Understanding SHG Network Structures: From Clusters to Federations

A single Self-Help Group (SHG) of 10-15 women can do a great deal – pool savings, extend small loans, and build mutual trust. But what happens when that group wants to negotiate with a bank, influence local policy, or access a government welfare scheme? That’s where network structures come in. The way SHGs organize themselves beyond the group level – into clusters, federations, and apex bodies – is what ultimately determines how far their impact can reach. Two dominant models have shaped this landscape in India: the two-tier network and the three-tier network. Understanding both reveals how grassroots financial collectives can scale their power without losing their local character.

What is a tiered network structure? 🔗

A tiered network structure simply means that individual SHGs do not operate in isolation. Instead, they are connected to progressively higher levels of organization, each with its own role and responsibilities. Federations in India are typically categorized by geographic units – SHGs federate into primary level federations (PLFs), which then federate into secondary level federations (SLFs), and in some cases into tertiary or apex-level bodies beyond that. The number of tiers used depends on the scale of the program, the geography involved, and the capacity of the groups themselves.

The core logic behind tiering is simple: small groups are strong in trust and local knowledge but limited in capital, influence, and administrative capacity. Each additional tier helps address those limitations without taking control away from the members at the base.

The two-tier network model 🔗

The two-tier model is the simpler of the two structures. It consists of the primary SHGs at the grassroots level and a single higher-level body – typically a federation or an NGO – that provides support, training, and linkages to external institutions. This model works especially well in smaller or newer SHG networks where a leaner structure is more manageable.

The most well-known example of this model is the one pioneered by MYRADA (Mysore Resettlement and Development Agency), an NGO that has operated in the southern Indian states of Karnataka, Andhra Pradesh, and Tamil Nadu since the late 1960s. MYRADA was instrumental in developing the SHG-bank linkage model alongside NABARD, which formally launched in 1992 and transformed rural credit access across India. In MYRADA’s two-tier approach, the primary SHGs – called Credit Management Groups or Self-Help Affinity Groups – form the first tier. These are groups built around existing bonds of trust and mutual support within communities, particularly among women.

The second tier in the MYRADA model consists of Community Managed Resource Centres (CMRCs) – support structures that provide institutional capacity building, training, and serve as liaisons between the SHGs and banks or government agencies. Importantly, CMRCs under MYRADA do not undertake direct financial intermediation. Their role is stabilization and sustainability of the SHGs, with the expectation that these support bodies will gradually become self-sustaining institutions. By December 2008, MYRADA had established over 12,000 Self-Help Affinity Groups and 108 federations of SHGs across its operational districts.

Strengths of the two-tier approach 🔗

The two-tier model’s primary advantage is its simplicity and flexibility. With fewer organizational layers, decisions can be made faster, administrative costs are lower, and accountability between the group and the federation is more direct. In rural areas with limited infrastructure, this lean structure is often more practical. Groups remain self-reliant at the grassroots level while still gaining the economies of scale and external linkages that a federation provides – including access to credit, capacity building programs, and connections to other SHGs in the region.

The three-tier network model 🔗

The three-tier model adds a middle layer between the primary SHGs and the apex body. This intermediate level – often called a Cluster-Level Organization (CLO) or Village Organization (VO) – groups together multiple SHGs from the same locality, enabling them to coordinate activities, pool resources, and handle issues that individual groups cannot manage alone. Above the CLOs sits the apex body: typically a district or state-level federation that provides strategic leadership, policy advocacy, and connections to larger financial institutions and government programs.

One of the earliest and most cited examples of this structure is the Indira Mahila Yojana (IMY), launched on 20 August 1995 across 200 ICDS blocks in India with the aim of organizing women at the grassroots level to facilitate their participation in decision-making and economic empowerment. Under this structure, women’s SHGs form at the village level as the first tier. These groups are then brought together into cluster-level bodies that coordinate activities at the local area level as the second tier. The third tier consists of district-level federations that connect clusters to state and national bodies, government schemes, and formal financial institutions.

Another prominent example is SAPAP (South Asia Poverty Alleviation Project), which is considered among the first large-scale federation promotion initiatives in India, promoting a three-tier structure of SHG – Village Organisations – Mandal Samakyas across three districts in Andhra Pradesh. The Government of Andhra Pradesh subsequently built on this model through the Society for Elimination of Rural Poverty (SERP), scaling it to the entire rural state with over 37,000 federations organized at village, mandal, and district levels.

Bihar’s Jeevika program offers another well-documented example. Under Jeevika, SHGs are federated into Village Organizations (VOs) at the second tier, which are further federated into Cluster Level Federations (CLFs) at the third level. The timing of moving from one tier to the next depends on the group’s performance – regularity of meetings, savings records, and repayment behavior all factor in. By 2017, a World Bank assessment found that 89% of older Jeevika SHGs had become self-reliant, demonstrating the model’s long-term viability.

Roles within a network structure 🔗

Each tier in a network – whether two or three – carries specific responsibilities. Understanding these roles is what makes the difference between a federation that functions effectively and one that merely exists on paper.

