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MICROFINANCE BUSINESS PLAN

Submitted by:

Aarohan

Field: Microfinance Team Members: Ashutosh Khetan, Dr. Lalit Mendhe, Aditya Maheshwari, Sangeetha Nair, Abhishek Srivastava

Email id & Contact No: ashutoshkhetan@gmail.com, 09937161625

Our Team 1. Ashutosh Khetan


B.Com (Hons.), Bhagalpur University, Bihar. MBA (Rural Management), KSRM, KIIT University, Bhubaneswar. I have more than two year work experiences of which I have spent more than a year in SKS Microfinance. I will be looking the Financial Issues (Portfolio Management, Risk Management & Accounting) in Aarohan.

2. Aditya Maheshwari
B.A. (History, Political Science & English Literature), University of Rajasthan. MBA (Rural Management), KSRM, KIIT University, Bhubaneswar. I have more than one year work experience in sales and marketing in IPCA laboratories limited. I will be looking Market and Product Development in Aarohan.

3. Sangeetha Nair
B.E. (Mechanical), Gujarat University. MBA (Rural Management), KSRM, KIIT University, Bhubaneswar. I will be looking Operations, MIS, and Human Resource department at Aarohan.

4. Abhishek Srivastava
B.Com (Hons.), Allahabad University, Allahabad. MBA (Rural Management), KSRM, KIIT University, Bhubaneswar. I have one year experience as an Accountant. I will be looking Field Operations and Research wing at Aarohan.

5. Dr. Lalit R. Mendhe


B.VSc., Nagpur University. MBA (Rural Management), KSRM, KIIT University, Bhubaneswar. I will be looking Market and Product development with Aditya.

Aarohan

Table of Contents
Section No
i ii 1 2 3 4 5 6 7 8 9 10 11 12 13 List of abbreviation Executive summary
PROJECT BACKGROUND INTRODUCTION STRATEGIC OBJECTIVES MARKET AND CLIENTS PRODUCT AND SERVICES EXTERNAL ENVIRONMENT INSTITUTIONAL SETTING ORGANIZATIONAL SETTING MANAGEMENT INFORMATION SYSTEM INTERNAL CONTROL SYSTEMS FINANCING PLAN MONITORING AND EVALUATION CONCLUSION

Content

Page No
4 6 9 9 10 14 16 18 21 21 23 24 30 33 34

S. No
1 2 3 4 5 6 7 8 9 10

Annexure
Gross State Domestic Product at Factor Cost by Industry of Origin in Bihar The District Wise Male & Female Population of Bihar Coverage of Banking Services (Ratio of Demand Deposit Accounts to the adult population) Comparative Cost Structure of Bank, NBFC and MFO Average Branch Cost Key Cumulative Numbers For Microfinance Operations Monitoring Indicators Projected Income Statement Projected Cash Flows Projected Balance Sheet

35 36 38 39 40 41 42 43 44 45

Aarohan

List of Tables

S. No
1 2 Repayment plan

Content
Growth targets for microfinance operations

Page No
30 31

List of Diagrams

S. No
1 Organization diagram

Content

Page No
22

LIST OF ABBREVIATIONS

BM BPLRs CEO CFO CSO CUG ECB EPF GDP GSDP HR HSBC ITC KSRM M-CRIL MFI MFDEF Aarohan

Branch Manager Benchmark Prime Lending Rates Chief executive officer Chief Financial Officer Central Statistical Organization Common User Group External Commercial Borrowing Employee Provident Fund Gross Domestic Product Gross State Domestic Product Human Resources Hongkong and Sanghai Banking Corporation Indian Tobacco Company KIIT School of Rural Management, Bhubaneswar Micro Credit Rating International Limited Micro Finance Institutions Microfinance Development and Equity Fund 4

MFOs NABARD NBFCs PACS PSBs RRBs SCBs SHGs SKS RM AM UM

Microfinance Organizations National Bank for Agriculture and Rural Development Non Banking Financial Companies Poorest Areas Civil Society Public Sector Banks Regional Rural Banks Scheduled Commercial Banks Self Help Groups Swayam Krishi Sangham Regional Manager Area Manager Unit Manager

Aarohan

EXECUTIVE SUMMARY

Context
Providing financial services to poor people is expensive. Without access to small amounts of capital, these poor cannot establish small enterprises of their own, and are consistently vulnerable to crisis that requires emergency funds. The microfinance movement over the last two decades has provided new hope to these people for increased financial independence. However, many Micro-Finance Institutions and Community Based Financial Institutions (CBFIs) are struggling to meet the expectations of the communities they work with.

Concept
We will do village survey or see village profile from Block development office. If the response is positive people will be introduced about the company, product and its services to be offered. If people show interest then they have to undergo three days training sessions and an eligibility test. If they pass through the test the group will be eligible for collateral free door step loan delivery.

Products and Services


Financial Services: we will provide innovative and customized loan products for all the income generating activities to villagers and semi-urban people. These loan products will be covered by the micro-insurance schemes. We will also provide health Insurance. We will be following Grameen Bank of Bangladesh model.

The Market
The commercial microfinance sector in India has grown from a total portfolio outstanding of Rs.100 crore in 2002 to more than 6500 crore in 2006. More than 90% of the total microfinance portfolio has been concentrated in the three southern states of Andhra Pradesh, Tamilnadu and Karnataka. There is almost no microfinance activity in the bigger states like Maharashtra, Gujarat, Madhya Pradesh, Jharkhand and Bihar.

Aarohan

Target Area (Bihar) and Clients


There is a definite need for starting an MFI in Bihar as officially more than a crore people live below the poverty line in Bihar. Also, Bihar is one of the under financed state with weak financial market and poor access to credit. The state is on the verge of growth and development and microfinance as a tool for economic development can really play a big role. SKS microfinance and CASHPOR have started their operation in Bihar over last 18 months in similar socioeconomic environment. There has been marked improvement of in law and order situation in last one year. Huge investments have been promised in Bihar in infrastructure and of late there has been increase in political support for investment. Our target clients are poor women who want to engage themselves in some income generating activities. Activities like Selling milk, small kirana store, small hotels, vegetable vendors etc.

Market Opportunity
Our target segment is rural as well as urban population of Bihar. Considering the average size of family being 6, the number of potential households in the rural areas project districts will be around 6 million. Assuming only 50% of the potential household will be the target audience of our products, the target audience household size will be approximately 3 million. Assuming each household will need a loan of Rs 6000 once a year, the potential market size will be Rs 18 billion.

Competitive Advantage
The three distinct competitive advantages which will give organization the ability to scale rapidly while maintaining near-perfect portfolio quality: i. Operational Efficiency by real-time portfolio monitoring ii. High Quality Personnel consisting of tech-savvy field staff iii. Culture of Innovation: Continuous process of innovating through technology, operations and management

Aarohan

Potential risks and Mitigation Plans


Risk Mitigation Plans Institutional Risk Setting up interest rates such that it may cover operating costs, cost of capital, loan loss provision, and some surplus so that we can increase our outreach Operational risk Maintaining Excellent Portfolio quality & Standardized operating System. Rotating staff with proper human resource policies. Proper cash Management system. Financial Management Risk Integrate accounting and portfolio management. Maintaining both manual and automated system to verify cash and repayment disbursement register

Financial Plan
To meet the objective of serving over 2 millions clients within five years, we are planning to acquire sick NBFC which is registered U/S 10(25). It may cost near about Rs50,00,000 (Fifty lakhs) in acquiring sick NBFC. The promoters of the company will even put their stake of Rs 50, 00,000 (Fifty Lakhs) through promoters equity.

