 

required information from the audited statement of 

accounts wherever it was available. Sometimes the team 

was forced to develop the basic financial statements to 

reach the desired parameters. Lack of a uniform 

accounting system required further recasting of financial 

information. Adjustments were made for subsidies, loan 

loss provision, inflation etc. The ratios were then 

determined and interpreted in the context of the 

typology used by the study to understand the diversity 

of the federations. This process was full of caveats some 

of which are given below: 

3. Caveats 

● 

● 

● 

● 

Lack of accurate information at field level 

Sensitivity of ‘Portfolio Quality’ and ‘Key Ratios’ 

data for all stakeholders 

Lack of standardisation of concepts leading to 

different ways in presenting/cumulating the data 

Self-reported data (in most cases) – cannot be 

verified for large federations. Hence, taken as given 

and accurate. 

Fig 1: Process of financial analysis 

Field Visits 

Collection of Financial Information/ 

Statements (Portfolio, Accounting) 

Re-Casting of Financial Information 

Adjustments for Subsidies, Loan Loss 

Provisions, Inflation etc 

Key Ratios 

Interpretation (General Plus with 

SA-DHAN Study Typology) 

Lessons 

4. General Findings of Financial Analysis of 


This section will look at the financial performance of 

federations on different parameters. Their implications 

for the federation will also be understood. This will 

also throw light on the causes of the level of performance 

as indicated by the parameters. 

4.1 Asset Quality 

Asset quality is measured here by using Portfolio 

at Risk (PAR) and Arrears Rate. PAR is considered 

to be a more appropriate measure of Asset quality 

as compared to Arrears Rate. The former takes 

into account the unpaid principal balance of loans 

which have over dues against them, while the latter 

only takes into account the principal amount 

overdue of all loans outstanding. PAR signifies the 

risk or likelihood of loss of outstanding amount 

in case delinquent borrowers stop paying the loan. 

For better representation, PAR is classified as based 

on age of overdue. The higher the age of overdue, 

68 



the higher is the chance of default by borrower. 

(For further details, see Annexure 1) 

The study found that in absolute terms, the 

portfolio quality of sample federations ranges 

between 3 per cent and 62 per cent with quite a 

few federations having PAR (> 1 Day) exceeding 

10 per cent. However, when PAR was classified 

based on age of overdue, it was found to be ranging 

from very low to high values for different age 

categories. The range of values for three age 

categories is presented below: 

• PAR > 1 day - 3%-62% 

• PAR > 60 days - 0.49% - 53.0% 

• PAR > 90 days - 2.21% - 49.0% 

On the other hand, Arrears Rate was found in the 

range of Moderate-Low and absolute values are 

from 1.5 % - 20 % and more. However, an overall 

trend discernable towards collection of older age 

overdue is observed from the sample. This is 

evident from the Table 6.1, which shows that 

generally the level of PAR is coming down over 

the years. 

Table 6.1 - Portfolio Quality - Absolute Levels 

and Trends 

Fed # Portfolio at Risk (PAR) > 1 day 

Year 2000 Year 2001 Year 2002 

1 6.98% 4.78% 3.86% 

2 5.58% 6.28% 7.35% 

3 62.00% 49.00% 44.00% 

4 42.46% 64.89% 51.75% 

5 No Operations 11.49% 48.59% 

6 2.99% 4.44% 3.81% 

7 No Operations No Operations 0.00% 

Apart from the generic factors like volatility of the sector 

that seemed to have affected the portfolio quality of 

the federation, the most dominant factor was found to 

be locus of control over federation. In general, it was 

found that the member-controlled federations have 

maintained a low level of PAR vis-à-vis promotercontrolled 

federations. This could be attributed to the 

presence of effective peer-pressure mechanism. In 

member-controlled federations, the peer pressure is 

found more effective as compared to the situation where 

the locus of control is with the promoters. 

It was observed that application of key delinquency 

control tools like portfolio tracking, ageing of loans 

which are used to control delinquency are largely absent 

with a few exceptions. The management was not aware 

of the level of delinquency in most cases. Neither was 

any policy on delinquency found in most of the 

federations. Even where such a policy was spelt out, it 

was not enforced. 

However, in places (in only one federation) where such 

delinquency management tools have been consciously 

used, portfolio quality has come down substantially (by 

nearly 20 per cent over three years). Loan loss provisions 

were consciously made only in three of seven cases. But, 

they were not in accordance with the federation’s actual 

portfolio quality 

Age of the overdue seems to have more of a serious 

impact on sustainability than just absolute levels. The 

federations with huge overdue (>90 days) were found 

worse on various aspects including sustainability. 

(Further details on factors affecting sustainability of the 

federation are provided in the section 6.2.3.1 in the same 

chapter). 

Portfolio quality has also suffered in cases where the 

annual growth in portfolio was found to be very high 

(excess of 30 per cent). There are a lot of idle funds 

(especially borrowed funds on which the institution loses 

money). This could be attributed to inadequate capacity 

to handle the growth in portfolio. Hence, contrary to 

the belief, scaling-up does not always improve/guarantee 

sustainability. Capacity to handle growth remains the 

key. Spreading growth over a number of years, in line 

with capacity to manage growth/complexity 

(interdependencies) appears important. 

4.2 Operational Sustainability 

The Operational Sustainability used in the study is 

defined as that taking into account the federation’s 

“income covers all costs including operating expenses, 

69

loan loss provisions and financial costs”. The 

operational sustainability measure used here is Total 

Cost Ratio. (For further details, see Table 6.4 of the 

Chapter) 

The operational sustainability for most federations was 

found high and six of the seven federations have 

achieved/are close to achieving 100 per cent operational 

sustainability. The trend is somewhat increasing; 

however, no consistent pattern can be clearly observed 

from the table 6.2. 

Most federations are close to covering their operating 

costs plus some loan loss provisions (generally 2-3 per 

cent but not in accordance with the actual quality of 

portfolio) and financial cost. Larger multi-unit 

federations were found to be struggling to achieve this 

because of huge infrastructure and associated 

maintenance and depreciation costs and other factors. 

(For further details, see table 6.7) 

Table 6.2 - Operational Sustainability of Federations 

Fed # Year 2000 Year 2001 Year 2002 

1 86.97% 96.72% 68.92% 

2 97.95% 100.00% 100.00% 

3 95.09% 92.94% 97.50% 

4 100.00% 100.00% 100.00% 

5 NA 100.00% 100.00% 

6 100.00% 100.00% 100.00% 

7 NA NA 100.00% 

4.3 Financial Sustainability 

The Financial Sustainability used in the study is defined 

as the federation’s “income covers all costs plus 

adjustments for subsidies on borrowings, unreported 

and hidden subsidies, in-kind grants, grants for 

operational deficits, loan loss provision as per portfolio 

quality, opportunity cost of equity capital and the like”. 

The financial sustainability measure used here is the 

Subsidy Dependence Index (SDI) considered to be the 

most accurate measure of financial sustainability. (For 

further details, see box 6.1 at the end of the chapter). 

The financial sustainability of the federations, as 

measured by the SDI, is found to be quite low. Range 

of SDI is between 16.54 and 491 (see table 6.4). Only 

one federation is close to achieving full financial 

sustainability (of ‘0’), whereas, most are above 60 and a 

few over 100. The types of subsidies availed are as 

follows: 

• Subsidy on borrowings 

• Grants for operations 

• Payment for special staff by Promoter 

• Provision for infrastructure by Promoter etc. 

• Subsidy on savings/related funds (rare) 

As evident from Table 6.3, the SDI (except for two 

federations), is moving towards 100 or more which 

implies increasing Subsidy Dependence and reduced 

financial sustainability. 

Significant variation is found between extreme cases, 

i.e., completely member-controlled to promotercontrolled 

with the former close to achieving financial 


With (effective) on-lending interest rates charged by all 

but one federation in the range of 21 per cent-47 per 

cent, the feasibility of enhancing existing on-lending 

interest rates towards achieving financial sustainability 

is quite low, as this will make it nearly unaffordable for 

the borrowers. 

To illustrate the point made in the previous paragraph, 

take a look at the case where the SDI is found to be 

491. An effective interest rate of 27.5 percent means 

the federation has to increase the on-lending rate by 

another 137% to cover all costs plus subsidies on 

borrowings, other hidden and unreported subsidies, 

loan loss provision, opportunity cost of equity capital 

etc. 

This rate is not competitive in the informal credit 

market. Thus, clearly, federations will have to look at 

other aspects like enhancing efficiency to reduce cost 

and up-scaling outreach to enjoy economies of scale, in 

order to reach financial sustainability. 

70 



Fed # 

1* 

Existing 

On-Lending Interest 

Rate (Effective) 

47%-35% (effective) 

(24% - 18% Flat. 

Currently 18% & 24% 

was in Year 2000) 

Table 6.3 – Financial Sustainability of Federations using the SDI 

Year 2000 Year 2001 Year 2002 

119.05 119.60 124.61 

(43.61% more to be added in existing effective 

interest rate) (Means 56.01% more to be added in 

existing on-lending rate to become fully sustainable. i.e., 

federation have to charge 47% +56.01% = 113.01 %) 

2 21%-24% 19.10 20.66 16.54(3.47 % more to be added in 

existing effective interest rate) 

3** 17.6% 95.5 94.5 122 (21.47% more to be added in 


4 18-24% 96 86.9 143 (34.32% more to be added in 


5 21%-24% No Operations 72.60 92.90(19.50% more to be added in 


6 28% 82.4 66.9 66.3 (18.56% more to be added in 


7*** 27.85% No Operations No Operations 491 (136.74% more to be added in 


* Effective Interest Rate is already very high 

** EIR is 17.6% and can be considerably increased 

*** Start-up Operations 

4.3.1 Antecedents of Low Sustainability 

Several factors appear to have caused the low level of 

sustainability among the federations studied and these 

are highlighted below in generic terms: 

(a) 

Ineffective Delinquency Management 

• Serious delinquency problems, which reduce 

portfolio quality, as a result of which loan loss 

provisions are high (after adjustments). 

• Deterioration in portfolio quality has also resulted 

in de-capitalisation of portfolio, thus loss of 

interest income etc. 

• Causes of delinquency are many but the sudden 

growth of portfolio without commensurate 

administrative or managerial capacity to handle 

that growth is a major recurring cause. This rapid 

and burgeoning growth seems to be caused by the 

fixation on achieving economies of scale in 

operations, even by sacrificing portfolio quality. 

(b) 

High Operational Costs 

• Very high operational costs caused by various 

factors and strategic choices including complex 

organisational structure, huge investments in 

infrastructure and a ‘top-heavy’ organisational 

structure, high costs of coordination and interdependence 

between units and high loan loss 

provision expenses (commensurate with poor 

portfolio quality). 

• Larger investment in fixed assets which increase 

depreciation, maintenance and related costs. 

• Use of subsidised as well as high cost sources of 

capital - as opposed to client savings, which is one 

of the cheapest sources of non-subsidised capital 

– which increase financial costs. 

(c) 

Reduction in Operational Income 

• Poor portfolio rotation (> 40% of total assets in assets 

other than outstanding portfolio) – which results in 

less than optimal earnings. Especially, when funds 

71

orrowed for interest, are lying idle or in bank/ 

FDs, earning a return which is much less than the 

cost of borrowing. Loss of interest income and 

reduction in yield (despite a high effective interest 

rate) due to delinquency and other reasons like lack 

of optimisation of portfolio rotation. Lower revenues 

mean increased operational deficit and enhanced 

subsidy dependence. 

Conversely, the federations having paid adequate 

attention to the above factors were found close to 

achieving full sustainability. 

4.4 Record Keeping and Management Information 

Systems (MIS) 

With few exceptions, management information systems 

(MIS) at most of the federations were found ineffective. 

MIS alone does not facilitate timely monitoring and 

management of the loan portfolio. Application of key 

delinquency control tools like portfolio tracking, ageing 

of loans, etc. on a regular basis is largely absent with a 

few exceptions. 

MIS formats that convert raw data (information) and 

present them in a form suitable for management 

decision-making (knowledge) are also absent. In most 

of the cases, management is not conscious of the 

delinquency position in the federation and is therefore 

unable to take appropriate and timely action to handle 

it. 

Even the basic records are not maintained accurately 

and in a timely fashion – the process of collecting data 

clearly revealed this. In one federation, loan ledgers from 

the year 2000 were incomplete at the time of collection 

of data. 

In one case, PAR was found to be used as a rating 

mechanism for performance evaluation of the borrower. 

It has resulted in the reduction of PAR by nearly 20 per 

cent over three years. 

5 Variance in Financial Performance based on 

Locus of Control 

As evident from Table 6.4, only one federation was 

found to be taking action that enhances sustainability. 

Further, financial performance of the federations can 

be compared on the basis of locus of control. A clear 

pattern could be observed that where control lies more 

with members of the federation, they have scored much 

better vis-a-vis the federations where considerable 

amount of control lies with the promoters (other than 

members). Table 6.5 summarises the variance in features 

and performance of the federations on the basis of locus 

of control. 

This can be attributed to the fact that member 

controlled federations have maintained a low profile 

and manage their affairs at a low cost and exercise great 

amount of peer-pressure that helps in maintaining a 

good level of asset quality. Partly due to their inability 

to attract huge grants and subsidised funds from external 

channels, they tend to depend more on the revenue they 

earn from their operations. In a sense, this has also 

restricted their abnormal growth in portfolio and 

investment in infrastructure. Notably, these federations 

have followed the minimalist approach and taken up 

mostly savings and credit services for their members 

and have not ventured into other areas of service or 

business. 

