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MFI Grading

BWR MF 1 MFI Grading Scale at Brickwork Ratings

The MFI Grading Scale at Brickwork Ratings is on an 8

point scale from BWR MF 1 to BWR MF8 with BWR MF

1 corresponding to the highest grade while BWR MF 8

is the lowest grade.

The MFI grades assigned refer to the ability of the MFI

to manage its operations in a sustainable manner; they

do not refer to the credit quality of the MFI and should

not be used as a proxy for the creditworthiness of the

company.

BWR MF 2

BWR MF 3

BWR MF 4

BWR MF 5

BWR MF 6

BWR MF 7

BWR MF 8

Analysts Media

[email protected]

[email protected]

Phone Relationship Contact

Phone: 1-860-425-2742

[email protected]

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Gr

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Margdarshak Financial Services

Ltd. (MFSL)

mailto:[email protected]



Brickwork MFI Grading | Margdarshak Financial Services Limited 2 | P a g e

Table of Contents

Grading Rationale ............................................................................................................................... 3

Profile .................................................................................................................................................. 4

Mission & Vision of the company ....................................................................................................... 5

Management Details ........................................................................................................................... 5

Lending Model & Products Strengths ................................................................................................. 6

Operational Model .............................................................................................................................. 7

Collections Process .............................................................................................................................. 8

MIS & Reporting ................................................................................................................................ 8

Share Holding Pattern ....................................................................................................................... 8

Transparency ...................................................................................................................................... 9

Financial Statements......................................................................................................................... 13

Operational Indicators ...................................................................................................................... 16

Projected Business Growth ………………………………………………………………………………………………..….17

Portfolio Details …………………………………………………………………………………………………………………...17

Conclusion …………………………………………………………………………………………………………………………..19


Grading Rationale

Brickwork Ratings has reaffirmed ‘MF 2’ grading for Margdarshak Financial Services Ltd

(‘MFSL’ or the ‘MFI’).

The grading has factored the long track record of operations, extensive experience of the promoters

and management in the micro finance industry, significant improvement in the operational &

financial performance, adequate capital adequacy, recent capital infusion and healthy asset quality

with 99.33% recovery rate during FY18. The grading also draws strength from the well-defined

operational procedures & policies, adequate internal controls, risk & cash management policies and

robust MIS & IT systems adopted by the MFI. Also the company has adopted cash less collection and

has automated the cash handling process to large extent. The grading is, however, constrained due

to geographical concentration of the portfolio in the Northern states, mainly Uttar Pradesh, and

other inherent risks associated with the micro finance industry in terms of regulatory framework and

other socio-political issues viz. unsecured nature of lending, vulnerable customer profile, exposure

to vagaries of political situation in states, and cash handling associated with the NBFC-MFI sector.

Headquartered in Lucknow, Uttar Pradesh, Margdarshak Financial Services Limited (MFSL) a non-

deposit taking NBFC-MFI is a part of the Margdarshak Group promoted by development

professionals in 2004 to carry out financial inclusion activities in the state of Uttar Pradesh. In 2007

Margdarshak group commenced its microfinance operations under the name of ‘Margdarshak

Development Services’ (a not for profit group company). Later in 2010, the promoters of

Margdarshak group acquired a NBFC to carry out the business of financial services in a sustainable

manner with appropriate legal status. MFSL had received the NBFC-MFI license from Reserve Bank

of India in December 2013. MFSL is engaged in a wide range of community development and

livelihood strengthening initiatives across India and is working towards the objective of economic

empowerment for women and poverty alleviation.

The Company is engaged in providing microfinance loans based on Joint Liability Group (“JLG”)

(comprising of 5-15 members) model to poor women residents of urban (~-20% of total portfolio)

and rural areas (~-80% of total portfolio) to carry out income generation ventures such as trading,

retailing, embroidery shops, eateries, agriculture and allied related activities among others. The

organisation currently operates in 5 states through a network of 139 branches spread across 38

districts of Uttar Pradesh, 11 districts of Bihar, 4 districts of Haryana, 1 district of Uttrakhand and 3

districts of Himachal Pradesh. The operations are well spread across rural, peri-urban and urban

areas of the state, with loan products designed for various segments of the society. The districts have

been chosen taking into consideration the objective of enterprise and livelihood financing in the long

term. All districts have a large number of micro entrepreneurs and workers involved in

internationally acclaimed crafts. The mix of districts allows the company to provide financial services


in both rural and urban areas.

Profile Summary

Margdarshak Financial Services Limited (MFSL) - MFI Grading Report

Year of incorporation Incorporated in 1996

Year of commencement of

microfinance operations

2007

Legal status Non-Deposit taking Non-Banking Finance Company

Microfinance Institution (NBFC-MFI) registered with RBI.

Lending model Joint Liability Group (JLG)

Managing Director Mr. Rahul J Mittra

Geographical areas of

operation

Presence in 57 districts across 5 states of UP, Bihar,

Haryana, Uttarakhand, and Himachal Pradesh.

Branches 139

Business Correspondence

(“BC”) arrangement

IDBI Bank and Reliance Capital

Margdarshak Financial Services Limited (“MFSL”) is a category B, non-deposit taking NBFC-MFI

headquartered in Lucknow, Uttar Pradesh. The Company is engaged in the business of financial

inclusion and microfinance in North India. Its areas of activities include wide range of community

development and livelihood strengthening initiatives across India. The Company is mainly working

towards the objective of economic empowerment for women and poverty alleviation.

As of December 31st, 2018, MFSL had achieved a Gross Loan portfolio (owned + managed) of

Rs 234.39 Crs, out of which Rs 194.12 crore is own books, Rs 40.28 Crs under Business Correspondence

(“BC”) arrangement with IDBI Bank and Reliance Capital.

