irr mfi 3 - sindhuja microcredit

IRR

MFI 3

Sindhuja Microcredit Pvt Ltd (SMPL)

IRR ADVISORY MFI GRADING REPORT

‘IRR MFI 3’ indicates good operational and financial

performance. This report is valid till 7th December 2021

Date of Report:

8th December 2020

Analyst: Paresh Tayade (Email: [email protected])

mailto:[email protected]

1Strictly Confidential; For Private Circulation only.

IRR ADVISORY MFI GRADING SCALE

Microfinance Institution (MFI) Grading is an ordinal measure of the scalability, sustainability and reliability of

the MFI’s internal processes, controls and governance structure. The MFI Grading does not comment on the

debt repayment capacity of the institution and is not a credit rating. IRR Advisory grades MFIs on an eight-

point rating scale where “IRR 1” symbolizes highest level of performance in relation to other MFIs while “IRR

8” symbolizes poor performance in relation to other MFIs. In order to differentiate between the various MFIs,

IRR Advisory conducts a detailed assessment of the sustainability, reliability and scalability of the MFI being

reviewed. Key factors assessed include Governance, Compliance, Operational Set-up, Scale of Operations,

Financial Sustainability, Employee Management and Impact on Borrowers.

The MFI Grading applies to entities whose only business / objective is microfinance loans. In case the entity

has other activities or is a part of a group involved in various activities, then the grading will be applicable to

the microfinance program only. The definitions of the gradings are as follows:

MFI Grading Definition

IRR MFI 1 Best-in-class MFI with excellent operational and financial performance

IRR MFI 2 Very good operational and financial performance in relation to other MFIs

IRR MFI 3 Good operational and financial performance in relation to other MFIs

IRR MFI 4 Above average operational and financial performance in relation to other MFIs

IRR MFI 5 Average operational and financial performance in relation to other MFIs

IRR MFI 6 Below average operational and financial performance in relation to other MFIs

IRR MFI 7 Weak operational and financial performance in relation to other MFIs

IRR MFI 8 Poor operational and financial performance in relation to other MFIs


KEY GRADING DRIVERS

Governance

Compliance

Operational Set-up

• Working and Independence of Board of Directors (BoD) and various

committees, including process in place for BoD oversight

• Risk Management frameworks, review mechanism, audit standards, related

party transactions, Conduct of Account etc.

• Integrity, Competence, Track record of Management and BoD.

• Adherence to regulatory guidelines, adequacy and timeliness of disclosures

to various stakeholders

• Processes and systems in place which ensures negligible divergence

between regulator /auditor assessment of company processes / financials

and management assessment.

• Adequacy of systems, process and policies to ensure effective

management of day to day operations

• IT Systems and Infrastructure utilized in day to day operations, digitization

of process to ensure minimum human interference in operations, MIS and

reporting

• Business Continuity plan, customer grievance redressal, Internal Audit

process, Data Privacy, Credit Bureau check, Customer education etc.


KEY GRADING DRIVERS

Scale of Operations

Financial

Sustainability

Employee

Management

Impact on Borrowers

• Product offerings, Geographical reach, distribution network strength, demand

for product, customer profile etc.

• Earning Profile, Profitability, Capital Adequacy, Funding and Liquidity profile,

Asset quality, Leverage, contingent liabilities, Financial restructuring, Future

expansion plans etc.

• Adequacy of Organization structure covering reporting structure, span of

control, roles and responsibilities etc

• Guidelines for Succession planning

• Guidelines for recruitment, training, supervision, notice period, incentives ,

grievance redressal process, code of conduct etc.

• Impact on Social and Economic status of borrower

• Financial Inclusion, education of borrower regarding various financial

products, consumer rights, grievance redressal etc.


TABLE OF CONTENT

Sl. No. Section Page No.

1 Fact Sheet 5

2 Industry Overview 7

3 Company Overview 15

4 Management Overview 18

5 Operational Overview 26

7 Financial Highlights 33

8 Future Plans 39

9 Grading Rationale 41

10 Annexures 52

5

FACT SHEET


FACT SHEET

Name of the MFI

Date of Incorporation/Establishment

Date of commencement of microfinance business

Legal Status

Business of the company

Correspondence Address

5

36

56

84253

377

233

No. of Lenders

Statutory Auditors

Sindhuja Microcredit Pvt Ltd (SMPL)

Board of Directors

Mr. Abhishek Sharman

Mr. Yashvant Malhotra

Mr. Abhisheka Kumar

Mr. Malkit Singh Didyala

Mrs. Smriti Chandra

Geographical Reach (As on 31/March/2020)

No. of States

No. of Districts

No. of Branches

No. of Active Borrowers

No. of Total Employees

No. of Field/Credit Officers

18 lenders (including Banks and institutional lenders)

Walker Chandilok and Co. LLP

01/Dec/2017

30/Apr/2018

NBFC-MFI

Microfinance Services Under Joint Liability Group (JLG)

Office No. 15, 16, Fourth Floor, Tower B THE I-THUM, Plot A-40, Sector-

62 Noida Gautam Buddha Nagar UP- 201301

Tamil Nadu

7

INDUSTRY OVERVIEW


INDUSTRY OVERVIEW

The Reserve Bank of India (RBI) defines microfinance as "provision of thrift, credit and other financial services

and products of very small amounts to the poor in rural, semi-urban or urban areas for enabling them to raise

their income levels and improve their living standards". The microfinance sector plays an important role in

promoting inclusive growth by providing credit to borrowers at the bottom of the economic pyramid. This sector

has been instrumental in creating opportunities for low-income households by providing credit access to over

70 million unique live borrowers who were previously beyond the reach of traditional financial services.

The key players in the Indian MFI sector include banks, small finance banks (SFB), NBFCs, NBFC – MFIs and

not-for-profit MFIs. As per RBI, a NBFC-MFI is a non-deposit taking NBFC (other than a company licensed

under Section 25 of the Indian Companies Act, 1956) with minimum net owned funds of Rs.5 crore (for NBFC-

MFIs registered in the North Eastern region of the country, it will be INR 2 crore) and having not less than 85%

of its net assets as “qualifying assets”. Further, to be recognized as an MFI, a NBFC must satisfy the following

conditions:

• Loan to be disbursed to the borrower with a rural household annual income shall not exceed Rs 1.25 lakh

and in the case of the urban and semi-urban household income not exceeding Rs 2.0 lakhs

• The amount of a loan shall not exceed Rs 75,000 in the first cycle and Rs 1.25 lakh in the subsequent

cycles.

• The tenure of the loan for the amount exceeding Rs 30,000 (with prepayment without penalty) must not be

less than 24 months.

• The total indebtedness of the borrower shall not exceed Rs 1.25 lakh.

• The loan shall be disbursed without any collaterals.

• An aggregate of total loans given for income generation shall not be less than 50% of the total loans given

by the MFI.

• The loan is repayable either weekly, fortnightly or monthly, depending on the choice of the borrower.


MARKET SHARE

Traditionally, NBFC – MFIs have been the dominant player in the

microfinance sector. However, given the scenario of non-performing

corporate loans, banks are now increasingly looking at retail lending

to increase profitability and have targeted acquiring NBFC – MFIs due

to their rural reach and low default of repayments. It also enables the

bank to cross-sell products and reach the bottom-of-the-pyramid

customers efficiently. Further, banks can quickly meet their priority

sector lending (PSL) targets and use the excess PSL portfolio to earn

fees through the sale of PSL certificates. Banks now hold the largest

share of portfolio at 40% followed by NBFC MFIs at 32%. The very

high growth of Banks’ portfolio and relatively slow growth for NBFC

MFIs is mainly due to merger of BFIL (earlier SKS Microfinance) with

IndusInd Bank during Q1 2019-20. The PAR figures continue to show

an increasing trend as compared to previous quarters, but the

portfolio health is still within acceptable limits.

