NABFINS
Message from the MD’s Desk
The year 2014 – 15 was an
eventful year for Financial Services Sector in general and financial inclusion
in particular. The financial sector landscape
is undergoing drastic changes. The
launch of Prime Minister’s Jan Dhan Yojana with a slogan “sab ka saath sab ka
vikas’’ has reached a significant touchstone with majority of the households in
the Country being covered by at least one savings bank account. Government has
now followed up this with the next step of assigning a variety of financial
services such as accident and life insurance to these accounts and sending direct
benefits such as scholarships, pensions and subsidies to these accounts. Converging
these savings accounts with the unique ID- Aadhaar and the ubiquitous mobiles is
expected to be a game changer ushering in a revolution in the financial
inclusion landscape. The Reserve Bank of
India’s (RBI) initiative to further the inclusion agenda by experimenting with
new institutional forms like Small Finance Banks, Payment Banks is also expected
to take a shape in the near future. Another apex organisation “MUDRA Limited” was
also set up and it is expected to innovate new ways of channelling credit flows
to small producers.
RBI has also attempted to streamline regulations covering NPA norms, capital requirements,
provisioning requirements for all NBFCs which are systemically important and
that which raises public deposits. With all these introductions and policy
support, the focus on diverse financial inclusion is more intense and it is
expected to usher in greater competition for the micro finance sector.
For NBFC-mFIs, the year
2014-15 witnessed a rather robust growth with the Gross Loan Portfolio (GLP) reporting
61% increase to `401 billion[1]
when compared to the previous year. However, the increase in client coverage
was more moderate (23 %) over the previous year. This is suggestive of
increased quantum of loans and higher repeat loans to existing clients rather
than fresh coverage of new clients by the sector. Although, 32 states and 489 districts are stated
to be covered by mFIs, the coverage appears to be asymmetrical with about 60%
of the GLP reported in from 5 states viz; West Bengal, Tamil Nadu, Karnataka,
Maharashtra and Uttar Pradesh.
As compared to the industry, our Company
- NABFINs disbursed `764 crore to 20,010 SHGs touching
about 3 Lakh households during
the year under review which is 24% increase over `631 crore disbursed during
2013-14 to 17,027 groups (2.5 lakh households).
The unique business model of our company which essentially leverages the
institutional outreach and trust capital of our B&DC based on their
pre-existing relationship for financial facilitation limits much accelerated
growth. However, our Company recorded a moderated and consistent credit growth
with matched expansion in client outreach as well. Operations
of the Company are guided by the overarching principle of supporting the National
agenda of financial inclusion across all difficult geographies. Though the GOI
has been pursuing the accounts for all , a true financial inclusion can happen
only with supportive financial literacy. We believe that this can be achieved
using the local resource persons (active members of Women SHGs) to serve as
enablers of true financial inclusion process. The Company has enabled coverage of new
geographies during the year viz; additional districts in the Vidharbha region
of Maharastra as also in Madhya Pradesh. I am happy to report that our Company has
plans to expand to few more States in the ensuing year.
The other key vertical of our
company has been financing Second Level
Institutions in the form of producer collectives, Producer Companies, Societies,
SHG Federations and other legal forms of
collectives which has reported a business growth of 96% with disbursement of `22 crore during
2014-15. With this, our Company has
disbursed `40 crore to 101 institutions. With extension of credit guarantee by RABO
Bank and SFAC, all efforts will be made to hasten the growth momentum under
this vertical.
It is important to bring
to your notice that the rate of interest charged by our Company is by far the
least in the mFI sector. Keeping a wafer
thin interest margin, our Company is able to generate adequate profit to
sustain its operations. This is despite
the fact that the margin is much below the regulatory cap of 10% and provides
ample proof to the fact even at this rates, the microFinance business is viable
and profitable. While there can be
various reasons for higher rates of interest including the model related
differences, the fact remains that it is possible to reach the poor at
affordable rates through appropriate models of credit delivery. This is an
affirmation to our belief system about the business model which we
predominantly employ. However, with repeated cycles of credit to these groups,
the group members aspire for differential treatment and seek more diverse forms
of financial services, which your institution should be able to service. This
would also enable the institution to de-risk, diversify its portfolio, use
differentiated delivery approaches to fulfil the emerging needs of the client
segment that we serve.
