VILLAGE VIDIAL MICRO FINANCE CO LTD

Page 1 of 19

Table of Contents
INTRODUCTION ............................................................................................................................................. 4 Global Context ........................................................................................................................................... 4 Indian Context ........................................................................................................................................... 5 THE OPPORTUBITY......................................................................................................................................... 6 VISION AND MISSION STATEMENT ................................................................................................................ 7 VISION STATEMENT ................................................................................................................................... 7 MISSION STATEMENT ................................................................................................................................ 7 PROMOTERS OF THE COMPANY .................................................................................................................... 8 LEGAL FRAMEWORK ...................................................................................................................................... 8 BOARD OF DIRECTORS ................................................................................................................................... 9 MANAGEMENT TEAM .................................................................................................................................... 9 PRODUCTS & SERVICES ................................................................................................................................ 10 1. 2. 3. Self Help Groups (SHGs) ................................................................................................................... 10 Joint Liability Groups ........................................................................................................................ 10 Individuals........................................................................................................................................ 10

RATE OF INTEREST ....................................................................................................................................... 10 OTHER CHARGES ......................................................................................................................................... 10 AREA OPERATIONS ...................................................................................................................................... 11 Head Office.............................................................................................................................................. 11 Branch offices: ......................................................................................................................................... 11 STAFF REQUIREMENTS ................................................................................................................................ 12 At Head Office ......................................................................................................................................... 12 At Branches ............................................................................................................................................. 12 OTHER SERVICES.......................................................................................................................................... 12 Micro Insurance....................................................................................................................................... 12 BANK CORRESPONDENT MODEL .............................................................................................................. 12 Core Microfinance Delivery Model............................................................................................................... 13 Operational Unit .......................................................................................................................................... 13 Description of Core Microfinance loan products .......................................................................................... 13 Description of Loan Products ................................................................................................................... 13 Seasonal loan/Topup loan/Social Purpose loan ....................................................................................... 14 Page 2 of 19

PrePayment Policy .................................................................................................................................. 15 Microfinance Procedures ............................................................................................................................. 15 Client Identification ................................................................................................................................. 15 Group formation...................................................................................................................................... 15 Loan Application ...................................................................................................................................... 16 Disbursement .......................................................................................................................................... 16 Collection ................................................................................................................................................ 16 Overdues follow up system ...................................................................................................................... 16 Loan Insurance ........................................................................................................................................ 17 Projections .................................................................................................................................................. 18 Annexure Coimbatore Census Data........................................................................................................... 19

Page 3 of 19

INTRODUCTION
Global Context
"Microfinance is the supply of loans, savings, and other basic financial services to the poor." (Consultative Group to Assist the Poor CGAP). It can also be defined as any activity that includes the provision of financial services such as credit, savings, and insurance to lowincome individuals or households, with the goal of creating social value. Professor Mohammad Yunus of Bangladesh, noble price winner in the year 2008, it denotes the relationship between the poverty alleviation and peace. Prof Yunus is widely known as the father of microfinance. 25 years ago he founded the Grameen Bank, which is seen as the beginning of microfinance, though almost at the same time there were several other initiative being taken in microfinance. The domain of microfinance has since spread with the adaptation and evolution of Professor Yunus ideas to various countries and contexts. Several other innovative models in microfinance have developed. Microfinance is now being hailed as one of the most powerful instruments of poverty alleviation, worldwide The World Bank estimates that there are now over 7,000 microfinance institutions, serving some 16 million low income families in developing countries. The total cash turnover of MFIs worldwide is estimated at US$2.5 billion and the potential for new growth is outstanding. (Data Snapshots on Microfinance The Virtual Library on Microcredit) "The great challenge before us is to address the constraints that exclude people from full participation in the financial sector... Together, we can and must build inclusive financial sectors that help people improve their lives." Kofi Annan, UN Secretary General The poor rarely access services through the formal financial sector. They address their need for financial services through a variety of financial relationships, mostly informal (CGAP). Formal financial institutions were not designed to help those who don't already have financial assets they were designed to help those who do. Credit is available from informal commercial and noncommercial moneylenders but usually at a very high cost to borrowers. Experience shows that microfinance can help the poor to increase income, build viable businesses, and reduce their vulnerability to external shocks. It can also be a powerful instrument for selfempowerment by enabling the poor, especially women, to become economic agents of change