NBFC Rationale
As we will currently be registered as a limited liability Non-Banking Finance Company (NBFC), a legally recognized and Reserve Bank of India (RBI) regulated entity. As a registered NBFC, we will enjoy the following benefits: Access to fund, diverse funding sources, outreach potential, stakeholders involvement, attracts mainstream human and capital resources etc.

Ownership Structure
Our Ownership will be structured in a way that it gives all stakeholders including clients, management, employees and investors the opportunity to hold ownership and to participate in governance.

Aarohan

SECTION 1:

PROJECT BACKGROUND

Aarohan is an initiative by enterprising KSRM students. The main reason we can come up with this plan is lack of proper platform and mistrust in government machinery in Bihar to deliver credit services to the people. The other reason being poor law and order conditions, lack of entrepreneurial activity, flight of capital and quality manpower, unemployment and high cost of capital. Thus, Bihar is caught in a vicious circle of low productivity, low income and low growth. We strongly feel that an organization can earn profit and use those profits for further social activities. The idea is to implement the successful economic models like GRAMEEN MODEL, AMUL in context of Bihar to bring wealth of common people of Bihar. We plan to demonstrate that professionals can turn entrepreneur in Bihar and catalyze the growth of economic activity with the help of poor people.

SECTION 2:

INTRODUCTION

2.1

Introduction

The commercial microfinance sector in India has been growing at a rapid pace for the past three to four years. The commercial microfinance sector in India has grown from a total portfolio outstanding of Rs.100 crore in 2002 to more than 6500 crore in 2006. This growth, however, has been lopsided. More than 90% of the total microfinance portfolio has been concentrated in the three southern states of Andhra Pradesh, Tamilnadu and Karnataka. The states like West Bengal, Orissa and Uttar Pradesh have shown some promise in the recent years. There is almost no activity in the bigger states of

Maharashtra, Gujarat, Madhya Pradesh, Jharkhand and Bihar. Bihar is one of the poorest states of India. There is no significant microfinance activity in the state. There is a definite need for MFI institutions in Bihar as officially more than a crore people live below the poverty line in Bihar. There is a huge potential waiting to be tapped. Millions of poor people would require financial services. Bihar is on the verge of growth and development and microfinance as a tool for economic development can really Aarohan 9

play a big role. SKS microfinance and CASHPOR have started their operation in Bihar over last two-three years in similar socioeconomic environment. Their experience suggests that it is possible to attain growth and sustainability in the Bihar.

2.2

Vision of Microfinance Operation

To become the largest integrated microfinance player in Bihar by 2014 The word integrated means the clients will be provided services like credit, savings, and insurance services in the form of life insurance as well general insurance services like health, crop, weather, cattle, etc.

2.3

Mission of Microfinance Operation

To run a profitable microfinance operation with transparency and accountability to all stakeholders

2.4

Stakeholders

The main stakeholders of the operations are Aarohan o Advisory committee o Board of Directors o Employees Funding agencies Lending institutions like banks Clients Technical Support institutions Life and General Insurance companies

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SECTION 3:

STRATEGIC OBJECTIVES

3.1

Introduction

The strategic objectives of Aarohans Microfinance operations at the end of five year Plan are Women empowerment Moving the bottom of pyramid clients out of poverty by facilitating creation of wealth More than 1,100,500 clients More than Rs 990 Crores of loan disbursement Less than 1% default rate Portfolio at risk 60 days less than 1%

3.2

The Strategy

Aarohan will replicate Grameen model in Bihar for providing credit services to people. In Grameen Model, to obtain loans, potential borrowers must form a group of five, gather once a week for loan repayment meetings. These decisions incorporate a code of conduct that members are encouraged to follow in their daily life e.g. production of fruits and vegetables in kitchen gardens, investment for improvement of housing and education for children, use of latrines and safe drinking water for better health, rejection of dowry in marriages etc. The groups of the same village are federated into a Centre. The formation of the groups - the key unit in the credit programme - is the first necessary step to receive credit. Loans are initially made to one individual in the group, who is then under pressure from the rest of the members to repay in good time. If the borrowers default, the other members of the group may forfeit their chance of a loan. The groups perform as an institution to ensure mutual accountability. Credibility of the entire group and future benefits in terms of new loans are in jeopardy if any one of the group members defaults on repayment. 3.2.1. Group Formation Process of Aarohan The general criteria for opening of branch will be: o A catchment population of 100,000 Aarohan 11

o A block or cluster of 50-60 villages o Presence of bank branch o Accessible by kutcha road throughout the year o Presence of petrol pump The procedure for client acquisition and servicing is as follows 1. The Field Worker (FW) will travel to the village to obtain a village profile, and will conduct the Introductory Meetings (IM).
Village Profile

+
Response

IM

+
Response

Day 3 Group training

Day 2 Group training

Day 1 Group training

ET

Failed Result of ET Group is eligible For loan

Passed

2. If the village response is positive the FW will start the three day group training on group processes and basic financial literacy that will culminate with the Eligibility Test (ET) conducted by the branch manager. 3. Once the group passes the test each group member becomes member of the organization and can apply for a loan in the centre meeting, which will be held once weekly. 4. In the first center meeting, three of the five member group can apply for a loan, to be disbursed the following week. Then the remaining two members can be disbursed loan next week. 5. All the loan payments will occur at the center meeting and the loan will be repaid in 50 equal weekly installments. After the completion of the first loan cycle, clients will be eligible for larger loan sizes.

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3.3

Expected Social and economic Outcomes

A survey by Grameen bank has shown that about 42% had no income earning occupation at the time of application of the first loan. Thus, the Grameen Bank has helped to generate new jobs for a large proportion of the members. Only insignificant portion of the loans (6 per cent) was diverted for consumption and other household needs. About 50 per cent of the loans taken by male members were for the purpose of trading and shop keeping. 75 per cent of loans given to female members were utilized for livestock, poultry raising, processing and manufacturing activity. As with Grameen bank original experience, Aarohan expects that similar employment creation will take place among clients in the Bihar. Aarohan will itself employ near about 1000 employees in its area of operation in five year. Most of the loans will be used for farming, livestock, poultry raising, processing, manufacturing activity, trading and shop keeping. The capacity building programmes provided by Aarohan will make the clients aware and capable of fighting the social evils on their own. The clients will be encouraged to stand for local bodies and seek participation in social processes. Aarohan expects the members to move up the economic ladder by increase in productivity as well as scope of business and operations of its client. Summing up, Aarohan hopes to create an impact in terms of women empowerment, increase in income, employment creation, and upward social mobility of its clients family.

3.5

The Strategic advantage of Aarohan

The three distinct competitive advantages which will give the organization the ability to scale rapidly while maintaining near-perfect portfolio quality: i. Operational Efficiency by real-time portfolio monitoring We will be having excellent, flexible and in house software for our real time portfolio monitoring so that we can access data from branch level to area office and regional office level with click of mouse. ii. High Quality Personnel consisting of tech-savvy field staff Aarohan has been promoted by KSRM graduates who are educationally qualified as well as have experience of working in Microfinance as well as development Aarohan 13

sector at various levels. The quality of education and experience is an added advantage for the organization. Aarohan will also recruit from leading rural management schools like KSRM for heading the operations in different region. iii. Culture of Innovation: Continuous process of innovating through technology, operations and management. We will be having our business development team who will be continuously striving for innovating other loan product and services. We will be standardizing our process through recording various field operations. With these competitive advantages and having an access to internal news of all leading MFIs of India, Aarohan is sure to beat the competition in Bihar.

SECTION 4:
4.1

MARKET AND CLIENTS

Opportunity called Bihar: Improvement in Investment Climate of Bihar

A poor investment climate in the state has depressed development. Bihar does not have a single externally aided project, though it is one of the poorest states in the country. One reason for the poor investment level is Bihars inhospitable investment climate marked by: Poor infrastructure. Weak financial markets and low access to credit. Shortage of skilled labour. Lack of political support for investment.