MFSL has a professional board consisting of promoters, institutional nominees and independent

Directors. Mr Rahul J. Mittra, the founder of MFSL is also the Secretary of Uttar Pradesh Microfinance

Association. The company has raised capital from 2 institutional investors viz. SIDBI & Dia Vikas

Capital Pvt. Ltd apart from the debt support from 11 public sector banks, 2 private sector banks, 18

NBFCs and 2 DFIs.


● Mission & Vision of the Company

The Mission of the MFI is to provide a holistic bouquet of financial products and services to the

economically weaker enterprising sections of the community for enabling mainstreaming and socio-

economic betterment.

The Vision of the MFI is to adapt industry best practices in all aspects of organization for emerging as

financial service provider of choice for 5,00,000 families in Uttar Pradesh, Bihar and Neighboring

States.

Management Details

Name Designation Experience

Mr. D.P.S. Rathore

Non-Executive

Chairman &

Independent

Director

Over 36 years of banking experience with the Reserve Bank

of India, he retired as Regional Director-RBI in 2011. He

heads the Asset Liability Management Committee and HR &

Compensation Management Committee and guides the

management in the areas of Organizational strengthening,

product development and environment management.

Mr. Rahul. J. Mittra

Promoter

Director, MD &

CEO

PG in Psychology, has over 20 years of working experience in

rural development at grass root level in North India.

Specializes in rural finance, organizational development, and

strategy development and operations management. Prior to

establishing MFSL in 2006, he has worked with

Entrepreneurship Development Institute of India and Asian

Centre for Organization Research & Development

(“ACORD”).

Mr. Arupjyoti Rai

Baruah

Whole Time

Director

Alumnus of Institute of Rural Management, Anand (IRMA),

& B. Tech from Assam Engineering College, he possesses over

25 years of experience in development and corporate sector.

He specializes in enterprise development, business

facilitation and loan portfolio audit and contributes to

visioning of the organization and in livelihood interventions.

He was earlier associated with Entrepreneurship

Development Institute of India, Nagarjuna Fertilizers and

SAIL.


Mr. K. Prasad Independent

Director

Mr. Prasad has over 35 years of banking experience with

Reserve Bank of India, from where he retired as Chief General

Manager. He has extensive experience in the areas of

Supervision and Examination of Non- Banking Financial

Institutions & Banks including the Developmental Financial

Institutions. He heads the Audit Committee of the Board and

Risk Management Committee of MFSL and is engaged in

training and guiding the internal audit team of the

organization.

Mr. Saneesh Singh

Institutional

Nominee

He has over 25 years of experience in the field of

development, banking and finance, microfinance, financial

inclusion, MSME lending, capital structuring and social and

impact investments. He is the MD of Dia Vikas Capital Pvt.

Ltd. (a subsidiary of Opportunity International Australia). He

is an associate of the Indian Institute of Bankers and an

alumnus of Indian School of Business.

Ms. Saroj Topno Whole Time

Director

M. Com. from Calcutta University, she has over 20 years of

experience in the field of accounting and finance, direct

finance, refinance, development finance and audit. Prior to

joining MFSL in 2008, she has worked for over 11 years

(1996-2008) in various managerial capacities in different

departments of SIDBI. She is an associate of the Indian

Institute of Bankers.

Mr. Bhanu Prakash

Verma

Nominee Director

He has 23 years of experience in the field of Development

Banking, Promotion & Financing of MSMEs and Micro

finance. Presently, he is posted as Deputy General Manager

in SIDBI Foundation for Micro Credit (SFMC) at SIDBI Head

Quarter, Lucknow.

Ms. Maitrayee

Banerjee

Independent

Director

He has over 30 years of banking experience with public sector

bank in India and abroad where she retired as General

Manager. She has extensive experience in Credit, MSE, Self-

Help Groups, Government Sponsored Schemes, Mid-

Corporate and Corporate Credit - processing, sanction and

monitoring thereof. She also holds experience in Foreign

exchange and Treasury Experience.


Senior Management

Name Qualification Designation Experience

Ms. Saroj Mittra M.Com, C.A.I.I.B ED & CFO

He has 20 years of

experience in the field of

accounting and finance,

direct finance, refinance,

development finance and

audit.

Mr. Gurmeet Singh

Anand

M.Com, MBA-

Finance

AVP-Resource

Generation &

Business Planning

He has over 15 years of

experience in

Development and

Financial sector.

Mr. Gagan Deep Sehgal MBA-Marketing

& Finance

Chief Operating

Officer


handling banking

operations. Worked with

institutions like ICICI

Bank Ltd, Kotak Mahindra

Bank and IndusInd Bank.

Mr. Rohit Sinha MBA- Marketing Dp. V.P- Risk, Audit

and Monitoring


banking and Financial

Inclusion experience with

institutions such as HDFC

Bank etc.

Mr. Yogendra Bharti B.Tech & MBA DVP- Technology


Technology and FI

experience with

institutions such as FINO,

UIDAI etc.

Ms. Anchit Pandey CS Company Secretary

She has over 5 years of

experience in a Secretarial,

Legal and Managerial work

profile, with proficiency in

handling Corporate Law

matters, statutory

compliances, drafting and

documentation.


Lending Model & Products Strength

The key lending model and the products offered by MFSL is described below:

Lends to Joint Liability Groups (JLGs).

Lends only to Women.

Progressive Borrowers include economically active women primarily for income generation

purpose such as service enterprises, retail/trading, production & manufacturing unit, livestock,

agri & allied activities etc.