0

20,000

40,000

60,000

80,000

100,000

Banks SFBs NBFC - MFIs NBFCs Not-for-ProfitMFIs

Portfolio Outstanding in the MFI Sector (Rs. Crore)

Sep'18 Mar'19 Sep'19 Mar'20

Source: SIDBI, MFIN, IRR Advisory


INDUSTRY SNAPSHOT

Source: SIDBI, MFIN

MFI Snapshot of 30th Sep 2019 Banks SFBs NBFC - MFIs NBFCs Not-for-Profit Total

Unique Live Borrowers ('000) 24,445 13,418 23,945 8,734 849 71,391

Active Loans ('000) 34,650 16,451 35,005 9,523 1,174 96,803

Portfolio (Rs. Crore) 80,526 34,290 63,394 19,508 1,970 199,688

Average Ticket Size (Rs.) 36,754 33,624 27,442 34,344 26,517 32,155

30+ DPD 0.73% 0.89% 1.11% 2.52% 0.54% 1.05%

90+ DPD 0.25% 0.38% 0.42% 1.17% 0.25% 0.43%

Banks have a 14% higher ATS than the industry ATS while NBFCs registered highest 90+ delinquency at

1.17% as on September 2019. Their has been a sharp rise in delinquencies over the last two quarters:


REGIONAL CHARACTERISTICS

Source: SIDBI, MFIN

As on 31 March 2020, the industry serves 5.89 crore

unique borrowers through 10.54 crore loan accounts. The

regional spread depicted in the pie-charts alongside,

shows that East & North East and South continue to

contribute 2/3rd of MFI portfolio as well as unique

borrowers (UB). The top ten states by MFI portfolio are

Tamil Nadu (TN), West Bengal (WB), Bihar (BH),

Karnataka (KA), Maharashtra (MH), Uttar Pradesh (UP),

Madhya Pradesh (MP), Odisha (OR), Assam (AS) and

Kerala (KL). Key portfolio details are summarised below:

State Sep'18 Sep'19

TN 0.30% 0.54%

WB 0.24% 0.22%

BH 0.17% 0.10%

KA 0.37% 0.34%

MH 0.70% 0.41%

UP 1.13% 0.39%

MP 0.65% 0.71%

OR 0.22% 1.39%

AS 0.13% 0.28%

KL 0.35% 0.78%

All India 0.40% 0.43%

Y-o-Y 90+ DPD


NBFC - MFI PERFORMANCE … 1

Source: MFIN

Outreach

Disbursements

GLP of MFIs has

grown significantly

from INR 28,142 Cr in

Dec-17 to INR 74,371

Cr in Mar-20. Number

of clients have nearly

doubled during the

period.

Number of loans

disbursed has shown

fluctuating trend

during Dec-17 to Mar-

20. Loan amount

disbursed has

reached INR 20,239

Cr in Mar-20.


NBFC - MFI PERFORMANCE … 2

Source: MFIN

PAR

Funding

PAR had shown

declining trend from

Mar-18 to Mar-19,

after which it is slowly

growing.

Both Debt and Equity

of MFIs sector have

grown significantly

from Dec-17 to Mar-

20. Debt/Equity ratio

has shown declining

trend during the

period.


INDUSTRY OUTLOOK

Over the last decade, the average loan ticket size has increased from about INR 12,000 to about INR 32,000.

Although the increasing ticket sizes was supported by increasing incomes till FY14, the increase in real

incomes has not kept pace with the increasing ticket size subsequently. Demonetisation also impacted income.

In IRR Advisory’s opinion, a typical two-income joint liability group borrower household could service

INR50,000-INR60,000 of debt in over two years. Considering on an average 2 lenders, average ticket size of

INR 25,000 and the fact that there could also be bank-led self-help group borrowing, IRR Advisory opines that

a segment of the borrowers could be overleveraged (total borrowing equal to or greater than household’s debt

serviceability through its own income). This is likely to create asset quality issues. IRR Advisory understands

incremental growth for the MFI sectors in the last few years has largely come from existing borrowers and the

addition of new borrowers has been limited as it entails a high operating cost. Additionally, this portfolio

remains highly susceptible to political and other idiosyncratic risks. Thus, the impact of political interference on

collections for MFIs with large operations in Uttar Pradesh (UP), Madhya Pradesh and Maharashtra was quite

significant a couple of years back and impacted credit costs in the range of 5-10% when recognized (post

expiry of RBI dispensation).

Stronger MFIs are trying to mitigate this risk though a lower loan concentration and higher profitability and

equity buffers. IRR Advisory also expects MFIs to recognize this risk and transition gradually to also providing

individual loan products by building credit assessment and recovery capability. However, collections are the

key monitorable – collections which had plunged to near zero in April due to the moratorium granted by MFIs to

their borrowers on an opt-out basis, improved to 55~60% in June and 70~75% in July on account of gradual

lifting of restrictions. While the bounce-back was faster than expected due to the lifting of lockdown in rural and

semi-urban areas, improving collections to the pre-pandemic levels of 98~99% will be an important factor from

an asset quality perspective. MFIs are expected to focus on raising additional equity capital over the near to

medium term to create a buffer for potential pandemic-related credit costs.

15

COMPANY OVERVIEW


COMPANY BACKGROUND

SMPL is a NBFC-MFI engaged in microfinance activities in the Indian states of Bihar, Jharkhand, Chhattisgarh,

Rajasthan & Uttar Pradesh with a focus on providing financial and non-financial services to poor inhabitants in

that region. The areas where SMPL operates are regions where some of the poorest people in India live and

are largely unserved by formal and informal banking facilities.

SMPL was incorporated on 1st December, 2017 and started its microfinance operations on 30th April, 2018.

Since then it has expanded its operations and currently operating in 35 districts and 58 branches. The

highlights of SMPL’s performance since inception are as follows:

• Total own portfolio outstanding of INR 143.8 Cr and total portfolio of INR 175.5 Cr on 31st March 2020.

• Over 84,000 poor clients with a ~99.8% on time repayment rate

• Total Equity Capital and Reserves & Surplus of INR 36.6 crore and borrowings outstanding of INR 132.9

crore as on 31st March 2020.

• Robust technology platform (BR.NET) for data maintenance and MIS.

• Experienced management team with cross-sectoral experience including entrepreneurship, finance, MIS,

project management and financial services

SMPL follows the JLG model in which a group of individuals come together to borrow from a financial

institution. The group shares responsibility and guarantee each other’s loans. SMPL caters only to financially

under served sections of the society. SMPL aims to provide access to those entrepreneurs who have the

requisite skill and courage and conviction but lack capital. SMPL aims to support them by offering financial

services and also non financial services and be their trusted partner in their growth and prosperity. The

company plans to offer micro finance loans and gradually graduate them to become micro entrepreneurs and

participate in the financial inclusion process.


SHAREHOLDING PATTERN

SMPL has an authorized share capital of INR 16.0 crore and paid-up share capital of INR15.7 crore. The face

value is INR 10 per share fully paid-up. Carpediem Capital Partners Fund 1, controls 47.1% of the company.

Promoters, Mr. Abhisheka Kumar and Mr. Malkit Singh Didyala together control 27.2% of the equity. The share

capital of SMPL has more than doubled in the last two years, from INR 7.4 crore in FY19 to INR 15.7 crore in

FY20. The company has plans of expanding the equity base manifold over the next few years.

S.No Particulars # Shares Value (Rs.)

1 Promoters 4,262,600 42,626,000

2 Carpediem Capital Partners Fund 1 7,389,890 73,898,900

4 Others 4,025,700 40,257,000

15,678,190 156,781,900Grand Total

Shareholding pattern as on 31 March-2020

18

MANAGEMENT OVERVIEW


PROMOTERS/ BOARD OF DIRECTORS … 1

Currently, The Board of Directors (BoD) has 5 members, which consists of 2 whole time Directors - Mr.