There has been marked improvement of in law and order situation in last one year. Huge investments have been promised in Bihar in infrastructure and of late there has been increase in political support for investment. The microfinance plan is trying to improve access to credit for the masses of Bihar. There are 37 districts and more than 500 developmental blocks in Bihar. Total population of Bihar is 82,998,509 out of which rural population is 74,316,709. More than 90% people live in rural Bihar. It has one of the most fertile lands in India. People are deprived of basic services like health, education and finance. In the year 2004, there was one bank branch for 23,248 people in Bihar as against the national average of one bank branch for 15,000 people. According to official reports, 37 blocks in Bihar's 38 districts have no Aarohan 14

branches of any commercial bank at all in 2007. The quantum of deposit accounts (current and savings) held as a ratio to the adult population also helps to assess the degree of reach of financial services. In the Indian context, taking into account the Census of 2001, the ratio of deposit accounts (data available as on March 31, 2004) to the total adult population was only 59% (see annexure 3). Within the country, there is a wide variation across states. For instance, the ratio for the state of Kerala is as high as 89% while Bihar is marked by a low coverage of 33%. Given these statistics, an inference can be drawn that Bihar is hugely underfinanced by national standards. There is a huge market waiting to be tapped whose population is whopping 100 million. This is a Rs. 50 billion market if average revenue per person per annum is Rs 500 only. Total number of household in Bihar is 13,744,130 out of which rural household is 1,240,732 as per census 2001. Bihar is predominantly rural as more than 90% households fall in rural area.

The Microfinance Opportunity: Bihar is seeing inception of microfinance activities since 2006. All the activities are at a nascent phase. Two big players have entered the Bihar Microfinance market. CASHPOR has entered Bihar from western side. Their presence is limited to four districts of Bhojpuri region and has been able to make around 50,000 members in two years time. SKS Microfinance initiated the Bihar Operation in year 2006 and has been able to spread its operation in more than 10 districts in a year. They have membership around 14,000 till now and loan outstanding portfolio of around Rs 7 Crores. There are two more MFI working on small scale Nidan, Patna and Kanchan, Muzaffarpur. They have a membership base less than 10000 and portfolio less than three crores. Most of the efforts are being limited around Patna. There is hardly any microfinance activity in the other parts of Bihar. Of late, efforts have been made under the Bihar State Livelihood Promotion Society under JEEVIKA project supported by World Bank have been initiated but they are already late by two years. BASIX, a leading MFI based out of Hyderabad, has recently opened its office in Patna and is planning to start microfinance operation on its own but they are waiting for opportune time. Aarohan 15

4.2

Calculation of Market Size as per proposed area of operation

The population in the operation area of Microfinance operation is Aarohan is 40 million out of which 35 million is rural population. Aarohan target segment is rural as well as urban population. Considering the average size of family being 6, the number of potential households in the rural areas project districts will be around 6 million. Assuming only 50% of the potential household will be the target audience of our products, the target audience household size will be approximately 3 million. Assuming each household will need a loan of Rs 6000 once a year, the potential market size will be Rs 18 billion. Given the numbers, there is potential for at least 3-4 big players each having one million clients. The district wise rural and urban population is shown in annexure 2.

4.3

The Clients Definition:

All the clients for microfinance operation will be women as it is with other microfinance operations across world. Women are more prudent and more conscious about dignity and social standing. Following are the criteria for Aarohan Microfinance operation: A women Member of joint liability group formed by Aarohan Household income of Rs 1000- Rs 5000 per month Having regular income from selling milk, selling vegetable, drivers, small pan or kirana shops, artisans or working at hotels or dhabas.

SECTION 5: PRODUCT AND SERVICES


5.1 Introduction

The microfinance loan products will be designed as per local needs as well as the purpose for which they are taken. At present, there will be one product in the form of personal loan whose purpose will be monitored to design new products after one year. The duration of all loan products will be 50 weeks. For 50 week period, the interest rate will be 20%. For example, if a borrower takes a loan of 1000, she will have to pay 1200

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16

rupees in total. The installment amount will be Rs 30 per week for 40 weeks. It will include principle amount of Rs 25 and interest amount of Rs. 5 per week respectively. 5.3 Loan Process

1) Application per loan in weekly meeting 2) Interview of the member by loan officer and branch manager 3) Resolution by the group certifying the need of loan 4) Filling up of loan application form 5) Agreement of terms and conditions 6) Guarantors by the other group members 7) Loan will be disbursed within a week of application.

5.3 Loan Products At present there will be only one product called personal loan. The purpose for the loan will be mentioned in the format. The majority of the loan will be taken for the purpose such as Emergency, Agriculture input, Business, Housing, Health, Education etc. the features of the loan will be Minimum loan: Rs. 1000 Maximum loan size First year- Rs. 5000 Second year- Rs. 10000 Third year- Rs. 15000 Fourth year- Rs. 20000 Fifth year- Rs. 20000

5.4

Services

5.4.1. Business capacity building Aarohan will try to build capacity of the clients in term of maintaining accounts. There will be regular training where book keeping and risk management for the small businesses will be taught and various insurance products will be introduced.

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5.4.2

Life insurance

All the clients will be encouraged to take up life insurance for their life. This will help the family in unforeseen circumstances like death. There will be tie up with suitable life insurance company for providing these services at low cost.

5.4.3

Health Insurance

Aarohan will tie up with the general insurance companies to provide health insurance to its clients. Local health care service providers will be organized and empanelled to provide health care to clients at a predetermined price for predetermined problems. Schemes like janat insurance and critical illness insurance would also be targeted.

5.4.4

Crop insurance, Livestock insurance and weather insurance for farmers

These insurance products will be provided to farmers for managing their risk. Aarohan will tie up with general insurance company to provide these services.

5.4.5

Agriculture extension services

Aarohan will tie up with agriculture students who will provide extension services to members. They will guide the farmers about seed, fertilizers and better technique for agriculture.

SECTION 6:
6.1

EXTERNAL ENVIRONMENT

India Macro Economic Scenario

The Indian economy has witnessed robust growth during 2006-07 for the fourth year in succession. According to the advance estimates released by the Central Statistical Organization (CSO), real Gross Domestic Product (GDP) growth is expected to accelerate from 9.0 per cent in 2005-06 to 9.2 per cent in 2006-07. Real GDP growth is, thus, expected to average 8.6 per cent during the four year period from 2003-04 to 200607. Both the deposit and lending rates of scheduled commercial banks (SCBs) increased during 2006-07.

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6.3

The Microfinance scenario of India1

The microfinance sector in India, largely unfettered by tedious regulation and interference is young and dynamic. M-CRIL, a leading micro-credit rating agency provides a conservative estimate of the size of the market at Rs.480 billion (US$10.7 billion ) calculated for 60-70 million poor families at average household credit demand of Rs.8000 (less than US$200). A more recent estimate comes from the prominent microfinance practitioner, Mr. Vijay Mahajan, fomer head of BASIX. He pegs annual micro-credit demand at US$30 billion (this high estimate most likely includes demand for both microfinance and livelihood finance). Thus, India accounts for about 10% of the estimated global aggregate demand of US$300 billion. Up to March 31st 2005, a grand total of 1.62 million SHGs representing in total 24.3 million poor families or approximately 121.5 million people have received cumulative loans of over Rs.68 billion (US$1.51 billion) from commercial banks (NABARD). The amount of loans disbursed by banks to SHGs during 2004-05 is Rs.29.94 billion (US$665.37 million). Currently, roughly 75% of the credit supply is via the Self Help Group-Bank linkage route largely financed by the National Bank for Agriculture and Rural Development (NABARD) and the rest comes from MFIs, increasingly backed by commercial banks. However, the difference in market share is decreasing, as the increase in credit flow to SHGs over the previous year is 61% while growth of loans originated by MFIS is well beyond 100%.

