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MicroSave Market-led solutions for financial services December 31, 2008 Rapid Institutional Assessment of Sanchetna Financial Services Pvt. Ltd. by Soumya.

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Presentation on theme: "MicroSave Market-led solutions for financial services December 31, 2008 Rapid Institutional Assessment of Sanchetna Financial Services Pvt. Ltd. by Soumya."— Presentation transcript:

1 MicroSave Market-led solutions for financial services December 31, 2008 Rapid Institutional Assessment of Sanchetna Financial Services Pvt. Ltd. by Soumya Harsh Pandey Amit Kumar Garg

2 MicroSave Market-led solutions for financial services ACKNOWLEDGEMENT We thank all the staff members of Samridhi for their co-operation and support provided to the MicroSave team during the Rapid Institutional Assessment (RIA) exercise.

3 MicroSave Market-led solutions for financial services A simple SWOT analysis, backed with A table of basic ratios A table outlining the areas of strengths and weakness of the institution and where it requires additional training/technical assistance. Rapid Institutional Assessment (RIA) is designed as a quick and dirty dip-stick to make a preliminary assessment of an institutions capability and promise, as well as where it needs additional inputs/assistance. Rapid Institutional Assessment results inRapid Institutional Assessment framework Board and Governance Strategic Plan Management and Systems Human Resource Management Financial Resource Management Microfinance programme characteristics Microfinance programme performance RAPID INSTITUTIONAL ASSESSMENT

4 MicroSave Market-led solutions for financial services INTRODUCTION TO THE ORGANISATION Chief functionaryMr. Lokesh Kumar Singh (Managing Partner) MissionWe provide client-focused, highly responsive and cost effective financial services and business development expertise in a time bound and socially conscious manner to increase the productive capacity of the Indian poor VisionWe will help alleviate poverty in UP and other regions in underserved north India, by enhancing the productive capacity of both our clients and employees and being the provider of choice by upholding the highest standards of service and delivering value at every level ValuesIntegrity – in every action Stewardship – for better accountability Logical Approach – towards better solutions Freedom of Expression – the right to disagree, and represent ones beliefs Dignity of Labor – for better work environment and camaraderie Legal status (Reg. No., Date of incorporation) NBFC , December 1, 1995 (NBFC Magauri Securities Pvt. Ltd.) was purchased and MF operations started from Oct, 08 FCRA/80 G Reg.NA Change in legal statusNA MethodologyGrameen Area of operationBarabanki (UP)

5 MicroSave Market-led solutions for financial services BOARD AND GOVERNANCE ObservationYes/No Board composition suits microfinance Yes Established system of board rotation No Board meets atleast 4 times a year Yes Board has atleast 2 or 50% independent directors Yes Head of the organisation reports and is accountable to the board Yes Person with appropriate authority is heading the microfinance programme Yes MFI is not violating any laws of the land No NA Comments Board members have experience in diversified fields e.g. Microfinance, Banking, Technology, Academics, Investment Firms etc. Since the organisation is very young it is still in the process of establishing system for board regulation. Overall the organisation has enough experience in senior management and board members to properly run the organisation.

6 MicroSave Market-led solutions for financial services BUSINESS PLAN Parameters\Years Number of States111 Number of Districts138 Number of Branches1952 Number of Clients8006,40062,000 Portfolio Outstanding (000)60,000529,0005,564,000 Disbursement (000)80,000828,0008,843,000 Analysis of assumptions The promoters of SFSPLPL have financed all disbursements through internal resources till date. Trust Microfin Network (TMN) has given its approval of loan of Rs. 1,500,000 for portfolio financing. The portfolio growth is based on the assumption that there is a huge potential for microfinance in the selected area of operation. Portfolio growth between the second and the third year is very high and is based on the rapid increase in the number of branches. However, it would also require accompanying ability to raise resource to fund both expansion of branches and growth in portfolio.

7 MicroSave Market-led solutions for financial services MANAGEMENT AND SYSTEMS ObservationYes/No Clear organisational and reporting structure exists Yes Roles and responsibilities commensurate with authority Yes Senior management team in place Yes SMT is staffed with people having good understanding of the target market Yes CEO/CFO/ FM understand financial management Yes Loan documents existsYes Organisational policies are documented Yes Operations Manual followedYes Comments SFSPL has prepared a Field Manual for Field Associates. However, the MicroSave team observed some deviations in the field level processes. SFSPL has a clear reporting structure All the members of senior management team of SFSPL have experience of working in different capacities in different leading MFI of India. Together they bring complementary strengths which helps in managing different functions of the organisation. Documentation of operational policies is at a very basic level, primarily due to SFSPL being a very young organisation. However the management appears to have clear idea on organisational policies and processes.

