irr mfi 3 - sindhuja microcredit
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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: Paresh.Tayade@irradvisory.com)
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
2Strictly Confidential; For Private Circulation only.
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.
3Strictly Confidential; For Private Circulation only.
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.
4Strictly Confidential; For Private Circulation only.
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
6Strictly Confidential; For Private Circulation only.
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
8Strictly Confidential; For Private Circulation only.
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.
9Strictly Confidential; For Private Circulation only.
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
10Strictly Confidential; For Private Circulation only.
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:
11Strictly Confidential; For Private Circulation only.
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
12Strictly Confidential; For Private Circulation only.
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.
13Strictly Confidential; For Private Circulation only.
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.
14Strictly Confidential; For Private Circulation only.
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
16Strictly Confidential; For Private Circulation only.
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.
17Strictly Confidential; For Private Circulation only.
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
19Strictly Confidential; For Private Circulation only.
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).
20Strictly Confidential; For Private Circulation only.
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.
PROMOTERS/ BOARD OF DIRECTORS … 2
21Strictly Confidential; For Private Circulation only.
• 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.
PROMOTERS/ BOARD OF DIRECTORS … 3
22Strictly Confidential; For Private Circulation only.
ORGANIZATIONAL OVERVIEW …1
Organizational hierarchy of SMPL:
23Strictly Confidential; For Private Circulation only.
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
24Strictly Confidential; For Private Circulation only.
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).
25Strictly Confidential; For Private Circulation only.
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
27Strictly Confidential; For Private Circulation only.
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
28Strictly Confidential; For Private Circulation only.
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
29Strictly Confidential; For Private Circulation only.
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.
30Strictly Confidential; For Private Circulation only.
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.
31Strictly Confidential; For Private Circulation only.
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.
32Strictly Confidential; For Private Circulation only.
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
34Strictly Confidential; For Private Circulation only.
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.
35Strictly Confidential; For Private Circulation only.
FINANCIAL ANALYSIS … 2
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.
36Strictly Confidential; For Private Circulation only.
FINANCIAL ANALYSIS … 3
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.
37Strictly Confidential; For Private Circulation only.
FINANCIAL ANALYSIS … 4
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.
38Strictly Confidential; For Private Circulation only.
FINANCIAL ANALYSIS … 5
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
40Strictly Confidential; For Private Circulation only.
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
42Strictly Confidential; For Private Circulation only.
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.
43Strictly Confidential; For Private Circulation only.
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
44Strictly Confidential; For Private Circulation only.
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.
45Strictly Confidential; For Private Circulation only.
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
46Strictly Confidential; For Private Circulation only.
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.
47Strictly Confidential; For Private Circulation only.
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.
48Strictly Confidential; For Private Circulation only.
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.
49Strictly Confidential; For Private Circulation only.
• 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
50Strictly Confidential; For Private Circulation only.
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
51Strictly Confidential; For Private Circulation only.
• 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
53Strictly Confidential; For Private Circulation only.
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)
54Strictly Confidential; For Private Circulation only.
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)
55Strictly Confidential; For Private Circulation only.
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)
56Strictly Confidential; For Private Circulation only.
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
57Strictly Confidential; For Private Circulation only.
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
58Strictly Confidential; For Private Circulation only.
ANNEXURES… 6
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 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:
59Strictly Confidential; For Private Circulation only.
ANNEXURES… 7
2020A 2021P 2022P 2023P 2024P 2025P
Particulars Unit FY20 FY21 FY22 FY23 FY24 FY25
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%
60Strictly Confidential; For Private Circulation only.
ANNEXURES… 8
Particulars Unit FY20 FY21 FY22 FY23 FY24 FY25
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
61Strictly Confidential; For Private Circulation only.
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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