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Financial Management Job Observation document sample
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Rapid Institutional Assessment of
Sanchetna Financial Services Pvt. Ltd.
by
Soumya Harsh Pandey
Amit Kumar Garg
December 31, 2008 MicroSave
Market-led solutions for financial services
ACKNOWLEDGEMENT
We thank all the staff members of Samridhi for their co-operation and support provided to the
MicroSave team during the Rapid Institutional Assessment (RIA) exercise.
MicroSave
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RAPID INSTITUTIONAL ASSESSMENT
Rapid Institutional Assessment (RIA) is designed as a “quick and dirty” dip-stick to make a
preliminary assessment of an institution‟s capability and promise, as well as where it needs
additional inputs/assistance.
Rapid Institutional Assessment results in Rapid Institutional Assessment framework
A simple SWOT analysis, Board and Governance
backed with Strategic Plan
A table of basic ratios Management and Systems
A table outlining the areas of Human Resource Management
strengths and weakness of the Financial Resource Management
institution and where it Microfinance programme
requires additional characteristics
training/technical assistance. Microfinance programme
performance
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INTRODUCTION TO THE ORGANISATION
Chief functionary Mr. Lokesh Kumar Singh (Managing Partner)
Mission “We provide client-focused, highly responsive and cost effective financial
services and business development expertise in a time bound and socially
conscious manner to increase the productive capacity of the Indian poor‟
Vision “We will help alleviate poverty in UP and other regions in underserved
north India, by enhancing the productive capacity of both our clients and
employees and being the provider of choice by upholding the highest
standards of service and delivering value at every level”
Values Integrity – in every action
Stewardship – for better accountability
Logical Approach – towards better solutions
Freedom of Expression – the right to disagree, and represent one‟s beliefs
Dignity of Labor – for better work environment and camaraderie
Legal status (Reg. No., NBFC 14.00025, December 1, 1995 (NBFC „Magauri Securities Pvt.
Date of incorporation) Ltd.) was purchased and MF operations started from Oct, 08
FCRA/80 G Reg. NA
Change in legal status NA
Methodology Grameen
Area of operation Barabanki (UP)
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BOARD AND GOVERNANCE
Observation Yes/No Comments
Board composition suits Yes •Board members have experience in
microfinance diversified fields e.g. Microfinance,
Established system of board No Banking, Technology, Academics,
rotation Investment Firms etc.
•Since the organisation is very young it is
Board meets atleast 4 times a Yes
still in the process of establishing system for
year
board regulation.
Board has atleast 2 or 50% Yes •Overall the organisation has enough
independent directors experience in senior management and board
Head of the organisation reports Yes members to properly run the organisation.
and is accountable to the board
Person with appropriate Yes
authority is heading the
microfinance programme
MFI is not violating any laws of No
the land
<Others> NA
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BUSINESS PLAN
Parameters\Years 2008-09 2009-10 2010-11 Analysis of assumptions
Number of States 1 1 1 •The promoters of SFSPLPL have
Number of Districts 1 3 8 financed all disbursements through
Number of Branches 1 9 52 internal resources till date.
Number of Clients 800 6,400 62,000 •Trust Microfin Network (TMN) has
given its approval of loan of Rs. 1,500,000
Portfolio
for portfolio financing.
Outstanding („000) 60,000 529,000 5,564,000
•The portfolio growth is based on the
Disbursement („000) 80,000 828,000 8,843,000
assumption that there is a huge potential
for microfinance in the selected area of
Portfolio Growth operation.
10,000,000
9,000,000
•Portfolio growth between the second and
8,843,000
8,000,000 the third year is very high and is based on
7,000,000
6,000,000
the rapid increase in the number of
5,564,000
5,000,000 branches. However, it would also require
4,000,000
3,000,000
accompanying ability to raise resource to
2,000,000 828,000 fund both expansion of branches and
1,000,000 80,000
529,000 growth in portfolio.