The first category of loans, which constitutes bulk of the loans, is provided to women who are

involved in a host of agri-allied activities, handicraft, livestock rearing and petty trading related

activities. The loan amount ranges from INR 20000 to INR 35,000. The Company also offers

Home Improvement Loan product to extend loans to the range of INR 50,000 to INR 75,000

for home improvement, extension and addition (except for new house construction) under

funding support from Habitat Microbuild India Housing Finance Co. Pvt. Ltd.

Lending process of the company is segregated into various well–defined sub-steps beginning

with area identification where-in areas for expansion are identified. Both primary and

secondary data of the block/tehsil/district is collected on an Excel calibrated sheet. The sheet

gives score to the area on certain predetermined indicators. Areas achieving a score of 60 and

above are picked up for establishing branches. The company’s branch staff does group formation

by conducting promotional meeting and training of potential borrowers on company policy etc.

The borrowers clearing credit bureau check and satisfying other criteria for borrowing are

provided with loan ranging from 20K to 35K. The borrower details are captured on a web based

software of the company. Repayment from borrowers is collected during group meetings

conducted by company staff on a fixed day and time. The collections are recorded on a mobile

handset which enables the company in monitoring collections against schedule on a real time

basis. Salient details of the loan products provided by MFSL are as given below:

Name of Loan Product

Income Generation Loan Home Improvement Loan

Loan Amount INR -20000-35000 (Multiples of Rs 5000)

INR 50000-75000

Purpose Livestock, vegetable vending, Family enterprises, artisans etc. for

borrowers with monthly Income – Between 7000-10000

Minor Repair and Renovation in the house

ROI Apr-18 to Jun-18- 24.72% Jul-18-Sep-18- 24.53

Oct-18 to Dec-18-24.81% Jan-19 to Mar-19-25.16%

23.00%

Duration 12/18/24 month 36 month (Moratorium period of 1

month) Loan Processing Charges

1% of Loan amount with applicable taxes

2% of Loan amount with applicable taxes

Repayment Frequency

Monthly/Fortnightly as mutually agreed with the

borrower.

Monthly EMI

Other Charges Insurance Premium as per actual Insurance Premium as per actual

Portfolio O/S as of 31-Dec-2018

Rs 185.08 Crs Rs 9.04 Crs

% of Total Portfolio 95.34% 4.66%


Operational Model

Process of loan origination, sanction and disbursement

Area identification and selection: While identifying the areas for expansion, preference is

given to areas having no or negligible microfinance intervention. Area Identification is primarily

done by the senior management. The list of pre-identified areas has been developed as per the

geographical expansion plan of the organization with specific timelines (year-wise.). The

districts / areas, identified have been selected on the basis of having high population, high no.

of household, high population density and high population growth rate. This has been clubbed

with low microfinance activity and low natural, social and political risks.

● Identification of Borrowers: Once an area is approved for intervention, the Field Officer

(FO) along with Branch Head of the organization conducts promotional meetings for

identification of the potential borrowers. The Company runs awareness campaigns about JLG

lending before the launch of its operations in an area. To achieve this, key people in the area are

made aware about the program. In order to educate the people about the concept of micro

finance, meetings are called at a pre-decided venue and time. During the promotional meeting,

field officers are asked to gather potential people who may get converted into member in near

future. The branch team addresses the gathering by giving their introduction & company’s

introduction, and thereafter distributes pamphlets to potential customers. Apart from

promotional meeting, household listing format is also filled by FO for the particular Mohalla /

Village. This information is filled during the door to door visit of FO for the area where the no.

of households is more than 150 or above in the following format.

● Selection of Borrowers: As per company’s policy one family is provided with only one loan

to permanent resident of the locality. The company follows RBI guidelines for borrower

selection and therefore, annual household income should not exceed INR 100,000 for rural

families and INR 1,60,000 for urban families. In addition to the annual household income,

company also ensures that the loan size does not exceed INR 60,000 in 1st cycle and INR

100,000 in subsequent cycles.

● Group Formation and Approval: After the promotional meeting, interested borrowers are

given 3 day orientation on company policies and processes. On the first day, FO forwards the

KYC through mobile application for processing of Credit Bureau (CB) check at data center. The

report received from CB enables the organization to take the decision on lending to the client.

After analyzing the CB overlap report, additional data of client eligible for loan is incorporated

and clients are allocated in a group. Simultaneously, the group is formed and presented before

Branch Manager (BM) on 3rd day for Group Recognition Test (GRT). The role of BM in GRT is

to do residence verification, business verification and also assess the borrowing and repayment

capacities of the borrower.

● Back Office Appraisal & Sanctioning: Before approval, back office team (IVRS) thoroughly

validates the membership form along with the KYC enclosed and cross verifies the client

requirement/verification through tele-audit. The report received from CB enables the


organization to take the decision on lending to the client. After analyzing the CB overlap report,

complete loan application of client eligible for loan is incorporated in the software. Henceforth,

MIS supervisor sanctions the loan and expected disbursement sheet is generated on the

disbursement mobile application module.

● Disbursement: All approved loan applications are disbursed jointly by the BM and the cashier

from a central location which is branch office. There is a gap of two days between the date of

sanction (sanction in software after Credit Bureau clearance) and disbursement to ensure

proper communication to the clients of a group. The responsibility of BM is to ensure that loans

disbursed are utilized for income generation purpose and all other members stand guarantee to

repay the loan in case of delinquency by the client. The disbursement to the groups are done on

the group meeting day, where prior to disbursement joint liability agreement is signed in the

group meeting itself and clients are informed about the disbursement timings.

-The company is gradually moving towards cashless disbursement for all loans. Those

borrowers who do not have active bank accounts their accounts are opened with Airtel Payment

Bank and the borrower can withdraw the money through merchant points of the bank.

