Documente Academic
Documente Profesional
Documente Cultură
Shrey Agarwal Saurabh Agrawal Karan Ahuja Abhey Bansal (D002) (D004) (D005) (D010)
SKS Microfinance
Grameen Bank
Grameen Bank (GB) was initiated as a challenge to the conventional banking which had no place for the poor
Began as the Grameen Bank Project in 1976; which was established as a Bank in 1983 Promotes Credit as a Human Right Grameen Bank gives collateral-free loans. Provides loans and financial services without any legally enforceable contact Preference for giving loans to women Provides services at the door-step of the poor Owned by the poor borrowers
SKS Microfinance
Professor Yunus and Ms. Taslima Begum with Nobel Peace Prize, 2006 (efforts in Economic & Social Development)
SKS Microfinance
Case Overview
Microfinance is an effective tool that can help reduce poverty and spread economic opportunity by giving poor people access to financial services, such as credit and insurance. SKS distributes small loans that begin at Rs. 2,000 to Rs. 12,000 (about $44-$260) to poor women so they can start and expand simple businesses and increase their incomes. SKS uses the group lending model Borrowers undergo financial literacy training and must pass a test before they are allowed to take out loans. Weekly meetings with borrowers follow a highly disciplined approach. Re-payment rates on our collateral-free loans are more than 99% because of this systematic process.
SKS Microfinance 5
Organization
Founder and CEO of SKS Microfinance PhD from University of Chicago, BA from Tufts University Management Consultant with Mckinsey prior to SKS Vikram Akula COO of SKS Microfinance Head- Alternate Channel ING Vysya Life Insurance2004 2006 (2 years) AVP 1992 1995 (3 years) Esanda FinANZ, a subsidiary of ANZ Grindlays Bank plc Prior to this he worked with American Express and Standard Chartered Bank M R Rao Jennifer Leonard CFO of SKS Microfinance 1 year with NGO, 4 years in equity research with Merril Lynch
SKS Microfinance
3 Cs Lack of capital Capacity constraints High cost of delivering micrloans Lack of trust in SKS and on Vikram Akula Resulted in volunteer-run foundation the Indian Development Service Managed to raise start-up capital $52000 to found SKS as NGO Need of Highly efficient service delivery model
SHARE Spandana SKS SKDRDP MMFL
SKS grew at an impressive rate Borrower base expanded by 200%-300% By 2007, SKS became 3rd largest MFI 380000 members Portfolio of Rs 175cr Expanded to 11 states
SKS Microfinance
SKS Approach
SKS Microfinance follows the Joint Liability group Model. The methodology involves lending to individual women, utilizing five member groups where groups serve as the ultimate guarantor for each member. SKS follows a clear process in its operations
Village selection Projection meeting Group Formation Compulsory Group Training Centre Meetings
SKS Microfinance
But this customer segment would not get loans from bank and even if they got it the cost of commute to & fro was high
How did SKS reduce cost? Reduced manual processing errors and confusion from variance in process by installing Portfolio Tracker The system captured all the data and tracked delivery of loans
9
Client
Typical customer Rural, poor woman, earning less than $1-$2 a day Potential market size for this profile 150 M households Estimated Credit Demand Rs 30K Occupations they were typically involved in
Production, blanket weaving, candle making, flour grinding etc
Market Sizing
Estimated market size Rs 4.5 Trillion Even if probabilities are taken into account market size is Rs 200 Billion Current penetration is less than 6%
Why loans only to Women? Lesser risk More cooperative Likely to re-invest Positive impact
10
The Structure
Loan Officer Branch Unit
Each unit had 6 or so branches under it Conducted meetings in the day time Recruited new clients in the night Served 330 clients each
Each Branch had a cashier, 5-7 loan officers and a branch manager
Area
5 or so units formed an area At maturity an area was projected to have 30 branches, 135 thousand customers, a portfolio of $20 Million, and an annual revenue of approximately $10 Million
SKS Microfinance 11
Competition
The Competitors
Large Commercial banks ruled out RRBs and Cooperatives Had Government subsidies But Were bureaucratic, high transaction costs, corrupt employees and required cleints to travel SHG model which was adopted but had poor repayment rate Money lenders
Other MFIs were the strongest Competitors There were 10 large MFIs and there were 1000 small MFIs but the small MFIs had only 20% of the market as compared to the large MFIs
SKSs Competitive advantage Customer focus (door step delivery and emergency loans) Rapid expansion
12
SKS Microfinance
Performance of SKS
Operational Information Total no. of Branches Total no. of Districts Total no. of Staff Total No. of Members (in '000)
Amount Disbursed for the period (INR crores) Portfolio outstanding (INR crores)* * includes assigned loan portfolio Financial Information Revenue (INR crores) PAT (INR crores) Assets (INR crores) Networth (INR crores) FY11
7,831 4,111
7,618 4,321
4,485 2,456
1,680 1,051
452 276
FY07 46 2 335 71 13
SKS Microfinance
Malegam Recommendation
Qualifying asset shall mean a loan, which satisfies the following criteria: Loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding Rs. 60,000 or urban and semi-urban household income not exceeding Rs. 1,20,000. Loan amount does not exceed Rs. 35,000 in the first cycle and Rs. 50,000 in subsequent cycles. Total indebtedness of the borrower does not exceed Rs. 50,000. Tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 15,000 with prepayment without penalty. Loan to be extended without collateral. Aggregate amount of loans, given for income generation, is not less than 75 % of the total loans given by the MFIs. Loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower.
