2014-2015 71 2014-2015 73 Board of Directors Padmashree. Aloysius P. Fernandez, Founder Chairperson is M. A., L.Ph. and B.Ph (University of Louvain, Belgium) He has also done a special Diploma in Development studies from University of Oxford, U.K., and another Diploma in Sociology and Research Methodology, from University of Louvain, Belgium. He is, formerly the Executive Director and now, is a member secretary of MYRADA, a premier NGO of India. He was conferred ‘Padmashree’ - one of the prestigious civilian Awards - by the President of India. He is also Chairperson of NABARD Financial Services, a subsidiary of NABARD. He has been in several committees of Government of India. Mr. William D’ Souza, Vice Chairperson, is a commerce graduate from University of Mysuru. He has been working in the area of promoting sAgs and other relative areas for over 30 years. Presently, he is the Executive Director of MYRADA Kaveri Pradeshika Samsthe (MYKAPS), Mysuru. Ms Yasmin Master, Director, has Indian Dairy Diploma (AH) from National Dairy Research Institute. She was working with MYRADA as Programme Officer coordinating activities of five projects in various locations. Now, she is associated with a few NGOs and Governing Member in group of institutions promoted by MYRADA. Ms Vidya Ramachandran, Director, has MA degree in Social work and M. Phil degree in Psychiatric social work. She is a former vice - chair of Friends of Women’s World Banking and is in the NGO sector for over two decades. She had worked as Program officer in MYRADA. She is governing member in group of institutions promoted by MYRADA. She is also working as consultant. 2014-2015 1 Mr. Doraiswami Ashok, Director, is a B.Tech and MBA, specialized in Marketing and Systems. He has 27 years experience in leading Management Consulting & IT organizations. He started up and headed consultancy offices and practices. Responsible for strategizing on service areas to be offered and entering in to strategic alliances. Being a profit center head, has been responsible for all areas relating to strategy, business development, engagement staffing and execution, office administration, recruitment, training and appraisal. Presently, he is working as Executive Vice President-Siemens Information Ltd., Bengaluru. He started a new division called Select Vertical Markets, with a view to globally providing Consulting and IT solutions to companies in the Manufacturing, Utilities and Public Sector & Financial Services domains. Mr. Anal K Jain, Director, is MS (Electrical Engineer) from Brooklyn Poly New York City, USA and B.Tech (Elec Eng), a research fellowship. He has 25 years experience in top management positions in major International and Indian IT firms. To name a few, he was Managing Director, South Asia Network Appliance India, Chief Executive Officer Birla Soft Ltd, Chairman and Chief Executive Officer, Linc Software systems, President, Sun Microsystem (India), Head, IBM, India, Vice President, Wipro Infotech etc., Mr. Arvind G. Risbud, Director is BE MBA, retired senior IAS Officer from the Government of Karnataka in 2009. He has worked for over 35 years in various capacities in Government of Karnataka and presently he is an Executive Director of MYRADA, a Bengaluru based leading NGO. 2 2014-2015 Mr. K. Sambasivan, Director, B.Tech –IIT Bombay, currently an entrepreneur as Founder and MD of eSSecom Private Limited with domain expertise in the BFIS Sector and along with its Founding Leadership Team has pioneered several path breaking initiatives in India Pre eSSecom: a. Established the first Online ATM Network for a Public Sector Bank b. Established the trend for offsite ATMs and launched the Bank Branded ATMs At eSSecom: a. An “Aam Admi” SMS based Mobile Payment Solution b. An Online Interoperable Financial Inclusion Solution for a Department of Financial Services Project in the backward district of Mewat in Haryana. c. The Payment platform including full Merchant onboarding for a leading Brand. This platform was used to onboard 500 plus Merchants within six months of launch. Mr.R.D.Gadiyappanavar, Chief Executive Officer, since 2007, is a postgraduate in Agriculture Science from University of Agricultural Sciences (UAS), Bengaluru and CAIIB- from Indian Institute of Bankers. He has 35 years of varied experience in the Banking industry having worked at State Bank of India in various capacities from a Technical Officer to Senior Executive Grade. Throughout his career; he has worked in operations, training and administration. He was head of a prestigious Bengaluru Main Branch besides head of branches in Bengaluru and Hubli etc.,. He had worked as Assistant General Manager Region IV of Bengaluru Zonal Office. He has also worked as Assistant General Manager Personal Banking, Development Banking, Head of Agri Business Unit, and Lead Bank in Local Head Office of State Bank of India, Bengaluru. He was also a Board of Director in Krishna Grameena Bank a Regional Rural Bank sponsored by State Bank of India. 2014-2015 3 Bankers Financial Institutions NABARD SIDBI Commercial Banks Bank of Maharashtra Canara Bank Indian Bank Rabobank International State Bank of Hyderabad State Bank of India State Bank of Mysuru Union Bank of India Vijaya Bank Our Auditors M/s. B.S. Chandrashekar and Co., Chartered Accountants, Bengaluru. 4 2014-2015 Contents Notice of the 20th Annual General Meeting………………………………………...6 Director’s Report……………………………………………………………….........7-49 Success Story……………………………………………………………...…...…50-56 Notes on Accounts………………………………………………………….....……57-58 Report of the Auditors…………………………………………….……………...……..59 Financial Statements ………………..……..……………………...…...………60-70 2014-2015 5 Notice of the 20th Annual General Meeting To All Members Notice is hereby given that 20th Annual General Meeting of the Company will be held at the Registered Office of the Company at Bengaluru, (# 612, 1C, Main Road, Domlur Layout, Bengaluru-560071) at 11AM on 02.09.2015 to transact the following business: As Ordinary Business 1. To read the notice of the 20th Annual General Meeting. 2. To receive, consider and adopt the Balance Sheet as at 31st March 2015, the Income and Expenditure account for the year ended on that date and the reports of the Directors and the Auditors thereon. 3. Extension of limit of borrowing power: To consider and if thought fit to pass with or without midification (s) to borrow from Banks/Financial Institutions not exceeding `160,00,00,000/- (Rupees One Hundred and Sixty Crore only). 4. To appoint and fix remuneration to M/s. B.S. Chandrashekar and Co., Chartered Accountants, Bengaluru, as our Auditors for the year ended, who retire at the conclusion of this General Meeting but being eligible and available, offer themselves for re-appointment. 