Rapid Institutional Assessment of
Sanchetna Financial Services Pvt. Ltd.
by
Soumya Harsh Pandey
Amit Kumar Garg
December 31, 2008
MicroSave
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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.
MicroSave
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RAPID INSTITUTIONAL ASSESSMENT
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
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 framework






Board and Governance
Strategic Plan
Management and Systems
Human Resource Management
Financial Resource Management
Microfinance programme
characteristics
 Microfinance programme
performance
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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 action
Stewardship – for better accountability
Logical Approach – towards better solutions
Freedom of Expression – the right to disagree, and represent one’s beliefs
Dignity of Labor – for better work environment and camaraderie
Legal status (Reg. No., NBFC 14.00025, December 1, 1995 (NBFC ‘Magauri Securities Pvt.
Date of incorporation) 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
Comments
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
•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.
Person with appropriate
authority is heading the
microfinance programme
Yes
MFI is not violating any laws of
the land
No
<Others>
NA
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BUSINESS PLAN
Parameters\Years
2008-09
2009-10
2010-11
Analysis of assumptions
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
Portfolio Growth
10,000,000
9,000,000
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
-
8,843,000
5,564,000
828,000
80,000
60,000
2008-09
Portfolio Ouststanding ('000)
529,000
2009-10
•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.
2010-11
Disbursementn ('000)
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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
Operations Manual is updated
to reflect changes in the policy
Yes/No
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
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
<Other>
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HUMAN RESOURCE MANAGEMENT
Yes/No
Comments
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
•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.
Observation
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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
Yes/No
Comments
Organisation has diversified
source of fund
No
Portfolio report match with the
accounting reports
NA
•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.
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
Observation
Others
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MICROFINANCE CHARACTERISTICS
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.
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
Pricing
-Interest Rate
-Processing fee
-Membership fee
Observation
Yes/No
Comments
Organisation has a defined
credit policy
NA
PAR is calculated properly
NA
•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.
Ageing Analysis of the
portfolio done correctly
NA
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MICROFINANCE CHARACTERISTICS
Yes/No
Comments
PAR is reported in organisational
reports
NA
Does the policy provide guidelines
for delinquency management
No
•There has not been any case of delinquency.
•Senior Management team is working on
developing delinquency management strategy
and process thereof.
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
Observation
Others
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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
Client Details as of December 31, 2008
250
235
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.
200
155
150
100
47
50
0
Number of Members
Number of loan clients
Number of Groups
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MICROFINANCE PROGRAMME PERFORMANCE
Profitability
2008-09
2009-10
2010-11
Comments
OSS
22.8%
88.0%
144.0%
FSS
21.8%
71.4%
127.0%
ROA
-35.0%
-4.0%
7.0%
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%
PAR > 30 days
NA
0.2%
0.2%
Debt /Equity
8%
140%
440%
•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.
Fixed Assets/ Total
Assets
7%
10%
7%
O/s Portfolio/Total
Assets
94%
69%
93%
Liquid Ratio
8.33
8.33
0.83(1)
Efficiency
Cost per client
Other ratios
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SWOT MATRIX
STRENGTHS
WEAKNESSES
1.
2.
3.
4.
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
5.
6.
7.
8.
9.
Experienced senior management Team
Robust IT system
Clear and well defined HR policy
Infusion of own equity - commitment
from promoters
Process innovation
Clarity and good understanding of vision
Transparency at all levels
Plans for value added and livelihood
support services (LDS)
Shared ownership
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
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
Shared ownership in the form of ESOPs
(Ownership 2.5 times at par)
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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
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