Abhisheka Kumar and Mr. Malkit Singh Didyala, 2 nominee Directors - Mr. Abhishek Sharman and Mrs. Smriti

Chandra, and 1 independent Director - Mr. Yashvant Malhotra. A brief profiles of the BoD is given below:

Mr. Abhisheka Kumar

Mr. Abhisheka Kumar has an unique experience of being the founding team member of a new generation Micro

Finance Company and Small Finance Bank in India. He has proven expertise in funds planning & mobilization,

management reporting, business planning and managing investor relations. Prior to SMPL he was the CFO of

Utkarsh Small Finance Bank Ltd. and the founding member of Utkarsh Micro Finance where he as part of

leadership team steered the start-up to a major MFI & then to a SFB. Prior to his more than 8 years journey

with Utkarsh Micro Finance and Utkarsh Small Finance Bank, he was with ICICI Bank for more than 4 years.

He also had over a year’s stint at Friends of Women World Banking where he worked closely with more than

35 MFIs across India. He is alumnus of St.Xavier’s College, Kolkata and Institute of Rural Management, Anand

(IRMA).

Mr. Malkit Singh Didyala

Mr. Malkit Singh Didyala has over 12 years of experience in banking and finance with reputed financial

institutions like Bajaj Finance, ICICI Bank and Utkarsh Small Finance Bank. His experience is steeped in

business development roles across Microfinance, MSME Lending, Mortgage Lending and Institutional Lending.

In his last role he was the Business Head for MSME & Agri lending at Utkarsh Small Finance Bank. At Bajaj

Finance he conceptualized and established the financial institutions lending business. He brings to the table

hardcore business development & execution skills and an unique perspective on the rural economy having

worked at AMUL & IWMI in his prior stints. He also has a keen interest in technological innovations impacting

financial services and inclusive finance specifically and will drive adoptions of these at SMPL. Malkit is an

alumnus of Regional Institute of Education, Bhubaneswar & Institute of Rural Management, Anand (IRMA).


Mr. Abhishek Sharman

Mr. Abhishek Sharman is Founder and Managing Director at Carpediem Capital Partners, an SME focused

private equity firm targeting investments in consumer and services focused themes. Mr. Sharman has close

a decade of experience in private equity and has played a key role in investing, portfolio management and

exits across more than 15 companies. Mr. Sharman serves as a member of economic affairs sub-committee

of the Confederation of Indian Industries (CII). Mr. Sharman received a management degree from Indian

Institute of Management, Calcutta and an engineering degree from Indian Institute of Technology, Delhi.

Mr. Yashvant Malhotra

Mr. Yashvant Malhotra retired from the Indian Police Service (Bihar Cadre, 1975 Batch) with extensive

experience in leadership positions, overseeing policing and intelligence for the State and Central

Government Police organizations including the Central Bureau of Investigation (CBI), Central Industrial

Security Force (CISF), Shastra Seema Bal (SSB) and the Central Reserve Police Force (CRPF). His

experience includes economic and criminal investigations in India and abroad.

Mrs. Smriti Chandra

Mrs. Smriti Chandra runs NMI’s Indian office. Prior to joining NMI, she was a co-founder of a boutique

Investment Banking outfit – First League Ventures – based out of New Delhi, for 3 years, focused on

supporting start-up companies in M&A and raising seed to Series A venture capital funds across technology

and consumer sectors. She has also worked at E&Y for over 10 years where she served clients in multiple

sectors with a focus on transaction advisory services, including investment banking (M&A and private equity

fund raising), financial due diligence and bid advisory services.Ms. Chandra is a qualified Chartered

Accountant from the Institute of Chartered Accountants of India and a Commerce graduate from Bangalore

University.



• While the promoters bring a mix of knowledge and experience to the table, the Board of Directors at

SMPL comprise of leading professionals providing overall guidance to the organization.

• Currently SMPL has 5 Directors – 2 Whole time, 1 Independent Director and 2 Nominee Directors.

• SMPL is planning to expand its BoD and the same was expected to be completed by November 13,

2020 according to the share subscription agreement. However, the Company has got additional 60 days

time for identification of independent directors as delay due to the ongoing pandemic.

• At the end of calendar year, the Board of Directors will have 8 Directors- 2 whole time Directors, 3

nominee Directors & 3 independent Directors.

• As per the shareholders agreement signed by the company, promoters and investors, there shall be 3

independent directors on the Board of SMPL. The chairman of the Board has to be an independent

director.



ORGANIZATIONAL OVERVIEW …1

Organizational hierarchy of SMPL:


ORGANIZATIONAL OVERVIEW …2

The organizational overview of SMPL is

shown alongside. The core functions include

loan disbursement, loan recovery, NPA

management and financial management.

The non-core functions include data entry,

data validation, HR, IT and processes. In

HO, there are total 28 staff members

including Finance & Accounts, Operations,

I.T., Internal Audit, etc.

There are total 246 Loan Officers/ Field

Officers, 55 Branch Managers, 33

Supervisory Field Staff, and 13 other staffs.

The total employee strength of SMPL in

March, 2020 was 375.

Employee Break-up (March, 2020)

Personnel No.

Loan Officers/ Field Officers 246

Branch Head/ Branch Manager 55

Other Supervisory Field Staff (AMs,RMs,DMs etc.) 33

Region Accounts, Branch Admin & Other Staffs 13

Total personnel excluding H.O. Staff (A) 347

Head Office Staff:

Finance and Accounts 5

Operations 5

I.T. 5

Company Secretary 1

Internal Audit 5

HR 2

Training 3

Administration 2

Total H.O. Staff (B) 28

Grand Total (A) + (B) 375


KEY MANAGEMENT …1

Name Position

Mr. Shailendra KumarZonal Head – JLG

Operations

Mr. Kamlesh Prasad DVP – HR & Admin

Mr. Manoj Kumar SinghRegional Head – JLG

Operations

Mr. Chandan SinghRegional Head – JLG

Operations

Mr. Rahul Bhatia AVP Audit & Risk

He has 14+ years of experience in Microfinance Business Development, Portfolio

Management, Training and Development of Employees.

Brief Profile

He has around 15 years of extensive experience in HR functions in Banking &

Financial, Manufacturing, Education and Insurance sector. He has expertise in

handling HR Operations, Payroll & Statutory Compliance Management, HR

System Implementation, Grievance Handling etc.

He has 10+ years of experience in Microfinance and Micro Enterprise operations

in business development, portfolio management, recruitment and training. He was

responsible for business expansion in Bihar & UP. He has previously worked with

Satin Credit Care and Utkarsh Small Finance Bank.

He has 10+ years of experience in Microfinance and in business development,

portfolio management, recruitment and training. He has worked extensively in

Jharkhand & UP. He has previously worked with Spandana Spoorthy Financial

Services and Utkarsh Small Finance Bank.

He has 9+ years experience in software technology and Microfinance . His key

interest areas are audit, risk and business analytics. He has previously worked

with software company and S V Creditline. He is a post Graduate from Institute of

Rural Management, Anand (IRMA).


KEY MANAGEMENT …2

Name Position

Mr. Akhilesh Dubey AVP Accounts

Mr. Kamlesh Soni AVP IT

Mr. Rohit Tandon AVP - Finance

Mr. Mohinder Sharma

Regional Head – JLG

Operations

(Rajasthan)

He has more than 8 years experience in BFSI sector. He has previously worked

with HDFC Securities, HDFC Bank and S V Creditline. In his last assignment, he

was managing relationship of more than 35 lenders which included PSU banks ,

Private Banks, Financial Institutions.

He has around 10 years of experience in Microfinance Business Development,

Client Relationship and Training and Development. He has expertise in business

expansion in new area, Risk mitigation and can manage large volumes of sales

force.

