A small group (15 to 20 members), voluntarily formed and related by affinity for specific purpose, it is a group whose members use savings, credit and social involvement as instruments of empowerment

Thrift and credit activities
Participatory monitoring of the groups
Group level poverty reduction plans

An economically poor individual gains strength as part of a group. Besides, financing through SHGs reduces transaction costs for both lenders and borrowers. While lenders have to handle only a single SHG account instead of a large number of small-sized individual accounts, borrowers as part of a SHG cut down expenses on travel (to & from the branch and other places) for completing paper work and on the loss of workdays in canvassing for loans.

With a view to facilitating smoother and more meaningful banking with the poor, a pilot project for purveying micro credit by linking Self-Help Groups (SHGs) with banks was launched by NABARD in 1991-92. Reserve Bank of India (RBI) had then advised commercial banks to actively participate in this linkage programme. The scheme has since been extended to RRBs and co-operative banks.

The dictionary meaning of federation is "Association of autonomous bodies uniting for a common perceived benefits". "an association of autonomous bodies united for common perceived benefits" (FWWB, 1998).

A federation is an association of primary organizations.  Primary organizations may federate to realize economies of scale or to gain strength as an interest group. Federations of cooperatives have a long history. (Nair 2002).

A Cluster Level Federation is a network of several SHGs and a structure or body evolved by SHGs themselves consisting of representatives from all member SHGs, with a motive of supporting member-SHGs attain the goals of economic and social empowerment of women members and their capacity building.  (TNCDW, 1999)

In other words, it is an another forum for SHGs to step up development of women members taking advantage of collective effort of members SHGs, enabling a holistic and need based economic and social development. A SHG Federation is a democratic body formed with certain number of SHGs functioning in a specific geographical area with the objective of uniting such SHGs for common cause and for achieving these causes which an individual SHG would not be able to do. In short, the SHG Federation has to be necessarily of SHGs, by SHGs and for SHGs. 

Experiences and literature shows that federations are set up with one or more of the following objectives:

• To get access to policy making bodies through political empowerment and social mobility
• To facilitate linkages between SHGs and banks/govt. agencies/local institutions
• To have better access to development information and marketing linkages
• To resolve any conflicts that may arise within member SHGs
• To assist in strengthening the performance of member SHGs
• To help in achieving sustainability of SHG
• To strengthen (through training, information dissemination, on-site support, etc) the capacity of member-SHGs in one or more of a variety of fields (bookkeeping, accounting, marketing, financial management, advocacy, bank-linkage, accessing government schemes, to name some)
• To provide credit, especially multiple credit lines
• To provide savings facilities, especially voluntary savings
• To undertake marketing of the produce of the members of the SHGs
• To provide life/loan insurance services
• To provide staff support to member-SHGs
• To write and/or audit the accounts of member-SHGs
• To review/regulate/supervise the functioning of member-SHGs
• To promote new SHGs
• To create the political/social space that women need to live their lives as fully as they desire to
• To be the window to the outside world, in replacement of the promoter organisation
• To undertake all that the external facilitator was undertaking, after its departure.

Quality Assessment (QA) as the name suggests, is an assessment of the quality of performance of an Institution a propos the services it provides. In micro finance, we talk about Self Managed Microfinance Institutions (SMFIs), QA of an SMFI would entail a comprehensive evaluation of its design, structure and performance

Small / nascent SMFIs may require a Rapid Quality Assessment, which is more of a SWOT Analysis, and not a comprehensive Assessment. RQA will help understand the program implementation status, issues in coverage & convergence, and identify gaps for capacity building.

Quality Assessment may be done for the following purposes

1. Assessment of credit worthiness
2. Identification of Strengths and Areas for improvement
3. Identification of key Capacity Building needs
4. Enhancement of Quality Consciousness and benchmarking for promotion of best practices among key stake holders.
5. Upgradation of SMFI sector in the state of Andhra Pradesh, at a macro level Also, the Quality Assessment will be a Capacity Building input in itself for the SHG Federation, to improve its performance

Government of AP, Banks and other SHPIs (Self Help Promoting Institutions) and SHG Federations/MACS could seek APMAS Quality Assessment for a fee.

The Quality Assessment involves both intensive and extensive data collection which involves holding meetings with key personnel of the promoting organisation, visiting the constituents operating at the ground level and reviewing the different books & records maintained by the concerned SMFI. Assessments are more participatory and also involve staff of the promoting organization. Assessment involves building rapport with the top management (Board) of the SHG Federation, facilitating small group discussions and presentations made by the Office Bearers, Board members and staff, about the Federation functioning. Debriefing meeting is held with the Federation Board members on the last day of the field assessment. Where the SHG Federation is a 3-tier structure, in addition to the Federation, two Cluster/Village Organizations are assessed.

Operational Self Sustainability (OSS) measures the ability of the Organisation to recover its operating expenses, explicit financial costs and the provision for loan losses. The Assessment Team must recast the financial statement of the federation to reflect the Operating Expenses related to salaries, travel, administration, depreciation, interest payments and loan losses for the rating period. OSS is calculated by dividing the Operating Income by operating Expenses.

The FSS incorporates the opportunity cost of funds by accounting for inflation and market rate of interest for the total funding requirement of the Federation. FSS is calculated by dividing the Operating Income by Total Adjusted Operating Expenses. To calculate the adjusted cost of capital, the cash and other liquid assets are adjusted for the inflation rate during the previous year and borrowings are considered at market rate of interest.

Operating Cost Ratio (OCR) gives an estimate of the Federations efficiency. A higher OCR shows that the Federation is incurring excessive costs and is not able to expand its portfolio sufficiently. A lower ratio indicates that the Federation is capable of transacting large volumes of business with a relatively low cost structure. The OCR for a Federation should optimally lie between 5 - 10% and not exceed that. Operating costs include salaries, commission, depreciation, travel, office expenses, insurance, audit fees, which are administrative costs. Financial costs like interest payments and loan loss provisions are excluded from this. OCR is calculated by dividing the â?oTotal operating costs for last one year by the Average loan portfolio for last one year.

Portfolio At Risk (PAR) measures the risk associated with the Federations active portfolio. A high PAR implies poor portfolio quality and high future risk. PAR is calculated normally for arrears in excess of 90 days. Portfolio refers to the Total Outstanding of all loan products of the Federation. It is an important asset that forms a major chunk of the Federations micro finance operations. PAR of 90 (days) is calculated by dividing the Principal balance of loans with arrears > 90 days by Outstanding Portfolio

Capital Adequacy Ratio shows the federations solvency by indicating its ability to service risky assets from its own capital (net worth), if needed.