village vidial micro finance co ltd

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VILLAGE VIDIAL MICRO FINANCE CO LTD

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Table of Contents

INTRODUCTION ............................................................................................................................................. 4

Global Context ........................................................................................................................................... 4

Indian Context ........................................................................................................................................... 5

THE OPPORTUBITY......................................................................................................................................... 6

VISION AND MISSION STATEMENT ................................................................................................................ 7

VISION STATEMENT ................................................................................................................................... 7

MISSION STATEMENT ................................................................................................................................ 7

PROMOTERS OF THE COMPANY .................................................................................................................... 8

LEGAL FRAMEWORK ...................................................................................................................................... 8

BOARD OF DIRECTORS ................................................................................................................................... 9

MANAGEMENT TEAM .................................................................................................................................... 9

PRODUCTS & SERVICES ................................................................................................................................ 10

1. Self Help Groups (SHGs) ................................................................................................................... 10

2. Joint Liability Groups ........................................................................................................................ 10

3. Individuals........................................................................................................................................ 10

RATE OF INTEREST ....................................................................................................................................... 10

OTHER CHARGES ......................................................................................................................................... 10

AREA OPERATIONS ...................................................................................................................................... 11

Head Office .............................................................................................................................................. 11

Branch offices: ......................................................................................................................................... 11

STAFF REQUIREMENTS ................................................................................................................................ 12

At Head Office ......................................................................................................................................... 12

At Branches ............................................................................................................................................. 12

OTHER SERVICES .......................................................................................................................................... 12

Micro Insurance ....................................................................................................................................... 12

BANK CORRESPONDENT MODEL .............................................................................................................. 12

Core Microfinance Delivery Model............................................................................................................... 13

Operational Unit .......................................................................................................................................... 13

Description of Core Microfinance loan products .......................................................................................... 13

Description of Loan Products ................................................................................................................... 13

Seasonal loan/Top‐up loan/Social Purpose loan ....................................................................................... 14

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Pre‐Payment Policy .................................................................................................................................. 15

Microfinance Procedures ............................................................................................................................. 15

Client Identification ................................................................................................................................. 15

Group formation ...................................................................................................................................... 15

Loan Application ...................................................................................................................................... 16

Disbursement .......................................................................................................................................... 16

Collection ................................................................................................................................................ 16

Overdues follow up system ...................................................................................................................... 16

Loan Insurance ........................................................................................................................................ 17

Projections .................................................................................................................................................. 18

Annexure Coimbatore – Census Data ........................................................................................................... 19

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INTRODUCTION

Global Context

"Microfinance is the supply of loans, savings, and other basic financial services to the

poor." (Consultative Group to Assist the Poor ‐ CGAP). It can also be defined as any activity that

includes the provision of financial services such as credit, savings, and insurance to

low‐income individuals or households, with the goal of creating social value.

Professor Mohammad Yunus of Bangladesh, noble price winner in the year 2008, it denotes the

relationship between the poverty alleviation and peace. Prof Yunus is widely known as the

father of microfinance. 25 years ago he founded the Grameen Bank, which is seen as the

beginning of microfinance, though almost at the same time there were several other initiative

being taken in microfinance. The domain of microfinance has since spread with the adaptation

and evolution of Professor Yunus’ ideas to various countries and contexts. Several other

innovative models in microfinance have developed. Microfinance is now being hailed as one of

the most powerful instruments of poverty alleviation, worldwide

The World Bank estimates that there are now over 7,000 microfinance institutions, serving

some 16 million low income families in developing countries. The total cash turnover of MFIs

world‐wide is estimated at US$2.5 billion and the potential for new growth is outstanding. –

(“Data Snapshots on Microfinance ‐ The Virtual Library on Microcredit”)

"The great challenge before us is to address the constraints that exclude people from full

participation in the financial sector... Together, we can and must build inclusive financial

sectors that help people improve their lives."

‐ Kofi Annan, UN Secretary General

The poor rarely access services through the formal financial sector. They address their need

for financial services through a variety of financial relationships, mostly informal (CGAP).

