A Study of SHG Federation Structures in India - FinDev Gateway

A Study of SHG Federation Structures in IndiaCore Elements for Achieving Sustainability

ImprintPublished by:Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbHGIZ NABARD Rural Financial Institutions Programme

Contact:

Dr. Detlev Holloh, Programme DirectorL-20, Green Park (Main)New Delhi 110016T +91 11 26526024/25F +91 11 26528612E [email protected] www.giz.de

Authors:Dr. Wolfgang SalomoG. Bhaskara RaoN. Naveen Kumar

APMASPlot 20, Rao & Raju Colony, Road 2Banjara Hills, Hyderabad 500 034Tel: +91-40-2354-7952/27, 23555864Fax : +91-40-2354-7926Website : www.apmas.orgEmail: [email protected]

ENABLE NetworkAPMAS, Plot 20, Rao & Raju Colony, Road 2Banjara Hills, Hyderabad 500 [email protected]

DGRV – Deutscher Genossenschafts- und Raiffeisenverband e. V.Adenauerallee 121 D-53113 BonnT. (+49 228) 88 61-373 F. (+49 228) 88 61-356www.dgrv.de

Editor:Nitin Jindal

Design/Layout:ArtworkstudiosK 39, Lajpat Nagar II,New Delhi-110025

Disclaimer:The opinions and analyses expressed in this report do not necessarily reflect the views and official policies of the GIZ NABARD Rural Financial Institutions Programme.

New Delhi, December, 2012

A Study of SHG Federation Structures in IndiaCore Elements for Achieving Sustainability

Contents | I

The Indian SHG movement has great po-tential to alleviate poverty and for em-powering marginalised sections of the

population, particularly women. Working on this study provided us with the unique opportunity to explore the SHG movement even deeper than we did before. We are convinced that the results, both of our learning-process as well as of our thor-ough analysis, have strong potential to support relevant stakeholders in taking appropriate action to increase effectiveness and safeguard sustainabil-ity of the SHG sector.

In the course of this study, several people sup-ported us through their cooperation. On behalf of APMAS, ENABLE and DGRV, we would like to express our gratitude to GIZ – NABARD Rural Financial Institutions Programme for giving us this challenging assignment. We received exten-sive professional support from both of these or-ganisations. Ms. Marie L. Haberberger, GIZ pro-vided a number of supportive insights during the initial stages of the assignment. Mr. Ramakrishna from GIZ, who accompanied and provided valu-able suggestions for the study right from the be-ginning, participated in several meetings as well as in the June 2012 workshop at Hyderabad. Ms. Geetha Saraswathy, DGM-NABARD, coordinat-ed all inputs by NABARD, facilitating the partici-pation of NABARD representatives in state-level field missions; including her participation in the field mission to Uttar Pradesh (U.P.), in study-re-view meetings at APMAS and in the Hyderabad workshop. In addition, she contributed her own inputs towards some of the case studies. Mr. Pankaj from NABARD Regional Office (RO), Rajasthan; Mr. Partha, NABARD RO, West Ben-gal and Ms. Pushapa from NABARD RO, Tamil Nadu participated during field missions in the respective states. Mr. N. C. Bhowal, NABARD DDM, Jalpaiguri, West Bengal and Mr. Naray-ana, NABARD DDM, Tirunmalai, Tamil Nadu also participated in these field missions. Officials from NABARD helped with crucial translations

from regional languages to English.

Member organisations of ENABLE such as SH-GPF, CmF and GMO provided immense support to the study, helping to identify sample SHPAs and SHG federations in their respective states. Professional representatives like Mr. Sourav Roy and Ms. Latha from CmF, Mr. Vikas from SH-GPF and Ms. Pushapa from GMO participated in the field missions and provided precise transla-tions of the conversations between the study team and primary members.

The study immensely benefited from the inputs received during the workshop “Best Practices in SHG Federations”, specially organised to discuss the preliminary results of the study in June 2010 in Hyderabad. Representatives of almost all sam-ple SHPAs and other participants provided us with very useful insights. The study incorporated inputs received from electronic discussions on UN Solution Exchange following our query. Dr. Navin Anand and Ms. Monika Khannawere were of immense help by posting the query, moderat-ing the discussion and consolidating the feedback.

Within our own organisations, several col-leagues provided both intellectual and logistical support. In DGRV, Mr. Paul Armbruster from the beginning provided valuable insight into the cooperative spirit and the experience of best coop-erative practices. Ms. Nina Hildebrandt provided us both professional and logistical support and Mr. Andreas Kappes contributed significantly to the study through advice and critical comments as well as by professionally reviewing the report.

In APMAS, Mr. C. S. Reddy provided support at all stages of the study; from its conceptualisa-tion until the finalisation of the report. Ms. Rama Lakshmi provided technical support for the usage of GRADES and the interpretation of the results obtained. Mr. Rajan, Ms. Monika, Ms.Rekha, Ms.Sudha, Mr.Basi Reddy and Mr.Srinivas pro-

Acknowledgments

vided logistical support. The APMAS field team at Anantapur, headed by Mr. C. Narayana Reddy, and other members of the Quality Assessment team supported the study team during its field work in Andhra Pradesh.

The field missions generated crucial inputs for the study. SHPAs of twelve sample federations provided excellent intellectual input and logisti-cal support. We appreciate the support extend-ed by Mr. Rajesh Singhvi and his colleagues at IBTADA, Ms. Zebul Nisha and her colleagues at Saheli Samithi, Mr. Sampath Kumar and his col-leagues at RGMVP, Mr. Rakash Pandey and his colleagues at Sharamik Bharathi, Mr. Gopal Gosh and Ms. Madhuri Gosh and their colleagues at Bagnan Mahila Bikas, Mr. Rajesh Mishra and Ms. Malini and their colleagues at Centre for the Development of Human Initiatives (CDHI), Mr. Vijay Kumar and Ms. Asha and their colleagues at Myrada, Chitradurga, Dr. Manjunath and his colleagues at Shri Ksehtra Dharmasthala Ru-ral Development Project (R.) (SKDRDP), Mr. R. Ashok and his colleagues at Saryodaya Nano Financial Limited/ Maduranthakam Sarvodaya

Mutual Benefit Trust (SNFL/ MSMBT), Fr. An-tony Samy and his colleagues at Don Bosco, Mr. Surendra Reddy and his colleagues at Society for Elimination of Rural Poverty (SERP) – Ananta Maha Samakya, and Mr. Neelaiah and his col-leagues at Ankuram Sangha Poram (ASP)/ Janan-tha Mutual Aided Cooperative Society (MACS). Authentic and relevant information was collected from the interactions with primary stakeholders of 12 sample federations, 20 cluster/ village level federations and more than forty SHGs. The team also interacted with more than 10 bank manag-ers. The team is grateful to Dr. D. Veerendra Heg-gade, Dharmadhikari of Dharmasthala and Presi-dent of SKDRDP, who provided valuable insights and inspired the team through joint interactions. Without the support of people from the SHG sector, the team would not have been able to fulfil its task.

The contribution and support provided by eve-ryone is greatly appreciated. We apologise if we have unintentionally overlooked someone’s name.

Dr. Wolfgang SalomoG. Bhaskara Rao

N. Naveen Kumar

Table of Contents

Chapter Page

Acknowledgements I

List of Tables and Boxes V

List of Acronyms VI

Executive Summary IX

Chapter 1: Introduction 1

1.1 Background 1

1.2 The Study and its Objectives 2

1.3 Study Team and the Methodology 2

1.4 Challenges for the Study 3

1.5 Structure of the Study 4

Chapter 2: SHGs and their Federations in India 5

2.1. Evolution of SHGs 5

2.2. SHG Bank Linkage 6

2.3. Evolution of SHG Federations 6

2.4. Functions of SHG Federations 8

2.5. Promotion of SHGs and SHG Federations 8

2.6. Funds for Promotion of SHGs and Federations 9

2.7. Impact of SHGs and SHG – banking 9

2.8. Challenges 11

Chapter 3: Field Studies of SHGs and their Federations 15

3.1. Overview on the Field Work 15

3.2. Brief narrative description of sample federations 16

3.3. Major observations/ findings from the sample structures 22

3.4. Performance of Member SHGs 27

IV

Chapter 4: Cooperative Principles for Sustainability of SHG Institutions 29

4.1. Sustainability framework 29

4.2. Cooperative Character of SHG Institutions 30

4.3. Cooperative experience 31

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

5.1. Introduction 33

5.2. System/ Organisational Sustainability 33

5.3. Economic/ Financial Sustainability 37

5.4. Appropriate Legal and Regulatory Framework 49

5.5. Adequate Promotional Support 54

Chapter – 6: Summary and Strategic Conclusions 65

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

Appendix – 2: Strategic Guidelines to Sustainability of SHG Structures 83

Contents | V

List of Tables and Boxes

Title of the Table/Boxes Page

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

2.2 Regional spread of SHG Federations in India 8

2.3 Services offered by SHG Federations 8

2.4 Regional distribution of SHG bank credit linkage during 2007 – 08 and 2010 -11 12

3.1 Details of sample SHG federation 15

3.1 Brief description of sample federations 16

4.1 Sustainability and its Sub-categories 30

4.2 Definition and potential of Cooperatives 31

4.3 Main structural features of the German cooperative model 32

5.1 Core Elements of System/ Organisational Sustainability 34

5.2 International/ cooperatives’ vis-à-vis India SHG experience with respect to systems and organisational sustainability 37

5.3 Core Elements of Economic/ Financial Sustainability 38

5.4 Model/ cooperative principles and India SHG experiences with respect to economic sustainability: Common vision, strategy and planning; and functions and structures 39

5.5 Model/ cooperative principles and India SHG experiences with respect to economic sustainability: Services 43

5.6 Model/ cooperative principles and India SHG experiences with respect to economic sustainability 46

5.7 Appropriate legal and regulatory framework 49

5.8 Adequate Promotional Support: System Development Promotion 52

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

5.10 Adequate Promotional Support: Sector own promotion 63

VI

List of Acronyms

ADS : Area Development Society

AI :ArtificialInsemination

AIDS :Acquiredimmunodeficiencysyndrome

AP :AndhraPradesh

APL : Above Poverty Line

APMAS :AndhraPradeshMahilaAbhivruddhiSociety

ASP : Ankuram Sangha Poram

ASSEFA :AssociationforSarvaSevaFarms

BCC : Bagnan Credit Cooperative

BGMB : Bagnan Gramin Mahila Sammilon

BMBCCL :Bagnan–IMahilaBikashCo-operativeCreditSocietyLimited

BPL : Below Poverty Line

CBMFIs :CommunityBasedMicroFinanceInstitutions

CBO :CommunityBasedOrganisation

CC : Core Committee

CCL :CashCreditLine

CDF : Cooperative Development Foundation

CDHI :CentrefortheDevelopmentofHumanInitiatives

CDS : Community Development Society

CmF :CentreforMicrofinance

CMRC :CommunityManagedResourceCentre

CRP :CommunityResourcePerson

DGRV :DeutscherGenossenschafts-undRaiffeisenverbande.V.

(GermanCooperativeandRaiffeisenConfederation)

DGSS : DWACRA Group Samannaya Samity

DHAN : Development and Human Action

DPIP :DistrictPovertyInitiativeProject

DRDA :DistrictRuralDevelopmentAuthority

DWACRA :DevelopmentofWomenandChildreninRuralAreas

ENABLE :NationalNetworkEnablingSelfHelpMovementinIndia

GoI :GovernmentofIndia

GRADES :NameofSHGfederationratingtool.ItstandsforGovernance,Resources,Assetsquality,Designof

systems,EfficiencyandServicetomembers

GIZ :GermanAgencyforInternationalCooperation(formerGTZ)

GMO :GlobalMicrofinanceOperations

H D Pura : Holalke Dera Pura

HIV :Acquiredimmunodeficiencysyndrome

IGA : Income Generating Activity

ILO :InternationalLabourOrganisation

IRV : Individual Rural Volunteer

ISL : Individual Sanitary Latrine

JLG : Joint Liability Group

JTWDS :JawadiTribalWomenDevelopmentSociety

MACS : Mutual Aided Cooperative Society

MBCC :MahilaBikasCreditCooperative

VII

MBT :MutualBenefitTrust

MF :Microfinance

mF :MicroFinanceormicrofinance

MFI :MicroFinanceInstitutions

MIS :MonthlyIncomeScheme/MonitoringInformationSystem

MP :MadhyaPradesh

MS :Mandal(Sub-district)Samakya(Organisation)

MS :Mahila(Women)Sanghatana(Union)

MSMBT :MaduranthakamSarvodayaMutualBenefitTrust

MSME :Micro,SmallandMedium-sizedEnterprises

MYRADA :MysoreResettlementandDevelopmentAgency

NABARD :NationalBankforAgricultureandRuralDevelopment

NBTDP :NorthBengalTaraiDevelopmentProject

NGO :Non-GovernmentOrganisation

NHG :NeighbourhoodGroups

OB :OfficeBearers

PA :PromotingAgencies

PI :People’sInstitution

PLF :PrimaryLevelFederations

PRADAN :ProfessionalAssistanceforDevelopmentAction

RBI :ReserveBankofIndia

RGMVP :RajivGandhiMahilaVikasPariyojana

RMS :RastriyaMahilaKosha

SAG :SelfAffinityGroup

SAPAP :SouthAsiaPovertyAlleviationProject

SB : Sharamik Bharathi

SERP :SocietyforEliminationofRuralPoverty

SGSY :SwarnjayanthiGrameenSwarojgarYojan

SH :SelfHelp

SHG :SelfHelpGroup

SHGPF :SelfHelpGroupPromotionForum

SHPA :SelfHelpGroupPromotingAgency

SKDRDP :ShriKsehtraDharmasthalaRuralDevelopmentProject(R.)

SLF :SecondaryLevelFederations

SMBT :SaryodayaMutualBenefitTrust

SMF : Sakti Mahila Samiti Federation

SMS : Sakti Mahila Samakya

SNFL : Saryodaya Nano Financial Limited

SOC : Sector Own Control

TLF :Third/TertiaryLevelFederations

TN :TamilNadu

UBTMS :UttarBangaTaraiMahilaSamakya

UNDP :UnitedNationsDevelopmentProgramme

UP :UttarPradesh

WB :WestBengal

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Contents | IX

Executive Summary

I. Introduction

The Self Help Group (SHG) movement in India can be regarded as one of the best financial in-termediary systems of the country. Reaching out beyond simple financial intermediation, it ad-ditionally provides the institutional framework for organising livelihood and non-financial ser-vices as well as social services in accordance with self-help principles. Despite tremendous positive impacts, SHGs face significant constraints and challenges which limit their service capacity, bar-gaining power, and even hinder and endanger their long-term sustainability.

Nationally, SHGs supported by their respective Self Help Promoting Agencies (SHPAs), began organising themselves into bottom-up, multi-level federation systems. These structures of clus-ter- (village) level, block- (sub-district) level and district-level federations aim to provide support services to their member SHGs and SHG mem-bers respectively. They act as an interface between SHGs and mainstream institutions.

SHG structures were set-up individually in most cases. Each case followed the specific vision and policy of the respective SHPA and was in accord-ance to the heterogeneous socio-economic envi-ronment as well as the different legal or regulatory framework in the respective states. Consequently, a wide variation of SHG federation structures and a different understanding of their role and functions can be found today.

Advanced federation systems and their member SHGs have yet to solve the issue of achieving and maintaining long-term viability and sustainabil-ity. By combining and proving the experience of the Indian SHG movement and by including internationally accepted good cooperative prac-tices, this study aims to provide practical strategic guidelines for sustainability of SHG structures in India.

The research team conducted detailed field stud-ies of 12 SHG structures in six states, which re-flect the diversity of the Indian SHG movement. To support the field studies, references were made to secondary resource materials. The study team’s institutional experience and learning and the au-thors’ expertise and experiences were also utilised.

II. Evolution of the SHG movement in India

In India, the women SHG model is a home-grown model. Primarily, it is the result of NGOs’ search for community-based institutions which may help the poor to overcome their vulnerability and lack of resources. The SHPAs quickly learnt that savings and loans could be the binding factor for groups to remain active for longer periods and pursue their own agenda.

SHGs got a big impetus in 1992 with the launch of SHG Banking Pilot Programme by NABARD. RBI permitted banks to open savings accounts in the name of informal groups – ‘SHGs’ and lend to those (informal) groups without collateral and without asking the loan purpose. Since 1996, SHG banking has been reorganised as a regular banking activity. As of March 2011, 7.462 mil-lion SHGs, with an estimated membership of 97 million, have savings accounts in banks with an aggregate bank balance of ` 70.16 billion (NA-BARD, 2011). Over 4.787 million SHGs have loan accounts with a total loan outstanding of ` 312.212 billion.

To take up agenda which was beyond the scope of individual SHGs, SHPAs started promoting SHG networks, known as federations since early 1990s. Other objectives of promoting federations are to facilitate the exit of SHPAs, at least from certain basic functions, and to scale up economi-cally. As of July 2010, there were nearly 164,000 SHG federations. Most of them are primary (vil-

X

lage-based) level federations, mostly confined to southern and eastern parts of the country. Federa-tions have been providing a number of services to member SHGs, which could be grouped into four categories- sector development, financial, livelihood and social intermediation. The exact composition of services varies from one context to another and evolves over time. There is a great variety and number of SHPAs ranging from vil-lage volunteers to central government. The gov-ernment agencies emerged as principal SHPAs during the last 10 years, accounting for almost 80% of the SHG institutions in the country. Entry of government agencies proved to be both strength as well as a weakness of the SHG sector.

If the growth rate of SHG-Bank Linkage is im-pressive, its impact is even more amazing. It not only had an impact on primary (SHG) members but also on their families, communities, and many institutions. The SHG–Bank Linkage Pro-gramme has transformed the whole range of institu-tions – government, banks, NGOs and development institutions, in their approach towards development of the poor. (NABARD, 2009)

The sector is also facing numerous challenges such as policy contradictions, bankers’ apathy, unequal competition from MFIs, inadequate loan and promotional funds, wide regional and social inequalities, inadequate HR and capacity build-ing infrastructure.

III. Field studies of SHG structures

The 12 sample SHG structures visited by the study team are Janatha MACS of ASP, Andhra Pra-desh (A.P.); Sri Chaitanya MS of SERP, AP; Holalke Dera Pura (HD Pura) Community Managed Re-source Centre (CMRC) of Mysore Resettlement and Development Agency (MYRADA), Karnata-ka; Kaniyoor federation of SKDRDP, Karnataka; Saheli Samithi of (PRADAN), Rajasthan; Savera Federation of Ibtada, Rajasthan; Jawadi Tribal Women Development Society (JTWDS) of Don Bosco, Tamil Nadu; Saryodaya Mutual Benefit Trust (SMBT) of SNFL/ Association for Sarva Seva Farms (ASSEFA), Tamil Nadu; Sakti Mahila Samakya of Rajiv Gandhi Mahila Vikas Pariyo-

jana (RGMVP), Uttar Pradesh; Sakthi MF of ShrimkBharati, Uttar Pradesh; Bagnan-I of Ma-hila Bikas, West Bengal; and Uttar Banga Tarai Mahila Samakya (UBTMS) of Centre for the De-velopment of Human Initiatives (CDHI), West Bengal. These are some of the most renowned institutions situated in different socio-economic and geographical contexts in the country and are quite diversified structures.

In all sample federations, SHPAs played an im-portant role in the shaping of structure, functions and their style of functioning. Given the limited awareness and capacities of the primary members, the proactive role of SHPAs is perhaps inevitable. However, the role transformation between the primary stakeholders and SHPAs is determined to a large extent by the resources available with SHPAs. There is a clear division of function be-tween SHPAs and primary members. While SHPAs and their representatives look after the fi-nancial management, review of staff performance, office management, management of external rela-tions including legal compliances etc., primary members monitor the functioning of SHGs, pro-vide need-based support, resolve conflicts within and between groups, help in microfinance opera-tions, especially in recovery of bad debts.

There is less interest and enthusiasm among pri-mary stakeholders, especially among the mem-bers of very poor households, to take up leader-ship responsibilities at SHG and federation levels. A system of payment of salaries or honorarium to the leaders may encourage the members to take up leadership responsibilities. The primary mem-bers have much more organisational and mana-gerial capabilities than assumed by the secondary stakeholders.

Almost all sample federations have limited finan-cial resources, which vary considerably across the sample structures. In a majority of the cases, grants and other external funds are the major source of resources. Most of the sample federations have a relatively higher Portfolio at Risk (PAR). How-ever, none of the federations reported any major recovery problems. It implies that mainstream fi-nancial sector indicators like recovery rate, PAR etc. need to be modified or new indicators need to be

Contents | XI

developed for the Community Managed Financial Organisation (CMFOs). Unlike mainstream finan-cial institutions, CMFOs have social capital to re-cover all their debts and have empathy for members’ difficulties and adopt flexibility in recovery.

In some cases, federations are forced to take up fi-nancial intermediation due to the bankers’ apathy towards SHG banking. Apart from fulfilling the credit needs of members or SHGs, some federa-tions access funds from donors and government departments or programmes and provide bridge finance and/ or soft loans to members. The fed-erations proved to be the most cost effective and efficient mode to provide financial services to the members, because of low overhead costs and use of the services of the social capital/ SHGs in their microfinance operations. Mobilisation of internal funds (savings) by SHG federations would reduce the financial cost of federations and also result in economisation of existing infrastructure and HR. However, there are no effective checks and bal-ances to protect members’ savings in most of the federations. The legal status of some of the sample federations neither permits mobilisation of sav-ings and funds from members nor foresees ad-equate protection measures. Most of the services provided by the federations are inadequate due to external constraints such as low investments in capacity building, bankers’ non-cooperation in SHG Bank Linkage, few funds for on-lending, restrictions imposed by the promoting agencies etc. Limitations of promoting agencies also be-came limitations of the federations.

Audit is the key for the security of funds, ac-countability of management and transparency of transactions. APMAS, SERP and DGRV in their ‘Sector Own Control (SOC)’ pilot project in Kamareddy cluster in Nizamabad district of Andhra Pradesh demonstrated that commu-nity members (non-technical persons) could be trained to audit SHG accounts. In SERP, Sri Chaitanya MS, the community auditors conduct the SHG audit. In a few other federations where primary members have limited awareness and roles, external professionals or the SHPAs con-duct audits. It is important that members know the financial details and facts; only the audit of books does not suffice. Summarised financial

transactions should be discussed in special meet-ings and profits and losses should be appropri-ated annually. No such practices were observed in most of the sample federations. Majority of the federations have good linkages with government departments, programmes and projects; private sector companies, insurance companies, corpo-rate hospitals and NGOs.

Though livelihood services are widely prevalent, these are isolated interventions with limited im-pact. SKDRDP has excellent livelihoods and marketing support services and infrastructures which are worth replicating.

In the sample federations it was found that per-formance of SHGs is closely related with the SHPA’s vision to build institutions of the poor; and quality, adequacy and appropriateness of the services provided to the members through SHG institutions.

IV. Cooperative Principles for Sustainability of SHG Institutions

Sustainability in this study is defined as follows:

a. SHG members conduct effective ownership, self-governance and self-control

b. Federations meet current and future needs of their member SHGs and SHG members

c. SHGs and members are using and benefiting from these services

d. Federations are not-for-profit, but are still eco-nomically effective and efficient

e. Federations are aware of the importance of in-tegrity and are maintaining it

f. Federations comply with legal and regulatory provisions

g. Federations operate independently, however, may get technical and financial assistance from SHPAs

Based on this definition, the study further differ-entiates this broad term into four major sub-cat-egories of ‘sustainability’:- (i) System or organisa-tional sustainability (ii) Economic and financial sustainability (iii) Appropriateness of the legal and regulatory framework and (iv) Adequate-ness of promotional support. Although separated

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above for the purpose of definition, all character-istics at any time should equally and simultane-ously be taken into consideration since they are interrelated.

A huge variety of institutionalised sustainable co-operative systems around the world have the fol-lowing common features:

a. Self-help, self-administration, self-responsibility and mutual support

b. Member-owned and controlled and commit-ted to the members of the community, without state interference

c. Performing as not-for-profit but observing eco-nomic criteria in their functions

According to the general understanding and vi-sion of the SHG movement in India, SHG in-stitu-tions follow the same principles as coopera-tive organisations. The experiences of the Indian SHG movement are analysed in chapter 5 against the sustainability framework and its core compo-nents and cooperative principles.

V. Core elements of sustainability and Indian SHG structures

The core elements of sustainability under each of the four sub-categories are identified and com-pared to international successful cooperative in-stitutions and the Indian SHG sector.

System or Organisational Sustainability

This sub-category covers issues like membership, governance, institutional structure and proce-dures, accountancy, internal control and audit, management and staff. While international coop-eratives adhere to open membership, the Indian SHG movement has been, in principle, focusing on the poor, i.e. conditional open membership. However, some extremely poor sections did not join the SHG institutions because of various rea-sons. Furthermore, considering ‘cooperatives as institutions for the poor only’ would be much too narrow and inappropriate. Similarly, restrict-ing the scope of SHG institutions to poverty alle-viation alone will undermine their full potential.

Under governance, the primary members are expected to have a sense of ownership about their institutions, norms and standards and fully charged with decision-making, administration, internal regulations, etc. The formal presence of SHPAs could be seen in the Boards of most SHG structures in the country. Imposition of external-ly designed norms and standards are widespread with consequent negative implications. Reluc-tance on the part of many primary members to take up positions of leadership could be observed across the country.

The guiding principles for institutional struc-ture and procedures are: meeting objectives and purposes, being manageable for the owners, and optimum utilisation of human and financial re-sources. In India, though curtailed in some in-stances, certain processes are being followed in developing the federation structure. More than 90% of the federations are Primary Level Federa-tions (PLFs), which are being federated at higher levels step-by-step as per the need. Normally, SHPAs function as de facto leaders and managers of SHG institutions.

In the sphere of accountancy, internal control and audit, the primary members in model SHG insti-tutions should have complete knowledge and full control. The model institutions need to have fully integrated and transparent accounting managed by the primary stakeholders. In India, SHPAs undertake these functions in most SHGs. Most PLFs outside Andhra Pradesh (A.P.) do not have books of accounts. Computerisation of account-ing helps SHPAs in effective monitoring but the primary members are unable to comprehend the processes and information since they have not yet fully understood accounts and auditing.

Primary members and their representatives have the responsibility of managing member-based or-ganisations. It is thus important to mobilise and pool in the managerial skills of members. One can see the division of functions between pri-mary and secondary stakeholders in Indian SHG structures. The primary members’ organisational or managerial capacity is much higher than that assumed by the SHPAs.

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Development of sector-owned HR is one of the unique features of international cooperative institutions. Indian SHG structures also pre-dominantly employ members and even though members have limited skills and capacity they are highly committed. A viable suggestion could be to consider Community Resource Persons (CRPs) as sector-owned HR.

Economic and financial sustainability

This sub-category covers issues such as common vision, strategy, planning, functions and struc-tures, which include four categories of services, institution building and resources and perfor-mances.

As per model principles, common vision, strat-egy and planning cover subjects such as creating a sense of ownership, awareness, self-responsibility among primary members, transparency about SHGs’ perceptions, intentions and potentials and realising the advantages of division of functions and well matched coordination within multi-tier SHG structures. So far, the conceptual functional

and institutional development of SHG structures in India has been determined or at least dominat-ed by the SHPAs and is based on general political objectives such as poverty alleviation and women empowerment. Consequently, SHG members and institutions have mainly felt themselves to be recipients than as active owners and managers of their institutions.

Functions and structures allow higher-tier struc-tures in cooperative organisations to support and supplement their member organisations. They contribute towards making the whole structure financially and operationally viable and enabling member organisations to meet the needs of their members. As Indian SHG structures have been facilitated by external entities like SHPAs, the principle of subsidiary is not really the guiding principle. Patron – client relationship could be seen between SHPAs or higher-level SHG organi-sations and SHGs.

Under sector development services, model or-ganisations undertake functions such as lobbying, monitoring, MIS, promotion and management

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of quality member organisations, capacity build-ing and facilitation of external services on shar-ing basis. Sample Indian SHG federations were found to be very effective in preliminary sector development services such as awareness genera-tion, promotion of new groups and revival of de-funct groups, facilitation of SHG bank linkage, and linkage between SHGs, members and main-stream institutions. A few federations provide advanced services like auditing, MIS, capacity building, etc. However, the effectiveness of these services is constrained by the external environ-mental factors such as bankers’ cooperation and the ability of SHPAs.

Financial services such as savings, loans, insur-ance, and other retail financial services are the central element of the federating process in many countries. Indian SHG federations have been providing limited but critical financial services to their members and are legally permitted to mobi-lise savings from their members. In terms of the quality of financial services, especially affordabil-ity, repayment pattern and timeliness, the SHG structures rank next only to institutional financial services. There is a lot of mistrust among banks and SHPAs regarding the capacities of federations to provide financial services. Due to this mistrust federations are able to mobilise only limited re-sources for on-lending. The SHG Bank Linkage is underperforming due to the vitiated environ-ment in the country, which is prevalent particu-larly in the non-southern states. SHG members have much more managerial capacities to provide financial services than that assumed by the sec-ondary stakeholders. To realise those potentials, financial intermediation needs to be promoted on cooperative principles and values rather than modern microfinance practices.

Livelihood services such as input supply, com-mon production facilities and marketing are most sought after by cooperative organisations in many developed countries. Networking and fed-erating with neighbouring cooperative structures strengthens bargaining power and market posi-tions of cooperatives. Almost all sample federa-tions are very active on livelihood promotion and enhancement. However, the efforts of many fed-erations are hampered by the lack of bank link-

ages, external constraints and insufficient funds with federations. All the sample federations are taking innovative measures in their context spe-cific interventions. There is good scope for learn-ing and networking for mutual benefits.

The so-called business cooperatives in developed countries mostly do not take up the providing of direct social services. But parallel operating in-stitutions and networks, often also organised as cooperatives or other community-based institu-tions, focus on directly providing these services. However, social services are one of the core ser-vices in Indian SHG structures. The social agenda of many SHG structures is determined by SHPAs and external influence. Separate accounting is not common in SHG institutions. According to member needs, these services need to be taken up and funds for these services need to be mobilised transparently and accounted separately.

Institutional separation of functions is very com-mon in the cooperative movement worldwide. The criteria for guiding institution building are: (a) sector vision;(b) guaranteeing the highest possible effectiveness

and efficiency of the multi-level system as a whole;

(c) ensuring a high level of sector integration and coherence;

(d) enabling all responsible actors within the sys-tem to manage and control sector activities; and (e) clear separation of business related services and social services from the develop-ment function (including control and audit services).

Institutionalisation of different services in the sample Indian SHG structures is in the nascent stage. Though some vertical divisions of functions were noted yet the horizontal division is absent. SHPAs are playing an important role in the insti-tutionalisation process. Among the different cate-gories of services, the sector development services are still predominantly with the SHPAs. In some sample SHG structures, the Secondary Level Fed-erations (SLFs) were especially entrusted with a number of functions beyond their capacities.

Even though employing professionals from inter-nal sources is most appropriate, external profes-

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sionals could be employed to bridge the critical gaps in expertise and skills. However, Commu-nity Resource Persons (CRPs) are progressively replacing outside experts. Since SHPAs pay the honorarium to CRPs, they appear to be repre-senting the SHPAs. SHG structures are not able to attract and control external professionals and are heavily dependent on SHPAs and volunteers for professional support.

The model principle is to mobilise adequate fi-nancial resources and use them optimally. Yet, most Indian sample SHG federations have inad-equate resources for on-lending and other pur-poses. Since there are certain legal and regulation issues in mobilising savings and deposits, banks do not lend to SHG institutions at an advanta-geous scale. Grants and other support from insti-tutions like SHPAs are a major source of funding for majority of the SHG federations. Despite nu-merous complicated constraints SHG federations are able to provide valuable services through most cost effective methods. This is because of the in-herent strengths of the SHG model such as low cost of operations that come with adherence to cooperative principles instead of using modern microfinance practices.

Appropriate legal and regulatory framework

An appropriate framework comprises of proper legislation, sector-owned control (self-regula-tion), external regulation and supervision as well as safety provisions. Registration encour-ages internal and external confidence building. The model legislation may take into account the uniqueness of SHG structures, may have space for self-governance and ensure a level playing field and encourage compliance. Indian Mutual Aided Cooperative Society (MACS) Acts are perhaps close to being an appropriate model law for In-dian SHG institutions. Indian SHG institutions, even SHPAs, avoid submitting to official regu-lations and interferences. Therefore, they prefer not to register, or if necessary, to register it under the law which has the least possibility of interfer-ences. The MACS Act, a more appropriate Act for SHG structures, has been enacted only in 9 states. In these states, almost all SHG structures have been registered under MACS, unless categorically

prohibited. In other states, SHG structures have been registered under different Acts such as Socie-ties Act, Trust Act, and Cooperative Act.

Important sector-owned control practices and tools are: involvement of primary members in de-veloping and implementing institutional norms and standards; ultimate authority with primary members; regular financial, management and gov-ernance auditing and Annual General Meetings; regular elections and leadership rotation with some continuity and legal compliance. Primary members have very limited awareness about tech-nical issues like financial audit and legal compli-ance and as a result norms and standards in most SHG structures are developed externally. There is inadequate rotation of leadership and compliance to legal requirements, especially in the structures registered under the MACS Act.

Apart from sector-owned control, external regu-lation and supervision by financial authorities is needed for financial federations. To achieve economically efficient regulation and supervi-sion, the financial authorities should base their activities primarily on the SHG sector-owned control systems of SHG structures. Furthermore, there is need for a stable system aiming to avoid or compensate risks and losses faced by primary members. As of now, the introduction of sector owned control in the Indian SHG sector is still in its initial stages and regulation by the financial authorities is also minimal. Safety measures like deposit insurance do not exist at all.