5. Appointment of Indipendent New Director - Dr. Venkatesh Tagat, Retired Chief Genera Manager, NABARD. Notes: a) MEMBERS ENTITLED TO ATTEND AND VOTE AT THE MEETING MAY APPOINT A PROXY OR PROXIES TO ATTEND AND, ON A POLL, TO VOTE INSTEAD OF HIM/HER. b) Members are requested to notify immediately any change in their address to the Company c) Members desirous of raising any queries on the affairs of the Company shall file their queries at least 48 hours before the time of the commencement of the General Meeting. On Behalf of the Board of Directors Sd/- Aloysius P.Fernandez Founder Chairperson 6 2014-2015 Director’s Report OUTLOOK : The Indian economy is looking up after the new Government took over, due to several reforms initiated/ intent to initiate, declining oil prices, monetary easing due to lower inflation and a near normal monsoon. The wholesale price index inflation is estimated to be at 6% while consumer price index inflation is estimated to be 9.7% for the year ended 31.03.2015. In the coming year, inflation is likely to be further reduced. Consequently GDP for the year is estimated to be in the range of 7.2 to 7.4%. Industrial growth is likely to pick up as the Government has given thrust for “Make in India” as well as to infrastructure projects which will create employment. As a result of these measures, the Reserve Bank of India (RBI), reduced twice the repo rate during the year under review. Consequently, the banks have also reduced the base rate marginally resulting in lower cost of borrowing for Micro Finance Institutions (MFIs) and other clients. If all goes well, it is likely that RBI may cut repo rate by 50 basis points in the coming year. Banks are comfortable in lending to larger/medium sized well managed MFIs. However, smaller MFIs continue to face the problem of liquidity as they are unable to access bank credit as the banks are asking for collateral security, guarantee of the Directors, cash margin etc,. Realizing the problem faced not only by individual MSME/ SME entrepreneurs but also MFIs, the Government had announced a new bank called ‘MUDRA’ Bank through a statutory enactment. This agency would be responsible for developing and refinancing all MFIs which are in the business of lending to micro/small business entities engaged in manufacturing, trading and service activities. Since the enactment is likely to take some time, it is proposed to initiate MUDRA as a subsidiary of SIDBI to benefit from SIDBI’s initiative and expertise. The MUDRA bank was inaugurated by the Prime Minister on 08.04.2015. Thus, it is a boon, especially for smaller MFIs who will now be able to obtain re-finance from MUDRA Bank and overcome their problems of liquidity. MUDRA Bank is primarily responsible for : Registration of MFIs Regulation of MFIs Accreditation/Rating of MFIs Refinancing the MFIs Creating credit guarantee scheme for providing guarantee to the loan Supporting development and promotional activities in the sector As reported in the previous year annual report, RBI recognizing industry association as Self Regulatory Organizations (SRO), had called for applications. MFIN and Sa-Dhan both the Apex level industry associations have been recognized as SROs by RBI for NBFC-MFIs during the year under review. The role of SRO becomes more challenging when the association’s operations are funded by member institutions. All NBFC – MFIs will have to become members of atleast one SRO which is recognized by 2014-2015 7 RBI and also will have to comply with the Code of Conduct prescribed by the SRO. The SRO will also play a key role in ensuring compliance with the regulatory frame work. How the roles of SROs will jell with the functions of MUDRA as well as between themselves is still to be resolved. RBI announced amendments to the prudential norms for NBFC-MFIs relating to over indebtedness and income limits of clients in the micro finance sector in the monetary policy statement 2015-16. These changes have been long awaited by the sector and are likely to positively impact the growth of the sector. The modifications are as under: A ‘qualifying asset’ shall mean a loan disbursed by MFI, which satisfies the following criteria: Annual income of household increased to ` 1,00,000/- from ` 60,000/- for rural clients and for urban increased from ` 1,20,000/- to ` 1,60,000/- Total indebtedness increased from ` 50,000/- to ` 1,00,000/- excluding educational and medical expenses. Loan amount : I cycle increased from ` 35,000/- to ` 60,000/- : II cycle onwards from ` 50,000/- to ` 1,00,000/- Proportion of income generating activity: Decreased from atleast 75% of total income generation loans to atleast 50% of the total loans. Tenure of the loan not less than 24 months when loan amount exceeds ` 15,000/- with right to borrower of prepayment without penalty. Further, the banks have to ensure that MFIs comply with the margin caps and interest rate as also other ‘pricing guidelines’ to be eligible to be classified these loans as priority sector loans. In view of the liberalized norms announced by RBI, we need to evolve suitable checks and balances to mitigate the higher risk associated with the increased loan limit to individual members. Membership Of Credit Information Companies (CICs) : To avoid multiple lending and over indebtedness, it has been decided by RBI that all credit institutions (CIs) like MFIs would become members of CICs and submit data to them. Further, CICs and CIs are asked to update regularly on a monthly basis and upload the data to CICs. One time membership fee is charged by the CICs not exceeding ` 10,000/- and the annual fees charged by the CICs to CIs shall not exceed ` 5,000/- each. This action of RBI, has brought down drastically the membership fee and annual fee charged by CICs. As per instructions of RBI, your company has been a member of the following credit information companies. i) M/s. Equifax credit information services (P) Ltd ii) M/s. CRIF High Mark credit information services (P) Ltd., iii) M/s. Experian Credit Information Company India (P) Ltd 8 2014-2015 However, credit history of borrowing members of SHGs is verified through Equifax as majority of the MFIs are members of this credit bureau. As mentioned in the previous year annual report, we had an MOU with Rotary Bengaluru Cantonment to finance the poor members of SHGs around Bidadi town. Accordingly, they gave us a Revolving Fund of ` 8 lac free of interest; accordingly, we financed seven SHGs promoted by them at 10% interest p.a. However, as per the request of Rotary, we reduced the interest rate to 7.5% p.a. from 01.01.2015. Interest subvention scheme of Government of India for those SHGs which avail loans from Public Sector Banks and Regional Rural Banks continues this year also. As Sanghamithra is an extended arm of Banks, lending to SHGs by us should be treated on par with SHG-Bank linkage program and the interest subvention should be made available to SHGs financed by our Company as well. We are lobbying for this. Financial inclusion: has been a buzz word in the recent past. Government of India and RBI are keen on promoting inclusive growth and to reach out to the unreached. Atleast one member of the family needs to have a savings bank account which will inculcate the habit of savings and thereafter borrowing for livelihoods. Attempts made