Brief Profile

He has 8+ years of experience in Accounting,Taxation, Financial Reporting,

Regulatory Reporting. He has previously worked with Utkarsh Small Finance Bank

and A U Small Finance Bank.He is a commerce graduate and has done MBA

–Banking & Finance and CA Final Group 1.

He has 9+ years experience in leading the IT function for developing and

spearheading IT strategy & initiatives, integrating the business operations through

IT network, augmentation and maintenance of IT systems and infrastructure,

Security and administration of IT databases and ensuring efficiency and

effectiveness of utilization of all IT resources. He has previously worked with M

Power & Fusion Microfinance.

26

OPERATIONAL OVERVIEW


OPERATIONAL OVERVIEW

SMPL was incorporated on 1st December, 2017 and started its microfinance operations on 30th April, 2018.

SMPL is engaged in microfinance activities in the Indian states of in Bihar, Jharkhand, Chhattisgarh, Rajasthan

& Uttar Pradesh with a focus on providing financial and non-financial services to poor inhabitants in that region.

SMPL targets clients in accordance with the RBI guidelines i.e. women borrowers with annual household

income of less than INR 2,00,000 in urban areas and less than INR 1,25,000 in rural areas. As on 31st March

2020, SMPL had total own portfolio outstanding of INR 143.8 Crores. Product portfolio of SMPL is given below:

Loan Cycle Max Eligible Loan Amount Eligible Loan Products

1st Cycle Rs. 30,000 Sindhuja Ankur &Sindhuja Pallav

2nd Cycle Rs. 40,000

Sindhuja Ankur, Sindhuja Pallav &

Sindhuja Pushp

Name of Product

Loan Amount

Weekly

Fortnightly

Monthly

Rate of Interest

(Reducing)

Processing Fees

Insurance Fees 1.36% 1.75% 2.20%

22.3% or as

revised from time

to time

22.3% or as

revised from time

to time

22.3% or as

revised from time

to time

1% + GST 1% + GST 1% + GST

14 months

72 weeks

36 fortnights

18 months

104 weeks

52 fortnights

24 months

29 fortnights

Sindhuja Pallav Sindhuja Ankur Sindhuja

Pushp

Tenure/Term

58 weeks

Rs. 15,000 -

20,000

Rs. 25,000 -

30,000

Rs. 35,000 -

40,000


OPERATIONAL HIGHLIGHTS

Operational highlights of the microfinance business by FY20 are shown below:

• SMPL has expanded its operations significantly in FY20. It has expanded its reach to Chhattisgarh and

Rajasthan in FY20 and plans to expand in Haryana by FY21.

• Number of branches have increased by 2.5 times while number of borrowers have increased by ~3 times

from FY19 to FY20.

• The total number of employees including field officers have also increased ~2.7 times during the period to

maintain operational efficiency during the robust growth in the period .

Particulars FY19 FY20

No. of States 3 5

No. of Districts 16 36

No. of Branches 23 56

No. of Active Borrowers 28,978 84,253

No. of Total Employees 137 377

No. of Field/Credit Officers 86 233


PROCESS FLOW … 1

The following is a description of the process flow of SMPL:

• Village Survey: The commencement of business sourcing in any new village/location shall start with a

survey. The purpose of the survey is to assess and decide the suitability of the village/locality for business

sourcing. The CO shall be conducting the village survey and record his/her findings in the Village Survey

(VS) format. The findings of the survey are discussed with the BM/AM who can then approve business

sourcing from the village/locality.

• Projection Meeting: This is the first and formal contact between the organization and potential customers.

It is the process of making local people/target segment aware about organization, its mission/vision,

customer’s eligibility, product, services, process, and documentation, policies and procedures. The key

objective is to make potential customers aware and motivate them to become member and borrower in the

organization to avail the services offered and improve the livelihood.

• Group & Centre Formation: SMPL lends only to women clients under the Joint liability group formation.

Joint Liability Group (JLG) is a lending model that enables a group of individuals (usually five) to take loans

for income generating activity by forming a group, wherein group members guarantee each others’ loans.

Under the joint liability, the centre as a whole guarantees the repayment of the Loan(s) of each and every

centre member if in case there is any default.

• Compulsory Group Training (CGT): Compulsory group training is a two day training and first formal

interaction between members and SMPL staff. Under these two days of training rules related to SMPL loan

products and rules and obligations of clients are explained to members.


PROCESS FLOW … 2

• Group Recognition Test: GRT is a process of appraising the client credit need & absorption capacity,

reassessment of client knowledge on product, services, rules & procedure and cross verification of the

information shared.

• Loan Disbursement: BM verifies posts the disbursement in the web-based BR.Net (CBS) All fees are

collected and posted on the Tab based TRUECELL. A Re 1 IMPS done to verify Bank A/C.

• Loan Utilization Check: LUC will be done within 14 days of disbursement of loan. It is compulsorily done

by Credit Officer. Test checks are also done by Branch Manager and Area Manager.

• Collection: JLG loans collected through fortnightly center meetings wherein the designated member

deposits the cash at the Branch Office.


SYSTEMS AND CONTROL … 1

• SMPL’s management information system (MIS) and Information Technology (IT) infrastructure is adequate

for its current scale of operations. The company has implemented BR.NET system, a core MFI solution on

SAAS Model with real time and web based application developed by Craft Silicon Pvt Ltd, Bangalore. It is a

first of its kind system for Group loan origination where SMPL can get entire view of Loan origination

starting from Village survey to loan disbursement, and allows field officers to perform quick and efficient

transaction at the field level through a secured channel using mobile data connection.

• The company shares the credit data with all four credit bureaus i.e. CIBIL, Experian, CRIF High Mark and

Equifax on weekly basis as per the RBI norms. The company has a dedicated helpline number, where calls

are recorded automatically and addressed within 24 hours.

• At SMPL, There are many parallel activities that take place within the branch and it is very important to

capture all these activities for proper recording and monitoring. There are many registers and files that are

provided to branches which are updated on daily basis for proper record keeping and supervision. code

issued by RBI for client protection. Apart, from various registers there are various files too that are

maintained and these files are updated on its designated frequency such as Surprise centre visit file, Leave

file, Petty Cash Expense, Loan Document File, Village survey file.

• Credit officer coordinates all the activities involved with staff starting from village survey, projection meeting,

group formation, conducting CGT and centre meeting for issue of loan, conducting loan utilization checks,

loan repayments, attendance of centre members and any other activity related to vision of organization. He

/ She acts as the touch point for organization from client’s perspective as his frequency of interaction with

client is maximum in comparison to other staff.


SYSTEMS AND CONTROL … 2

• Branch Manager is the first supervisory designation above the credit officer. He / She needs to have good

supervisory skills and business acumen such that growth of organization is ensured. Apart from business

Branch Manager also look after the process compliance and ensure effective resource usage.

• Area Manager is the supervisory authority which has the highest frequency of visits to any branch. He / She

is the second layer of monitoring and supervision after BM. Area Manager broadly monitor the risk for the

branches assigned to him / her and formulates the mitigation strategy for the same. Each Area Manager is

assigned two branches such that he / she can visit these branches and easily monitor them.

• SMPL has set up Grievance Redressal Committee for resolution of client’s grievances in minimum time.

The company has devised a multi-layered grievance redressal mechanism. The customers can reach field

level or branch level for verbal/written complaints, additionally toll free customer care number, email

address and company address are also provided to customers.

• There is a dedicated member at Head office who takes care of the grievance process from receival of

grievance to closure within the stipulated time. Consequently, the data is represented to the grievance

committee every month and is also taken to the board. During the FY20, a total of 130 complaints were

received and all were closed within the defined TAT. There was no escalation of complaints received

through RBI or SRO for the FY20.