6.4

The microfinance regulatory scenario2

In India, micro finance is provided by apex development financial institutions (such as National Bank for Agriculture and Rural Development - NABARD, Small Industries Development Bank of India, and Rashtriya Mahila Kosh), commercial banks, regional rural banks, co-operative banks, non banking financial companies (NBFCs) and various not-for-profit entities. The number of MFOs in India involved in lending activities is estimated to be around 800. These MFOs vary significantly in size, outreach and credit
http://ifmr.ac.in/cmf/20070105/microfinance-changing-rural-india/#more-246 India Together Legislative Brief on the Microfinance (Development and Regulation) Bill - 26 June 2007.htm
2 1

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delivery methodologies. Presently, the lending activities of MFOs are not regulated except for those registered as NBFCs. Government intends to promote MFIs in a big way.3 Government feels that the NABARD or the banks should devise appropriate safeguards locally in their relationship with the MFIs, taking into account different organizational forms of such entities. In any case, if any statute for regulation of MFIs is contemplated, it may be at the State-level with no involvement of the RBI as a banking regulator or for extending deposit-insurance. In the Finance Ministers budget speech on 28th February 2005, key announcements pertaining to the microfinance sector are as follows: Enhancement of target for credit-linking in the next fiscal from 2 lakh SHGs to 2.5 lakh SHGs MFIs as Banking Correspondents Formation of Microfinance Development and Equity Fund (MFDEF) Rs. 100 to Rs. 200 crore The Board of MFDEF to suggest suitable legislation, which is expected to introduced as draft bill in the next fiscal year ECB route reopened for qualified NGOs NGOs, SHGs, cooperatives and MFIs will be invited to become micro insurance agents Micro Financial Sector (Development and Regulation) Bill, 2007 is pending in parliament. The Micro Financial Sector (Development and Regulation) Bill, 2007 seeks to promote the sector and regulate micro financial organizations (MFO). a. National Bank for Agriculture and Rural Development (NABARD) shall regulate the micro financial sector. b. Every MFO that accepts deposits needs to be registered with NABARD. Conditions for registration include (a) net owned funds of at least Rs 5 lakh; and (b) at least three years in existence as an MFO. All MFOs, whether registered or not, shall submit annual financial statements to NABARD.

RBI annual policy document 2004-2005

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c. Every MFO that accepts deposits has to create a reserve fund by transferring a minimum of 15% of its net profit realized out of its thrift and micro finance services every year. d. The central government may establish a Micro Finance Development Council to advise NABARD on formulation of policies related to the micro financial sector. e. NABARD shall constitute a Micro Finance Development and Equity Fund to be utilized for the development of the sector This will increase the cost of compliance but lots of funds are made available by the government to grow the sector. The general trend seems to be buoyant for the microfinance sector as a whole. There has been exponential growth in terms of number of clients as well as loan outstanding. Microfinance has been able to demonstrate positive impact on economic situation of members who are part of it. The regulatory framework is encouraging and there is support for new microfinance organization. The market is still emerging for microfinance institutions and new MFIs will benefited by it. In near future, the lending rates by banks are expected to go down.

SECTION 7:

INSTITUTIONAL SETTING

7.1.

The Future Plan for Microfinance operation

Aarohan will try to make its microfinance operation independent as soon as it breaks even. Aarohan will follow the examples set up by SKS microfinance Pvt. Ltd., Share, Spandana for transferring its non profit microfinance operation to a private limited company. The process will be guided by legal experts and all the guidelines by the government will be adhered by the Advisors. This process is important to access capital easily for the growth plan of microfinance operation.

SECTION 8:

ORGANIZATIONAL SETTING

The planned organization structure for microfinance operation will be as following: Aarohan 21

Organization Diagram

Board of Directors

CEO

Operations

Business Development

Insurance

HR/ Admin

Finance/ Account

Internal Audit

IT

RM (N)

RM (S)

RM (E) IT Man

HR Manager AM AM AM AM

A/C Manager

I/ Audit Manager

UM

UM

UM

UM HR Executives A/C Executives I/Audit Executive IT Executives

BM

BM

BM

Loan Officer

Loan Officer

Loan Officer

The apex of the organization will be the Board of Directors. The CEO will report to the management committee quarterly. The CEO and COO will be top management who will take strategic decisions and ultimately responsible for the growth of the microfinance business. There will be four regional managers who will look after different regions of Bihar namely south, west, east and north. They will be reporting to the COO of the microfinance operation. Each regional manager will look after approximately 25 branches. Area mangers will be reporting to the regional managers, who will be recruited from freshly graduated with rural management degree. Each branch will be managed by a branch manager and 6 loan officers.

SECTION 9:

Management Information Systems

As current delivery models are not quite meeting the challenges especially when it comes to serving rural remote location. So, technological innovation is a great hope. As we feel that future of microfinance industry will be shaped by innovative technologies. Management Information System will be the cornerstone of the organizations technology platform. It will enable us to manage small transactions efficiently, increase staff productivity, reduce operational cost, provide accountability for funds and generate report for effective and efficient management and decision making. Taking few points into consideration: a. Accurate and easy to use MIS will be built with an easy to use graphical user interface (GUI) so that anyone can learn to use it in a matter of days regardless of education level or computer training. b. Design for Scale MIS will be designed and built as a series of modules that can be added and subtracted as the needs of the organizational changes. The MIs will also have a high degree of flexibility, with a capability to track small savings, loans and insurance products with a click of mouse.

Budget/Decision Making Business plan

Monitoring Operational Financial Impact

Evaluation Analysis

Portfolio Management

Accounts

HRD/Admin

Mobile Data Capture

c. Integrated with accounts Financial portfolio will be directly linked to its backend accounting function through the MIS. All the outgoing transactions automatically enter into the accounts software. d. Extensive reporting As our outreach will be very high so it is extremely important for us to track all activities at the micro level. The reporting features will help us to monitor activities at the individual level and respond quickly to any problem in the field. e. Online data transfer To track field level operations we will develop an online data transfer system that allows it to send summary data, back to the head office.

SECTION 10: INTERNAL CONTROL SYSTEMS


10.1 Surprise audit by Branch managers Branch managers will conduct surprise audit of processes followed by the loan officers in formation of group, disbursement of loan and collection of installment. The schedule of visit of branch manager will be kept confidential. The deviations from the standard process have to be documented and corrective action has to be reported. Branch managers will conduct at least visit 5 centers a day. Aarohan 24

10.2

Surprise Audit by Top Management

The top management will conduct surprise visit to the field operation at least thrice weekly. This visit will be kept confidential from the branch personals including branch managers. This will help the key decision makers to be aware of happenings in the field and check the processes in the field.

10.3

Risk Management

The branch will maintain the list of clients who have defaulted even once during the 40 week period. Their will be list will be maintained as following Clients defaulting once during the 40 weeks cycle Clients defaulting 2-4 times within a month and resuming repayment again Clients defaulting more than 4 times in three month period

The process of risk management: 1. The client is unable to pay the weekly installments 2. The loan officer informs the branch manager immediately by phone. The branch manager immediately visits the member who defaulted. 3. The branch manager will inform the top management as soon as he/she receives operation. 4. The loan officer will understand the reasons behind the default a. Unexpected health problems in family members b. Death in family c. Failure of business d. Illness of main earner of the family e. Unexpected arrival of relatives f. Alcoholism g. Gambling h. Death of cattle i. Fire or accidents in household j. Other reasons will be specified by loan officer in written Aarohan 25

5. The loan officer will gather evidence whether the default is willful or non willful and inform the branch manager. 6. In case on non willful or genuine default a. The repayment schedule will be changed as per mutual agreement b. The interest rate penalty will be decided by group. 7. In case of willful default a. The other group members will be asked to pressurize the client to pay the remaining installments b. In case of failure of peer pressure, the other group members have to pay the remaining installments. c. The concerned person will be expelled from the group d. The information of being defaulter communicated to whole village and relevant authorities e. Legal notice will be served to the defaulting members. 8. The loan officer will stay at village till decision about future course is taken. 9. The whole process will be documented by the loan officer. 10. The report about the case will be prepared by the branch manager and sent to management.