8 MicroSave Market-led solutions for financial services MANAGEMENT AND SYSTEMS ObservationYes/No Operations Manual is updated to reflect changes in the policy Not complete Process Maps existNo Internal Control System existsNo Internal control followedNo MIS has integration with the finance No MIS generates portfolio reportYes MIS is used at the branchesYes MIS with integration of the Branch level data exists No Comments SFSPL has field level operations manual but it needs to develop for the organisation as a whole. MIS cum IT Manager is working on developing an integrated management and financial software package. Video recording at GRT, Disbursement at Branch, Disbursement to Group are some of the innovations through which SFSPL is trying to build a system of internal controls Field monitoring system for developing internal control systems is proposed SFSPL is working on development of more sophisticated software which would help in automatically updating the branch level data

9 MicroSave Market-led solutions for financial services HUMAN RESOURCE MANAGEMENT ObservationYes/No Job responsibilities exits for all positions Yes Appropriate staff exist for positions and responsibilities Yes Service rules exists for staffYes Recruitment procedure in placeYes Staff rules with regards to service conditions exist Yes Policy for HR development existsYes Clear staff remuneration/incentive schemes exist Yes Remuneration/incentive schemes implemented in a fair manner Yes Staff appraisal and promotion systems exists Yes Comments SFSPL has developed a Human Resource Manual Total Staff is classified into four categories; (1) Associates, (2) Executives, (3) Managers, and (4) Directors. Salary (inclusive of incentives) increases in the proportion of 2.5 times for every higher level, with Associate being the lowest level. There is a separate incentive scheme for field staff and head office staff. Incentive of field staff is based on (a) number of groups formed, (b) number of loan clients managed subject to centre strength. Incentive of head office staff is based on achievement of self set goals. SFSPL has a system of providing two months of induction training to the new staff.

10 MicroSave Market-led solutions for financial services FINANCIAL MANAGEMENT ObservationYes/No Accounting entries have supporting documents Yes Accounting treatment is properly done Yes Accounting records are properly maintained: –Complete –Accurate –Transparent –Uptodate Yes Internal audit systems existNA Internal audit systems appropriate NA Internal Audit is independentNA Statutory external audits have been done for all the years NA Comments Since SFSPL started its operations just three months back therefore no external or internal audit has been completed.

11 MicroSave Market-led solutions for financial services FINANCIAL MANAGEMENT ObservationYes/No Organisation has diversified source of fund No Portfolio report match with the accounting reports NA Organisation has never missed payment to funders NA There is no difference between the Head office and the Branch accounts No Bank reconciliation is regularly done Yes Others Comments SFSPL has not taken any external funds till date. All establishment and disbursements have been financed through internal sources raised by the promoters of SFSPL.

12 MicroSave Market-led solutions for financial services MICROFINANCE CHARACTERISTICS ObservationYes/No Organisation has a defined credit policy NA PAR is calculated properlyNA Ageing Analysis of the portfolio done correctly NA Comments Since the operations of SFSPL has started in October 2008, and do far it has not developed a credit policy. Again SFSPL does not report any PAR, however, the MIS is capable of generating PAR values. Product featuresGeneralTop-up Loan SizeUp-to Rs. 12,000Rs. 4,000 – Rs. 6,000 Loan Term50 weeks Repayment frequencyWeekly Client Profile100% women clients in rural areas, who are engaged in any economic activities i.e. loan is given for only income generation purposes. Top-up loan is provided to existing loan clients on top of existing loan after 16 th weeks. Pricing -Interest Rate -Processing fee -Membership fee 29.25% (RBM 1 ) 1.5% of the loan amount Rs. 120 (one time fee collected as training fee) 29.25% (RBM) 1.5% of the loan amount NA

13 MicroSave Market-led solutions for financial services MICROFINANCE CHARACTERISTICS ObservationYes/No PAR is reported in organisational reports NA Does the policy provide guidelines for delinquency management No Does the policy provide for provisioning in case of bad debts No Portfolio reports are regularly generated Yes Portfolio report match with the audited financial statements NA Necessary loan documentation is done Yes Staff are aware of credit, delinquency and write-off policies NA Others Comments There has not been any case of delinquency. Senior Management team is working on developing delinquency management strategy and process thereof.

14 MicroSave Market-led solutions for financial services MICROFINANCE PROGRAMME PERFORMANCE ParametersDecember 31, 2008 Number of groups47 Number of members235 Number of loan clients155 Portfolio outstandingRs.1, 390,000 Cumulative disbursementRs. 1,468,000 # of days taken from group formation to loan disbursement10-14 days Comments SFSPL uses the typical Grameen model of microfinance and has weekly repayments. Eligible persons are first enrolled as members of SFSPL and then other products & services are offered. As of date, all disbursements have been financed by promoters of SFSPL. Number of days taken from group formation is ideally 10. However, loan disbursement do vary based on the availability of funds.