Formal financial institutions were not designed to help those who don't already have financial

assets – they were designed to help those who do. Credit is available from informal commercial

and non‐commercial money‐lenders but usually at a very high cost to borrowers. Experience

shows that microfinance can help the poor to increase income, build viable businesses, and

reduce their vulnerability to external shocks. It can also be a powerful instrument for

self‐empowerment by enabling the poor, especially women, to become economic agents of

change

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Indian Context

In India, people at the bottom of the pyramid are deprived of financial assistance from the

organized sector, i.e., banking sector. Financial requirements of the poor are very minimal. Their

requirements may be in a few hundreds or thousands. They cannot fit in to the banking system; it is

not easily accessible to them. The gap is filled by the unscrupulous and greedy local money lenders.

They lend money to the poor people at an exorbitant rate of interest, wherein the borrowers are

sometimes unable to repay the debt. The place occupied by the money lenders are of late taken

over by the Indian Micro Finance Institutions (MFIs).It is ascertained from the data base of 129

MFIs that in India. MFIs serve 2 out of 3 of the poorest districts. 1 out of 3 clients are from SC/ST

segment. It has shown that these institutions cover 209 of the 331 poorest districts in India.

The microfinance sector in India has been perceived by policymakers, particularly the

Reserve Bank of India (RBI), as a useful channel for expanding access to various financial services

for low‐income persons and those in the informal sector.

Sa‐dhan study contends that India’s microfinance sector has an outreach potential of 36.8

million borrowers including 3.5 million urban residents, which is less than 50% of the estimated

potential. MFIs had close to 10 million customers and a cumulative outstanding portfolio of Rs

3,400 crores (US$769 million) as on 31 March 2007.

The efficiency and profitability indicators of Indian MFIs are highly favourable compared to

Asian benchmarks. Several leading MFIs have begun to operate on a national scale. Since 2007,

there have been at least four PE investments in Indian MFIs totalling $43 million. Such investments

are expected to accelerate. There are two main reasons why PE firms are interested in the

microfinance sector.

First, there is a perception that this sector is capable of providing extraordinary returns.

Compartamos, a Mexican bank specialising in microfinance, made a successful IPO of 30% of its

shares with a valuation at 12 times its book value. Second, studies indicate that returns from the

sector are not sensitive to swings in global economic cycles. This makes such investments desirable

for risk diversification.

In India, microfinance gained momentum in early and mid 1990’s with emergence of Basix,

SHARE and SNF as major players in microfinance. Between 2000 and 2003, a number of new

players (primarily Spandana and SKS) with innovative business models emerged on the

microfinance radar of India. Their spectacular returns and scaleable business model attracted the

attention of commercial banks like ICICI Bank, HDFC Bank and ABN AMRO Bank. Most of these

banks set up dedicated microfinance lending cells and started looking microfinance as a business

opportunity rather than part of their priority sector obligation.

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Microfinance gained further momentum after 2003 – sector growing for more than 100%

on year to year basis. Some of older MFIs, who were conservative in their growth plans earlier

altered their plans drastically and started planning aggressive expansion. The growth momentum is

expected to continue, given the plans of the commercial banks, equity funds and the MFIs. Apart

from the main stream Microfinance Institutions, the traditional finance companies working under

Non‐Banking Finance Company license area also increasingly adopting core microfinance products.

The increasing competition in urban sectors and also the realization that low income group people

are also bankable, in fact more bankable in many cases, has led to NBFCs adopting microfinance.

Also there is ample business opportunity in low income group sector. Total outstanding portfolio of

all Indian MFIs taken together along with the expected growth has been presented in Table 1. The

total outstanding of the MFIs is expected to be to the tune of Rs10,000 crores by March 2009.

Table 1: Growth in Microfinance Outstanding1

Year ending Outstanding (Rs Crores) Year ending Outstanding (Rs Crores)

Mar‐06 2,300 Mar‐08 7,000

Mar‐07 3,400 Mar‐09 10,000

Despite this spectacular growth, the supply of microfinance is still miniscule as compared to

the demand which is now estimated to be to the tune of over Rs100,000 crores in India.