in the past to achieve 100% inclusive growth partly met with success. The present Government has come out with “Pradhan Manthri Jan Dhan (PMJD)” Yojana, to open Savings Bank account for those who were excluded; after six months each account holder would get ` 5,000/- by way of OD; such account holders are also covered by insurance. Within a short span of time, banks opened around 14 Crore accounts; how many of them are first time account holders is still not clear. In this direction, another step was initiated by the Government namely Micro Units Development and Refinance Agency Ltd (MUDRA) to support small entrepreneurs. Thus, every citizen of this country will be brought under the purview of the financial inclusive growth program to eliminate poverty and to enable every citizen to contribute to the growth of the country. To accelerate inclusive growth, the RBI has called for applications for starting Small Finance Banks and Payment Banks recently. The applications are being processed. Further, Government of India through SIDBI started offices to operate in six backward states under Poorest States Inclusive Growth Program (PSIGP). Since your Company is operating in Madhya Pradesh which is one of the backward states under the PSIGP, we have already approached the State Director who has evinced interest in supporting us in our endeavor to reaching out the unreached in the State. RBI has revised the priority sector lending norms and added three more categories viz. medium enterprises, social infrastructure and renewable energy. Social infrastructure lending particularly for construction of toilets and water connections and for renewable energy will get a boost ; the MFI sector will get the benefit of financing to these activities under priority sector which was the long pending demand of the sector. Your Company believes in inclusive growth; we are trying to reach out to the unreached marginalized, vulnerable sections of society. We have been financing Soukhya groups (sex workers) in Kolar, Chikkaballapur, Bellary, Chitradurga and Gulbarga districts, promoted by MYRADA, Tribals in Male Mahadeshwara Hills and physically challenged in Chitradurga. Apart from these, we have entered 2014-2015 9 backward, underdeveloped districts viz, Latur, Osmanabad in Maharashtra and Chhatarpur, Panna and Tikamgarh districts in Bundelkhand region of Madhya Pradesh, where the SHG members are unable to access credit from formal banking sources. Thus, your Company has been playing a very important role in financial inclusion program especially in backward areas. Sanghamithra promotes inclusive growth: Your Company is not just a financial intermediary but believes in ‘investing to create value’. Each region focuses on certain key areas which are crucial to livelihoods. For example : Bengaluru Region: This Region is operating in the districts of Bengaluru (rural), Ramanagaram and Kolar districts in Karnataka and Krishnagiri district in Tamilnadu. Bengaluru (Rural) district is fast transforming into an urban area, hence we have slowed lending activities. In Ramanagaram district, there are no accredited NGOs and the Stree Shakthi groups promoted by WCDPO are very weak; therefore, we have stopped fresh lending and only renewals are considered wherever the groups are active and functioning properly. We are lending to CMRC/Soukhya groups in Kolar and Chikkaballapur districts. In Krishnagiri district of Tamilnadu, we have six branches; we have been able to lend ` 1522.85 lac to 566 groups during the year out of total disbursement of ` 2824.38 lac made in the region, which works out to 53.92% of the total advances. This achievement was due to partnering with 12 NGOs and 15 Panchayat Level Federation (PLF) groups. Further, Commercial Banks have greatly reduced lending to SHGs. All groups after closing the loan with banks availed loans from us. In Tumkur district, a new branch was opened at Gubbi during the year and 43 groups with a loan amount of ` 80.49 lac were linked. Soukhya groups (sex workers group): Loans were extended to sex workers groups for undertaking alternate livelihood activities. We had lent to 29 Soukhya groups in Kolar and Chikkaballapur districts to the tune of ` 71.60 lac; the present outstanding is ` 60.40 lac. Out of the above, six groups with a limit of ` 5.30 lac were supported by the Revolving Fund Assistance of M/s. Microcredit for Mothers, Netherlands. Bengaluru Region stood first among all the regions in covering lives of members under Aam Admi Bima Yojana of LIC of India to the extent of 15545 (as against total coverage of 53765) which works out to 28.91% of the total lives covered so far. Efforts are being made to cover all the SHG members. The region is actively involved in extending loans for sanitation, water credit. It has conducted over 100 Financial Literacy Program during the year. Mysuru Region: This is the oldest area of operations. We continue to face the problem of delinquency due to linking with poor quality Stree Shakthi Groups promoted by WCDPO and SJSRY groups promoted by urban local bodies particularly, in Mysuru in the past. Therefore, we have stopped fresh lending to these groups for the past five years. As a result, there has been decline in the outstanding in Mysuru district by ` 57.86 lac (from ` 2317.26 lac to ` 2259.40 lac). We are now focusing on Chamarajanagar district mainly through CMRCs. The focus of Mysuru region is to bring down the NPAs and improve recovery from the written off accounts held in AUCA. Infact, the region stood second among all the regions in recovering a sum of 10 2014-2015 ` 8.92 lac in respect of AUCA and ` 11.05 lac from hardcore NPA accounts. Mysuru region embarked on ensuring quality lending and emphasizing on recovery of hard core old loans. We are also implementing Watsan project in collaboration with M/s. Water.org in Mysuru and Chamarajanagar districts. Kalaburgi Region : Kalaburgi region continues to focus on reaching out to the vulnerable sections of society in the backward, underdeveloped districts of Gulbarga, Yadgir, Bidar; since the last one and a half year we have started operations in Bijapur district. The region was able to disburse a loan amount ` 2890.30 lac to 1767 groups during the year taking the total portfolio to ` 2802 lac. The region stood first among all the regions in achieving highest disbursement and surpassed the financial target by ` 282.30 lac. The region has achieved 25.70% growth in terms of disbursement over the previous year. This is the only region which has registered a high 85% renewal of loans. The region has been successful in retaining 85% of the SHGs. The Kalaburgi region continues to be in the forefront in financing socially desirable schemes viz., sanitation, water connection, solar lights and soukhya groups (sex workers group). Further, despite substantial increase in business, the region has managed its portfolio well and ratio of NPAs to the total advances is 0.12%. The region has a plan to open two more branches in Bijapur distict, one at Basavana