- 60,000
2008-09 2009-10 2010-11
Portfolio Ouststanding ('000) Disbursementn ('000)
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MANAGEMENT AND SYSTEMS
Observation Yes/No Comments
Clear organisational and Yes •SFSPL has prepared a Field Manual for
reporting structure exists Field Associates. However, the MicroSave
team observed some deviations in the field
Roles and responsibilities Yes level processes.
commensurate with authority
•SFSPL has a clear reporting structure
Senior management team in Yes •All the members of senior management
place team of SFSPL have experience of working
SMT is staffed with people Yes in different capacities in different leading
having good understanding of MFI of India. Together they bring
the target market complementary strengths which helps in
CEO/CFO/ FM understand Yes managing different functions of the
financial management organisation.
•Documentation of operational policies is at
Loan documents exists Yes
a very basic level, primarily due to SFSPL
Organisational policies are Yes being a very young organisation. However
documented the management appears to have clear idea
Operations Manual followed Yes on organisational policies and processes.
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MANAGEMENT AND SYSTEMS
Observation Yes/No Comments
Operations Manual is updated Not •SFSPL has field level operations manual
to reflect changes in the policy but it needs to develop for the organisation
complete
as a whole.
Process Maps exist No •MIS cum IT Manager is working on
Internal Control System exists No developing an integrated management and
financial software package.
Internal control followed No •Video recording at GRT, Disbursement at
Branch, Disbursement to Group are some of
MIS has integration with the No the innovations through which SFSPL is
finance trying to build a system of internal controls
MIS generates portfolio report Yes •Field monitoring system for developing
internal control systems is proposed
MIS is used at the branches Yes
SFSPL is working on development of more
MIS with integration of the No sophisticated software which would help in
Branch level data exists automatically updating the branch level data
<Other>
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HUMAN RESOURCE MANAGEMENT
Observation Yes/No Comments
Job responsibilities exits for all Yes •SFSPL has developed a Human Resource
positions Manual
Appropriate staff exist for Yes •Total Staff is classified into four
positions and responsibilities categories; (1) Associates, (2) Executives,
(3) Managers, and (4) Directors.
Service rules exists for staff Yes •Salary (inclusive of incentives) increases in
Recruitment procedure in place Yes the proportion of 2.5 times for every higher
level, with Associate being the lowest level.
Staff rules with regards to service Yes
conditions exist •There is a separate incentive scheme for
field staff and head office staff. Incentive of
Policy for HR development exists Yes field staff is based on (a) number of groups
Clear staff remuneration/incentive Yes formed, (b) number of loan clients managed
schemes exist subject to centre strength. Incentive of head
office staff is based on achievement of self
Remuneration/incentive schemes Yes set goals.
implemented in a fair manner •SFSPL has a system of providing two
Staff appraisal and promotion Yes months of induction training to the new
systems exists staff.
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FINANCIAL MANAGEMENT
Observation Yes/No Comments
Accounting entries have Yes •Since SFSPL started its operations just
supporting documents three months back therefore no external or
Accounting treatment is Yes internal audit has been completed.
properly done
Accounting records are
properly maintained:
–Complete Yes
–Accurate Yes
–Transparent Yes
–Uptodate Yes
Internal audit systems exist NA
Internal audit systems NA
appropriate
Internal Audit is independent NA
Statutory external audits have NA
been done for all the years
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FINANCIAL MANAGEMENT
Observation Yes/No Comments
Organisation has diversified No •SFSPL has not taken any external funds till
source of fund date. All establishment and disbursements
Portfolio report match with the NA have been financed through internal sources
accounting reports raised by the promoters of SFSPL.
Organisation has never missed NA
payment to funders
There is no difference between No
the Head office and the Branch
accounts
Bank reconciliation is regularly Yes
done
Others
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MICROFINANCE CHARACTERISTICS
Product features General Top-up
Loan Size Up-to Rs. 12,000 Rs. 4,000 – Rs. 6,000
Loan Term 50 weeks 50 weeks
Repayment frequency Weekly Weekly
Client Profile 100% women clients in rural areas, who are Top-up loan is provided to existing
engaged in any economic activities i.e. loan is loan clients on top of existing loan
given for only income generation purposes. after 16th weeks.