THE OPPORTUBITY

As at the end of 2013, 155 MFIs are operating in India and serving 27.5 million households

and their outstanding is Rs. 22,338 Crores. In Tamil Nadu, there are 34 MFIs are operating with a

client base of 12.2 million. As per the Government of India census 2011, population of Tamil Nadu

is 7.32 Crores, out of the total population, people live below the poverty line is 11.28 percent of

total population of Tamil Nadu i.e., 82.63 Lakhs persons are under poverty line according to the

report of Planning Commission of India dated July 2013. There is a huge demand supply gap in

micro finance. Hence there is an opportunity for new institutions to enter in to this segment. With

this background, it was decided to set up a Micro Finance Institution. Head Quarters of the MFI will

be based at Coimbatore. To begin with, Branches will be set up in and around Coimbatore city

which will be expanded throughout Tamil Nadu and later on, on All India basis. The MFI has been

named as ‘Village Vidial Micro Finance Co Ltd (VVMFCL).

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VISION AND MISSION STATEMENT

VISION STATEMENT

“To facilitate and strengthen credit flow to the underprivileged section of the society both

financial and developmental gaps in the micro finance eco system.”

MISSION STATEMENT

“To provide quality, efficient and fast service to the poorest of the poor and help them to

come out of poverty and to bring out the hidden potential and help them as micro entrepreneurs

over a period of time.”

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PROMOTERS OF THE COMPANY

Looking to the exciting opportunities in the micro finance industry and with a sense of

serving the society, group of friends, in their final year EMBA, PSGIM, Coimbatore decided to form

a company in the name and style of “VILLAGE VIDIAL MICRO FINANCE COMPANY LTD”.

Mr.A.Karunagaran, 57, an experienced banker having served the banking industry for about three

decades will be the Chairman and Managing Director of the company. Mr.P.Rajendran, 32, an

Engineer by profession and an entrepreneur doing business in Foundry Chemical Industry for five

years will be a Director, Mr. Vijaykumar, 27, an Engineer by profession is working in an Engineering

Machineries manufacturing unit at Coimbatore, will a Director, Mr. S C Arun Kumar, 30, a software

Engineer works for Robert Bosch, Coimbatore is a Director and Mr.CP Sivashanmugam, 29, is an

Engineer by profession works in Engineering Unit will be a Director of the company. The promoters

experienced in diverse fields are ambitious about their project and hopeful of achieving the desired

objective within the shortest possible time frame.

LEGAL FRAMEWORK

The company has been set up as a NBFC‐MFI as per Reserve Bank of India (RBI guidelines.

The company proposes to commence its operations with effect from May 01, 2014. Initial share

capital of the company is Rs.500 lakhs (500,000 shares of Rs. 10/‐ each) and the same has been

contributed by the promoter Directors. Share holding pattern of the company is as follows;

S No. Name No of Shares Amount (Rs.)

1 A Karunagaran 20,00,000 (40%) 2,00,00,000

2 R Rajendran 7,50,000 (15%) 75,00,000

3 D Vijaykumar 7,50,000 (15%) 75,00,000

4 S C Arunkumar 7,50,000 (15%) 75,00,000

5 C P Sivashanmugam 7,50,000 (15%) 75,00,000

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BOARD OF DIRECTORS

The Board consists of all the Promoter Directors and two Independent Directors to advise the

Board in legal and other important aspects.

The Board consists of

S.NO NAME DESIGNATION

1. Shri A Karunagaran Chairman and Managing Director and CEO

2. Mr. R Rajendran Director, Operations

3. Mr. Vijaykumar Director, Business Development

4. Mr. S C Arunkumar Director, Human Resources Development, Training &

Development

5. Mr. Siva Director, Finance & Resource mobilization

6. Mr. Subramaniam Director, Legal

7. Mr. Anand Director, Internal Audit

MANAGEMENT TEAM

The day to day affairs of the company is looked after by CEO& CMD of the company.