Additionally, the organisation has also tied-up with Itzcash Company which provides prepaid

card (which is instantly activated by E-KYC) in collaboration with HDFC Bank. Once the bank

accounts information or the prepaid card information is fed in the software, the validation of

the account or card happens automatically by +/- IMPS transactions

● Group Meeting & Collection: Responsibility for conducting the group meeting is given to

FO on fortnightly/Monthly basis. As per the company’s loan policy, it is mandatory for all the

members of the group to participate in the group meeting for repaying their instalments. The

FO will enter the amount of cash collected from individual members on Collection Demand

Sheet generated through the mobile application, which indicates about the total outstanding

(principal and interest), total due (principal and interest) and total collection to be received

along with the signature of client. The group in return is provided proper numbered receipt

against the payment of the group instalments. Thereafter, the instalment received is also

updated on the Loan card provided to all the borrowers.

To promote cashless collection, mitigate the risk of cash handling and enabling real time

reconciliation, MFSL is using MargPay, an Aadhar based payment collection system which eases

the on field collection as the borrowers can pay bare pocket without a card, cash or mobile from

their Aadhar linked the bank account, just using their finger prints.

Post Disbursement Monitoring viz. end use Verifications: Loans provided by the organization are

only to be utilized for income generation activities. The responsibility of FO is to closely monitor

the utilization of each loan disbursed. Within one month of disbursement, all the loan has been

utilized as per loan purpose mentioned in application form. After one month, the internal audit

team during the field audit also re-verifies 100% of the loan utilization done by FO’s done in the

last month. BMs are required to do Loan Utilization Check (LUC) by visiting the groups to check


whether the loan has been utilized as per loan purpose mentioned in application form. Since the

present Audit 360 tool is integrated with Shakti, respective branch head/cluster head/area

head/regional head is assigned LUC cases automatically within 30 days of disbursement. LUC

results are stored in the system which could be used in credit decisioning of the borrower for

next cycle. After one month, the internal audit team during the field audit also re-verifies 100%

of the loan utilization done by FO’s done in the last month.

Loan Monitoring Mechanism: MFSL checks the progress of borrower’s business and how

much the income level has increased after the loan disbursement. Monitoring the performance

of the borrower is based on the progress reports prepared through visits and supervision.

The lending process of the Company can be summarized into following organogram:

Delinquency Management

The organization has a standardized and well established delinquency management process described

below:

● During the group meeting, if any client of the group is not able to pay the current dues, the field

officer’s responsibility is to cross-verify with the client and discuss within the group meeting the

reason for not repaying the instalment. If the reason is genuine, the group members are asked

to jointly contribute towards the current instalment and thereafter Field Officer (FO) updates

the details in the loan card and CDS and issue a proper numbered receipt towards the group

installment.

● In case of willful default, FO discusses within the group for repaying of default payment for a

particular client and simultaneously informs the branch manager regarding the default. The

Branch Manager (BM) thereafter visits the group and continues with the group meeting where

the BM motivates the defaulting client to repay and asks group to exert peer pressure.

Area Mapping &

Baseline

Area Approval by

Central Committee

Promotional

Meeting

Application

Approval as per DOP

Client Training and Group Formation

Submission of client

data to Credit Bureau

Member data entry and creation in

software – HO / Data Centre

Generation of

disbursement list Disbursement to Group at Branch

Loan Utilisation Check by

CO/BM/AM/ Internal Audit

Group Meeting and

Repayment Collection

Group and Client

Grading Re-loaning


● If joint liability is not exercised, then BM and FO leave the group meeting and return to the same

group after end of all group meeting for the day for concerned FO. The BM/FO tries to motivate

all the clients of the group and inform them there will be no extra interest charged in case of any

delinquent payment but the track record of the group will not be satisfactory.

● If the client/group members are not ready to repay, then BM updates the Area Manager (AM)

on the same day regarding delinquency in the group. During the visit of AM, group meeting is

organized and reason of delinquency is discussed in detail.

● If the group and Client are not ready to pay for delinquent client, then the Field Officer is being

instructed to keeps on following up every week till the recovery of default installment.


Internal Audit & Control System

● MFSL has a strong Internal Audit & Control System to monitor its operations.

● The company has well documented policies related to credit, operations, internal audit, and HR.

Monitoring is carried out regularly by middle and senior management.

● During the year 2016-17, 100% of its branches were issued Bluetooth Printers for shifting to

giving electronic receipts for collection at group meetings.

● Assistant Branch Manager Position was introduced during 2017-18 to strengthen the dual

custody policy in critical cash handling task.

● The Company has a strong Internal Audit department headed by a senior person, who works in

guidance of the Audit Committee of the Board comprising of 2 Independent Directors and 1

Executive Director.

● The Audit Committee of the Board meets minimum 4 times in a year to discuss important

observations on credit risk, operational risk, revenue leakage if any, of the branches and for the

audit plan.

● The annual audit plan is approved by the Audit Committee of the Board in its first Audit

Committee Meeting of the Financial Year.

● The audit procedure covers following broad aspects:

● Field Audit: In field audit, auditors check the adherence of process & policies,

verification of loan utilization, group meetings, CGT & GRT and overall group discipline.

The audit team also verifies and checks the client attendance, agent involvement if any

and overall group discipline & whether the field staff is following the code of conduct as

per the Company’s norms or not.

● Branch Audit: In branch audit, the auditor verifies the various aspects including the

branch opening time, cash handling, attendance register and leave register, cash book,

key register, movement register, stock register, stationary register, stationary storage,

physical cash verification, denomination matching, petty cash book maintenance,

voucher verification and cheque register. The audit team also checks the disbursement

process.

● Document Audit: In this, the auditor checks the group files which include loan

document, joint liability agreement, CGT form, membership details data, loan

application, GRT, KYC document, demand promissory note and joint liability form.