SKS Microfinance
15
Capital Requirement
All new NBFC-MFIs shall maintain a capital adequacy ratio of not less than 15% Existing NBFCs to be classified as NBFC-MFIs, those with asset size less than Rs. 100 crore will be required to comply w.e.f April 01, 2012. Those with asset size of Rs. 100 crore and above are already required to maintain minimum CRAR of 15%. The CRAR for NBFC-MFIs, which have more than 25 % loan portfolio in the state of Andhra Pradesh will be at 12% for the year 2011-2012 only. Thereafter, they have to maintain CRAR at 15%.
SKS Microfinance
16
Provisioning norms
With effect from April 01, 2013: The aggregate loan provision to be maintained by NBFC-MFIs shall not be less than the higher of: a) 1% of the outstanding loan portfolio, or b) 50 % of the aggregate loan instalments, which are overdue for more than 90 days and less than 180 days and c) 100 % of the aggregate loan instalments, which are overdue for 180 days or more.
SKS Microfinance
17
WACC WACC
Calculate Cost of equity capital using CAPM method Ke = Risk free rate + Beta (Market premium) For calculating beta for equity: Beta of Asset = Beta of debt (D/E+D) + Beta of Equity (E/E+D) Then calculate after tax cost of debt Cost of debt can be estimated from the firm credit rating and default risk or from yields on publicly traded debt Calculate WACC by the formula: Cost of debt (1-T) (D/E+D) + Cost of Equity (E/E+D) Calculate FCFF= EBIAT + Dep - Capital expenditure - Working capital expenditure Calculate terminal value= (Last year FCFF*Growth rate)/(WACC-Growth rate) Discount FCFF and terminal value to its present value to calculate NPV
SKS Microfinance 20
SKS Microfinance
21
APV Calculation
APV at constant D/V Interest tax shield is as risky as firm Discount Interest tax shield at Ra Results in same answer as WACC APV at constant Debt Interest tax shield is less risky than firm but as risky as debt Discount Interest tax shield at Rd If tax saving till perpetuity then Present value of tax shield = T * D
SKS Microfinance
22
SKS Microfinance
23
SKS Microfinance
24
SKS Microfinance
25
Bombay Brokers
Global Bank Sequoia India Ventures Tri Partners
18.3
15.5 15.3 10 14
3
8 8 3.5 2.25
11.41%
34% 34.78% NA 10.25%
None
IPO in 36 months Preferred Stock None IPO in 60 months
Highest Valuation offered with a minimum stake of 11.41% Desired one ofConditions stake as compared to the bidders No terms and the highest Thementorship and contacts compared to the bidders No funding highest stakerequirement Desired the met the SKS as Desired meet thewith an IPO in 36 months Terms ofthe lowest stake requirement Did not coming the SKS requirements The funding met funding Tri Partners had a condition to come up with an IPO in 60 months Terms of having a preferred stock arrangement Did not meet the funding requirements Funding would increase the leverage of SKSz SKS Microfinance
26
Qualitative Comparison
Criteria SKS scaling Domestic Equity Comfort Low interference Investments in other MFIs Control Commitment to Social Mission Brand Reognition Presence in India Desired Stake Total Bombay Brokers 1 5 1 5 1 1 1 1 4 1 21 Global Bank 4 1 2 2 4 3 3 4 1 4 28 Sequoia 4 4 5 2 1 4 2 5 4 5 36 India Ventures 3 2 5 2 1 2 2 3 3 1 24 Tri Partners 3 2 5 2 1 2 2 3 3 2 25
Rating Scale used 1 to 5 where 1 is the lowest score and 5 being the highest score SKS Microfinance
27
Other Alternatives Portfolio Buyout A portfolio buyout occurs when a bank (or other agent) purchases the rights to the future payment stream from a set of loans granted by the MFI It includes a clause which specifies that the MFI is responsible for making up any loss in repayment up to a certain percentage of the overall portfolio (typically 10%) MFIs can only sell off as much of their portfolio as is financed by accumulated earnings or equity, not term loans from banks, in a portfolio buyout Securitization Securitization of microloans refers to a transaction in which the repayments from a set of microloans from one or more MFIs are packaged into a special purpose vehicle, from which tradable securities are issued Securitisations require a rating and the ability to re-sell securitised microloans may attract more potential buyers
SKS Microfinance 28
Dark Times Andhra Pradesh Microfinance (Regulation of Moneylending) Act 2010 Suresh Gurumani Quit after the IPO Vikram Akula Was shown the exit door
Source: http://www.thehindubusinessline.com/industry-andeconomy/banking/article3700191.ece?homepage=true&ref=wl_home
SKS Microfinance 29
SKS Microfinance soars on hopes RBI will ease bad loan norms
Provisioning Norms for badloans to be relaxed Asset Classification guidelines have been pushed
Source: The Hindu & The Economic Times
In 2011 RBI mandated that MFIs make 100% provisioning for loans overdue for a period of more than 180 days MFI based out of AP are facing tough times
SKS Microfinance
30