• SMPL provides sufficient buffer to its borrowers for starting repayment of the disbursed loan. The

repayment of the loan starts from 14 days after a loan is disbursed for all the loan products .

33

FINANCIAL HIGHLIGHTS


FINANCIAL ANALYSIS … 1

The own loan portfolio of SMPL has increased 5.2

times from INR 27.6 Cr in FY19 to INR 143.8 Cr in

FY20, whereas Total Assets under management

including managed portfolio has increased from

INR 61.4 Cr in FY19 to INR 175.6 Cr in FY20. The

number of borrowers have jumped nearly 3 times

during the period. The robust growth could be

attributed to SMPL expansion into new

geographies. SMPL has expanded its presence to

36 districts and 56 branches in FY20. The average

loan size disbursed of SMPL stood at INR 29,993 in

FY20.

Despite robust portfolio growth, SMPL has

maintained good Asset quality which is reflected

through on time payment and low PAR > 30 days.

In FY19, 100% on time payment was received by

SMPL, which reflects robust collection and asset

quality management system. SMPL has recorded

PAR> 30 days at 0.06% and PAR > 90 days at

0.05% in FY20. Though PAR has increased, it is at

low level as compared to industry.



SMPL has maintained the CRAR well above the

RBI stipulated CRAR for NBFC-MFI of 15 per cent.

CRAR % for FY20 stood at 18.9%, whereas Tier 1

and Tier 2 capital stood at 18.1% and 0.8%

respectively, as the authorised share capital of

SMPL increased by conversion of Rs. 6.25 Crores

Compulsorily Convertible Debentures in to equity

shares in FY20. SMPL has total equity capital of

INR 36.6 Cr as on March 31, 2020 as compared to

INR 7.7 Cr in the previous year. Tier 1 capital has

increased because of equity infusion in FY20 of INR

19.8 Cr and conversion of CCD into equity.

Further, debt has significantly increased from INR

48.6 Cr in FY19 to INR 132.9 Cr in FY20 reflective

of SMPL’s robust expansion in last years. Gearing is

at comfortable level and has improved from

previous year and stood at 3.6 in FY20 compared to

6.3 in FY19 primarily because of capital infusion

from Carpediem Capital Fund 1 in FY20.



Further, the growth in loan portfolio and customer

base has boosted the revenue. The revenue for

FY20 stood at INR 25.3 Cr which has increased

exponentially from FY19 to FY20. Further, increase

in revenue has also augmented the Net Income

which stood at INR 2.2 Cr in FY20 in comparison of

INR -2.7 Cr in FY19. Additionally, SMPL has shown

continuous improvement in the ROCE, ROE and

NIM. ROCE for FY20 stood at 11.2%, whereas ROE

and NIM stood at 9.8% and 12.4% respectively.

In FY20, SMPL has demonstrated strong

operational self-sufficiency ratio which has shown

improvement from previous year and stood at

106.2% for FY20. Further, SMPL has effectively

managed its operational expenses compared to

growth in gross loan portfolio which is reflected

through operational expense ratio which is at

comfortable level of 11.2% in FY20. The higher

operational expense ratio was mainly due to the

expansion of business in FY20. The monthly

average of operational expense ratio till October

2020 was ~9% according to management.



SMPL has significantly improved its field outreach

and productivity in last couple of years which is

reflected in ratios like Number of Active Borrowers

per Staff members, Number of Active Borrowers per

field executives etc. No. of field officers have

increased in FY20. However, productivity remains

average as compared to the peers and SMPL needs

to improve it along with expansion and

diversification.

SMPL has presence across 36 districts of 6 States.

Further, Bihar state accounts for ~70% of the Gross

Loan Portfolio (in Value) followed by Jharkhand,

which accounts for ~20% of the Gross Loan

Portfolio (in Value). The high MFI credit demand in

the state of Bihar is reflected in the geographical

concentration of SMPL’s portfolio. More than 90% of

SMPL’s borrowers are from Agriculture and Animal

Husbandry sectors.



As on 30th September 2020, SMPL has loan

outstanding from 18 Financial Institutions (FIs).

Further, Northern Arc Capital Limited is biggest

lender consisting ~ 25% of total loan outstanding.

Top three lenders contributes to ~50% of total

outstanding. SMPL’s Cost of Fund (CoF) stood at

14.9% which is on the higher side. As majority of

loans are availed from NBFCs which carry higher

interest rate, therefore company need to explore

future funding from Banks and NBFCs at lower

interest rate and need to further diversify the

funding.

Further, there are marginal Asset Liability mismatch

in 1 to 3 years bucket, however there are no

cumulative mismatch in any of the buckets as most

assets are matched out with liabilities of similar

maturity and repricing characteristics. Further,

management has low tolerance towards liquidity

and interest rate risk.

39

FUTURE PLANS


GROWTH STRATEGY

While SMPL has already established its market presence in 5 states - Bihar, Jharkhand, Chhattisgarh,

Rajasthan & Uttar Pradesh, and planning to expand in Haryana state by FY21. Further, Company intends to

raise additional INR 65.0 Crores of equity capital in FY21. Tranche 1 of INR 25.0 Crores is received in May 20

and Tranche 2 of INR 40.0 Crores would be received post Approval from RBI. Further, SMPL received Rs. 10

Cr from Carpediem on 2nd Dec, 2020 and Rs 10 Cr from NMI is expected to receive by first week of

December, 2020 since they are FII (Transaction is already initiated by the investor). The same investors would

infuse equivalent amount i.e. Rs 10 Cr each before March, 2021 taking the capital to more than Rs. 100 Cr.

With own portfolio outstanding of INR 143.8 Crores as on 31st March 2020, it plans to grow its own portfolio to

around INR 2,128.1 Crores by FY25. SMPL plans to expand its presence from existing 58 branches to 350

branches by FY25. SMPL plans to raise debt around Rs. 120 Crores in FY21. A brief snapshot of projected

growth of SMPL is shown below:

However, as per IRR Advisory the projections look optimistic given the current adverse economic situation due

to COVID-19, SMPL should focus on calibrated growth and managing asset quality and maintaining adequate

liquidity should be its primary goal over the next 12-18 months.

2020A 2021P 2022P 2023P 2024P 2025P

Particulars Unit FY20 FY21 FY22 FY23 FY24 FY25

Operational Parameters

Total AUM Rs. Cr 175.6 254.2 506.7 1,063.8 1,867.7 2,677.7

Total Branches Nos 23 55 66 110 190 280 350

Total Employees Nos 375 459 768 1344 2039 2521

Total COs Nos 86 246 300 508 913 1418 1753

Total Disbursement Rs. Cr 221.4 218.5 551.2 1,205.9 2,084.0 2,948.7

Total Active Loans Nos 84,253 121,169 224,601 411,822 701,651 946,577

41

GRADING RATIONALE


KEY FINDINGS … 1

GOVERNANCE

• As on November 30th, 2020, SMPL’s apex governance body i.e. Board of Directors (BoD) consists of 5

members including 2 nominee Directors, 1 independent Director and 2 promoter Directors with substantial

experience in Banking and MFI sector. BoD and Management has high integrity and competence with

satisfactory conduct of account in the past.

• SMPL is planning to expand its BoD by December 31st, 2020. At the end of calendar year, the Board of

Directors will have 8 Directors- 2 whole time Directors, 3 nominee Directors & 3 independent Directors.

• As per the shareholders agreement signed by the company, promoters and investors, there shall be 3

independent directors on the Board of SMPL. The chairman of the Board has to be an independent

director.

• BoD is currently assisted by three Committees - Resourcing Committee, Asset-Liability Committee, and

Grievance Redressal Committee. Currently, the Asset-Liability Committee manages Liquidity Risk and

Internal Audit team is responsible to conduct audit for all the branches under the operational geographies.