Bagewadi and another at Indi and intensify lending in the existing branches at Bijapur and Sindgi. They also plan to open a branch at Afzalpur in Gulbarga district and Humnabad in Bidar district during the year. Dharmapuri Region: This region was able to disburse ` 2426.05 lac to 847 groups with an average loan size of ` 2.86 lac per group which is the highest among all the regions. The region has partnered with five NGOs during the year and opened two branches at Udumalaipatti and Ooty which enabled the region to disburse loans of ` 2426.05 lac; this is below the target as we slowed lending in Dharmapuri area; besides there was competition from HDFC and ICICI banks. The region continues to focus on sanitation particularly in Ooty district under total sanitation program in collaboration with RDO Trust. The state/district administration has recognized the efforts of Sanghamithra in extending loans for sanitation. Sanghamithra was first to start lending for this activity. After our successful implementation, now banks have come forward to finance this activity. Due to wrong assessment, faulty KYC, the loans given to groups in Dharmapuri area have become NPAs; all such accounts were transferred to AUCA. This year alone we have transferred `15.84 lac to AUCA besides transferring ` 53 lac during the previous year. We have insisted that it is the responsibility of the region to focus on recovery of AUCA and not to add any fresh NPAs. Because of unsatisfactory performance in Dharmapuri area, it has been decided to stop fresh lending in this area to restrict to renewals in the case of well functioning groups. Davanagere Region: Sanghamithra has been operating in five central districts of Karnataka viz., Davanagere Chitradurga, Shimogga, Bellary and Chickamagaluru. The region has linked 1399 groups with an outstanding of ` 2062.93 lac. During the year under review, the region has disbursed loans of ` 1948.91 lac to 843 groups as against disbursement of ` 1577 lac in the corresponding period last 2014-2015 11 year registering 23.88% growth over the previous year. The region has extended loans for sanitation and water connection beside loans to Soukhya groups in Chitradurga district. The region has saddled with highest NPAs of ` 37.10 lac after write off of ` 18.76 lac during the year. However, during the same period we were able to recover ` 9.22 lac from NPA accounts. We wish to make a special mention of the efforts made by the region in recovering a sum of ` 11.03 lac under AUCA which is highest among all the regions. The NPAs are concentrated only in Challakere, Hiriyur and Nittuvalli branches. Most of the NPAs are recoverable and special recovery teams are in place; we are confident of bringing down the NPAs in the ensuing year. Maharashtra operations: We continue to expand our operations in Latur district. We opened two more branches taking the total no. of branches to 13 during the year under review. We disbursed a loan amount of ` 904.40 lac to 897 groups as compared to ` 428.70 lac to 456 groups during the corresponding period last year, registering over 111% growth in disbursement. This was made possible due to partnering with 17 NGOs in Latur and Osmanabad districts. The region was successful in attaining renewal of loans to 80%. We have an outstanding portfolio of ` 689.71 lac as compared to ` 333.85 lac a year ago; growth in business is over 106%. We also started an expansion program in Osmanabad district and opened Umerga and Killari branches during the year. For the coming year, we have planned a moderate disbursement target of ` 1200 lac. The region is yet to breakeven. The region has ended up with a loss of ` 5.54 lac. The region will achieve breakeven latest by October 2015. Latur Regional Office has since been opened and operationalized during the year. Creation of an exclusive Regional Office for Maharashtra has facilitated reaching out to the unreached and hastened the process of loan sanction. The SHGs, NGOs and Government officials of Zilla Panchayat are extremely happy with the services rendered by Sanghamithra as expressed by them in a large SHG meet organized at Umarga. Madhya Pradesh Operations: As reported in the previous annual report, we started lending to SHGs from October 2013 after putting in place the required Credit Officers and office staff who were trained at Gulbarga and Bengaluru respectively. Presently, we have the following staff in Madhya Pradesh. Regional Manager - 1 Manager- Accts & MIS - 1 Support staff at Regional Office - 1 Credit Officers at Regional Office - 13 Chhatarpur Regional Office has opened two more branches in Chhatarpur, Panna, Tikamghar districts during the year under review taking total number of branches to 12 and have lent ` 408.56 lac to 616 groups during the year taking total number of active groups to 717 with an outstanding of ` 483.21 lac. We have been getting support both from District Poverty Initiatives Project (DPIP) and Tejaswini Project through their field NGOs for credit linkages. However, Tejaswini project has moved to Federation concept since October 2014 instead of depending on field NGOs. The transformation process has come 12 2014-2015 in the way of linking their groups with us. The District Poverty Initiatives Project (DPIP) continues to extend full support to us. In the coming year, we propose to expand the business in the existing area of operations and achieve the disbursement target of ` 1000 lac. The region may be able to achieve breakeven of its operations during the year. We are grateful to Ms. Rohini Nilekani for extending financial support by way of grant of ` One Crore to start our Madhya Pradesh operations. We have utilized the fund as envisaged. This has enabled us to lend at 16% interest to the SHGs of Madhya Pradesh. The average loan size per group is very low at ` 50,000/- and rate of interest charged to the group continues to be at 16% as against our borrowing cost of 12.50%. The spread available is just 3.50% while our operational cost is around 5% and therefore Madhya Pradesh region has incurred a loss of ` 29.97 lac for the year. SANGHAMITHRA - Lending for Livelihoods: Your Company is committed to promoting livelihoods for SHG members. The livelihood approach considers the “household” as an economic unit. It also takes into account that families have a livelihood strategy which differs from family to family and which comprises several smaller activities. Sustainable poverty reduction can be achieved through the promotion of livelihood strategies. Myrada, our promoting organisation has taken many initiatives to upgrade the skills of SHG members to enable them to undertake livelihood activities. Myrada’s sample study of 3913 SHGs shows that they used loans mobilized from banks, Sanghamithra as well from their group common funds amounting to ` 61 Crore for the following purposes as indicated in the pie chart. Building the quality of Self Help Affinity Groups through Institutional Capacity Building (ICB): The rapid promotion of SHGs, the decrease in funds