Adequate promotional support

It is essential to have adequate promotion of sys-tem development, service or business and sector-own control. The promotion of system develop-ment comprises of concept development and implementation, institution and capacity build-ing, managerial or organisational support, and fi-nancial assistance to SHGs and their federations. The model institutions integrate primary mem-bers in institutional development from the early stages. Their institutional design will be based on members’ interests, felt needs and resources, including managerial capacities. They avoid any external interference which could counteract self-

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help development, mobilise sufficient advisory and financial resources as well as time for project realisation; and ensure compatibility between sev-eral promotional efforts.

In the sample Indian SHG structures, mem-bers’ needs were not always the focus of SHG promotion. Suitable tools and practices are not employed to mobilise and utilise the full poten-tial of SHG members’ managerial and invest-ment capacity. Very few SHPAs have clarity on ‘member-owned, member-managed institutions meeting members’ needs’. The overall availability of promotional and loan funds is inadequate and are distributed unevenly among the regions and institutions. There is also a severe dearth of HR, resource materials and resource organisations. In some regions strong competition was seen among SHPAs, MFIs and other service providers includ-ing banks.

Financial intermediation is the natural agenda of SHG federations. As effective financial inclusion has proven to be one of the most critical liveli-hood services, SHG federations have to be sup-ported to provide successful financial services in disadvantaged regions. Given the complexity and rigorousness of financial management, the operations of federations have to be limited, i.e. turnover, loan size, etc. These restrictions could be eased step-by-step depending upon premises to be fulfilled by the federations. Cooperative principles should govern the financial interme-diation functions of federations, i.e. instead of short-term profit maximisation, the focus should be on member welfare, long term gains and in-stitutional sustainability. Federations may have diverse sources of funds for lending, yet mobilisa-tion of internal savings and deposits may be given importance. Introduction of other financial ser-vices such as insurance, pensions, and remittance should depend on informed decisions made by primary members.

Due to several reasons Indian SHG structures are unable to facilitate SHG Bank Linkages. Banks are unenthusiastic, SHGs are unable to realise the savings potential, are over dependent on grants and other financial assistances, are over depend-ent on SHPAs in the management of financial

services; and third party insurance contracts were apparently sold (forced), not marketed.

Like financial services, livelihood or non-finan-cial business services are also natural functions of cooperatives in developed countries. There are very interesting and useful livelihood services facilitated by SHPAs in the Indian sample SHG structures too. However, these services are far too few and are limited to only one or two locations. Still these services appeared to be more prevalent vis-à-vis financial services and proved to be use-ful to members. SHPAs play a crucial role in the basket of services, which in turn is determined by their resource position and philosophy. Some of the agriculture related services need family level or male involvement but most SHG structures ig-nore this principle. Most of the sample structures are, in principle, accessing support from all kinds of sources such as the government, the corporate sector and donors, but are effectively able to mo-bilise very little resources and assistance due to several reasons.

In model SH institutions providing social ser-vices, the exact basket of the social services has to be determined according to the local context. Resources for these services have to be mobilised transparently. Concealed cross subsidisation from microfinance or other income generating services may not be desirable. There is a need for clear agreements between SHPAs and SHG institu-tions while delivering these services.

Even though federations are unable to provide adequate services due to various limitations, so-cial intermediation is one principle function of SHG federations in India. The effectiveness of social services provided by federations may also depend on the success of their financial and liveli-hood services. SHPAs have been playing a major role in the social services agenda. In some sam-ple structures the social services are discounted. For instance, health awareness is quite prevalent and very useful to the members. Support from SHPAs and other resources are predominantly being used in providing these services. Though technically most sample structures access support from all sources such as the government, corpo-rate and donor agencies, the overall access level is

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still unsatisfactory since the available programmes and the SHPA’s philosophy and capacity are not properly publicised.

Sector owned promotion is fostered by progres-sive role transformation between SHPAs and SHG institutions, networking and cross learning among SHG structures, joint implementation of various developmental and sector development programmes by the federations; and common use of secondary institutions such as training facili-ties, CRPs, etc. In SHG model structures, sector-owned promotion will dominate as compared to external promotional support. This is commonly used by cooperative structures, forcing the mo-bilisation of primarily owned resources, thereby enabling promotional activities to better suit their own needs, strengthening ownership and safe-guarding against external interference.

In the sample SHG structures, the transformation process is still in an early phase. Furthermore, the stages of development for various SHG structures are different. The SHPAs’ resources and philoso-phy determine the transformation process. SHG institutions proved to be most cost effective in the outreach of the sector and revitalisation of exist-ing structures. There is widespread mistrust about the primary members’ ability to manage their in-stitutions and functions. However, the primary members have far more potential and capabilities than presumed by others. To bring out the best in the primary members, a system of adequate com-pensation for the time devoted by the primary stakeholders needs to be introduced. Further, the SHG institutions need to be developed not only based on cooperative principles, but also based on the local context and locally available resources.

VI. Summary and Conclusions

For achieving long-term sustainability of the SHG movement, the establishment of well organised federations must be a precondition. According to the general understanding and vision of the SHG movement in India, SHG institutions in spirit are the cooperative organisations with women as their foremost focus. Nearly hundred and fifty years of global experience of cooperative systems

indicates that under any circumstance they have the ability to develop into successfully operating, well-performing, and economically sustainable organisations and/or enterprises. Indian SHG institutions that have adhered to the cooperative principles have achieved sustainability and suc-cess.

The majority of SHG institutions in India are adopted by government agencies, which have made them beneficiary organisations. Some NGOs have promoted them as microfinance in-stitutions. In both these cases, the potential of SHG institutions remained unrealised and their sustainability remains uncertain. To realise the full potential of SHGs and to make them sustain-able, the SHG structures may be promoted with cooperative principles and values. As per model cooperative and self-help institutional principles, the primary members have to be involved from the beginning in the processes of institutional building. They have to take charge of their insti-tutional governance, management and functions. They also have to mobilise and contribute all nec-essary resources. However, SHPAs play a domi-nant role in the promotion, governance, manage-ment and functions of Indian SHG structures. The primary members are highly dependent on SHPAs for advice, resources and personnel. Yet, given the general illiteracy, poor awareness and poverty, there is no alternative to the dominant role of SHPAs in the promotion and support of SHG institutions, at least in the initial stages.

While SHGs need to be promoted as ‘self-help’ institutions “of the members, for the members, by the members”, they are predominantly being promoted as beneficiary organisations, because of several constraints at the SHPA level. Primary members seldom have a sense of ownership to-wards the SHG institutions and are reluctant to increase their stakes, contributions and involve-ment in their institutions and prefer to remain as mere beneficiaries. To promote quality SHG institutions, SHPAs need adequate resources, time and capacity building, especially on issues related to Sector Own Control (SOC) to increase and enable the primary stakeholders’ stakes and involvement in SHG institutions.

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Financial intermediation is the natural function of SHG federations. Despite so many challenges, the sample SHG structures in India are able to provide many vital services, especially financial and livelihood services. The financial federations provide credit to their members at a much cheap-er rate as compared to MFIs (Microfinance Insti-tutions). This is not only because of subsidised funds and grants but also because of an efficient cost structure. The financial federations operate with low overhead expenses because they manage the last mile connectivity with their social capital rather than highly paid staff.

As direct SHG bank linkages eluded most of the disadvantaged states and sections, financial services rendered by the SHG federations are in-dispensable. The moot question is not “whether SHG federations are suitable or not for financial intermediation”, but rather “how to make the SHG federations effective financial services pro-viders”.

As cited before, primary members have more potential than believed by others. Apart from compensation for leaders, the condition of com-pulsory rotation of leadership at specified periods should also be introduced. Based on cooperative principles, NABARD and the Government of India may facilitate the promotion and strength-ening of SHG institutions as well as financial services provided by the federations, with self-regulation and SOC practices and tools.

Through networking and federating with other SHG structures, clear contractual agreements with SHPAs and other collaborators, and trans-parent funding arrangements, the SHG fed-erations could effectively provide livelihood and social services and accomplish institutional sus-tainability.

The study results so far indicate no clear prefer-ence for any specific strategic model of existing federation structures or for promoting policy among the cases analysed. However, the experi-ences gathered, as well as good and critical prac-tices of the SHG sector, are well qualified to prop-erly meet the strategic challenges of sustainability. Incorporating appropriate long-term experiences of well-operating, mature cooperative organisa-tions in India and in other countries will support this process. Therefore, combining the already available experiences of SHGs and SHPAs with cooperative best practices will lead to a coopera-tive model of SHG structures. This model could properly serve as a strategic path for the future SHG movement to prepare and maintain sus-tainability. Based on this model, a set of practical strategic guidelines have been developed aimed at supporting the SHGs and their federations, as-sisted by the respective SHPAs to elaborate an appropriate common vision, strategy, and plan-ning. The availability of such a strategic frame-work enables external stakeholders to align their support programmes more appropriately with the assistance needs of the SHG structures.

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Chapter 1

Introduction

1.1 Background

With a coverage of 97 million households and a total loan outstanding of ` 312.212 billion (NA-BARD, 2011), the Self-Help Group (SHG) Bank Linkage (SHBL) Programme1 is the world’s larg-est community based microfinance programme. Conceptually, it can be regarded as being one of the best financial intermediary systems developed in India. Reaching out beyond plain financial intermediation, it additionally provides the insti-tutional framework for organising livelihood and non-financial business services as well as social services according to self-help principles. It has

already contributed significantly towards alleviat-ing widespread poverty and towards improving the empowerment of women. This is due to its tremendous potential for outreach and for mobi-lising self-help capacities, its low-cost approach, and its flexibility towards meeting different needs of group members.

Despite the tremendous positive impact of the SHG bank linkage programme on the economic and social situation of the poor, especially in ru-ral areas, SHGs as a structure of informal, small, stand-alone women groups face many constraints and challenges limiting their service capacity, bar-

1. The development of Self-Help Groups (SHGs) has been particularly enforced through NABARD’s project of ‘SHG Bank Link-age’, initiated in 1992, which successfully linked the informal SHG structures to the formal financial sector.

2

gaining power and even hindering and/or endan-gering their sustainability. Furthermore, the Self Help Promoting Agencies (SHPAs), which were initiated to support SHGs, mostly do not have sufficient advisory capacity and financial resourc-es to meet the growing needs of the increasing number of SHGs.

All over India, but with higher numbers particu-larly in the Southern part, SHGs with support from their respective SHPAs began organising themselves into multilevel federation systems: Cluster-level federations (village), block-level fed-erations (sub-district), district level federations. Over 163,730 SHG federations emerged, which act as an interface between SHGs and mainstream institutions. Given that the SHG structures were set up in many different ways, there is a wide variation within the Indian SHG movement and in the understanding of their roles and functions. The heterogeneous socio-economic environment across the country, varied political support, differ-ent legal and regulatory frameworks in respective states, different approaches and support capaci-ties of the SHPAs, all lead to different solutions.

All federation structures continue to be in a stage of development. Many of them are still in a pro-cess of identifying their role as service providers for their member SHGs, which range from finan-cial intermediation, livelihood and business sup-port, and social services, as well as system devel-opment support. They often adopt the role of the former SHPA as a capacity builder and supervisor for the respective next tier. But in general, they do not have adequate managerial, institutional, and financial capacity to provide proper services for their member SHGs. They need further exter-nal support to properly address these challenges. However, some federation structures and models have already developed successfully. Therefore, there is an opportunity to focus on these systems and experiences in order to share and scale-up the good practices as well as to learn from negative experiences. Yet, even advanced federation sys-tems and their member SHGs still have to solve the huge issue of achieving and maintaining long-term viability and sustainability.

1.2 The Study and its Objectives

Given the importance and relevance of the sec-tor, APMAS, ENABLE and DGRV have jointly taken up the study on SHG Federation Models in India. GIZ – Deutsche Gesellschaft für Interna-tionale Zusammenarbeit (German Development Cooperation, and formerly referred to as GTZ) and NABARD – National Bank for Agriculture and Rural Development supported the study. Funds from Ford Foundation’s ENABLE grant were also used for the study.

The principle objective of the study is to contrib-ute to the long-term viability and sustainability of the Indian SHG movement. By combining and proving long-term experience of the Indian SHG movement as well as internationally accept-ed good cooperative practices, the study aims at providing orientation and strategic guidelines to key stakeholders of the SHG movement, i.e. to the SHGs and their federations, as well as to sup-porting NGOs, state agencies and governments. At the same time, it is desired that the study may serve as a practical basis for defining a future strat-egy on further development of the SHG struc-tures, on appropriate institution building, on performance improvement, on legal and regula-tory adequateness as well as on further support of SHG federations. The objectives of the study are:

(1) Enhancing the understanding of federations, their role and functions within the SHG movement, their performance and sustain-ability

(2) Consideration of lessons learnt: good as well as bad practices, identification of appropriate models or, at least, developing strategic guide-lines particularly focussing on achieving and maintaining the SHG movement’s sustain-ability

1.3 Study Team and the Methodology

For the purpose of elaborating this study, the col-laborating organisations constituted a study team consisting of two senior Indian experts and one senior German expert, who were well equipped with broad expertise as practitioners and advisors

97 mnhouseholds have been outreached with a total loan outstanding of INR

312.2 bn under the SHBL Programme, making it the world’s largest comunity-based Microfinance programme.

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on issues of the SHG movement in India as well as on international cooperative practices and in-stitutions. In addition, significant contributions were made by experts from APMAS, ENABLE and NABARD, operating in the respective re-gions. The research team utilised the following sources of material and expertise in the study:

1. Review of literature, including research studies and workshop reports

2. In-house expertise and learning of study or-ganisations

3. Expertise and learning of GIZ, NABARD and ENABLE member organisations

4. An electronic discussion on ‘UN Solution Ex-change’ was initiated and the inputs were con-solidated

5. The outcome of the workshop on best practices in SHG Federations, which was specially or-ganised for this report in June 2010

For a comprehensive study, the team utilised pri-mary and secondary data2. The main source of infor-mation however were the extensive field visits. Field visits enabled the team to draw in-ferences from the recent experiences of advanced SHG structures and their SHPAs. In total, 12 SHG systems in six states were visited, two each in the states of Rajasthan, Uttar Pradesh (U.P.), West Bengal, Karnataka, Tamil Nadu (T.N.), and Andhra Pradesh (A.P.). The field visits included interactions with SHG members and lead-ers, office-bearers and staff of the vertical SHG structures including SHGs, cluster federations, and block-level federations. In order to paint a comprehensive picture of the sample SHG insti-tutions, additional data and information was col-lected, analysed and discussed. For this task the team applied GRADES, a rating system designed by APMAS. They were completed by discussions with the supporting and promoting agencies, re-gional representatives of NABARD as well as with managers of local bank branches. The purpose of these activities was not to conduct a complete as-sessment or grading of the sample SHG systems, but learning from their experiences and drawing

lessons from good and bad practices.

Besides drawing on and learning from the Indian experience, the study is supplemented by relevant experiences from other countries with similar community and member-based organisations, es-pecially from well-operating cooperative systems which have proven their sustainability. SHG in-stitutions with good practices were examined to supplement the field visit results. The question-naire was posted in the Microfinance Communi-ty of “Solution Exchange India”. The purpose was to seek additional inputs from members of this network on examples of good practices adopted by SHGs, federations and SHPAs. The response to this questionnaire was very positive and help-ful. The team could derive valuable information from it. This helped in critical evaluation of ear-lier results. New references for good practices and additional recommendations for achieving sus-tainability of SHG structures were found. In ad-dition to the above mentioned research sources, the authors could draw on their respective institu-tion’s knowledge and the know-how of the imple-menting organisations, APMAS and DGRV, as well as of the practical experiences of their experts involved.

1.4 Challenges for the Study

Although the framework for the research was in-tensively prepared, the research team experienced certain limitations and challenges during the field visits.

The team had the aim of finding and analysing the most advanced SHG systems for the empiri-cal study research. This was not possible in all regions because of a variety of reasons such as logistical problems and the inability and unwill-ingness of a few SHG structures to participate in the research efforts. Another challenge for the study team was the language barrier faced during the interactions with SHG members and federa-tion leaders. Regional experts participating in the field work helped overcome this problem which

2. Most of the research and reading material on Indian SHG movement is available on www.apmas.org; www.shggateway.in and www.enableindia.net

4

could have otherwise been a barrier for mutual understanding. SHG members and federation leaders were met at their homes and responded to the questionnaire in an open manner. SHPAs also showed similar openness towards the study team. In spite of such cooperation, all responses and answers gathered could not be fully verified.

Financial data was unavailable in all cases, which became a hindrance for a comprehensive assess-ment of cross-checking the empirical results of the field studies. There are several grounds for such a lacking. Although the team asked for data to be prepared before visiting the organisations, not all were able to present complete and updated information. In each of these cases, the team, in collaboration with SHG accountants, SHG lead-ers, federations and SHPA staff, attempted to complete and assess the data in the field. While the data was simply unavailable in some cases, on the other hand, the lack of time didn’t allow for a complete assessment of the rating of the re-spective SHG institutions. As mentioned above, rating along APMAS’s GRADES is complex and time-consuming. Moreover, the organisations visited were not always interested in being rated, referring to sensitivity of financial data. How-ever, the GRADES approach used by the team significantly helped to complete field interaction and allowed for valuable insights into the subject, which in turn were useful for the study as a whole.

The organisations conducting the study, APMAS,

ENABLE (member organisations) and DGRV, have their own historical and organisational back-ground. A permanent coordination process and repeated clarifications between the study partners ensured common results being achieved. The co-operation in the SOC pilot project during the last years and other common activities contributed to this mutual understanding needed for conduct-ing this study successfully.

1.5 Structure of the Study Report

The study report has been divided into six chap-ters. Chapter 2 briefly discusses the evolution of the SHG sector in India. The sample SHG structure details and major field observations and learning are summarised in chapter 3. The conceptual issues related to sustainability, its core components, cooperative principles and the in-ternational German cooperative experiences are discussed in Chapter 4. The Indian SHG insti-tutional experience, the field learning in particu-lar, is analysed using the sustainability framework and cooperative and model self-help institutional principles in chapter 5. Finally in chapter 6, the study findings as well as the strategic conclusions for guiding SHG institutions and key stakehold-ers in the best way possible towards sustainability are summarised. Based on the cooperative model of SHG structure, detailed practical strategic guidelines for sustainable SHG institutions are elaborated (attached).

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Chapter 2

SHGs and their Federations in India

2.1. Evolution of SHGs

In India, the women Self Help Group (SHG) model is the home-grown model. Primarily, it results from NGOs searching for community-based institutions, which may help the poor to overcome their vul-nerability and lack of resourc-es. The Self-Help Promoting Agencies (SHPAs) quickly found that savings and loans could be the binding factor for groups to remain active for longer periods and pursue their own agen-da. Probably, the Bhagavatula Charitable Trust in Visakhapatnam district in Andhra Pradesh is the first organisation to promote women savings and credit groups in rural areas of the country. In the mid-eighties, there were a few similar ex-periments, mostly in Andhra Pradesh and other Southern states. Initially, it was mostly savings centred groups, as banks did not have any provi-sion to have linkages with informal groups. Even the SHG savings accounts used to be opened

in the name of 2 or 3 individuals in the group. Groups used to circulate their own savings as small loans among their members. Some SHPAs have promoted networks of SHGs, commonly known as ‘feder-ations’ to facilitate the inter-group circulation of funds. Networks like SHPAs have also accessed external grants and loan funds for on-lending. In 1987, NABARD provided`1 million as grant or soft loan to MYRADA to lend to its groups. Similar experiments were initiated by other prominent NGOs like Development and Human Action (DHAN) and Cooperative Development Fund (CDF), with assistance from national and international donors like Tata Trusts and Ford Foundation. The result of MYRADA experiment and similar experiments by others led to many innovations and path breaking projects, policies and programmes and institutional devel-opment. District Rural Development Authority (DRDA) provided what is commonly known as

6

a ‘revolving fund’ (RF) to hundreds of thousands of SHGs in different parts of the country for rota-tion as internal loans. The most common amount of revolving fund was `10,000 for each SHG. In 1992, the Government of India established the Rastriya Mahila Kosha (RMK), a dedicated or-ganisation to lend to NGOs, SHPAs and SHG federations.

2.2. SHG Bank Linkage

SHGs got a big impetus in 1992 with the launch of SHG banking pilot programme by NABARD. The Re-serve Bank of India (RBI) permitted banks to open savings accounts in the name of in-

formal groups – ‘SHGs’ and lend to those (infor-mal) groups, without collateral3 and without asking the loan purpose. Since 1996, SHG banking has been recognised as a regular banking activity. The programme had a modest beginning, with 225 credit-linked groups and a loan amount of ` 2.9 million. Since then, the programme has grown exponentially. In the process, SHGs emerged as a mass movement across the country and the larg-est community based microfinance model in the world. As on March 2011, 7.46 million SHGs, with an estimated membership of 97 million, have savings accounts in the banks, with an ag-gregate bank balance of ` 70.16 billion (NAB-ARD, 2011). Over 4.78 million SHGs have loan accounts with total loan outstanding of ` 312.21

Year (end March) No. of SHGs credit linked Bank loan amount

During the year Cumulative Loan Outstanding During the year Cumulative Outstanding

1992-93 255 255 - 0 0 -

1993-94 365 620 - 0 1 -

1994-95 1,502 2,122 - 2 2 -

1995-96 2,635 4,757 - 4 6 -

1996-97 3,841 8,598 - 6 12 -

1997-98 5,719 14,317 - 12 24 -

1998-99 18,678 32,995 - 33 57 -

1999-00 81,780 114,775 - 136 193 -

2000-01 149,050 263,825 - 288 481 -

2001-02 197,653 461,478 - 545 1,026 -

2002-03 255,882 717,360 - 1,022 2,049 -

2003-04 361,731 1,079,091 - 1,856 3,904 -

2004-05 539,365 1,618,456 - 2,994 6,898 -

2005-06 620,109 2,238,565 - 4,499 13,397 -

2006-07 1,105,749 - 2,894,505 6,570 19,967 12,366.49

2007-08 1,227,770 - 3,625,942 8,849 28,817 16,999.91

2008-09 1,609,586 - 4,224,338 12,254 41,070 22,679.84

2009-10 1,586,822 - 4,851,356 14,453 55,524 28,038.28

2010-11 1,196,134 - 4,786,763 14,548 70,072 31,221.17

From2006-07onwards,dataonnumberofSHGsfinancedbybanksandbankloansareinclusiveof‘SwarnajayantiGramSwarozgarYojna’(SGSY)SHGsandexistinggroupsreceivingrepeatloans.Duetothischange,NABARDdiscontinuedthepublicationofdataonacumulative basisfrom2006-07.Source:datafor2009–10and2010–11istakenfromNABARD,2010and2011,otheryearsfromRBI,2010; Loanoutstandingdatahasbeencompiledfromlastfiveyears’NABARDpublications

Table – 2.1: Progress of Self-Help Group-Bank Credit Linkage (Amount in Rupees crore)

3. Replacement of physical collateral with social collateral

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billion. It is predominantly a women movement. As some experts pointed out, it is a development innovation in its own right.

2.3. Evolution of SHG Federations

The tremendous success of the SHG movement heavily relied, and continues to rely on SHPAs to mobilise, train, and support groups. In the late 1990s, the government had become a key pro-moter and functioned as a SHPA of SHGs, espe-cially in Southern India. As the number of groups grew with continuous addition of new groups, the SHPAs’ degree of involvement and even di-rect contact with the groups greatly diminished. The SHPAs find that they are unable to provide groups with similar levels of attention as well as quality of inputs as they did earlier. At this stage, the SHPAs have begun to think of setting up higher level bodies, those which are able to ‘take-over’ many of the SHPAs’ tasks, thus enabling them to leverage their limited resources in the most judicious manner possible (APMAS, 2007). Major objectives of the promotion of SHG fed-erations are to overcome the inherent limitations of small and informal groups – SHGs, such as limited resources, limited needs, limited negotia-tion and bargaining powers, inability to deal with external bodies such as the government, main-stream institutions, markets, etc. The benefits of federations include:(a) those arising from economies of scale (b) reduction in transaction costs (c) reduction in default rates at all levels (d) provision of value added services (e) reduction in the cost of promoting new SHGs

(i.e. the cost of reaching out to every poor woman) and

(f ) increasing levels of financial discipline and ac-countability among SHGs (Nair, Ajay, 2005).

Other objectives of federations were: inter-group rotation of funds and to access bulk loans and grants from external sources; gradual handover of functions of SHPAs to Community Based Or-ganisations (CBOs); promote leadership and gov-ernance skills among primary members; develop poor people’s own institutions. The SHG Federa-

tions function as per the principle of subsidiary.

Some prominent NGOs and DRDAs in some states pioneered the promotions of SHG Federa-tions from the early 1990s. UNDP’s 1994 ini-tiative of ‘South Asia Poverty Alleviation Project’ (SAPAP) is perhaps the first large-scale federation promotion initiative in the country. It promoted a 3-tier structure – ‘SHG – Village Organisations – Mandal Samakyas’. The programme was imple-mented in 20 mandals spread across three districts in Andhra Pradesh. The Government of Andhra Pradesh promoted ‘Society for Elimination of Rural Poverty’ (SERP) which has up-scaled the model to the entire rural Andhra Pradesh cover-ing over 37,000 federations organised at village, mandal and district level. Apart from Andhra Pradesh, some state governments like Kerala, Maharashtra and Tamil Nadu also promote SHG federations on a large scale. PRADAN, MYRA-DA, DHAN, and CARE are some prominent NGOs which pioneered SHG federations in multiple states. There are a number of prominent state specific SHPAs, which promoted and pio-neered SHG federations in their respective states. Some of the federations evolved themselves into NGOs and MFIs. These NGOs and MFIs in turn promoted more federations and strengthened ex-isting federations.

In India, there is no official or authentic data on SHG federations. For the last few years, AP-MAS has been compiling SHG federation data from sources such as websites and direct contact of promoting and resource agencies4. Since this is a voluntary effort there is a risk of misquoting some of the federations in the country. As per the latest APMAS data (July, 2010), the number of SHG federations in the country is 163,852 (Ta-ble 2.2). Out of these, 158,166 are primary level federations (PLFs). There are marked variations in these PLFs. The PLFs are organised at village or sub-village level (as in A.P. by SERP and in Kerala by Kudumabasress), at cluster level (as in most of the states), at Electoral Booth level (as in West Bengal), at slum level (in many urban areas). In some areas PLFs registered the Mahila

4. The data is being published in the State of Microfinance Sector Reports, especially in 2008, 2009 and 2010

8

Regions No. of Primary Federations

No. of Secondary Federations

No. of Tertiary Fed-erations

Total Federations % of Total

Northern Region 320 39 - 359 0.22

North-EasternRegion

186 16 1 203 0.12

EasternRegion 65,107 2,696 72 67,875 41.43

Central Region 4,781 238 2 5,021 3.07

WesternRegion 8,269 6 - 8,275 5.05

Southern Region 79,502 2,549 33 82,085 50.1

Total 158,166 5,578 108 163,852 100

Table 2.2: Regional spread of SHG - Federations as on 31st July 2010

banks (DRDA and NGO promoted in A.P.) as ‘for profit’ mutual benefit trusts (e.g. SNFL) for an effective interface between SHGs and higher level organisations like SLFs (e.g. SERP). These became crucial links in the SHG institutional structures with an independent agenda. Most PLFs remained very informal and rudimentary structures, often without any books of accounts, independent income, separate office, yet playing

critical roles in implementation of SLF or SHPA agenda and as channels between SLFs, SHPAs, SHGs and its members. There is a skewed growth of federations across the country. Out of a total of 163,852 federations, a little over 50% federations are in South India and 41% are in East India. In fact, West Bengal, Andhra Pradesh, Kerala and Tamil Nadu account for nearly 80% of the to-tal federations. West Bengal and Andhra Pradesh

Financial SHG strengthening (or supporting) Services

Credits(orloans) AuditingofSHGs

Savings Grading(orappraising)

Insurance Book keeping

Pension Training

Housingloan Monitoring

Hirepurchase Banklinkageandotherlinkages

Problemsolving

Business development/ Livelihood Services Social (or developmental initiatives)

Marketingservices Domesticviolence

Processingandvalueaddition Childmarriages

Businessplandevelopment Genderdiscrimination

Promotionofentrepreneurship Child labour programme

Livelihoodopportunitiesformembers Socialdiscrimination

Cattle management Rightsandentitlements

Supplyofinputs–E.g.agricultureinputs Drinking water

Bulkpurchaseofrequiredmaterial Healthinitiatives

Familycounsellingcentres

Anti-liquorcampaigns

Table – 2.3: Services offered by SHG Federations

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alone account for about 60% of the total federa-tions (Table 2.2).

2.4. Functions of SHG Federations

Federations have been providing a number of services to SHGs and individual members. These could be grouped into 4 categories; institutional development, financial intermediation, liveli-hoods enhancement or business development services, and social intermediation. Table 2.3 has a list of services under each of these categories. Like all CBOs in different parts of the world, fed-erations also offer multiple services to member SHGs, which are in their initial years and began specialisation during the process of maturing and changing conditions. For instance, many federa-tions in South India were involved in financial intermediation. As banks provide adequate and timely credit in many parts of South India, some of those federations cease their financial opera-tions (see e.g. Kottaisamy, P and S. Nirmala, (un-dated)) (See References section for Study details). Similarly, some federations were forced to take up financial intermediations, even at the cost of neglecting their core function of social interme-diation due to the apathy of bankers. Some fed-erations have limited financial intermediation or business to earn sufficient funds for meeting op-erational costs. Some federation structures clearly define roles of the different federation layers. In a few cases, separate institutional structures have been promoted to take up different sets of ser-vices.

2.5. Promotion of SHGs and SHG Federations

The spectacular growth of SHG institutions is the result of innovative and constant support of SHPAs, resource organisations, NABARD and other policy makers. The SHPAs include a variety of players such as village or community volunteers, farmers’ clubs, SHG federations and other CBOs, banks, government departments, municipalities, and dedicated promoting agencies sponsored by state governments. Being most innovative and the largest set of SHPAs, NGOs are pioneers of the SHG movement. However, official agencies pro-moted the largest number of SHGs in most of the

states and the country as a whole. Many official agencies and NGOs adopted the SHG model to accomplish their own goals. In fact SHG institu-tions became a flagship model for poverty alle-viation for the Government of India (GoI) and many state governments. The Ministry of Rural Development, GoI, has adopted the SHG model in its flagship poverty programme of Swarnjay-anthi Grameen Swarojgar Yojana (SGSY), which has been expanded and redesigned as the Nation-al Rural Livelihood Missions (NRLM). Similarly states like Andhra Pradesh and Kerala adopted the SHG model with stupendous success in their poverty alleviation programmes.

2.6. Funds for Promotion of SHGs and Federations

NABARD is the principal source of funding for strengthening SHG bank linkages. Since the in-ception of the SHG Banking programme, i.e. from 1992 up to March 2010, NABARD pro-vided ` 1.08 billion to 2,911 SHPAs for pro-moting 492,276 SHGs (NABARD, 2010). The average amount was found to be ` 2,200 per SHG. NABARD provided support to a variety of SHPAs like Cooperative Banks, Regional Ru-ral Banks (RRBs), NGOs, Farmers’ Clubs and Individual Rural Volunteers (IRVs). It has been sharply focussing on underserved states and re-gions. NABARD has been increasing the promo-tional amount significantly in recent years. Fur-ther, NABARD has been facilitating training and exposure to numerous primary and secondary stakeholders year after year. A total of ` 99.3 mil-lion (NABARD, 2010) was spent on providing training and exposure in 2009-10. Another im-portant source of funds is the SGSY programme of Government of India.

Apart from the Government of India funds, some state governments like Andhra Pradesh, Kerala, Maharashtra, Orissa, Madhya Pradesh and Bi-har have mobilised significant funds from other sources, including assistance from bilateral and multilateral funding agencies. For instance, SERP (Government of Andhra Pradesh) invested nearly ` 23,000 per SHG. By including SERP’s total or-ganisational cost, this amount could be well over

10

` 30,000 per SHG. These states have been hiring the services of professionals and NGOs to pro-vide quality support to SHG institutions. Some of these states are able to bring together many development programmes through SHG institu-tions.

Thousands of NGOs including some MFIs in-vested substantial amounts in promotion of SHG institutions. While prominent NGOs like MYARADA and PRADAN are able to mobilise more than ` 10,000 per SHG, smaller NGOs have to cope with `500 per SHG. Many NGOs adopted SHG institutions in their development projects like agriculture development, health awareness and HIV/ AIDS awareness. They were able to allocate some portion of those project funds for promoting and strengthening SHG in-stitutions. Some MFIs have also been investing significant amounts in the promotion of SHG institutions as part of their business or develop-ment goals. Though banks are reaping consider-able benefits from SHG banking, they are invest-ing very little in SHG institution building.

2.7. Impact of SHGs and SHG – Banking

If the growth rate of SHG-Bank Linkage is im-pressive, its impact is amazing. Most of the stud-ies on the impact of SHGs and SHG Banking focused on the benefits accrued to the primary members but over-looked the benefits accrued to various mainstream institutions including SHPAs. Among the mainstream institutions, the banks are deriving significant benefits.