10.4

Accounting system

The branch will maintain following registers as a part of accounting information system. Daybook This register will record all the transaction taken during the day in the branch. Cashbook The incoming cash and outgoing cash will be documented in this register. Cash deposit- withdrawal register This register will record the cash deposited and withdrawn by the loan officers. Voluntary advance receipt register This register will maintain the record of clients who pay the loan installment in advance. Loan taken register 26

Aarohan

This register will record the loan taken by the clients as well as due dates of installments. Movement register This register will record the details of movement of the loan officers and branch managers to and from the field Log book register This register will record the details of movement, cost of petrol and maintenance of motorcycles and other vehicles Bank statement file This file will contain copies of bank transaction statement pertaining to the branch. Safe Key Register This register will maintain the record of opening and closing of safe by authorized person. MIS problem register The entire problem encountered during the operation will be recorded in this register. The registers maintained at head office: Salary and Incentive Register This register will record the salary and incentive paid to the employees. Asset register Details of all the assets such as computer, motorcycles, and other machinery will be maintained in this register. The details will be purchase date, price, unique identity numbers etc.

10.5

The role and responsibility of various profiles

10.5.1 Chief Executive Officer Will have the overall responsibility of microfinance operation Will be responsible for its profit Performance bonus linked to net income generated by the operation Will report to the managing committee Will provide leadership and strategic direction to the organization 27

Aarohan

Raise grants and funds for the microfinance operations

10.5.2 Chief Operating Officer Will be responsible for day to day running of operations in branches Will report to CEO Will be responsible for designing new products in tandem with CFO Will develop the standard Operation procedures Will be responsible for cost of each branch operation Performance bonus linked to low default rates, portfolio at risk and cost of operation Regional manager will report to COO

10.5.3 Chief Financial Officer Will be responsible for internal control system of the organizations Will report to CEO Will formulate policies on financial matters Will be responsible for designing new products in tandem with COO

10.5.4 Regional manager Will have the overall responsibility of microfinance operation of its zone Will be directly reporting to COO with matrix reporting to CFO Will be responsible for cost of each branch operation Performance bonus linked to low default rates, portfolio at risk and cost of operation

10.5.5

HR Team

It will be formed in 3rd year of operation. Till then CEO and COO will be performing as HR managers. It will be centralized function. It will be led by VP HR (Vice President HR), with HR manager and its executives. The HR manager will be responsible for

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28

all the recruitment of branch managers, loan officer and accountants staffing and their costing in 108 branches Incentive will be built on hiring and retaining specified number of people at low cost year Reporting to VP HR.

10.5.6 Branch Manager Will be responsible for operation of the branches Monitoring disbursement and repayments Visiting 5 centers in different area daily Will responsible for day to day cash management Will be responsible for maintenance of MIS at branch level manually Incentive will be built on the level on zero default rate in repayment as well as following of standard operating procedure

10.5.7 Accounts Manager Key responsibility of verifying books of accounts including vouching, verification of manual books, physical cash and books of accounts in MIS at the branch level. Training field staffs, cashier, branch managers in accounting and record keeping and assisting in the maintenance of village level as well as branch level books of accounts. Consolidate Balance sheet, Trail Balance, Income statement at the Area office level for about 10 Branches. Have responsibility for external audit of the Branch and Area office level Reports to CFO.

10.5.8 Loan officer Will be responsible for group formation Will be responsible for loan disbursement Will manage 5 centers in a day 29

Aarohan

Will manage 25 groups in a day Will manage the relationship with the group members Will be responsible for collection of repayments weekly Incentive will be built on having zero percent default during weekly repayment from the clients

10.5.9 Audit committee Maintaining internal control system Process monitoring and evaluation Reporting deviation from processes Detecting financial frauds Conduct surprise audit process

SECTION 11: FINANCING PLAN


11.1 Funding Mobilisation Strategy To meet its objective of serving over 500,000 clients within five years, we are planning to acquire old microfinance company which is registered under NBFC (Non Banking Financial Company). It may cost near about Rs 50, 00,000 (Fifty lakhs).
NBFC Rationale

As we will be currently being registered as a limited liability Non-Banking Finance Company (NBFC), a legally recognized and Reserve Bank of India (RBI) regulated entity. As a registered NBFC, we will enjoy the following benefits: Access to fund, diverse funding sources, outreach potential, stakeholders involvement, attracts mainstream human and capital resources. Etc.

Funding Sources: The fund may be in the form of loan of interest rate between 12 15% annually and grant of the same amount or less by the above mentioned funding organization. The first year requirement of fund will be Rs 1, 40, 00,000.

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We will enter partnership with leading financial institutions like HDFC bank, ICICI Bank, UNITUS and other institution to provide loans for disbursement. Growth Target for each year: The following are the targets which we have set for our 5 years of operations. Growth targets of Microfinance operations
of Noofemployee year of No operations Branches LoanOfficer Branch AverageLoan SizeRs. Noofclients Expected Total Loan disbursementinRs

Manager

1styear 2ndyear 3rdyear 4thyear 5thyear

2
7 21 63 100

14
49

2 7 21 63 100

5,000 6,000 7,000 8,000 9,000

4,000 24,050 125,000 413,000 1,100,500

20,000,000 144,300,000 875,000,000 3,304,000,000 9,904,500,000

147
441

700

Capital cost incurred in starting up the Branch

Financial Assumptions: The assumptions are basically used for calculating the future projections and creations of cash flows, income statement and balance sheet. Ownership Structure: Our Ownership will be structured in a way that it gives all stakeholders including clients, management, employees and investors the opportunity to hold ownership and to participate in governance. The companys proposed ownership structure at

commencement of operations is as follows:

Shareholder

Investment

Shares Owned (as if converted)

Common Ownership

Social Capital Equity Capital

Venture 50,00,000

5 Lakhs

50%

50,00,000

5 Lakhs ---

50% ---

ESOP(Employee stock ----

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31

option plan ) Members / Clientele ---------

Some Financial Assumptions: Following are the assumptions used for calculating the future projections and creation of cash flows, income statement and balance sheet. 1. Since the inception we will be having two branches, and in the first financial year we will be having 4,000 members for both the branches. 2. A branch can cater maximum of 10,000 members. 3. A branch will have 7 Loan officers and a one Branch Manager. 4. We are going to charge Rs 25/ per annum as membership fee, loan processing fee is 2% of the loan amount. 5. The income from commission of Life insurance is Rs 10 in first year of operation. In the second year, it is Rs 15 per client and later its Rs 20 per client. 6. The microfinance loan is given at the flat rate of 20% per annum to the clients. 7. The loan installment cycle will be of 50 weeks. Repayment Plan Loan Amount 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000 14,000 15,000 Repayment in Rs 1200 2400 3600 4800 6000 7200 8400 9600 10800 12000 13200 14400 15600 16800 18000 Principal per week 20 40 60 80 100 120 140 160 180 200 220 240 260 280 300 Interest per week 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 Total Repayment per week 24 48 72 96 120 144 168 192 216 240 264 288 312 336 360