On the other hand, the promoters-controlled 

federations, designed and growing in accordance with 

the vision of promoters, were found to be multi-tiered 

and top heavy. The ability of promoters to attract grants 

on behalf of the federations had seen a lot of investment 

in infrastructure and fixed assets. They also managed 

to avail of subsidised and commercial loan funds as well 

that resulted in exorbitant growth in loan portfolio. 

However, the poor delinquency positions of loans reflect 

on the fact that the peer-pressure factor is largely 

ineffective. In general, they offer many other services 

to their members, in addition to savings and credit. 

However, interest rates charged on loans to members 

was found to be low as compared to the interest rates 

charged by member- controlled federations. This has 

resulted in a high yield-gap. 

72 



Table 6.4 Determinants of Financial Performance of Federations 

(Data for the year ending March 2002) 

Fed 

# 


1 Low as defined 

by SDIAlso low 

operating 

sustainability 

Deployment of 

Funds as Loan 

Portfolio 

Low deployment 

of funds in loan 

portfolio (53.33%) 

Loan Portfolio 

Growth 

Very high 

growth of loan 

portfolio 

Loan Portfolio 

Quality 

Low portfolio 

quality 

Operational Costs 

and Related Factors 

High operational cost caused by 

an expensive delivery 

methodology; high coordination 

and interdependence costs; 

complex, 

top-heavy 

organisational structure and 

significant subsidy dependence on 

promoter 

Sources of Capital, Fund 

utilization and Revenue 

from operation 

Subsidised and high cost 

sources of capital with very 

low fund utilisation and low 

revenue from operations 

despite a very high effective 

interest rate 

MIS, Monitoring 

and Portfolio 

Management 

Poor MIS, 

monitoring and 

portfolio 

management 

2 High as defined 

by SDI as well as 

operational 


Very high 

deployment of 

funds in loan 


Moderate and 

manageable 


portfolio 

Reasonably high 

portfolio quality 

Lower operational cost caused by 

a low cost delivery methodology; 

minimal coordination costs; 

simple and bottom spread 

organisational structure and no 

subsidy dependence on promoter 

Non-subsidised and low cost 

sources of capital with very 

high fund utilisation and high 


despite a very affordable 

interest rate 

Poor MIS, 


portfolio 

management 


by SDI and 

moderate 

operating 


Moderate 

deployment of 

funds in loan 

portfolio (73%) 

High growth of 

loan portfolio 

Low portfolio 

quality due to huge 

delinquency but the 

trend is positive and 

delinquency is being 

reversed 

Low operational cost caused by an 

efficient delivery methodology; 

reasonable coordination and 

interdependence costs; simple, 


subsidy dependence on promoter 

Subsidised and high cost 

sources of capital with 

moderate fund utilisation and 

moderate - low revenue from 

operations with a very low 

effective interest rate 

Poor MIS, 


portfolio 

management 


by SDI but high 

operating 





Sporadic and 

marginal (even 

negative for one 

year) growth of 


Very low portfolio 

quality 




costs; complex, top-heavy 



promoter 

Subsidised and moderately 

costly sources with very low 

fund utilisation and low 


despite an affordable interest 

rate of 24% 

Poor MIS, 


portfolio 

management 


by SDI and good 

operating 


6 Moderate as 

defined by SDI, 

high operating 



by SDI but high 

operating 



deployment of 

funds in loan 



deployment of 

funds in loan 





Very high 


portfolio 

High growth of 


Very high 


portfolio 

Very low portfolio 

quality 

Moderate portfolio 

quality 

Low portfolio 

quality 




costs; complex, top-heavy 



promoter 

Moderately high operational cost 

caused by a moderately expensive 

operation. methodology; high 

coordination costs; complex, topheavy 



promoter 

Moderately high operational cost 

caused by a moderately expensive 

operational methodology, and 


promoter 

Subsidised and also high cost 

commercial sources with 

moderate fund utilization and 

low revenue from operations 

despite an affordable interest 

rate of between 21-24% 

Subsidised sources of funds 

with moderately high fund 

utilisation and moderate 


despite a high effective 

interest rate of 28% 

High cost sources of capital 

with low fund utilisation and 

low revenue from operations 

despite a very high effective 

interest rate 

Poor MIS, 


portfolio 

management 

Poor MIS, 


portfolio 

management 

Poor MIS, 


portfolio 

management 

73

Table 6.5 Features & Performance of Federation based on locus of control 

Parameter 

Operating Units 

Level of Centralisation 

Level of Formalisation 

Organisational Structure 

Interdependency 

Synergistic Benefits 

Infrastructure 

Activities/ Products 

Overall Sustainability 

Subsidies for operational deficits 

In-Kind or Unreported Subsidies 

Operating Costs 

Financial Costs 

Reliance on Savings 

Subsidised Loans 

Commercial loans 

Equity 

High Member Controlled 

Single Unit 

Low 

Low 

Simple & Low cost; tending to be organic & 

flexible with short response time for decisions 

None 

None 

Low 

Very Concentrated, Loans and Savings 

High (SDI approaching 0) 

Low to None 

Low 

Low (10-12%) 

Low (7-8%) Cheap sources of non-subsidised 

capital 

Very High, > 90% of sources of capital is 

through savings 

None - Very Low 

None 

High - Low 

High Promoter Controlled 

Multiple OR Large Single Units 

High to Very High 


Complex and Top heavy, tending to mechanistic and 

bureaucratic with large lead time for decisions 

High 

High but significant variation on individual case 

basis 


Highly diverse - Loans, Savings, Insurance, Pension 

Funds etc 

Low (SDI approaching 150) 


High to Very High; Cross-subsidisation of mF 

component is common 

High (30-50%) 

High (0-12%) Both subsidised & commercial 

borrowings. In some cases, borrowings with 13 - 18% 

Low, < 15% of sources of capital is through savings 

Very High, with over 2/3rd of total sources of capital 

Generally None (only 1 fed.) 

Low-Moderate 

Portfolio Quality 

% of total assets in loan portfolio 

% of total assets in infrastructure 

Annual Growth of Portfolio 

Optimisation of Portfolio 

On lending Interest Rate 

Yield on Portfolio 

Yield Gap 

Income from Financial Services to 

Total Income 

Reasonably High, with trends towards better 

portfolio qualityAge of overdue is decreasing 

Very High (> 90%) 

Low (


6. Challenges for the Future – What to do and 

how to achieve it? 

As understood by the financial analysis of the 

federations, the key challenges for the future can be 

grouped under the following major factors and there is 

an imperative need to address these if federations have 

to strive towards financial sustainability in the longterm. 

The major factors that require attention are: 

1. Delinquency and Portfolio Management – To 

enable proactive and effective management of the 

portfolio so as to prevent delinquency rather than 

to merely tackle it after it has occurred. 

2. Management Information Systems – To create 

an effective MIS so as to facilitate timely 

monitoring of the portfolio on a regular basis. A 

simple effective manual MIS is the critical need 

of the hour. Basic records need to be maintained 

accurately and in a timely fashion. MIS formats 

that convert raw data (information) and present 

them in a form suitable for management decisionmaking 

(knowledge) are also required 

3. Portfolio and Business Planning - To ensure that 

federations deploy a high proportion of assets in 

loan portfolio, manage their portfolio growth in 

an effective manner (commensurate with their 

capacity to manage growth), utilise their funds so 

as to optimise portfolio rotation and the like 

4. Yield on Portfolio – To maximise earnings from 

portfolio by enabling a steady and manageable 

portfolio growth coupled with balanced interest 

rates (affordable to the client and sustainable for 

the institution), proper management of 

delinquency, appropriate sequencing of client 

repayments (interest portions first and principal 

portions last) and efficient and low-cost 

methodology for mF service delivery 

5. Savings – To enable federations to tap the cheapest 

sources of non-subsidised capital - client savings - 

which, in turn, require the choice of an appropriate 

legal form and adherence to systems and policies 

for safeguarding savings. 

Where legally permitted, like in the case of cooperatives, 

federations must consciously get into ‘voluntary savings’ 

and systems need to be developed and implemented 

for this. Further, compulsory savings must be made 

more flexible with regard to quantum/frequency of 

saving as also the provision of positive returns on savings 

for clients. Federations and groups must also enact a 

clear exit policy on savings, as this will encourage more 

clients to save and in a larger measure, and with a greater 

degree of confidence. 

The factors that enhance sustainability of federations 

and the course corrections are summarised below in 

tabular form. The tables (below) outline what are the 

key aspects, what are the characteristics of the federations 

in the sample with regard to the strategic aspects, the 

impact on other factors and finally, their impact on 


Strategic Causal Factors and Financial Sustainability of 

Federations based on Locus of Control 

The tables (below) outline what the key aspects are, what 

are the characteristics of the federations in the sample 

with regard to the strategic aspects, the impact on other 

factors and finally, their impact on sustainability. 

75

Table 6.6: Detailed Financial Analysis of the Typology of Federations 

Quadrant # 1 - High Promoter Control 

Aspects Characteristics of Federations in Sample Impact on Other Factors Impact on Sustainability 

Finance 

Deployment 

in Income 

Generating 

Assets 

• Very low to moderate deployment in Income Generating 

Assets 

•




Finance Plus 

• Low to very low portfolio quality 

• PAR in the range of 42%-65% and has cumulatively 

increased over the 3-year period by 9% 

• Older over dues (of higher age) are not being collected 

and PAR > 60 Days and PAR > 90 Days have increased 

by 21% and 19% over the last 3 years. Thus, loan loss 

provision (after adjustments) is also significantly high 

• Yield gap is also significant and in excess of 5% (as 

compared to the effective interest rate charged from clients) 

and it is increasing. 

• This also suggests a delinquency problem which is perhaps 

not managed well 

• Slower rotation of portfolio 

• Increased costs of 

managing/controlling 

delinquency 

• Increased loan loss provision 

expenses 

ê 

Lower Sustainability 

Finance 

Cost of 

Operations 

• Very high to reasonably high cost of operations 

• Operating cost ratios in the range of 11% - 49% and 

total cost ratios between 19%-60% 

• Most often, high cost of service delivery, high cost of 

managing interdependencies, high cost of depreciation, 

high cost of loan loss provisions (commensurate with 

portfolio quality), high cost associated with diverse 

activities and adjusted high cost for unaccounted/ 

unreported subsidies increases the operating and total 

costs. 

• Many of these federations tend to be complex, multilayered, 

bureaucratic organisations that are top heavy with 

large amounts of inefficiency 

Finance Plus 

• Enhanced operational costs 

• Increased subsidy 

dependence 

ê 


• High cost of operations 

• Operating cost ratio in range of 10%-20% while total 

cost ratio lies between 11%-28%, with the lowest ratios 

reported for year 2001, which had a very significant 

decrease in loan portfolio as compared to the previous 

year. The operating cost and total cost ratios respectively 

increased by 5% and 11% respectively in 2002 as 

compared to the previous year 

• Cost of service delivery is quite high and organisation 

structure is top heavy and bureaucratic and efficiency is 

low 

• As a lot of diverse activities are undertaken, significant 

operational costs are incurred as a result of this 

• When adjustments are made for having a loan loss 

provision expense commensurate with portfolio quality 

and also to cover the various subsidies, the total cost of 

operations increases 

• Enhanced operational costs 


dependence 

ê 


77



Finance 

Sources of 

Capital and 

Fund 

Utilisation 

• Mostly subsidised and high cost sources of capital with 

fund utilisation ranging from very low to moderate. 

• One federation had accessed a commercial loan. 

• Savings, which is the cheapest source of non-subsidised 

capital, is not the major source of capital for these 

federations 

Finance Plus 

• Subsidised and moderately? cost sources with fund 

utilisation very low 

• Clientele equity and savings are the major source of funds, 

comprising about 67% of total sources of capital in year 

2002. However, in year 2001, nearly 1/3rd were loans 

from subsidised sources. A lot of that is laying idle and 

losing money (interest) as the returns from bank and 

investments are much below the interest paid for these 

subsidised loans. 

• Enhanced financial costs 


dependence 



dependence 

ê 

ê 



Finance 

Revenues 

from 

Operations 

and Effective 

Interest Rates 

• Low revenue from operations despite very high effective 

interest rates which range from 47% - 21%. 

For several reasons including low-moderate fund 

utilisation, lower deployment of assets as loan portfolio, 

higher yield gap (due to delinquency & other reasons), 

all these federations have a significant operational deficit 

which has to be covered by subsidies from promoters 

and other stakeholders. 