Pricing
-Interest Rate 29.25% (RBM1) 29.25% (RBM)
-Processing fee 1.5% of the loan amount 1.5% of the loan amount
-Membership fee Rs. 120 (one time fee collected as training fee) NA
Observation Yes/No Comments
Organisation has a defined NA •Since the operations of SFSPL has started in
credit policy October 2008, and do far it has not developed a
credit policy.
PAR is calculated properly NA
•Again SFSPL does not report any PAR, however,
the MIS is capable of generating PAR values.
Ageing Analysis of the NA
portfolio done correctly
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MICROFINANCE CHARACTERISTICS
Observation Yes/No Comments
PAR is reported in organisational NA •There has not been any case of delinquency.
reports •Senior Management team is working on
Does the policy provide guidelines No developing delinquency management strategy
for delinquency management and process thereof.
Does the policy provide for No
provisioning in case of bad debts
Portfolio reports are regularly Yes
generated
Portfolio report match with the NA
audited financial statements
Necessary loan documentation is Yes
done
Staff are aware of credit, NA
delinquency and write-off policies
Others
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MICROFINANCE PROGRAMME PERFORMANCE
Parameters December 31, 2008 Comments
Number of groups 47 •SFSPL uses the typical Grameen model of
Number of members 235 microfinance and has weekly repayments.
Number of loan clients 155
•Eligible persons are first enrolled as
members of SFSPL and then other products
Portfolio outstanding Rs.1, 390,000 & services are offered.
Cumulative disbursement Rs. 1,468,000 •As of date, all disbursements have been
# of days taken from group financed by promoters of SFSPL.
formation to loan disbursement 10-14 days
•Number of days taken from group
formation is ideally 10. However, loan
Client Details as of December 31, 2008 disbursement do vary based on the
250 235 availability of funds.
200
155
150
100
47
50
0
Number of Members Number of loan clients Number of Groups
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MICROFINANCE PROGRAMME PERFORMANCE
Profitability 2008-09 2009-10 2010-11 Comments
OSS 22.8% 88.0% 144.0% •Average assets have been used for
FSS 21.8% 71.4% 127.0% calculating operating cost ratio; whereas
ROA -35.0% -4.0% 7.0% average portfolio has been used for
calculating operating expense ratio.
Efficiency
•Cash was constituting major proportion of
Cost per client 2,728 1,060 431
total assets because idle cash of Rs. 3.1
Clients/Loan Officer 133 160 250 million was available before purchasing
Loan O/S per Loan NBFC. Therefore, OCR is less than OER.
Officer (in Rs. Lakh) 10 13 24 •Portfolio has not been included in Current
Operating Cost Ratio 44% 21% 9% Assets for the purpose of calculating Liquid
Operating Expense Ratio. However, repayment of all the debts
Ratio 80% 27% 10% have been assumed to be within 12 months
Other ratios
from disbursement; hence, have been
included in current liabilities.
PAR > 30 days NA 0.2% 0.2%
•Equity infusion of Rs. 250 million is
Debt /Equity 8% 140% 440% planned for March, 2010.