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1. We have assumed that loan loss provision is 2% and then PAR 30 - 1%, PAR 60 0.50%, and PAR 90 -0.50%. We will be taking value of PAR30 to be the loan written off for the respective periods. This risk has been written off as financial expenses in the income and statement and has been reflected in the balance sheet. 2. The loan amount is available at the rate of 14% per annum on declining balance for the year 2009 10. The interest will be repaid monthly and principal will be repaid quarterly. 3. We are planning to raise equity by Rs 50 lakhs through promoters and we will even raise fund through social venture capitalist (i.e. Bellweather, Unitus, FWWB, BASIX, Ford Foundation etc) by Rs 50 lakhs during the first year of operations. We will even take debt from bank near about three times of our equity. We are going to raise equity through other sources of Rs 3.5 Crores in first year. We will even offer ESOPs to our employees and we are planning even to convert our membership fee income to as our equity shareholders. In second, third, fourth, and fifth year we are planning to manage our fund through taking debt from bank through our outstanding gross loan portfolio, raising equity, ESOPs and various other financial sources. 4. We have calculated the depreciation on the basis of straight line method (SLM); whose salvage value will be for five years period. 5. We will be taking five loans. The period for the loans taken is in the following manner:

Loan (particulars) Repayment Period Loan1 Loan2 Loan3 Loan4 Loan5 1 year 2 years 3 years 3 years 3 years

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SECTION 12:

MONITORING AND EVALUATION

The key indicators for monitoring and evaluation are given in annexure 6. Performance Measurement can be gauged from ratios like operating margin and net financial margin. Internal feedback and control mechanisms are detailed in above mentioned sections. Impact assessment will be done through independent studies being conducted by research bodies like Centre for Microfinance Research. The trust and later on NBFC will conduct their impact assessment by inviting bright students from top management schools for doing studies on impact of microfinance in Bihar. Aarohan will maintain total transparency and accountability to all its stakeholders by providing reports on key indicators as desired quarterly, half yearly and annually. The key results will be available on the website also. Annual progress reports will be sent to all the stakeholders.

SECTION 13:

CONCLUSION

The project assumes explosive growth in microfinance sector in Bihar. The other assumptions are improvement in investment climate in Bihar and capital and human resources are available to facilitate the growth of microfinance operation. As we have seen dearth of commercial bank lending so there is good bit of opportunity for our organization. Much has been said about financial inclusion this model will be in its kind with viable business proposition. It will be New generation microfinance companies which will run by rural managers who have distinct skills sets and have urge to work for the society. It is model which can be scaled up with rapid pace.

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Annexure 1: Gross State Domestic Product (GSDP) at Factor Cost by Industry of Origin (At 1993-94 Prices) in Bihar4 (2000-2001 to 2005-2006) (Rs. in Lakh) Sector 1. Agriculture 2. Forestry & logging 3. Fishing 4. Mining & quarrying Sub Total of Primary 5. Manufacturing Manu-Registered Manu-Unregistered 6. Construction 7. Electricity, gas and Water supply Sub Total of Secondary 8. Transport, storage & communication Railways Transport by other means Storage Communication 9. Trade, hotels and restaurants 10. Banking & Insurance 58231 559634 113343 67991 449316 129011 89777 533920 155690 106735 456127 167283 126896 518472 179739 150866 484502 193123 2000-01 1399831 55316 50191 9224 1514562 136150 52724 83426 170688 51553 358391 182147 75113 48803 2001-02 1153179 55848 64275 18138 1291440 115421 44233 71188 140646 51814 307881 195022 80212 46819 2002-03 1435946 56927 69782 7703 1570358 168018 79671 88347 147516 51567 367101 222374 82150 50447 2003-04 1129894 58374 71250 8126 1267644 178993 87842 91151 167857 55969 402819 242638 87422 48481 2004-05 1343006 59789 71523 8144 1482462 192476 97652 94824 180003 60150 432629 270150 90780 52474 2005-06 1182454 61471 71795 8127 1323847 206348 108110 98238 191381 64508 462237 298019 94268 52885

Downloaded from www.indiastat.com

11.

Real

estate,

ownership

of

dwellings

and 122094 129417 137360 146616 157207 169047

business services

12. Public administration 13. Other services Sub Total of Tertiary

264530 335397 1577145

316577 307272 1526615

292821 336337 1678502

312790 295033 1620487

332957 314580 1773105

354331 334713 1833735

14. State domestic product (Rs. lakh)

3450098

3125936

3615961

3290950

3688196

3619819

15. Calculated State domestic product (Rs. Lakh) 16. Population 3450098 81873000 3125936 84251000 3615961 85578000 3290950 87161000 3688196 88687000 3619819 9E+07

17. State Per Capita Income (Rs.)

4214

3710

4225

3776

4159

4013

18. Calculated State Per Capita Income (Rs.)

4214

3710

4225

3776

4159

4013

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Annexure 2: The District Wise Male & Female Population of Bihar5 Population Rural Bihar (Census 2001) S No District Total Male % Female % Total Male % Female % Population Urban Bihar (Census 2001)

Pashchim 1 Champaran 2733561 1436667 52.6 1296894 47.4 309483 164186 53.1 145297 46.9

Purba 2 3 4 Champaran Sheohar Sitamarhi 3682196 492961 2516636 1937024 259907 1327819 52.6 52.7 52.8 1745172 233054 1188817 47.4 47.3 47.2 251440 21327 153251 135326 11354 82330 53.8 53.2 53.7 116114 9973 70921 46.2 46.8 46.3

5 6 7

Madhubani Supaul Araria

3446248 1657175 1992293

1771686 862101 1037973

51.4 52 52.1

1674562 795074 954320

48.6 48 47.9

124403 87894 132538

65675 46754 70951

52.8 53.2 53.5

58728 41140 61587

47.2 46.8 46.5

8 9 10

Kishanganj Purnia Katihar

1165057 2318848 2171287

597760 1205927 1128240

51.3 52 52

567297 1112921 1043047

48.7 48 48

129006 221940 218246

69150 119867 116703

53.6 54 53.5

59856 102073 101543

46.4 46 46.5

11 12

Madhepura Saharsa

1456660 1382403

759283 721575

52.1 52.2

697377 660828

47.9 47.8

67936 124015

36989 67010

54.4 54

30947 57005

45.6 46

Downloaded from indiastat.com

Aarohan

37

13

Darbhanga

3018639

1574598

52.2

1444041

47.8

266834

142042

53.2

124792

46.8

14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Muzaffarpur Gopalganj Siwan Saran Vaishali Samastipur Begusarai Khagaria Bhagalpur Banka Munger Lakhisarai Sheikhpura Nalanda Patna Bhojpur Buxar Kaimur

3395565 2018807 2561094 2953345 2525912 3289978 2235786 1200458 1978412 1552432 818913 683588 443837 2014884 2740927 1921121 1274691

1754769 1004505 1254632 1495945 1313552 1705576 1168708 634194 1051749 812894 435774 354279 230375 1050249 1449850 1006468 669446

51.7 49.8 49 50.7 52 51.8 52.3 52.8 53.2 52.4 53.2 51.8 51.9 52.1 52.9 52.4 52.5

1640796 1014302 1306462 1457400 1212360 1584402 1067078 566264 926663 739538 383139 329309 213462 964635 1291077 914653 605245

48.3 50.2 51 49.3 48 48.2 47.7 47.2 46.8 47.6 46.8 48.2 48.1 47.9 47.1 47.6 47.5

348271 130536 147746 298129 186477 123435 107203 76219 451919 56346 316586 117585 81300 353443 1968924 312294 128771

186711 67646 77586 158483 98724 65673 57349 41307 242443 30167 168888 62448 43093 186218 1065099 168865 68793