2.7.1. Impact of SHGs and SHG – banking on primary members

A number of studies pointed out that SHG - Banking has resulted in a significant decline in poverty among SHG members. It also resulted in a significant decline in SHG members’ depend-ency on moneylenders and other informal credit

sources. Even most critical studies pointed out that SHG - Banking resulted in the smoothen-ing of basic consumption of the poor and helped members to tide over their economic emergen-cies without jeopardizing their future. According to an APMAS 2009 study, the SAGs/ SHGs of MYRADA have demonstrated the potential so-cial and economic benefits of long-term mem-bership in quality SHGs institutions. Members have about 10 years of SHG membership. Each member was able to create assets worth about ` 150,000, experienced diversity in his/her liveli-hoods and significant improvement in his/her economic conditions. Women experienced a significant improvement in the gender relations in the family and society. SHGs’ involvement is being sought in local governance. SHG member-ship resulted in increased confidence to deal with the outside world especially with banks and of-ficials. It also resulted in members’ mobility and their involvement in family decisions and their access to family income and resources. Interest rate in the informal market declined from 60% to 24%. Moneylenders’ operation style has im-proved significantly, including provision of col-lateral free loans.

SHG members in Andhra Pradesh realised most of the potential benefits of the SHG institution. SHGs in the state have been getting loans from banks more liberally compared to other states (see e.g. Table 2.4). The SHG members also saw several livelihoods and social benefits rise on a much higher scale compared to their counter-parts in other states. This was the result of the heavy investment made by the state government in institutional building and constant and appro-priate support. The state government has been providing subsidies and other incentives linked to better performance. It also disclosed its pref-erences of SHG members and institutions. Two instances are: interest subsidy is linked to regular repayment of bank loans, and a comprehensive insurance-cum-pension scheme (Abhay Hastam) which matches the contribution equal to the subscription. In every way the accomplishments

5. See e.g. the October 2010 progress report of the programme in rural AP

(http://www.rd.ap.gov.in/IKP/IKP_Prog_report_Oct_2010.pdf).

5.2 mnpeople in A.P. subscribed for the insurance-cum-pension scheme ‘Abhay Hastam.’ A huge

93% of them belonged to the SC, ST, OBC or other Minority Communities.

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of the Andhra Pradesh SHG programme are re-markable5.

2.7.2. Impact of SHGs and SHG – Banking on banks

Evidence from many parts of the country suggests that the SHG Bank Linkages not only helped the groups and members but also the banks. Opti-mum utilisation of their vast network of rural branches was noted. Many rural bank branches especially RRBs, and to some extent cooperatives, have turned around in their profits due to SHG banking. About one-third of Primary Agricultur-al Cooperative Societies (PACS) in West Bengal have turned around due to SHG banking. Most rural bank branches in Andhra Pradesh have over 50% of their portfolio in SHGs. In some branch-es, the same is over 75%. In rural areas the Credit Deposit Ratio is more than 100%. In one of the district level bankers meeting, it was cited that 90% of total profit in rural bank branches is a result of SHG banking.

2.7.3. Impact of SHGs and SHG – Banking on other stakeholders

SHG banking has a profound impact on many secondary stakeholders. According to NABARD Status of Microfinance in India 2009, “the SHG–Bank Linkage Programme has transformed the whole range of institutions – government, banks, NGOs and development institutions, in their approach towards the development of the poor. The socio-economic aspect on the rural poor is enormous… There have been seen changes in the policy environment for SHGs in the recent years. Many State Governments, Gov-ernment of India agencies and international bodies have launched several livelihood programmes with SHGs as de-livery channels. Among other things, MFIs are expanding their horizon of services through the SHG route.”

2.7.4. Social impact

As a result of SHG membership, there is marked improvement in women’s mobility, their role in the family, society and local governance. In an APMAS workshop in 2008, the primary mem-

bers described SHG institutions as their identity, strength and means to build capacities and skills, and space to express their views and method to fulfil their dreams. This is one programme which has been reaching the real poor and needy in the most backward and interior areas. To further il-lustrate this, in A.P. about 5.2 million members joined the comprehensive insurance-cum-pension scheme known as ‘Abhay Hastam’. Out of these, about 60% were from structurally poorer com-munities known as Scheduled Caste (43.45%) and Scheduled Tribes (16.28%); and 31.31% were from Other Backward Classes; 2.12% were from Minority Communities and only 6.84% from Open Communities. Many states use SHG institutions to implement various programmes like Public Distribution System (PDS), moni-toring work and payments under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), distribution of old age and destitute pensions, micro insurance pro-grammes etc. Evidence from different parts of the country suggests that involvement of SHG institutions in implementation of these schemes resulted in significant improvement in their im-pact. Thousands of NGOs evolved and diversified into MFIs, thus not only meeting the financial needs of the primary members, but also generat-ing funds to meet their own operational and ex-pansion related expenditures. Some of them have grown up into large scale commercial MFIs.

2.8. Challenges

Though SHG institutions demonstrated their po-tential and there is an all-round interest and sup-port from different stakeholders, they still face se-vere challenges. These include apathy on the part of bankers, policy contradictions, less and inap-propriate promotion funds and support, unequal competition from commercial MFIs, insensitive SHPAs, inadequate training and capacity build-ing material and infrastructure etc. Some of these are elaborated below:

2.8.1. Banks’ apathy

Banks’ apathy is the most critical challenge SHG

12

institutions are facing. The members can sur-mount any number of challenges, provided they get credit. Though SHG Banking emerged as the world’s largest community based microfinance model and grew at phenomenal rates over the years, as a whole it remained very small in the overall portfolio of banks. Therefore, most of the bankers are not able to see its potential. As a result, SHG banking is thriving only in a few pockets in the country, especially in the South. In fact, Andhra Pradesh has the lion’s share in overall SHG banking in the country (see Table 2.4). The data clearly shows that SHG Banking is significantly lagging in most states. Growth rate in SHG banking in the country is slowing down

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

SHGs Amount SHGs Amount SHGs Amount SHGs Amount

Northern 33,680 19,147 42,688 30,243 37,375 30,633 42,493 37,752

North-Eastern 29,119 14,871 35,506 24,642 48,854 28,452 39,307 32,096

Eastern 224,937 104,584 236,789 123,767 277,446 154,019 247,624 161,950

Central 72,748 48,797 101,060 78,141 77,846 63,210 48,734 60,755

Western 90,441 42,329 125,173 58,393 149,130 64,698 91,954 62,591

Southern 776,847 655,198 1,068,370 910,166 995,718 1,104,054 726,022 1,099,629

AP7 406,386 387,976 636,816 550,860 564,089 670,664 367,420 620,919

TOTAL 1,227,772 884,926 1,609,586 1,225,351 1,586,369 1,445,066 1,196,134 1,454,773

As a percentage of column total in %

Northern 2.74 2.16 2.65 2.47 2.36 2.12 3.55 2.60

North-Eastern 2.37 1.68 2.21 2.01 3.08 1.97 3.29 2.21

Eastern 18.32 11.82 14.71 10.10 17.49 10.66 20.70 11.13

Central 5.93 5.51 6.28 6.38 4.91 4.37 4.07 4.18

Western 7.37 4.78 7.78 4.77 9.40 4.48 7.69 4.30

Southern 63.27 74.04 66.38 74.28 62.77 76.40 60.70 75.59

AP 33.10 43.84 39.56 44.96 35.56 46.41 30.72 42.68

TOTAL 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Table 2.4: Regional distribution of SHG bank credit linkage during 2007 – 08 and 2010 -11 (amountisRs.inlakhs6)

6. 1 lakh is equal to 0.1 million

7. Total is included in the southern region total, and in general/ country total via the Southern region total

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

significantly as compared to MFIs. The major rea-son for this scenario is apathy and inability on the part of banks to recognise the potential. Unfor-tunately bankers in most parts of the country do not see the business opportunity of banking with the poor through SHGs. Banks often cite staff shortage as a reason for not being able to engage with SHGs. Also, though a large number of edu-cated youth of the country are unemployed, yet banks are unable to follow through a profitable business due to staff storage.

2.8.2. Policy contradictions

As mentioned above, many SHPAs adapted

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SHGs to accomplish their own goals. It helped and also hampered the growth of the SHG move-ment in the country. Due to widespread adoption by many stakeholders, some investment was made for SHG institutions’ promotion and strengthen-ing. On the downside, almost all of these SHPAs focused on accomplishing their projects’ goals rather than developing SHG institutions as truly ‘member-owned and member-managed’ institu-tions. SHG institutions were adopted as a basic tool for implementation of different projects. But the focus was invariably on secondary is-sues of livelihoods enhancement and empower-ment of marginalised people without addressing the primary issue of institutional strengthening8. Most of the government-sponsored programmes, which adopted SHG institutions, were success-ful by maintaining a positive correlation with the quality of the SHG institution they were promoting.

Most programmes sponsored by the Government of India like SGSY, Swayamsidha, Swa – Shakti have had limited success. One major obstacle is the incompatibility of the SGSY programme with the SHG Banking Programme. The SHG Banking Programme is aimed at financial inclu-sion, i.e. providing financial services to those sec-tions which were until now un-reached and un-

bankable, designed to run purely on commercial terms. Whereas, the SGSY programme is aimed at poverty alleviation through the promotion of entrepreneurship and self-employment with capi-tal subsidy, and it runs on state subsidy. Wide-spread corruption in the SGSY programme has adversely affected the repayment to banks, which in turn has had a negative impact on the SHG Banking Programme. It has been elaborately dis-cussed in ENABLE (2009). It also causes a drift in the primary stakeholders’ focus from ‘self-help’ to ‘subsidies and grants’.

Another challenge faced by the sector is centrali-sation and standardisation of SHG institutional promotion and functioning, especially by the government agencies. SHG institutions, like any other people’s institutions, need flexibility in their evolution as per the local context. Usually devel-oped at the central level, most official SHPAs strictly observe the standard procedures while op-erating SHG institutions, leaving very little space for members to manage the institutions accord-ing to their own agendas.

As banks are reluctant to lend to SHGs in many parts of the country, the concerned SHPAs are di-rectly taking up or encouraging their federations to take up the financial intermediation. In some

14

parts of the country it has been noticed that these SHPAs and federations are unable to meet all the financial needs of SHGs. Most of them are also not facilitating direct SHG Bank Linkage due to conflict of interests.

Ever since RBI notified commercial microfinance lending as priority sector lending, many banks prefer lending to MFIs instead of SHGs. Banks believe that it is more convenient and cost effec-tive. But recent defaults and crisis in some MFIs highlighted the risks in this route. Further, the end users or farmers have to pay very high rate of interest in this model, leaving them with very little margins and surplus.

2.8.3. Promotional funds

As mentioned above, important sources of fund-ing for promotion of SHGs and federations are NABARD, Government of India’s SGSY and other programmes, some state governments (which mobilised funds from sources other than GoI, such as from bilateral and multilateral agen-cies), national and international donors, NGOs and some MFIs who invested funds from their own sources. Though banks have a large stake in SHGs, they have invested very little. All these sources together have provided a very small per-centage of funds required. As a part of this study, a one-day workshop was organised in June 2010 at Hyderabad. Almost all participants pointed out that investment made for the development of this sector were quite inadequate. While summa-rising the proceedings of the workshop, Mr. C. S. Reddy said that SHG institutions received only a fraction of the required funds for their devel-opment. As a result, the institutions were unable to grow positively (APMAS, 2010). Apart from overall inadequacy of funds, there are problems of wider inequalities and accessibility. There are some SHPAs which have more than ` 30,000 per SHGs and some SHPAs with only ` 500 per SHG promotion. Among all funding sources, NABARD and GoI’s

SGSY are principle sources. Both have certain problems. While NABARD allocated over `1 bil-lion for promotion of SHGs since their inception, it has released just about ` 400 million9. In case of SGSY, many prominent NGOs did not get funds. Though` 10,000 per SHG was allocated for promotion and capacity building, in most of the cases the amount was not spent. Funds were diverted for centralised activities. Further, under SGSY the major focus was on economic activity oriented trainings and institution building was grossly neglected. Further, both these sources did not provide funds for integrated development of SHGs and federations.

Only some state governments that are able to mo-bilise additional funds, prominent NGOs and a few MFIs are able to invest in promotion of SHG federations. The current funding patterns of NA-BARD and SGSY do not have provision for pro-motion of SHG federations. Though NABARD announced support for strengthening of non-financial federations in 2007, very little assistance has been provided so far. In the proposed NRLM, there is sharp focus on promotion of SHG fed-erations. In some states, DRDAs have promoted significant number of federations. Some of the MFIs also promoted SHG federations as per their business plans.

2.8.4. Inadequate human resources and capacity building infrastructure

As SHG institutions have evolved in recent times, there are not many prior experiences, expertise and resource materials. Most of the SHPAs have been stressing on learning by doing. Further, many government agencies have been working on achieving targets. People working on sensitive issues like building of community-based organi-sations such as SHGs need to be well trained and oriented. There is insufficient infrastructure for training and capacity building of SHPAs.

9. Major reason for the wide gap between NABARD’s sanctioned amount and release amount is the non-cooperation of banks. NABARD releases are linked with SHG formation, SB account opening and credit linkage. Unless the promoted SHG opened an SB account and got credit linkage the 2nd and 3rd installments would not be released. Most of SHGs experience inordinate delay in opening of SB account and credit linkage and some SHGs never get credit linkage.

Contents | 15

10. In this study, the term “SHG structure” means the group of SHGs and (multi-level) Federations owned by them. If the term “Federation structure” is used, it describes the multi-level federation system joint to the SHG structure providing support services to the SHGs and SHG members respectively.

Chapter 3

Field Studies of SHGs and their Federations

3.1. Overview on the Field Work

The study team supported by its partners in dif-ferent regions executed several field studies. These became the central source for the study. The study covered a purpose-oriented sample of 12 SHG structures10 from 6 States. The selection criteria were:

(1) Support by leading promotion agencies of the country

(2) Outreach of the structure into different re-gions

(3) Willingness to participate and support efforts of the study team

Based on information available and support by members of ENABLE, it was aimed at identifying SHG structures of different models. SHPAs were identified respectively, all of which had different stages of development, socio-economic and en-vironmental conditions. Table 3.1 contains basic description of the sample SHG structures covered during the field visits.

The purpose of this fieldwork was to learn from each of these SHG structures about visions, strat-egies, institution building, functions, services, and performance as well as about good and criti-cal practices, challenges and perspectives, and to identify needs for external support. The study

16

team interacted in each case with one block-level federation, two village-based cluster federations, and four member SHGs (two each from the two cluster federations) joint in this block-level SHG structure. If possible, district or state level federations were involved as well. These interac-tions with SHG members, SHG representatives and federations’ office bearers, federation man-agement and staff were concluded with discus-sions among promoter agencies, regional repre-sentatives of NABARD, and branch managers of banks.

Even if the task of the field visits was not to con-duct a complete assessment or grading of the SHG structures, the study team applied APMAS’s rating system ‘GRADES’. It enabled the team to collect systematic information and data on issues like internal systems, governance, resources, ser-vices, recoveries, profitability, and financial self-sufficiency. After collecting, this data was analysed and discussed. Applying ‘GRADES’ is usually a very complex and time consuming procedure. Therefore, the team chose a limited GRADES ap-proach, allowing for completing field interactions very quickly. Valuable insights were gained in this manner which helped in updating and confirm-ing the results from the interaction.

3.2. Brief Narrative Description of Sample Federations

At times some of the structures like MYRADA’s CMRC, Bagnan BCC and SNFL – SMBT are not referred to as typical SHG federations. However, all these structures are treated as SHG federations in this report. Although most of the institutions are old and established before 2005, the federa-tions in Rajasthan and U.P. are of recent origin. Out of 12 sample structures, 9 are 3-tier11 and 3 are 2-tier structures. The federation structure of SKRDP is also of 3-tier. In fact, SKDRDP claims itself to be a federation of federations and provides excellent financial services to its mem-ber SHGs. Each sample federation is described briefly in Box 3.1.

11. Due to some gaps in the collected information, only one PLF of SKDRDP was used in this chapter. However, learning of SLF and financial and other services of SKDRDP are also used appropriately in this report.

1. Janatha MACS of ASP, AP:This is a Mandal (sub-district) level federa-tion, registered under APMACS, 1995. It borrows predominantly from Ankuram Sangha Poram (ASP), an apex federation, and lends to SHGs. Practically it lends to members through SHGs at 21% inter-est. It does not have interest spread, and is completely dependent on Ankuram Sangha Poram (ASP) for its operational costs. The Board members gave complete freedom to the staff to run MACS. As of now, ASP has severe defaults and repayment problems and has stopped its microfinance operations. Janatha MACS is one of the very few func-tioning MACS of ASP’s 100-odd member MACSs. Janatha MACS itself is operating with very limited funds. Almost all members of ASP’s SHGs are also members of SERP promoted SHGs and some of them are also members in some MFI promoted JLGs. A free hand is given to the staff in the man-agement of MACS and individual lending thereby neglecting the SHGs; these are per-haps some critical factors for the failure of MACSs and ASP.

2. Sri Chaitanya MS of SERP, AP:This is a SERP promoted Mandal (sub-dis-trict) level federation, registered under AP-MACS, 1995. SHGs are getting very good financial services including large credit from banks and federations, insurance and pen-sion from the government and also access-ing many other government programmes. However, the SHG institutions are not able to address many social issues like men hav-ing alcohol dependency, because their agen-da is set externally. Though SERP staff does not have the authority to sign cheques, they can influence the functioning of federation, village organisations and SHGs12. There is

Box 3.1: Brief Description of Sample Federations

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12. One of the reasons for the large influence of SERP personnel over SHG institutions is that SERP/ Government has provided over Rs. 7 million corpus to each of MSs and providing many other tangible benefits like matching con-tribu-tion to the Pension-cum-Insurance premium; interest subsidy, etc.

no rotation of leadership or legal compliance for years at a stretch. Recently, they have in-troduced community auditing at SHG level, which also includes impact auditing. Commu-nity audit has had a dramatic impact on the members’ awareness about the financial posi-tion of their groups.

3. HD Pura CMRC of MYRADA, Karnataka:MYRADA developed Community Managed Resource Centres (CMRCs) to provide all nec-essary services to SHGs, other CBOs and in-dividuals. MYRADA wanted a permanent and formal institution which would be accessible to the community as and when required. CM-RCs have good infrastructure like computers, internet, photo-coping machines, committed and qualified staff and a number of CRPs. MYRADA provided some corpus, which earns some regular income for CMRC. They raise most of their resources by charging a fee for services. It also regularly accesses many govern-ment schemes and sponsorships. The primary stakeholders are empowered through well or-ganised capacity building and member friend-ly processes and programmes. The primary members are thoroughly involved, and have achieved considerable success in strengthening of SHGs, lobbying for prohibition, curbs on liquor sale and consumption, addressing gen-der inequalities, accessing government pro-grammes, cleaning and greening of local en-vironment, strengthening of local governance, etc. Primary members played a critical role in getting land for construction of CMRC build-ings. However, the primary members have a limited role in the administration of CMRC.

4. Kaniyoor federation of SKDRDP, Kar-nataka:SKDRDP promoted over 116,000 SHGs, including farmers groups; over 3,400 (village level) PLFs and 34 (block level) SLFs. SK-

DRDP lent directly to members through their SHGs. The federation structure appraises and approves loan applications and is involved in recovery of bad debts, transfer of technolo-gies, skills and celebrations of festivals and functions. SKDRDP provides loans liberally since the 12th week of formation of SHGs. It provides multiple and synchronised loans to each member to meet his/her diverse needs. De-linking of loans to savings amount, mul-tiple loans, and lower instalment amounts – de-linked with loan linked Income Generating Activity (IGA), providing loans for many ‘non-productive’ purposes are some unique features of SKDRDP mF operations worth emulation. Another unique feature of SKDRDP’s mF op-eration is that it lends to relatively larger size groups, i.e. 15 to 20 member SHGs. It reduc-es the operation costs of SKDRDP’s mF op-erations. Another unique feature is that it ar-ranges direct transfer of consolidated monthly loan instalment from SHG accounts to the SKDRDP account. However, SHGs collect weekly instalments from their members and deposit the same every week in their bank ac-count. SKDRDP accesses funds from many government departments and programmes like SC/ ST corporations and SGSY and uses the programmes’ support optimally and inno-vatively. Each farmer is assisted to draw his/ her five year plan and realise the same. Credit, training and technology transfers are linked to the individuals’ five-year plans. SKDRDP is very conscious of the interest rate. It lends at a maximum of 9% flat interest rate. If it gets loans at lower interest, it passes on the benefit to the members. Liquor de-addiction is one of the priority activities of SKDRDP and its sister organisations. SKDRDP promotes a separate corporate structure to market the products of SHG members. It provides all kinds of train-ing, capacity building and professional support freely. However, SHGs and federations have to meet their entire operational costs from their

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own funds.

Kaniyoor federation is a village level organisa-tion. It has SHGs and farmers groups as mem-bers as well. Both men and women participate in all meetings without any inhibitions. A sub-committee consists of current and previous of-fice bearers and visits all SHGs, resolves their problems, grades them and assesses their credit and other needs and reports to the representa-tive general body (RGB)/ executive committee (EC). Though it plays a critical role of approv-ing loans and transferring technology, it re-mained as an informal body without registra-tion, books of accounts and a regular budget.

5. Saheli Samithi of (PRADAN), Rajasthan: The federation was established to support and sustain SHGs and clusters promoted by the Government of Rajasthan under the District Poverty Initiative Project (DPIP). Government of Rajasthan involved PRADAN, a renowned NGO, in its DPIP programme to strengthen the groups in this area. PRADAN introduced Artificial Insemination (AI) to improve the quality of livestock of DPIP beneficiaries and other livestock rears in the area. It generated a significant amount through fee based AI and other services. As withdrawal strategy, PRADAN promoted the federation Saheli Samiti, appointed one of its ex-employee as an Advisor and provided a corpus of ` 1 mil-lion from the accumulated service fee. Apart from providing the institutional development support to SHGs and clusters, the federation’s functions are:

(1) Micro-credit from its corpus – provided by PRADAN,

(2) Artificial insemination to improve the live-stock quality (for a fee),

(3) Promotion of new SHGs, (4) Book-keeping and MIS to member SHGs

through PRADAN’s ‘Computer Munshi’

software, (5) SHG Banking, (6) Training livelihood enhancement and pro-

motion, (7) Linking members and SHGs with the cor-

porate sector and mainstream institutions, and

(8) Other need based services.

Due to the poor bank credit linkages, the qual-ity of SHGs is declining steadily and major-ity of primary members have limited interest in SHGs and the federation. The federation manager and advisor have to play a major role in the functioning of the federation. As it was registered as a trust, it is facing severe constraints in its microfinance activity, and exploring the possibility of converting into a financial cooperative.

6. Savera federation of Ibtada, Rajasthan:The major objective of the federation is so-cial intermediation; to obtain gender equity through girls’ education, awareness generation and initiating women’s organisations. Due to the indifference shown by bankers, the federa-tion is forced to take up financial intermedia-tion. The primary members have limited ex-pertise in managing financial affairs and hence are heavily dependent on the promoting agen-cy and its own staff. This also adversely affect-ed the federation’s major goal of social inter-mediation13. The promoting agency accessed subsidy, but attached14 funds and provided the same to the federation for on-lending to SHGs and members for specific purposes. The SHPA and federation are also arranging SHG – MFI linkages to meet the members’ credit needs. The federation is seriously considering converting itself into a financial cooperative to mobilise savings from the members and ful-fil the financial and credit needs of the mem-bers. Due to very good capacity building and awareness, provided by the SHPA, the primary

13. The scenario was aptly articulated by Mr. Rajesh Singhvi of Ibtada at the workshop organised, the study team. See APMAS, 2010.

14. Attached to certain purposes like purchase of small ruminants, construction and improvement of houses and sanitation

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members have a real sense of ownership about their institutions. Through financial services, the federation helped many of its members to redeem their land from mortgages and im-prove their housing and hygiene conditions. The federation is also contributing to the cause of strengthening SHGs and clusters and im-proving local drinking water supply, agricul-ture inputs and livestock rearing.

7. JTWDS of Don Bosco, Tamil Nadu: Jawadhi Tribal Women Development Society (JTWDS) was formed in 1997 along with Men Society by Don Bosco to enable the local tribal community to participate in developing their hills and forests. JTWDS participated in bidding for a lot of development works and executed it successfully. Over the years, the JTWDS acquired a number of assets through purchase and leasing, earning good returns and helping the members. Since mid-1990s, Don Bosco has also been organising SHGs and PLP at the village or cluster level and one SLF of all groups in its operational area. It has converted the JTWDS as the executive arm of SLF. Don Bosco has been facing stiff competition from government departments and other SHPAs in promotion of SHGs in the region. Almost all SHGs in the area got converted into SGSY groups in order to receive one time RF and project subsidy. As a result, there are severe repayment problems and banks are reluctant to lend to SHGs and SGSY groups. Though Don Bosco ensured complete loan repayment of its groups, the banks are not willing to lend even to the Don Bosco groups. While repaying the bank loans, the groups’ savings were also used. Most of group members are not aware of these issues. The overall awareness level of pri-mary members is very poor and they are heav-ily dependent on Don Bosco for day to day functioning of their institutions. Don Bosco provides all necessary support to the groups, including corpus funding to the SLF for on-lending, improved production methods, value addition, marketing of members’ production such as fish, flowers, fruits, vegetables, NTFP, maintenance and operation of capital items

like trucks, mills, tent houses, etc. Don Bosco is also in the process of developing a ‘brand’ for products made by the tribal community.

8. SMBT of SNFL/ ASSEFA, Tamil Nadu: Maduranthakam Sarvodaya Mutual Benefit Trust (MSMBT) was registered under the In-dian Trust Act as a profit earning and tax pay-able organisation. The objectives of the MS-MBT are: (a) To empower women, (b) To provide financial services, and (c) To link the poor with major financial in-stitutions. It was formed with a share capital provided by SHGs and governed by a seven member Board of Directors. Out of these, six repre-sent SHGs and one is a nominee of ASSEFA/ SNFL, who is also the Chairman of MSMBT. While its main function is to promote new SHGs, SMBT’s foremost aim is to include all economically challenged women in SHGs. In spite of this, SMBT on an average has less than 2 SHGs per village in its operational area. This shows that perhaps SMBT is promoting SHGs only with select members who have a loan absorption capacity at a higher interest rate, rather than the economically challenged. Since its operational area is close to Chennai, there is a lot of demand for their products and services among the local people. Also, local people have a good loan absorption capacity. But SMBT is not able to meet the credit needs of the members because of its rigid credit norms. At the same time, it is not facilitating direct SHG Bank Linkage. It might be because of the fear that members would over borrow and may default. SNFL and SMBT maintain that they are fulfilling the credit absorption levels of the members. However, the research team learned that members’ credit needs are not fulfilled. SHG members are well informed and are managing their internal funds well. In some instances members got larger loans from their own funds. As only the grants, subsidies and surpluses of SHGs were converted into share capital of SMBT (with or without the knowledge of members); the SHGs and pri-

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mary members have only a limited stake in SMBT15. The role of the six Board representa-tives is inadequate in the overall management of SMBT. It appears that there is good division of roles and responsibilities between the chair-man, staff and elected Board members as per each group’s competence.

9. Sakti Mahila Samakya of RGMVP, Uttar Pradesh: Sakti Mahila Samakya (SMS) was formed in 2008 – 09. Its operations cover the entire Rahi block of the Raebareli district. As of March 2010, SMS had 26 member village organisa-tions (VOs) and 1,085 member SHGs cover-ing 13,569 members and families. Total sav-ings of all member SHGs was over ` 6.21 million. The federation does not provide fi-nancial services to member SHGs. Its major functions are: (1) To remove poverty; (2) To strengthen VOs; (3) To address issues that VOs cannot solve. As of March 2010, 789 member SHGs got the 1st phase linkage. The average loan size is ` 43,146. In the 1st phase, a minimum of ` 25,000 is sanctioned by the bank as Cash Credit Line (CCL) for up to ten times the sav-ings of the group for 3 years. In the 2ndphase, banks provide loans known as Total Financial Inclusion (TFI) for the threefold purpose – (a) for income generating activity (IGA), (b) for non-productive purposes like consump-tion, health, education, ceremonies, etc. and (c) for swooping of old high cost debts. The SHPA is working successfully with banks for enhancing the credit flow. Through SHG institutions, the SHPA is addressing many so-cial and livelihood issues, albeit on a low scale, successfully. However, the overall quality of the SHG structure is far from satisfactory, es-pecially at the lower level, i.e. SHGs that make

the foundation of the SHG structure. The pri-mary members have little sense of ownership over their institutions. The SHPA and internal staff are apparently playing a major role. There is a wide variation in the awareness levels of leaders and ordinary members of SHGs.

10. Shakthi MF of Shramik Bharati, Uttar Pradesh: Sakti Mahila Federation (SMF16 ) was regis-tered in 2007 – 08 as a Society. Its operational area includes 212 villages/ hamlets in 86 Pan-chayats in the Rasoolabad block. As of March 2009, SMF had 102 member SHGs. The to-tal savings of all member SHGs was over ` 1.44 million and loan outstanding of its entire member SHGs was over ` 1.78 million. All SHGs had bank accounts and 92 SHGs had credit linkages. In spite of this the average loan size is quite low. The federation does not pro-vide financial services to member SHGs. Its major functions are:1. Promotion of new SHGs (to augment its fee

based income and membership fee, which is the major source of its income/ corpus)

2. To provide services like book keeping, audit-ing, supply of stationary etc. on a fee basis

3. Increase awareness of members and resolve problems of member SHGs

4. Lease out agriculture implements through member clusters and SHGs

5. Bulk purchase of different products from other federations, institutions of Sharamik Bharathi (SB) and from the market and sell the same to its members and others

SHPA has promoted a very good federation despite many challenges like a crunch of re-sources, low awareness levels of members, poor infrastructure, ineffective government and poorly informed bankers. Board members and staff of the federation have a strong sense of ownership and belongingness. SHPA has a

15. Share capital in SMBT is not directly raised from SHGs/ members, i.e. their savings or direct and transparent collection. Instead the share capital was collected from grants/ subsidies received by the SHGs from donors and others and interest and other incomes earned by the SHGs. It appears that most of SHG members are not fully aware of these transactions

16. The actual name of the federation is SaktiMahilaSamiti (SMS). To differentiate this federation from that of RGMVP’s SMS, this federation is called as SaktiMahila Federation (SMF) in this report.

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representative on the Board (EC) of the fed-eration. It appears that there is a thin line be-tween the federation and the SHPA’s field of-fice. Though the SHPA staffs audits the SHG account, it is not discussed in SHG meetings and members are not aware of the audit state-ment and its details. Banks do not cooperate due to repayment problems in SGSY pro-gramme. Banks are also not able to distinguish between normal SHGs and SGSY groups.

11. Bagnan-I of Mahila Bikas, West Bengal: The origin of the Mahila Bikas could be traced to the Literacy Campaign of 1993. The local literacy centre provided literacy, general aware-ness and taught self-reliance to women. As a self-reliance measure, skills of women were upgraded under the TRYSEM programme. Women were organised into SHGs in 1995 under the DWACRA programme. All these were initiatives of the official agencies. Some internal members took lead in sustaining the SHGs beyond the project period. Some indi-vidual officials and NGOs helped local women leaders for further development of the SHG structure. DWACRA Group Samannaya Samity (DGSS) (Production and Marketing Federation) was formed in 1996 to provide production facilities to SHG women and mar-keting facilities for their products. In 1997, Bagnan – I Mahila Bikash Co-operative Credit Society Limited (BMBCCL) was registered as a MFI of SHGs with ` 100,000 share capital contributed by 589 members belonging to 47 SHGs. The major objectives were to provide savings and credit services to members. Since 1997, Mahila Bikash Credit Cooperative has been functioning admirably, providing finan-cial services on an ever increasing scale and continuously earning profits. It has also been regularly paying interest on members’ sav-ings and dividend on members’ share capital. In 2002, Mahila Bikash promoted a NGO known as Bagnan Gramin Mahila Sammilon (BGMS) to work on issues like education, health, environment and women’s issues for the benefit of its members in particular and all the people in its operational area in general.

BMBCCL provides about 10% of its net profit to BGMS for its social services. Though on a small scale, BGMS also mobilises funds and programmes from official agencies for its op-erations. Mahila Bikash is a unique organisa-tion with three separate wings to handle three separate activities, i.e. DGSS for production and marketing, BMBCCL for microfinance activity and BGMS for social services. Though the same leadership promotes these three or-ganisations with membership/ clientele, they have separate governing Boards and staff. A Core Committee (CC) was set up in 2003 to synergise the functions of the three organisa-tions. Chairperson, Secretary and Chief Func-tionary of the three organisations are members in the CC. Mahila Bikash has provided direct employment, including commission agents, to about 100 local women, and provided voca-tional training and placement services to many people.

Though BMBCCL has SHGs as members and it mobilised its initial share capital from SHGs, it provides its savings and credit services to in-dividuals, both members and non – members of SHGs. As of October 2009, BMBCCL had 19,158 individual clients. Out of these 13,371 were associated with 910 SHGs and others were non-SHG members. Its share capital was ` 10.23 million. It provides a variety of savings products such as savings deposits, including compulsory savings (thrift) by SHG members, monthly income savings (MIS), daily savings, recurring deposits, fixed deposits, and loans to a number of purposes. There is a huge dif-ference in the level of awareness of the leaders and that of other members and their involve-ment in the functioning of their institutions at all levels. As the cooperative retains the SHGs’ thrift, which is just `10 per month per mem-ber, there is no internal lending. The coopera-tive’s effective lending rates are on the higher side and apparently not able to meet all credit needs of members. It is not interested in ac-cessing funds from outside that may be avail-able at cheaper rates.