● Tele Audit: Tele audit consists of 2 parts viz., disbursement check by calling the client

and to verify whether the clients has prepaid the loan or wants normal closure of loan.

● Surprise Audit: Surprise audit include verification of physical cash with cash book

and cash balance book, attendance of field staff, conduct of group meeting and collection

process.

The auditor discusses with the BM/AM and staff regarding the observations. The auditor also discusses


the minor observation with the branch staff during the course of audit and helps in rectifying the

observations. The auditor also checks whether the observation of last audit has been complied with.

MIS & Reporting

● MFSL uses web-based integrated software for information management developed by Force Ten

Technologies, a Kolkata based Software Company. The web based software is an advanced

version of the LAN based software used earlier. As per the growth plan, MFSL has planned to

shift from the existing web based software to core banking solution. The board has therefore

approved Shakti, developed by Qbrik Information Technologies for core banking solution along

with its mobility solution. Shakti is deployed in a Service-as-a-Software (SaaS) delivery cloud-

based model and integrates portfolio management, financial accounting, data analytic and

reporting. The software integrates operations management, accounting, HR management and

financial management. The migration to web-based software has enabled the organization in

de-centralizing its operations management & monitoring thus reducing load at HO level &

enabling localization of operations management.

● The de-centralization has further reduced the TAT in following up on discrepancies at the field

level and addressing the same in a reasonable time.

● MFSL has introduced mobiles for managing front end operations.

● As initial steps, the most time consuming aspects of recording client repayments &

disbursements have been migrated to mobile modules – wherein the facilities have been

provided to client interface management team (operations) to upload & download client data

for operations management.

● The successful integration of mobile modules in the software, have enabled availability of real-

time information related to collections, disbursements and outstanding / overdue with the

central monitoring office.

● This has also reduced the HR requirements and increased information management efficiencies

in the organization.

● The software produces summaries for all available accounts for any given period (by choosing a

beginning and end date for the account summary).

● Integrated reports show information sorted by independent variable (Field Officer, District,

Area etc.) related to groups and members.

● MIS reports regarding loans, security, portfolio, financial ratios and repayment schedules are

also available.

Membership with Credit Bureaus

MFSL is member of 4 RBI accredited credit bureaus- Highmark Credit Information Services, Equifax


Credit Information Services Pvt. Ltd., and Experian along with CIBIL. While client data is submitted to

each credit bureau, credit history checks are made for low end clients (JLG loans) with Highmark and

for individual loans credit history is checked with CIBIL. Currently 100% of client data is shared and

submitted to the CB’s on a weekly basis. The organization is also an active member of Sa-dhan –

Association of Microfinance Institutions, and is one of the founder members of the state chapter of

Sa-dhan. Mr. Rahul Mittra, Managing Director of the company, is Vice President of the state chapter of

Sa-dhan.


Share Holding Pattern

Shareholding Pattern as on 31st Dec 2018 is as given below:

Sr. No.

Name of Share holder No. of Shares % of Shareholding

as on Dec 2018

Equity Share Capital (A)

1 Rahul J. Mittra 1040093 6.62%

2 Arup J Baruah 595126 3.79%

3 Saroj Topno 251048 1.60%

4 Margdarshak Development Projects and Consulting Pvt. Ltd. (MDPC)

2502811 15.93%

5 Margdarshak Employee Welfare Trust 1000000 6.36%

6 Dia Vikas Capital Pvt. Ltd. 6269176 39.89%

7 SIDBI 3100000 19.73%

8 Other Individual Shareholders 956704 6.09%

Total (A) 15714958 100.00%

Pref. Shares (B)

1 CCPS

a) Rahul J. Mittra 130000

b) Arup J Baruah 50000

c) Saroj Topno 50000

d) Margdarshak Development Projects and Consulting Pvt. Ltd. (MDPC)

325000

e) Other Individual Shareholders 25000

580000 100.00%

2 OCPS

SIDBI 1750000 100.00%

Total (B) 2330000 100.00%

Total (A+B) 18044958


Transparency

1- Management Quality

Extensive microfinance

experience in area of

operations

The promoters of the company are well experienced in the

microfinance and asset finance sector. The management team

comprises of professionals from varied fields such as Banking, Law,

Finance and Accounting etc. The Chairman of the Board was the former

Former Regional director of Reserve Bank of India (RBI). He has

almost four decades of experience in Banking, finance, currency, public

debt, administration, personnel, human resources (specially training

field), foreign exchange (including control as well as management),

rural credit, training, legal work and education, financial literacy etc.

. Also the promoters have hired qualified and experienced

professionals to manage different departments of the company Business Strategies

The company has well defined operational procedures & policies. There

are adequate policies in place to manage various types of risks as well

as to efficiently manage cash.

Financial and accounting

& Corporate Governance

policies and processes

MFSL has a separate Internal Audit team which verifies the

transactions, financial statements, compliance & operational aspects

periodically. Also, the board includes independent directors to ensure

quality of reporting and corporate governance.

The management’s

stability and

inclusion/exit of key

management personnel

Management team and senior personnel are qualified and experienced

in the microfinance sector. The management keeps on strengthening

its staff in order to accommodate the business growth and manage its

operations efficiently.

Vision and Social Impact

expected to be achieved

through operations.

MFSL, apart from the regular microfinance loans, provides credit for

Home Improvement. It has also tied up with two insurance Companies

viz. Kotak Mahindra Life &DLF Pramerica to provide insurance

services to its customers. Further, the company also regularly organizes

activities such as medical check-ups, eye check-up, drug de-addiction

awareness, etc. and arranging presentations on money management,

financial literacy and credit discipline.