He is assisted by competent senior management personnel from different fields.

GM(HR)

CEO

GM(FIN)

CO SECRETARY

MGR(T&D,REC.&S

ELECTION)

MGR(Audit)

MGR(OPS)MGR

MGR (BD) MGR()ACCTS

b c d

e a

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PRODUCTS & SERVICES

The company proposes to offer tailor made products to suit the requirements of the clients. To

begin with, the co ‐ proposes to roll out credit to Self Help Group (SHG), Joint Liability Groups (JLGs)

and Individuals.

1. Self Help Groups (SHGs)

This product best suited for rural areas. Field staff will form groups of 15‐ 20 women

in villages. The women will be trained to conduct meetings, collect savings, maintain

accounts, etc. After satisfactory completion of training methodologies, group members will

be given loans based on group security. Loan amount ranges from Rs.5000/‐ to Rs. 10,000/

per member. The loan amount shall be used for agricultural activities, dairy, goat rearing,

etc. The repayment period will be maximum of six months depending on the capacity of the

borrowers .Repayment will be fixed on weekly basis.

2. Joint Liability Groups

This product best suited for urban and semi urban clients. A group of 4‐ 5 members

will be formed and theywill be trained on various procedure of the organization. After one

week’s observation, loan will be issued with a maximum amount of Rs. 15,000/‐. The loan

amount shall be utilized for Income Generating Activities. Clients will be small traders,

vegetable vendors, road side restaurant owners, flower merchants, fruit vendors, etc.

Repayment will be on daily basis with maximum of 90 days repayment.

3. Individuals

Small business men, petty shop owners and others engaged in any IGA will be given

loan of maximum of Rs. 25000/‐ Repayment will be weekly and maximum 52 weeks.

RATE OF INTEREST

24% on reducing balance method. As per RBI guidelines, rate of interest shall not exceed

26% p.a. on reducing balance method. Our rate of interest is well within the ceiling fixed by RBI.

OTHER CHARGES

Processing fee of 1% will be charged upfront.

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AREA OPERATIONS

To begin with the co has decided to open four branches apart from Head Office at

Coimbatore. The four branches will be at the following places;

Head Office

Door no.11, Ponnurangam Street, R S Puram, Coimbatore – 641 002

Branch offices:

1. Coimbatore –North

2. Coimbatore South

3. Thondamuthur

4. Sulur

By end of FY 14‐15, initially the expansion of operation will focus on western Tamil Nadu

hence the company will have 25 branches covering the districts of Coimbatore, Tirupur, Erode, The

Nilgris, Salem and Namakkal, Dharmapuri.

During the year FY 15‐16, the company proposes to open 100 branches throughout Tamil

Nadu. There are 32 districts in the State and on an average three branches will be opened in each

district with a maximum of 100 branches.

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STAFF REQUIREMENTS

At Head Office (6) ‐ General Manager (HR)‐1

General Manager (Fin)‐1

Receptionist ‐1

Personal Secretary to CMD ‐1

Office Assistants ‐2

At Branches (5) ‐ Each Branch will have

Branch Manager – 1

Field Executives ‐ 4

OTHER SERVICES

Micro Insurance

The company is in discussion with the following insurance companies for distribution of

micro insurance products to the MFI clients.

i) LIC of India

ii) HDFC SLIC

iii) Kotak Mahindra Life Insurance Co Ltd

iv) SBI Life Insurance Co Ltd

It is expected to materialize during the second quarter of the current financial year,

expecting annual revenue of about Rs. 5 lakh during the first year of operations.

BANK CORRESPONDENT MODEL

As per RBI guidelines and the extant guidelines issued by Government of India on Financial

inclusion, Banks are increasingly looking for banking correspondents to increase the outreach of

their services. The company is in dialogue with some of the major public sector banks to become

banking correspondent. State Bank of India and Indian Overseas Bank has already given in

principle clearance for our proposal. Banking correspondents’ service will be launched once the

branches are opened.