Fixed Assets/ Total
Assets 7% 10% 7%
O/s Portfolio/Total
Assets 94% 69% 93%
Liquid Ratio 8.33 8.33 0.83(1) MicroSave
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SWOT MATRIX
STRENGTHS WEAKNESSES
1. Experienced senior management Team 1. Limited resources
2. Robust IT system 2. Micro managing
3. Clear and well defined HR policy 3. Start up organisation; therefore, yet to
4. Infusion of own equity - commitment institutionalise the standard processes
from promoters 4. Attracting/Holding on to the staff till the
5. Process innovation time we become established players
6. Clarity and good understanding of vision 5. Refine the processes for growth
7. Transparency at all levels
8. Plans for value added and livelihood
support services (LDS)
9. Shared ownership
OPPORTUNITIES THREATS
1. Huge Potential Market 1. Financial crisis
2. Scope of introducing livelihood related 2. Increasing competition
services 3. Increasing competition
4. Poor banking infrastructure
3. Financial crunch is helping organisation
to be cost conscious and effective 5. Political instability
4. IT systems
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STRENGTH
Experienced senior management Team Description of strengths
•Senior management comprises of people with
Robust IT system in the form of an microfinance
integrated MIS for a start-up MFI •Beyond loan related processes-detailed
Clear and well defined HR policy planning and implementation of performance
appraisal, fund management, effective HRM
Infusion of own equity shows commitment
and in-house developed MIS gives lot of
from promoters (who are also part of core
flexibility and strength.
management team)
•All core team members are well acquainted
Process innovation with basic knowledge of MIS related software
and Branch level MIS can be integrated to HO
Clarity and good understanding of vision MIS and information from all the areas in
among all staff SFSPL can be consolidated at HO level.
Transparency is maintained at all levels •Newly joined staff, after induction is given
two months of on the job training. A
Planning to offer various value added and comprehensive bi-annual performance
livelihood support services (LDS) through appraisal system has been developed.
partnership model with other institutions in •Monthly reports and clients profile and basic
near future information is published on the website
Shared ownership in the form of ESOPs
(Ownership 2.5 times at par)
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WEAKNESSES
Limited resources Description of weaknesses
•SFSPL is a very young organisation
Micro managing therefore the level of trust for external
Start up organisation; therefore, yet to funding is less.
institutionalise the standard processes •Since the operations have just started the
Attracting/Holding on to the staff till the Head office team appears to be top heavy.
time we become established players However, things will balance out with the
expansion of operations.
Refine the processes for growth
•Organisational policies and processes need
to be documented at the organisational level
•Though the organisation is clear on what it
wants to do and where it wants to go yet a
detailed road map for the for future needs to
be mapped.
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OPPORTUNITIES
Huge Potential Market Description of opportunities
•Western Uttar Pradesh (eight selected
Scope of introducing livelihood related districts of UP), where the organisation
services plans to grow, has huge untapped
Financial crunch is helping organisation to microfinance market
be cost conscious and effective •As per the common knowledge of the
senior management of SFSPL the proposed
IT systems
operational area has huge potential for both
microfinance and micro enterprise.
•Since SFSPL is developing its own MIS it
gives it great flexibility and strength.
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THREATS
Financial crisis Description of Threats
•Due to long lasting financial crisis,
Poor law & order situation in UP
arranging funds has become difficult.
Increasing competition •Though SFSPL has not faced any problem
Poor banking infrastructure till date; it is aware of the poor law and
order situation in the state.
Political instability
•SFSPL sees a different threat in terms of
competition. It feels that competition is
good for building the understanding of the
target population yet practices like group
poaching and not following the process to
get more clients would negatively affect the
market.
•Potential political instability in the state is
another threat that SFSPL foresees
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ORGANISATION FITS ADDITONAL CRITERIA TO BE SELECTED AS ‘AAFI’ PARTNER
Parameters Yes/No
Organisation has positive net equity Yes
Does not have access to other ongoing No SFSPL can be taken as AAFI
technical assistance support partner for technical support.
Agree to attend workshops at selected Yes
MFIs from previous rounds
Agree to set up microfinance operations Already
under a more regulated form (section NBFC
25/NBFC)
Agree to return any savings mobilised to NA
the clients of microfinance
Ensure organisations can meet their Yes
funding liabilities through its loan
portfolio
CEO/Head of the organisation is Yes
committed to microfinance and is willing
to commit time
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RECOMMENDATIONS FOR TECHNICAL ASSISTANCE
Governance
Monitoring and Internal Controls
Process Mapping
Finance and Accounts
Managerial Trainings
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