Page 4 of 19

Indian Context
In India, people at the bottom of the pyramid are deprived of financial assistance from the organized sector, i.e., banking sector. Financial requirements of the poor are very minimal. Their requirements may be in a few hundreds or thousands. They cannot fit in to the banking system; it is not easily accessible to them. The gap is filled by the unscrupulous and greedy local money lenders. They lend money to the poor people at an exorbitant rate of interest, wherein the borrowers are sometimes unable to repay the debt. The place occupied by the money lenders are of late taken over by the Indian Micro Finance Institutions (MFIs).It is ascertained from the data base of 129 MFIs that in India. MFIs serve 2 out of 3 of the poorest districts. 1 out of 3 clients are from SC/ST segment. It has shown that these institutions cover 209 of the 331 poorest districts in India. The microfinance sector in India has been perceived by policymakers, particularly the Reserve Bank of India (RBI), as a useful channel for expanding access to various financial services for lowincome persons and those in the informal sector. Sadhan study contends that Indias microfinance sector has an outreach potential of 36.8 million borrowers including 3.5 million urban residents, which is less than 50% of the estimated potential. MFIs had close to 10 million customers and a cumulative outstanding portfolio of Rs 3,400 crores (US$769 million) as on 31 March 2007. The efficiency and profitability indicators of Indian MFIs are highly favourable compared to Asian benchmarks. Several leading MFIs have begun to operate on a national scale. Since 2007, there have been at least four PE investments in Indian MFIs totalling $43 million. Such investments are expected to accelerate. There are two main reasons why PE firms are interested in the microfinance sector. First, there is a perception that this sector is capable of providing extraordinary returns. Compartamos, a Mexican bank specialising in microfinance, made a successful IPO of 30% of its shares with a valuation at 12 times its book value. Second, studies indicate that returns from the sector are not sensitive to swings in global economic cycles. This makes such investments desirable for risk diversification. In India, microfinance gained momentum in early and mid 1990s with emergence of Basix, SHARE and SNF as major players in microfinance. Between 2000 and 2003, a number of new players (primarily Spandana and SKS) with innovative business models emerged on the microfinance radar of India. Their spectacular returns and scaleable business model attracted the attention of commercial banks like ICICI Bank, HDFC Bank and ABN AMRO Bank. Most of these banks set up dedicated microfinance lending cells and started looking microfinance as a business opportunity rather than part of their priority sector obligation.

Page 5 of 19

Microfinance gained further momentum after 2003 sector growing for more than 100% on year to year basis. Some of older MFIs, who were conservative in their growth plans earlier altered their plans drastically and started planning aggressive expansion. The growth momentum is expected to continue, given the plans of the commercial banks, equity funds and the MFIs. Apart from the main stream Microfinance Institutions, the traditional finance companies working under NonBanking Finance Company license area also increasingly adopting core microfinance products. The increasing competition in urban sectors and also the realization that low income group people are also bankable, in fact more bankable in many cases, has led to NBFCs adopting microfinance. Also there is ample business opportunity in low income group sector. Total outstanding portfolio of all Indian MFIs taken together along with the expected growth has been presented in Table 1. The total outstanding of the MFIs is expected to be to the tune of Rs10,000 crores by March 2009. Table 1: Growth in Microfinance Outstanding1 Year ending Mar06 Mar07 Outstanding (Rs Crores) 2,300 3,400 Year ending Mar08 Mar09 Outstanding (Rs Crores) 7,000 10,000

Despite this spectacular growth, the supply of microfinance is still miniscule as compared to the demand which is now estimated to be to the tune of over Rs100,000 crores in India.