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12. UBTMS of CHDI, West Bengal: UBTMS was conceived in 1999 to sustain the SHGs promoted under the Indo-Dutch collaboration project – North Bengal Tarai Development Project (NBTDP). It was formed in 2000 and registered under the Society Act in 2002. As of October 2009, it had 601 member SHGs and 7,861 prima-ry members and families. It was operating in 72 villages covered by 2 municipalities, spread in 12 blocks within 3 districts. All 601 member SHGs were organised into 46 cluster federations known as sub-committee clusters. The federation has 4 full-time em-ployees and all clusters (leaders) operate as its paid development workers17. Out of 601 member organisations, 510 SHGs got loans from the federation at one time or anoth-er. Although all 601 member SHGs have opened bank savings accounts, a very small percentage of member SHGs received loans from the banks because of non-cooperation. The biggest problem faced by member SHGs is receiving loans from banks. The loan amounts are less and time between loans is long. Even sympathetic bank managers in-sist on viable projects for financing18. They do not understand that the poor need credit not only for IGA, but also for other needs including maintenance of their only capital/ resource – human capital/ resource. This is one of the very few financial federations that are also facilitating direct SHG – Bank link-age. The federation has very little funds to lend to the members SHGs and individual members and is not at all able to meet the credit needs of members. It did not get reg-istered as a cooperative in order to avoid un-necessary interventions in its functioning. Due to its current legal status, it is unable to mobilise savings from its members. It is con-stantly rationalising its operational area to keep its operational costs at a minimum. The Board members have limited understand-ing about the functioning of the federation. The President, who is the representative of SHPA, and the staff play a major role in the management of the federation.

17. The federation claims that the clusters act as its agents and the loan amount is routed to members through clusters and SHG. But the amount does not enter into cluster books. In federation books it is shown as service charges paid to cluster leaders.

18. Mr. Aloysius Fernandez, one of the pioneers of SHG – Banking said in the workshop on National Rural Livelihood Mission that path breaking decisions about SHG – Banking were taken in the early 1990s. The crucial decisions were: (a) Lend to unregistered bodies – SHGs, (b) Lend without ask-ing purpose (do not compel people to tell lies), and (c) Lend without collateral. The poor, whose current income is, usually, less than their current expenditure/ consumption, need credit to tide over the shortfall in their basic consumption. SHG banking could provide this credit at affordable rate of interest and enable the poor to save considerable amount in interest payment on their high cost borrowing. Thus the poor people’s credit need for consumption/ so called non-productive purposes is more important than the production purposes.

3.3. Major observations and findings from the sample structures

Detailed comparative analysis of the sample structures is given in Appendix 1. Some of the major observations and findings from the sample SHG structures are summarised below:

In all sample federations, SHPAs played an impor-tant role in the shaping of the structure, functions and their style of functioning. Given the poor awareness and capacities of the primary members, the proactive role of SHPAs is perhaps inevita-ble. However, the resources available with SHPAs determine the role transformation between the primary stakeholders and SHPAs. There is clear division of functions between SHPAs and pri-mary members. While SHPAs look after financial management, review of staff performance, office management, management of external relations including legal compliances, etc.; primary mem-bers monitor the functioning of SHGs, provide need based support, resolve conflicts within and between groups and help in the recovery of bad debts etc.

There is less interest and enthusiasm among the primary stakeholders, especially among the poor-er members, to take up leadership roles at SHG and federation level. A system to pay salaries and honorarium to the leaders may encourage the members to take up leadership responsibilities.

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The primary members have much more organi-sational and managerial capabilities than that as-sumed by the SHPAs.

Almost all sample federations have very few fi-nancial resources for on-lending and other activi-ties. The average assets’ values is about ̀ 1.16 mil-lion per federation and average assets’ value per member is a little over ` 2,000 (see Appendix 1). However, there are marked variations among the sample federations. With just moderate level of funds, even the predominantly financial federa-tions are able to provide only small size loans to most of their members, or relatively bigger loans to a small fraction of their members at any given time. Out of the 12 sample federations only two have directly borrowed from banks for on-lend-ing and others are contended with SHPAs and apex federations’ support and loans. Funds are predominantly used only for lending to mem-bers, followed by own building, inventory and in-vestment in apex federations. The average yearly income of all sample federations is ` 1.5 million, which is much higher than the typical average

income of SHG federations in India (usually in the range of ` 0.3 to ` 0.5 million). This average figure was pushed up by the presence of a special structure like Bagnan - BCC, which emerged as a cooperative bank.

Though financial intermediation is not an impor-tant activity in most of the sample federations, the interest on their lending constitutes a sub-stantial part of their total income. The income earned through interest constitutes over 90% of the total income in 3 federations; between 51% and 70% in 2 federations and between 24% and 36% in 3 federations. This shows the potential of mF to generate funds for operational sustainabil-ity of the ‘people’s institutions’ and to meet their social intermediation requirements. The second source of income is the service and membership fee collected by the federations. Grants and dona-tions are the third source of income. It is widely believed that the interest earned through financial intermediation is the easiest way to raise funds internally. However, many pioneer institutions like MYRADA, DHAN Foundation and PEDO

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argue that if federations earn their operational costs through their own microfinance operations, their accountability towards their member or-ganisations could be jeopardised. If the members make direct contributions towards operational cost of the federation they may develop an own-ership stake over their federations and may moni-tor the federations’ functions, quality and appro-priateness of their services. It should be noted that SHGs and members alone are contributing towards the operational costs of federations in both of these models, i.e. ‘either through interest spread’ or ‘direct (cash) contributions’.

Most of the sample federations have moder-ate human resources in the range of five to ten staff members. However, some federations have a large pool of service persons. It was observed that primary members tend to delegate more respon-sibilities, including day to day functioning, to paid workers since there is no shortage of them. In most of the federations that were visited, the key functionary was being paid by the SHPAs. In turn, the principle functionary became an in-strument in the hands of SHPA to control the federation.

Adequate and regular income from internal sources is essential for the sustainability of insti-tutions and their activities, especially social inter-mediation. In some cases, particularly in Rajas-than, federations are forced to take up financial intermediation by the bankers who are apathetic towards SHG banking. Apart from fulfilling the credit needs of members and SHGs, some fed-erations are accessing donor or government pro-grammes for bridge funding and/ or soft loans to members.

1. Most of the sample federations have a relatively higher Portfolio at Risk (PAR). However, none of the federations reported any major recovery problem. It implies that mainstream financial sector indicators like recovery rate and PAR need to be modified or new indicators have to be developed for the Community Man-aged Financial Organisations (CMFOs). Un-like mainstream financial institutions, CMFOs have social capital to recover all their debts and have empathy for members’ difficulties and

adopt flexibility in recovery.

2. Except SKDRDP, no other sample federation is able to meet its members’ credit needs. Also, all other sample federations are giving only one loan at a time. In these federations, irrespective of their urgency, members cannot access a new loan until they fully repay the previous loan.

3. Except SERP – Sri Chaitanya, lending opera-tions of all other sample federations are indi-vidual member centric. These federations di-rectly transact with the individual borrowers. These practices result in higher operational costs and higher risks. However, some struc-tures like SKDRDP are able to effectively use the SHG institutional structure in their default management.

4. Only two sample federations provide loans for multiple purposes, including the consump-tion loans. Others provide either for income generating activities (IGAs) or specific purpose loans.

5. In four federations, which have a major focus on financial intermediation, the YoP varies from 15% in Bagnan – BCC to 22% in ASSE-FA/ SNFL – SMBT. The financial cost ratios in these four federations vary from 6% to 14%. It is lowest in Bagnan, where all funds are mobi-lised from internal sources (shares, savings, and deposits)

6. Average number of SHGs per staff varies from 5 to 134. Most federations have around 20 SHGs for every staff. This shows that sample federations have relatively more number of staff to serve the SHGs and clusters. However, majority of the staff is recruited locally and have low skills and low pay. The four federa-tions focusing mainly on financial services have salaries of less than 7.46% of their loan out-standing. In fact, in three of these it is even less than 4%. In other federations, it varies from 0.2% to 39.3%. Due to a low loan portfolio and the provision of non-financial services the ratio is considerably high in MYRADA, Ibtada and Don Bosco.

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7. The operational income is higher than the ex-penses in only four of the ten sample federa-tions whose data was available. Of these four, only two federations, viz. MBCC and SMBT are able to meet their operational expenses. Out of 11 federations that have plans and budgets, 8 federations are able to meet their operational expenses from their own operational income and the grants/ service fee they receive from their SHPAs.

8. The federations proved to be the most cost ef-fective and efficient mode to provide financial ser-vices to the members, because they have low overhead costs and use the services of the social capital/ SHGs in their microfinance op-erations

9. Mobilisation of internal funds would reduce the financial cost of federations and also result in economisation of existing infrastructure and HR. However, there are no effective checks and balances to protect members’ savings in most of the federations. Mobilisation of funds from internal sources would also enhance the federa-tion leadership and management accountabil-ity towards their member organisations and members

10. The legal status of most of the sample federa-tions neither permits mobilisation of savings and funds from members nor has adequate protection measures

11. Sustainability and relevance of SHG federa-tions will largely depend on appropriateness, quality, and adequacy of the services provided by the federations to their constituents, i.e. village/ cluster federations and SHGs. Field evidence suggests that federations are:

• Providing services cost effectively and with minimum leakages

• Providing multiple services• Addressing the larger issues, which cannot

be tackled by SHGs/ cluster• Linking with mainstream institutions and

government• Becoming the major source of information,

especially about opportunities

12. In the field visits, the research team observed all the above practices. At the same time, the team also noticed certain limitations. These are:

• Most of the services provided by the fed-erations are inadequate due to external con-straints such as low investments in capacity building, bankers’ non-cooperation in SHG bank linkage, fewer funds for on-lending, restrictions imposed by the promoting agen-cies etc. Limitations of promoting agencies also became limitations of the federations

• Quality of services influences the quality of SHGs and their interest in federations

• External influence on the federations’ bas-ket of services was observed in most sample federations

13. Most of the federations in the country are providing multiple services to their con-stituents and members. The services could be grouped into four broad categories, viz. financial, SHG strengthening or sector devel-opment, business development or livelihood enhancement, and social development

14. Except SKDRDP, all other sample federations have been providing limited credit services such as small size loans, one loan at a time, loan amount linked to savings amount or purpose, fixed instalments/ periods, etc.

15. Out of 12 sample federations, four federations do not facilitate SHG Bank Linkages. At the same time, three out of these four were not able to fulfil the credit needs of their SHG members. Four out of the remaining eight have active SHG Bank Linkages. Average loan size per member varies from ` 462 in SB - SMF to ` 40,652 in SERP – Sri Chaitanya MS, varying nearly a 100 times. This shows the dismal performance of SHG banking as well as its potential. It clearly shows that the bankers in North India do not have proper orientation about SHG banking and do not see any business opportunities in SHG bank-ing.

16. As federations have limited funds for on-

Unlike mainstream financial institutions, CMFOs have social capital to recover all their debts and have empathy for members’ difficulties and adopt flexibility in recovery.

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lending and SHG banking has not reached desirable levels, SHG internal loans are cru-cial in majority of the sample federations. A couple of sample federations are impounding the members’ savings and are not allowing or facilitating internal lending. Impounding of savings by banks is also vague in few in-stances. Lack of trust among members among other constraints is also hampering the inter-nal lending in few instances.

17. Ten out the twelve sample federations have been providing loans at relatively low inter-est rates. The reasons include grants and low cost funds, SHG model, less overhead costs etc. The only exception is UBTMS, which is lending at 30%. The major reason is that it operates in a large and challenging terrain and its current scale of operations is too small.

18. Out of 12 sample federations, only four fed-erations provide voluntary savings services along with normal thrift and all others are collecting just thrift from members. Only Bagnan Mahila Bikash provides real savings services. Mobilisation of savings requires additional safeguards like annual auditing,

transparency, fool-proof internal systems and bookkeeping, and measures to attract depos-its like interest payment on savings and de-posits which most of the sample federations and SHGs lack in. To attract savings, at least larger thrift rates, SHGs and federations need to pay interest on the thrifts, conduct auditing of books by community auditors or reconcile their annual financial transactions and appro-priate their profits and losses annually. When the research team suggested these measures in one of the SHGs of Shramika Bharati, the members who appeared to be illiterate and ig-norant, said if these practices were introduced they would readily increase their thrift rates.

19. Eight out of twelve sample federations have arranged insurance cover to their members from insurance companies. It is a well-known fact that in India insurance is sold and not marketed. Members are usually not well-in-formed about the terms and conditions of the insurance products beforehand

20. Some federations and SHPAs have their own insurance or social security programmes.

21. Among all sample federations, SERP has

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a comprehensive insurance-cum-pension scheme known as Abhaya Hastham, with subsidy from the SHPA/ state government. Bagnan - MBCC collects ` 10 per month from each member and retains it until the member withdraws her membership, which usually may take place in her old age. MBCC pays 7% interest on these savings and returns to the members as retirement benefit or re-tains the amount as monthly income deposit and pays the monthly income/ pension to the members.

22. The research team observed practices of hiring and leasing at two federations.

23. The institutional development services pro-vided by the federations could be grouped into five broad categories, viz. (1) awareness generation, promotion of new

SHGs, revival of defunct groups and strengthening of existing SHGs;

(2) providing training and support services, monitoring and grading;

(3) auditing; (4) SHG bank linkage; and (5) linkage with government and mainstream

institutions

24. Overall awareness levels of members are very good in all sample federations. In almost all sample federations either federation/ SHG leaders or CRPs are involved in promotion of new groups or in revival of defunct groups. Most federations are working for full cover-age– covering all families in their operational areas. A few have been working toward fully covering their target population like poorest of the poor, SC, ST, minorities etc.

25. Audit is the key for securing funds, account-ability of management and transparency of transactions. APMAS in its ‘Sector Own Control (SOC)’ in Kamareddy cluster dem-onstrated that community members (non-technical persons) could be trained in con-ducting the SHG accounts audit. In SERP – Sri Chaitanya MS, the community auditors conduct the SHG audit. This audit also in-cludes impact audit. In few other federations

the audit is conducted for the external pro-fessional or SHPAs, where primary members play a restricted role and have limited aware-ness. In other sample federations no SHG level audit is being conducted

26. Just having books audited is not sufficient; members should be aware of the audit state-ments and summarised financial transactions should be discussed in special meetings and profits and losses should be appropriated an-nually. No such practices were observed in most of the sample federations.

27. It was observed that many clusters and federa-tions are collecting regular thrift from SHGs, just as a binding measure. However, many of the clusters and federations do not know how to use this. A few clusters have returned part of the savings to the SHGs.

28. Most of sample federations have good linkages with government departments, programmes and projects; private sector companies; in-surance companies; corporate hospitals; civil society organisations etc. Such linkages are optimised in SKDRDP.

29. It should be understood that livelihood fi-nance is quite different from microfinance. Livelihood finance may consist of a series of inter-linked and timely (micro) credits. In other words, credit should be linked to the timeline of member/ family level or group level planning. Among 12 sample federa-tions, only SKDRDP had such comprehen-sive credit planning.

30. Efforts of all sample federations in livelihood enhancement and promotion are grouped under five categories, viz. (1) promotion of individual livelihoods, (2) group enterprises, (3) vocational training and placement, (4) market support to SHG members’ pro-

duction/ products, and (5) bulk purchase for the benefits of SHG

members

31. All over India, the performance of group

28

level enterprises is average. Therefore, it is not surprising to find only a few federations with group level enterprises. At least 10 fed-erations are involved in providing vocational training for placements. A few have the very good foresight to provide training in non-farm vocations.

32. Neglect of marketing often lead to the fail-ure of many livelihood projects. Among the 12 sample federations, only SKDRDP had a comprehensive strategy to provide market linkages for rural women’s products. Almost all sample federations are involved in bulk purchases to meet the demands of their mem-bers, obtaining considerable savings in prices and efforts in the process.

33. All sample federations are working on gender and other related social issues. However, the focus on each activity depends on the SHPA’s policy and availability of external support. For instance, anti-alcohol movement be-came a large base for the SHG movement in Andhra Pradesh. Though now the SHG insti-tutions are not focusing on this critical issue, because even though the state supports the SHG movement it also hugely benefits from the alcohol sale.

3.4. Performance of Member SHGs

In the sample federations it was found that the performance of SHGs is closely related with SHPA’s vision of building institutions of the poor as well as quality , adequacy and appropriateness of services that members receive from the SHG institutions. In sample federations, the primary stakeholders’ involvement in governance and functioning of SHG institutions is influenced by the following factors:1. A higher level of ownership was observed in federations where the poor SHPAs delegated functions to primary members.2. Apart from delegating functions and powers, the quality of services that the primary members get would determine the quality of their involve-ment in the governance of their institutions. 3. Monetary and other contributions made by primary members towards their institutions is another factor that determines their quality in-

volvement in governance. For instance, the SHGs of MYRADA contribute about ` 4,000 per an-num to meet the operational expenses of their CMRCs. Similarly, SHGs of Shramik Bharati and Ibtada also contribute significant amounts towards operational costs of their federations. In these institutions primary members have higher stakes. On the other hand, in ASSEFA/ SNFL the grants and subsides of SHGs were converted as their share capital in their SMBT with or without the knowledge of the concerned SHGs and their members. Hence, members do not feel that they own the SMBT, though they hold over 95% of its share capital.4. Yet another factor determining their involve-ment in governance is their investment in capac-ity building of primary members. SERP is an example for this. However, SHPAs’ clarity on in-vestment towards institution building increased the involvement of primary members in the man-agement and functioning of SHG institutions. MYRADA’s CMRC and Savera federation of Ibtada are examples for this observation.

The overall positive performances of sample SHGs, which influence the performance of each sample federation, are summarised in Appendix 1 and illustrate brief suggestions from each fed-eration. Though in some federations services are quite inadequate, SHG members are keenly in-volved in the SHG fold due to lack of any other alternatives. In most of the institutions leadership rotation is a serious issue. Therefore, it is suggest-ed to introduce automatic leadership rotation at the SHG level, as practiced in MYRADA. Fur-ther, most of the institutions are heavily depend-ent on SHPAs’ staff for their day-to-day func-tioning. Primary members do not have the skills and tools for self-regulation. APMAS, SERP and DGRV’s Kamareddy pilot project on SOC has a number of tools and self-learning material for self-regulation.

In chapter 5, learning of the sample structures and overall sector progress is compared with the cooperative principles which enable the coopera-tives and CBOs to attain sustainability. Chapter 4 precedes this with the cooperative principles and their potentials along with the sustainability framework.

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Chapter 4

Cooperative Principles for Sustainability of SHG Institutions

The major objective of this study is to provide practical strategic guidelines for the sustainabil-ity of SHG institutions. Towards this end, first the conceptual issues and principles necessary for sustainability are discussed in this chapter. In the next chapter, experiences of the Indian SHG institutions are analysed against the sus-tainable framework and cooperative principles as described in this chapter.

4.1. Sustainability framework

As mentioned above, sustainability of SHG in-stitutions and structures is the core of this study. These are defined at Box 4.1.

The sub-categories of the sustainability framework are further elaborated in terms of core elements or principles. The core elements or principles of

30

Box 4.1: Sustainability and its Sub-categories

In the specific context of the SHG movement and the federating process, ‘sustainability’ in this study is de-fined as follows:

• SHG members display ownership and conduct ef-fective self-governance and self-control

• Federations meet current and future needs of both their member SHGs and SHG members

• SHGs and members are using these services and benefiting from them

• Federations are not-for-profit but still economically effective and efficient

• Federations are aware of the importance of integrity • Federations comply with legal and regulatory provi-

sions• Federations operate independently, however, may

get technical and financial assistance from SHPAs

Based on this definition, the study further differ-entiates this broad term. It clearly sees four major sub-categories of ‘sustainability’:

System/ organisational sustainability This characteristic of sustainability is specific for Self-Help Groups or cooperative organisations. It depends essentially on the member base (owners and customers of Self-Help Groups or cooperative organisations) as well as on the awareness and capability of members to effectively operate the organisation according to the principles of self-help, self-administration and self-responsibility.

Economic/ financial sustainabilityThe sub-category ‘economic/ financial sustainabil-ity’ focuses on the purpose and mission of Self-Help Groups or cooperative organisations to meet the com-mon economic, social and cultural needs and aspira-tions of their members through a jointly owned and democratically controlled organisation/ enterprise. Though typically being ‘not-for-profit’ organisations, they have to operate according to economic princi-ples in order to achieve and ensure sustainability. This means that they have to generate profit and even surplus.

Legal/ regulatory appropriatenessAs any other organisation or enterprise, federations need an appropriate legal and regulatory framework providing sufficient space for system development and operations in order achieve sustainability. Such a framework has to assure an equal level playing field for competition with other organisations and enter-prises. At the same time, it has to take into account the specifics of jointly owned and democratically con-trolled Self-Help Groups or cooperative organisations. However, SHG members and their federations have the obligation to properly organise member govern-ance and Sector-Own Control, thus ensuring integrity and compliance with legal and regulatory provisions.

Adequate promotion/ facilitatingThis category reflects the impact of

(i) System Development Promotion, (ii) (Service and Business Development

Promotion, and (iii) Sector-Own Promotion.

Furthermore, it also comprises of the willingness and ability of the federation structures to share and scale-up experience with other federation structures. Sector-Own Promotion can be both supplementary and/or as an alternative to SHPA support. If well-organised and properly institutionalised, this could very well result in an institutionalised sector-own self-learning pro-cess, contributing significantly to sustainability.

Although separated above for the purpose of defini-tion, all characteristics at any time should be equally and simultaneously taken into consideration, as they are interrelated. In fact, in order to achieve long-term sustainability, SHG structures should pay attention to all four sub-categories. Of course, there might be good reason to focus development efforts temporarily on one or the other category. The reason might prob-ably be a specific urgency or a lack of resources. Yet as soon as possible, attention should then be shifted onto the other sub-categories as well.

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The internationally accepted common understanding of cooperatives is defined in Recommendation No. 193 of the International Labour Conference, conducted by the Inter-national Labour Organisation (ILO) in 2002. According to this declaration a cooperative “…means an autonomous association of persons united voluntary to meet their com-mon economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise.” The ILO conference further declared that the identity of cooperatives is based both on:

(a) Cooperative values of self-help, self-responsibility, democracy, equality, equity and solidarity as well as ethical values of honesty, openness, social responsibil-ity and caring for others.

(b) Cooperative principles as developed by the interna-tional cooperative movement of voluntary and open membership, democratic member control, member economic participation, autonomy and independ-ence, education, training and information, coopera-tion among cooperatives, and concern for community.

About 150 years of experience of cooperative systems from all over the world indicates that: 1. They have impressively proved their ability to develop

under different circumstances and challenges into suc-cessfully operating, well-performing, and economically sustainable organisations and/or enterprises.

2. According to the broad spectrum of cooperative pur-poses and depending on the needs of their members, they provide a wide variety of services and support to their owners and customers. These services range from financial, business, livelihood, to social and cultural services.

3. Cooperative structures are particularly able to alleviate poverty and empower economically and socially disad-vantaged segments of the population. However, con-sidering cooperatives as institutions for the poor only would be much too narrow.

4. A specific strength of cooperatives is the fact that phys-ical and/or legal persons can cooperate and unite to organise and improve their common economic and social situations, without losing their personal or legal independence.

5. Adaptability and flexibility have made cooperative organisations specifically relevant even in today’s ad-vanced economies, where cooperatives belong to the mainstream and are part of the national economy as well as (business) culture.

6. Driven by the commitment and the awareness of the members, combined with proper institutionalisation, they are capable of appropriately ensuring the eco-nomic and social development of their members and customers, and providing support for further improve-ment through products and services customized to new needs, as well as to internal and external challenges.

7. At the beginning and in their very rudimental form, cooperatives often operate as multi-purpose coopera-tives. They have very simple governance and institu-tional structures. However, with the improvement of economic and social situation of their members, cooperatives are usually confronted with the demand of more qualified and complex products and services. In order to meet new managerial and organisational challenges, cooperatives tend to then diversify at the primary level and begin to slowly set-up supporting structures at the secondary level (cooperative federa-tions, apex institutions, etc.)

sustainability are illustrated further through the experience of the international cooperative move-ment in general, and the German cooperative ex-perience in particular.

4.2. Cooperative Character of SHG Institutions

According to the general understanding and vi-sion of the SHG movement in India, SHG insti-tutions follow the same principles as cooperative

organisations. This can be applied to both SHGs as grass-root, self-help organisations as well as for SHG federations, even if not registered under co-operative laws. Like rudimental (early/ informal) cooperative units, SHGs established and owned by their members pursue common economic and/ or social interests. They follow typical, gen-erally accepted cooperative rules of self-help, self-administration, self-control and mutual support. The definition of cooperatives and their potential

Box 4.2: Definition and Potential of Cooperatives

32

are briefly described in Box 4.2.

4.3. Cooperative Experience

A huge variety of well operating and institution-alised cooperative systems exist around the world. These are determined by their specific historical background, political, economic and socio-cul-tural environment. They have a proven record of successfully contributing to meet specific eco-nomic and social challenges of their countries. Most of the successful cooperative systems have the following fundamental features in common:

1. Self-help, self-administration, self-responsibili-ty and mutual support

2. Member-owned and controlled; and commit-ted to the members of the community, without state interference

3. Performing as ‘not for profit’ but observing economic criteria in their functions

The experience of the German cooperative or-ganisation, represented by Deutscher Genossen-schafts- und Raiffeisenverband e.V. (DGRV), which is one of the most successful cooperative structures in the world, was used to recommend

sustainable principles and practices for the In-dian SHG movement. The German cooperative organisation was chosen since the study team al-ready had in-depth knowledge, and also because there is great relevance of the same for this model in the Indian context. DGRV has already demon-strated this through its collaboration with NAB-ARD and with APMAS, providing advisory ser-vices to the cooperative banking reform and SHG movement. Particularly, the above-mentioned SOC pilot project has given deep insight into the transferability contributing to solve SHG issues through sharing and scaling up. Salient features of the German Cooperative Model are summa-rised in Box 4.3.

The experiences of Indian SHG movement are analysed in the next chapter against the sustain-ability framework and its core components and cooperative principle discussed above.

1. Common cooperative vision, policy and strategy

2. Cooperative services with respect to mem-ber needs and interests and to economic criteria and market conditions

3. Wide range of economic activities provid-ed by specialised cooperatives

4. Strong decentralised network of coopera-tive retail banks

5. Bottom-up structured and controlled inte-grated system of primary cooperatives and commonly established secondary institu-tions

6. Strict institutional separation between business and other secondary services

7. Permanent, systematic, needs-oriented ca-pacity building by Sector-Own systems/institutions

8. Sector-Own control and stabilisation, compulsory cooperative audit

9. Adequate legal framework with sufficient space for members’ self-regulation; no state interference; level playing field

10. Viewing themselves as an integrated part of the general economy and society

Box 4.3: Main structural features of the German Cooperative Model

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Chapter 5

Core Elements of Sustainability and Indian SHG Structures

5.1. Introduction

Each of the four sub-categories of sustainability consist of a wide range of internal and external el-ements, all of which contribute to achieving and ensuring sustainability. Some of these might be of crucial importance, others could, depending on the situation, perhaps be disregarded for a certain period. Based on (i) results of the case studies,

(ii) research of secondary sources, and (iii) study of international good cooperative prac-

tices, this study has identified and compared some ele-ments for each sub-category which appear to be the most important ones. These factors or ele-ments will be referred to as ‘Core Elements’.Relation between Sustainability, Sub-categories, Core Elements, and Good or Critical Practices21 is presented in Figure 5.1.

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

34

Sustainability

Sub-categories of Sustainability

Core Elements for each Sub-category

Good and Critical Practices

Figure 5.1

5.2. System and Organisational Sustainability

As for any member-based self-help organisation, membership and self-governance are the main factors determining the sustainability of the SHG structure. In order to be able to effectively carry out functions of self-governance, it is necessary that appropriate institutional structures, opera-tive accountancy and auditing systems, as well as qualified management and trained personnel should be put in place. The core elements related to systems and organisational sustainability are presented in Box 5.1. The cooperative principles and Indian SHG experience with respect to sys-tems and organisational sustainability are pre-sented in Box 5.2. Below, some of these issues are discussed briefly:

5.2.1. Membership

As most of the SHPAs are positively discriminat-ing against the poor and vulnerable sections, the membership in SHG institutions is often con-

ditionally open. In that sense the cooperative principle of ‘open membership’ is in some sense violated in Indian SHGs. This is the result of a strongly built correlation between SHG institu-tions and direct poverty alleviation goals. As men-tioned above, considering ‘cooperatives as institu-tions for the poor only’ would narrow the scope; and restricting the scope of SHG institutions for women empowerment alone will undermine their full potentials. Even though India’s SHG mem-bership has grown at a phenomenal pace and emerged as the world’s largest community based microfinance model, there are issues of coverage, especially the poorest of the poor (POP). Nation-al level evidence shows that POP have opted out of SHGs because of migration and conditions like regular payment of thrift and repayment of loan instalments. This makes experts question the apt-ness of SHGs for POP. There is a critical issue of multiple memberships, i.e. one person with mem-bership in more than one SHG/ JLG22. This prac-tice reflects that members adopt different strate-gies to acquire adequate and appropriate services. Further, there is an issue of competition among multiple SHPAs in the same area. The competi-tion between SHPAs and MFIs is widespread.

22. Joint Liability Groups (JLGs) are groups promoted by the Microfinance Institutions (MFIs), which follow the Bangladesh Grameen model for lending purpose.

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5.2.2. Governance

Formal presence of SHPAs in the Boards of SHG federations is widespread. Such presence and sup-port of SHPAs is necessary in the initial stages. However, the role transformation between SHPAs and primary members depends on the resources available with the SHPAs. While those SHPAs with sufficient resources relieve SHG federations of many functions, those SHPAs with insuffi-cient resources delegate as much responsibility to the primary members as possible. The feel-ing of ownership towards SHG institutions and their process, norms and standards depends on SHPAs strategies, and not just on their resources and the capacity building inputs. Involvement of primary members in the development of invita-tional norms, standards, etc., has had a positive impact on their understanding of and adherence to SHG institutions. Since there is no compen-sation for the time members spend on SHG re-lated work, primary members hold back exten-sive participation in governance and management of the SHGs. Introducing payments to SHG leaders may encourage primary stakeholders from poorer sections to take up leadership re-sponsibilities and play an active role in the gov-ernance and management.

• Membership

• Broadness, outreach, proximity

• Sustainability

• Composition

• Governance

• Member-based

• “Soft factors”

• Norms and standards

• Institutional structure and procedures

• Accountancy, Internal Control, Audit

• Management, Staff

Box 5.1: Core Elements of System/ Organisational Sustainability

5.2.3. Institutional Structure and Procedures

While the model or the cooperative principles suggest that institutional structure and processes should be bottom up and based on members’ felt needs, management capabilities and economic principles; SHG structures in India are largely facilitated externally, with top down approaches. External initiative and support by SHPAs should always be regarded as temporary, helping to kick-start local SHG initiatives which lead to quick visible results. There is a need to identify a road map for transferring the role to SHGs, where they can build on the initiatives taken by the SHPAs. The cases studied by the research team have demonstrated that completeness, accuracy, and effectiveness of procedures can be significantly improved if SHG members and office-bearers are themselves actively involved in developing, im-plementing and conducting the procedures. Sim-ilar positive impacts have been achieved through proper organization of mutual data flow and in-formation dissemination. Both have improved the general understanding and skills as well as the sense of ownership and awareness, which en-able SHG members and office-bearers to conduct self-administration and self-control of the SHG structures.

5.2.4. Accountancy, Internal Control and Audit

There is an increase in computerisation in order to increase effectiveness of the procedures and to accelerate processing. Usually, these institutional tools are developed and implemented by SHPAs. Therefore, they are more focused on the interests of the SHPAs, rather than being adapted to the needs and capacity of SHGs. Sometimes even the management and processing of some tools, like accounting, planning, budgeting and inter-nal control and audit, remain in the hands of SHPAs and their staff. As a result, the procedures are mostly professionally designed and have to be operated accordingly. This can be a problematic challenge for SHGs due to insufficiently trained staff. Sometimes SHPA staff and resource per-sons undertake accounting and internal control of SHGs, and SHG institutions have not been

36

able to fulfil their duties with the expected profes-sionalism and correctness. Among other reasons, insufficient staff capacity, limited skills and lack of awareness are some of the noted causes.

5.2.5. Management and Staff

Separating functions of SHPAs or professionals and primary members based on their strengths is a good practice that is followed. While SHPAs or their representatives look after financial manage-ment, review of staff performance, office man-agement, and management of external relations including legal compliances; primary members monitor the functioning of SHGs, provide need-based support, resolve conflicts within and be-tween groups and help in recovering bad debts. More advanced duties such as monitoring, inter-nal control, and external auditing remain within the responsibility ambit of the promoting insti-tutions. They are being planned and conducted by their own staff or resource-persons. The strong involvement of SHPAs carries the risk that ini-tiatives and self-help capacity of SHG members and office-bearers will decrease over time and may even be lost. This would seriously endanger all ef-forts aiming at achieving sustainability.

The required qualification and number of human resources are often not yet available. Reasons are primarily illiteracy, a generally low level of educa-tion and as a consequence a lack of appropriate professional experience. External recruitment of staff is not considered as an alternative solution because of a shortage of financial resources, lack of adequately skilled external human resources avail-able in the labour market, and the fear to become dominated by and dependent on outside profes-sionals. Where SHPAs have provided extensive preparatory capacity building and training, SHG members and office-bearers have been enabled to conduct at least basic duties of governance and administration by themselves. SHG members and leaders need immediate capacity building re-garding loan track processing, accountancy, plan-ning, budgeting, monitoring, and internal audit. An excellent concept and practice is that of a Community Resource Person (CRP) and is worth replicating. A critical issue is the fact that the re-source persons/ community activists feel and act

as SHPA staff, at least as long as they are selected, directed, and paid by the SHPAs. Therefore, it is a good practice, which the research team observed in several cases, that these experts are being trans-ferred step-by-step to the SHG institutions, thus becoming SHG staff.