available for ICB training and the lack of understanding of the features of a genuine SHG have together led to a decline in their quality. Sanghamithra has given ICB priority. In turn, this decreases the risk of its investment. ICB is often 2014-2015 13 limited to training in book keeping. While this is important, ICB comprises much more. It includes an analysis of the causes of poverty and oppression, how to run a meeting which includes setting the agenda by all members, how to improve each one’s participation, how to bring about consensus and resolve conflict, the importance of records and accounts, how to plan livelihood strategies and lobby for change etc. There are 24 modules in all. Sanghamithra provides training for its staff at all levels in ICB. It also provides funds to NGOs and Federations of SHGs like the Community Managed Resource Centres to assess the organisational performance of SHGs and to provide ICB training where required. During the reporting year we have supported 16 Book writing Capacity Building training programmes covering 552 SHG members costing about ` 1,24,629/-, which we consider a useful investment to develop and disseminate knowledge. These programmes were conducted in association with our partner organisations, SHPIs. We propose to give greater thrust to ICB activities in the ensuing year by allocating a larger amount of ` 5 lac for the coming year. ABOUT YOUR COMPANY: Performance 2014-15 During the year under review, your Company’s outstanding grew from ` 11991 lac to ` 14044 lac, registering a modest growth of 17.12% over the previous year. SWOT Analysis of Your Company: Strengths: Your Company has certain strengths like well laid down systems and procedures, good governance and transparent practices. Sanghamithra is making serious efforts to reach out to the poor and into unreached areas where there are no formal financial institutions functioning, like Bundelkhand region of Madhya Pradesh, Marathawada region of Maharashtra. We provide credit to the SHGs at affordable rate of interest ranging from 16% to 21% on declining basis with flexible repayment period, depending on the cash flow of the group/members. We have waived processing fee, although it was permitted by Reserve Bank of India. Cost of operations is low as we deal with the group and not the individual and the salary structure for middle and senior level staff is moderate. We have been able to raise resources from the banking sector without much problem because of our credibility and confidence reposed by the lenders on us. Being a Section 25 Company (“not for profit”) our onlending rates are very moderate as compared to other MFIs. Therefore, we have been able to get loans from the financial institutions/ banking sector at moderate interest rates. We follow responsible lending practices. We also follow fair practices and code of conduct. We did not use coercive methods of recovery. We use peer pressure 14 2014-2015 exerted by SHG members for recovery of the loan. Moreover, amount of loan and the schedule of repayment of loan by the group is related to the cash flow of the group. Weakness: We are not promoting SHGs. We depend on partner NGOs for credit linkage of their groups. During last few years there has been dilution in the quality of promotion/nurturing of SHGs both by the Government agencies and NGOs. Sustainability of SHGs has become a major issue. The SHGs are disintegrating and members are approaching MFIs who are lending to individual members under JLG concept. The SHGs have to start with savings and internal lending and after waiting for a minimum of six months, the group can approach banks or MFIs like us for loans. Some members have no patience to wait for such a long time to get credit, instead, they look for easy option of forming JLG and getting the loans from MFIs. NRLM also has seriously weakened the SHG movement. Being a not for profit company, we are unable to attract investors including social investors. Thus, the growth is very moderate. Opportunities: As a policy, we are reaching out to the unreached/underserved areas in Marathwada region of Maharashtra and Bundelkhand area in Madhya Pradesh where poor need money for undertaking livelihood activities. Moreover, Banks/RRBs have slowed/stopped lending to SHGs during last one year especially in Tamilnadu, Madhya Pradesh and Maharashtra ; this provides a business opportunity for us. Our experience in these areas have been satisfactory. Government agencies like DPIP and Tejaswini in Madhya Pradesh are happy with our model of credit delivery and are supporting us in Madhya Pradesh. PLFs in Tamilnadu are approaching us for linking their groups in Krishnagiri, Erode and Dharmapuri districts as well. Threats: NRLM, a Government of India program in theory supports the promotion of SHGs, capacity building etc. But in reality, SHGs have been taken over by NRLM and they no longer function as genuine peoples institution. This has affected our credit expansion. The DPIP in Madhya Pradesh is likely to be merged with NRLM during the coming year. We may lose substantial new business. A bigger challenge has come from new generation private sector banks like HDFC, ICICI, YES bank who are lending to SHGs under Business Correspondent model. The threat of unhealthy competition and breaking up of groups has come down considerably after Andhra Pradesh crisis and after implementation of some of the recommendations of the Malegam Committee report by Reserve Bank of India. All MFIs have become members of Credit Bureau to avoid over indebtedness and multiple financing. However, expansion in Andhra Pradesh became difficult after the Act. NEW INITIATIVES: Enhancement of incentives to Self Help Promoting Institutions (SHPIs) : You are aware that Sanghamithra is not promoting its own SHGs for credit linkage, we depend on SHPIs like NGOs/CMRCs/Panchayath Level Federations (PLF) in Tamilnadu and Government promoted groups like Stree Shakthi groups in Karnataka, Tejaswini and District Poverty Initiative Program (DPIP) in Madhya Pradesh state etc,. These institutions promote SHGs; but they also need to nurture them for a certain period of time by providing institutional capacity building program (ICB) for the groups promoted by them to ensure sustainability of the groups. 