SHG Federations: Development Costs and Sustainability

This paper examines existing self-help group (SHG) federations and computes the social investment required for their development, their operational costs, and profitability. It evaluates the prospects for their financial and organizational sustainability.

The paper states that there is a growing movement towards enabling federations into financial intermediaries that provide loans and other financial services to the SHGs. This is due to assurance of timely credit to the groups since their linkages with banks is not smooth and developing need based products for livelihood enhancement. Findings include:

• State is the most active player in forming SHG federations;
• Heading into future, federations need to adapt to changing environment and be prepared to change into a company, cooperative society, or other form to ensure continued support from stakeholders such as banks, governments, and donors;
• Federations would benefit by embedding financial intermediation in livelihood development programs over time;
• Federations cannot rely on financial intermediation to generate resources for their non-financial interventions. Appropriate sources of long term funds must be accessed;
• Banks should support the functioning of well-run federations as financial intermediaries as they can lower costs of providing numerous loans by channeling it through them.