THE OPPORTUBITY
As at the end of 2013, 155 MFIs are operating in India and serving 27.5 million households and their outstanding is Rs. 22,338 Crores. In Tamil Nadu, there are 34 MFIs are operating with a client base of 12.2 million. As per the Government of India census 2011, population of Tamil Nadu is 7.32 Crores, out of the total population, people live below the poverty line is 11.28 percent of total population of Tamil Nadu i.e., 82.63 Lakhs persons are under poverty line according to the report of Planning Commission of India dated July 2013. There is a huge demand supply gap in micro finance. Hence there is an opportunity for new institutions to enter in to this segment. With this background, it was decided to set up a Micro Finance Institution. Head Quarters of the MFI will be based at Coimbatore. To begin with, Branches will be set up in and around Coimbatore city which will be expanded throughout Tamil Nadu and later on, on All India basis. The MFI has been named as Village Vidial Micro Finance Co Ltd (VVMFCL).

Page 6 of 19

VISION AND MISSION STATEMENT

VISION STATEMENT
To facilitate and strengthen credit flow to the underprivileged section of the society both financial and developmental gaps in the micro finance eco system.

MISSION STATEMENT
To provide quality, efficient and fast service to the poorest of the poor and help them to come out of poverty and to bring out the hidden potential and help them as micro entrepreneurs over a period of time.

Page 7 of 19

PROMOTERS OF THE COMPANY

Looking to the exciting opportunities in the micro finance industry and with a sense of serving the society, group of friends, in their final year EMBA, PSGIM, Coimbatore decided to form a company in the name and style of VILLAGE VIDIAL MICRO FINANCE COMPANY LTD. Mr.A.Karunagaran, 57, an experienced banker having served the banking industry for about three decades will be the Chairman and Managing Director of the company. Mr.P.Rajendran, 32, an Engineer by profession and an entrepreneur doing business in Foundry Chemical Industry for five years will be a Director, Mr. Vijaykumar, 27, an Engineer by profession is working in an Engineering Machineries manufacturing unit at Coimbatore, will a Director, Mr. S C Arun Kumar, 30, a software Engineer works for Robert Bosch, Coimbatore is a Director and Mr.CP Sivashanmugam, 29, is an Engineer by profession works in Engineering Unit will be a Director of the company. The promoters experienced in diverse fields are ambitious about their project and hopeful of achieving the desired objective within the shortest possible time frame.

LEGAL FRAMEWORK
The company has been set up as a NBFCMFI as per Reserve Bank of India (RBI guidelines. The company proposes to commence its operations with effect from May 01, 2014. Initial share capital of the company is Rs.500 lakhs (500,000 shares of Rs. 10/ each) and the same has been contributed by the promoter Directors. Share holding pattern of the company is as follows; S No. 1 2 3 4 5 Name A Karunagaran R Rajendran D Vijaykumar S C Arunkumar C P Sivashanmugam No of Shares 20,00,000 (40%) 7,50,000 (15%) 7,50,000 (15%) 7,50,000 (15%) 7,50,000 (15%) Amount (Rs.) 2,00,00,000 75,00,000 75,00,000 75,00,000 75,00,000

Page 8 of 19

BOARD OF DIRECTORS
The Board consists of all the Promoter Directors and two Independent Directors to advise the Board in legal and other important aspects. The Board consists of S.NO 1. 2. 3. 4. 5. 6. 7. NAME Shri A Karunagaran Mr. R Rajendran Mr. Vijaykumar Mr. S C Arunkumar Mr. Siva Mr. Subramaniam Mr. Anand DESIGNATION Chairman and Managing Director and CEO Director, Operations Director, Business Development Director, Human Resources Development, Training & Development Director, Finance & Resource mobilization Director, Legal Director, Internal Audit

MANAGEMENT TEAM
The day to day affairs of the company is looked after by CEO& CMD of the company. He is assisted by competent senior management personnel from different fields.