2- Social Impact

The segments of

borrowers financed

and the reason for

financing

MFSL primarily finances women borrowers from low/mid income

households, who do not have access to banking services. The loans given are

mainly towards income generating activities.

The presence of other

financial service

companies in the region

MFSL is currently operating in 5 states through a network of 139 branches

spread across 38 districts of Uttar Pradesh, 11 districts of Bihar, 4 districts

of Haryana, 1 district of Uttarakhand and 3 districts of Himachal Pradesh.

Tie ups with corporate

houses for Corporate

Social Responsibility

Programs etc.

MFSL is constantly working towards economic strengthening of the clients

by understanding their need for financial services, vocational trainings and

business development support. During the last few years, MFSL had

conducted around 285 financial literacy training programs covering around

10000 participants with the support of SIDBI. During FY17, Digital Literacy

Program for micro business clusters of Uttar Pradesh, was conducted

during the month of April 2017 in 14 districts of UP covering around 1600

clients which, among other things, introduced digital platforms of different

version such as Paytm, Oxigen and BHIM to clients and their family

members for transaction.

3- Business Model

Good loan tracking

system and process-

control mechanism for

present scale of

operations

The entire process is tracked and monitored through the centralized

system. The responsibility of FO is to closely monitor the utilization of

each loan disbursed. Within one month of disbursement, all BMs are

required to do loan utilization check by visiting the groups to check

whether the loan has been utilized as per loan purpose mentioned in

application form. After one month, the internal audit team during the

field audit also re-verifies 100% of the loan utilization done by FO’s done

in the last month.


Adequate HR practices

Brickwork Ratings opines that MFSL has satisfactory HR polices in place

for its present scale of operations. For HR management, the company has

Sensys EasyPAY web enterprise software that takes care of employee &

pay roll management, The company has a HR manager who oversees

staff recruitment, incentive planning and annual performance appraisal.

Also, MFSL has a systematic approach to building the pipeline, and it

now uses these trained pool of senior and middle managers to groom the

next level managers for more senior roles. During the year, MFSL has

created a separate department for training and capacity building of its

employees.

Adequate Recovery and

collections process

MFSL has well defined and stringent recovery and collection process. As

per the company’s loan policy, it is mandatory for all the members of the

group to participate in the group meeting for repaying their instalments.

The organization has a standardized and well established delinquency

management process. The recovery is done in the Group meeting and in

case any borrower fails to repay her liability, other members contribute

and make the payment to FO (Field Officer).

Good management

information system

(MIS) and process

control mechanism

MFSL uses web-based integrated software for information management

developed by Force Ten Technologies, a Kolkata based Software Company.

The software integrates operations management, accounting, HR

management and financial management. It produces summaries for all

available accounts for any given period. Integrated reports show

information sorted by independent variables (Field Officer, District, Area

etc.) related to groups and members. MIS reports regarding loans,

security, portfolio, financial ratios and repayment schedules are also

available. MFSL has also introduced mobiles for managing front end

operations.

Cash management

system

MFSL has developed Board approved Liquidity and Funding Risk policy

which, among other things, covers cash management system. So, the

Company has a formal cash management policy. Book keeping and cash

management is handled by the Branch Manager along with the Assistant

Branch Manager. The Cash Management System follows a dual reporting

structure, with operational reporting to the Branch manager and

functional reporting to the data centers. The Company also avails Cash-

in-Transit insurance from. Future Generali India Insurance Company

Limited.

4- Operational Efficiency


Policy and operational

manual in place

All the operational procedures and policies ranging from client

identification, sanction, disbursement and collection are well defined.

Management has

adequate experience to

upscale and sustain

operations

The management team comprises of professionals from varied fields such

as Banking, Law, Finance and Accounting etc. The Chairman of the Board

was the former Regional director of Reserve Bank of India (RBI). Also the

promoters have hired qualified and experienced professionals to manage

different departments of the company.

Growth in microfinance

operations and earning

profile

MFSL has reported significant growth in its portfolio. The Loan portfolio

(Owned) stood at Rs 234.33 Crs as on March 31, 2018 as against Rs 197.08

Crs as on March 31, 2017.

5- Enterprise Risk Management

Independent risk

management division

and independent

internal audit with

Monitoring and

supervision

MFSL has a large team of Internal Auditors based out of regional offices of

the company, responsible for conducting the audit of all the branches of

the Company on a regular basis covering all the aspects in detail. Internal

audit is performed on a quarterly basis. The audit report is presented to

the Head of Operations. The report and its findings are discussed in the

Operations Meetings as well as in the Audit Meetings. Audit reports are

also shared with the respective Branches, so that they are aware of their

shortcomings and improve them accordingly. The RM (Regional Manager)

with the team takes responsibility to ensure that relevant actions are taken

on the Audit findings. The auditors in their subsequent visits to the Branch

ensure that the findings are addressed. MFSL has implemented Audit 360,

India’s first mobility based audit digitization solution developed by

Sumeru Software Solutions Private Limited, a global software

development consultancy for improving the efficiency and effectiveness of

the audit team.

Loan sanction and

disbursal policies

MFSL has defined detailed loan sanction and disbursement procedure

that involves various checks at different stages of the process. End use

verification & loan monitoring mechanisms are also in place to ensure

right utilization of the proceeds. Lot of automation and cash less collection

of EMIs introduced during the current year using various app based

platforms.


Management of

credit, market and

operational risks

MFSL follows a centralized loan sanctioning process. The company

maintains a stringent KYC policy and is registered with four credit bureaus

to mitigate the credit risk. MFSL has invested in technology and the

company shifted to a cashless disbursement (for loan amount greater than

Rs 20,000) & repayment platform in order to increase efficiency at

operational level and induce greater transparency. Adequate policies for

management of credit and operational risks are in place.