2014-2015 15 Keeping this as a backdrop, we have been providing incentives to SHPIs since the beginning; this was revised from time to time; it started with ` 250/- to ` 500/- for every group linked for the first time and reduced incentives for subsequent linkages. The Board Members felt that the incentive presently given is too low and wanted us to review and enhance the same, considering the competition from new generation banks who are partnering with NGOs as Business Correspondents and offering them much higher incentives. Thus, the Board approved the revised incentive structure in the 76th Board Meeting ranging from 1% to 1½% of the loan amount based on certain eligibility criteria stipulated by us. We have entered into a Memorandum of Understanding with 96 NGOs and 73 CMRCs of MYRADA in this regard. This initiative has motivated the NGOs to link more number of groups with your company and retain them as partner NGOs. Rationalization of interest rates: The rate of interest for lending to SHGs was different for different products and also different geographical areas, especially in respect of general purpose loans. In order to bring about uniformity in the interest rate structure, the rationalization of interest rates task was taken up; the Board approved the same as mentioned below in respect of General Purpose Loans which constitutes around 92% of the total portfolio. Loans upto ` one lac – 18% of interest p.a. on declining basis. Loans above ` one lac upto ` 3 lac – 20% of interest p.a. on declining basis. Loans above ` 3 lac – 21% of interest p.a. on declining basis. However, there is no change in the interest rate in respect of socially desirable schemes such as sanitation, water credit and housing, which remain at 18% on declining basis. This rationalization has benefitted a large number of SHGs who borrow upto ` One lac; SHGs who borrow over ` 3 lac are capable of generating higher cash flow due to increased level of livelihood activity and are capable of servicing the higher interest. Financing to ‘Soligas’ Tribals of Male Mahadeshwara Hills (MM Hills): As mentioned in the previous year annual report, we had sought the approval of the donor M/s. Micro Credit for Mothers, Netherlands, to divert the grant of ` 24 lac originally meant for lending to Soukhya (sex workers) groups of Kolar and Bellary, to more vulnerable and deprived sections of society; to begin with, we have selected the tribal SHGs of MM Hills promoted by MYRADA to be assisted at 9% interest for undertaking livelihood activities. The donors visited the project area twice during last one year and the clarification sought by them was also furnished by us. We are indeed happy to inform that the donors have approved the project of MM Hills. The existing revolving fund (` 2.4 million) will be redeemed under Kolar and Bellary Projects and can be utilized for MM Hills. Further, agreed to review/evaluate the project in November-December 2015 and on that basis decide to further increase amount to ` 3.52 million as requested by us. 16 2014-2015 Sanghamithra in collaboration with M/s. Micro Credit for Mothers, Netherlands, intend to support the tribal SHGs (Soligas) of MM Hills through CMRC. In this connection, the representative from Donor country is seen interacting with the prospective beneficiaries. Employee Satisfaction survey As in the previous reporting year, an employee satisfaction survey was also conducted during this year. This year, the survey was conducted by M/s. Buoyancee, a professional HR consultancy firm. The report was presented to the Board. Findings of the survey were discussed in the Board Meeting and effective changes suggested and implemented to improve job satisfaction. Another survey is proposed to be conducted this year also. Mr. Ajit Kaikini of M/s. Buoyancee, a HR consultancy firm, presenting a report to the Board on employees satisfaction survey conducted by them. Grievance Redressal System for Staff We, at Sanghamithra have always been willing to have better two-way communication between the employee and the employer. Time and again we have tried to impress upon the need for such feedback 2014-2015 17 from the employees for possible improvements in our systems and procedures, better management of human capital, planning and implementation towards achieving our vision, mission, etc. The experience is that the employees have certain issues to be brought to the notice of the Senior Management but refrain in view of the inhibitions that they must pass through the proper channel which may affect them adversely. Therefore, a Grievance Redressal system is being introduced. The Grievance Redressal system provides all employees with direct access to the HR Manager at Head Office. They are assured that confidentiality will be maintained and possible action to attended/ redress the grievance will be initiated. Employees have been advised to make use of the new grievance address system in the normal course of their duties. Grievances like ill-treatment by senior colleagues, undue expectations, harassment, etc may also be lodged under this system. Loan assessment in respect of individual members of SHG : We have been assessing the loan requirement of the SHG, based on savings and cash flow of the group who in turn disburse the loan to the individual member, based on the need and repaying capacity. However, we have come across many instances of one or two influential members taking away the major part of the loan amount sanctioned. A few members are not interested in availing the loan, such members are forced to take loan and give it to someone else within/outside the group. A few members are taking the loan in the name of unwilling members assuring that it will be their responsibility to repay. These irregular practices have led to substantial increase in NPAs over the years. To obviate this kind of malpractices, we have introduced a system of assessing the loan requirement of individual members in the presence of all the members since 01.01.2015. In this connection, we have designed an appraisal format which indicates the loan amount required and the purpose for which it will be utilized and whether member will have capacity to repay this loan including other loans. The individual member loan assessment will hopefully eliminate the adverse features noticed in the past and ensure prompt repayment. Financing to SHGs promoted by Karnataka Milk Federation for dairy activity: Karnataka Milk Federation (KMF) has 14 Milk Unions across the state. They have promoted SHGs exclusively for members engaged in dairy activity. Many groups were inactive. In order to activate and strengthen the groups, officials from MYRADA have been deputed to Milk Unions of KMF in the districts of Mysuru, Chamarajanagar, Kolar, Bengaluru Rural, Chitradurga, Davanagere, Shivamogga, Kalburagi and Bidar. With the support of MYRADA staff on deputation to KMF, we started credit linkage to KMF groups during the year under review. An interactive session organized with members of Milk Union/Karnataka Milk Federation (KMF) to explain the methodology of lending for dairy activity to the SHGs promoted by KMF. 18 2014-2015 The regionwise performance is as under: No. of No. of Loan amount Region SHGs members disbursed linked assisted (Rs. In Lac) Bengaluru 6 102 17.90 Mysuru 26 337 54.53 Davanagere 15 222 14.00 Kalburgi 9 29 9.80 TOTAL 56 690 96.23 As can be seen from the above, average loan size comes to about ` 14,000/- per member. A few SHG members have taken loan for buying milch animals and others have used the loan amount for purchase of concentrate feed for milch animals. The number of loans for dairy activities will increase substantially in the coming year. We are encouraging dairy activity as this activity generates regular income