• Once the full board is composed, the company will have 4 new board level committees - Audit Committee,

Nomination & Recruitment Committee (NRC), Social Performance Committee, and Credit & Risk

Management Committee. However, from April, 2021 onwards as the company scales up there would be

separate Risk Management Committee. The chairperson of the committees will be independent directors.

• SMPL has well defined operating procedures, processes and guidelines to clearly delineate roles and

responsibilities of committees which ensures adequate level of corporate governance framework

commensurate to the current size of the company. However corporate governance framework needs to be

augmented.


KEY FINDINGS … 2

• BoD is periodically updated about working and performance of various committees, implementation of

various risk management systems, effectiveness of internal controls, adherence to regulatory

requirements, compliance breaches, operational performance of company etc. through MIS and reports

• SMPL’s accounts and finances are periodically reviewed by external auditors. Auditor, Krishna Anurag &

Co. was replaced by Walker Chandilok and Co. LLP in FY20. According to the management, the company

changed the auditors to have better accounting standards delivered by more reputable auditors.

• The company has no Related Party Transactions (RPT) except with the Directors, Management and

Carpediem Capital Partners, a shareholder in the company in the form of equity shares, renumeration and

provident funds, etc.

• SMPL follows RBI guidelines for Qualifying Assets, Credit Pricing, Fair Practices for Lending, Corporate

Governance, and Tenets of Responsible Lending. CRAR of SMPL is 18.89% which is above RBI

guidelines of 15.0%.

• SMPL has Net Owned Fund of INR 33.01 Cr as on March 31, 2020, which is comfortably above the

minimum Net Owned Fund requirement of INR 5 Cr for NBFC-MFI.

• Well defined Code of Conduct as specified by the SRO SaDhan is followed by SMPL. Further, compliance

report on Code of conduct and adherence to regulatory guidelines is periodically presented to the Board.

• All elements of the fair practice code issued by the RBI vide DNBS.PD.CC.NO.266 dated March 26, 2012

and vide DNBS.PD.CC.NO.320/03.10.01/2012-13 dated February 18, 2013 are adhered by SMPL.

• SMPL is also following the corporate governance as per RBI circular CC. No. 288 dated July 02, 2012.

COMPLIANCE


KEY FINDINGS … 3

OPERATIONAL SET-UP

• SMPL has implemented BR.Net, a core MFI solution on SAAS Model with real time and web based

application developed by Craft Silicon Pvt Ltd, Bangalore. It is a first of its kind system for Group loan

origination where SMPL can get entire view of Loan origination starting from Village survey to loan

disbursement, and allows field officers to perform quick and efficient transaction at the field level through

a secured channel using mobile data connection.

• SMPL has well defined Risk Management framework for Credit Risk, Operational Risk, Liquidity Risk,

Concentration Risk, Compliance Risk, Reputational Risk, Strategic Risk, and Contagion Risk.

• SMPL has multi step customer verification policy, credit bureau check policy and location selection policy

to mitigate the Credit Risk and Concentration Risk. The loan recovery process for delinquent loans is

compliant with RBI guidelines having structured escalation matrix and turnaround time.

• SMPL has well structured processes for customer education including online technical training, and its

customer education policy ensures that front line staff personally makes the borrowers aware about

interest rate, products & grievance redressal.

• For Customer Grievance, SMPL has created a separate dedicated helpline number for customer

grievances redressal. All calls are recorded automatically and addressed within defined timelines.

Further, customer can also reach respective branch, field staffs for any grievances. Branch level

customer grievances and complaints are shared with head office on daily basis.

• Company has well documented and structured processes, polices and systems to maintain privacy of

customer data in KYC its policy.

• SMPL shares the credit data with all four credit bureaus - CIBIL, Experian, CRIF High Mark and Equifax

on weekly basis as per the RBI norms regarding membership, indebtedness and sources of borrowings.


KEY FINDINGS … 4

• The business of SMPL is to lend money to the poor within the guidelines set by RBI for the micro finance

institutions. SMPL is currently operating in 5 states – Bihar, Chhattisgarh, Jharkhand, Rajasthan and Uttar

Pradesh covering 35 districts and 58 branches with 84,678 borrowers.

• SMPL has 3 main loan products - Sindhuja Pallav, Sindhuja Ankur, and Sindhuja Pushp.

• 100% of the loans are Loan for Income Generation (IGL) activities for Income Generation / other

household purpose.

• Branches are located in safe zones with limited history of Natural disaster.

• Current demand for the company's portfolio of offerings is good and is expected to remain the stable in the

short to medium term.

SCALE OF OPERATIONS

Product Name Loan Size Loan TenureSindhuja Pallav ₹15,000 & ₹20,000 14 months

Sindhuja Ankur ₹25,000 & ₹30,000 18 months

Sindhuja Pushp ₹35,000 & ₹40,000 24 months


KEY FINDINGS … 5

FINANCIAL SUSTAINABILITY

• SMPL has witnessed robust growth in last couple of years. The own loan portfolio of SMPL has increased

from INR 27.6 Cr in FY19 to INR 143.8 Cr in FY20, whereas Total Assets under management including

managed portfolio stood at INR 175.6 Cr in FY20. The number of borrowers have jumped nearly 3 times

during the period.

• The revenue for FY20 is INR 25.3 Cr which has jumped from INR 3.4 Cr in FY19. whereas Net Income is

INR 2.17 Cr in FGY20 and has increased from INR -2.7 Cr in FY19.

• Profitability ratios and measures like ROCE, ROE and NIM has also shown improvement from FY19 to

FY20. ROCE for FY20 stood at 11.2%, whereas ROE and NIM stood at 9.8% and 12.4% respectively.

• Company has maintained sound asset quality despite aggressive growth in loan portfolio, However,

company has limited operational track record hence asset quality management needs to be closely

monitored.

• SMPL has maintained the CRAR of 18.9% well above the RBI stipulated CRAR of 15% for NBFC-MFI

• Tier I capital stood at 18.1% resulted due to equity capital infusion and internal accruals

• Gearing is at comfortable level of 3.6 times.

• Funding profile is reasonably diversified however dependence on Northern Arc Capital is ~ 25%

• Company has strong capability and proven track record to raise funds from one or more sources.

• SMPL has comfortable Liquidity and Interest rate management profile as most assets are matched out

with liabilities of similar maturity and repricing characteristics.


KEY FINDINGS … 6

EMPLOYEE MANAGEMENT

• SMPL has well designed organization structure adequate to its size, with clearly defined reporting

structure, span of control, roles and responsibilities.

• SMPL has well documented HR policies and guidelines highlighting recruitment, supervision, notice

period, incentives , grievance redressal process, code of conduct etc..

• SMPL has well documented policy in place for Succession planning for the key management positions

• Company has well-structured training program comprising of classroom training and field level training.

covering topics like client sourcing and education, code of conduct, collections, grievance redressal

mechanism, prevention of sexual harassment etc.

IMPACT ON BORROWERS

• SMPL primarily provides micro finance services to women in the rural areas of India who are enrolled as

members and organized as joint liability groups (JLGs).

• SMPL aims to provide access to those entrepreneurs who have the requisite skill and courage and

conviction but lack capital.

• For example, Sunaina Devi (51) of Kandy village, Sikandara, was under financial crisis after the death of

her husband. She decided to run her own business. SMPL’s branch manager introduced her to joint

liability group at the centre and she was accepted in the group. She took loan of Rs. 25,000 and opened a

small shop of fruits and vegetables. She maintained her loan discipline in the group, on the basis of which

she again took a loan of Rs. 40,000 in the next cycle and used some money in the shop and rest of the

money she used for purchasing a cow. She is now selling milk to a near by sweet shop. Her income has

now increased and is from three sources- Fruit & vegetable shop, crop from agricultural land and milk.