5.3. Economic/ Financial Sustainability

Successfully performing sustainable cooperative systems all over the world have the following cen-tral features in common: (i) clear, commonly approved and adopted vision and strategy for sector development, func-tions, institutions, resources, operations, perfor-mance goals, and future perspectives; (ii) a wide range of products and services provided to members and customers meeting their needs and demands, performing as ‘not for profit’ but ‘observing economic criteria’ to pro-mote members and customers and improving their economic and social situation; (iii) pooling common interests and resources and benefiting from the advantages of division of functions through a multi-level structure with clear allocation of roles and functions. In India, these core factors apply to SHGs and their institutions. They are and will be of central relevance in order to achieve economic and finan-cial sustainability. The core elements of economic and financial sustainability are listed in Box 5.3. Box 5.4 describes the international and Indian SHG experiences.

5.3.1. Common vision, Strategy and Planning

Initiating, coordinating, and supporting the stra-tegic planning process as well as monitoring the implementation by the SHGs and SHG institu-tions involved, are usually the tasks of a higher level federation. However, the elaboration and continuous further development of the sector-based strategy and planning need to be conducted bottom-up, involving the SHG so that they get a chance to express their expectations, needs, pos-sible contributions, limitations, etc. Such a bal-anced combination of top-down and bottom-up approach will ensure that intentions and needs

Contents | 37

Model/ Cooperative principles Indian SHG experience/ Field observations

Membership

1.Openmembershippolicyfocussingoncommoninterests

1.Mostlyfocussedonthepoor,womenandvulnerablesections

2.Activememberacquisitionagainstdrainduetonaturalfactorslikedeaths,migration,etc.

2.Self-selectedbetterperforminggroups

3.Awarenessofproximitytomembers 3.Mostofthegroupsareformedwithexternallydecidedcriteria

4.CompetitionamongSHPAs

5.Dualmembership

6.Members’desertionduetoinadequateandinappropriateservicesandpersonalconstraintssuchasmigrationandinabilitytopay/repayasperstricttimeline

Governance

1.Bottom-upmemberresponsibilityfor(1)decisionmaking,(2)administration,(3)internalregulation,(4)internalcontrol,and(5)securingstabilityofmulti-levelsystems

1.GooddivisionoffunctionsbetweenSHPA’sstaffandprimarymembersaspertheirstrengths.However,members’governancepotentialisoftennotsufficientlymobilised

2.Fosteringsoftfactors(senseofownership,awareness,etc.)

2.FormalpresenceofSHPAsontheBoardsofSHGfederationsandchequepowerconstrainscopeforself-governancedevelopment

3.Caringforacceptanceandawarenessofcommonlyapprovednormsandstandards

3.RoletransferdependsontheresourcesofSHPAs

4.Reluctanceofmanyprimarymemberstotakeupleadership

5.Directinvolvementofmembersandoffice-bearersinelaboratingandintroducingnormsandstandardsofgovernancehasconsiderablyincreasedacceptanceandawareness.However,impositionofexternallydesignednormsandstandardsarewidespreadwithconsequentnegativeimplications

Institutional Structure and Procedures

1.Orientedtotheobjectivesandpurposes 1.Thoughover90%ofthemulti-levelfederationstructuresarePrimaryLevelFederations(PLF),thereisastrongcasefordevelopinghigherlevelfederations,ofcourseaspertheneedsand at the appropriate time

2.Beingmanageableandcontrollablebytheowners 2.Topdownapproachhasbeenpredominantinthepromotionoffederations,incontrasttothebottom-upapproach,fundamentallyforSelf-Helporganisations

3.Ensuringavailabilityofadequatehumanandfinancialresources

3.NormallySHPAsfunctionasthedefactoleaderandmanagerofSHGinstitutionshamperingself-helpawareness

4.Operatingaccordingtoeconomicstandards 4.Proceduressofarhaveprimarilybeenfocusedonkeepingthewholesystemoperationalandmanageableinareassuchasloanandsavingstrackingsystems,datacollection,informationflowanddissemination,accounting,andinternalcontrolandauditing

5.Respondingflexiblytochangesofmemberandcustomerneeds,marketconditionsandotherrelevantexternalinfluences

Dataandoverallinformationflowiswell-organisedupwardsfromthesingleSHGviathefederationstotheSHPA,butitisfarfrombeingsatisfactorywhenitcomestothedownwardflow

Accountancy, Internal Control and Audit

1.Fullyintegratedandtransparentaccounting,managedbytheSHGinstitutionsandprimarymembers

1.Toalargeextent,accountancy,internalcontrolandauditarestillwithintheauthorityoftheSHPAs

2.Primarymembersandofficebearershavesufficientknowledgeaboutaccounting,internalcontrolsandauditing

2.Often,PLFsdonothavebooksofaccounts.AcoupleofSLFsalsodonothavebooks

3.Systemsaremeetingtherespectiverequirementsofthedifferenttier-institutionsandtheirdevelopmentstages

3.ComputerisationofaccountsishelpingtheSHPAsforeffectivemonitoring.Buttheprimarymembersarenotabletocomprehendtheprocessesandinformation

Box 5.2: International cooperatives vis-à-vis India SHG experience with respect to Systems and Organisational Sustainability

38

Model/ Cooperative principles Indian SHG experience/ Field observations

Accountancy, Internal Control and Audit

4.SHGmembersarenotyetabletofullycomprehendtheaccountsandauditing

. 5.Insomecases,eventheSHPAsarenotfullyabletocomprehend the accounting and auditing due to inadequate trainingandresources,includingtimeconstraints

Management and Staff

1.ManagingandoperatingSHGaffairsareprimarilywithintheresponsibilityofSHGmembers

1.Divisionoffunctionsaspertheirrespectivestrengthsisfollowedasagoodpractice

2.Mobilisingandpoolingmembers’ownmanagerialcapacityandskillshavepriority

2.Primarymembers’organisationalandmanagerialcapacityismuchhigherthanthatassumedbytheSHPAs

3.Sector-ownhumanresourcedevelopmentandtrainingsystem

3.TheconceptandpracticeofaCommunityResourcePerson(CRP)hasbeenaninnovationandisworthreplicating.However,itsundesirableconsequencesneedtobeovercome

4.MostoftheSHGfederationsareemployinginternalorSHGmembersasstaff.Thoughtheyhavelimitedskillsandcapacity,theyhaveastrongcommitment

5.DifficulttogetandretainqualityHRfromthemarket

6.CRPscouldbeconsideredasSector-OwnHR

felt by the SHG members are properly recog-nised by the next-tier institutions and can then be transferred into concrete actions taking into account members’ interest and system capability. Each stakeholder involved will maintain transpar-ency in the overall sector development and in his own contributions and responsibilities for achiev-ing commonly approved sector targets.

In the Indian SHGs, the SHPAs play a predomi-nant role in vision building, strategy development and the planning processes. The top down ap-proach followed so far for initiating and support-ing the SHG movement would rarely have had an alternative; considering the difficult pre-con-ditions commonly found in the country as well as the complexity of ensuring sustainability. This is at least definitely true for the start-up phase. Henceforth, this sector development approach needs to be balanced step-by-step and finally even needs to be replaced by an increased involvement of the SHGs and SHG institutions themselves. They have to show ownership towards the con-cept of elaboration and management in order to achieve sufficient understanding, agreement and acceptance among SHGs and SHG institu-tions. A commonly accepted articulate long-term sector vision and strategy jointly developed by SHGs and their institutions should be available

at the end of the process. It will serve as the basis for comprehensive planning of respective SHG structure, which will be crucial for proper man-agement and control over future development and performance of the system. Furthermore, the availability of a global vision, strategy and plan-ning document will enable the involved SHGs and SHG institutions to orientate their indi-vidual strategies, plans and activities according to these sector-wide targets. In this manner, it will be possible to establish a well-balanced and suc-cessfully performing decentralised system. The cooperative or model principles and Indian SHG experiences are summarised in respect to vision,

• Common vision, strategy, planning• Functions and structures

• Sector development service• Financial service• Livelihood/non-financial business service• Social service

• Institution building• Resources and performance

Box 5.3: Core Elements of Economic/ Financial Sus-tainability

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Model/ Cooperative Principles Indian SHG Experience/ Field Observations

Common Vision, Strategy, Planning

1.Creatingasenseofownership,awarenessandself-responsibilityamongSHGsandtheirinstitutions

1.Sofartheconceptual,functionalandinstitutionaldevelopmentofSHGstructuresinIndiahasbeendeterminedoratleastdominatedbytheSHPAs,basedongeneralpoliticalobjectivessuchasalleviationofpoverty,empowermentofwomen,andimprovementoftheeconomicandsocialsituationofpoorpeopleinrural(urban)areas

2.AchievinggeneraltransparencyaboutSHGs’ownperceptions,intentionsandpotentials,neededbyinternalandexternalstakeholdersfortheirownplanningandcontributions

2.Consequently,SHGmembersandinstitutionshavemainlyfeltasbeingrecipientsratherthanactiveownersandmanagersoftheirinstitutions

3.Mobilisingtheadvantagesofdivisionoffunctionsandwell-matchedcoordinationwithinthemulti-levelSHGstructures

3.InallsamplestructuresthereisasharedvisionandcommonunderstandingbetweenSHPAsandBoardmembersaboutthepurposeandfunctionsofSHGinstitutions

Functions and Structures

PrincipleofSubsidiary:Higher-tierstructuresincooperativeorganisationssupportandsupplementtheirmemberorganisationswithservicesthat:

1.Allowovercomingtheinherentlimitationsofsmall,unregistered,standaloneorganisations

1.Inmostsamplestructures,thereiscleardivisionoffunctionsateachlevelintheSHGstructures

2.Enablemembers’organisationstomeettheneedsfeltbytheirmembers

2.AsPLFsandclustersarenotyetfullydeveloped,theSLFsattimesperformthefunctionsofPLFs

3.Makethemulti-levelstructurefinancialviable,self-reliant,andsustainable

3.Theprincipleofsubsidiaryhasnotbeenfullyputinpracticeinmostofthestructures

4.AsSHPAsemployanumberofCRPstosupporttheSHGstructure,theyoftenrepresentSHPAs.ManySHGmembersleaveeventhebasicfunctionssuchasorganisingmeetings,depositingmoneyinthebank,inthehandsofCRPsorserviceproviders

5.SHPAsareactivelyinvolvedinmostoftheSHGstructures’functionsatdifferentlevels

6.ThereissomeduplicationoffunctionsatPLFsandSLFs

Box 5.4: Model/ Cooperative Principles and Indian SHG Experiences with Respect to Economic Sustainability: Common Vision, Strategy and Planning; and Functions and Structures

strategy, structures and functions in Box 5.4.

5.3.2. Functions and Structures

The successful operation of cooperative organisa-tions lies in the strength of well organised, well performing higher-tier structures that support primary cooperatives, enabling them to pro-vide proper services to their members and cus-tomers. It is very common in such cases to talk about the ‘bottom-up-structured integrated co-operative systems’. This term particularly char-acterises system-ownership and governance by the cooperative members. It also indicates suit-

able interactions between the tiers with regard to sector communication, policy, strategic plan-ning, institution building, activities, processing, control and stabilisation. Integrated cooperative systems have a worldwide proven record of suc-cess. Therefore, it is recommended to use these experiences as guidelines for further federating of SHG structures. The principle of subsidiary is the basic rule of any bottom-up structured Self-Help Organisation or cooperative system. This means that federations are defined as support-ing and supplementing lower-level SHG insti-tutions. They shall takeover such functions and services which cannot be performed by the indi-vidual member SHG or which cannot be offered

40

economically. Accordingly, during the federating process the following federation functions have to be kept in focus:

(1) Sector Development Services(2) Financial Services(3) Livelihood or Non-Financial Business Services(4) Social Services

5.3.2.1. Sector Development Function

All sample federations are doing extremely well in respect to Institutional Building Services (IBS). Though the primary members have certain strengths in these services, they need certain addi-tional inputs like community auditing and checks and balances to protect institutional resources, regular elections, rotation of leadership, democ-ratisation of SHG and federation functioning, etc. The Kamareddy pilot programme on SOC has many insights, practices and tools for build-ing the capacities of primary members enabling them to take charge of their institutions. Some of the identified good and vital practices are listed below:

Good practices

1. Good coverage with focus on the poor and poorer areas

2. Role transformation taking place in some fed-erations. Roles and responsibilities are being distributed between professionals (SHPA/ fed-eration staff) and primary members as per their expertise

3. Almost all federations are developing and using some kind of social capital or CRPs for pro-motion of new SHGs, resolving of conflicts in SHGs, awareness building, technology trans-fers, book keeping, auditing, etc.

4. Quality of SHGs depends mostly on the vision of the SHPA, degree of role transformation and quantum and appropriateness of benefits received by members. It should be less depend-ent on the quantum of the capacity building inputs

5. SHG level auditing in some federations6. Community auditing is being practiced in few7. Development of more than sufficient para-pro-

fessionals is taking place in a few federations

Critical practices1. In some federations, there is no role transfor-

mation and in some federations it is taking place by default

2. Competition among SHPAs is a serious issue leading to multiple memberships in few and splitting or deserting of groups in some federa-tions

3. Imposition of external norms is more common4. A few have SHG level auditing; but do not

have an AGM to discuss audit reports and for appropriation of the profit and loss

5. Dilution of audit in a few cases is taking place 6. The main financial federations are not encour-

aging direct SHG banking due to conflict of interest

7. In some SHGs, there are no active bank loans due to poor awareness of banks and problems with SGSY. In the absence of Bank Linkage, any amount of capacity building or awareness generation will not yield the desired results

8. Quantum of inputs given to the federations depends on the availability of SHPA resources. Most SHPAs have fewer dedicated resources for capacity building and they are forced to bring resources from many other projects, which results in compromises in their institu-tional building processes

5.3.2.2. Financial Services

In some structures, the federations limit their financial services to mainly intermediating and promoting SHG access to the Bank Linkage Programme. Conversely, other structures prefer providing financial services to SHG members through a Sector-Owned financial corpus created by internal savings and/ or SHPA grants or state programmes; thus, marginalising the Bank Link-age intermediation. A third, and more advanced group has already established a professional mi-crofinance function. The range of this function entails both microcredit services based on exter-nal financial resources (from the banking sector/ MFIs/ state programmes) as well as full-fledged microfinance services mainly based on sector-own financial resources and mobilised through savings and deposit services. In each case, there might be internal and external reasons to choose one or the

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other financial service model. However, if assessed from the point of view of the overall objective to achieve financial viability, self-reliance, and sus-tainability of the entire system, the third model is to be clearly preferred. Furthermore, success-fully operating cooperative organisations in other countries are generally characterised by a strong, well-developed and comprehensive financial ser-vice component.

However, providing proper financial services needs sufficient resources; both financial as well as human resources (professionally skilled and experienced management and staff). Therefore, an evolutionary approach for its gradual growth should be foreseen. It is important to begin im-mediately and incorporate this function in the discussions related to defining the vision and fu-ture strategy for sector development. One of the SHG structures has successfully taken up this is-sue by advancing its financial services programme towards this direction, and is suitable for replica-tion. The good and critical practices in the sample SHG structures regarding the financial services are summarised below:

Good practices

• Most of the sample federations are providing much needed financial services at affordable cost

• One structure is providing range of innovative and effective credit services

• One federation is providing many savings and deposit products

• Many have 3rd party insurance contracts • A couple of federations have pensions and re-

tirement benefits • Hire-purchase and asset leasing facilities were

seen in a few• Some have their own social security programmes

Critical practices

• Except one, all other federations only have thrifts, no voluntary savings

• In most of the federations, SHGs do not have the practice of paying interest on thrift and savings; but some have periodical payments of dividend or bonus on the thrift

• Very few federations have SHG auditing, dis-cussion of audit reports and appropriation of the annual profit and loss

• In some federations, members are not fully aware of the terms and conditions of 3rd party insurance; there is some element of coercion

5.3.2.3. Livelihood and Non-Financial Business Services

In many countries worldwide, the livelihood and non-financial business services played an impor-tant role since the early beginnings of the coop-erative organisation. But even today, for instance in Germany, cooperative livelihood and business service activities can be found in a wide range, comprising of agriculture, trade and handicraft input and marketing services, livestock breed-ing and trade, milk and meat processing, farm processing, retail and wholesale trade, IT and accounting-services, medical services, schools, housing etc. All of these cooperative service op-erations are organised according to cooperative principles and are strictly following economic cri-teria. In most of these operational areas, coopera-tives have been able to reach a market position al-lowing them to serve as countervailing powers in the very interest of their members and customers. Co-operating with neighbouring SHG structures or pooling common interests through federating on the higher level will strengthen bargaining power and market position. This seems to be par-ticularly relevant for efforts aiming at establish-ing forward and backward linkages for SHG and cooperative livelihood. The development of this function should therefore definitely be included in further SHG strategic planning processes.

Almost all sample federations are very active on livelihood promotion and enhancement. Howev-er, the efforts of many federations are hampered by lack of Bank Linkages and insufficient funds with federations. Each of the sample federations is making some innovations, and context specific interventions. However, the performance of SK-DRDP in livelihood enhancement and promo-tion is praiseworthy and can be easily replicated. The good and critical practices of sample SHG structures are:

42

Good practices1. Skill up-gradation in many cases2. Placements by some SHG structures3. Successful micro-enterprises and support ser-

vices4. Marketing of SHG products in a few cases5. Brand development by a few structures6. Food security and social security is seen in a

few instances to cope with emergencies and distress

7. Livelihood enhancement financing by most of financial federations

8. A few took full advantage of several govern-mental programmes

Critical practices

1. More focus on marketing of external products and relatively less on marketing of the mem-bers’ products

2. The impact of market interventions is not as-sessed in some cases

3. Externally developed agenda could be observed in some cases

4. Failures of micro-enterprises were noticed in few cases

5. Stand-alone approach is still predominant, co-operation with neighbour SHG structures at the very beginning

5.3.2.4. Social Services

Unlike cooperative structures in other countries, social service is a core activity of the SHG federa-tions. It addresses women empowerment as the main objective of the Indian SHG movement. This does not mean that in other countries self-help or CBO structures are not utilised for suc-cessfully conducting social services. Contrarily, they usually operate in parallel systems, not nec-essarily registered as cooperatives. Almost all sam-ple federations are working on gender and other related social issues. However, the focus on each activity depends on SHPA’s policy and availability of external support. For instance, the anti-alco-hol movement became a large base for the SHG movement in Andhra Pradesh. But now the SHG institutions are not focusing on this critical issue; because even though the state is a major support-er of the SHG movement, it also largely benefits from the alcohol industry. Some of the good and critical practices are:

Good practices

1. Total focus on women empowerment in some federations through girl education, awareness, networking and solidarity

2. Anti-alcohol campaigns and alcohol de-addi-tions camps in a few federations

3. Creating assets in the name of women4. Collecting donations for and taking care of or-

phans, poorest of the poor, destitute, etc.5. Voter awareness and local governance

Critical Practices

1. External agenda in many federations2. Not addressing critical issues in some instances3. Not able to generate funds to promote their

own agenda

The cooperative or model principles and Indian SHG experiences regarding services are summa-

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Model/ Cooperative Principles Indian SHG Experience/ Field Observations

Sector Development Services

1.LobbyingandadvocatingcommoninterestsofmemberSHGs

1.Inmostcases,theavailabilityoftheseservicesisstillinaveryearlystageofdevelopment

2.Initiating,coordinating,andmonitoringsector-strategyandplanning

2.Thoughintheinitialstages,thesamplefederationsandstructuresareprovidinganumberofsectordevelopmentservices.Theseservicescouldbegroupedintofivebroadcategories:(1)awarenessgeneration,promotionofnewSHGs,revivalofdefunctgroupsandstrengtheningofexistingSHGs;(2)providingtrainingandsupportservicesandmonitoringandgrading;(3)auditing;(4)SHGBankLinkage;(5)linkageswithgovernmentandmainstreaminstitutions

3.Organisingandensuringsector-widemutualinformationanddata-flow

2.Theoverallperformanceofsamplefederationsvariesquitealot,dependingontheresourcefulnessoftheirrespectiveSHPAs

4.Developingsector-normsandrules,monitoringawareness

3.SHPAsstillplayamajorroleinthiscategoryofservices.Apartfromunevenresourceavailability,SHPAshaveunequalandcontextspecificcapacitiestoprovidethiscategoryofservices

5.Promotingregularupdateofinternalstructures,proceduresandtechniques

4.EachsampleSHGstructureandotherrenownedSHGmodelsinthecountryhavecertainuniqueandveryinterestingsectordevelopmentservices.KamareddySOChasalmostallsectordevelopmenttoolsandpractices.Thereisgoodscopeformutuallearning

6.Providingadvisoryandtrainingservicesforcapacity building

2.Theoverallperformanceofsamplefederationsvariesquitealot,dependingontheresourcefulnessoftheirrespectiveSHPAs

7.Hiringadditionalprofessionalexternalservicesonsharingbasis,thusachievingadvantagesofscale

3.SHPAsstillplayamajorroleinthiscategoryofservices.Apartfromunevenresourceavailability,SHPAshaveunequalandcontextspecificcapacitiestoprovidethiscategoryofservices

8.OrganisingaswellasmanagingSector-OwnControl,Auditandstabilisationofsystems

4.EachsampleSHGstructureandotherrenownedSHGmodelsinthecountryhavecertainuniqueandveryinterestingsectordevelopmentservices.KamareddySOChasalmostallsectordevelopmenttoolsandpractices.Thereisgoodscopeformutuallearning

Financial Services

Thefinancialservicefunctionwasacentralelementofthefederatingprocessinmanycountries,suchasinGermany.Theaimistobettermeetincreasingfinancialneedsofmembersandtosupportandsupplementservicesaccordingtothedemandofmemberinstitutions.Thefollowingsupportisprovided:

1..Providingloanstomemberorganisationsandtotheirmembers-bothforincomegenerationaswellasforconsumptionpurposes

1.SHGfederationsareabletoprovidelimitedbutcriticalfinancialservicestotheirmembers.SHGstructuresinIndiaarelegallypermittedtomobilisesavingsfromtheirmembers

2.Providingsavingsanddepositservicestomembers(andnon-members)

2.BanksandSHPAsdonottrustthecapacitiesofthefederationstoprovidefinancialservices.Becauseofthismistrust,federationsareunabletomobiliseenoughresourcesfromSHPAsforon-lending

3.Mobilisingexternalrefinancingresources 3.EvenSHGBankLinkageisunderperformingduetovitiatedenvironmentinthecountry,particularlyinthenon-southernstates

4.Intermediatingbanklinkagesandaccesstostatesupportedfinanceprogrammes

4.OnlyoneofthesampleSHGstructuresisprovidingafullrangeofsavingsanddepositservices

5.Organisingandsupportingbothapplicationandreimbursementprocedures

5.MostoftheSHGstructuresareunder-utilisingthepotentialofthrifts.Therearenoincentivesforhigherthriftsandsavingsandnomechanismstoprotectthemember’ssavings

6.Providingpaymenttransactionservices,cardservices,remittanceservicesformigrantworkersetc.

6.AlmostallSHGstructureshavethirdpartyinsurancecontracts.However,mostofthemembersarenotclearabouttheinsurancecontracts

7.Intermediatinginsurancecontracts 7.Therearefewbutinterestingexperiencesaboutpensions,assetspurchaseandleasing

8.Noremittanceservices

9.Fewtechnologyinnovationsandoptions

10.SHGmembershavemuchmoremanagerialcapacitiestoprovidefinancialservicesthanthoseassumedbysecondarystakeholders.Torealisethosepotentials,thefinancialintermediationneedstobepromotedoncooperativeprinciples,ratherthanmodernmicrofinanceprinciplesandpractices

Box 5.5: Model/ Cooperative Principles and Indian SHG Experiences with Respect to Economic Sustainability: Services

44

Model/ Cooperative Principles Indian SHG Experience/ Field Observations

Livelihood Services

1.Inmostoftheseoperationalareas,cooperativeshavebeenabletoreachamarketpositionallowingthemtoserveascountervailingpowersintheinterestoftheirmembersandcustomers

1.Effortsbyallsamplefederationsinvolvedinlivelihoodenhancementandpromotionaregroupedunderfivecategories:(1)promotionofindividuallivelihoods,(2)groupenterprises,(3)vocationaltrainingandplacement,(4)marketsupporttoSHGmembers’productionandproducts,and(5)bulkpurchaseforthebenefitsofSHGmembers.

2.Cooperatingandfederatingwithneighbouringcooperativestructuresstrengthensbargainingpowerandmarketpositions.Developingforwardandbackwardlinkagestoinputandmarketingorganisations.

2.Currentloansizeavailablefromfederationsandbanklinkageisnotsufficienttotakeupanyneweconomicactivities.Theyareonlysufficienttobeusedasasupplementarycreditsourceforthemembers’currentmicro-enterprisesandotheruses.

3.Initiatingandsupportingtheestablishmentofworkingunitsforcommonproductionandprocessingfacilities

3.InsamplefederationstoomuchemphasiswasgiventoIGA,withoutthecorrespondinglivelihoodcreditplans.OnlySKDRDPhasacomprehensivecreditplancorrespondingtolivelihoodplans.

4.Intermediatingaccesstogovernmentlivelihoodprogrammesandprojectsaswellasprovidingsupportduringtheirimplementation

4.AfewsampleSHGstructureshaveveryinterestingpracticessuchastechnologytransfers,commonproductionfacilities,trainingandplacement,trainingandpromotionofIGA,accessinggovernmentanddonorsupport,infrastructuredevelopment,marketingandbranding,assetspurchaseandleasing.However,mostofthemareisolatedexamplesandintheinitialstages,buthavedemonstratedtheirpotential.Thereisverygoodscopeforcrosslearning.SKDRDPhasexcellentlearningandexperiencesthatcanbeusedforreplication.

5.Participationinlocaldevelopmentprogrammeslikewatershed,drinkingwater,sanitation,awarenessonhealthissuesandadult literacy

Social Intermediation

1.Cooperativeorganisationsinothercountries,suchasGermany,regardthemselvespredominantlyasbusinessorganisations,havingthetasktosupportbusinessandincomegenerationactivitiesoftheirmembers.Otheraspectssuchasimprovementofthesocialsituationareindirectlyaddressed.

1.OneofthemajorobjectivesoftheSHGmovementistoachievegenderequity.Primarymembers-thepoorwomenwhowerecoveredunderSHGinstitutions,consideredtheirinstitutionsastheir-(a)identity;(b)strength;(c)meanstobuildcapacitiesandskills;(d)spacetoexpresstheirviewsand(e)methodtofulfiltheirdreams24.Perhaps,theSHGprogrammeisoneoftheveryfewprogrammesreachingtherealpoor.TheSHGmovementispredominantlyamovementforandbywomen,benefitingmillionsofwomenandinturncontributingforapositivechangeintheirfamiliesandsocieties.Inthiscontext,allsamplefederationsareexpectedtoworkonissuesfacedbywomensuchasdomesticviolence,girlchildeducation,equalrightstowomen,men’salcoholaddiction,women’shealthandhygiene,etc.

2.However,inthesecountriesusuallyavarietyofdifferentinstitutionalnetworkssuchasSelf-Helpgroupsonvillagelevel,civilsocietyorganisations,privatetrusts,tradeunions,churches,politicalparties,etc.takecareofsocialissues

2.EachsampleSHGstructurehasbeenfocusingonthesecriticalsocialissuesinitscontext

3.Thesesocialorganisationsareoperatingcomplementarilytothepublicsocialnetworks

3.SHPAsplayanimportantroleindecidingthesocialintermediationagendaoftheSHGinstitutions

4.Activitiesarebasedonmembercontributions,servicefees,privatedonations,grantsfromstakeholders,andgovernmentfinancedsocialprogrammes

3.GiventheoverallpovertylevelsandinitialstagesoftheSHGstructures,thefundsfromsocialserviceshavetocomefromdonororSHPAsgrants,donationsandincomefromthemicrofinanceoperations

5.Theyareusuallynotregisteredundercooperativelawsandarenotaffiliatedtocooperativeorganisations.However,likecooperatives,theseinstitutionshavetoperformasnot-for-profit,butneverthelesseffectivelyandeconomicallyefficiently

4.Integrationofsocialintermediationandmicrofinanceoperationsmaynotbeaprudentpractice.OnlyoneofthesampleSHGstructureshasseparateinstitutionalstructuresforsocialintermediation

24. SHG leaders articulated these in the national conference on SHG federations in February 2008, organized by APMAS et al, at Hyderabad.

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rised in Box 5.5

5.3.3. Institution Building

Important elements of the institutional structure and procedures of SHG systems and cooperative organisations have already been defined. The chal-lenge now is to properly assign these functions to such a multi-level federation structure which is identified as a good SHG or cooperative practice. The criteria for guiding institution building are (a) sector vision, (b) guaranteeing highest possi-ble effectiveness and efficiency of the multi-level system as a whole, (c) insuring a high level of sec-tor integration and coherence, (d) enabling all re-sponsible actors within the system to manage and control sector activities, and (e) a clear separation between business and social services and the de-velopment function (including control and audit services).

The approach to separate different institutional functions has become very common in the coop-erative movement worldwide. It enables the coop-erative institutions to properly meet the advanced needs of cooperative members and customers. It also allows a quick response to changed socio-eco-nomic and environmental conditions. Therefore, it can be regarded as a generally accepted good cooperative practice.

In India, even though institutional building of federations is still in its early stages, some federa-tions have already chosen a similar institutionalis-ing policy for their functions. As demonstrated in the case studies, they are implementing a three-fold institutional model at the highest federation level, although different institutional concepts are being used. The approach comprises of specialised federations and institutions for three of the four service functions described above. So far, only the development service function remains excluded.

5.3.4. Availability of Resources and Performance

Having already identified the availability of ap-propriate human resources as a core element, it is important to stress particularly on the following:

• The need for skilled management and profes-sional staff that will continuously increase and ensure advanced governance and management and address operational challenges

• The recruitment should primarily be based on sector-own human resources; however, exter-nally recruited professional staff will be needed to bridge some of the gaps

• To increase the number and quality of staff, additional financial resources will be required for capacity building and training, compensa-tion payments to SHG office-bearers for their engagement on SHG governance, as well as ap-propriate salaries for professional management and staff

Availability of sufficient financial resources is an-other big challenge for SHG structures. A sig-nificant problem area is proper equipment with financial resources for lending activities as well as for conducting non-financial business servic-es. The experience of some financial cooperative organisations in India and other countries dem-onstrates that Self-Help Groups and cooperative organisations are able to mobilise adequate fi-nancial resources themselves from their members and customers through active acquisition of sav-ings and deposits even from a poor clientele (See CGAP, 2010). The team has met one SHG struc-ture – the Bagnan model in West Bengal, which offers a variety of savings and deposit products to both members and non-members and restricts its lending within the mobilised funds. This type of institution is not uncommon in India. One unique feature of these institutions is that they are content with small funds. Given the low levels of awareness and managerial capabilities of primary members, functioning with limited funds may be a better strategy, at least in the initial phases. With this process they could:

• Strengthen the cooperative lending capacity• Meet the urgent credit needs of the community

and also the demand for services others than borrowings

It has always been the policy of the German co-operative financial sector to additionally facilitate access to external financial resources and govern-ment financial programmes in the interest of

46

their members and customers. The policy to ac-cess government support, including financial sup-port exists for SHG federations, both NGO and the government promoted federations. However, the MFIs in India usually do not mix their mi-crofinance operations with the government sup-port and subsidies. In the sample federations, the SMBT of SNFL does not access any government programmes or assistance.The case studies show that many federations have already achieved financial self-sufficiency.

Model or Cooperative Principles Indian SHG Experience and Field Observations

Institutional Building

1.Existenceofalong-termsectorvision,strategyandplanning,whichmayserveasguidelinesintheinstitution-buildingprocess

1.InstitutionalisationofdifferentservicesofSHGstructuresisinnascentstage.Thoughsomeverticaldivisionoffunctionscouldbeseen,thehorizontaldivisionisconspicuousbyitsabsence

2.Verticalandhorizontaldivisionoffunctionsbetweenvariousinstitutionswithinthesystem,guaranteeinghighestpossibleeffectivenessandefficiencyofthemulti-levelsystemasawhole

SHPAsareplayinganimportantroleintheinstitutionalisationprocess.Amongthedifferentcategoriesofservices,sectordevelopmentservicesarestillpredominantlywiththeSHPAs.

3.Well-organisedverticalandhorizontalinteraction,co-operation,andmutualsupportinsuringahighlevelofsectorintegration and coherence

InsomesampleSHGstructures,SHGfederations,especiallytheSLFsareentrustedwithanumberoffunctionsthatarebeyondtheircapacities.AtdifferentlayersofSHGfederations,sub-committeesystemscouldbeseentodischargedifferentcategoriesofservicesorfunctions.However,thesub-committeesystemsareadhocarrangementsandineffectiveinmanycases

4.Transparencyonorganisationalstructuresandprocedures,enablingallresponsibleactorswithinthesystemtomanageandcontrolsectoractivities

AmongsampleSHGstructures,onlyBagnanBCChasdifferentinstitutionstoundertakethevariouscategoriesoffunctions

5.Clearseparationofbusinessandsocialservicesfromthedevelopmentfunction(includingcontrolandauditservices)inordertoavoidconflictofinterests.

