Sanchetna ria
Transcript of Sanchetna ria
MicroSaveMarket-led solutions for financial services
December 31, 2008
Rapid Institutional Assessment of
Sanchetna Financial Services Pvt. Ltd.
bySoumya Harsh PandeyAmit Kumar Garg
MicroSaveMarket-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.
MicroSaveMarket-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 institution’s capability and promise, as well as where it needs additional inputs/assistance.
Rapid Institutional Assessment results in Rapid 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
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INTRODUCTION TO THE ORGANISATION
Chief functionary Mr. Lokesh Kumar Singh (Managing Partner)
Mission “We 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’
Vision “We 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”
Values Integrity – in every actionStewardship – for better accountability Logical Approach – towards better solutions Freedom of Expression – the right to disagree, and represent one’s beliefsDignity of Labor – for better work environment and camaraderie
Legal status (Reg. No., Date of incorporation)
NBFC 14.00025, 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 status NA
Methodology Grameen
Area of operation Barabanki (UP)
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BOARD AND GOVERNANCE
Observation Yes/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
<Others> 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.
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BUSINESS PLAN
Parameters\Years 2008-09 2009-10 2010-11
Number of States 1 1 1
Number of Districts 1 3 8
Number of Branches 1 9 52
Number of Clients 800 6,400 62,000
Portfolio Outstanding (‘000) 60,000 529,000 5,564,000
Disbursement (‘000) 80,000 828,000 8,843,000
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.
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MANAGEMENT AND SYSTEMS
Observation Yes/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 exists Yes
Organisational policies are documented
Yes
Operations Manual followed Yes
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.
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MANAGEMENT AND SYSTEMS
Observation Yes/No
Operations Manual is updated to reflect changes in the policy
Not
complete
Process Maps exist No
Internal Control System exists No
Internal control followed No
MIS has integration with the finance
No
MIS generates portfolio report Yes
MIS is used at the branches Yes
MIS with integration of the Branch level data exists
No
<Other>
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
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HUMAN RESOURCE MANAGEMENT
Observation Yes/No
Job responsibilities exits for all positions
Yes
Appropriate staff exist for positions and responsibilities
Yes
Service rules exists for staff Yes
Recruitment procedure in place Yes
Staff rules with regards to service conditions exist
Yes
Policy for HR development exists Yes
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.
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FINANCIAL MANAGEMENT
Observation Yes/No
Accounting entries have supporting documents
Yes
Accounting treatment is properly done
Yes
Accounting records are properly maintained:
–Complete
–Accurate
–Transparent
–Uptodate
Yes
Yes
Yes
Yes
Internal audit systems exist NA
Internal audit systems appropriate
NA
Internal Audit is independent NA
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.
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FINANCIAL MANAGEMENT
Observation Yes/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.
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MICROFINANCE CHARACTERISTICS
Observation Yes/No
Organisation has a defined credit policy
NA
PAR is calculated properly NA
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 features General Top-up
Loan Size Up-to Rs. 12,000 Rs. 4,000 – Rs. 6,000
Loan Term 50 weeks 50 weeks
Repayment frequency Weekly Weekly
Client Profile 100% 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 16th weeks.
Pricing
-Interest Rate
-Processing fee
-Membership fee
29.25% (RBM1)
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
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MICROFINANCE CHARACTERISTICS
Observation Yes/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.
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MICROFINANCE PROGRAMME PERFORMANCE
Parameters December 31, 2008
Number of groups 47
Number of members 235
Number of loan clients 155
Portfolio outstanding Rs.1, 390,000
Cumulative disbursement Rs. 1,468,000
# of days taken from group formation to loan disbursement 10-14 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.
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MICROFINANCE PROGRAMME PERFORMANCE
Profitability 2008-09 2009-10 2010-11
OSS 22.8% 88.0% 144.0%
FSS 21.8% 71.4% 127.0%
ROA -35.0% -4.0% 7.0%
Efficiency
Cost per client 2,728 1,060 431
Clients/Loan Officer 133 160 250
Loan O/S per Loan Officer (in Rs. Lakh) 10 13 24
Operating Cost Ratio 44% 21% 9%
Operating Expense Ratio 80% 27% 10%
Other ratios
PAR > 30 days NA 0.2% 0.2%
Debt /Equity 8% 140% 440%
Fixed Assets/ Total Assets 7% 10% 7%
O/s Portfolio/Total Assets 94% 69% 93%
Liquid Ratio 8.33 8.33 0.83(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.
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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
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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
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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.
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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.
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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
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ORGANISATION FITS ADDITONAL CRITERIA TO BE SELECTED AS ‘AAFI’ PARTNER
Parameters Yes/No
Organisation has positive net equity Yes
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.
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RECOMMENDATIONS FOR TECHNICAL ASSISTANCE
Governance
Monitoring and Internal Controls
Process Mapping
Finance and Accounts
Managerial Trainings