IMPACT OF COVID-19

• SMPL has availed moratorium from its lenders in April and May, 2020 and it has paid only interest during

the moratorium period. From June 2020, it has paid principal and interest to all the lenders.

• SMPL has already provided Moratorium to its Clients since the lockdown started, i.e. from 23rd March,

2020 to 31st May 2020. It was extended further 3 months till August, 2020 as per RBI Guidelines.

• Demand collection efficiency was minimal during the April – May period. SMPL has collected 32% demand

(principal and interest) in May, 2020. However, the collection efficiency was around 80% in June to August,

2020, 89% in September, 2020, 92% in October, 2020 and 93% in November, 2020

• As on March, 2020, SMPL had debt outstanding around INR 132.9 Cr and equity around INR 36.6 Cr.

Further, SMPL expects to raise additional debt amounting to INR 172.2 Cr in FY21. It also plans to infuse

equity of INR 65.0 Cr during the period.

• Due to covid-19 lockdown, SMPL has not disbursed loans from April, 2020 to July, 2020. It started lending

from August. It has lend INR 20.6 Cr till September, 2020. SMPL expects increased demand for MFI credit

in next few months. SMPL plans to disburse around INR ~198 Cr amount of loans from October, 2020 to

Mar, 2020.


• Currently SMPL has 5 Board members (2 Whole time Directors, 1 Independent Director and 2 Nominee

Directors) and has three Board level committees (Resourcing Committee, Asset-Liability Committee, and

Grievance Redressal Committee.) However, SMPL is planning to expand its BoD and various

committees by December 31, 2020. At the end of calendar year, the board of the Directors will have 8

Directors (2 whole time Directors, 3 nominee Directors & 3 independent Directors) and will have 4 new

committees (Audit Committee, Nomination & Recruitment Committee (NRC), Social Performance

Committee, and Credit & Risk Management Committee). The chairperson of the committees will be

independent directors. IRR Advisory suggests to implement these changes at the earliest.

• Further, SMPL should form separate Risk Management Committee of Board (RiMC) which will be

responsible for defining the risk inherent in all activities of SMPL. RiMC would provide guidance and

periodically review the process of measurement, monitoring and management of the risks as per the

adopted policies and processes. Further, RiMC will recommend various policies for Board approval.

• It is suggested to augment existing risk management policy by clearly defining various controls and limits

for risks faced by SMPL. Further Risk Management frameworks and policies needs to be reviewed by

external agencies maximum at every 2 years.

• SMPL’s cost of funds is on the higher side, therefore company need to explore future funding from banks

at lower interest rate.

• Funding profile needs to be diversified further as dependence on Northern Arc Capital is ~ 25% and top

3 lenders contributes to ~51% of total loan outstanding.

• SMPL has to improve its field outreach and productivity to sustain the growth rate and profitability in

future. Further, SMPL needs to expand in new territories while focusing on the asset quality.

• Disbursement and collections are severely impacted due to lockdown. Management needs to ensure

that collection and disbursement reaches pre Covid-19 level at the earliest post end of moratorium.

AREAS OF IMPROVEMENT


SMPL is assigned grade ‘IRR MFI 3’ based on the following observations

• SMPL has adequate level of corporate governance framework commensurate to its current size.

However, SMPL needs to augment its existing corporate governance framework in line with its planned

expansion. It is suggested to increase independent directors on board and add more board level

committees especially independent Risk Management Committee of Board, Nomination & Recruitment

Committee and Audit Committee.

• The company has adequate risk management framework and policies, audit process etc. which ensures

efficient board oversight. However, it needs to be reviewed by external independent agencies

periodically.

• Management has high integrity and competence with satisfactory conduct of account over a decade.

• SMPL has well defined process in place to ensure complete compliance with regulatory guidelines.

• SMPL is currently operating in 5 states – Bihar, Chhattisgarh, Jharkhand, Rajasthan and Uttar Pradesh

covering 35 districts and 58 branches with 84,678 borrowers.

• Company has strong Capital Adequacy, Asset quality, Asset Liability and Interest rate management.

Further, it has demonstrated robust growth in earning and profitability. Company has moderate funding

profile which needs to be diversified and future funding should be at lower interest rate.

• SMPL has well defined Credit Risk, Operational Risk management policies in place covering day to day

operations.

• SMPL has implemented BR.Net, a core MFI solution on SAAS Model with real time and web based

application developed by Craft Silicon Pvt Ltd, Bangalore. It is a first of its kind system for Group loan

origination where SMPL can get entire view of Loan origination starting from Village survey to loan

disbursement, and allows field officers to perform quick and efficient transaction at the field level through

a secured channel using mobile data connection.

GRADING RATIONALE…1


• Company has well designed organization structure adequate to its size, robust HR policies and training

program for employees.

• SMPL primarily provides micro finance services to women in the rural areas of India who are enrolled as

members and organized as joint liability groups (JLGs) who generally use these funds for Working

Capital, Business Expansion, and Education and helps in financial inclusion and betterment of

underprivileged section of the society.

• According to recent RBI guideline “DOR.No.BP.BC/7/21.04.048/2020-21” , banks cannot open multiple

current accounts for customers who have availed cash credit or overdraft facility from other bank. Sa-

dhan has approached RBI seeking exemptions for MFIs from the new current account opening rules, as

MFIs require multiple current accounts in multiple banks for their cash management requirements.

However, IRR Advisory has not considered impact of this guideline on SMPL’s operations for the current

grading assignment.

GRADING RATIONALE…2

52

ANNEXURES


ANNEXURES… 1

Period FY19 FY20

Months 12 12

Financial revenue from operations 34,118 252,952

Less - Financial expenses from operations 14,228 113,407

Gross financial margin 19,889 139,544

Provision for Loan Loss / Write off 0 0

Net financial margin 19,889 139,544

Less - Operating Expenses

Personnel Expense 28,680 81,462

Depreciation and Amortization Expense 760 2083

Other Administrative Expense 17,449 33,313

Net Operating Income -27,000 22,687

Income Tax 0 918

Net Income -27,000 21,769

Profit & Loss Account (In INR Thousands)


ANNEXURES… 2

As on date FY19 FY20

SOURCES OF FUNDS

Capital

Equity Capital 73,884 156,782

Reserves & Surplus 3,822 209,253

Total Equity 77,706 366,035

Liabilities

Short-Term Liabilities

Short-Term Borrowings

Short Term Loans 20,025 0

Interest accrued but not due 1,877 6,064

Current Maturity of Long Term Loans 198,651 718,779

Provision for Short Term Standard Assets 2111 10251

Provision for Short Term NPA 0 948

Other Short Term Provision 62 157

Deferred Tax Liability 0 0

Other short-term liabilities 24924 37979

Total Short-Term Liabilities 247,651 774,178

Long-Term Liabilities

Long Term Loans 265,569 604,697

Provision for Long Term Standard Assets 475 4,155

Provision for Long Term NPA 0 527

Other Long Term Provisions 650 1,470

Deferred Tax Liability 0 0

Other long-term liabilities 0 151

Total Long Term Liabilities 266,693 610,999

TOTAL LIABILITIES 592,051 1,750,686

Balance Sheet (in INR Thousands)


ANNEXURES… 3

As on date FY19 FY20

Assets

Short-Term Assets

Cash and Bank Balances 266,120 126,608

Short Term Advances 1,555 9,708

GrossLoans Outstanding 211,146 1,022,326

Deferred Tax Assets 0 0

Other Short Term Assets 8,872 34,727

Total Short Term Assets 487,694 1,193,368

Long-Term Assets

Fixed Assets 5,266 12,401

Intangible Assets 0 303

Total Long Term Investments 19,000 0

Long Term Advances 11,316 67,707

Net Loans Outstanding 64,999 415,537

Deferred Tax Assets 0 3,073

Other Long Term Assets 3,776 58,296

Total Long Term Asset 104,357 557,317

TOTAL ASSETS 592,051 1,750,686

Balance Sheet (in INR Thousands)