53.6 51.8 52.5 53.2 52.9 53.2 53.5 54.2 53.6 53.5 53.3 53.1 53 52.7 54.1 54.1 53.4

161560 62890 70160 139646 87753 57762 49854 34912 209476 26179 147698 55137 38207 167225 903825 143429 59978

46.4 48.2 47.5 46.8 47.1 46.8 46.5 45.8 46.4 46.5 46.7 46.9 47 47.3 45.9 45.9 46.6

31 32 33

(Bhabua) Rohtas Jehanabad

1243068 2122175 1399513

650973 1109288 724219

52.4 52.3 51.7

592095 1012887 675294

47.6 47.7 48.3

41507 326587 111893

22583 173367 59741

54.4 53.1 53.4

18924 153220 52152

45.6 46.9 46.6

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38

34 35 36 37

Aurangabad Gaya Nawada Jamui

1836127 2989942 1670759 1294298

946826 1536340 855675 673840

51.6 51.4 51.2 52.1

889301 1453602 815084 620458

48.4 48.6 48.8 47.9

168833 475041 138666 103176

88931 252891 72963 54972

52.7 53.2 52.6 53.3

79902 222150 65703 48204

47.3 46.8 47.4 46.7

* The bold rows are proposed districts for microfinance plan.

ANNEXURE 3: Coverage of Banking Services (Ratio of Demand Deposit Accounts to the adult population)6

Adult Population Region/State/Union Territory Current Accounts Savings Accounts Total Population (Above 19 years) Total No. Of accounts No. of acc. Per 100 of population No. of acc. Per 100 of adult pop.

NORTHERN REGION Haryana Himachal Pradesh Jammu & Kashmir Punjab Rajasthan Chandigarh Delhi

4215701 572660 134285 277529 1156137 689657 80607 1304826

52416125 8031472 2433595 3094790 13742201 12139302 1126696 11848069

132676462 21082989 6077248 10069917 24289296 56473122 900914 13782976

67822312 11308025 3566886 5379594 14185190 28473743 546171 7929589

56631826 8604132 2567880 3372319 14898338 12828959 1207303 13152895

43 41 42 33 61 23 134 95

84 76 72 63 105 45 221 166

Retrieved from www.rbi.org.in

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NORTH-EASTERN REGION Arunachal Pradesh Assam Manipur Meghalaya Mizoram Nagaland Tripura 476603 10538 378729 12514 24305 3441 13819 33257 6891081 209073 5071058 200593 458779 117885 195452 638241 38495089 1091117 26638407 2388634 2306069 891058 1988636 3191168 19708982 544582 14074393 1222107 1088165 476205 995523 1784212 7367684 219611 5449787 213107 483084 121326 209271 671498 19 20 20 9 21 14 11 21 37 40 39 17 44 25 21 38

EASTERN REGION Bihar Jharkhand Orissa Sikkim West Bengal Andaman Islands & Nicobar

1814219 464511 166007 228160 4097 942733

47876140 13225242 5834341 7030004 125365 21544753

227613073 82878796 26909428 36706920 540493 80221171

122136133 40934170 13737485 21065404 288500 45896914

49690359 13689753 6000348 7258164 129462 22487486

22 17 22 20 24 28

41 33 44 34 45 49

8711

116435

356265

213660

125146

35

59

CENTRAL REGION Chhattisgarh Madhya Pradesh Uttar Pradesh Uttaranchal WESTERN REGION

2202217 192067 553381 1324509 132260 3178102

64254189 3346898 11731918 45804350 3371023 49525101

255713495 20795956 60385118 166052859 8479562 149071747

129316677 11209425 31404990 82229748 4472514 86182206

66456406 3538965 12285299 47128859 3503283 52703203

26 17 20 28 41 35

51 32 39 57 78 61

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40

Goa Gujarat Maharashtra Dadra & Nagar Haveli Daman & Diu

81551 955964 2127240 6076 7271

1584177 16220262 31568184 69308 83170

1343998 50596992 96752247 220451 158059

891411 28863095 56207604 122765 97331

1665728 17176226 33695424 75384 90441

124 34 35 34 57

187 60 60 61 93

SOUTHERN REGION Andhra Pradesh Karnataka Kerala Tamil Nadu Lakshadweep Pondicherry ALL-INDIA

4666014 1156405 1086662 600065 1786514 491 35877 16552856

83386898 23974580 19147819 17669723 22052812 22997 518967 304349534

223445381 75727541 52733958 31838619 62110839 60595 973829 1.027E+09

135574225 44231918 30623289 20560323 39511038 33686 613971 541031553

88052912 25130985 20234481 18269788 23839326 23488 554844 320902390

39 33 38 57 38 39 57 31

65 57 66 89 60 70 90 59

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Annexure 4: Comparative Cost Structure of Bank, NBFC and MFO7 Bank Average Interest rate on lending (%) Average Interest rate on 5.3 6.3 6.6 8.3 NBFC 10.6 MFO 19.1

borrowing (%) Net Interest Spread (%) Operation Cost as % of loans 3.0 3.9 4.3 2.5 12.5 9.6

Note: Data used for banks is State Bank of India, 2006-07; for NBFCs, Sundaram Finance Ltd., 2005-06; and for MFOs, Bangladesh Grameen Bank, 2005. Averages calculated by PRS.

India Together Legislative Brief on the Microfinance (Development and Regulation) Bill - 26 June 2007.htm

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Annexure 5: Average Branch Cost

EstimatedcostinvolvedinsettingupaBranch Particulars FixedCost FurnitureandFixtures ComputerandPrinters SafeCashLocker BatteriesandInverter VariableCost FuelandLocalConveyance(Rs2,000perFOandBM) OfficeStationery LoanDocumentationPrinting TelephoneBills(800permonth) Couriercharges(100permonths) Internetcharges(200permonths) OfficeLightining(1,000permonths) OfficeRent(2,000permonths) Traningcost(1,000permonths) StaffsalariesandIncentives BranchManager(7,000PerMonths) FieldOfficer(3,000permonths)/7FOoneBranch MiscalleneousExpenses(1,000permonths) TotalCost

Amount 50,000 50,000 25,000 25,000 192000 12,000 12,000 9,600 1,200 2,400 12,000 24,000 12000 84000 252000 12000 775,200

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Annexure 6: Key Cumulative Numbers For Microfinance Operations

Key Cumulative Numbers For Microfinance Operations Ist Year Total Number of Branches Total number of group Total No of Members Loan Officer Average loan size (Rs) Total Loan Disbursed Total Loan Outstanding Amount Repayment received Interest Income Membership Fee Income Loan Processing Income Loan taken from Bank Repayment to Bank Interest paid to Bank Salary Cost Admin Cost CAPTIAL COST FOR BRANCH OPENING Loan Loss provision Total Loan written off Depreciation @ 20% 2 800 4,000 14 5,000 20,000,000 12,530,000 7,470,000 1,494,000 40,000 400,000 25,000,000 25,000,000 2,187,500 560,000 482,000 Iind Year 7 4,810 24,050 49 6,000 144,300,000 89,820,000 67,010,000 13,402,000 240,500 2,886,000 200,000,000 100,000,000 22,750,000 1,596,000 1,373,700 III rd Year 21 25000 125,000 147 7,000 875,000,000 499,940,000 464,880,000 92,976,000 1,250,000 17,500,000 600,000,000 250,000,000 77,000,000 4,928,000 4,241,600 IV th Year 63 82,600 413,000 441 8,000 3,304,000,000 2,019,600,000 1,784,340,000 356,868,000 4,130,000 66,080,000 2,000,000,000 866,666,667 292,833,333 14,420,000 12,411,500 V th year 100 220100 1,100,500 700 9,000 9,904,500,000 4,938,300,000 6,985,800,000 1,397,160,000 11,005,000 198,090,000 6,000,000,000 2,866,666,667 735,495,833 16,184,000 13,929,800