resulting in prompt repayment. Similar efforts are on with Mahila Chetan Manch (MCM), an NGO operating in Chhatarpur area of Madhya Pradesh who have installed chilling plants in and around Chhatarpur and procure milk from the producers. We had discussions with them and have worked out the modalities of financing SHG members for purchase of milch animals. In this area, the people have experience with rearing buffaloes; hence we would like to finance for purchase of buffaloes only. Managing risk and creating value for Indian Microfinance Institutions: International Finance Corporation (IFC), part of World Bank, launched a microfinance Risk Management (RM) Project in January 2012 that has contributed to strengthening risk management systems and practices in the microfinance (MF) sector in India. In the first phase, the project team worked sectorally through training programs and workshops as well as with eight individual MFIs by assessing them to be better prepared to face risks and to transition from a reactive to a proactive risk management culture within the organization. As a result of highly positive feedback in 2014, IFC launched the second phase of its risk management program in order to reach out to more MFIs. SIDBI is partnering with IFC to strengthen the risk management frame works of its selected partners organizations. In this context, SIDBI asked us whether Sanghamithra is willing to join this program. We consented to be part of this project. The duration of risk management project will be for a period of 9-12 months. We understand from officials of IFC that the total project costs is around ` 20 lac, of which, ` 15 lac (75% of the project) will be met by SIDBI and ` 5 lac (25% of the project) will be contributed by your Company. We have already submitted certain information sought by IFC in regard to due diligence on our company. Collaborating with IFC will certainly help in identifying various risks associated with lending and mitigating the same. 2014-2015 19 Social Performance Management (SPM) : Social Performance Management (SPM) does not only include conducting a few non-financial services to our clients under corporate social responsibility. We need to integrate social performance into microfinance strategy and management system. Your Company has been focusing on Client centric approach Providing loans at affordable rate of interest Engaging in livelihood promotion of SHGs. Developing products and services that meet clients needs. Responding to client problems. Reducing over indebtedness of the borrowers Avoiding harsh collection practices Reaching out to unreached as in the case of Madhya Pradesh, Maharashtra and Hyderabad Karnataka Treat the clients fairly and respectfully, respect privacy of clients. Following transparent pricing of products. Sanghamithra has been following client protection principles in letter and spirit; this is how we carry out social performance management in our organization. Uniform Code of Conduct: Microfinance Institutions, irrespective of legal forms, seek to create social benefits and promote financial inclusion by providing financial services to clients financially unserved/underserved households. Over time, the MFI sector has become an integral part of financial infrastructure for the vulnerable sections of society. In order to protect clients from exploitation, the Apex Association of MFIs, viz., Sa-Dhan and MFIN have jointly come out with a revised code of conduct, core values and fair practices for the micro finance sector so as to ensure that micro finance services through MFIs are provided in a manner that benefits clients and is ethical and dignified. Our employees have internalized these principles and are practicing them particularly in the areas of transparency, integrity, social values and fair practices. We have a client grievances redressal mechanism in place. Every Regional Office has a nodal officer to receive oral/written complaints and is expected to dispose them in a reasonable time to the satisfaction of the clients. Technology upgradation : Changeover to new web based software We are using software called “Apparent Microfinance Manager” in 2011 on a pilot basis at Bengaluru developed by M/s. Apparent Info Tech Pvt. Ltd, a Chennai based company on a web based platform; we moved into fully web based core banking application to all the regions since 01.04.2013. 20 2014-2015 As mentioned in our previous year report, the vendor could not complete the assigned task and there are many problems still persisting. The problems were being addressed on an adhoc basis and no permanent solutions were found. Even today, the vendor is unable to address all the issues. Therefore, we intend to go with a new software vendor. We also wanted to adopt an Android based mobile application for interaction with our server to facilitate payment collection and report generation as the existing Hand Held Billing Machine (HHBM) outlived is usefulness due to faster wear and tear of components, particularly battery and printers; besides AMC paid to the vendor is ` 3 lac per annum for just 80 HHBM. Therefore, we felt that we should go for improved technology, which can bring down maintenance cost and give us other value added services. This issue was discussed in 78th Board Meeting held on 19.02.2015 and agreed to go ahead with the project. We have received competitive quotations from three vendors for web based software and android mobile application. The selection of the vendor will be completed very soon. WASH PROGRAM : (Watsan Project) As mentioned in the previous annual report, we continued to implement the captioned project in the financial year 2014-15 in collaboration with M/s. Water.org, a non-profit, US based organization; the program was extended to Bellary district during the year. The performance in Krishnagiri and Chitradurga districts was not very satisfactory as there were no Project Managers till recently. In Ooty, the project is implemented with active support of RDO Trust, whose staff have been creating awareness among SHGs whose members have responded positively to the program. The Government of India has given greater thrust by launching “Swachh Bharat Mission”; while many in India do not have toilets, the truth is that having a toilet does not necessarily mean that people use it. We have therefore, given a lot of importance about the use of toilet. In order to reduce open defecation in every village and to provide safe potable drinking water, the Project Managers and our partners conducted the following awareness programs : i) Training/awareness program for 1487 members of 32 panchayats in four districts was conducted to spread the message of watsan project. ii) Awareness program involving 39 CMRCs of Myrada was organized besides conducting for 892 SHGs in 11 districts. iii) 52 Kalajatha events were organized. iv) 5 street plays were organized in Mysuru and Chamarajanagar districts with the support of NSS students. v) 143 Health and hygiene related programs were also conducted. vi) Publicity regarding watsan project was given through community radio at Budikote and Mysuru on several occasions. 