The world CFSI 2014[2]
report states that microFinance is close to an inflection point ; what was an
experiment in bottom-up development has become mainstream world over; and with
that transition have come mainstream problems and notably among them the client
over-indebtedness. This is true for mFIs in the Country too; with the
preponderance of group based lending methodology like JLGs and SHGs in the
microFinance space. The concern of multiple membership, multiple borrowings and
consequent over indebtedness of the members which poses a significant risk to
the business model; while to an extent the credit bureaus do track such
over-borrowings; but, the inability to capture informal market borrowings, formal
credit markets dominated by cooperative credit institutions and also group
based lending models like SHGs have accentuated the challenge. However, it is
expected that with pervasive technology, institutional mechanisms like e-KYC, digitisation
of SHG accounts etc., the risks associated with the above factors would be
mitigated to a greater extent.
Our Company
is exposed to various risks that are an inherent part of any microFinance
business. During the year, the Company witnessed a spurt in Non-Performing Assets partly
triggered by aggregation of agency risk, operational risk as well as various client
level issues. The
operational risks faced encompasses Information Technology related (system)
risk. With the growth and expansion of the portfolio, the existing IT system needs
rapid upgradation. Therefore, the Company plans to change to an agile and
robust IT infrastructure to support loan payments and collections, loan monitoring
and also integrated accounting back-end on the lines of a core banking system. The
other risk containment effort includes placing adequate internal &
process changes, enhanced supervisory controls to prevent recurrence in future.
The measures taken inter
alia include prevention of NPAs by timely identification and diagnosis of
problems of irregular and PAR accounts, tracking and reviewing B&DC accounts
etc. Thus, the Company has adopted a twofold strategy for controlling
fresh accretion and resolution of existing NPAs.
The learnings from this are being factored into our present and future
business approaches. The risk management has been
moved into a pro-active mode to transform role of Risk into a Strategic
function aligned with Business Objectives.
A new Audit Policy is being planned to control & manage risk through
internal audit functions which will gradually shift to a Risk focused Internal
Audit (RFIA) mechanism.
Another
aspect which has received utmost attention of the management is development of Human
Resources. Our Company ensures staff satisfaction through continuous
engagements with senior management, improving staff productivity and retention.
Among the mFI sector, our Company faces one of the lowest attrition rates. In
order to further strengthen the human resource pipeline and to meet the skill
gap requirements of the Company in new and specialized areas, it plans to
selectively recruit staff from key Business schools; as also attempt knowledge /
skill mapping exercises for designing training interventions. The Company has
also made an assessment of the staffing requirements, HR Development and
Capacity enhancement requirement and would systematically address these aspects
so as to improve awareness and efficiency at all levels.
With hardly half a decade
of existence, our Company is in the cusp of transformation from a provider of
credit for an array of livelihood activities to a provider of a basket of
financial services to the underserved segment. This institutional
transformational trajectory would entail experimenting with different client
centric delivery approaches, diverse financial products and services. With this goal, our Company plans to increase
its outreach, diversify its risk and put adequate systems in place with
appropriate technology not only to sustain its current business operations but
also to cater to its future needs. With
the able support of the promoters – NABARD and other shareholders like Canara
Bank, Union Bank of India, Dhanalaxmi Bank, Bank of Baroda, our Company would
be able to meet the aspirational challenges to transform itself into a small
finance bank.
As a responsible corporate
citizen, our Company has committed to fulfil its obligations as a part of
Corporate Social Responsibility. Under
the guidance of the CSR Committee, our Company had committed to health and
sanitation facilities at schools in rural areas. I am very happy to share with you that as on
date, the committed task have been completed and all these facilities have been
made available for use. For the year
2015-16, our Company intends to continue its activities for which a budgetary
allocation of `45 lakh has been made.
I would be remiss, if I
fail to thank, Government of India, all the State Governments where NABFINS is
operating, RBI, NABARD and other shareholders, Board of Directors, Statutory
Auditors, Internal Auditors and Secretarial Auditor for their guidance and support. Finally, I would be failing in my duty if I
fail to thank our primary stakeholders, especially the poor households who are
our reason for birth and survival for their continued trust and belief in our approaches
and business model.
I also pledge to them that
we would continue to work keeping their interest as our own interest and work
for their development.
Thank
you.
Dr. B. S.
Suran
Managing
Director
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