Primary SHGs: the foundation 🔗

The primary SHGs form the bedrock of any network. A typical SHG consists of 10 to 20 women who come together voluntarily to save money and access credit, with significant face-to-face interaction that builds mutual trust, solidarity, and social capital. At this level, members develop financial discipline, practice democratic decision-making, and begin to take ownership of their economic futures. They also serve as the entry point for government schemes, insurance products, and skills training. Leadership skills that emerge here – in managing savings records, conducting meetings, and resolving disputes – are what eventually power higher tiers of the network.

Cluster-level organizations: the connective tissue 🔗

In a three-tier system, the cluster or village organization is the layer that makes the structure coherent. CLOs bring together anywhere from 5 to 20 SHGs from the same geographic area and serve several important functions. They facilitate sharing of resources and best practices across member groups. They handle issues that go beyond a single group’s capacity – such as larger loan disbursements, conflict resolution, or coordinating livelihood activities like joint farming or shared market access. They also run training programs and act as the communication channel between the grassroots SHGs and the apex body above them.

The core function of organizations at this level is to organize women – and this branches out in three broad directions: promoting and strengthening livelihoods, ensuring women’s rights, and securing justice. As one federation leader in Uttar Pradesh described the structure, it serves as a suraksha kavach – a protective shield – providing women collective strength during times of hardship, injustice, or personal crisis.

Apex body: leadership, advocacy, and scale 🔗

The apex body – a district or regional federation – is where the network connects to the wider world. This body represents the collective voice of thousands of SHG members before banks, government departments, and policy-making bodies. It negotiates bulk credit, coordinates with NABARD and other financial institutions, advocates for favorable policies, and manages large-scale capacity-building programs that individual groups or clusters cannot afford.

Governance at this level typically involves elected boards of directors drawn from member SHGs. Board members in most federations number between 11 and 15, and are mostly democratically or unanimously elected. This democratic character is essential – it keeps the apex body accountable to the people it represents, rather than becoming a detached administrative structure. Federations that also operate as financial institutions can generate revenue through service charges on loan disbursements, which allows them to sustain staff, premises, and operational costs over the long term.

Benefits of tiered network structures 🔗

The move from isolated SHGs to networked federations produces benefits that extend well beyond financial access – though that remains central.

Greater efficiency through pooled resources 🔗

One of the most immediate advantages is the pooling of savings and capital. Individual SHGs are limited in what they can lend – their corpus is only as large as their members’ contributions. When SHGs federate, they can access bulk loans from banks and redistribute credit to member groups at lower transaction costs. As of 2011, NABARD’s SHG-bank linkage program had enabled over 7.5 million SHGs with approximately 100 million members to open bank savings accounts, with 4.8 million SHGs holding outstanding bank loans. This scale would not have been possible without tiered federation structures facilitating the connection between informal groups and formal financial institutions.

Stronger bargaining power 🔗

A network of SHGs carries far more leverage than any single group. Federated SHGs can negotiate better interest rates, access insurance products, qualify for larger government schemes, and enter markets for products they produce. Federations collaborate with institutions like Life Insurance Corporation of India, banks, and development agencies for the purpose of gaining access to finance, capacity building, and technical inputs – none of which an individual 15-member group could typically access on its own.

Community solidarity and social impact 🔗

Beyond finance, tiered networks foster a deeper sense of community and collective identity. Research consistently shows that SHG membership has measurable social outcomes. Districts with higher concentrations of SHG members show significantly higher odds of women delivering babies in institutional settings and taking preventive health measures, along with stronger indicators of women’s mobility, decision-making power, and asset ownership. These outcomes strengthen further when SHGs are embedded in well-structured networks that provide ongoing training, legal support, and advocacy.

Support for larger community initiatives 🔗

Tiered networks also make it possible for rural women’s collectives to take on initiatives that would be impossible at the group level alone. Federation structures have supported women in setting up common processing centres, running cooperative shops, engaging in watershed management, and even participating in electoral politics. Women leaders within federation structures have increasingly pursued roles in local governance and development programs, channeling the organizational confidence built within SHG networks into broader civic engagement. The federation structure, in this sense, becomes a training ground for democratic participation.

Challenges to keep in mind 🔗

Tiered structures are not without complications. Studies of SHG federations in Odisha found that the number of existing federations often falls short of the number needed to adequately serve all panchayats and blocks in a given district – indicating that structural gaps remain a practical challenge. Governance issues, including factionalism, low capacities of some board members, and dependence on promoting agencies, can limit a federation’s effectiveness. Financial sustainability remains a persistent concern: federations that do not offer financial services must rely on fee-based activities, and members are often reluctant to pay for non-credit services. These are real tensions that network designers and policy makers continue to navigate.

Despite these challenges, the evidence from programs like Jeevika in Bihar, Kudumbashree in Kerala, and the Andhra Pradesh model demonstrates that when tiered network structures are well-designed and adequately supported, they create durable, self-reinforcing systems of women’s empowerment that deliver results at scale.

What do you think? Given that two-tier networks are simpler while three-tier models offer greater reach, what factors should determine which structure an SHG network adopts in a given region? And as federations take on more functions – from financial intermediation to policy advocacy – how can they ensure that the voices of individual members at the grassroots level continue to drive decisions at the top?

References

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