CEO

GM(FIN) GM(HR) CO SECRETARY

MGR(Audit) MGR (BD) MGR()ACCTS MGR(T&D,REC.&S ELECTION) e b c d Page 9 of 19

MGR(OPS)MGR a

PRODUCTS & SERVICES

The company proposes to offer tailor made products to suit the requirements of the clients. To begin with, the co proposes to roll out credit to Self Help Group (SHG), Joint Liability Groups (JLGs) and Individuals. 1. Self Help Groups (SHGs) This product best suited for rural areas. Field staff will form groups of 15 20 women in villages. The women will be trained to conduct meetings, collect savings, maintain accounts, etc. After satisfactory completion of training methodologies, group members will be given loans based on group security. Loan amount ranges from Rs.5000/ to Rs. 10,000/ per member. The loan amount shall be used for agricultural activities, dairy, goat rearing, etc. The repayment period will be maximum of six months depending on the capacity of the borrowers .Repayment will be fixed on weekly basis. 2. Joint Liability Groups This product best suited for urban and semi urban clients. A group of 4 5 members will be formed and theywill be trained on various procedure of the organization. After one weeks observation, loan will be issued with a maximum amount of Rs. 15,000/. The loan amount shall be utilized for Income Generating Activities. Clients will be small traders, vegetable vendors, road side restaurant owners, flower merchants, fruit vendors, etc. Repayment will be on daily basis with maximum of 90 days repayment. 3. Individuals Small business men, petty shop owners and others engaged in any IGA will be given loan of maximum of Rs. 25000/ Repayment will be weekly and maximum 52 weeks.

RATE OF INTEREST
24% on reducing balance method. As per RBI guidelines, rate of interest shall not exceed 26% p.a. on reducing balance method. Our rate of interest is well within the ceiling fixed by RBI.

OTHER CHARGES
Processing fee of 1% will be charged upfront.

Page 10 of 19

AREA OPERATIONS
To begin with the co has decided to open four branches apart from Head Office at Coimbatore. The four branches will be at the following places;

Head Office
Door no.11, Ponnurangam Street, R S Puram, Coimbatore 641 002

Branch offices:
1. 2. 3. 4. Coimbatore North Coimbatore South Thondamuthur Sulur

By end of FY 1415, initially the expansion of operation will focus on western Tamil Nadu hence the company will have 25 branches covering the districts of Coimbatore, Tirupur, Erode, The Nilgris, Salem and Namakkal, Dharmapuri. During the year FY 1516, the company proposes to open 100 branches throughout Tamil Nadu. There are 32 districts in the State and on an average three branches will be opened in each district with a maximum of 100 branches.

Page 11 of 19

STAFF REQUIREMENTS
At Head Office (6) General Manager (HR)1
General Manager (Fin)1 Receptionist 1 Personal Secretary to CMD 1 Office Assistants 2

At Branches (5) Each Branch will have

Branch Manager 1 Field Executives 4

OTHER SERVICES
Micro Insurance
The company is in discussion with the following insurance companies for distribution of micro insurance products to the MFI clients. i) LIC of India ii) HDFC SLIC iii) Kotak Mahindra Life Insurance Co Ltd iv) SBI Life Insurance Co Ltd It is expected to materialize during the second quarter of the current financial year, expecting annual revenue of about Rs. 5 lakh during the first year of operations.

BANK CORRESPONDENT MODEL

As per RBI guidelines and the extant guidelines issued by Government of India on Financial inclusion, Banks are increasingly looking for banking correspondents to increase the outreach of their services. The company is in dialogue with some of the major public sector banks to become banking correspondent. State Bank of India and Indian Overseas Bank has already given in principle clearance for our proposal. Banking correspondents service will be launched once the branches are opened.

Page 12 of 19

Core Microfinance Delivery Model

Village Vidial Micro Finance Co Ltd currently planned to follow Individual methodology for its loans. It also plans to follow Group Methodology, for the new core microfinance product. The group size will be between 812 members. The group members will have to share the responsibility of repayment. The organization will put in place a separate trained team for this programme with an experienced team leader.