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Core Microfinance Delivery Model

Village Vidial Micro Finance Co Ltd currently planned to follow Individual

methodology for its loans. It also plans to follow Group Methodology, for the new core

microfinance product. The group size will be between 8‐12 members. The group members

will have to share the responsibility of repayment. The organization will put in place a

separate trained team for this programme with an experienced team leader.

Operational Unit

Village Vidial MICRO FINANCE CO LTD will set up branches for disbursement, collection and

monitoring of microfinance loans. Decision making, accounting and MIS will be

decentralized for achieving faster expansion. Branch Manager will be responsible for

achieving growth as well as portfolio quality targets.

Description of Core Microfinance loan products

Description of Loan Products

The company will have a single group loan product with following features and policies

1st Cycle loan for income generating activities

Loan size Rs5,000 to Rs15,000

Loan duration 12 months

Loan Purpose

Income generating activities like livestock especially for milch

animals, petty shop, hawker business etc

Loan Repayment Installment is paid monthly at the office

Borrowers’ profile

Lending to be made to group of 8 to 12 members, preferably

women

Guarantee/collateral

No Collateral, Joint liability of group for repayment of each

individual’s loan

Rate of interest 24% per annum, calculated on declining loan balance

Documentation

Charges Rs100 per loan agreement

Security Deposit 10% of the loan amount, to be adjusted with the loan outstanding

towards the end of the loan

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2nd and subsequent loans for income generating activities


Loan duration 12 months to 24 months

Loan Purpose

Income generating activities like livestock especially for milch

animals, petty shop, hawker business, working capital or

establishment of trading business, purchase of equipments etc



First loan is repaid without any delays. Lending can be made to

individuals or to the group of 8 to 12 members, at the option of the

borrower

Guarantee/collateral No Collateral, One Guarantor required in case of loan to individual


Documentation

Charges Rs100 per loan agreement

Security Deposit

10% of the loan amount, to be adjusted with the loan outstanding

towards the end of the loan

Loans of or more than Rs20,000 will be lent to borrowers’ with existing

enterprises/activities. Loan appraisal process based on cash flow analysis of the

borrowers’ will be carried out by trained appraisal staff. Loan will be approved by the

credit committee.

Seasonal loan/Top‐up loan/Social Purpose loan

• This loan is for borrowers’ in second or subsequent cycles

• The loan can be given as a top‐up loan also, that is, even when a second or

subsequent cycle loan for income generating purpose is outstanding.

• Purpose of this loan is to meet seasonal business requirements or social

requirements such as a marriage or medical emergency.

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Loan duration Upto 12 months



First loan is repaid without any delays. Lending can be

made to individuals or to the group of 8 to 12

members, at the option of the borrower

Guarantee/collateral No Collateral, One Guarantor required


Documentation Charges Rs100 per loan agreement

Security Deposit 10% of the loan amount, to be adjusted with the loan

outstanding towards the end of the loan

Portfolio of seasonal/top‐up loan product not be more than 20% of total

outstanding loan portfolio at any time.

Pre‐Payment Policy

1. No pre‐payments are allowed except in case the borrower makes full

payment to close an existing loan.

2. No pre‐payments are allowed before half the loan term is completed

3. No pre‐payment penalty is charged from the clients

Microfinance Procedures

Borrowers will be selected from lower income group (earning less than 150 per

day)

In the rural and urban slum areas borrowers should be only women. There may

be male clients in the urban areas and particularly among target groups with

micro‐entrepreneurs and small trading activities. However, male clients would not be

more than 5% of total number clients. Detailed procedure as follows:

Client Identification

Field Officers (FO) based in respective branch offices will be responsible for

locating potential clients in market areas. The clients should already be involved in an

income generating activity.

Group formation

Homogenous clients would be identified in an area with similar loan

requirements. FOs would organize them into groups of 8‐12 members and would ask

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them to form groups. Each group should have a Group leader elected by the Group

members. FOs would inform the group about our company loan policies, processes and

group’s collective responsibilities.