• Reduced contribution to 

operational income 

• Enhanced operational 

deficit 

• Enhanced subsidy 

dependence 

ê 


Finance Plus 

• Low revenue from operations despite interest rate of 24%· 

• Between 70%-90% of the total income is from 

operations, still leaving a huge operational deficit· 

• This is because fund utilisation is low with a deployment 

of




Finance Plus 

• Very high 

• Significant subsidies (from promoters and others) to cover 

operational deficit in the form of grants and in-kind 

subsidies apart from subsidised loans 

• Such federations also have greater access to subsidies 

• Higher adjustments for 

subsidies 

ê 


Finance 

MIS, 

Monitoring 

and Portfolio 

Management 

• Complex MIS because of interdependencies and data is 

not readily retrievable and accuracy of data is questionable 

• There are significant inconsistencies in data provided by 

the federation themselves§ Use of MIS for delinquency 

and portfolio management and monitoring seems rather 

limited 

• Ability of MIS to provide relevant data for portfolio 

management and monitoring also seems low 

• Use of MIS data for delinquency management appears 

minimal 

• Lack of exact position about 

delinquency 

• Lower monitoring of 

portfolio 

• Poor portfolio management 

and delinquency control 

ê 


Finance Plus 

• Manual 

• Complex because of interdependencies and data is not 

readily retrievable and accuracy of data is questionable 

• There are significant inconsistencies in data provided by 

the federation themselves 

• Use of MIS for delinquency and portfolio management 

and monitoring seems rather limited 



• Use of MIS data for delinquency management appears 

minimal 

• Lack of exact position about 

delinquency 

• Delinquency could become 

hidden beast and explode 

out of control 

• Lower monitoring of 

portfolio 



ê 


79

Quadrant # 2 - High Member Control 


Finance 

Deployment 

in Income 

Generating 

Assets 

Growth of 

Income 

Generating 

Assets 

• Very high deployment in income-generating assets 

• >= 95% of total assets is in loan portfolio outstanding 

and this remains almost constant over the three-year 

period 

• Very insignificant proportion of total assets are in fixed 

assets and investments, Investment in infrastructure and/ 

or or other assets is minimal 

Finance Plus 

• Reasonably high deployment in income-generating assets 

and this is somewhat optimised 

• 94%-73% of total assets is in loan portfolio outstanding 

but this is decreasing for the last year of the 3-year period 

under study. It is normally 90% for the earlier two years 

but because of release of huge amounts of money by 

wholesaler in March 2002 

• Very insignificant proportion of total assets are in fixed 

assets but, investments are high with between 3% - 7% 

during the 3-year period as are other assets like cash at 

bank etc. (3%-20%). As high as 20% of total assets in 

simple bank deposits earning low returns for reasons 

mentioned earlier 

• Significant proportions of total assets are in investments, 

which are not the primary income generating assets for 

mF. Infrastructure investment is quite low. 

Finance 

• Moderate and manageable growth 

• Annual growth in loan portfolio is in the range of 10%- 

20% (at the maximum) and annual portfolio growth rate 

is within this range for the subsequent years as well. The 

cumulative growth in 3 years is just 31% and the last 

year's growth is just 10.23%. 

• Thus, portfolio growth is incremental and commensurate 

with managerial/administrative capacity required to 

manage. 

• The emphasis appears to be on cultivating and retaining 

good borrowers while weeding out poorer borrowers. 

Finance Plus 

• High growth 

• Annual growth in loan portfolio is in the range of 42%- 

52% and annual portfolio growth rate increases in 

subsequent years. Cumulative portfolio growth is 

117.51% in 3 years and last year's growth is in excess of 

52% 

• Portfolio growth far exceeds the managerial and 

administrative capacity to manage that growth. 

• The emphasis on reaching scale (larger quantity of loan 

portfolio) appears to be somewhat a primary 

consideration 

• Increased operating income 

• Reduced operational cost 

through lower depreciation 

and the like 

• Decreased operating 

income, though not optimal 

• Reduced financial spread 

and loss through investment 

of borrowings in simple 

bank deposits and 

investments 

• Lower delinquency due to 

emphasis on "portfolio 

quality" rather than 

"quantity" 

• Lower costs of managing / 

controlling delinquency 

• Lower loan loss provision 

expenses 

• Delinquency due to 

emphasis on scale and 

"portfolio" "quantity" rather 

than "quality" 



delinquency 


expenses 

ê Higher Sustainability 

ê Lower Sustainability 



80 





Finance 

Quality of 

Income 

Generating 

Assets 

Cost of 

Operations 

• Reasonably high portfolio quality 

• PAR in the range of 5.5%-7.5% 

• Have over dues but within manageable limits and large 

proportion of over dues are collected over time. 

• Undisciplined borrowers are weeded out on a regular basis 

and they do not form a part of the portfolio in subsequent 

years 

• No significant yield gap and yield on portfolio almost 

matches the effective interest rate 

• Yield gap is between 0.72-1.70% · Delinquency 

problems are managed and tackled rather than ignored 

or shrouded 

Finance Plus 

• Moderate to low portfolio quality 

• PAR in the range of 62%-44% but it has come down by 

almost 18% over 3 yrs due to adoption of stringent 

measures. 

• Portfolio quality is reportedly low but improving given 

the fact that older over dues are collected. Delinquency 

is a serious problem, primarily because of the single 

sectoral exposure. Loan sizes are also very high and they 

are such that perhaps peer pressure does not work well at 

such high loan sizes. 

• Yield gap is somewhat significant and of the magnitude 

between 8.60%-5% (as compared to the effective interest 

rate charged from clients) each year for 3 years. 

• Due to introduction of rating system based on PAR, it 

reduced overall delinquency and PAR by about 18% over 

last 3 years. 

Finance 

• Low cost of operations 

• Operating cost ratio in range of 10%-12% while total 

cost ratio lies between 21%-23% 

• Cost of service delivery is quite low as are depreciation 

costs. Organisation structure is lean, bottom spread, and 

efficient and not top heavy. 

• New products are added only when absolutely mandatory 

and also through financial deepening within the broad 

category of loan and savings products. Hence, operating 

costs do not increase significantly due to introduction of 

new products· 

• Loan loss provision expense commensurate with portfolio 

quality and also to cover the various subsidies, the total 

cost of operations marginally increases as subsidies are 

not significant and also because older age over dues are 

periodically collected 

• Lesser postponement and/or 

lower reduction of interest 

income 

• Faster rotation of portfolio 

• Lower costs of managing/ 

controlling delinquency 

• Lower loan loss provision 

expenses 

• Postponement and/or 

reduction of interest income 

• Slower rotation of portfolio 



delinquency 


expenses 

• Lower operational Costs 

• Reduced subsidy 

dependence 




81



Finance Plus 

• Very low cost of operations 

• Operating cost ratio in range of 2%-4% while total cost 

ratio lies between 10.3%-15% 

• Cost of service delivery is quite reasonable. Depreciation 

costs are also quite low and partly because of subsidies. 

Organisational structure simple and flexible and efficiency 

is quite high. 

• New financial products are introduced & diverse activities 

are undertaken; operational costs are incurred as a result 

of this 

• Loan loss provision expense commensurate with portfolio 

quality and also to cover the various subsidies provided 

by the promoter/others, the total cost of operations 

increases. 

• Higher cost of abnormally 

high loan loss provisions 


dependence 


Sources of 

Capital and 

Fund 

Utilisation 

Revenues 

from 

Operations 

and Effective 

Interest Rates 

Finance 

• Not-subsidised, low cost sources with fund utilisation 

highly optimised 

• Predominantly relied on savings, which is the cheapest 

source of non-subsidised capital. For the 3-year period, 

2000-2002, savings constitute between 91%-97% within 

all forms of capital and federation pays greater than market 

rate of interest on savings. There is minimal idle cash 

(with buffer) and rotation of on-lending funds is 

optimised. 

Finance Plus 

• Subsidised and high cost sources with fund utilisation 

moderate 

• Subsidised loans are the major source of funds, comprising 

between 81%-86% of total sources of capital. Some of 

that is laying idle and losing money (interest) as the 

returns from bank and investments are much below the 

interest paid for these subsidised loans. Savings and equity 

constitute between 19%-14% within all forms of capital 

Finance 

• High revenue from operations despite an affordable 

effective interest rate of 24% 

• 90% of the income comes from delivery of financial 

services, with a marginal operational deficit sometimes 

• This is because fund utilisation is high with a deployment 

of >95% of total assets as loan portfolio outstanding, 

which is the most important income-generating asset for 

mF 

• On-lending effective interest rates for clients are optimal 

from view of affordability to borrower and sustainability 

to federation No significant yield gap and yield almost 

matches the effective interest rate charged. Yield gap is 

between 0.72%-1.70%. 

• Lower financial costs 


dependence 



dependence 

• Enhanced contribution to 


• Lower and/or small 

operational deficit 


dependence 




82 





Finance Plus 

• Moderate - high revenue from operations despite a very 

low effective interest rate of 17.60% 

• Around 95% of the total income is from operations, but 

there is an operational deficit 

• This is because fund utilisation is not fully optimised 

with a deployment of 70%-90% of total assets as loan 

portfolio outstanding 

• On-lending effective interest rates for clients are very low 

and skewed towards affordability for the client. There is 

somewhat significant yield gap (perhaps due to 

delinquency) of the magnitude between 8.60%-5% (as 

compared to the effective interest rate charged from 

clients) each year for 3 years. Hence, interest earnings, 

despite a low interest rate, and reasonable deployment of 

assets in loan portfolio, is not optimal 

• Reduced contribution to 


• Enhanced operational 

deficit 

• Enhanced subsidy 

dependence 


Finance 

• Very low 

• Very few subsidies to cover operational deficit and source 

of capital is also not subsidised as federation is paying an 

interest on savings >= the market deposit rate 

• Such federations also have lesser access to subsidies 

• Lower adjustments for 

subsidies 


Other 

Subsidies 

Finance Plus 

• High 

• Significant subsidies (from various stakeholders) to cover 

operational deficit in the form of grants and in-kind 

subsidies apart from subsidised loans 

• Such federations also have greater access to subsidies 

• Higher adjustments for 

subsidies 


MIS, 

Monitoring 

and Portfolio 

Management 

Finance 

• Manual 

• Simple and data retrieval and accuracy are questionable 

as some lack of internally consistency in data was observed 


and monitoring seems rather limited 



• Use of basic MIS data for delinquency management exists 

but it can be enhanced significantly 

Finance Plus 

• Computerised 

• Simple and data is readily retrievable but accuracy of data 

is somewhat questionable. 

• There are some inconsistencies in data provided by the 

federation, themselves 


and monitoring is extremely good. The federation has a 

simple and effective portfolio tracking system internally 

developed and almost all data is readily available. 

Management is very conscious of delinquency and is 

taking various steps to reduce it. 


management and monitoring is reasonable 

• Use of MIS data for delinquency management is good. 

• Lack of information about 

status of delinquency 



• While this is not a serious 

problem now, as the 

federation grows naturally, 

this could become a crucial 

aspect impacting delinquency 

• Knowledge about Exact 

Position with regard to 

delinquency 

• Delinquency will not 

become hidden beast and 

explode out of control 

• Increased monitoring and 

management of portfolio 


ê Concrete and 

positive results in 

tackling 

delinquency, 

thereby 

contributing to 

enhanced 


83

Table 6.7: Basic Financial Data of Federations (as on March 2002) 

Description Fed # 1 Fed # 2 Fed # 3 Fed # 4 Fed # 5 Fed # 6 Fed # 7 

OUTREACH 

Total Membership 30920 1257 1948 4320 2095 418 12570 

Women Membership 30920 1257 516 4320 2095 418 12570 

No of active borrower 23393 1137 2464 4320 2095 336 5750 

Total loan disbursed* 19.59 2.15 4.67 0.56 0.14 0.31 1.00 

No of loans disbursed 47821 5761 4599 238 141 1367 5750 

Average loan size (Rs.) 4098 3738 10164 23748 10248 2316 1739 

ASSETS 

Loan outstanding* 5.80 0.269 2.13 0.15 0.12 0.15 0.60 

No of loan outstanding 23393 1001 2464 111 118 865 5750 

Investments (Rs lakhs) 96.72 0 20.00 30.97 0.21 0.26 1.28 

LIABILITIES AND EQUITY 

Savings (Rs lakhs) 197.12 25.60 20.33 10.58 4.53 2.80 0 

Com. debt (Rs lakhs) 0 0 0 0 1.63 0 0 

Other debt (Rs lakhs) 834.16 0 251.65 0 0 9.59 71.74 

Equity (in Rs lakhs) 56.75 2.37 19.63 12.36 3.96 3.07 118.08 

KEY FINANCIAL PERFORMANCE INDICATORS 

Loan Outstanding / Total Assets 53.33% 96.46% 73% 43.40% 95.25% 96.19% 31.20% 

Investments/Total Assets 8.89% 0% 6.86% 2.89% 1.75% 1.65% 67.90% 

Fixed Assets/Total Assets 9.58% 1.42% 0.27% 0.84% 0.45% 0% 0.03% 

Members Savings to total liability + equity 18.12% 91.53% 6.97% 30.50% 36.91% 18.12% 0% 

Commercial Loans to total liability + equity 0% 0% 0% 0% 14.93% 0% 0% 

Subsidised loans to total liability + equity 76.67% 0% 86.29% 2.54% 0.00% 62.02% 37.80% 

Net worth to total liability + equity 0.00% 8.47% 6.73% 37.68% 32.04% 19.86% 62.20% 

PAR > = 1 Day 3.86% 7.35% 44.00% 51.75% 48.59% 3.81% 0% 

PAR > 60 Days 2.32% 0% 31.00% 29.45% 38.46% 1.18% 0% 

PAR > 90 Days 1.98% 0% 27.00% 23.39% 31.41% 0% 0% 

Arrears Rate 2.21% 1.09% 16.00% 16.52% 20.93% 2.19% 0% 

Repayment Rate 98.00% 84% 87.00% 94% 88% 98% 100% 

SDI 124.61 16.54 122 143 92.9 66.3 491 

Operation self-sufficiency 68.92% 100.00% 97.50% 100% 100.00% 100% 100% 

Operating cost ratio 44.89% 11.60% 3.73% 14.38% 11.66% 11.24% 12.80% 

Total cost ratio 56.64% 22.00% 15.29% 22.61% 19.00% 24.40% 19.04% 

* (in Rs. Crores) 

84 



Box 6.1. : FORMULAS FOR SOME KEY INDICATORS 

PORTFOLIO AT RISK 

Sum of unpaid principal balance of all loans with overdue 

Total gross outstanding loan portfolio (Sum of principal outstanding of all loans) 

ARREARS RATE (PORTFOLIO IN ARREARS) 

Sum of Arrears (Principal Overdue) Amounts of All (Past Due) Loans 

Total Gross Outstanding Loan Portfolio (Sum of principal outstanding of all loans) 

CUMULATIVE REPAYMENT RATE 

Total amounts paid so far by clients - Prepayments x 100 

Total amounts due from clients till date 

OPERATING COST RATIO 

Operating costs during period 

Average outstanding loan portfolio 

TOTAL COST RATIO 

Operating costs during period + Cost of funds + Loan loss provision 

Average outstanding loan portfolio 

OPERATING SELF-SUFFICIENCY 

Operating Income (Loans + Investments) 

Operating Costs + Loan Loss Provisions + Financing Costs 

SUBSIDY DEPENDENCE INDEX (SDI) 

A (M-C) + E*M + K - P 

LP * i 

Where A (M-C) is subsidy on borrowing, E * M is the opportunity cost of equity capital, K is sum of all subsidies, 

P is profit, LP is Average Loan Portfolio and I is on-lending interest rate. Please see Appendix 5 for an understanding 

of the SDI, which is perhaps the most accurate measure of financial sustainability. 