AfewrenownedSHPAshavedevelopeddifferentstructuresandinstitutionssuchasproducers’companies,commoditycooperatives,alongwithSHGfederationstotakeupthelivelihoodservices

Resources and Performance

1.Availabilityofappropriatehumanresources 1.EventhoughthecompetenciesareonlyaverageinSHGstructures,thestaffishighlycommitted.Theyareunabletoattractandretainqualifiedprofessionalsbecauseoflowcapacitytopayandnon-availabilityofprofessionalsinthemarket

2.Mobilisingsufficientfinancialresourcesandeconomisingtheirusage

2.InmanysamplefederationsthekeystaffmembersarefromSHPAs.Thishaspotentialtounderminetheself-helpandinstitutionalautonomyinSHGstructures.EvenCRPspaidbySHPAscouldhaveanegativeimpactonthefeelingofownershipamongSHGmembers

3.Accountabilitytowardstheapplicationofresourcesandperformance

3.MostoftheSHGfederationshaveinadequateresourcesforon-lendingandotherpurposes.Still,theyprovidecriticalservicestothemembersinthecontextofwidescalefinancialdeprivation

4.Someoftheresourceswithsamplefederationsaretiedfunds;hence,needtobeutilisedforparticularpurposesonly,irrespectiveofmembers’needsandinterests

5.Certainlegalprovisionsalsohavecertainrestrictionsonmicrofinanceandbusinessoperations

6.Evenwithnumerousandcomplicatedconstraints,SHGfederationsareabletoprovidevaluableservicesthroughmostcosteffectivemethodsbecauseofinherentstrengthsoftheSHGmodelandlowcostoperationsbasedonadherencetocooperativeprinciplesinsteadofmodernmicrofinancepractices

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

Particularly, financial federations have demon-strated their ability to recover their financial and operational costs through a margin of interest and service fees. Many others, which are either multi-purpose or non-financial, are recovering some of their operational costs through member contributions and fees. In these cases, the remain-ing deficits are covered through cross subsidising by the interest margins resulting from financial activities and/or through grants from SHPAs, and fees for acting as implementing agencies of

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Long-term experiences of other countries underline that Liberal Cooperative laws are well fitting for business activities of member-based Self-Help organisations.

government programmes. This policy to recover the cost of federation activities is to be considered as an acceptable response to the current develop-ment stage of many SHG structures. However, it seems to be recommendable to review practices of cross-subsidising which are currently very com-mon, particularly in multi-purpose federations: cross-subsidising deficits in one service function with surpluses in another reduces transparency and makes the control of effectiveness and effi-ciency more difficult.

5.4. Appropriate Legal and Regulatory Framework

SHG federations need an appropriate legal and regulatory framework enabling them to fulfil their role and purpose and to achieve sustain-ability. Appropriate legislation and regulation is not only essential to form the internal constitu-tion, structure, and processing of SHG systems, but also important to gain confidence within the SHG movement. It is also crucial for achieving the necessary acceptance outside the SHG sector, as for example by the SHG target-clientele, busi-ness partners, promoting institutions, and the public at large. The legal or regulatory issue will become even more relevant over time as the SHG structures advance further. The early availability of a proper legal and regulatory framework may contribute to their success and their positioning in the mainstream. On the other hand, inap-propriate legislation and regulation may hamper Self-Help and cooperative organisations to devel-op and achieve sustainability, or may even destroy Self-Help initiatives and cooperative reform ef-forts. In this section, issues related to appropriate legislation, self-regulation and external regulation are discussed. The model or cooperative princi-ples and India’s SHG experience in regard to leg-islation and regulation are presented in Box 5.7.

5.4.1. Appropriate Legislation

In India, there are several laws under which the SHG federations could be registered. These are

- Societies; Trusts – Private Trusts and Public Trusts; Section 25 Company; Non-banking Fi-nancial Corporations (NBFCs); Traditional Co-operative Societies; Mutual Aided Cooperative Societies (MACS); Multi-state Cooperative So-cieties; Cooperative Banks and Producers Com-panies. In general, people are scared of legal is-sues especially the official interventions in their lives and the institution. Most of the institutions want to be free from government regulations and interferences. Therefore, the most preferred legal forms are ‘non-registration’ or registration with least regulation and interference, even though such registration may not be suitable for their business. For instance, many financial SHG fed-erations in north India are registering as societies and public trusts instead of cooperatives, which is more suitable for their business.

As the SHG structures mature there is need for reg-istration under a suitable act. Liberal Cooperative Act may be highly suitable for SHG federations, especially the federations involved in financial and livelihood services. Long-term experiences of other countries underline that Liberal Coopera-tive laws are well fitting for financial as well as for non-financial business activities of member-based Self-Help organisations. In Germany the coop-erative law is suitable for both financial and non-financial cooperatives (primary and higher-tier institutions).27 More than 120 years old and with only few amendments ever since, the relevance of this law has remained strong for both organisa-tions in their initial stages or the well-developed ones. This is because it provides good legal frame-work conditions and ample scope for members’ decisions, by-laws and ‘equal-level-playing-field’ with non-cooperative organisations and enter-prises. However, about two-thirds of states in the country do not have the MACS Act.

5.4.2. Self-Regulation

SHGs and cooperative organisations are suitable for self-regulation, i. e. to be governed and con-trolled by their members and customers. This is

27. The German Cooperative Associations, which are comparable with the ‘development service federations’, are registered as associations according to the Civil Code (BGB) similar to the registration of SHG federations under Society Acts (not-for-profit-organizations).

48

one of their important characteristics and a spe-cific strength.28 This applies to the Indian SHG movement as well. Therefore, the implementa-tion of ‘self-regulation’ or ‘sector-own control’ – as called in this study – has been duly in the centre of attention from its beginning. Many cooperative systems worldwide have dem-onstrated that sector-own control of member-based self-help or cooperative organisations can operate with high effectiveness. The performance of Indian SHG institutions and sample SHG structures is quite dismal with respect to self-reg-ulation (see Box 5.7). As mentioned before, given the poor awareness and limited managerial skills, SHPAs have to play a pivotal role in all aspects of formation as well as the day to day management of SHG institutions. The major issue of concern is that in many instances SHPA resources deter-mine the role transformation between SHPAs, primary members and the agenda of SHG insti-tutions.

5.4.3. External Regulation

According to well-founded international experi-ence, it is generally accepted that for Self-Help or cooperative organisations availability of an ef-fective sector-own control is necessary, but is not sufficient if they are providing financial services. Therefore, in addition to sector-own control, it is necessary to expose them to regulation and su-pervision of the financial sector by financial au-thorities. This usually entails: setting norms and standards for financial institutions, licensing, off-site monitoring, on-site inspections and ad hoc audits and sanctioning. For achieving adequate fi-nancial regulation and supervision of federations and SHG structures, some specific aspects should be taken into consideration by the financial au-thorities:

• SH networks are decentralised, bottom-up multi-tier systems of different sizes and varying

28. In this study, the term “regulation” is reserved for the external control or surveillance (licensing and supervision) of financial institutions through the financial authority (RBI/NABARD). Instead of “self-regulation” of the SHG-sector, the terms “self-govern-ance” and “sector-own control” will be used as described earlier in this study.

29. Sometimes the term ‘delegated supervision’ is used for this kind of ‘indirect’ supervision through financial au-thorities. The study team agreed to avoid this term because the regulation/ supervision is to be seen as the duty of the government/ financial authority, which cannot be delegated to a private organization. Therefore, the study used the term ‘interaction’ in the sense defined.

financial service programmes, often located in remote areas

• SHG institutions belonging to these networks are linked to each other through ownership relations, division of functions, economic and social interdependencies, and obligation of mu-tual support

• Financial federations (including multi-purpose federations providing financial services) are integrated parts of these structures (not stand-alone financial institutions)

• The identity of SHG members as owners and customers and their dependency on the finan-cial viability and sustainability of the SHG system enhances their self-interest on effective regulation and control

In order to achieve effective and economically ef-ficient regulation and supervision, the financial authorities should primarily base their activities on the sector-own control systems of SHG struc-tures. In other words, financial authorities, such as RBI and NABARD, should interact with the SHG sector-own control.29 Interaction means that the financial authorities should be:

(1) Setting regulatory norms and standards for financial services to be fulfilled by the SHG federa-tions when applying for licenses to un-dertake financial services

(2) Promoting the establishment and further de-velopment of the sector-own control mecha-nisms and their implementation both through control and intensive communication with the SHG institutions in charge as well as by setting norms and standards adapted to the specific needs of the SHG sector

(3) Reducing self-regulatory and supervisory ac-tivities mainly to monitor the results of the sector-own-control and the effectiveness and correctness of SHGs’ sector-own control mechanisms

(4) Limiting direct surveillance interventions

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primarily to supplement actions in the case of specific issues to be solved such as of non-compliance of regulatory norms or of default risks

(5) Collaborating with the SHG institutions in-charge of sector-own-control in cases of de-fault risks, rehabilitation, and sanctioning

Besides regulation and supervision through the fi-nancial authorities, financial federations (includ-ing multi-purpose federations providing financial services), like any other federations, are underly-ing the statutory regulation by the registrar as per their respective legal status.

Even very effective self-control and external regu-latory activities cannot fully prevent any risks. As a consequence, the establishment of a protection or stabilisation system aimed at avoiding or com-pensating such kind of losses (or at least limiting

those to a specific limit) is necessary, in-line with good international practice. All stakeholders of the SGH sector, the financial regulator, and the legislator should jointly develop the design and modus operandi for such a system. Sharing in-ternational experience might contribute to find-ing appropriate solutions to important challenges such as:

(1) Stabilisation and protection needs(2) Availability of adequate resources(3) Design of the institutional setting

Protection or stabilisation will become more rel-evant as the federations initiate savings mobilisa-tion (deposit insurance). It is a good international practice that even non-financial cooperative structures have established stabilisation systems specially tailored to their needs.

Model or Cooperative Principles Indian SHG Experience and Field Observations

Appropriate Legal and Regulatory Framework

1.Providespaceforself-initiative,self-governance,furtherfederationdevelopmentandperformance

1.Outof12sampleSHGfederations2arenotregistered,2areregisteredasMACS,4asSocieties,3asTrustsand1underOldCooperativeAct.

2.Takeintoaccountdifferentrolesandpurposesoffederations

2.Outof12sampleSHGfederations2arenotregistered,2areregisteredasMACS,4asSocieties,3asTrustsand1underOldCooperativeAct.

3.Ensurelevel-playing-fieldwithotherorganisationsandenterprises

3.OneprominentfederationisregisteredasaTrustandcarriesoutmicrofinanceoperations.Itrecordsthetransactionsasgrantsanddonationsinitsbooks

4.Promotelegalcompliance 4.Toaccessthefundsfrominternationaldonors,onefederationgotregisteredunderFCRA

5.Encourageconfidencebuildinginternallyandexternally

5.ThoughMACShaslessgovernmentregulationandinterference,itisenactedinonlyelevenstates,i.e.aboutone-thirdofstates

Self Regulation (Sector-own Control)

Importantself-regulationpracticesandtoolsare:

1.Primarymemberstotalinvolvementindevelopmentandadherenceofinstitutionalnormsandstandards

Institutionalnormsandstandardsaredevelopedexternallyandarecentralisedwithoutadequateparticipationofprimarymembers

2.Ultimateauthoritywiththeprimarymembers SHPAsdominatethemanagementofSHGinstitutions.ThispracticeisamajorcauseforthecollapseofAnkuramSanghaPoram(ASP)andhundredsofMACSinAP.

3.Regular(off-site)monitoringandrating Rotationofleadershipisfarfromsatisfactory.Adequateremunerationcouldbepaidtotheleaderstoattractleadershipfrompoorandweakersectionsandmakeleadershipaccountable.

Box 5.7: Model or Cooperative Principles and India SHG Experiences with Respect to Economic Sustainability: Appropriate Legal and Regulatory Framework

50

Model or Cooperative Principles Indian SHG Experience and Field Observations

4.Regularfinancial,managementandgovernanceauditing at every level

Currentregistrationpatternrequiresverylittlelegalcompliance.EveninAP,wherefederationsregisteredunderMACS,legalcompliancewasverypoortillrecently.However,thesituationisimprovingbecauseofaspecialdrivebySERP.

5.ConductingAnnualGeneralBodymeeting(AGM)withoutfail

Theprimarymembershavelimitedawarenessaboutauditreports.Inmostcases,theyhavereceivednofeedbackonauditreportsandhavenothadtheopportunitytodiscussthesame.

6.Regularelectionsandleadershiprotation ComprehensiveSOCexperiencesavailableforsharingintheKamareddypilot.

7.Legalcompliance

8.Separationofdevelopmentandregulationfunctionsandinstitutions

External Regulation and Supervision

1.Self-regulationinself-helporcooperativefinancialorganisationsisanecessarybutnotasufficientcondition.Therefore,inadditiontosector-owncontrol,itisimportanttomakethemsubjecttoregulationandsupervisionthroughthefinancialauthorities

1.Asofnowthereisnoexternalregulatoryframework.Likeanyotherfinancialintermediary,SHGinstitutionsneedregulation.ThefailureofASPinthesamplestructuresandmanyMACSinAPwarrantanurgentneedforregulation.However,whiledevelopingsucharegulationframework,theuniquefeaturesofSHGstructuressuchasbottom-up,multi-levelstructures,integratedfinancialserviceswithotherservicesandSHGmembersasownersaswellasclients,needtobekeptinmind.

2.Inordertoachieveeffectiveandeconomicallyefficientregulationandsupervision,thefinancialauthoritiesshouldprimarilybasetheiractivitiesonthesector-owncontrolsystemsofSHGstructures.

2.MostlikelyNABARDmaybeentrustedwiththeexternalregulationtasks.NABARDisalreadyinvolvedinthesectorbyprovidingdevelopmentsupportandfurtherinvolvementasaregulatormayleadtotheconflictofinterest.30

3.Evenveryeffectiveself-controlandregulatoryactivitiescannotfullypreventanyrisks.Stabilisationsystemsaimingatavoidingorcompensatingsuchkindoflossesareneeded.

3.AsofnowthereisnoeffectiveSOCatthehigherlevel.Institutionslike‘ParyavekyakaSamakya’inKamareddypilotneedtobedeveloped,notonlytosupervisetheinternalSOCprocessedbutalsotodischargeeffectivelythe‘interaction’withthefinancialauthorities

4.Theregistrar’scontrolislimitedtosupervisingtheestablishmentandinternalconstitutionwithrespecttolegalcompliance.

4.Measureslikedepositinsuranceandsystemstabilisationareessentialtoprovideeffectivesavingservicesandprotectthemembers’savingsanddeposits.ThefailedMACSunderlinetheneedforsuchprotectionmeasures.

5.5. Adequate Promotional Support

Three core elements can be identified, which con-tribute directly to adequate promotional support of the SHG sector:

(1) System-development promotion(2) Service or business-related promotion(3) Sector-own promotion

5.5.1. System-Development Promotion

The promotion of system-development comprises of development and implementation, institution and capacity building, managerial and organisa-

tional support and financial assistance to SHGs and their federations. In each SHG system, their own institutional framework, managerial and or-ganisational structure, operations and processing are mainly formed according to the vision, strate-gy, advisory and financial capacity of the SHPA in charge. For most of the SHG structures visited by the study team, SHPAs’ promotion-services still remain dominant and essential. SHG members themselves have mostly been involved as recipi-ents of the promotional support but not as own-ers and decision makers in developing the promo-tion strategy and its implementation. Even direct interventions into the federations’ governance, management and activities sometimes occur. Par-

30. NABARD is already playing the dual role in respect to the Cooperatives Banks. This may be one of the reasons for the poor performance of Cooperative Banking Institutions in the country.

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ticularly, the sector control, including internal audits, is mostly conducted by the SHPAs. Dur-ing the starting phase, this SHPA policy appears to be reasonable and surely necessary in order to respond adequately to the lack of basic knowl-edge, experience, governance, and professional capacities among SHG members. However, some critical consequences for the sustainability of the SHG development need to be taken into consid-eration:

(1) Persisting SHPAs dominance in the SHG de-velopment process hampers the mobilisation of SHG self-help capacity

(2) Leaving SHG members mainly as recipients may increase their dependency on SHPAs’ promotion and reduce the willingness to de-velop their own initiatives and activities

(3) Continuing SHPAs’ direct involvement in federations’ governance, management, and operations prevents SHG members from tak-ing over ownership, leadership, and responsi-bility

But as the case studies demonstrate, the trans-formation process is still in its early phase. Fur-thermore, the various SHG structures are in very different stages of development. However, experi-ence shows that SHGs often have more self-gov-ernance and self-administration capacity available than assumed by the SHPA. Therefore, SHPAs should try and gradually ease their influence and control early enough. They should trust more in the SHGs’ capacity, and appropriately transfer duties and responsibility to the SHG structures.

One of the critical practices observed is the strong control that SHPAs have over SHG structures and their insistence to implement their own vi-sion. Such conduct increases risks like:

(1) SHG development will be one-sided, depend-ing on the respective SHPA, its specific model vision and strategy, limited managerial and professional skills, and inadequate funding

(2) Both SHPA and SHG structure do not con-sider the positive or negative experiences of other promoters and SHG structures which would only improve their own system

(3) Complementary support programmes of oth-

er SHPAs, like NABARD programmes con-tributing to SHG capacity building and in-vestment will not be sufficiently disseminated and used

(4) Promotional programmes remain uncoordi-nated, reducing or counteracting impacts on sustainability

Networks like ENABLE have a positive impact on sharing and up-grading cooperation among SHPAs. The same applies to the exchange of ex-periences on internet through expert forums and queries such as Solution Exchange. Both are use-fully supplementing intensive conference activi-ties.

As observed during the field studies, knowledge on available promotional programmes and the coordination between different promoting stake-holders is still a serious issue, which needs to be solved in order to ensure adequate and comple-mentary support. For example, SHG representa-tives were either not aware or were inadequately informed about NABARD programmes that are designed to support SHG development in ad-dition to the SHPA assistance. As the National Conference on SHG Federations in Pune, March 2010, pointed out, current support programmes of NABARD and governmental institutions still focus exclusively on SHGs without taking the specific promotional needs of the federations

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Model or Cooperative Principles Indian SHG Experience and Field Observations

1.MeettheinterestsandneedsfeltbytheSHGmembers

1.FeltneedsoftheprimarymembersarenotalwaysthefocusofSHGinstitutionalpromotion.31Implementationofsomepre-decideddevelopmentprojectsorsustainabilityofalreadyimplementedprojectsandprogrammeswerealsofoundtobethedriversoftheSHGmovement

2.TakeintoconsiderationresourcesavailablewithinSHGs

2.ThefullpotentialofSHGmembers’investmentandmanagerialcapacitieswerenotgenerallymobilised.Suitabletoolsandpracticesarenotemployedforthesame.

3.Integratetherecipientsintoprojectdevelopmentandimplementation,transformingtheirrolefromthestartasownersandleadersofthepromotionproject

3.VeryfewSHPAshaveclarityonmember-owned,membermanagedinstitutionsthatmeettheneedsofmembers.Therearehardlyanymethods,practicesandtoolsfortheprimarymemberstotakechargeoftheirinstitutions.Thereisurgencytodemystifytheconceptsandpracticeslikeauditing,internalcontrols,MCPetc.andanchorthemtopeople’sownconcepts,termsandpractices.

4.Avoidanyexternalinterferencewhichcouldcounteractself-helpdevelopment

4.OverallavailablepromotionalandloanfundsarequiteinadequatecomparedtotherequirementandarequiteunevenlydistributedamongtheregionsandinstitutionsThereisseveredearthofHR,resourcematerialsandresourceorganisations.

5.Mobilisesufficientadvisoryandfinancialresourcesaswellastimeforprojectrealisation

5.Therearemanypromotingagenciesinsomeregions.CompetitioncouldbeseenbetweenGovernmentAgencies(GAs)andNon-GovernmentAgencies(NGOs);betweenGAandGA;betweenNGOandNGO;andbetweenSHPAsandMFIs.InsomeregionsseverecompetitioncouldbeseenamongallkindsofSHPAs,SHGfederations,MFIsandotherserviceprovidersincludingbanks.

6.Ensurecompatibilitybetweenseveralpromotionalefforts

6.Thereisgoodscopeoflearningfromeachother.However,thereareveryfewopportunitiesformutuallearningamongdifferentSHGstructuresandSHPAs

Box 5.8: Model or Cooperative Principles and India SHG Experiences with Respect to Economic Sustainability: Adequate Promotional Support - System Development Promotion

properly into consideration. The model or cooperative principles and Indian SHG experiences in respect to system develop-ment promotion are presented in Box 5.8.

5.5.2. Service or Business-Related Promotion

Another promotional core element is the service or business related impact. Service or business related promotion can also be described as pro-motion through ‘training on the job’ or ‘learn-ing by doing’. Their effects may be fourfold: (i) extending and enriching the scope of the service and business functions, (ii) contributing to ef-fectiveness and economic efficiency, (ii) promot-ing system development, and (iv) increasing and

stabilising attractiveness as well as acceptance of SHG structures.

‘Learning by doing’, according to all experiences, has usually a high promotional effect. In contrast to the formerly described system-development promotion, which has mainly been dominated by the SHPAs, this promotion will be characterised in principle by partnerships based on a level play-ing field and on transparent contractual relations. On the one hand, the promotional effect depends on the willingness and capability of federations to extend and enrich their support services to mem-ber SHGs, on the needs felt by SHG members and on the competitiveness of the contractual conditions. On the other hand, the promotional effect is subject to influence by (public and pri-

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

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vate) partners and contractual organisations.

Promotional support measures related to the ser-vices of federations and business needs should be tailored adequately in order to achieve maximum effectiveness. If this is guaranteed, taking into consideration the capacity of SHG federations, they will additionally contribute to fortify posi-tive effects on SHG-development. Accompanied by specific promotion or coaching activities by partner organisations and/or the SHPAs, this will ensure proper service and product introduction and usage. Both aspects are similarly relevant for all the three areas of federation activities, viz. fi-nancial, livelihood and social development. These are further elaborated below.

Financial ServicesWith regard to the promotional effects of finan-cial services, the SHG Bank Linkage Programme supported by NABARD has been in focus so far. The study team was informed that the main reason for making the Linkage Programme man-ageable for SHGs and enhancing the bargain-ing power against banks is to organise mutual support and pool in common interests through setting up of federations. These aspects are also relevant for other financial services such as gov-ernmental credit programmes for SHGs and their respective SHG members, refinancing contracts with mainstream banks and MFIs for on-lending to SHGs, collaboration with micro-insurance companies, etc.

As observed by the study team, participation in the Linkage Programme differs significantly among different SHG structures, even in the same states. Reasons for non-participation can be found on both sides, i.e. banks as well as SHGs. The role of federations, conducted mostly by (informal) clus-ter federations, is still limited to support member SHGs in preparing loan applications and nego-tiating with the banks. Block-Level Federations willing to undertake financial intermediation are often not directly involved in the Linkage Programme and its accompanying promotional activities. Modifying the Linkage Programme and developing it further into a comprehensive ‘step-up concept’ which aims at reaching block-level or even higher level federations should be

considered; if they are interested and prepared to undertake financial services on their own. Once the SHG system is adequately prepared, expand-ing financial resources to supplement the service programmes of federations will increase access to proper credit services and reduce the dependency on financial or grant providers.

Despite all the limitations and challenges, federa-tions are providing much needed critical finan-cial services to their members. In some regions federations become sole providers of financial services. Federation financial services are more affordable compared to MFIs, input suppliers and informal sources. Therefore, federations need to be capacitated to provide financial services in needy regions. As of now, SHPAs and the gov-ernment are important sources for federations to fund on-lending. Often, these grants increase the direct involvement of SHPAs in the function-ing of federations with unwanted consequences. Further, federations become less accountable to SHGs and more bound to SHPAs or the govern-ment because of these grants. Such grants may be routed through SHGs as their share capital with conditions like payment of annual bonus or divi-dend to SHGs.

Livelihood or Non-Financial Business ServicesLike financial services, the livelihood services are essential for people to overcome poverty and achieve economic prosperity. In Germany for instance, from the early beginnings of the coop-erative movement, livelihood activities had been as important as financial services. They have sig-nificantly contributed to the improvement of the economic and social situation in rural as well as urban areas. Till today, most German farmers and craftsmen are members of non-financial coopera-tives, using them for input, processing, and mar-keting support services. As of now, like in providing financial services, the SHG federations in India also have certain chal-lenges in providing livelihood services such as appropriateness of services, limited financial and technical expertise, and inadequate advisory and other support. Further, lack of appropriate in-stitutional structures also hamper these services. Almost all sample SHG structures are providing livelihood services ranging from bulk purchase,

Despite all the limitations, federations are providing much needed critical financial services to their members. In some regions federations become sole providers of financial services.

54

technology transfers, common processing facili-ties, group enterprises, marketing of SHG prod-ucts and also branding of SHG products. Though there are a few very interesting experiments such as separate institutional structures for livelihood promotion in the case of SKDRDP and Bagnan; branding of SHG products at SKDRDP and JT-WDS; and technology transfer and trainings at SKDRDP and PRADAN – Saheli Samithi, the livelihood services are in nascent stages in most of the sample structures. Further, the Commu-nity Resource Persons (CRPs) are one interesting livelihood extension innovation in RGMVP and other few sample federations that are worth rep-licating.

However, the SHG federations often lack suf-ficient knowledge, skills and financial resources which could enable them to adequately organise and institutionalise the support to their member SHGs. Therefore, in order to provide effective advisory and financial assistance to federations interested in livelihood or non-financial busi-ness (seed capital) it is essential to mobilise ex-ternal promotion. However, this should not be addressed to SHPAs only, but should include contractual and other business partners of the federations. Usually, it is in the interests of both sides, the federations as well as their partners, to develop a sustainable basis for accurate, trustwor-thy, and economically efficient partnerships.

Social servicesGenerally, SHPAs promote social services by granting financial assistance and/or by assigning Community Resource Persons. Accessing and participating in government schemes and ser-vices which improve the social situation of the rural poor, and women in particular, is another important part of social services provided by SHG structures. Sometimes these governmental schemes and services are supplemented by similar social service projects offered by NGOs. The pro-motional effects on SHG structures while under-taking these duties are significant. In particular, it enriches social service programmes offered by SHGs if they provide access to additional, ur-gently needed services to certain groups of their

member-base. Furthermore, assuming that con-tractual conditions are adequate, the programme extension will also contribute to the economic sustainability of the SHG structures. In order to properly mobilise these promotional effects, some aspects need to be taken into consideration:(1) Lack of transparency about available govern-

ment and NGO social schemes and services hampers SHGs’ access to these programmes. Therefore, the programmes’ objectives, con-tents, conditions, organisational procedure, etc. need to be effectively disseminated by the providers

(2) Participating in governmental social schemes and services should be based on contracts characterised by a level-playing field between the partners promoting self-administration and self-responsibility of the SHG move-ment. Contracts should include remunera-tion, thus adequately compensating the fed-erations for providing support services to SHGs and respective SHG members. SHG structures should not be used as channels or quasi-governmental agencies for the delivery of government schemes and services.32

(3) Participation in and implementation of social schemes and service programmes should ad-equately respond to the needs of SHG mem-bers.

(4) While ensuring proper programme imple-mentation, the provider should offer appro-priate introductory and stand-by support to the SHG structure.

(5) In order to adequately respond to these as-pects and to improve programme effective-ness, involvement of federations at least at block-level, or if possible, even at district or higher level is desirable.

The model or cooperative principles and Indian SHG experiences and field observations regard-ing service and business related promotion are summarised in Box 5.9.

5.5.3. Sector-Own Promotion

It can be clearly observed among important coop-erative organisations that self-promotional activi-

32. C.f. policy recommendation of the Pune Declaration.

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33. Because of this principle, the cooperative banks in Europe are not (or not so much) affected by the recent financial crisis

Model or Cooperative Principles Indian SHG Experience and Field Observations

Financial Services

1.FinancialintermediationisthenaturalagendaofSHGfederations.Aseffectivefinancialinclusionhasprovedtobeoneofthemostcriticallivelihoodservices,SHGfederationshavetobesupportedtoprovidefinancialservicesmosteffectively

1.FacilitationofSHGBankLinkageisoneofthemostcrucialtasksofSHGfederationsinmostsamplestructures.However,federationsareunabletodeliverthisfunctionsincebanksarenotenthusiasticaboutSHGBankLinkages

2.Giventhecomplexityandrigorousnessoffinancialmanagement,federations’operationshavetobelimited,i.e.turnover,loansize,etc.Cooperativeprinciplesshouldgovernthefinancialintermediationandfunctionsoffederations.Insteadofshort-termprofitmaximisation,focusshouldbeonthewelfareoftheclient-memberrelationshipandlong-termgainsandinstitutionalsustainability33

2.Assavingsorthriftprovedtobeoneofthevitalbindingfactorsinfederations,manyfederationsarecollectingthriftsfromSHGs.However,someofthefederationsarenotableusethefundseffectivelyandafewhavereturnedthemoneytoSHGsoccasionally.ThesefundscouldbeusedascollateralforSHGbanking.

3.Federationsmayhavediversesourcesofcreditandfundsfortheirlendingoperations.However,mobilisationofinternalsavingsanddepositsmaybegivenimportance

3.Somesamplefederationshavetakenupfinancialintermediationtoaddresscriticalandbasicfinancialneedsoftheirmembers.Othershavetakenituptoearnthenecessaryresourcestomeetfederations’organisationalandfunctionalneeds.Andafewhavetakenituptochannelizegovernmentordonorfundingsupport.

4.Introductionofotherfinancialservicessuchasinsurance,pensions,remittance,etc.maybedependedonprimarymembers’informeddecisions

4.SHPAsareplayingamajorroleinthemanagementoffinancialservices,whichalsoprovedtobetheundoingofafewfederationslikeASPandotherfailedfederations(MACS).Forsustainabilityandeffectivefunctioningoffinancialfederationsandservices,theprimarymembersneedtobecapacitatedandfriendlysystems(cooperativeprinciples/philosophy)needtobeintroduced.

5.GrantsfromSHPAsandthegovernmentareimportantsourcesoffundsforfederationstouseforon-lending.Often,thesegrantsincreasedirectinvolvementofSHPAsinthefunctioningoffederations,withunwantedconsequences.Further,thesegrantsdecreasethefederation’saccountabilitytowardstheSHGsandtheytendmoretowardsSHPAsandthegovernment.SuchgrantsmayberoutedthroughSHGsastheirsharecapitalwithconditionslikepaymentofannualbonusordividendtoSHGs.

6.OnlyonesampleSHGstructurehasrealsavingsordepositservices.Therearenoappropriatesavingsordepositprotectionframeworkandincentivestructurestomobilisesavingsanddepositsfrommembersandnon-members.

7.InmostofthesampleSHGstructuresthirdpartyinsurancecontractswereapparentlysold(forced),notmarketed.

Livelihood Services

1.Livelihoodservicesareequally,ifnotmore,importanttoallotherservices.Theyhavesignificantlycontributedtotheimprovementoftheeconomicandsocialsituationinruralaswellasurbanareas.

1ThereareveryinterestingandusefullivelihoodservicesfacilitatedandsupportedbySHPAs,suchascommonmarketing,separateinstitutionalstructures,bulkpurchases,commonproductionandprocessingfacilities,leasingoutoffarmequipment,branding,hire-purchases,technologytransfer,trainings,skilldevelopment,etc.However,theseservicesaretoofewandlimitedtooneortwolocationsorSHPAs.Stilltheseservicesappearedtobemoreprevalentandprovedtobeusefultomembers.

2.Tilltoday,mostGermanfarmersandcraftsmenaremembersofnon-financialcooperatives,usingthemforinput,processing,andmarketingsupportservices.

2.SHPAsplayacrucialroleinthebasketofservices,whichinturnisdeterminedbytheirresourcepositionandphilosophy.

3.Forsustainability,theseserviceshavetogeneratenecessaryresourcesthroughservicefeeandpricespread.

3.ExceptinSKDRDP,thereisnotmuchdistinctionbetweenmicrofinanceandlivelihoodfinanceinthesampleSHGstructures.However,infewstructurestherearededicatedfinancialassistancesforcertainIGAs.

4.Manyaccessallavailablesupportandassistance,alongwithaccessingthemarketseffectively.

4.Someoftheagriculturerelatedservicesrequireinvolvementofmenorthefamily.OnlySKDRDPisworkingwithmengroupsalongwithwomenSHGgroups.

5.ClearagreementsbetweenSHPAs,suppliersandfederationsaredesirableindeliveringtheseservices.

5.SupportfromSHPAsandotherresourcesarepredominantlybeingusedforprovidinglivelihoodservices.

6.Mostofthesamplestructuresinprincipleare,accessingsupportfromallkindsofsourcessuchasgovernment,corporatesectoranddonors.ButSMBTofSNFLisnotaccessinggovernmentsupport/programmes.

Box 5.9: Model or Cooperative Principles and India SHG Experiences with Respect to Economic Sustainability: Adequate Promotional Support: Service and Business Related Promotion

56

Model or Cooperative Principles Indian SHG Experience and Field Observations

Social Services

1.Internationally,almostallfinancialandlivelihoodcooperativesareonlyindirectlyinvolvedinprovidingsocialservices.

SocialintermediationisoneofprincipalfunctionsofSHGfederations.However,federationsareunabletoprovideadequateservices,becauseofvariouslimita-tions.Theeffectivenessofthefederations’socialser-vicesmayalsodependonthesuccessoftheirfinancialandlivelihoodservices.

2.However,parallelcomprehensivenetworksofSelf-Help,cooperative,andcharityorganisationsfocusdirectlyonsocialservices.

MostsampleSHGstructureshavetheirownsocialsecurityservices.

3.Exactbasketofthesocialserviceshastobedeterminedaccordingtothelocalcommunitycontext.

SHPAshavebeenplayingamajorroleinthebasketofsocialservices.Healthawarenessisquiteprevalentandveryusefultothemembers.

4.Resourcesfortheseserviceshavetobemobilisedtransparentlybythefederations.Concealedcrosssubsidisationfrommicrofinanceorotherincomegeneratingservicesmaynotbedesirable.

SupportfromSHPAsandothersourcesarepredomi-nantlybeingusedinprovidingtheseservices.

5.ClearagreementsbetweenSHPAs,suppliersandfederationsaredesirableindeliveringtheseservices.