15 MicroSave Market-led solutions for financial services MICROFINANCE PROGRAMME PERFORMANCE Profitability OSS22.8%88.0%144.0% FSS21.8%71.4%127.0% ROA-35.0%-4.0%7.0% Efficiency Cost per client2,7281, Clients/Loan Officer Loan O/S per Loan Officer (in Rs. Lakh) Operating Cost Ratio44%21%9% Operating Expense Ratio80%27%10% Other ratios PAR > 30 daysNA0.2% Debt /Equity8%140%440% Fixed Assets/ Total Assets7%10%7% O/s Portfolio/Total Assets94%69%93% Liquid Ratio (1) Comments Average assets have been used for calculating operating cost ratio; whereas average portfolio has been used for calculating operating expense ratio. Cash was constituting major proportion of total assets because idle cash of Rs. 3.1 million was available before purchasing NBFC. Therefore, OCR is less than OER. Portfolio has not been included in Current Assets for the purpose of calculating Liquid Ratio. However, repayment of all the debts have been assumed to be within 12 months from disbursement; hence, have been included in current liabilities. Equity infusion of Rs. 250 million is planned for March, 2010.

16 MicroSave Market-led solutions for financial services SWOT MATRIX STRENGTHS 1.Experienced senior management Team 2.Robust IT system 3.Clear and well defined HR policy 4.Infusion of own equity - commitment from promoters 5.Process innovation 6.Clarity and good understanding of vision 7.Transparency at all levels 8.Plans for value added and livelihood support services (LDS) 9.Shared ownership WEAKNESSES 1.Limited resources 2.Micro managing 3.Start up organisation; therefore, yet to institutionalise the standard processes 4.Attracting/Holding on to the staff till the time we become established players 5.Refine the processes for growth OPPORTUNITIES 1.Huge Potential Market 2.Scope of introducing livelihood related services 3.Financial crunch is helping organisation to be cost conscious and effective 4.IT systems THREATS 1.Financial crisis 2.Increasing competition 3.Increasing competition 4.Poor banking infrastructure 5.Political instability

17 MicroSave Market-led solutions for financial services STRENGTH Experienced senior management Team Robust IT system in the form of an integrated MIS for a start-up MFI Clear and well defined HR policy Infusion of own equity shows commitment from promoters (who are also part of core management team) Process innovation Clarity and good understanding of vision among all staff Transparency is maintained at all levels Planning to offer various value added and livelihood support services (LDS) through partnership model with other institutions in near future Shared ownership in the form of ESOPs (Ownership 2.5 times at par) Description of strengths Senior management comprises of people with microfinance Beyond loan related processes-detailed planning and implementation of performance appraisal, fund management, effective HRM and in-house developed MIS gives lot of flexibility and strength. All core team members are well acquainted with basic knowledge of MIS related software and Branch level MIS can be integrated to HO MIS and information from all the areas in SFSPL can be consolidated at HO level. Newly joined staff, after induction is given two months of on the job training. A comprehensive bi-annual performance appraisal system has been developed. Monthly reports and clients profile and basic information is published on the website

18 MicroSave Market-led solutions for financial services WEAKNESSES Limited resources Micro managing Start up organisation; therefore, yet to institutionalise the standard processes Attracting/Holding on to the staff till the time we become established players Refine the processes for growth Description of weaknesses SFSPL is a very young organisation therefore the level of trust for external funding is less. Since the operations have just started the Head office team appears to be top heavy. However, things will balance out with the expansion of operations. Organisational policies and processes need to be documented at the organisational level Though the organisation is clear on what it wants to do and where it wants to go yet a detailed road map for the for future needs to be mapped.

19 MicroSave Market-led solutions for financial services OPPORTUNITIES Huge Potential Market Scope of introducing livelihood related services Financial crunch is helping organisation to be cost conscious and effective IT systems Description of opportunities Western Uttar Pradesh (eight selected districts of UP), where the organisation plans to grow, has huge untapped microfinance market As per the common knowledge of the senior management of SFSPL the proposed operational area has huge potential for both microfinance and micro enterprise. Since SFSPL is developing its own MIS it gives it great flexibility and strength.

20 MicroSave Market-led solutions for financial services THREATS Financial crisis Poor law & order situation in UP Increasing competition Poor banking infrastructure Political instability Description of Threats Due to long lasting financial crisis, arranging funds has become difficult. Though SFSPL has not faced any problem till date; it is aware of the poor law and order situation in the state. SFSPL sees a different threat in terms of competition. It feels that competition is good for building the understanding of the target population yet practices like group poaching and not following the process to get more clients would negatively affect the market. Potential political instability in the state is another threat that SFSPL foresees

21 MicroSave Market-led solutions for financial services ORGANISATION FITS ADDITONAL CRITERIA TO BE SELECTED AS AAFI PARTNER ParametersYes/No Organisation has positive net equityYes Does not have access to other ongoing technical assistance support No Agree to attend workshops at selected MFIs from previous rounds Yes Agree to set up microfinance operations under a more regulated form (section 25/NBFC) Already NBFC Agree to return any savings mobilised to the clients of microfinance NA Ensure organisations can meet their funding liabilities through its loan portfolio Yes CEO/Head of the organisation is committed to microfinance and is willing to commit time Yes SFSPL can be taken as AAFI partner for technical support.

22 MicroSave Market-led solutions for financial services RECOMMENDATIONS FOR TECHNICAL ASSISTANCE Governance Monitoring and Internal Controls Process Mapping Finance and Accounts Managerial Trainings


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