85

Numerator of SDI, 

A(M-C) + E *M+K - P = 0 

P 

= A(M-C) + E*M+K 

Profit = Subsidy on Borrowing + Opportunity Cost of Capital + All other Subsidies, then SDI = 0 

Profit > Subsidy on Borrowings + Opportunity Cost of Capital + All other Subsidies, then SDI < 0 

Profit < Subsidy on Borrowing + Opportunity Cost of Capital + All other Subsidies, then SDI > 0 

SDI = A(M-C) + E*M+K-P = Subsidies 

LP * I Average Annual Income 

SDI 

SDI 

SDI 

A 

= 0 Full Substainable 

< 0 Full Sustainable and Generating a Surplus 

> 0 Not Sustainable 

= Borrowings 

M = Market Rate of Funds (14%) 

C 

E 

K 

P 

LP 

I 

= Weighted Averate Conversional rate of Borrowings 

= Equity Capital 

= Sum of all unreported, other subsidies, (Grants and in kind too) 

= Profit 

= Average Outstanding Portfolio 

= On-lending (effective) interest rate 

86 


CHAPTER7 

Stable Group Conditions: An Assessment 

of SHG Federations 

Theories related to group behaviour have already 

been discussed in Chapter 3. This chapter tries to 

understand the behaviour and dynamics of the studied 

federations in the framework of illustrated theories. 

1 Group Conditions Applied to SHG- 

Federation Types 

Drawing on the typology developed through this study, 

the picture that emerges of the SHG-federation is a 

variegated one. There are four different types of SHG 

federations - some involved in financial intermediation 

while others provide technical and logistical support to 

the member groups so that they can function more 

effectively. The relative long-term stability from the 

institutional design perspective can be analysed by 

applying conditions for stable groups, as developed by 

Doharty and Jodha, to the typology of federations. This 

would also help identify the weak spots in institutional 

design and perhaps a method of dealing with them. 

The framework suggests that certain conditions should 

be met for a group to be stable. Weakness in any one 

has a cascading effect on other condition and quality 

of the entire group. These conditions are collective good, 

organisational good, individual profit, compensatory 

profit, functional identity, appropriate group size and 

finally, availability of structural guarantees. The Doharty 

and Jodha model has been described in detail in 

Chapter 3. 

A collective good is identified by the fact that every 

member of a group has the equal right to its 

consumption. Collective goods are defined with respect 

to specific groups and to initiate group action it is 

important to identify a group for which the provisions 

of true collective good are possible. 

The potential for collective good is not in itself a 

sufficient reason for group action. The organisational 

good must only be available when the potential 

beneficiaries organise themselves to procure it. 

Individuals will subscribe to group action on a sustained 

basis only if there is potential for individual profit. As a 

rule of thumb, one could suppose that the required level 

of individual profit to a member of the group is about 

equal to the percentage return on investment required 

to motivate the establishment of an individual business 

in the same area where the group action is proposed. 

Compensatory profit is compensation for putting more 

time and effort than others do in the group for it to 

function and deliver its intended benefits. The 

compensation may not always be economic incentives 

but in terms of social recognition and prominence to 

the group leaders. Social sanctions and social rewards 

are ‘selective incentives’ that can be used to mobilise a 

latent group. Cooperative individuals can be invited 

into the core group while recalcitrant individuals can 

be ignored. Social incentives should be analysed in much 

the same way as monetary incentives. They are 

important in small groups and play a role in the large 

group only when the large group is a federation of small 

groups. 

If individual members have diverse reasons for being in 

the group it lacks functional identity. Lack of functional 

87

identity prevents common interest in maintenance of 

the system and defeats the very purpose of the group’s 

existence. 

Appropriate group size is a function of task and 

technology and is important for the group to perform. 

Another important factor, which engenders cooperation 

among members, is permanence of the structure. 

Individuals and organisations would not entrust their 

money, time and effort to a structure that is likely to 

cease to exist any time. Systems and method of providing 

structural guarantees is an important determinant of 

stability of the group. 

In this chapter, these conditions will be applied to the 

different typology to understand their generic strength. 

Q1 –Federations Engaged in Finance and Finance Plus 

Operations with External Locus of Control 

● 

increases as activities require specialised skills and 

the leaders do not see corresponding benefits. PIs 

compensate by (artificially) creating a parallel 

people’s structure. Federations having a substantial 

social and development agenda use the proximity 

of the federation leaders to the members to achieve 

the objectives of the federation. In these 

federations, leaders seem to be compensated with 

social prestige and recognition for the effort they 

put in. 

Functional Identity: Functional identity is high 

in these federations. Events to reinforce this 

identity are required periodically, otherwise there 

is a potential danger that the ordinary members’ 

sense of ownership may decline. In some cases, 

PIs have created parallel people’s organisations to 

create functional identity, though technically it is 

not required from the financial service delivery 

perspective. 

● 

● 

● 

● 

Collective Good: Collective good is clearly 

discernable as the groups are compact and interlinked. 

The privileges, rules and penalties are 

applicable to all members equally. Being rule-based 

there is transparency. However, federations 

engaged in multiple activities tend to take short 

cuts because of the diverse agenda. 

Organisational Good: Unless the people organise 

themselves into groups it is not possible to avail 

any benefit. It is a precondition, as part of design, 

imposed by the PI. The entire edifice of benefits 

rests on the stability of the organisation. Hence, 

the organisational good is present. 

Individual Profit: Individual profit is linked to 

individual and group performance. Continuity of 

benefit is ensured as long as the performance is 

above a benchmark. Individual benefit can taper 

off as the level of need increases (as loan able funds 

are limited) – and the importance of the group to 

the member decreases. 

Compensatory Profit: Compensatory profit is 

relatively low where federations focus largely on 

financial activities. The dependency on the PI 

● 

● 

Appropriate Group Size: Being controlled by a 

PI, restructuring is done quite frequently and easily 

as per appropriateness. 

Structural Guarantees: Manualisation of 

procedures and adherence through strict 

supervision ensures structural guarantees. PIs 

follow-up with a lot of member training so that 

peer pressure will ensure adherence to manual 

rules. However, this discipline seems to be affected 

in case the federation is engaged with other 

activities whether social or economic. 

Community federations that are high on financial 

services and are largely controlled by the PIs, and have 

a parallel people’s structure exhibit stability, a desirable 

achievement. Six of the seven group conditions have a 

high score. The compensatory profit to leaders who 

pooled their efforts is not intrinsic to the structure and 

is compensated by the PIs by giving social prominence 

and responsibilities to the community leaders. 

Q2: Federations Engaged in Finance and Finance Plus 

Operations with Internal Locus of Control 

● 

Collective Good: Benefits members equally if PI 

is strict in enforcing norms and procedures. The 

88 


Stable Group Conditions: An Assessment of SHG Federations 

● 

● 

● 

● 

● 

● 

federations where the PI has withdrawn perform 

inadequately in providing equal services to all the 

members. 

Organisational Good: Non-standard benefits 

seem to accrue irrespective of members displaying 

ideal group behaviour. 

Individual Profit: Individual profits linked to the 

proximity of the member to the PI staff, since nonstandard 

and inadequate (for all) non-financial 

benefits are available. 

Compensatory Profit: Compensatory profit is 

relatively low. Where PI has withdrawn completely, 

social recognition compensates the leaders for their 

efforts. 

Functional Identity: Functional identity is high 

at the SHG level but likely to get uncertain at 

higher levels. 

Appropriate Group Size: When the size of the apex 

federation becomes large, new middle tiers are 

created so that there is face-to-face interaction at 

the cluster level. In the case of multi-activity 

federations, the group size for different activities 

is likely to vary. 

Structural Guarantees: The PI provides structural 

guarantees. However where the PI has withdrawn, 

structural guarantee has weakened over the period 

of time. 

In this category, those federations that are high on 

finance and member management and control to the 

extent of being on their own after the withdrawal of 

the PI, score high on most conditions (five out of seven) 

but are weak in collective good and in providing 

structural guarantees. Since the member-control over 

the leaders decreases (and vice versa) over time the 

structural guarantees weaken, in absence of parallel (and 

continuous) communication to the members that was 

earlier provided by the PI. Members and leaders 

gradually (and often without realising) do not enforce 

the agreed norms and procedures with the same degree 

of strictness, creating avenues for some to challenge the 

system by not adhering to it or by taking undue 

advantage. This can have a spiralling-down effect over 

a period of time. 

These are inherently unstable conditions. There is a case 

for the PIs to revisit the federations with a certain 

frequency, once a year initially and decreasing over time. 

Those federations that are not fully independent of the 

PI exhibit major weaknesses due to their dependence 

on the PIs for structural guarantees. Otherwise, these 

federations seem to be relatively stable structures. 

Q3- Federations Engaged in Non-Financial Operations 

with External Locus of Control 

● 

● 

● 

● 

● 

● 

● 

Collective Good: The members see availability of 

non-financial benefits from being in the federation 

as long as the PI is able to bring in such benefits 

from its resources - both financial and nonfinancial. 

Difficult to frame a standard set of 

procedures and systems for non-financial benefits. 

Organisational Good: Organisational good may 

not be intrinsic in the structure but the groups are 

nurtured and supported by the PI. 

Individual Profit: Individual profit not necessarily 

linked to performance. 

Compensatory Profit: Compensations linked to 

proximity to the PI. Not an intrinsic part of the 

group. 

Functional Identity: Functional identity could be 

confusing as different charters of demands are 

addressed. These are dependant on the PI 

proclivities. 

Appropriate Group Size: Being in the early stages, 

these federations are of various sizes. Appropriate 

size as per the activity has to emerge. 

Structural Guarantees: The federations in this 

category have not yet reached stable orbits. The 

PI has to be very closely involved to provide 

structural guarantees otherwise the federations will 

vanish. Member stakes have not been built to 

ensure adherence to agreed procedures. 

These federations are still in the nascent stage. These 

organisations may ultimately take up financial activity 

to provide some ongoing service. At present, they are 

in response to the wishes of the PI and would last as 

long as the PI keeps investing in them. 

89

Q4- Federations Engaged in Non-Financial Operations 

with Internal Locus of Control 

● 

● 

● 

● 

Collective Good: While the collective good at the 

level of SHG is clear, the same cannot be said of 

the federations. Not all members would benefit 

from the activities of the cluster federation equally 

and hence they would be ambivalent in their 

support. Higher tiers, for the same reason, do not 

find support at all, unless the federation takes up 

financial intermediation. 

Organisational Good: Higher tiers are not so 

functionally important after the withdrawal of the 

PI. 

Individual Profit: Individual profit not linked to 

performance at higher levels. 

Compensatory Profit: The compensatory profit 

available in terms of social recognition at the 

● 

● 

● 

cluster federation level is temporary. 

Functional Identity: Functional identities at 

higher level not very clear post PI withdrawal. 

Appropriate Group Size: Size remains appropriate 

at the cluster level as these are neighbourhood 

groups where knowing each other by face is equally 

important. 

Structural Guarantees: This requires the PI to 

continuously invest in the members for a long time 

so that the leaders are not able to break the groups. 

However only a facilitative role without any 

corresponding service charge is unlikely to 

motivate leaders for long, even when there is 

compensatory profit in terms of social recognition. 

In the Table 7.1, a comparative picture of different types 

of federations is given for the benefit of the readers. 

Table 7.1: Comparison of Group Conditions to SHG-Federations According to Type 

Feature Q-1 Q-2 Q-3 Q-4 

Collective Good High Medium Medium Low 

Organisational good High High Low Low 

Individual profit High High Medium Low 

Compensatory profit Low-Medium Low-Medium Medium Medium 

Functional identity High-Medium Medium Low Low 

Appropriate group size Medium Medium Low High 

Structural guarantees High Low Low Low 

Overall High- Medium Medium- High Low Low 

2 How have PIs managed to answer critical 

questions pertaining to creating federations 

as stable MoF/ MFIs? 