Fraud detection and

management

The MFI makes efforts to detect fake disbursements & curtail frauds by

creating multiple client verification checkpoints, triangulation of the data,

staff Training, staff awareness on Whistle Blower Policy, client education

& empowerment and cashless disbursements. Any misappropriation of

collection amount or advances/ commission taken from clients is also

monitored closely. The MFI observes spending patterns of the staff and

looks for instances where lifestyle appears to be beyond his affordability.

Client education, staff training and awareness, staff verification and

guarantee mechanism, proper placement of staff to ensure he does not

work in his own village and rotation and transfer of field staff after every

year are some of the key initiatives of MFSL to monitor the fraudulent

practices.

Management of legal

and compliance risk

MFSL has a Legal department to oversee all the legal affairs of the

company and to ensure provision of appropriate legal advice &

supervision. Further, Vigilance officer ensures ethical conduct and

compliance with rules, regulations and standard processes of the

company.

Reputation and

strategic risks

The promoters are reputed and experienced in the Banking,

Microfinance and Financial Services segment.

6 - Financial Performance

Adequate Capitalization

As on 31st December 2018, MFSL reported a CRAR of 23.68%.

As per RBI guidelines for NBFCs, they have to maintain a

minimum CRAR of 15%.

Asset Quality

MFSL has always maintained its asset quality and has report

very low level of NPAs during the current and previous year

only. MFSL writes off loans where they are overdue for more

than 180 days or where the asset has been declared as loss or

non-recoverable, on receiving the Board approval. MFSL

follows the RBI loan provisioning policies for addressing the

risk of delinquency and default done by borrower.


Funding Profile

MFSL has availed funding from 33 lenders (including 11 PSU

Banks), however their resources profile continues to remain

concentrated towards borrowings from NBFCs which stood at

58% of total borrowings. The borrowings from Reliance Capital

Limited and MAS Financial Services Limited accounts for

considerable portion of the total borrowings (outstanding debt)

as on December 31, 2018. MFSL has also issued NCDs raising

Rs. 20.00 Crs in Aug 2017 from Japan ASEAN Women

Empowerment Fund @ 13.25%.

Cost of funds

The cost of funds (COF) for MFSL stood relatively lower at

14.09% in December 2018 against 15.43% in FY18

, despite an increase in borrowings from NBFCs. While these

relationships with NBFCs have helped MFSL in meeting its

funding requirements to meet the projected growth, however

the company would have to increase its funding mix from banks

to bring down the cost of borrowing.

Earning Profile

The earnings capability of the company increased considerably

during FY18. The Interest Income, Net Interest Income and

PAT increased by 22.72%, 31.23% and 12.79% respectively in

FY18 over FY17


Financial Statements

Profit & Loss Summary (Rs. Crores)

Line Item FY16 FY17 FY18

P & L Summary (Rs. in Crores) A A A

Interest Income 23.92 45.78 56.18

Interest Expense 13.91 27.91 32.73

Net Interest Income 10.00 17.87 23.45

Income from Other Financial Services 6.38 4.72 4.61

Other Financial Charges 1.37 0.27 0.57

Other Income 0.15 0.33 3.82

Total Income 15.17 22.65 31.31

Employee Benefit Expenses 6.05 9.51 11.84

Provision for contingencies

Other Expenses 4.49 6.25 10.90

Total Expenses 10.54 15.76 22.74

PBDTA 4.62 6.89 8.57

Depreciation 0.98 1.92 2.77

PBT 3.64 4.98 5.79

Taxes 1.21 1.53 1.92

PAT 2.43 3.44 3.88


Balance Sheet Details (Rs. Crores)

Line Item FY16 FY17 FY18

Liabilities (Rs. in Crores) A A A

Equity And Reserves 24.44 28.65 33.15

Share capital 17.61 17.54 17.46

Reserves and Surplus 6.83 11.11 15.69

Money Received Against Share Warrants

Non-current liabilities 62.24 109.72 144.30

Long-Term Borrowings 62.08 109.15 143.10

Deferred Tax Liabilities (Net)

Long-Term Provisions 0.16 0.57 1.20

Current liabilities 79.75 131.49 122.02

Short-Term Borrowings

CPLTD 75.84 125.83 110.68

Other Current Liabilities 2.15 3.72 8.95

Short-Term Provisions 1.75 1.93 2.39

Total 166.43 269.87 299.47

Assets (Rs Cr)

Non-current assets 55.25 100.10 130.66

Tangible Assets 1.86 3.23 3.40

Intangible Assets

Non-Current Investments 12.00 15.93 16.16

Deferred Tax Assets (Net) 0.06 0.14 0.42

Long Term Loans and Advances 37.94 71.60 102.54

Other Non Current Assets 3.41 9.20 8.13

Current assets 111.18 169.76 168.81

Current Investments 5.85 10.55 10.29

Cash and Cash Equivalents 17.70 23.60 13.06

Short-Term Loans and Advances 81.99 125.49 131.79

Other Current Assets 5.64 10.12 13.66

Total 166.43 269.87 299.47


Key Financial Ratios

Financial Ratios FY16 (A) FY17 (A) FY18 (A)

Cost Management Ratio

Interest Income/ Interest Expense 62.82% 67.53% 67.53%

Operating Expense ratio as a % of gross loan portfolio (Excluding Provision on Std. Assets) (in %)

7.95% 7.30% 7.39%

Capital Adequacy

CRAR (in %) 15.55% 17.21 18.00%

Asset Quality

Gross NPA (%) Nil Nil 0.25%

Net NPA (%) Nil Nil 0.25%

Viability Indicators

Average cost of borrowings (in %) 16.58% 16.28% 15.43%

Net Interest margin (in %) 1.78% 1.92% 1.55%

Operational Self Sufficiency (OSS) (in %) 113% 111% 110%

Profitability Indicators

Yield on average portfolio (in %) 25.96% 25.67% 24.92%

ROAA (%) 1.76% 1.57% 1.35%

ROE (%) 14.60% 19.45% 22.02%

Portfolio Quality Indicators

Write-Off Ratio 0.04% 0.02% 0.17%

Note: The ratios are as per BWR’s calculation.