300,000 250,600 125,300 47,500

750,000 1,796,400 898,200 142,500

2,100,000 9,998,800 4,999,400 440,000

6,300,000 40,392,000 20,196,000 1,287,500

5,550,000 98,766,000 49,383,000 2,045,000

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Annexure 7: Monitoring Indicators

FY2002010 TotalNumberofbranches Totalmembers Averagenumberofclientsperbranch Totalnumberofloanmade Disbursements Equity Portfoliooutstanding(Rs) Portfoliogrowth Averageloansize(Rs) Totalnoofloanofficer NoofactiveborrowersperLO PortfolioperLO Costperunitofmoneylent Costperloanmade AdministrativeEfficiency LoanDisbursementatrisk PAR30 PAR60 PAR90 TotalLoanwrittenoff PAR30 PAR60 PAR90 Loanlosswrittenoff Returnonperformingassets FinancialCostRatio OperatingCostRatio OperatingSelfSufficiency FinancialSelfSufficiency Loanlossprovisionratio Riskweightedcapital CapitalAdequacyRatio 2 4,000 2,000 4,000 20,000,000 40000000 12,530,000 NA 5,000 14 285.7142857 1,428,571 0.054475 272.375 0.17638 250,600 125,300 62,650 62,650 125,300 1.00% 0.50% 0.50% 1.00% 15.43% 17.46% 8.70% 12.47% 12.05% 0.02 12,530,000 319.23%

FY20102011 7 24,050 3,436 24,050 144,300,000 35000000 89,820,000 622% 6,000 49 490.8163265 2,944,898 0.021567568 129.4054054 0.19167429 1,796,400 898,200 449,100 449,100 898,200 1.00% 0.50% 0.50% 1.00% 18.40% 25.33% 3.46% 11.30% 10.95% 0.02 89,820,000 38.97%

FY20112012 21 125,000 5,952 125,000 875,000,000 70,000,000 499,940,000 506% 7,000 147 850.3401361 5,952,381 0.0109824 76.8768 0.1104096 9,998,800 4,999,400 2,499,700 2,499,700 4,999,400 1.00% 0.50% 0.50% 1.00% 22.35% 15.40% 1.92% 19.41% 18.45% 0.02 499,940,000 14.00%

FY20122013 FY20132014 63 100 413,000 1,100,500 6,556 11,005 413,000 1,100,500 3,304,000,000 9,904,500,000 490,000,000 650,000,000 2,019,600,000 4,938,300,000 278% 200% 8,000 9,000 441 700 936.5079365 1572.142857 7,492,063 14,149,286 0.008510593 0.003246888 68.08474576 29.22199 0.109365718 0.087477473 40,392,000 98,766,000 20,196,000 49,383,000 10,098,000 24,691,500 10,098,000 24,691,500 20,196,000 49,383,000 1.00% 1.00% 0.50% 0.50% 0.50% 0.50% 1.00% 1.00% 21.15% 32.53% 14.50% 14.89% 1.39% 0.65% 19.43% 24.13% 18.40% 22.83% 0.02 0.02 2,019,600,000 4,938,300,000 24.26% 13.16%

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Annexure 8: Projected Income Statement

Income Interest Income Membership Fees Loan Processing Fee Total Income

FY 2009-2010 1,494,000 40,000 400,000 1,934,000

FY 2010-2011 13,402,000 240,500 2,886,000 16,528,500

FY 20112012 92,976,000 1,250,000 17,500,000 111,726,000

FY 2012-2013 356,868,000 4,130,000 66,080,000 427,078,000

FY 2013-2014 1,397,160,000 11,005,000 198,090,000 1,606,255,000

Operating Expenses Salaries Other administrative expenses Depreciation Total Operating expenses 560,000 482,000 47,500 1,089,500 1,596,000 1,373,700 142,500 3,112,200 4,928,000 4,241,600 440,000 9,609,600 14,420,000 12,411,500 1,287,500 28,119,000 16,184,000 13,929,800 2,045,000 32,158,800

Financial expenses Interest and fee expenses on funding liabilities Loan loss write off Total financial expenses Total Expenses Net Income Before Tax

2,187,500 125,300 2,312,800 3,402,300 -1,468,300

22,750,000 898,200 23,648,200 26,760,400 -10,231,900

77,000,000 4,999,400 81,999,400 91,609,000 20,117,000

292,833,333 20,196,000 313,029,333 341,148,333 85,929,667

735,495,833 49,383,000 784,878,833 817,037,633 789,217,367

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Annexure 9: Projected Cash Flows

For the year

FY 2009-2010

FY 2010-2011

FY 2011-2012

FY 2012-2013

FY 2013-2014

Inflows Opening cash External borrowings Repayment received Equity Inflow Interest income Membership fees Loan processing fees Total Inflows 0 25,000,000 7,470,000 40,000,000 1,494,000 40,000 400,000 74,404,000 25,874,500 200,000,000 67,010,000 35,000,000 13,402,000 240,500 2,886,000 344,413,000 73,643,300 600,000,000 464,880,000 70,000,000 92,976,000 1,250,000 17,500,000 1,320,249,300 106,979,700 2,000,000,000 1,784,340,000 490,000,000 356,868,000 4,130,000 66,080,000 4,808,397,700 311,766,200 6,000,000,000 6,985,800,000 650,000,000 1,397,160,000 11,005,000 198,090,000 15,553,821,200

Outflows

Disbursement Repayments to lenders Salaries Other adminsitrative expenses Interest paid on borrowings Fixed assets purchased Total Outflows

20,000,000 25,000,000 560,000 482,000 2,187,500 300,000 48,529,500

144,300,000 100,000,000 1,596,000 1,373,700 22,750,000 750,000 270,769,700

875,000,000 250,000,000 4,928,000 4,241,600 77,000,000 2,100,000 1,213,269,600

3,304,000,000 866,666,667 14,420,000 12,411,500 292,833,333 6,300,000 4,496,631,500

9,904,500,000 2,866,666,667 16,184,000 13,929,800 735,495,833 5,550,000 13,542,326,300

Net cash balance

25,874,500

73,643,300

106,979,700

311,766,200

2,011,494,900

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Annexure 10: Projected Balance Sheet

2009-2010 LIABILITIES EQUITY SELF RAISED EQUITY EQUITY FROM SHAREHOLDERS RETAINED EARNINGS SECURED LOAN LOAN LOSS PROVISION

2010-2011

2011-2012

2012-2013

2013-2014

500,000 39,500,000 -1,468,300 0 250,600 0

75,000,000 -11,700,200 100,000,000 2,047,000 0 165,346,800

145,000,000 8,416,800 450,000,000 12,045,800 0 615,462,600

635,000,000 94,346,467 1,583,333,333 52,437,800

1,285,000,000 883,563,833 4,716,666,667 151,203,800 0

TOTAL LIABILITIES

38,782,300

2,365,117,600

7,036,434,300

ASSETS

FIXED ASSETS LESS DEPRECIATION NET ASSETS OUTSTANDING LOAN PORTFOLIO CASH & BANK BALANCES LOAN LOSS WRITTEN OFF TOTAL ASSETS

300,000 47,500 252,500 12,530,000 25,874,500 125,300 38,782,300

1,002,500 142,500 860,000 89,820,000 73,643,300 1,023,500 165,346,800

2,960,000 440,000 2,520,000 499,940,000 106,979,700 6,022,900 615,462,600

8,820,000 1,287,500 7,532,500 2,019,600,000 311,766,200 26,218,900 2,365,117,600

13,082,500 2,045,000 11,037,500 4,938,300,000 2,011,494,900 75,601,900 7,036,434,300

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