It can be seen from the above analysis that the conditions 

of group action are quite relevant in the case of 

federations. Federations in classes Q1 nurture quite 

favourable conditions for stable action, Q2, have 

somewhat less conducive conditions while Q3 and Q4 

seem to be quite unstable. It seems in retrospect that 

the last two classes are really ‘synthetic organisations’ 1 . 

They are in transition and will probably gravitate to 

one of the other categories or remain as temporary 

forums for arranging annual meets etc. 

Table 7.2 herein below presents most of the key 

questions that arise in relation to MoFs reaching stability 

and tries to see which of these questions are answered 

reasonably well and for which type of federation. These 

questions are collated from the writings of Olson as 

well as the transaction economics theorists. 

1 

See JD Thompson, Organizations in Action, Englewood Cliffs, New York, 1967, chapter 1 

90 


Stable Group Conditions: An Assessment of SHG Federations 

Table 7.2: Key Questions-Measure of Sustainability 

Problem Area 

Bringing the group of members 

together into an MoF 

How to prevent 'free-riding' by 

some members? 

Who will maintain the group? 

Will members always be only 

opportunistic? 

Elaboration 

Who will do the legwork and the 

extension for welding the members into 

one group? Is a 'crisis' or a common 

enemy always needed for them to come 

together? 

Free riders are those who do not take any 

trouble for the group to succeed but get 

all the benefits. Similarly, even members 

who do not pay their fees/contributions 

get benefits. How to stop this?If the 

Federation offers services, how to ensure 

that only members get them? 

The people at the helm of affairs receive 

exactly the same service as ordinary 

members. They may be voluntary and not 

paid. So what incentive do they have to 

work for others? 

The MoF offers a service. Members may 

do just enough to avail of it but no more. 

When a better option comes along, they 

leave the MoF. How to solve this problem? 

Answers Found in the Study as Relevant 

to Federations in the mF-MoF System 

PIs bring SHGs of a cluster or a 

geographical pocket into one federal 

structure and continue this process 

upwards. Common needs and sharing of 

efforts and costs are the main driving 

forces here. 

SHGs simply cannot 'free-ride' in their 

federations except in regard to issues that 

impact only social solidarity. SHGs get 

services from federations usually only if 

they need and or pay for them. Enough 

instances were seen where federations levy 

service charges. As the latter seek 

sustainability, free riding becomes 

impossible. 

This question has not been satisfactory 

answered yet by PIs and the federations 

they float yet. In fact, approximately twothirds 

of all federations looked at by the 

study have external locus of control. This 

means that the PIs perform all these 

functions of maintaining the federations 

as a cohesive unit. The difficulties in 

withdrawal are real. By leadership 

training and instilling a "we-also-can-do" 

attitude, PIs try to create a desire to 

assume leadership, an internal engine of 

motivation in some leaders. But the 

question does remain as to what side 

payments can be built into the design by 

PI. 

This danger is real as seen in case of some 

of the Q-3 federations. Since these 

federations can not liaise with 

mainstream institutions effectively, some 

one else "steals" their groups. The key to 

loyalty of SHGs to their federations lies 

in offering reliable and relevant services, 

as they demand. 

91

Problem Area 

How to prevent it from becoming 

a one person show? 

How to introduce incentives for 

performance and growth 

How to keep the control on the 

MoF within the group? 

How to keep the leadership 

focussed on what members want? 

Elaboration 

The leaders are not paid but get power 

and opportunities. They may want to 

hang on for power. Others do not want 

to take the trouble any way. So it becomes 

a one-person show. 

Neither the leaders nor the usually poorlypaid 

managers get any extra rewards for 

growth. In fact, because every one is an 

equal owner of the profits, no one has a 

big incentive. Will growth always suffer? 

Externally controlled organisations are 

not sensitive to members. Hence, there is 

a need to keep that out but historical and 

other reasons bring them in. So what can 

be done? 

MoFs which are not focused on what 

members want (are not patronage 

cohesive) do not perform well in the end. 

Yet different members want different 

things and democratic governance does 

involve some politicking. So what can 

make the MoF patronage responsive? 

Answers Found in the Study as Relevant 

to Federations in the mF-MoF system 

Again, it is not clear if the SHG 

movement has found answers to this 

question. PIs insist on rotating leadership. 

This makes sense so long as the PIs are in 

drivers' seat and the federation leaders are 

figureheads. Later, rotation of leaders who 

get no side payments will be difficult. 

Again, this question is not convincingly 

answered in the SHG movement yet. 

Federations with internal control all seem 

to have modest size and small growth 

rates, a clear indication of the size of this 

problem. 

As noted above, a majority of the 

federations have external locus of control. 

This is not seen as a problem yet as the 

control lies in the hands of the PI which 

has created them. But when seen as 

entities suis generic, the need to cut the 

umbilical cord may arise and then the 

question is whether there will be a phase 

of confusion or whether some one will 

"hijack" the federation. 

This is the patronage cohesiveness 

question raised by Shah. Clearly, the 

question is crucial for federations that 

have external locus of control. Since the 

PI is wedded to the welfare of the 

community whose womenfolk join the 

SHG and the federations, it is presumed 

that there will be no major hiatus in this 

matter. The question will become 

alarmingly destabilising when the PI 

withdraws and the new 'promoters' or 

prime movers become insensitive to the 

needs of the members. 

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CHAPTER8 

SHG Federations: Lessons and Emerging 

Practices 

This chapter is devoted to drawing useful lessons 

on better management of SHG federations and to 

identify areas in which specific policy attention would 

go a long distance in strengthening the movement. So 

far as this study is concerned, the intention is not to 

preach, but to showcase practices for future reference. 

It has been noted that there is a wide variation in the 

origin, mission, goals, operating strategy, functions, age 

and maturity of the federations. This variation makes it 

difficult to form any watertight generalisations. 

However, a close look at the practices could certainly 

be advantageous for all stakeholders. With this view, 

the lessons learnt here have been generalised rather than 

located in specific identifiable context. This chapter 

draws heavily from Chapter 5 and readers are 

recommended to refer to that section first. 

1. Lessons 

1.1 Inside-Outside Dichotomy 

It seems natural that women members of SHGs relate 

to each other in more empathetic and sympathetic ways 

in comparison to women in formal organisations. In 

consequence, it has been noticed that whenever women 

drawn from among members themselves run their 

affairs, they are able to perform better qualitatively. As 

reported in Chapter 5, “member controlled” (those in 

Quadrant 2 and 4) federations do in fact run their affairs 

better in qualitative terms. Unfortunately, as they are 

run by marginalised women folk, they are unable to 

negotiate with formal institutions. Hence their ability 

to garner government ‘schemes’ is limited. 

Some of these federations have been losing members. 

Finally, the ‘finance’ and ‘finance-plus’ and ‘internallycontrolled’ 

federations tend to include social 

intervention rather than livelihoods and economic 

programmes as their finance-plus activities. This is 

understood since the former is close to the skill set of 

the women leaders while the latter perhaps needs a more 

complex set of technical skills. Also, the organic and 

evolutionary method of addressing women’s problems 

does not make for very rigid systems and institutional 

procedures. As such the reliability and predictability of 

support federations – inherent in the structural 

guarantees as in the Doharty-Jodha framework - are 

seen to be weak. 

Conversely, federations that have an external locus of 

control may do very well in terms of performance in 

mF but low on qualitative parameters. The non-financial 

federations with external locus of control - those in Q- 

3 are really synthetic organisations that have not matured 

in the sense of defining a vision or purpose for 

themselves. They perhaps serve ornamental roles. 

The implications of these findings are as follows: 

• A natural division of roles seems to be operating. 

The professionals in the PI take the lead in setting 

up systems and norms for the federations, ensure 

their compliance and also liaise with external 

agencies. They also act as most inevitable and 

obvious role models for the leadership drawn from 

the membership. The leadership drawn from the 

membership on the other hand manages the 

‘inside’ interface. This is in the area of resolving 

93

conflicts among members, non-compliance by 

members with the group norms and, on the 

positive side, providing the much needed group 

solidarity, identity and social assurance to 

individual members. This dual characteristic has 

been referred to here as the ‘inside-outside 

dichotomy’. 

• Since most PIs profess to, and consistently try to, 

enable the federations to increasingly manage their 

affairs, it is desirable that this dichotomy is 

recognised for real and strategies are formulated 

to set the process on the rails. The natural leaders 

drawn from ordinary membership need to be 

supported. This is needed in terms of capacity 

building to enable them to negotiate with the 

external agencies. Elsewhere the PI itself needs to 

focus on the capacity building efforts. 

• The action agenda and priority of the federations 

can be defined by the PI or external donor agencies 

or it can be evolved through a mix of success and 

failures by the intense and vibrant leadership of 

the federations. If the former happens, there is no 

guarantee that the agenda will address the real, 

felt needs of the community. Patronage centrality 

— that is giving priority to the felt and real needs 

of the membership while taking decisions — is 

likely to be enhanced with greater internal control. 

This will also enhance performance. The evidence 

of this is the well functioning of federations falling 

under Q-2. While they do multiple activities, they 

do what their members want, not what the PI, the 

government or some other external agency prefers 

for them. The importance of patronage centrality 

is thus emphasised. 

1.2 Federations as Communities of Practice 

The study does not hold that the inside-outside 

dichotomy is inevitable or even undesirable. It is just a 

fact of life. The question is how can one functionally 

use this dichotomy to turn it into an advantage? A 

community of practice has been defined as a group of 

individuals in an organisation that is bound together 

by their shared commitment to a cause and passion for 

excellence. When viewed in this manner, it can be seen 

that there is a functional value in evolving a community 

of practice for the whole set of the PI, the federation 

and the SHGs. 

The most commonly shared cause for acting as a 

cohesive, countervailing force is to impact upon the 

poverty of the women through the mF activity and 

obtain their development dues. Common observation 

reveals that ordinary SHG members and their leaders 

take pride in sound and prudent management of their 

SHGs. Thus a commitment to excellence exists to a 

fair degree among SHGs. Therefore one can assert that 

women leaders from federations with high internal locus 

of control and the diverse units of the federations in 

general share the twin goals and share the commitment 

to make them happen. The PI staff, by virtue of their 

professional commitment, are also interested in 

achieving these goals. 

The strengths and comparative advantages of the three 

sets of actors — PI leadership and staff, leadership at 

different units of the federations, and the SHG 

membership and their leaders — vary possibly within 

as well as across federations. Irrespective of these factors, 

it is best to visualise the federations as communities of 

practice in which these various members bring their 

specific expertise and skills for moving towards 

excellence on the twin goals. The implication of this is 

that the inside-outside dichotomy is not dysfunctional 

and no artificial efforts are needed to overcome it. A 

more pragmatic implication is that aside from becoming 

a conduit for channelising funds etc., the main role of 

the federation can perhaps be to act as a platform to 

bring together the expertise and strengths of the different 

actors listed above. And to apply them to problems and 

situations that emerge from time to time. Thus 

federations perhaps have greater value as standing 

platforms for solving the problems of the women 

members of the SHGs whether in mF or other fields 

than as emerging mFIs. 

1.3 Federations are Evolving Organisations 

In a sense, all vibrant organisations are evolving. And 

there are distinct and identifiable phases through which 

Federations seem to transit. This inference is derived 

from observing diverse Federations in this study and 

94 


SHG Federations: Lessons and Emerging Practices 

beyond. To an extent, this evolution is naturally shaped 

by the ideology and outlook of the PI. These phases 

are: 

a. A loose platform of proximate SHGs that is 

organised ceremonially and occasionally 

b. A forum of proximate SHGs that is organised and 

meets regularly at the behest of members/PI for 

reasons of social identity and ceremonies of the 

Women’s Day type. 

c. A community-of-practice-type sharing and 

learning forum focused on improved SHG 

management and related issues 

d. An informal forum that starts taking functional 

roles such as assistance in managing books or 

training new groups 

e. An organised, formal body that continues 

performing the above tasks but does not play a 

direct role in financial intermediation 

f. A full-fledged formal organisation that has 

formally appointed staff manages financial 

intermediation and also takes on additional 

functions. 

The last stage can further evolve into an mF institution 

with external links for sourcing finance. The 

prescriptions on best practices or other actions need to 

be interpreted keeping this evolution in mind. What is 

suitable for one level of evolution may be a shade 

premature for another and so on. 

1.4 Federations are Organisations in their Own 

Right and not mere Instruments 

The coming together of SHGs in one federation creates 

an aggregation that is quite useful for organisations and 

agencies that wish to work for poor women. A bank 

wishes to make a relatively cost-free and risk-free loan 

in its priority sector. An education-related organisation 

wants to boost literacy. Another aims to build awareness 

about reproductive health. Still others wish to strengthen 

the implementation of the 73 rd amendment to the 

Constitution. All of these organisations are obviously 

working for laudable causes. All of them find the 

aggregation achieved through the federating process 

useful to them. 

Through the federation, they can communicate with 

larger numbers of target group members at lower costs. 

In a certain sense, all these external agencies seek to use 

the federations as mere instruments to push their 

agenda. The most telling is the approach of mF-related 

national organisations, which look at federations as an 

instrument for pushing credit and livelihood 

programmes. Certainly they mean well. Their actions 

benefit the women. Yet, it is better to realise that a 

significant number of federations seek (and some of 

them have) to formulate their own agenda and work 

towards it. 

As it can be seen, there are a fair number of federations 

that have internal locus of control and such federations 

certainly would not like being used as instruments. 