Operational Unit
Village Vidial MICRO FINANCE CO LTD will set up branches for disbursement, collection and monitoring of microfinance loans. Decision making, accounting and MIS will be decentralized for achieving faster expansion. Branch Manager will be responsible for achieving growth as well as portfolio quality targets.

Description of Core Microfinance loan products

Description of Loan Products
The company will have a single group loan product with following features and policies 1st Cycle loan for income generating activities Loan size Loan duration Loan Purpose Loan Repayment Borrowers profile Guarantee/collateral Rate of interest Documentation Charges Security Deposit Rs5,000 to Rs15,000 12 months Income generating activities like livestock especially for milch animals, petty shop, hawker business etc Installment is paid monthly at the office Lending to be made to group of 8 to 12 members, preferably women No Collateral, Joint liability of group for repayment of each individuals loan 24% per annum, calculated on declining loan balance Rs100 per loan agreement 10% of the loan amount, to be adjusted with the loan outstanding towards the end of the loan
Page 13 of 19

2nd and subsequent loans for income generating activities Rs5,000 to Rs50,000 12 months to 24 months Income generating activities like livestock especially for milch animals, petty shop, hawker business, working capital or Loan Purpose establishment of trading business, purchase of equipments etc Loan Repayment Installment is paid monthly at the office First loan is repaid without any delays. Lending can be made to individuals or to the group of 8 to 12 members, at the option of the Borrowers profile borrower Guarantee/collateral No Collateral, One Guarantor required in case of loan to individual Rate of interest 24% per annum, calculated on declining loan balance Documentation Charges Rs100 per loan agreement 10% of the loan amount, to be adjusted with the loan outstanding Security Deposit towards the end of the loan Loan size Loan duration

Loans of or more than Rs20,000 will be lent to borrowers with existing enterprises/activities. Loan appraisal process based on cash flow analysis of the borrowers will be carried out by trained appraisal staff. Loan will be approved by the credit committee.

Seasonal loan/Topup loan/Social Purpose loan

This loan is for borrowers in second or subsequent cycles The loan can be given as a topup loan also, that is, even when a second or subsequent cycle loan for income generating purpose is outstanding. Purpose of this loan is to meet seasonal business requirements or social requirements such as a marriage or medical emergency.

Page 14 of 19

Rs5,000 to Rs20,000 Upto 12 months Installment is paid monthly at the office First loan is repaid without any delays. Lending can be made to individuals or to the group of 8 to 12 Borrowers profile members, at the option of the borrower Guarantee/collateral No Collateral, One Guarantor required Rate of interest 24% per annum, calculated on declining loan balance Documentation Charges Rs100 per loan agreement Security Deposit 10% of the loan amount, to be adjusted with the loan outstanding towards the end of the loan Loan size Loan duration Loan Repayment Portfolio of seasonal/topup loan product not be more than 20% of total outstanding loan portfolio at any time.

PrePayment Policy
1. No prepayments are allowed except in case the borrower makes full payment to close an existing loan. 2. No prepayments are allowed before half the loan term is completed 3. No prepayment penalty is charged from the clients

Microfinance Procedures
Borrowers will be selected from lower income group (earning less than 150 per day) In the rural and urban slum areas borrowers should be only women. There may be male clients in the urban areas and particularly among target groups with microentrepreneurs and small trading activities. However, male clients would not be more than 5% of total number clients. Detailed procedure as follows:

Client Identification
Field Officers (FO) based in respective branch offices will be responsible for locating potential clients in market areas. The clients should already be involved in an income generating activity.

Group formation
Homogenous clients would be identified in an area with similar loan requirements. FOs would organize them into groups of 812 members and would ask
Page 15 of 19

them to form groups. Each group should have a Group leader elected by the Group members. FOs would inform the group about our company loan policies, processes and groups collective responsibilities.

