How SHG Federations Sustain Themselves: Strategies for Funding and Staffing

A Self-Help Group (SHG) federation is only as strong as its ability to keep the lights on – and that takes both money and people. While individual SHGs are largely self-sustaining through member savings and internal lending, federations that bring hundreds or thousands of groups together face a different challenge: who pays for the coordination, the bookkeeping, the meetings, and the staff? The answer varies widely across India, and the models that different organisations have developed – from PRADAN’s professional staffing approach to MYRADA’s volunteer-driven structure – offer important lessons about what it truly takes for a federation to survive and thrive.

Why funding and staffing matter for SHG federations 🔗

India today has more than 178,000 SHG federations across the country, ranging from small cluster-level bodies to large district-level institutions. Unlike individual SHGs, which are bound together by the intimacy of savings and lending among members who know each other personally, federations are apex structures. They coordinate dozens or hundreds of groups, manage larger pools of money, liaise with banks and government programmes, and provide services that individual groups cannot provide on their own. This scale demands operational infrastructure – and that infrastructure is not free.

The question of financial sustainability is especially pressing because federations cannot rely indefinitely on external donor support or government grants. Research on SHG federations consistently finds that low membership fees, irregular subscription payments, and low savings amounts are among the key reasons federations struggle to stay financially afloat. Building a reliable, internally generated revenue base is therefore not just good management – it is a matter of survival.

Generating funds for SHG federations 🔗

Federations draw on several revenue streams to cover their operational costs. The most common approaches involve membership fees, service charges on financial transactions, and the interest spread earned on loans channelled through the federation.

Membership and subscription fees 🔗

The most straightforward source of income for a federation is a fee paid by each member SHG at the time of joining (an admission fee) and then on a recurring annual or periodic basis (a subscription fee). Model bye-laws for SHG federations under government programmes specifically include provisions for both an admission fee and a fixed yearly subscription payable by each member SHG. These fees are predictable in principle, but in practice their collection is uneven. Federations that are not active financial intermediaries – meaning they do not directly lend money to members – often find that members are reluctant to pay fees for services like legal advice or health awareness programmes, viewing these as less tangible than credit access.

Service charges on financial intermediation 🔗

When a federation operates as a financial institution – channelling bulk bank loans to member SHGs and collecting repayments – it can charge a service fee for this intermediation. This fee covers the federation’s cost of disbursing funds, maintaining accounts, and managing the credit portfolio. For federations that take on this financial role, service charges can become the single most reliable and substantial revenue stream, as they are directly tied to the volume of transactions the federation handles.

This is why financial intermediation is so central to the sustainability question. Federations that handle money generate income from handling money. Those that do not face a much harder task convincing members to pay for services they find harder to value.

Interest spread on loans 🔗

A related income source is the interest spread – the difference between the interest rate at which the federation borrows from a bank and the rate at which it on-lends to member SHGs. If a federation borrows from a bank at, say, 10% per annum and lends to SHGs at 14%, the 4% spread contributes to operational income. This model, used by several federations supported by organisations like NABARD under the SHG Bank Linkage Programme, requires the federation to have the financial management capacity to handle loan portfolios – which brings us directly to the staffing question.

The role of staff in large federations 🔗

When federations grow to a significant scale – overseeing hundreds of SHGs across several villages or blocks – volunteer management alone can no longer handle the complexity. Financial record-keeping, loan portfolio tracking, bank correspondence, reporting to promoting agencies, and day-to-day coordination all demand consistent, skilled attention. This is the point at which many federations begin hiring paid staff.

PRADAN (Professional Assistance for Development Action), one of the oldest and most respected SHG-promoting organisations in India, recognised this early. PRADAN began working with SHGs in 1987 and was instrumental in federating them from the mid-1990s onwards. The organisation’s model involves deploying trained professionals at the grassroots to work alongside community institutions, including federations. The insight behind this approach is that federation staff who are well trained to deliver financial intermediary services are critical to the operational health of large federations, particularly when those federations manage loan portfolios and need to maintain the kind of accounting discipline that banks and regulators require.

What paid staff actually do in a federation 🔗

In a staffed federation, salaried employees – often drawn from the communities they serve – typically take on responsibilities such as maintaining books of accounts, preparing financial reports, facilitating meetings of the governing board, liaising with banks for credit linkage, and monitoring the repayment performance of member SHGs. As federations grow more complex, they may also require staff trained in livelihood services, insurance administration, or social audit processes.

The critical point noted in research on SHG federations is that staff are typically trained to deliver financial intermediary services but are not always equipped for broader livelihood support roles. This creates a gap: federations that aspire to go beyond finance and support members’ income and wellbeing in more holistic ways often find their staff capacity insufficient for the expanded mandate. Building staff capacity in both financial management and livelihood services is therefore an ongoing challenge for professionally staffed federations.

The dependency risk 🔗

One concern with heavily staffed federations is the risk of dependency. If the day-to-day functioning of a federation relies too heavily on paid employees – especially those deputed from an external promoting agency – the elected leadership of the federation can become sidelined. As observed in PRADAN-supported federations, younger or less experienced elected leaders sometimes continue to depend on experienced (and often male) staff or promoting agency professionals for even routine decisions. This can undermine the very purpose of a women-led federation. The staffing model therefore needs to be designed carefully so that paid employees support the elected board rather than substitute for it.