When a central or state government agency uses the 

federations as an instrument, it thrusts its objectives on 

the federation, seeks to modify the priorities and 

resource allocation of the federations and thus affects 

their programme. This reduces the patronage centrality 

so necessary for continued good performance of the 

federation. Very often the external agency calmly 

steamrolls its way through, not even remotely bothered 

about this side of the interaction. At times, some carrot 

may be dangled, but most often the agency and the 

intermediation of the federation is sought without 

compensating it in any manner whatsoever. Such actions 

can jeopardise the patronage centrality and cohesion of 

purpose of the federations for pushing their own agenda. 

PIs as well as external agencies must consider ways of 

collaborating in a more true sense of partnership with 

the federations. This needs sensitivity. Evolving 

partnerships would involve a different approach, one 

in which there would be attempts to identify the 

priorities of the federations and their members, perhaps 

persuade them to incorporate the external agency’s 

programme in their agenda, give them time to consider 

the new activity after consulting the membership and 

adjust the modus operandi to suit the federations. Such 

patience and consideration is usually not in evidence 

and perhaps naturally so in case of external agencies 

that are themselves pushing deadline-bound targetoriented 

programmes. 

95

1.5 How Relevant is the Concept of Financial 

Sustainability for Federations? 

It has been noted in Chapter 6 that when assessed by 

using the JacobYaron SDI numbers, most federations 

turn out to be financial non-sustainable. Though that 

is an ideal world, it would be good for the federations 

to strive for and achieve financial sustainability on SDI 

criteria as well. But it is felt that this can only happen 

when the federations have fully matured and have 

transformed through several phases. 

Federations are engaged in undertaking socially 

meaningful tasks. They are essentially serving the unserved 

and meeting the credit needs of some of the most 

vulnerable people in communities. It is a known fact 

that while the free market caters to their credit needs, it 

does so in a manner that is not user-friendly. On the 

other hand, no institutional reform in the public or 

formal banking sector till date has resulted in adequate 

credit service to this very poor segment. Thus the task 

the federations are associated with is genuinely difficult. 

Considering this facet of their work, their operations 

may need to be subsidised in the short or even the 

medium term. Hence the low level of financial 

sustainability as indicated by SDI need not be too much 

cause for worry. On the contrary, it is a case for every 

federation to achieve operating sustainability as quickly 

as possible. This essentially amounts to ensuring that 

all the direct expenses associated with the mF and other 

operations of a federation are met out of the revenues it 

generates. 

The revenues generated as well as the operating costs 

involved both depend upon the stage of evolution as 

well as the operating style and ideology of the PI. The 

sources of revenue of a federation are elaborated in 

Chapter VI and Table 5 of Annexure 3 to Part II. They 

include joining and annual membership fees, service 

charges, interest spreads and fee-based incomes from 

services such as insurance. The direct expenses are about 

maintaining establishment, paying salaries of staff and 

honoraria of resource persons, conduction of training 

programmes etc. 

The attempt ought to be to meet all these expenses from 

the revenues so generated. Operating sustainability is 

obviously out of the question in cases where the 

federation does not collect any service charges from the 

members nor does it channelise the credit operations. 

Starting these is thus the first step. Thus while one does 

not dispute the importance of moving towards first the 

operating and then the financial sustainability, the 

relevance of these concepts of sustainability varies both 

by the stage of evolution of a federation as well as the 

operating philosophy of the PI. 

1.6 Importance of Capacity Building 

If federations seem to demonstrate the inside-outside 

dichotomy, if they can evolve into organisations in their 

own right and may choose to take up multiple and 

complex tasks and if one recognises the importance of 

operating as well as financial sustainability, then the 

importance of capacity building is obvious. The PI has 

to transform simple, poor and perhaps semi-literate 

women into prudent and mature managers of evolved 

organisations. The most important component of this 

evolution is the development of human resources and 

in this context the most important function of a PI is 

capacity building of the leadership and the membership 

of the federation, and the SHG and the staff of the 

federation. Not all PI may be sufficiently well-equipped 

to identify the precise capacity building needs of their 

federation and the SHG or to undertake the necessary 

activities. Hence it may be necessary for capacitybuilding 

organisations to increase the capacities of these 

federations. It is all the more important in the context 

of regions like the East and North-east, where the 

federating process is in its infancy. 

2 Practices of PIs and Federations that Merit a 

Closer Understanding and Perhaps Adoption 

2.1 Some PIs have followed an approach that creates 

a number of peer learning opportunities and events. 

Periodic cluster and federation level meetings where all 

the members or leaders (or both) participate are effective 

opportunities for peer learning. This seems to be very 

effective in nurturing a community of practice. These 

meetings can perhaps be made more effective by some 

advance planning in terms of specification of agenda, 

preparation of a sort of discussion note by the PI staff, 

structuring discussions purposively etc. If the 

96 



community members also know and understand the 

discussion goals, they would also make efforts to achieve 

them. 

This system of holding frequent and periodic meetings 

can throw up ideas and procedures that can later be 

subjected to evaluation. In fact, the system of periodic 

meetings itself can be assessed may be at the end of the 

year to assess the cost-benefit. But continuation of free 

wheeling, informal discussions should also be 

encouraged. Too aggressive a drive for structure in 

meetings is known to kill creativity and free discussion 

all too frequently. 

A key variable in the capacity-building process is how 

the staff of the PI interacts with the village persons. 

The demonstration effect of the quality and method of 

interaction has an enabling effect on the villagers. Often 

the biggest capacity-building investment required is in 

the process of selecting and training staff for grassroot 

mobilisation. Linked to this is the motivation and 

satisfaction level of the staff operating at the cutting 

edge. This is often achieved in the PI by the leadership 

working very closely and informally with the people 

and thus leading by action. 

2.2 Some of the methods that the PIs adopt to 

institutionalise sound values and processes are 

indicated below. Some of these are elementary but 

are very important. 

• Importance of punctuality is impressed upon by 

the PI staff themselves demonstrating the same 

and pointing out any breach of norms. 

• Evolving group norms of penalties for late arrivals 

in the meetings or remaining absent without prior 

leave or even without knowledge of the group 

leaders/members. 

• Recording decisions in the minute book. All the 

members present countersign the minute book 

expressing agreement. 

• Instituting norms for dealing with late repayments 

etc. 

• Having norms for dealing with defaults in 

repayment of loans. 

• Setting performance criteria and instituting peer/ 

public review mechanisms in the cluster and 

federation meetings. A system of rewards and 

punishments for good and bad performers may 

be formulated respectively. 

• After reaching some scale and when the norms 

have stabilised, the procedures and processes are 

recorded in manuals. These manuals are strictly 

adhered to. This process greatly boosts the 

confidence of the members and leaders in the 

financial system, as things become very transparent 

and objective. It leaves little space for ambiguity 

and misinterpretation. 

• The PIs run training programmes for the leaders 

and members on aspects covered by the manual. 

Through repeated reinforcement instill the core 

values and processes. 

• The federations/PIs that have been able to reach 

scale (Q1 types) are very rigorous in enforcement 

of norms. On the other hand, the federations that 

have not been able to institutionalise these norms 

face heavy weather in group discipline. 

2.3. The attitude and vision of the PI has an important 

role to play in building capacity and leadership 

within the community. If the PI wants to gradually 

pass on the reins of control to the community and 

finally withdraw, it will ensure the transition 

through different processes, as elaborated below: 

• Exposure visits to communities with similar 

backgrounds lay the ground for the emergence of 

future leaders. They serve to inspire and instill 

confidence, especially when there is interaction 

with achievers from the same cultural and social 

milieu. It generates the feeling of “we can also do 

it”, and is an important step towards building 

leadership skills. This strategy needs to be 

incorporated as a core component of leadershipbuilding 

exercises and with definite objectives and 

outputs in mind. PIs, it is observed, have not yet 

developed a mechanism to measure the 

effectiveness of such exposure visits. 

• Imparting training in account-keeping and 

maintaining of records is another activity which 

helps SHG members develop an understanding 

of formal procedures. It also works towards 

generating transparency within the group and a 

97

greater sense of allegiance towards the 

organisation. 

• Seminars on various topics ranging from social 

issues to roles and responsibilities of SHG leaders 

and functionaries create greater awareness. A few 

PIs have institutionalised holding of seminars in 

the monthly meetings of the cluster levelfederations. 

• A very common and effective method of capacity 

building is taking joint responsibility of certain 

activities such as interactions with external agencies 

like banks, block offices and government 

departments. When the PI assists the community 

in these areas, it breaks the fear that community 

members generally have of dealing with formal 

mainstream institutions. 

• A very important practice that not only emphasises 

the importance and centrality of self-reliance in 

the SHG movement but also assists in moving 

closer to operating sustainability is to charge 

joining fees, annual membership fees and service 

charges for all services rendered by the federation. 

These fees may be charged at the SHG level but 

perhaps would have a greater impact on 

strengthening the feeling of ownership among 

women members if it were demonstrably charged 

to every individual member. 

3. Initiating and Managing the Process of 

Federating the SHG 

This section is of special relevance to those who can 

make a difference to the process of formation and 

stabilisation of SHG federations. This section draws 

upon the experiences reported in the case studies as well 

as the discussion of the study team with the practitioners 

of the SHG world, experiences that may not have been 

explicitly covered by the case studies. 

It appears clear that the whole process of formation and 

stabilisation of the federations of SHGs will involve 

the steps explained below. However these steps should 

be taken with deliberate thought. 

• Deciding to Federate: Thinking through the 

implications well – a PI needs to get it clear why 

it seeks to federate the SHG it has formed. Ability 

to use numbers for any advocacy work, logistical 

ease and the facility to reach out to many women 

in a simple manner are obvious advantages for the 

PI. Yet, creation of a formal organisation involves 

additional administrative formalities of 

registration, filing returns, preparing and auditing 

financial statements. And there of course is the 

delicate issue of the possibility of eventually losing 

control on the federation, an issue one does not 

really discuss but can become important for a PI 

that has strong control-orientation. All that is 

recommended is that there should be clarity within 

the PI staff about what is the basic intent of 

creating federations. 

• When to Start Federating SHGs: There would 

be virtually no advantage to federating if all the 

groups joining it were nascent, dysfunctional and 

inexperienced. The chief advantage of the process 

of federating is that it enables the PI staff to 

leverage their experience as well as the experience 

of the members of the senior groups in forming 

and managing new groups. Thus very tentatively 

it may be stated that the process of federating may 

begin when the oldest group is about two years 

old and there are a fair number of groups that are 

one year or more. 

• Cluster-level Associations: One is assuming, as is 

the case with most PIs in their initial stage, that 

they do not have more than two or three groups 

in each village. If there are many more SHGs per 

village, then a cluster level association can come 

up in one or a few proximate villages. It is now 

almost a common experience that the process of 

federating is best begun with formation of 

informal associations of SHGs at the cluster level. 

For the sake of specificity, a cluster is to be 

understood in the sense of a group of villages that 

also have natural reasons to come together or 

interact. In this sense, SHGs in all villages, which 

transact through the same ‘market town’ or the 

same ‘bus head’ or bank branch, may be formed 

into one cluster. 

98 



Such associations may be formed by inviting three 

or four representatives of each group in the cluster. 

Initially, such meetings can be more for social 

interaction, getting to know each other and 

creating spaces for women to be able to get beyond 

the narrow confines of their villages. But more 

importantly, PIs may introduce the system of each 

group representative talking about her own group 

and its members, the village, problems faced in 

running the group and so on. This is for the 

purpose of sharing and creating a sense of larger 

identity. After loosely structured fortnightly or 

monthly meetings for a few months, the next step 

may be conceived. 

• Introducing Serious Issues in Discussions of the 

Cluster Level Associations: PIs may use these 

occasions to either disseminate messages of 

relevance to these women (including diverse fields 

such as health, their rights under the 73 rd 

amendment, legal provisions about violence 

against women and so on. At the same time, the 

system of the women present electing the chair 

and then the chair running the meeting, someone 

taking the responsibility of summing up, someone 

giving the vote of thanks etc., may be introduced. 

PIs may also start using these occasions for 

focusing discussions on intrinsic mF decisions 

such as how to appraise the loan request, how to 

manage delinquency, how to avoid default, what 

to do about absenting members, various ways of 

managing cash and recording transactions. 

• Encouraging the Cluster to Decide by Consensus 

Active Roles for its Representatives in SHG 

Management: This may come after a few months 

of the above happening. The group meeting in 

the cluster discovers how a particular SHG and 

its leaders are managing some of the above 

functions better. At such a juncture it may be 

suggested that they stand to learn from each other 

and encourage the more experienced leaders to visit 

each other to help new or faltering groups. Usually 

by this stage, the PI has managed to tie up some 

external funding to support income-generating 

activity through the groups. And hence the issue 

of how to use the money, how to choose the 

beneficiary can be additional issues of discussion 

and for expanding the scope of the role of the 

cluster in running the SHG. Unless this is done 

at this stage, there may be resistance later if the 

cluster takes up training, monitoring or auditing 

roles. 

• Formalisation of the Federation — The Choices 

and How to Exercise Them: As can be seen from 

the case studies, the PI has the choice of formally 

registering one or many federations and of 

structuring the representation on the federations 

either directly from SHGs or through clusters. The 

basic sets of factors determining the choice ought 

to relate to how extensive are the operations, how 

many SHGs have been formed in a unit area, and 

how much is the geographic and social distance 

between the federation and an average member. 