Loan Application
Once the group has been formed loan application from each client along with address proof would be mobilized. If formation of group is not possible or particular client has higher loan demand then client is considered for Individual loan. The Loan Application in the Village Vidial Micro Finance Co Ltd format has to be submitted by the clients to the Branch manager at the office. After receiving the applications manager would conduct Field Investigation (GRT, as called in the Grameen model).

Disbursement
Disbursements would be made at the Branch Office. Head Office would send the funds as per the disbursement plans of the branches and the Branch Manager would make the disbursements though cheque or cash as is decided for the individual branch. The clients have to bring the processing fee and documentation charges with her. These are not deducted from the loan amount.

Collection
Repayments are weekly and are either made at the office or deposited by the groups in the bank account of the company. While making the collection the client is given the receipt and the collected amount has to be deposited with the Accountant in the branch office.

Overdues follow up system

In case FO encounters an overdue FO has to enquire about reason of overdue from the group and the action/discussion taken place within the group on default. FO enquires as to why other members of Group have not paid on her behalf. If the Group is unable to pay, Branch manager is informed who should visit the clients immediately and take commitment on when the amount would be repaid. The product provides limited flexibility to the client to decide the loan size and loan term. Based on loan term and loan size weekly installment is set, however, repayments have to be made weekly. The loans decisions are taken completely based on appraisal done by the Field Officer and the Branch Manager. Field Investigation of individual borrowers looks into primarily the cash flows and asset base of the borrower.

Page 16 of 19

Loan Insurance
1. Life Insurance with a limit of loan amount is compulsory for each and every borrower as the loan is sanctioned 2. Nominee of insured borrower would be Village Vidial MICRO FINANCE CO LTD 3. In case a borrower dies, amount remaining after recovering the loan outstanding would be delivered to the legal heir of borrower. Loan Writeoff and provisioning policy 1. The right of loan writeoff rests only with the Board. Board after being satisfied that the possibility of recovering the loans is remote or is costly and time consuming visvis its benefits; it may decide to writeoff the loans. 2. Provision for overdue loans on portfolio at risk should be made on the basis of ageing of the overdues Loan classification Provision as a % of Outstanding Portfolio with no overdues 1% Overdues ageing 030 days 20% Overdues ageing 3160 days 40% Overdues ageing 6190 days 60% Overdues ageing 91180 days 80% Overdues ageing >180 days 100%

Loan

Page 17 of 19

Projections
S.N o A Particulars 2014-15 Year 1 400 8,000 0 4,000 4,000 0 4,000 2015-16 Year 2 800 16,000 0 8,000 8,000 0 8,000 2016-17 Year 3 1,600 32,000 0 16,000 16,000 0 16,000 2017-18 Year 4 3,200 64,000 0 32,000 32,000 0 32,000 2018-19 Year 5 6,400 1,28,000 0 64,000 64,000 0 64,000

Client Details 1 No. of active groups 2 No. of active members 3 No. of active borrowers Men Women Rural Borrowers Urban Borrowers Total Borrowers Organisational Details 4 No. of Regional offices 5 No. of Branches 6 Total staff strength Field staff Managerial staff PORTFOLIO DETAILS No. of loans financed during the year Amount disbursed during the year Principal due during the year Principal recoveres during the year Principal overdue during the year Recovery Rate

1 25 131 100 31

2 50 262 200 62

4 100 524 400 124

8 200 1,048 800 248

16 400 2,096 1,600 496

C 7 8 9 10 11 12

3,000

6,000

12,000 18,00,00,000 16,50,00,000 16,38,45,000 11,55,000 99.30%

24,000 36,00,00,000 33,00,00,000 32,73,60,000 26,40,000 99.20%

48,000 72,00,00,000 66,00,00,000 65,40,60,000 59,40,000 99.10%

4,50,00,000 9,00,00,000 4,12,50,000 7,87,50,000 4,10,43,750 7,82,77,500 2,06,250 99.50% 4,72,500 99.40%

All amounts are in Rupees

Page 18 of 19

Annexure Coimbatore Census Data

Page 19 of 19