Mostofthesamplestructuresinprincipleareaccessingsupportfromallkindsofsourcessuchasgovernment,corporatesectoranddonors.Butoverallaccesslevelsarefarfromsatisfactorybecauseofseverallimitations,includinglesspublicityaboutavailableprogrammesandSHPAs’philosophyandcapacity.

ties contributed fundamentally to their current independence from external, in particular gov-ernmental, interference. This promotion can be achieved especially through exchange of experi-ences, mutual support, joint operations, and joint operating institutions of federations belonging to different SHG structures.

Cooperative organisations, which are operating successfully today, have mainly relied on sector-own promotional activities during their develop-ment. Of course, external or business related pro-motion has always been acceptable, if available and supportive of own objectives, but they have played a subordinate role only. The development and usage of sector-own promotion usually is the duty of cooperative second-tier or higher level in-stitutions. However, it is and should be based on decisions of as well as be controlled by the affiliat-ed primary institutions and could then be imple-mented with their own financial contributions.

Other cooperative organisations either newly established or in the process of reforms, often

depend on external (national and international) technical and financial assistance (especially in the start-up phase). Growing independence from external influence as well as the mobilisation of institutional self-initiative and Self-Help capacity supports these cooperative organisations in their efforts to achieve a higher degree of sustainability.

Promotional interaction like exposure visits, ex-change of resource persons and practitioners, na-tional conferences etc. can be taken as examples. However, mainly due to the huge socio-economic and geographical problems with which SHG members are confronted, these initiatives still remain rudimental and mostly depend on the availability of SHPA and governmental support. But the high commitment shown by SHG rep-resentatives who have participated in these in-teractions, the intensive discussions within the SHG structures on lessons learnt, and concrete significant results which had been demonstrat-ed to the study team confirm the prominence of Sector-Own promotional efforts for SHG-sector development and sustainability.

34. It is not just implementation of a set of tools and practices. It is the process of implantation in which the primary members play all-important roles including decision making, and external stakeholders remain as facilitators and advisors. With similar visions some SHPAs have accomplished stupendous success in promotion of high quality, effective and sustainable SHG institutions. See the case of PEDO in APMAS and CmF, 2006.

35. APMAS, under Kamareddy SOC pilot project, prepared with DGRV’s financial support, a set of 15 self-learning and self-doing booklets covering different aspects such as savings, loans, auditing, interest rate setting, book keeping, etc. These books have been translated into Hindi, Telugu, Marathi, Bengali, Gujarati and Kannada by ENABLE network member organisations.

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The Kamareddy pilot sheds light on an additional aspect of Sector-Own promotion. The implemen-tation34 of an effective Sector-Own control and stabilisation system, if properly institutionalised, enables SHG-structures to induce a permanent internal self-learning process of the sector. Anoth-er important step towards effective and efficient Sector Own promotion is to systematically ana-lyse Sector-Own control and stabilisation results by using them to supplement, modify or intensify efforts of SHG development.35 Well-operating Sector-Own self-learning processes have a proven positive impact on the success of many coopera-tive systems worldwide.

Different SHG structures are still generally op-erating as standalone organisations, mainly rely-ing on their own (and on their SHPA’s) capacity and resources. Consequently, it may happen that they are confronted with capacity constraints, limiting them in providing essential services to SHG members. These can be, for example in the involvement in governmental promotion pro-grammes, undertaking new business services, re-sponding to training needs, etc. In many cases the federation building stops with the establishment

of block-level federations. Efforts to establish dis-trict-level or even apex federations, which could link and serve different block-level structures, are not undertaken. This practice of remaining de-centralised may only be acceptable, in particular, during the early start-up phase, thus allowing members to maintain their commitment, and to ensure controllability of the institutional set-up. Insufficiencies of the institutional set-up and deficiencies in the capacity of existing federation structures need to be accepted in the present situ-ation. However, there is an urgent need for high-er-level structures to properly support the SHGs and their members. Therefore, some possible in-terim solutions are listed, which could however serve as permanent practices:

• Contractual arrangements between different SHG structures aimed at jointly implementing government and other support programmes for SHG members: one of the contract partners could take the role of programme leader, acting on behalf of the other structures, coordinating and supporting programme implementation.

• Collaboration between SHG structures aimed at commonly undertaken business operations:

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Model or Cooperative Principles Indian SHG Experience and Field Observations

1.TheroleofpromotershastochangeovertimeaccordingtotheprogressmadeinSHGdevelopment.LeadershipandresponsibilityofsectordevelopmentwillbeassignedmoretotheSHGsandtheirfederations.SHPAswilltransformfrompromotertofacilitator.

1.ThemutualpromotionofSHGsforinitiatingandestablishingnewSHGsisthemostcommoncase,enablingthespreadoftheSelf-HelpideaandtheextensionoftheSHGnetworks.SHGinstitutionsprovedtobethemostcosteffectivemethodforsectordevelopment.

2.Promotionalinteractionlikeexposurevisits,exchangeofresourcepersonsandpractitioners,nationalconferencesetc.mayfacilitategoodSectorOwnPromotion.

2.ExchangeofexperienceandmutualsupportwithinasingleSHGstructure,facilitatedbythehighertierinstitutions,canalsobefound.Especially,thevillage-basedclusterfederationshaveprovedtobeasuitablebasisforsector-internalself-learningandmutual-supportactivities.

3.NetworkingamongSHGfederations;jointimplementationofvariousdevelopmentalandsectordevelopmentprogrammesbythefederations;andcommonuseofsecondaryinstitutionssuchastrainingfacilities,CRPs,etc.fosterSectorOwnPromotion.

3.ThereisgreatpotentialformutuallearningandsupportofSHGstructurespromotedbydifferentSHPAs.ItcanbepositivelynoticedthataprocessofexchangingexperiencebetweendifferentSHGstructuresaswellasbetweendifferentregionshasalreadystarted.

4.InitiatingandorganisingSectorOwnPromotionactivitiescouldbeeffectivelyconductedbyfederationsbeyondtheblock-level.

4.InthesampleSHGstructures,thetransformationprocessisstillinanearlyphase.Furthermore,thevariousSHGstructuresareonverydifferentdevelopmentstages.TheSHPAs’resourcesandphilosophydeterminethetransformationprocess.SHPAs,withtherightvisionareabletopromotehighquality,effectiveandsustainableinstitutions.

5.Thereisawidespreadmistrustabouttheprimarymembers’abilitytomanagetheirinstitutionsandfunctions.However,theprimarymembershavefarmorepotentialandcapabilitiesthanpresumedbyothers.

6.Tobringoutthebestintheprimarymembers,asystemofadequatecompensationforthetimedevotedbytheprimarystakeholders,needstobeintroduced.Further,theSHGinstitutionsneedtobedevelopedbasedonthecontextoflocalresourcesandcooperativeprinciples.

Box 5.10: : Model or Cooperative Principles and India SHG Experiences with Respect to Economic Sustainability: Adequate Promotional Support: Sector Own Promotion

a ‘consortium’ rather than a stand-alone struc-ture would be able to negotiate proper business contracts with mainstream banks and corporate organisations based on improved bargaining power.

• Clustering of different SHG structures in or-der to develop and implement new services, procedures, and organisational structures: The Kamareddy cluster pilot may properly demon-strate the usefulness of this solution.

• Common use of secondary institutions such as training facilities, data processing, auditor ca-pacity, stabilisation systems etc.

All these sector-own promotional activities un-derline the importance and the central role of federations in this process. So far, at least some of the duties mentioned have been conducted by SHPAs. However, with the stepwise withdrawal of SHPAs from promoting their SHG structures, the SHGs and their respective federations need to face these challenges and make efforts to develop solutions with their own resources. The model or cooperative principles and Indian SHG experi-ences and field observations regarding service and business related promotion are summarised in Box 5.10.

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Chapter 6

Summary and Strategic Conclusions

Indian SHG movement proved to be one of the world’s largest and most successful networks of community based organisations. With about 97 million members/ households, approximately 7.5 million savings linked to SHGs, ` 70 billion sav-ings in banks and about 4.8 million SHGs with ` 312 billion total loan outstanding (as of March 2011; NABARD, 2011), Indian SHG Bank Linkage has emerged as the world’s largest com-munity based microfinance model. However, the sector is facing several critical challenges such as policy contradictions, unenthusiastic banks, less promotional support, inadequate capacity build-ing infrastructure and sustainability.

According to the general understanding and vi-sion of the SHG movement in India, SHG insti-tutions in spirit are cooperative organisations with a major focus on women. Globally in the last 150 years cooperative systems have proven to develop under different circumstances and challenges, transforming into successfully operating eco-nomically sustainable enterprises. Those Indian SHG institutions that adhered to the cooperative

principles were successful and achieved sustain-ability. Bagnan Credit Cooperative is an excellent example. Yet, most SHG institutions in India are adopted by government agencies and converted into profit making organisations or are promoted by NGOs as microfinance institutions. In both these cases, the potential of SHG institutions was not realised and their sustainability remains un-certain. To realise the full benefits of SHGs and to make them sustainable, the SHG structures may be promoted with cooperative principles and val-ues with minimal or no external or government support and interference. The SHG institutions may be allowed to develop on cooperative values and principles with open membership in different sectors and regions. Most of the successful coop-erative systems have the following fundamental features in common:

1. Self-help, self-administration, self-responsibili-ty and mutual support

2. Owned and controlled by members and com-mitted to the members of the community, without state interference

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3. Operating as ‘not for profit’ but observing eco-nomic criteria in their functions

As per model cooperative or Self-Help institu-tional principles, primary members have to be involved from the beginning in the formation of vision and strategy and institutional building; have to take charge of their institutional govern-ance, management and functions; have to mo-bilise and contribute all necessary resources etc. However, SHPAs are playing a dominant role in promotion, governance, management and func-tions of Indian SHG structures. The primary members are highly dependent on SHPAs for advice, resources and personnel. Although, given the general illiteracy, poor awareness and poverty, there are no alternatives to the dominant role of SHPAs, at least in the initial stages. The current process in developing SHG institutions and their implications are:

1. While SHG institutions need to be promoted as ‘self-help’ institutions “of the members, for the members, by the members”, they are pre-dominantly being promoted as profit making organisa-tions. Possible reasons for this are:

a. Communication gaps within SHPAs and/ or lack of skills and expertise of field staff

b. Target approach, which may compel the ‘com-promises in processes’ and ‘adoption of short-cuts’ to lure the members and inclusion of non-target members

c. Lack of resources with SHPAsd. Absence of clear vision, strategies and expertise

within SHPAs

2. The position of resources and funds with SHPAs often determines the pace and process-es of role transformation between SHPAs and primary members

3. The primary members seldom have a feeling of ownership towards SHG institutions and are reluctant to increase their stakes, contributions

and involvement and prefer to remain as ben-eficiaries

To promote quality SHG institutions, SHPAs need adequate resources, time and capacity building, espe-cially on issues related to SOC to increase and enable the primary stakeholders’ stakes and involvement in SHG institutions.

Financial intermediation is the natural function of SHG federations. Despite so many challenges, the SHG structures, in the Indian sample, are able to provide many critical services, especially financial and livelihood services. The MFIs are often projected as a better alternative compared to financial federations for providing financial services. In fact, MFIs are in no way competi-tors of the financial federations. With effective lending rates of 30% to 40%, MFIs can at best provide emergency credit and misguided con-spicuous consumption credit, but development credit. Even with the credit at 26% rate of in-terest (as recommended by the Malegam Com-mittee), people may not find many viable Income Generating Activities (IGAs) to repay 26% and retain all the (benchmark) returns due to their own labour, fixed assets and other investments and inputs. While paying high interest rates on borrowed funds, invariably the MFI clients may not be recovering their rightful dues. Hence, they remain poor and vulnerable, even after many cycles of borrowing from MFIs and other high cost sources.36 The recent crisis in the MFI sector confirms the same. The financial federations are providing credit to their members at much cheap-er rates compared to MFIs. It is not just due to subsidised funds and grants.37 The financial fed-erations operate with low overhead expenses, be-cause they manage the last mile connectivity with social capital, rather than (highly) paid staff. SHG institutions proved to be effective and having very useful social capital, which is essential, just like physical capital, in the development process. Hence, the state has to invest in the promotion of SHG institutions. In this way, the promotional

36. Bangladesh has very high rate of poverty despite extensive as well as intensive microfinance availability for a very long period.

37. The Bagnan Credit Cooperative is able to provide credit at around 14% - 15% rate of interest, without any grants and exter-nal assistance.

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costs may be treated as development investment. As direct SHG Bank Linkage eluded most of the states and sections, especially the needy states and social categories, financial services rendered by the SHG federations are indispensable.

As of now in most of the financial federations, primary members are not able to take charge and the SHPAs and its staffs are playing the predomi-nant role in management of the institutions and functions. The possible reasons for this are:

1. Inadequate investment in the capacity building of the primary members

2. SHPAs’ lack of trust on the ability of primary members to manage the financial functions and institutions, hence no role transformation

3. Other stakeholders such as NABARD and banks also do not trust the abilities of SHG women to manage financial federations and services. NABARD is yet to accept the pro-posal of allowing financial intermediation by the SHG federations.38 Banks are also sceptical about the abilities of SHG federations to man-age financial services. As a result, the SHPAs remain important sources of funds for many federations, which may compel them to in-volve rather deeply in the functioning of the federations.

4. Because of legal restrictions, some of the fed-erations are not able to mobilise savings and deposits from their members and member or-ganisations in some states and continue to de-pend on SHPAs.

5. In most of the federations the financial services are based on microfinance practices, at times as per the dictates of the computer programmes, instead of the cooperative values and princi-ples.

This clearly suggests that financial intermediation by SHG federations is absolutely necessary. The moot question is not “whether SHG federations (are) suitable or not for financial intermedia-tion”, but “how to make the SHG federations as providers of effective financial services”. Na-

tionally and internationally, evidence suggests that the primary members have much higher organisational and managerial capabilities than presumed by others. Perhaps the primary stake-holders have better context specific knowledge and are rightly placed to build further on the lo-cal development processes. To mobilise and pool the managerial capabilities from all sections of primary members, a system of compensation for the time dedicated for functions in SHG Insti-tutions may be introduced to the leaders, with the condition of compulsory rotation of leader-ship at specified periodicity. The following sup-port and facilitation may enhance the effective financial inclusion through financial federations:

1. NABARD may extend funding support to fi-nancial federations, by amending its Septem-ber 2007 guidelines.

2. NABARD and Government of India may encourage the promotion of new SHG insti-tutions on cooperative values and principles and increase the primary members’ stakes and involvement in existing SHG institutions, through self-regulation practices and tools.

3. Banks may be encouraged to invest in promo-tion and strengthening of SHG institutions, including financial federations.

4. NABARD may actively facilitate Federation-Bank linkages by obtaining necessary guide-lines from RBI, orientating banks through capacity building, refinancing, credit guaranty etc., and arranging external regulation, includ-ing safety measures which are aligned to Sec-tor-Own control and stabilisation.

There is no doubt that primary members have the inherent capabilities to manage financial services. However, they have limited and context specific knowledge and expertise. They may manage fi-nancial services better on the cooperative values and principles. Although, over time they may im-prove their managerial capabilities and may un-dertake complex functions. To start with, limited financial services by the SHG federations may be initiated in the financially excluded states and

38. In September 2007 notification, NABARD proposed to provide financial assistance for strengthening of only non-financial federations.

Because of legal restrictions, some of the federations are not able to mobilise savings and deposits from their members and member organisations in some states.

62

regions, with context specific cooperative values and principles. Over time the scope of financial intermediation may be increased. Finally, SHG federations may be qualified for conducting full-fledged retail banking services as it is proved by successfully operating sustainable cooperative fi-nancial systems world-wide.

Like financial services, livelihood services are also a core function of cooperatives around the world. A variety of very interesting and effective liveli-hood services could be seen in SHG institutions across the country. Yet, most of them are confined to isolated institutions. Networking and/or feder-ating with other SHG structures would be very effective in providing valuable and more effective livelihood services. Through such networking, cooperatives in many countries have been able to reach a market position allowing them to serve as countervailing powers in the interest of their members and customers. Clear contractual ar-rangements with SHPAs and partners are neces-sary.

Unlike most of the international cooperative or-ganisations, Indian SHG institutions are rightly involved directly in social intermediation. Net-working with other SHG structures and clear contractual arrangements and transparent fund-ing arrangements are required for effectively per-forming this vital function and accomplishing institutional sustainability.

As of now, majority of the SHG structures are providing multiple services. However, over time separation of functions and institutions is neces-sary to gain more in-depth expertise and to pro-vide advanced services to members in the future. There is vast scope for mutual learning from each SHG structure across the country. SHG insti-tutions need a variety of interactive forums for learning from each other and collaborating with each other.

The study results so far indicate no clear prefer-ence for a specific strategic model of existing fed-eration structures or of promotion policy among the cases analysed. This is well justified because: (i) the field studies show that federation build-

ing is generally still in progress and mostly at an early stage. Therefore, the results achieved so far, though significant, might be still con-sidered as preliminary and not yet sufficiently comprehensive.

(ii) The SHG structures visited are strongly rooted in and influenced by their specific socio-eco-nomic environment. SHG members belong-ing to these structures are generally commit-ted to their present system and familiar with its organisational structure and procedures. Shifting to another model would raise un-necessary risks of non-acceptance, additional (new) need of capacity building, additional promotion efforts etc., without ensuring bet-ter results towards sustainability.

Nevertheless, varied comprehensive experiences as well as good and critical practice gained and proven by the SHG sector and by its promoters, are well qualified to meet the strategic challenges. To include appropriate long-term experience of well-operating, mature cooperative organisations in India and from other countries as well, should be supportive in this process. These lead to the conclusion that combining both, experiences from within the SHG Sector and its promoters and proven principles of the cooperative organi-sations, results in a cooperative-oriented model of SHG structures ready for replicating, sharing, and scaling-up as well as for preparing and maintain-ing sustainability of the SHG movement. Based on this cooperative model SHG structure, a set of practical guidelines or a strategic road map has been developed. This will help the SHGs and their federations, supported by the respective SHPAs, to elaborate a common vision, strategy and plan-ning for the further development to achieve and/ or secure sustainability (Appendix – 2).

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Appendix – 1

Cross Analysis of Sample SHG Federations and Structures

Federation Total Assets Value Assets per SHG Assets per member

ASP – Janatha MACS 1,968,762 16,137 1,643

ASSEFA/SNFL-SMBT 18,948,635 70,969 3,788

DonBosco-JTWDS 241,703 1,726 127

CDHI-UBTMS 8,476,213 16,620 1,078

Bagnan-BCC 67,396,794 74,062 5,041

Ibtada – Savera 2,153,684 16,440 1,478

Myrada – HDP CMRC 1,838,918 39,976 2,407

PRADAN – Saheli Samiti 30,668 210 15

RGMVP-SMS 74,696 69 6

SB-SMF 140,063 1,360 107

SERP – Chaitanya MS 26,479,932 28,321 2,406

SKDRDP–Kaniyoor - -

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

Total assets of sample federations as per their latest Balance Sheets (in `)

Name of federation

Total income (in `)

% share in total income

Interest on mF Service fees Income on Investments

Grants/ donations

ASP – Janatha MACS

436,778 70 6 0 24

ASSEFA/SNFL-SMBT

3,492,020 98 1 1 -

Bagnan-BCC 7,659,059 93 4 3 -

CDHI-UBTMS 1,490,554 90 5 5 -

DonBosco-JTWDS

6,886 51 44 6 -

Ibtada – Savera 401,638 36 64 - -

Myrada – HDP CMRC

219,698 33 63 1 3

PRADAN – Saheli Samiti

686,889 - 73 0 27

RGMVP-SMS 189,337 - - - 100

SB-SMF 132,096 2 98 - -

SERP – Chaitanya MS

3,635,705 24 1 3 72

SKDRDP-Kaniyoor

-

Average income 1,668,242

Source of income in sample federations

64

Federation Total staff Local staff Who pay the salary Remarks

ASP – Janatha MACS 2 1 SHPI Staffhastotaldominationoverthefederation(Fed)

ASSEFA/SNFL-SMBT Chair+ 12 3 SHPIpayChairman’ssalary&Fed.paysforresttheofemployees

Itisspendingsignificantamountonstaffsalaries

DonBosco-JTWDS 7 6 Federation DependentonSHPIforprofessionalsupport

CDHI-UBTMS 4staff+46agents

46 SHPIpays4employees&Fed.payscommissionto46facilitators

Clusterleadersactasagentsandgetpaid.Thereisnotmuchleadershiprotation

Bagnan-BCC 62 60 Federation Availabilityofalargenumberofstaffmadetheprimarymemberscompla-cent

Ibtada-Savera 6 6 TheFed.anditssisterFed.jointlypaysstaffsalary

Notabletoretainthestaff

MYRADA – HDP CMRC 9 6 Federation Fed.paysthemanagersalarythrough SHPI

PRADAN – Saheli Samiti

6 6 Federation Fed.managerisaveterinarydoctor.VeterinaryservicesarepredominantservicesofFed.

RGMVP-SMS 45 45 SHPI DependentonSHPI’sstaffforpro-fessionalsupport.Availabilityofalargenumberofstaffmadethepri-marymemberscomplacent

SB-SMF 5 5 Federation DependentonSHPI’sstaffforpro-fessionalsupport

SERP – Chaitanya MS 7 5 SHPIpaystheAPMsalaryandFed.paystheothers

StaffhaslargerinfluenceoverFed.,VOandSHGs,especiallyathigherlevels

SKDRDP-Kaniyoor 1 1 SHPI SHPIalsoprovidemanyotherpro-fessionalsupport

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

ASP – Janatha MACS 1,615,043 79 12

ASSEFA/SNFL-SMBT 15,501,335 99 -

Bagnan-BCC 46,274,025 85 16

CDHI-UBTMS 7,163,179 83 10

DonBosco-JTWDS 221,510 75 85

Ibtada-Savera 1,866,010 89 17

Myrada – HDP CMRC 1,258,609 43 84

PRADAN – Saheli Samiti - 8539 12

RGMVP – SMS - 0

SB – SMF - 0

SERP – Sri Chaitanya MS 23,569,138 99 1

SKDRDP-Kaniyoor - 8940 53

Total 97,468,849

Human resource in the sample federations

Loan portfolio of sample federations (in `)

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Federation No. of Accounts

Information flow

Annual plan Portfolio Quality Report

Default Management

Internal audit

Staff review Loan sanctioning process

ASP – Janatha MACS

1 Twoway No Yes SHPI By SHPI Board Strictlyfollowed

ASSEFA/ SNFL-SMBT

1 Twoway Yes DCBS Chairman and CEO

Monthly by SNFLstaff

Chairman Strictlyfollowed

Bagnan-BCC 1 One way Yes Yes Board NO By the board Strictlyfollowed

CDHI-UBTMS

1 One way Yes Yes SHPI No President Partiallyfollowed

DonBosco-JTWDS

2 One way No No With the supportofSHPI

NO SHPI Partiallyfollowed

Ibtada-Savera

1 Twoway No Yes With the supportofSHPI

No Board + SHPI Strictlyfollowed

Myrada – HDP CMRC

3 Twoway Yes No Board + Manager

6monthlybySHPI

Board + Manag-er

Okkuttasapproved

PRADAN – Saheli Samiti

2 One way Yes Fedstaff Fedstaff No Board No loan manual

RGMVP-SMS 1 One way SHPI NA SHPI Nobooksofaccounts

Board + SHPI Noloans

SERP – Sri Chaitanya MS

3 Twoway AsperSHPI Yes With the supportofSHPI

No Board Strictlyfollowed

SB-SMF 1 One way No NA SHPI No Board Noloans

SKDRDP-Kaniyoor

1 Twoway No SHPI level SHPI Nobooksnoaudit

SHPI Strictlyfollowed

Status of sample federations on select systems parameters

39. This recovery rate of loans given from other account

40. This is repayment rate of SKDRDP’s lending to SHGs in the sample federation area

66

Federation YoP in %

Service income in %

TCR in %

Financial Cost Ratio

in %

Return on Assets in %

Idle Fund to Total Assets in %

SHGs per

staff in no.

Salary as % of loan

outstanding

Opera tional sustainability

in %41

Financial Sustainability

in %

ASP – Janatha MACS

19 2 23 14 - 11 60 7.46 91 119

ASSEFA/ SNFL -SMBT

22 0 18 12 3.84 4 26 3.9 125 125

Bagnan-BCC 15 1 12 6 3.32 1 15 1.4 136 136

CDHI-UBTMS 19 2 26 11 -4.42 2 12 3.5 79 79

DonBosco-JTWDS

2 2 3 0 1.21 5 18 39.3 89 89

Ibtada-Savera 8 14 19 0 2.94 12 19 19.5 113 113

Myrada – HDP CMRC

6 11 19 0 5.29 22 5 21.7 89 92

PRADAN – Saheli Samiti

- - - 0 - - 29 - 76 105

RGMVP-SMS - - - 0 - - - 165

SB-SMF - - - - 13.6 - 25 111 111

SERP – Chaitanya MS

4 10 11 0.16 2.84 6 134 0.2 40 141

SKDRDP-Kaniyoor

- - - - - 25 - -

Status of sample federations on efficiency and sustainable parameters

41. The operational sustainability and financial sustainability are different from normal operational self-sufficiency (OSS) and financial self-sufficiency (FSS) used in financial analysis. Here operational sustainability means the ratio of total income earned by the federation to the expenditure incurred by the federation in a particular year. Financial sustainability is the ratio of income earned by federation plus grants received to total annual expenditure.

42 These figures are average of all members. Actual number of member borrowed is significantly less and actual borrowed amount per borrowed member is significantly higher than the figures given in the column

Federation Active loans Disbursed from Fed.

Credit from banks Total members Per member Fed. loan42

Per member bank loan

ASP – Janatha MACS 2,284,932 No linkage 1,198 1,907

ASSEFA/SNFL-SMBT 26,269,000 No linkage 5,002 5,252

Bagnan-BCC 75,408,150 No Linkage 13,371 5,640

CDHI-UBTMS 11,362,500 NoActiveloans 7,861 1,445

DonBosco-JTWDS 648,000 NoActiveloans 1,901 341

Ibtada-Savera 4,836,454 No Active loan43 1,457

Myrada – HDP CMRC 1,341,000 782,000 764 1,755 12,219

PRADAN – Saheli Samiti

2,475,000 NoActiveloans 2,000 1,238

RGMVP-SMS 40,218,273 10,217 3,93644

SB-SMF 545,679 1,182 46245

SERP – Chaitanya MS 25,858,235 1,870,000 11,005 2,350 40,652

SKDRDP-Kaniyoor 3,137,00046 No linkage 210 14,938

Average active loan disbursed per member

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

44. The members figure was for bank-linked groups only. If all SHG members are considered the average bank funds per member would be Rs. 2,964. Bank provided CCL, it is not strictly comparable with others

45. The members figure was for bank-linked groups only. If all SHG members are considered the average bank funds per member would be Rs.417. Bank provided CCL, it is not strictly comparable with others

46. Strictly speaking these external funds lend by SKDRDP to members and federations at block and village levels, just facilitate the process.

47. Abhaya Hastham offers 3 kinds of benefits to its members: 1) Monthly pension on crossing 60 years of age, 2) Death and dis-ability insurance cover including Scholarship to the children of the women, 3) Lump sum transfer of corpus which is accumulated in her account is transferred to the nominee in the event of her death.

Federation Savings/ Thrift Insurance of 3rd party

Own social security

Pension Hire-purchase/ leasing

ASP – Janatha MACS

Thrift&voluntarysavingsinSHGsand MACS

Yes Cremation expensesandfireaccidentrelief

ASSEFA/SNFL-SMBT

ThriftbymembersinSHGs

BirlaSunlife 4Sprogramme:Subscriptionbymemberasperloansize

No Sewingmachinesoninterestfreeinstalments

DonBosco-JTWDS

ThriftinSHGs No No Leasingoftruckformarketingandleaseofricemilland other agriculture processingunits

CDHI-UBTMS Thriftbymembersin SHG

TataAIGlifeinsurancecovered1,500

APATKALINFUND:Subscriptionby

member `10p.a.Bagnan-BCC SHGsthriftis

retainedinSHPA,comprehensivesavingsanddepositservice

No BCCcontributes10%ofitsnetprofitforsocialservices

Retainthethriftamount,payhigherinterestandgiveasretirementbenefit

Ibtada-Savera ThriftPlusspecialsavingsinSHGs&FixedamountthriftinClusters

Yes

Myrada – HDP CMRC

ThriftPlusspecialsavingsinSHGs&thriftinClusters

Yes Hirepurchasefurnitureandotherdurables

PRADAN – Saheli Samiti

ThriftinSHGs Yes

RGMVP-SMS ThriftinSHGs,VO/ GS and BS

No Voluntary contribution by members

SB-SMF ThriftinSHGs No No No Leasingofagriculture implements

SERP – Chaitanya MS

ThriftinSHGsandin VO

Abhaya Hastham–pensioncuminsurancescheme47

Voluntary contribution/

subscription ` 50p.m.bySHGsin VO

AbhayaHastham–pensioncuminsurancescheme

SKDRDP-Kaniyoor

ThriftinSHGs;66,000SHGshaveSBaccountsinSKDRDP.

LIC Jeevan Madhur

Hasownmicro-insurance.Norejectionpolicy.Takenreinsurance

Financepurchaseofmanytransportvehicles,agriculturemachinery

Status of financial services, other than credit in 11 federations

68

Federation Promotion of new SHGs Support services SHGs audit Bank linkage Linkage with mainstream institutions

ASP – Janatha MACS

Totalfocusonstructurallybackwardcommunities.Notabletocom-petewithSERPandMFIs.

Currently not providing anysupporttoSHGsduetoclosureoffinancialintermediation by ASP

No audit Nolinkageisfacilitated.Membersalsohavemember-shipinSERPSHGs

LimitedextentwithSC corporation like organisations.WithotherDalitforums

ASSEFA/ SNFL -SMBT

Focusingonnewvillages;notfocusingontherealpoor;facingcompetitionfromotherNGOsandGovernment

Verygoodtraining,monitoringandexcellentgrading(forlending)

No audit No linkage48;butitisnot able to meet the creditneedsofthemembers

Verygoodlinkageswith many private companies,likecorporatehospitals;nolinkageswithGovernment

Bagnan-BCC ThereisdemandforjoiningSHGs.PromotingnewSHGsandadmittingnewmembersinexistingSHGs.

ManyclusterleadersworkasemployeesandagentstoBCCandprovideallnecessaryservices.Asthereisnointernallending,therearelesscomplications.

No audit DoesnotfacilitateSHGbankingasitprovidessavingsandcreditservices.Butitprovideslimitedcreditonly.

ClustersdealswithPanchayatsandMahilaBikashtakeuplargerissueswiththeconcerned Government departments

CDHI-UBTMS Haslargeoperationalarea;RationalizingoperationalareasbypromotingSHGsintensivelyinstrategiclocations.

Investsconsiderableamountseveryyearontraining;ProvidingmoderatesupportserviceduetoHRshortageandlargeoperationalarea;Extensivelyusestheservicesofclusterleaders.

No audit Bankersarenotcooperating.ThoughthefederationisfacilitatingSHGbanking,ithasconflictofinterest.ItisnotabletomeetthecreditneedsoftheSHGs/members.

MemberofstatelevelSHGforum.GotFCRAto get linked with internationaldonors.

DonBosco-JTWDS

Focusingontherealpoor;facingcompetitionfromotherNGOsandGovernment;Problemofmisinformation;SGSYloans

ModeratesupportservicesduetoHRproblemsandtransportproblem;Nograding;SHPAhasresourcestoprovide training and exposure

No audit SGSYisfocussedinthearea;TherearemanydefaultsinSHGsofotherNGOs/Govt.;Bankersarenotcooperative

Federationistakingup many government contractsinthearea

Ibtada-Savera

PromotesSHGsmorethantargetsasSHPArealizedpotentialofSHGstorealizeitsvision

ProvidesveryhighqualityservicestomemberSHGs.ThereisproblemofHRshortage

No audit Banksarenotco-operating;LinkingwithMFIassubstitution

Exposurestoappropriateinstitutionsandprojects

MYRADA– HDPura CMRC

Leadersarecapableofpromotingnewgroupsandrevivalofdefunctgroups;Rateisslowduetosaturation

Providesexcellentneedbasedservicesonfee;LeadersalsosupportSHGsofotherNGOsandGovt.

Audit by Charted Accountant

Excellentfacilitation.Additionallinkage,ifneed,withMFI–Sangamitra promoted by MYRADA

Linkage with manycompaniesand government programmes

PRADAN – Saheli Samiti

Asthebanksarenotcooperating,effortsoffederationarenotyieldingdesiredresults.Got NABARD grant to promote100newSHGs

ComputerMunshi;membersarenotabletointernalizetheprocess;Stafforiented;noseriousgrading

Noaudit,thoughaccountsarecomputerized

Banksarenotco-operating even to open SBaccount;Memberswantequaldistributionofloanamount.Donottakebankloanunlessallwantloan.

MarketingITCproductsandinsurancecompanypolicies

Status of Institutional Development Services in sample federations

48. Says effective rate of interest rate in banks is high due to high transaction costs

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Federation Promotion of new SHGs Support services SHGs audit Bank linkage Linkage with mainstream institutions

RGMVP-SMS PromotingnewSHGsinmissionaryzeal.UsingCRPstrategy,whichprovedtobethemostcost-effectivemethod

UsingCRPstrategy,which proved to be themostcost-effectivemethod;Processappearstobecompromisedtoachievelargertargets;Standardizedtoolsandprocesses

No audit Excellentfacilitation.Gotreasonablebanklinkage,wherebanksarenotsocooperative

Linkageswithbighospitalsandmanyother important organisationslikeNDDB

SB-SMF PromotingnewSHGstoaugmenttheservicefee,whichisthemainsourceofincome.Astherearenopromotionalfunds,SHPAusingsomefunds/servicesfromotherprojects

Providebookkeeping,auditing and other servicesonfeebasis.Federationsearnasignificantpartitsincomefromtheseservices

SHPIstaffdoesaudit.Butauditstatementsarenotdis-cussedinSHGs

Thoughthebanksarenotcooperat-ing,federation/SBisableto provide SB linkage to allmembersSHGsandcreditlinkageto90%SHGs

Linkageswithotherfederationsandprojectsareestablished.