PIs also prefer to have the territory of a federation 

co-terminus with the territory of their 

administrative units and there is no harm in this 

since the latter is usually decided on some practical 

and meaningful criterion. The other choices 

pertain to legal form at each level, the number of 

members in its management committee or the 

expected capital formation. The size of the 

management committee needs to be large enough 

so as to permit representation to all the clusters to 

be brought under one federation and still be of 

manageable size. A small caveat needs to be added. 

Once formed, a federation can be an attractive 

platform for politicians and other individuals who 

may have objectives other than furtherance of the 

SHG and mF. Hence care needs to be taken to 

minimise chances of this eventuality. 

• Deciding the Role and Functions of the 

Federations: This decision should jointly be taken 

by the PI staff and SHG leaders. But if the 

federation has been formalised and a representative 

body has taken charge of the federation’s 

management committee, then it seems quite a loss 

of opportunity if one does not involve them in 

deciding the role and tasks to be undertaken by 

the federation. A choice of activities to be 

undertaken can be made from a broad range such 

as: monitoring SHGs, auditing SHG accounts, 

training of accountant as well as leaders of SHGs, 

99

maintaining accounts or assistance in 

computerising accounts, undertaking paperwork 

and logistic support for bank linkage, lobbying 

for and getting for the members diverse 

government schemes, organising training for a 

chosen livelihood activity, arranging for input 

supply, undertaking marketing on behalf of the 

group, acting as a pressure group for matters of 

interest such as violence against women, civic 

amenities, making PRI behave, acting as a platform 

for other development activities such as health, 

education etc. The functions and roles to be chosen 

should be consistent with the ideology of the 

NGO, needs of the women members and proven 

capacity of the women most likely taking 

leadership in the federations. 

• Capacity Building of the Women Leaders: This 

is a very important and on-going activity that the 

PI must undertake or at least catalyse if the 

federation is to become a vibrant, viable and 

dynamic entity. The capacity-building needs vary 

across PIs and federations. However they generally 

pertain to certain common requirements like 

general leadership training, specific skills for 

conducting meetings, recording proceedings of 

meetings, understanding and analysing accounting 

statements and understanding the parameters to 

be used for monitoring and controlling the mF 

operations. 

Capacity building activities could also pertain to 

other skill sets such as techniques and methods in 

loan appraisal, member monitoring and loan 

recovery, perspective building on causes and 

remedies of members’ poverty, specific measures 

for building confidence of the women leaders 

through exposure to other organisations, 

handholding in dealing with formal government 

and other entities, possible skill-building regarding 

conduct and facilitation of specific livelihood 

promotion activities and similar other activities. 

The PI may not be equipped to undertake capacity 

building in all these matters. Hence it may have 

to identify resources and perhaps work with 

capacity-building agencies to conduct such 

capacity-building programmes. The PI needs to 

allocate human and money resources for this task. 

Capacity building of the federation leaders and 

the staff is the single most demanding 

responsibility of the PI so far as its federations are 

concerned. 

• Strengthening the mF Operations: Functions of 

the Federations: Hiring Staff, Delegating 

Functions, Building Capacities, Instituting 

Monitoring and Review Systems 

This is pertinent only if the PI has decided that 

its federation will be actively involved in 

strengthening its mF operations. If this is decided, 

then over a period of time, tasks such as loan 

appraisal, loan disbursal, follow up and recovery, 

auditing the SHG accounts and monitoring the 

overall functioning of the SHG will have to be 

administered by the federation. These tasks are 

till then managed by the PI itself. Thus the 

federation eventually becomes an extended arm 

of the PI. This role can expand into financial 

intermediation. When that happens, the federation 

receives funds from an MFI or the PI or even a 

donor for on-lending to the SHG. If this is to be 

done in the true sense of autonomous functioning, 

the federation needs staff that is well-versed in 

undertaking all these functions plus the functions 

pertaining to efficient funds management. Several 

PI transfer their field staff to the federations either 

on lien/deputation or in a regular employment 

format. But when new federation staff is hired, 

the question of training them in the management 

of the above functions in a manner consistent with 

the working style of the PI is an important task. 

The federation may become the hub of a 

computerised information system for the SHG 

and thus become equipped to monitor and review 

the operations. 

• Contributions to the Federations and Making 

its Operations Sustainable 

The federation can function in the above manner 

only if it has a budget that can be used for carrying 

out varying activities. To begin with, all the needed 

resources and later a portion of this budget can 

come from the grants made by the PI. The 

federation has to be helped to negotiate with 

100 



members on other revenue-earning avenues. These 

could include, as noted in Chapter VI, annual and 

joining fees from SHGs, service charges, interest 

spread and fee-based incomes. 

Instituting this system of charges in the SHG may 

not be simple since most SHGs and their members 

would initially be used to getting all the services 

free from the PI. Initiating activities that create 

opportunities for earning fee-based incomes may, 

at times, be seen as an easier option. Examples of 

these activities are intermediating sale of cattle, 

health or life insurance, intermediating home loans 

etc. A number of market players in financial 

products and non-financial products today are 

keen to collaborate with federations to reach out 

to farmers. PIs must remember that these market 

players are essentially attempting to use these 

entities as ‘new channels’ to penetrate the rural 

market. They are in a sense using the strong social 

legitimacy of the PI and the federations and may 

facilitate the process by sweetening the deal for 

the PI or the federations. The PI and the 

federations need to be careful in choosing their 

partners as well as the products for which they 

may act as agents. Taking up intermediation on 

behalf of doubtful market players or for products 

of dubious reliability may involve a major loss of 

face for the federation. 

• Functional autonomy to the federations: 

(training the women leaders to take charge of 

affairs, persuading the federations’ staff to report 

to the women leaders) Under ordinary 

circumstances, the process of federations achieving 

full functional autonomy tends to be protracted. 

The women leaders of the federation may become 

completely capable of managing its affairs. In fact 

an arrangement of de facto autonomy based on 

healthy mutual respect may emerge with the 

women leaders never explicitly exercising or 

‘flashing’ their autonomy and the PI staff never 

really suppressing the leadership. Yet neither of 

them may feel the need nor be too keen to cut the 

umbilical chord. At times it may appear that in 

such circumstances the rationale for insisting on 

an ‘autonomus’ federation may be highly 

contrived. However, for several PI, the functional 

autonomy of the federations they create may not 

only be a matter of ideology but a managerial 

imperative. This may happen when either the PI 

is under severe pressure to cut down on 

organisational cost and hence must transfer as 

many functions to the federations and manage 

them at as low a cost as possible. Or it may happen 

when the scope of mF activity of the PI is 

increasing at a rapid pace and it cannot afford to 

have its management’s attention focused on groups 

and federations that can manage on their own. 

In any event, when the federation must become 

functionally autonomous, then two things need 

to have happened before. In the first place, the 

federation leadership must get used to the idea of 

becoming fully responsible for all the functions 

of the federations without having to lean on the 

PI staff. Secondly, the federation staff must get 

used to reporting to and being controlled by the 

federation leadership. Both of these involve 

essentially attitude changes and psychologically 

adjusting to a changed reality. 

• PI Withdrawal: Maintaining Contacts, 

Capitalisation of the Federation, “Watching 

Benignly from Far” After the federation becomes 

fully autonomous, the PI may withdraw 

completely. Usually this withdrawal is more in the 

sense of distancing itself from day to day 

operations. In the case of an effective PI, even in 

the post-withdrawal phase, the federation 

continues to keep to the earlier ideology and work 

culture. However, the relationship between the PI 

and the federations are not severed in any sense of 

the term. The federation becomes a demonstration 

piece for the PI and all its important guests are 

taken to interact with that federation. Not only 

such tokenism, but in functional matters also, the 

federation becomes the preferred ‘laboratory’ for 

trying out new development ideas and activities 

and for implementing new donor-supported 

programmes. This happens as a natural corollary 

of long association. For the federation, the PI 

remains a valued source of information, contacts, 

help and advice. Thus the PI continues to watch 

over the federation affectionately, though from a 

distance. 

101

ANNEXURE I 

Views of Key Stakeholders About the 


The study team interacted with the following important 

stakeholders in the sector 

● 

● 

● 

● 

● 

● 

● 

● 

NABARD 

NABARD 

SIDBI Foundation for Micro Credit (SFMC) 

Housing Development Finance Corporation 

State Bank of India (SBI) 

Bankers Institute for Rural Development (BIRD) 

Reserve Bank of India (RBI) 

Prime Ministers' Office (PMO) 

The World Bank India Office 

National Bank for Agriculture and Rural Development 

(NABARD) another apex promotional bank has been 

pioneers in supporting the SHG movement in the country. It 

is one of the first mainstream institutions to take cognisance 

of the women's self-help groups. It was instrumental in getting 

Reserve Bank of India (RBI) permission for opening 

unregistered and informal group accounts in the mainstream 

commercial banks, which was not allowed previously. Besides 

it encouraged the local banks to provide bulk credit in 

proportion to the group saving by refinancing the loan 

amounts to the SHGs. 

NABARD continues to play a lead role in the development 

of the SHG-based micro credit sector in India. It has provided 

finance to the tune of Rs 1,000 crore to the SHGs till March 

31, 2002 1 . NABARD is working intensively with some 

commercial banks and Regional Rural Banks in select pockets 

to build up a large SHG loan portfolio. Some bank branches 

have achieved as much as 50 per cent of their priority-sector 

targets by lending to women's SHGs. 

1 

2 

NABARD Annual Report 2001-02 

NABARD views represented here are based on interaction with Dr. Prakash Bakshi 

NABARD 2 is actively considering the possibility of linking 

groups through their cluster organisation, which is a federation 

of SHGs at the local level, since it is found that linking large 

number of groups to a single branch takes too much effort 

without commensurate benefit or business. A local bank can 

reduce the number of transactions by linking with the SHG 

cluster federation instead of groups individually. For 

NABARD, SHG federations are the next milestones in the 

bank linkage programme. However, the Bank would like to 

proceed with caution having had very bad experience of 

lending to cooperative federations both at the district and 

state level. This study is very timely from the NABARD 

perspective. They are likely to use the report extensively. 

SIDBI Foundation for Micro Credit (SFMC) 

Small Industries Development Bank of India (SIDBI) is a 

national level apex bank for the promotion of small-scale 

industries in India. It carries out both promotional as well as 

financing functions. SIDBI has a separate department called 

SIDBI Foundation for Micro Credit (SFMC), which is slated 

to become an independent organisation for promotion of mF 

activities in the country. 

SFMC provides capacity building support as grants as well as 

on-lending funds to the micro finance institutions (MFI). So 

far the accumulative assistance under SFMC is Rs. 161 crore 

through micro-financing institutions, benefiting over 9 lakh 

poor, mostly women. It has also provided funds to a number 

of SHG federations for capacity building and on-lending. 

However, federations are a small segment in its portfolio. 

Before providing any support, SFMC looks closely at the 

various financial performance parameters of the organisation 

and would like to make no exceptions in the case of SHG 

federations. SHG federations should have proper 

102 


Management Information Systems (MIS) to track loans, 

portfolio at risk, internal efficiency, operational sustainability, 

etc. The performance would be assessed by an independent 

rating agency. However, SFMC could consider providing 

capacity building support to federations for an interim period 

so that they eventually meet "rating" standards. 3 

SFMC finds that the federations are often unable to decide 

the primacy of their role - social or financial intermediation. 

Secondly, it considers the structure and form of the SHG 

federations problematic. Governance and management are 

often not spelled out clearly. SFMC would want the 

federations to have adequate capital structure with an equity 

base and meet capital adequacy ratios. At present this is a 

problem as most of them are registered as a Society or Trust 

under the relevant Acts. 

State Bank of India 

State Bank of India (SBI) is one of the leading banks in India 

and has a very formidable rural branch network. It is an 

important actor in providing finance to the SHGs in the SHGbank 

linkage programme. They have contributed to the 

capacity building fund created by RBI, NABARD and other 

leading retail bankers and managed by NABARD to impart 

even greater dynamism to the sector. SBI would want 

NABARD to take the lead in the matter of recognising SHG 

federations. 

Housing Development Finance Corporation 

Housing Development Finance Corporation (HDFC) is 

already working with some federations for housing and micro 

finance. They carry out independent assessment of the 

organisations - NGO/MFIs or SHG-federations before 

providing on-lending funds. Their experience of working with 

the federations has been quite positive 4 . 

Reserve Bank of India 

The Reserve Bank of India (RBI), the regulatory bank in 

India, is interested in the mF sector and acknowledges the 

significance of the sector for the poor. They are keenly 

watching the developments in the sector and view these 

positively. The Bank has not yet taken a formal view on 

federations. 5 

Bankers Institute for Rural Development 

Bankers Institute for Rural Development (BIRD) is a training 

institute for bankers for rural development. Besides training 

it carries out studies and consultancy assignments. BIRD has 

been focusing on women SHGs as an important instrument 

of rural development. They have been providing 

organisational development inputs to a number of regional 

rural banks for reviving them and taking up SHG promotion 

and linkage programmes actively. 

BIRD views the development on the SHG federation front 

as a significant step in the SHG movement. They are of the 

view that federations should become truly people owned and 

managed institutions and not as pro ups or fronts of 

promoting institutions. 6 

Prime Minister's Office (PMO) 

The Prime Minister's Office (PMO) is according lot of 

importance to the informal sector for alleviating poverty. 