Loan Application

Once the group has been formed loan application from each client along with

address proof would be mobilized. If formation of group is not possible or particular

client has higher loan demand then client is considered for Individual loan. The Loan

Application in the Village Vidial Micro Finance Co Ltd format has to be submitted by the

clients to the Branch manager at the office. After receiving the applications manager

would conduct Field Investigation (GRT, as called in the Grameen model).

Disbursement

Disbursements would be made at the Branch Office. Head Office would send the

funds as per the disbursement plans of the branches and the Branch Manager would

make the disbursements though cheque or cash as is decided for the individual branch.

The clients have to bring the processing fee and documentation charges with her. These

are not deducted from the loan amount.

Collection

Repayments are weekly and are either made at the office or deposited by the

groups in the bank account of the company. While making the collection the client is

given the receipt and the collected amount has to be deposited with the Accountant in

the branch office.

Overdues follow up system

In case FO encounters an overdue FO has to enquire about reason of overdue

from the group and the action/discussion taken place within the group on default. FO

enquires as to why other members of Group have not paid on her behalf. If the Group is

unable to pay, Branch manager is informed who should visit the clients immediately and

take commitment on when the amount would be repaid.

The product provides limited flexibility to the client to decide the loan size and loan

term. Based on loan term and loan size weekly installment is set, however, repayments

have to be made weekly. The loans decisions are taken completely based on appraisal

done by the Field Officer and the Branch Manager. Field Investigation of individual

borrowers looks into primarily the cash flows and asset base of the borrower.

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Loan Insurance

1. Life Insurance with a limit of loan amount is compulsory for each and every

borrower as the loan is sanctioned

2. Nominee of insured borrower would be Village Vidial MICRO FINANCE CO LTD

3. In case a borrower dies, amount remaining after recovering the loan

outstanding would be delivered to the legal heir of borrower.

Loan Write‐off and provisioning policy

1. The right of loan write‐off rests only with the Board. Board after being satisfied

that the possibility of recovering the loans is remote or is costly and time

consuming vis‐à‐vis its benefits; it may decide to write‐off the loans.

2. Provision for overdue loans on portfolio at risk should be made on the basis of

ageing of the overdues

Loan classification Provision as a

% of Loan

Outstanding

Portfolio with no overdues 1%

Overdues ageing 0‐30 days 20%




Overdues ageing >180 days 100%

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Projections

S.N

o Particulars 2014-15 2015-16 2016-17 2017-18 2018-19

Year 1 Year 2 Year 3 Year 4 Year 5

A Client Details

1 No. of active groups 400 800 1,600 3,200 6,400

2 No. of active members 8,000 16,000 32,000 64,000 1,28,000

3 No. of active borrowers

Men 0 0 0 0 0

Women 4,000 8,000 16,000 32,000 64,000

Rural Borrowers 4,000 8,000 16,000 32,000 64,000

Urban Borrowers 0 0 0 0 0

Total Borrowers 4,000 8,000 16,000 32,000 64,000

B Organisational Details

4 No. of Regional offices 1 2 4 8 16

5 No. of Branches 25 50 100 200 400

6 Total staff strength 131 262 524 1,048 2,096

Field staff 100 200 400 800 1,600

Managerial staff 31 62 124 248 496

C PORTFOLIO DETAILS

7

No. of loans financed during

the year 3,000 6,000 12,000 24,000 48,000

8

Amount disbursed during the

year 4,50,00,000 9,00,00,000 18,00,00,000 36,00,00,000 72,00,00,000

9 Principal due during the year 4,12,50,000 7,87,50,000 16,50,00,000 33,00,00,000 66,00,00,000

10

Principal recoveres during the

year 4,10,43,750 7,82,77,500 16,38,45,000 32,73,60,000 65,40,60,000

11

Principal overdue during the

year 2,06,250 4,72,500 11,55,000 26,40,000 59,40,000

12 Recovery Rate 99.50% 99.40% 99.30% 99.20% 99.10%

All amounts are in Rupees

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Annexure Coimbatore – Census Data

village vidial micro finance co ltd

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