ANNEXURES… 4

FY19 FY20

23.6% 18.9%

212 225

337 363

1260 1512

26,297 29,993

1618 1473

6.03% 9.83%

55.82% 106.24%

19.85% 11.21%

-6.22% 11.21%

9.83% 12.41%

-34.21% 9.81%

6.26 3.63

0.00% 0.01%

0.00% 0.05%

Debt/Equity Ratio (Times)

Operating Expense Ratio (OER) (%)

Return on Capital Employed (RoCE) (%)

Net Interest Margin (%)

Return on Equity (RoE) (%)

Leverage Ratios

Asset Quality Ratios

Portfolio at Risk (>30 days) (%)

Portfolio at Risk (>90 days) (%)

Asset / Liability Management

Cost of Fund (COF) (%)

Profitability / Sustainability Ratios

Operational Self Sufficiency (%)

No. of Active Borrowers per field executives

No. of active borrowers per branch

Average Outstanding Balance Per borrower

(In Rs)

Cost Per Active borrower (In INR)

No. of Active Borrowers Per Staff Member

Financial Ratios

Capital Adequacy Ratio (CAR)

Capital Adequacy Ratio (%)

Productivity / Efficiency Ratios


ANNEXURES… 5

FY 2019 FY20

Portfolio o/s (crore) Portfolio o/s (crore)

On-time (in crore) 27.6 143.70

1-30 days (in crore) 0.0 0.01

31-60 days (in crore) 0.0 0.00

61-90 days (in crore) 0.0 0.01

91-180 days (in crore) 0.0 0.03

181-360 days (in crore) 0.0 0.04

> 360 days (in crore) 0.0 0.00

Write-off (in crore) 0.0 0.00

Total 27.6 143.8

On-time (in %) 100.00% 99.94%

PAR 0-30 days (in %) 0.00% 0.01%

PAR >30 days (in %) 0.00% 0.06%

PAR >60 days (in %) 0.00% 0.06%

PAR >90 days (in %) 0.00% 0.05%

PAR >180 days (in %) 0.00% 0.03%

Period

Trends in Asset Quality


ANNEXURES… 6

2020A 2021P 2022P 2023P 2024P 2025P


Operational Parameters

Total AUM Rs. Cr 175.6 254.2 506.7 1,063.8 1,867.7 2,677.7

Total Branches Nos 23 56 66 110 190 280 350

Total Employees Nos 377 459 768 1344 2039 2521

Total COs Nos 86 233 300 508 913 1418 1753

Total Disbursement Rs. Cr 221.4 218.5 551.2 1,205.9 2,084.0 2,948.7

Total Active Loans Nos 84,253 121,169 224,601 411,822 701,651 946,577

Assets Under Management

MFI - On book Rs. Cr 143.8 222.0 419.2 860.1 1,494.7 2,128.1

MFI - Off Book Rs. Cr 31.8 32.2 86.2 199.9 365.0 534.1

Total MFI AUM Rs. Cr 175.6 254.2 505.4 1,060.0 1,859.7 2,662.2

y-o-y growth % 45% 99% 110% 75% 43%

On Book 82% 87% 83% 81% 80% 80%

% of Total AUM

Off Book 18% 13% 17% 19% 20% 20%

Average AUM (monthly Avg) Rs. Cr 115.4 174.7 386.3 775.2 1,522.1 2,371.8

Growth Projections:


ANNEXURES… 7

2020A 2021P 2022P 2023P 2024P 2025P


Financial Parameters

Total Income Rs. Cr 25.3 41.5 83.9 165.2 321.1 496.3

Income Growth % 164% 202% 197% 194% 155%

Net Income Rs. Cr 2.2 1.7 8.0 17.8 42.8 71.2

Networth Rs. Cr 36.6 100.7 108.7 224.6 267.3 387.6

Equity Infused Rs. Cr 19.9 65.0 0.0 100.0 0.0 50.0

Capital Adequacy Ratio (T1 + T2)% 18.90% 40.5% 23.4% 23.5% 16.1% 16.4%

Debt O/s Rs. Cr 132.3 172.2 369.9 764.3 1,475.2 2,088.9

Interest Income Rs. Cr 19.2 35.1 71.1 137.1 266.0 411.9

Interest Expense Rs. Cr 11.3 19.5 36.8 76.6 150.8 232.9

Net Interest Income Rs. Cr 7.8 15.5 34.3 60.5 115.2 179.0

Other Income Rs. Cr 1.2 2.0 2.0 3.5 6.7 9.7

Yield on own Portfolio 23.44% 23.64% 21.9% 21.6% 21.7% 21.7%

Yield on BC Portfolio 9.10% 9.5% 10.4% 10.6% 10.8% 10.8%


ANNEXURES… 8


RoA Tree

Interest Income % of Avg AUM 16.6% 20.07% 18.4% 17.7% 17.5% 17.4%

Interest Expense % of Avg AUM 9.8% 11.18% 9.5% 9.9% 9.9% 9.8%

Net Interest Income % of Avg AUM 6.8% 8.89% 8.9% 7.8% 7.6% 7.5%

Processing Fees Income % of Avg AUM 1.6% 1.10% 1.1% 1.2% 1.1% 1.0%

BC Income % of Avg AUM 2.6% 1.43% 1.65% 1.93% 2.08% 2.15%

Other Income % of Avg AUM 1.0% 1.17% 0.51% 0.45% 0.44% 0.41%

Total Income % of Avg AUM 21.92% 23.77% 21.72% 21.30% 21.09% 20.92%

Opex % of Avg AUM 9.53% 9.54% 7.70% 6.86% 6.26% 6.04%

Employee benefits expense % of Avg AUM 7.06% 7.51% 5.94% 5.39% 5.00% 4.84%

Other expenses % of Avg AUM 2.47% 2.03% 1.76% 1.47% 1.26% 1.19%

Provisions & Write Offs % of Avg AUM 1.09% 1.61% 1.59% 1.39% 1.10% 0.98%

Depreciation and amortization expense% of Avg AUM 0.18% 0.20% 0.12% 0.10% 0.08% 0.07%

Tax Expense % of Avg AUM 0.08% 0.26% 0.70% 0.77% 0.94% 1.01%

Return on Assets % of Avg AUM 1.89% 0.97% 2.08% 2.30% 2.81% 3.00%

Return on Equity % of Avg Net worth 9.81% 2.48% 7.67% 11.94% 17.40% 20.44%

Interest Cost on Borrowings % Average Debt 14.9% 14.7% 13.4% 13.0% 12.4% 12.2%

Debt/ Equity x 3.6x 1.7x 3.4x 3.4x 5.5x 5.4x


ABBREVIATIONS

ATS: Average Ticket Size MFI: Microfinance Institution

BC: Business Correspondent MH: Maharashtra

BFIL: Bharat Financial Inclusion Ltd. MIS: Management Information System

BM: Branch Manager NBFC: Non Banking Finance Company

BoD: Board of Directors PAN: Permanent Account Number

CGT: Compulsory Group Training PSL: Priority Sector Lending

CIN: Corporate Identity Number RBI: Reserve Bank of India

CO: Credit Officer RiMC: Risk Management Committee

FI: Financial Institution SFB: Small Finance Bank

FO: Field Officers SHG: Self Help Group

GLP: Gross Loan Portfolio TAN: Tax Deduction and Collection Account Number

GRT :Group Recognition Test UB: Unique Borrower

HO: Head Office UB: Unique Borrowers

IGL: Income Generation Loan

IT: Information Technology

JLG: Joint Liability Group

MumbaiWockhardt Towers, 4th Floor

West Wing, Bandra Kurla Complex

Bandra East

Mumbai, Maharashtra 400 051

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