Accordingly, it would want to facilitate the development of 

the informal sector. This may require various initiatives 

including appropriate policy structure. However, it would 

refrain form interfering in the natural growth of the sector. 7 

World Bank India Office 

According to the World Bank India Office, the concept of 

Federation is innovative and there should be a spontenous 

development with the facilitation of NGOs. Linkages with 

Bank should be encourage and recognition should be given 

to the Local Communities. Accordingly, it also stresses the 

capacity building needs of SHGs, Bank Managers, 

Federations & Policy Makers 8 . 

In summary, we can say that all the external stakeholders view 

the emergence of SHG federations very positively and would 

like to extend support in their development within the 

contours of their respective organisations. 

3 

Based on interactions with Mr. Vikraman and Ms Ranjani KC, Chief General Manager and Deputy General Manager, respectively. 

4 

Based on the interactions with Mr. H. Khare, Manager, Development Finance, Mumbai. 

5 

Based on interactions with Dr. Vani Sharma, Chief General Manger, RBI, Mumbai 

6 

Based on the interactions with the faculty team in BIRD, Lucknow. 

7 

Based on the interactions with Mr. A. Wadhavan, Director in PMO. 

8 

Based on the interactions with Ms. Priya Basu World Bank India Office. 

103

ANNEXURE 

II 

Participating Promoting Institutions and 

Federations. 

S.No. Promoting Institution 


1 Gram Vikas Grameen Mahila Okatta 

2 Out Reach Sangamam Hosur 

3 Myrada Sarvodya 

4 Lead Bhawani Mahasabai, Panjapatti-BMP 

5 Activists for Social Action(ASA) Gram Vidyal 

6 Community Service Guild PPI 

7 ASEEFA-Channai Sarvodaya Mutual Benefit Trust 

8 Shreyas 

9 TDFF Sthree Niketh Vanitha Federation (SNVF) 

10 Changanacherry Social Srvice AWARD 

Society (CHASS) 

11 Bharat Seval Samaj Microfinance Institution- Council- MFI-C 

12 Adarsha Mahila Samakhya Adarsh Mahila Sahakar Samakya Ltd 

13 GRAM Jakranpalli Dalitha Mahila Intideepam Mutually Aided Co-operative 

Society, Ltd 

14 Chaitanaya Grameen Mahila Swayamsiddha Sangha (GMSS) 

15 WOTR Samyukta Mahila Samiti 

16 Amchi Amchiya Arogyasathi Samuhik Mahila Bachat Gat Parisar Sangh-Korchi 

17 Amchi Amchiya Arogyasathi Samuhik Mahila Bachat Gat Parisar Sangh-Devpayli 

18 Pradan Sakhi Samiti 

19 ASEEFA- Banswara Federation of Servas Seva Nidhi Foundation 

20 PEDO Womens Federation for Micro Finance (WFMF) 

21 Shramik Bharti Sankul 

22 Peoples Action for National Lok Sangha 

Integration (PANI) 

23 Adhikar Ma Bank 

24 Lipica Limeshwari Adivasi Sangathan (LAGS) 

25 Sreema Mahila SAmity Shreema Pragati Mahasangh- AVS 

26 Tejpur dist. Mahila Society Tejpur District Mahila Society 

27 Sipajhar Dimaond Club Mallapur Cluster 

28 Frateranl Green Cross SHG Federation-VVD 

104 


ANNEXURE III 

SADHAN Federation Study Guide to Field 

Visit Reports 

Field visits and reports are key input to this study. Without 

a comprehensive documentation of the promoting 

institutions (PI) and federations visited the study will be 

reduced to patch work of impressions. More so because 

the final report will be written on the basis of the field 

reports. The reports should be prepared for all the 

organizations visited irrespective of whether they fit the 

initial criteria agreed in the December workshop. 

Field visit reports should be like case studies of the 

federation/PI visited. The case studies will be published in 

the final report in the name of the team writing it. The team 

that visits an organization should be able to cover 

important aspects of the organization. Whenever there 

are more than one member in the team, the team members 

should write their respective parts and the designated team 

leader should put the final case study together. The Team 

Leader is finally responsible for the report. 

Outline 

The outline suggested earlier for the field report has been 

further improved to ensure the necessary flow of 

information from the study teams. An effort has been made 

to incorporate in the outline itself the information to be 

collected in line with the content framework as well as the 

primary data collection form. However teams are further 

requested to use the content framework extensively to 

further enrich their reports. 

Part 1: About the NGO/promoting institution 

1.0 Genesis, history, motivation, vision, objectives, etc. 

2.0 Physical and social context in which the 

organisation works 

3.0 Activities, coverage, major achievements, etc. 

4.0 Legal form, governance, structure, etc. 

5.0 Leadership and staff profile, 

5.1 Policies, management, decision making, 

5.2 Internal capacity building/training, etc. 

5.3 Staff capacity (training, exposure, quality of 

field work) of staff in micro finance 

operations 

Part B: Details of MF activities 

1.0 Beginning/history of MF activities - How it started? 

2.0 Coverage details 

2.1 Physical - nos. of villages, groups, members, 

etc. 

2.2 Financial data - savings, loans, repayments, 

bank linkages, external borrowings, etc. (all 

data that is available should be captured). 

3.0 SHG details 

3.1 SHG model details (nos. of members, 

structure, etc.) 

3.2 Method of forming SHGs 

3.2.1 In the beginning and as it has 

evolved now 

3.2.2 Role of NGO staff 

3.2.3 NGO staff profile and 

coverage 

3.3 SHG financial activity (The intricate details 

including financial ratios and projections will 

be collected separately by a financial 

consultant.) 

3.3.1 Saving products, terms and 

105

conditions, how is savings 

rotated? 

3.3.2 Loan/credit products, 

repayment terms and 

conditions 

3.3.3 SHG Income - sources and 

extent 

3.3.4 Any other financial services. 

3.4 Book keeping, account and systems 

3.4.1 What books and records are 

maintained? 

3.4.2 Who writes/keeps the 

accounts? 

3.4.3 How is the data consolidated? 

What reports are prepared? 

3.4.4 Who reviews the data? Who 

takes action if actionable 

points are highlighted from the 

reports? 

3.4.5 Quality of data - accuracy and 

physical maintenance? 

3.4.6 Members/leaders 

understanding and 

interpretation of reports 

3.5 Member details 

3.5.1 Profile 

3.5.2 Turnover 

3.6 Other social activities, achievements, etc. of 

the SHG. 

3.7 Linkage with the cluster and federation - how 

is it achieved? How important is this linkage? 

What have they gained or lost (get the views 

of the SHG leaders and members)? In what 

cluster/federation activity they have 

participated? How important are the cluster/ 

federation to the SHGs, etc. 

3.8 Capacity building/training inputs into the 


4.0 Details about the cluster and federation 

4.1 History and stages of evolution 

4.1.1 Need and genesis 

4.1.2 Key turning points in growth 

and development of 

federations 

4.2 Cluster and federation model details 

4.2.1 Membership and conditions - 

entry and exit 

4.2.2 Structure 

4.2.3 Management and decision 

making 

4.3 Method of forming clusters & federation 

4.3.1 In the beginning and as it has 

evolved now 

4.3.2 Role of promoting institution 

4.3.3 Role of staff 

4.3.4 NGO staff profile and 

coverage 

4.3.5 Training, exposure, leadership 

development and such inputs 

into the cluster & federation 

4.4 Sense of ownership and sense of identity of 

SHG members 

4.4.1 Do SHG members see 

themselves as a part of the 

federation? Why? 

4.4.2 Do they feel themselves at the 

helm of affairs of the 

federation 

4.4.3 What role they play in the 

decision making process of the 

federation? Give on example to 

elucidate. 

4.4.4 What role they play in the 

monitoring and evaluation 

system of the federation 

4.5 Governance issues: Cluster/federation 

leadership 

4.5.1 Profile of leaders 

4.5.2 How they are elected/selected? 

4.5.3 Leadership development 

4.5.4 Are leaders feel equipped to 

handle responsibilities 

4.5.5 Extent of autonomy of 

federation leaders from 

promoting institution 

4.5.6 

4.6 Cluster/federation financial activity 

detail 

4.6.1 Financial services provided by 

the cluster/federation to the

SHGs - terms and conditions 

4.6.2 Cluster income - sources and 

extent 

4.6.3 Do they feel the need of 

building share capital? Why? 

How is this expressed? 

4.6.4 How resource mobilization 

and resource management 

strategies are formulated? Who 

is responsible for action? 

4.6.5 In case of non-financial roles, 

how is interest of members and 

leaders sustained? 

4.7 Book keeping, account and systems 

(The intricate details including financial 

ratios and projections will be collected 

separately by a financial consultant.) 

4.7.1 What books and records are 

maintained? 

4.7.2 Who writes/keeps the 

accounts? 

4.7.3 How is the data consolidated? 

What reports are prepared? 

4.7.4 Who reviews the data? Who 

takes action if actionable 

points are highlighted from the 

reports? 

4.7.5 Quality of data - accuracy and 

physical maintenance? 

4.7.6 Members/leaders 

understanding and 

interpretation of reports 

4.7.7 Income and financial 


4.8 Performance standards - social, financial 

and institutional 

4.8.1 Definition, parameters 

4.8.2 Measurement 

4.9 Other activities, achievements, etc. of 

the cluster/federation. 

4.10 External linkages - how is it achieved? 

How important is this linkage? In what 

cluster/federation activity they have 

participated? How important are the 

cluster/federation to the SHGs, etc. 

4.11 Major achievements 

Part 3: Team views 

1. Give your views on the best practices being followed 

on any dimension. 

2. Give your view on the social and financial 

sustainability of the Federation/cluster. 

3. Give any specific innovation and new practices that 

you observed 

4. What has been the learning of the team from the visit 

to the organization? What do the team members take 

back? 

5. What are the constraints to the growth and sustenance 

of the federation? 

6. What according to you the organization should do 

that is not doing? 

7. Any other comments and suggestions. 

Part 4: First person accounts 

In the interactions with the various persons you could 

document little case-lets and stories of human interests, 

group action, etc. that elucidate a point or are very 

interesting. These should be in first person account and 

as close to the language of the respondent as possible. These 

will be generated through interviews with the group 

leaders, field staff, NGO leaders, etc. 

Part 5: Attachments 

1. Balance sheet and Profit and Loss account of SHG, 

cluster and Federation of the last financial year (if 

available). If these documents are not prepared say 

so. 

2. Annual report on Micro finance activities 

3. Annual report and balance sheet of the organization 

visited 

4. Any other published report, document, leaflets, 

brochure, assessment/evaluation of the organization 

visited. 

5. List and profile of Board members of the NGO. 

6. Reporting formats, etc. 

The visiting team should ask for the documents and not 

collect them on the sly. If they have been collected in the 

field, inform the NGO about it. If the organization has 

reservations on being quoted or on disclosing the 

information shared by them then assure the organization 

that the privacy and confidentiality will be maintained 

and mention clearly in the visit report.

BIBLIOGRAPHY 

1. Ajay Tankha (2002), “Self Help Groups as 

Financial Intermediaries in India: cost of 

promotion, sustainability and impact” 

unpublished Report prepared for Sa-Dhan. 

2. Olsen (1968) M “Logic of Collective Action”, 

Harvard University Press, Cambridge, Ma, 

3. Dohorty and Jodha (1977), “Conditions of Group 

Action” Occasional Paper 19, ICRISAT, Douglas 

North “Institutions and Institutional Change” 

4. Shah Tushaar (1995), “Making Farmers’ 

Cooperative Work - Design, Governance and 

Management”, Sage Publication, 1995 

5. EC Wenger and WG Snyder (1997), 

“Communities of Practice: The organizational 

frontier” in HBR Review of Organizational 

Learning, HBS, Harvard, Thompson, JD 

“Organizations in Action”, Englewood Clifts, 

Princeton,NJ, Srinivasan R and Phansalkar SJ 

(forthcoming) “Residual Claims in Cooperatives” 

. 

6. Georg Simmel (1950), The Sociology of Georg 

Simmel, trans. Kurt H. Wolff, Free Press 

7. CARE (2000), State Level Convention on 

Federations: A Report. 

8. Department of Women and Child Development, 

Government of India & Gender Equality Fund, 

Canadian International Development Agency, 

(DWCD & CIDA) (2000), “A Workshop Report 

on Best Practices in Group Dynamics and Micro- 

Credit”. 

9. Fernandez, A.P. (2001). Putting Institutions First- 

Even in Micro Finance: MYRADA 

10. Friends of Women’s World Banking (FWWB, 

India), (1998). India’s Emerging Federations of 

Women’s Savings and Credit Groups. 

11. Menon, G.A. & Gupta, S. (1999). From Margin 

to Mainstream: Building Stakes in the SHG-Bank 

Linkage Programme. Swayam Shikshan Prayog. 

12. MYRADA (2001). The MYRADA Experience: 

A Manual for Capacity Building of Self-Help 

Affinity Groups. 

13. Rajagopalan, S. (2000). Good Practices of NGOs 

in Setting-up Alternative Development Financial 

Institutions. AIAMED (All India Association for 

Micro-Enterprise Development 

14. Rajasekhar, D. (1994). Savings and Credit 

Systems of the Poor: Some Non-Governmental 

Organization (NGO) Experiences: NOVIB and 

HIVOS. 

15. Tamil Nadu Corporation for Development of 

Women Ltd. (DeW), (1999). A Guide to SHG 

Federations.

SHG Federations In India - Sa-Dhan

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