SERP – Sri Chaitanya MS

PromotionsofnewSHGsandawarenessbuildinghavesaturated.UsingCRPstrategy

UsingCRPstrategy;createdalotofsocialcapitallikebookkeepers.SHGspayforbookkeeper;auditorsandbankmitra;butgetmanyotherservicesforfree

Audit by community auditors.Auditincludessocialimpactalso.Itmaydilutethesanctityofthefinancialaudit

Excellentfacilitation;PV;BankMitra;TFIetc.Banksaretakingundueadvantage

Linked with many government programmeswithsomediscrimination49.

SKDRDP-Kaniyoor

Continuesprocess;promote both women SHGsandfarmersgroups

PIprovidesallservicesfreeofcost.SHPAcoversallitscostsfromitsMFoperations

StaffofSHPAdoestheauditofSHG.ButSHGmembers’awarenessappearstobepoorregarding audit statement

Nobanklinkage.SHPAismeetingmostofthecreditneeds

PIislinkingtheSHGswith many government programmes,insurancecompaniesandmanyothers

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

70

Federation Promotion of new mE & en-hancement of existing

LH

Group activi-ties Training and placement

Marketing of members’ products

Bulk purchase

ASP – Janatha MACS

HasseparateinstitutionsknownasAnukaram(mEoffarm,off-farmandnon-farm)&Poram(groupsoftraditionalleatherworkers)topromotedmE.ASPprovideallkindsofsupporttothemembersoftheseinstitutionsthroughlinkingwith government and private organisations,technologiesupgradations,markettieups,etc.

ASSEFA/ SNFL -SMBT

Shops,res-taurants,repairshops;milkanimals,sewingmachines

ProductionofAgarbattisticks,chemicals,safetynapkins,candles,etc.

Tailoring&otherneedbasedtrainingafterassessingthepotential;Coachingcentres

Sewingmachines

Bagnan-BCC Agriculture Has8productionunits

Provide training in tailoring;knitting,embroideryetc.

VeryfewSHGproductsareprocuredandsoldthroughitsmarketingchannels.BCChasaseparatesisterorganisation

Procuremanyitemsfromthemarketandsellthroughashopanddoor-to-doorsale.Alsoprocureraw material

CDHI-UBTMS Limitedtraininginselectlivelihoodenhancement.Technologytransfer/innovationsareoneofthecoreareasofSHPA

DonBosco-JTWDS

Pettyshops;fishing Horticulture;honeyprocessing;tamarind&foodprocessing;ricemills,tempo;Takeupcontractsofpublicworks

TraininginTai-loring;Screenprinting;handicrafts;foodpro-cessingpickles,jams,squash,chips,spices

Developing an own brand;participateinexhibitions;transportfacilitiestoinaccessibleareastotaketheirgoodstothemarketetc.

Requiredinputs

Ibtada-Savera Smallruminants;agriculture Livestockrearingand agriculture improvement

Seedsandotheragricultureinputs

Myrada – HDPura CMRC

Workedonthesupplyofagriinputs;accessinggovt.schemesforthebenefitofmembers

Providedneedbasedtraining.Placementto100s.ProvidingMSofficeapplication200dayscourse

Hire/purchaseofmanyitems.Runsashop

PRADAN – SaheliS-amiti

Livestock;breedimprovement

Traininginmostpromisingvocations;currently in Zari work andstallfeedingofsmallruminants

MarketingofITCconsumerproducts

RGMVP-SMS Vermicomposting;organicfarming

Agriculture improvement

Status of Livelihood Enhancement Services in 11 federations

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Federation Promotion of new mE & en-hancement of existing

LH

Group activi-ties Training and placement

Marketing of members’ products

Bulk purchase

SB-SMF Agricultureimprovement;intro-ductionofnewtechnologiesandinstrumentsinagriculture

Agriculture related Maystartinthefuture

Agriculture implements;productsofotherfederationsandprojectsofSB

SERP – Chaitanya MS

Milkanimals;shops;restaurants;purchaseofagri.land;transportvehicles;agriculturemachinery;IPM

Bulk milk cooling units

Theprojecthasbigplansformaketheyouth employable with private public partnership.In2008-09placementwasprovidedto183,891youth

Theprojecthasbig programme to market agriculture productsandNTFP.2008-09,the

project/IKPhandled `6.11billionworthagriculture and non-timberforestproducts.50

IKPhasfoodsecurityprogramme.Underthisprogramme,VOspurchasericeandotheressentialitemsand provide them to the needy poor on credittoensurethefoodsecurityinleanperiods

SKDRDP-Kaniyoor

Facilitatesagriculturelabourexchange;technologyupgradationfornewcrops,improvedfarmpractices,agri-infrastructuredevelopment

Promoted over 100 groupenterprisesinfooditems,textiles,chemicalsandRexonbags.

Excellentstateoftheart training centre providestraininginmanyvocations.Technologytransferisamajorfunctionofthefederation.PromotedseparategroupsknownasJnanaVikasaGroupsforskillupgradation

PromotedaseparatecompanyformarketinghundredsofSHGs’products.2,000haveownershipstakes.5,000SHGssupplytheirproducts.HaveownbrandofSIRI

Manyrawmaterialsandinputsarebeingprocured in bulk and suppliedtoSHGs/membersfortheproductionsandotherproductionunits

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

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Federation Performance of member SHGs

Positive factors Critical factors Suggestions

ASP – Janatha MACS

Average TotalfocusonstructurallypoorSC,ST,minority,&BC;Linkswithlagerforumsofsameorientation

Fed.isnotabletofulfilthecreditneedsandotherservicesatdesirablescale

FacilitateSHG–banking.Introduceautomaticrotationofleadership

ASSEFA/SNFL-SMBT

ExcellentMembershavestrongsenseofownershipaboutSHGs.

Cleardivisionofrolesbetween SHPI and SHG institution.Goodawarenessandsystems.Separatemeetingsforinternalandexternalfundstransactions.Periodicbonuspaymentonsavings;Fed.providelimitedbutqualityservicestoSHGs

ThoughSHGsownover90%ofsharecapitalofSMBT,SHGrepresentativeshavelesssayinfunctioningofSMBT.Itdoesnotlooklikeatypicalfed.

RaiseSHGsroleindecisionmakingandday-to-dayfunctions.Linkagewithgovernmentprogrammesisneeded.SHG–Banklinkageisalsodesirable

Bagnan-BCC Above average Goodsenseofbelonging;goodawarenessandservicesprovidedbyfed.

Limitedfinancialandotherservices;largesizegroups;Nointernallending;overdependenceonfed.

EncourageSHGstosavemoreinordertoextendthelendingcapacity.Couldhavesmallersizegroups;SOCtoolsandprac-tices.

CDHI-UBTMS Average Focusonpoorininteriorareas;Goodsenseofbelonging.

Limitedfinancialandotherservices.NotabletoprovideSHG–banklinkage.Butkeepgoodsumsofmoneyinbanks.

Facilitate good internal loansystem;SOCtoolsandpractices.Needtoaugmentfinancialservices.Automaticleadershiprotation.

DonBosco-JTWDS

Average Focusonpoorininteriorareas;SHPIprovidedgoodawarenessandishelpinginallpossibleways.

Limitedfinancialandotherservices.NotabletoprovideSHG – Bank linkage due to SGSY orientation;Lessawarenessofmembers.

Automaticleadershiprotation;introductionofSOCtoolsandpractices.

Ibtada-Savera Goodsenseofownership;functioningandinvolvementinfederationfunctions

SHGshavebeendevelopedaroundfeltneedsofwomengenderinequalities;girleducation,etc.SHPIprovidedgoodawarenessandishelpinginallpossibleways

Banksarenotcooperating;Notmanymembersarecomingforwardforleadership.OverdependenceonSHPI/Fed.forbookkeepingetc.

Automaticleadershiprotation;introductionofSOCtoolsandpractices.Needtoaugmentfinancialservices.

MYRADA – HDP CMRC

Excellent;strongsenseofownershipevenatCMRClevel;thoroughinvolvementofmembersinallactivities-fromCMRCto SHG

Goodawareness&trainingprovidedbySHPI.Majorfocusisalwaysonfeltneedsofmembers,irrespectiveofchallengesandotherconstraints;Adequate and quality services;GoodlinkageswithGovt.programmes;ExternalauditingofSHGaccounts

SHGmembersarenotabletotakefullcontrolofCMRC;OverdependenceonSHPIfortechnicalfunctions;ProblemsinauditingofSHGaccounts;membersfeelabitburdenedbytheircontributionsforCMRC/fedworks

IntroductionofSOCtoolsandpractices;especiallycommunityauditinganddiscussiononauditstatementandannualappropriationprofitandloss.

PRADAN – Saheli Samiti

Belowaverage;bankers’apathyexterminatedmembersinterestinSHGs

FederationisabletosustainSHGsandclustersafterwithdrawalofSHPI.Fed.isprovingverygoodAIserviceandlimitedotherservices.

Limitedfinancialandotherservices.Membersarenotabletounderstandthecomputerizeddata.Norotationofleaders

Automaticleadershiprotation;introductionofSOCtoolsandpractices.Needtoaugmentfinancialservices.

RGMVP-SMS Averagelargedifferencebetweenleadersandmembersinawarenessand involvement

Systematicinstitutionaldevelopmentprocess;Verygoodlinkageswithmanymainstreaminstitutions;goodfacilitationofSHG–banking;Goodawarenessgenerationonmanyissues

Leadershipdomina-tion;InthechainofSHG–VS-MS,thelowertierisrelativelyweakervis-à-visitsuppertier.OverdependenceonCRPs/staff.

Automaticleadershiprotation;introductionofSOCtoolsandpractices.Needtoaugmentfinancialservices.MorefocusonSHGstrengtheningintheinitialstage

Status of member SHGs in sample federations and influencing factors

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Federation Performance of member SHGs

Positive factors Critical factors Suggestions

SB-SMF Good SHPI provided good awarenessandishelpinginallpossiblewayswithinitslimitations

Quiteinadequateservices.Widegapbetweenleadersandmembersintermsofinvolvement

Automaticleadershiprotation;introductionofSOCtoolsandpractices.Needtoaugmentfinancialservices.

SERP – Chaitanya MS

Good Systematicinstitutionaldevelopmentprocess;Verygoodlinkageswithmanymainstreaminstitutions;goodfacilitationofSHG–banking;(SHGinstitutionsareattimescalledbeneficiaryinstitutions)Goodawarenessgenerationonmanyissues

Leadershipdomination;Lessleadershiprotation;Externallyimposedsystemsandagenda;heavydependenceonstaffinbookkeepingandfinancialmanagement

Automaticleadershiprotation;introductionofSOCtoolsandpractices.

SKDRDP-Kaniyoor

Good Cleardivisionofrolesbetween SHPI and SHG institution;ExcellentservicesbySHPI.Focusisalwaysonmembers’feltneeds;workingwithbothmenandwomengroups;specialmeetingsforskilldevelopment,awarenessgenerationandsocialsissues

OverdependenceonSHPI.Membershavelessawarenessandskillsaboutinstitutionfunctioning

Automaticleadershiprotation;introductionofSOCtoolsandpractices.

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Appendix – 2

Strategic Guidelines to Sustainability ofSHG Structures

The following strategic guidelines should support the efforts of SHGs, their federations and the re-spective SHPAs. It elaborates a common vision and strategy for further development of the SHG structure to achieve and secure sustainability. These have to be supplemented by appropriate planning with clear assignment of tasks, timing and responsibility for implementation. During the initial phase, these strategic efforts could re-main relatively general. But later, following the step-by-step approach they should be specified and elaborated in a more detailed manner, along with the necessary periodical updating. However, right from the start of the strategic concept, it should at least fulfil the following main essentials:

• Be a bottom-up structure, collectively approved and adopted by the SHG members (primary stakeholders)

• Take into consideration the needs felt by SHG members as well as the availability of resources (internal and external)

• Function in coordination with the SHPA, and eventually other promotional providers with re-gard to further promotion and facilitation

• Foresee the sharing of experience with other SHG structures (good and critical practices)

In particular, matured SHG structures should carry out the leadership role for development and implementation of strategy in coordination with SHPAs and other promoters facilitating SHG de-velopment.

In order to add and complete the more general observations and recommendations made so far, a concrete set of strategic guidelines or a stra-tegic roadmap has been derived along the four sub-categories of sustainability. These have been derived from the team’s own vast national and in-ternational experience of working in the SHG co-operative sector. It has been developed based on

international best practices as well as the results of the joint field-work. Thus, the Indian back-ground and experience has been fully incorpo-rated. Another important aspect is that although separate guidelines have been formulated for each category of sustainability, it will be advisable to consider the entire set of guidelines, as guidelines are interrelated and have specific importance.

Suggestions for System/ Organisational Sus-tainability:

1. The SHG structure should pursue an active member policy in order to sustain membership of the SHGs. Furthermore, the formulation of new SHGs should be actively supported, aim-ing at extending the outreach and the regional coverage of SHGs. If necessary, appropri-ate changes may be made in the institutional structure to accommodate the special require-ments of the poorest of the poor and vulner-able sections

2. Member-based governance should be intensi-fied through dissemination of a members’ role in a member-owned, member-administrated SHG structure as well as through appropriate capacity building for office bearers and SHG representatives. Commonly adopted norms and standards, which guide members and of-fice bearers in governance execution, will be helpful

3. Governance execution and capacity building will have to be adjusted constantly according to requirements of advancing multi-level SHG structures. This will particularly be relevant when the SHPA is withdrawing or if the as-signment of professional management needs to be taken into consideration

4. Leadership functions should be adequately

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compensated, thus helping to find suitable candidates for revolving leadership positions. A three-year term for office-bearers and rep-resentatives (of whom only one-third should be up for election every year) should replace the one-year tenure common so far. This will ensure both the impact of effective capacity-building and the continuity of leadership

5. Based on a long-term positive experience of Self-Help and cooperative movements world-wide, the strategic policy of federating SHGs to bottom-up structured, integrated (inter-linked) multi-level system should be contin-ued and adjusted to new requirements and challenges. The implementation should follow a step-by-step approach in order to successfully avoid institutional overdoing and overburden-ing of the system and its resources

6. SHG members and office-bearers must be in-volved in the institutionalisation process in order to ensure the sense of ownership and transparency towards the whole structure (and to facilitate learning by doing). The institution building should increasingly focus on mobi-lising internal SHG human and financial re-sources

7. The SHG structure should aim at creating a transparent division of functions and assign-ment of responsibilities between federations (both on different and on the same tiers), ap-proved and adopted by SHG members and their representatives. It should strictly follow the principle of subsidiary

8. Before the establishment and registration of new federations, the concept of formation should be audited. Such an audit should com-prise both the assessment of the (statutory) founding processes as well as of a start-up com-prehensive business plan (analysing prospects for economic and financial sustainability and compliance with the objectives)

9. The SHG structure should aspire to commu-nicate and cooperate with other SHG struc-tures in order to share experiences, to represent common interests, and to carry out commonly

needed support services. Even the unification of federations on higher level (cluster, district, or state level) should be put on the strategic agenda, responding adequately to the need of mobilizing economies of scale and synergy ef-fects, but without losing proximity to the SHG members and overstressing self-governance

10. In order to become sustainable, an effective and efficient sector-owned control concept needs to be implemented. It should comprise important tools such as transparent account-ancy, internal control and regular (compul-sory) audit. In addition, SHG members and their representatives should conduct sector-owned control, properly institutionalized, with their own responsibilities. The sector-owned pilot project of the Kamareddy-cluster in AP may serve as a model for replication

11. Sector-owned control needs to be gradually supplemented by an institutional protection scheme, which aims to prevent federations from bankruptcy, thus guaranteeing that members would not lose their money in-vested in the SHG structure. This will be of specific relevance for financial federations when providing savings and deposit services to SHG members. The protection (or stabi-lization) scheme should be financed through sector-owned contributions, which could help to reduce the arising of “moral hazard” problems. The scheme pre-requires an effec-tive sector-owned control (s. a.)

12. Managing and operating SHG and federation affairs should be within the responsibility of the SHG members and their representa-tives. Therefore, tasks still being conducted by SHPAs, should be handed-over step-by-step into the hands of the SHG structure. This process will have to be supported by an adequate sector-owned HR-development strategy, and by systematic capacity building activities, focusing in particular on internal human capacity, but using external advisory and training assistance as much as possible

13. External recruitment of management and staff for specific functions in the advancing

76

federation structure may be needed. How-ever, before any external recruitment should be done, own (internal) SHG representa-tives and office-bearers should be sufficiently prepared in order to maintain effective self-governance

Suggestions for economic/ financial sustain-ability

1. SHG federations as higher-tier structures will have to support and supplement their mem-ber SHGs with services, which i) help SHGs to overcome limitations inherent for small, un-registered stand-alone institutions, (ii) enable SHGs to meet the needs felt by their members, and (iii) make the SHG structure as a whole financially viable, self-reliant, and sustainable.

2. In order to make a bottom-up structured, in-tegrated SHG system sufficiently operational and performing efficiently, the SHG basis should democratically assign support service functions and responsibilities to federations on each tier. When assigning support service du-ties to the federations, all of the four federation service functions should be covered simultane-ously: i.e.

(i) sector development services, (ii) financial services, (iii) livelihood services, and (iv) social services, with need-based prioritiza-

tion and considering the availability of (in-ternal and external) financial and human resources.

3. The SHG structure should pay specific at-tention to the sector-development service function. This function include lobbying and advocating common interests; initiating, organizing, and monitoring sector-strategy/ planning; developing sector norms and rules; monitoring awareness; providing advisory and training services; organizing / managing sec-tor-own control and stabilization (protection).

4. As part of the sector-development function sector-own audit activities should be sepa-rately organ-ised in order to maintain the in-

dependence of auditors and to avoid conflict of interests with other development service activities. However, even if separately organ-ised, the audit union will have to permanently interact with other federations and federation functions respectively, aiming at reaching high-est possible effectiveness and efficiency.

5. The financial service function of the fed-erations should be carefully developed by a stepwise realization of financial intermediate solutions, taking into account the specific chal-lenges and risks of this function. But it could be needed and also be reasonable to envisage, in the long run at least, the development of federations which carry out a fully-fledged fi-nancial service function. For conducting this function it should be focused on higher-level federations (from block level, better district level upwards), but properly integrating the institutional networks below and above. A fully-fledged financial service function should mainly be based on sector-own financial re-sources (own capital, savings, deposits), but it should also include external financial services (e.g. of the banking-sector/state programmes), if available and properly fitting.

6. However, in order to properly respond to the needs for professional skills and for preventing specific risks of the financial sector, the follow-ing aspects should be taken into consideration during the further development of the finan-cial service function: (i) sufficient financial and managerial capacity needs to be available; (ii) effective techniques for self-governance and sector-own control/ stabilization need to be put in place; (iii) a supportive legal / regulatory framework should be available.

7. The SHG structure should systematically ex-tend and enrich the livelihood service function according to members’ needs. These kinds of services have a significant impact on livelihood improvement and in addition very positive ef-fects on group coherence and awareness. Live-lihood services will even need to be extended and will have to go beyond the currently pre-ferred, but limited outreach on single SHG structures only. Cooperating with neigh-

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bouring SHG structures or federating on higher levels might contribute to the further strengthening of the bargaining power and market positions, after forward and back-ward linkages for SHG livelihood/ business activities will have been established.

8. The social service function is the other core area of SHG/ federation activities, addressing directly the improvement of the social situa-tion and the further empowerment of women. Social services are very important in daily op-erations of SHGs/ federations and for inter-nal coherence. Therefore they need to be in-tensified. Again, also in this case, cooperating with other SHG structures, or federating on a higher level, could help to make access to social support programmes of the government and/or other providers easier. As well, it could help mobilising synergy effects when implementing these programmes in a coordinated way.

9. After having defined important elements of federations’ support services, and having gained approval from a substantial majority of member SHGs, the service functions need to be properly institutionalized. Responsi-bility will have to be assigned to the existing federations on the different tiers. Even the es-tablishment of new SHG federations/ institu-tions could be taken into consideration. The institutional setting should as much as possible guarantee highest possible effectiveness and ef-ficiency as well as a high level of sector integra-tion and coherence.

10. For being better able to meet all these chal-lenges, the institutional setting of the federa-tion structure should fulfil in particular the following essential requirements: (i) well-organised vertical and horizontal division of labour, interaction, co-operation, and mutual support; (ii) transparency on organisational structures and procedures, enabling to man-age and control federation activities; (iii) clear separation of business-related and social services on one hand from development and control services on the other hand.

11. Finally, in the long run at least, the institu-

tionalization of the federation services should end in the establishment of specialized insti-tutional structures for each of the different service functions. In order to respond prop-erly to growing and diversifying needs of the SHGs (and their members respectively), it might be recommendable to begin with the specialization/ separation of federations on the highest tier available (i.e. from block-level or better mandal cluster-level upwards) before reaching out for lower levels.

Suggestions for Appropriate Legal and Regula-tory Framework

1. SHG federations should seek for a legal and regulatory framework being appropriate for their role and purposes as integrated parts of self-help organisations, and to their specific support service functions for the SHGs. This will not only be essential in order to form the proper internal constitution, structure and operations. It will be of similar importance to gain confidence and acceptance inside and out-side the SHG structure

2. Whereas the higher-level federations (from block/ mandal-level upwards) usually have a formal status as legal persons, village-level (clus-ter) federations have at present in most cases an informal status only, like SHGs. This status appears to be acceptable as far as these federa-tions have only internal advisory, support, and conflict solving duties for their member SHGs. However, once these federations extend their role and take over formal representation duties of the member SHGs towards the outside, they will need a formal status, providing them an own legal identity. Thus it will be possible to hold shares of higher-tier federations, conduct financial and non-financial business activities or external promoting programmes, employ professional management and staff, and to own properties and equipment

3. The adequateness of the legal form for fed-erations depends decisively on their objectives and aims. For federations, which primarily provides financial and/ or livelihood/ business services to their members, registering as a co-

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operative might be most appropriate, especial-ly when the cooperative law is a liberal one. If the federation’s aim is to provide social services without undertaking any commercial activi-ties, a registration as society or trust might be more useful. The same legal form may apply to system-development federations

4. In the short-run and for providing quick legal solutions to some urgent problems, it seems to be promising to properly use all possibilities of-fered by the existing legislation in the states. However, adequate amendments according to the specifics of the SHG movement should be initiated and advocated for. Sometimes the need might be felt to have a separate law for re-registering SHG federations in order to take all the specifics of the SHG structures sufficiently into consideration. However, such a general solution may lead to some difficulties and even risks such as inordinate delays. Therefore it might be preferable to review the legal needs and to focus on adjusting available laws in or-der to create an appropriate legal framework

5. When working on or advocating for an ad-equate legislation for SHG federations, some essential criteria should be taken into consid-eration and should be properly addressed:

(i) The law should provide a clear legal frame-work, nothing more and nothing less, thus leaving it to SHG members and to their institutions to substantiate rather general legal provisions through their own-tailored by-laws in a more concrete way, taking into consideration the principles of self-help, self-governance, self-administration, self-responsibility and mutual support as best fitting for their federation

(ii) The law must address and incorporate the typical characteristics of SHG structures as member-owned, multi-level interlinked systems. It should be supportive, enabling as regards a proper institutionalization and the integration of the several tiers.

(iii) It should requested by the law that SHG structures establish and operate sector-owned control and stabilization mecha-nisms (sector-owned standards and norms, common accountancy, reporting/ moni-

toring system, audit function, protection scheme, etc.), in order to govern, control, and protect themselves and their institu-tions respectively

(iv) Regular audits of SHG institutions should be made mandatory by the law. These compulsory audits should – in the long run at least – be (obligatorily) carried out by sector-own audit institutions authorized according to general norms and standards for chartered auditors. But the auditors have to be specifically skilled in auditing self-help/ cooperative organisations. The audit should comprise financial as well as management audit and should check the internal monitoring (reporting) pro-cedures (governance audit)

(v) External regulation and supervision should strictly observe the need to ensure an equal level playing field for SHG federations with non-SHG/ non-cooperative organisations or enterprises carrying out similar activities and/or being active in the same field/ sector

(vi) The registrar’s control should be limited to supervising the establishment and the in-ternal constitution (by-laws) of the SHG institutions with regard to the compliance with the law

(vii) The law should have to ensure that the SHG sector remain free of political inter-ference. Government interference, partic-ularly into the self-governance and man-agement of the SHG institutions, has to be excluded

6. The creation of an effective sector-own control (“self-regulation”) system as typical for self-help/ cooperative organisations will be a neces-sity in future. An adequate sector-own control model has been piloted in the Kamareddy cluster available for sharing and up scaling. However, it cannot serve alone as a sufficient condition for the protection of members/ cus-tomers of the SHG structure as well as of the general public against the consequences of in-effective or incorrect sector-own control. Such a system needs to be supplemented by a proper external regulation, as applied for non-SHG institutions with similar commercial or non-commercial activities

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7. External regulation/ supervision is in particular relevant for financial SHG federations due to the high risks usually adherent with financial activities. In order to achieve an effective and economically efficient regulation and supervi-sion, the financial authorities RBI/NABARD should primarily base their regulatory activities on the SHG sector’s own control (and protec-tion) systems. This external regulation / super-vision through “interaction” will need specific procedures and techniques, which are different from those used for “stand-alone” financial in-stitutions (commercial banks, MFIs, etc.)

8. The interaction between the external regula-tor and sector-own control, which will have to be considered as the most appropriate solu-tion for the external regulation/ supervision of self-help/ cooperative financial organisations, should be developed step-by-step along with the realization of SHG sector-own control mechanisms. The financial authorities can even promote the development of sector-own con-trol (and protection), as for example by setting appropriate licensing rules for SHG financial institutions. Over-regulation or even strangu-lation of the development of the SHG finan-cial service function must strictly be avoided. On the contrary, proper access to financial ser-vices for SHG members needs to be secured

9. The interaction of the financial authorities and sector representatives should cover as well stabilization/ protection schemes of the SHG financial sector. This will be necessary because if once established, sector-own prevention and rehabilitation efforts against default risks need to be supported

10. SHG financial institutions should advocate the establishment of credit bureaus and/or join them if available aimed to avoid financial over-burdening of SHGs and their members respectively through multi-lending by differ-ent loan providers

Suggestions for Adequate Promotional Support

1. Achieving adequate promotional support re-

quires distinguish between: (i) system-develop-ment promotion, (ii) service-/ business-related promotion, and (iii) sector-own promotion. SHPAs and other external stakeholders con-duct the first two promotional core elements. Though strongly interrelated, both are address-ing different target areas by using various tools and resources. The third one comprises pro-motional efforts of the SHG sector itself. The focus should always be on activities, which will contribute to the strengthening of self-help and mutual support

2. In order to achieve the strongest promotional impact on SHG-sector sustainability, various possible promotional measures as well as their interaction should observe a set of fundamen-tal principles. At any time it will be essential to:• Meet the interests and needs felt by the SHG

members• Take properly into consideration own re-

sources of SHG• Integrate the recipients into the process of

project development and implementation, transforming their role as early as possible into owners and leaders of the promotional activities

• Avoid any interference or co-options which could counteract self-help development

• Mobilize sufficient advisory and financial re-sources as well as time for project realization

• Ensure coordination and compatibility be-tween several promotional efforts

3. A strategic concept for system-development promotion by SHPAs should take into con-sideration that most of the SHG structures are still in a nascent development stage. They still need enormous support as own resources of the SHG sector are limited. However, accord-ing to progress made in SHG development, the leadership and responsibility of sector develop-ment should systematically be more and more assigned to the SHGs and their federations. Correspondingly, the SHPAs should step-by-step transform their role, rather facilitating and coaching the SHG structures which had prior been promoted by them

4. In order to properly organise and realize this

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transformation process, the SHPAs in close co-operation with the SHG structures, should as early as possible develop a withdrawal strategy. This should be as much as possible harmonized with the sector-development strategy, elaborat-ed and approved by the SHGs and their insti-tutions. In addition, a withdrawal strategy for the finalization of the promotional programme will have to specify how and who will conduct the future tasks of facilitating and coaching the SHG structures. Therefore, it should rather be a strategy for transformation than for with-drawal

5. According to this strategic approach, SHPAs should withdraw from direct interventions into SHG affairs, as e.g. in federation management and sector-control (auditing), as well as from financing federations, especially from provid-ing permanently grants. Instead, SHPAs’ sup-port should focus on capacity building meas-ures, enabling SHG members to govern and manage their institutions in own responsibility and in accordance with the development strat-egy of the SGH structures. Similarly, in future, SHPAs should provide financial support in the form of providing start-up financing and sup-port to SHG institution building (as e.g. for setting-up of SHG-sectors’ audit capacities, es-tablishing institutional protection schemes, de-veloping training systems, etc). It might even be necessary, that SHPAs – for a limited period only – continue to contribute to expenses of federations

6. Sharing experiences with other SHG structures and commonly scaling-up good practices of other models should replace a tight and per-sistent SHPA “grip” on SHG structures, com-bined with insistence on the exclusiveness of the own model vision. SHPAs’ conferences, co-operations, and commonly accessible/ open IT platforms, all of which can already be found, should be intensified because they are useful tools for contributing to more coordinated and effective promotion of SHG development. Furthermore, the time has come to more and more integrate the representatives of the (ma-tured) SHG structures into this exchange as emancipated partners of this process

7. The coordination between different stakehold-ers needs to be further intensified, aiming at achieving a common promotion policy and well-matched support packages. In particular, support programmes by NABARD and vari-ous governmental institutions supplementing SHPAs’ promotional efforts urgently need to be disseminated more effectively. Furthermore, these supplementary support programmes, which focus so far exclusively on SHGs, should be changed, taking additionally into proper consideration the specific promotional needs of federations. In general, NABARD and the governmental institutions should launch these programmes jointly and in close partnership together with the promoting NGOs as well as with the SHG structures to be promoted

8. Service- business-related promotion, result-ing from partnerships /linkages between SHG structures and providers of financial services, livelihood/ business services, and social service programmes should be intensified and extend-ed. “Learning by doing” will help to mobilize particularly two effects on SHG development: (i) the enrichment and extension of services to SHG members, and (ii) the improvement and further development of the SHG structures. Therefore, such a promotion category should be positioned in the centre of attention, es-pecially focusing on SHG structures, which already fulfil some basic standards such as minimum requirements for undertaking these activities

9. In order to achieve a maximum of effectiveness and efficiency, service-/ business-related pro-motional support measures will have to be tai-lored according to the needs, the organisational and absorption capacity of the SHG structures. Furthermore, they should be accompanied by specific capacity building or coaching activi-ties, conducted by the providers/ partners of service-, business-, and social programmes or by SHPAs in close coordination with the re-spective SHG structures. This will contribute to an increase in the general acceptance by the SHG clientele as well as to proper service/ product introduction and usage

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10. Federations should in future be considered as adequate partners for service-/ business-related promotional support activities. There-fore, service-/ business-/ programme-linkages to SHG structures, which so far prefer direct relations to SHGs (by avoiding federations), should be modified in order to strictly in-clude federation structures into business- and programme development, negotiation, im-plementation, organisation, and control. This could contribute to significant improvement of the outreach as well as of the performance of these linkages / partnerships with SHG structures. Additionally, it would promote the further development of these federations, enabling them to qualify their range of ser-vices offered to member SHGs, to strengthen their own economic / financial sustainability as well as that of SHGs’, and to use the capac-ity building effects for supporting the SHG movement as a whole

11. Service-/ business-related promotion3 all activities will have to be harmonized with other promotional efforts as well as with the development strategy of the SHG structures. In particular, promotional activities, which could counteract the impact of other promo-tional efforts (or which even could affect the solidity and character of self-help organisa-tions), will have to be avoided. For example any governmental waiver policy, which could undermine the debt moral or even, could destroy SHG sustainability, will have to be avoided. Instead, especially NABARD and governmental institutions should design ser-vice-/ business support programmes in a man-ner that proper implementation and usage of these programmes by the SHG structures will be rewarded. This would definitely contribute to promote SHG-sector development

12. SHG structures, supported by SHPAs and other external stakeholders, are needed to de-velop and organise step-by-step sector-owned promotion. In parallel to the withdrawal of SHPAs, SHGs will be forced to carry out own promotion, either with or without the assistance of external facilitators. They will have to mobilize institutional self-initiative

and self-help capacity. Sector-owned promo-tion can typically be found among self-help organisations and has contributed so far to their independence from external, especially governmental, interference

13. Already initiated sector-own promotional ef-forts need to be intensified, extended, and sys-tematically institutionalized taking into con-sideration the promotional needs as well as sector-owned human and financial resources (and availability of external facilitation). Sec-tor-owned promotional activities can be: mu-tual support of SHG establishment, arrange-ments of exposure visits, exchange of resource persons with other SHG structures, exchange of experiences during conferences, common pilot projects for sharing and up-scaling good practices, common development, implemen-tation, and operation of systematic training programmes. For example the introduction of sector-owned control and stabilization mechanisms has proved to an effective and ef-ficient tool of this self-learning process

14. As to the needs for external promotional support, the following topics for technical assistance could be of specific relevance: • Cooperative governance development • Product and service development, in par-

ticular with regard to financial and non-fi-nancial business, based on members’ needs and interests

• Institution building of multi-level coopera-tive organisations

• Sector-owned control and protection issues, in particular auditing and stabilization schemes

• Development of training programmes • Legal and regulatory framework and interaction

between financial authorities and sector-owned control and protection schemes.

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