NPA for an NBFC-MFI is recognized for Portfolio at Risk (PAR) greater than 180 days. MFSL

has reported nominal NPAs during FY19 and FY18.

CRAR of 23.68% as on 31st Dec 2018 is well above the RBI requirement of 15% and hence,

the Company can leverage its balance sheet to meet its future loan portfolio growth


Operational Indicators

Particulars

Performance for last three years 2018-19

FY 2016 FY 2017 FY 2018 As of Dec -

18

Client details

No. of active members at the

start of year 84011 134566 212805 224133

No. of active borrowers at the

start of year 82670 133847 201185 219246

No. of active members at the

end of year 134566 212805 224133 190845

Own 83340 140524 160477 152264

Managed 50865 72281 63656 38581

No. of active borrowers at the

end of year of which, 133847

201185

219246

176985

Own 82982 128904 155590 138404

Managed 50865 72281 63656 38581

No. of savers at the end of

year, if any Nil Nil Nil Nil

Organizational details FY 2016 FY 2017 FY 2018 As of Dec-18

No. of field offices / branches 89 120 115 139

Total staff strength 487 799 708 707

field staff 288 449 359 386

managerial staff 199 350 349 321


Portfolio Details

Portfolio details FY

2016 FY

2017 FY

2018 9MFY18

No. of loans disbursed during the year 70790 101155 88628 32855

Amount of loans disbursed during the year (Rs Crs)

124.09 198.36 196.85 73.19

Principal due during the year (Rs Crs) 64.14 122.99 160.68 113.74

Principal recovered during the year 64.01 121.20 159.60 113.41

Recovery rate (%) (11/10) 99.65% 96.20% 99.33% 99.71%

Principal overdue (i.e. due but not received) (Rs Crs)

0.13 1.78 1.08 0.33

Portfolio in arrears (total outstanding of loans that have one or more payments in arrears)

0.41 7.48 3.55 0.92

No. of loans outstanding at the end of year 92982 129290 1157052 140344

Gross loan outstanding at the end of year (Rs Crs) 119.92 197.08 234.33 194.11

Out of the above, loan for Income generating activities (Rs Crs)

119.92 197.08 226.03 184.84

Break-up of Income generating loan

For Farm sector - - - -

For non-farm sector (Rs Crs) 119.92 197.08 226.03 184.84

For others - - 8.30 9.27

Amount of loans written off during the year, if any (Rs Crs)

0.03 0.04 0.041 0.05

PAR >30 days 0.15% 1.30% 0.88% 0.23%

Portfolio details (off-balance sheet)

No. of loans disbursed during the year 17889 43383 30052 5672

Amount of loans disbursed during the year (Rs Crs)

38.69 95.51 64.75 12.33

Portfolio (off balance sheet) (Rs Crs) 50.94 95.09 73.28 40.28


State wise data

State No. of Districts No. of Branches Loan O/S (Rs

Crs)

UP 38 93 135.82

Bihar 11 31 75.86

Haryana 4 10 18.25

Uttarakhand 1 2 3.33

Himachal Pradesh 3 3 1.13

Total 57 139 234.39

Charts and Graphs

Portfolio Details

The portfolio is majorly concentrated in the state of Uttar Pradesh. Uttarakhand and Himachal

Pradesh have a relatively lower share in the overall portfolio. MFSL needs to increase its presence in

these states as well as add new geographies to reduce the geographical concentration risk and

achieve growth.

UP Bihar Haryana UttarakhandHimachalPradesh

Loan O/S (Rs Crs) 135.82 75.86 18.25 3.33 1.13

135.82

75.86

18.253.33 1.13

0

20

40

60

80

100

120

140

160

AX

IS T

ITLE

STATES

Loan O/S (Rs Crs)


There has been decline in both loan disbursed and loan recovered as the company is was not able to

infuse fresh capital till first half of FY19. The company has recently infused Rs. 5.80 Crs against the

already planned infusion of Rs. 15.50 Crs. Rest of the amount will be infused during the year as well.

Also during the last three quarters the company has recovered more loan than the fresh loan disbursed

and hence outstanding portfolio has fallen over the period of last three quarters.

130.15

173.05

167.83

197.08

193.93

190.46

209.72

234.33221.88

202.14194.12

0

50

100

150

200

250

0

10

20

30

40

50

60

70

80

Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Q3FY19

Disbursement Loan Recovered Portfolio O/S

Conclusion:

MFSL received the NBFC-MFI license in December 2013 and since then has shown significant growth

in its portfolio and borrower’s base. The promoters are well qualified and experienced in the sector

which has helped in achieving the present level of performance. The operational and technical

capabilities are in place to facilitate growth in the future. Further, the company has moved to a

cashless system (for loan amount greater than Rs 20,000) in order to ensure greater efficiency and

transparency. MFSL also has policies and systems in place to manage various risks such as credit,

operational, regulatory & compliance. The improved operational efficiency is also reflecting in

better financial performance of the company in terms of capital adequacy, asset quality, earnings

capability and profitability.

BWR believes that MFSL has the potential and required systems in place to achieve the projected

growth in its operational as well as financial performance.

tuti - margdarshak.org.in · departments of sidbi. she is an associate of the indian institute of...

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