Volunteer-led models vs. paid staff: comparing approaches 🔗

Not all federations opt for salaried staff. Several prominent promoting organisations have built effective models using volunteers, either entirely or for specific tiers of the federation structure. Two contrasting examples – MYRADA’s two-tier volunteer approach and the staffed CDS model in Alappuzha – illustrate the trade-offs clearly.

MYRADA’s volunteer-based model 🔗

MYRADA (Mysore Resettlement and Development Agency), founded in 1968, is one of India’s pioneer organisations in SHG promotion, having begun working with SHGs in the mid-1980s and formally federating them from 1996. MYRADA’s federation model emphasises community ownership and is built around a two-tier volunteer structure. At the primary level, SHG members themselves take on responsibility for peer monitoring, savings collection, and basic record-keeping. At the federation level, volunteers from member groups participate in governance, dispute resolution, and programme coordination. The organisation deputes staff from its own team to federations on a supportive basis rather than making the federation itself the employer of full-time salaried staff.

The strength of this model is that it keeps operational costs low and embeds governance firmly within the community. The limitation is that volunteer capacity has real ceilings – particularly for federations with complex financial portfolios. Research findings on federations promoted by MYRADA note that their financial sustainability is relatively strong, tied to the reputation and sustained support of the promoting agency – but scaling this model requires sustained external facilitation from MYRADA’s own professionals.

Alappuzha’s CDS: the staffed federation model 🔗

The Community Development Society (CDS) model that originated in Alappuzha, Kerala in the early 1990s – and later became the organisational backbone of the Kudumbashree programme – represents the other end of the spectrum. The Alappuzha CDS brought together Neighbourhood Groups (NHGs, equivalent to primary SHGs) into a three-tier structure with paid community organisers and programme coordinators at the intermediate and apex levels. These paid functionaries ensured consistent monitoring of NHG activities, thrift and credit management, and coordination with local government.

The introduction of Thrift and Credit Societies (TCS) in Alappuzha in 1994, supported by NABARD’s training input, was a defining moment. It turned the CDS from a social mobilisation structure into a genuine financial intermediary – and the financial volume this generated helped justify and sustain the cost of paid staff. As Kudumbashree scaled this model across Kerala, it retained the principle of salaried coordinators at the panchayat and district levels, while relying on elected volunteers at the NHG and Area Development Society (ADS) levels.

Today, Kudumbashree comprises over 3.17 lakh NHGs, 19,470 ADSs, and 1,070 CDSs, with a total membership of nearly 48 lakh women. This scale would be unmanageable without a combination of paid staff at higher tiers and volunteers at the grassroots. The Alappuzha model essentially demonstrated that for large, financially active federations, a hybrid of paid staff and community volunteers is both workable and necessary.

Finding the right balance 🔗

There is no universal answer to whether a federation should rely on volunteers or paid staff. The decision depends on the federation’s size and financial portfolio, the literacy and capacity of its elected leadership, the level of external support available from a promoting agency, and the services the federation intends to provide. Smaller, younger federations with limited financial activity may be well served by a volunteer model that keeps costs down and builds grassroots ownership. Larger federations handling significant loan portfolios, multiple service delivery programmes, and regulatory reporting requirements will almost certainly need some paid staff – but must design their staffing in a way that empowers rather than supplants elected community leadership.

What is consistent across all successful federations is the need for financial discipline: predictable revenue from membership fees, service charges, and interest spreads; clear accounting systems; and regular financial reporting to members. Detailed analysis of SHG programmes in India underlines that without this financial foundation, even well-intentioned federations struggle to sustain operations, compensate staff fairly, or expand their services – leaving the women they were built to serve without the institutional support they need.

What do you think? If a federation in your area had to choose between keeping operational costs low through volunteerism versus hiring paid staff to manage complex finances, what factors should drive that decision? And when paid staff and elected volunteers co-exist in a federation, what structures could ensure power remains with the community members rather than shifting to professional employees?

References

1. https://idronline.org/the-role-of-self-help-group-federations/
2. https://pdfs.semanticscholar.org/ae3c/b33b27878ff1b758aab74682687ee9ea24c7.pdf
3. https://ud.hp.gov.in/sites/default/files/documents/NULM-SMID_Guidelines.pdf
4. https://en.wikipedia.org/wiki/Self-help_group_(finance)
5. https://www.pradan.net/who-we-are/
6. https://myrada.org/
7. https://www.kudumbashree.org/pages/7
8. https://kudumbashreestory.in/index.php/history-and-evolution/the-kudumbashree-idea/the-kerala-model/the-alappuzha-model
9. https://en.wikipedia.org/wiki/Kudumbashree
10. https://www.cgap.org/sites/default/files/CGAP-Occasional-Paper-Sustainability-of-Self-Help-Groups-in-India-Two-Analyses-Aug-2007.pdf