2014-2015 21 Street play organized in Veppanapalli to create awareness A large no. of SHG members gathered to participate on on sanitation, health and hygiene for the members of SHGs the eve of World Water Day organized at Sargur. and school children World Water Day: World Water Day was organized on 22.03.2015 for SHG members and school children in all areas of operations; essay competitions were organised and drawings on environmental/water issues were promoted. As a result of these initiatives, your Company was able to extend credit for various Watsan Projects as detailed below: (Rs. in lac) During the year Cumulative Name of the product 2014-15 progress No. Amount No. Amount Individual Household Toilets (IHHT) 3716 581.66 7723 1098.00 Individual Household Water 2132 106.60 connection (IHHC) 4737 234.65 Water Filters 620 12.56 5386 108.20 Toilet cum Bath room 695 104.25 721 107.55 Rainwater Harvesting - - 24 6.00 Soak pit - - 4 0.08 ECO toilet - - 4 0.80 TOTAL 7163 805.07 18599 1555.28 As can be seen from the above, the performance for year under review has been excellent. Infact, what has been achieved in three years (01.10.2011 to 31.03.2014) has been achieved in one year 2014-15. Further, you may observe the loans for toilet cum bathroom has increased significantly from mere 17 to 695 over the previous year. Increased subsidy amount under project during the year has facilitated the members to go in for toilet cum bathroom. 22 2014-2015 Financial Literacy and client protection This has assumed significant importance in the light of reported exploitation of illiterate clients by a few unscrupulous MFIs. We have started training the SHG members to create awareness as regards rights and privileges and also in the areas of savings, repayment, planning and budgeting, health, hygiene related issues etc,. We have conducted over 350 training programs in different places during the year under review. The feedback received is encouraging. Solar Lighting As mentioned in my previous year annual report, we partnered in 2012-13 with M/s. SELCO Solar (P) Ltd., a Bengaluru based solar light providing company for implementation of the project in Kalaburgi district, to mitigate the hardship faced by the people in rural areas, particularly students who suffer a lot since power is available only for 4-5 hours in a day. We have disbursed a loan of ` 1.10 lac to 35 households for installation of solar lighting during the year under review, taking the total number of solar units financed to 52 with a total loan amount of ` 2.80 lac. The reasons attributed for slow take off are: a) Investment in the project is considered heavy and b) Tangible return on the investment is not seen by the beneficiaries. However, we are trying to create awareness among the SHG members of the importance of lighting and indirect benefits that accrue. We propose to make it a regular product and extend it to all regions as the enquiries for this product have come from other regions as well. Life insurance for the SHG members We started covering life of SHG members since 2011 under Janashree Bima Yojana (JBY) implemented by LIC which has been renamed as Aam Aadmi Bima Yojana during 2013-14, for the benefit of unorganized sector including SHGs. Initially, we made the insurance optional and the coverage was poor. During the year under review, we made life insurance compulsory for all the eligible members. As a result, we collected premium of ` 42,60,630/- covering lives of 38,733 during the year under review, taking the total members covered to 53765; the amount collected was ` 59,14,150/-. We have submitted claim applications in respect of 29 death cases and settled 13 cases during the year under review taking the total death claims submitted to 39 and settled to 19. The LIC released scholarship for 32 children of SHGs during the year and promised to dispose off pending applications very soon. A function organized to distribute scholarships to the children of SHG members under Aam Aadmi Bima Yojana of LIC of India at Anekal. MFI Grading : MFI grading reflects the assessment made by the grading agency of a MFI. The MFI grading is assigned on an eight point scale. The ‘mfR1’ being the highest and ‘mfR8’ being the lowest. The MFI 2014-2015 23 grading is a measure of overall performance of an MFI on a broad range of parameters which include creditworthiness analysis using the CAMEL approach Institutional arrangement, CAR, asset quality, ALM, Operational effectiveness, scalability and sustainability. We wish to inform you that M/s. CRISIL has retained the grading as mfR3 for your Company; this is valid for one year. We were expecting better grading this time due to all round improvements brought in during the year. Credit Rating: As per Basel-II norms, companies intending to avail loans above ` 5 Crore from banking institutions are required to get credit rating done by rating agencies approved by the Reserve Bank of India. Accordingly, Credit Rating for ` 120 Crore Long Term Bank Loans was been entrusted to M/s. ICRA. We are happy to inform that M/S ICRA has awarded the company the rating “BBB - ” which has improved from BB + (Stable) one notch up vide their report dated 01.12.2014 which is valid up to 31.08.2015; We expect better rating in the ensuing assessment as we have initiated several measures to improve the quality of assets and taken action in regard to the area of concern expressed by them in the previous rating report, besides there is improvement in the financials. INSPECTION, AUDIT AND VIGILANCE AT SANGHAMITHRA Internal Audit System We have well established Internal and External audit systems in place since the year 2008. The internal audit of each branch is conducted once in three month and Management audit of the Regional offices is conducted once in 18 to 24 months. The internal audit is conducted to ensure whether the laid down systems and procedures are being followed at all levels and to minimize the level of Credit risk, operational risk and other risks associated with our lending operations involved in the day to day functioning of the organization thereby improving the quality of assets. Over the period we have streamlined the system of conducting audit. Changes have been introduced in the inspection format from time to time to mitigate the risks. We have drawn experienced staff from within the organization; for conducting Inspection and Audit, we have on roll, senior retired bank officials, who are well experienced in Audit work. The branches are awarded scoring taking into account the performance related to Housekeeping, NPA management, Business development and general up keep of the branch etc.. Each branch is also rated according to the level of Credit risk and operational risk involved. Continuous monitoring of performance of each branch is done. Branches are guided for improving rating efficiency and Corrective steps are taken to avoid persisting irregularities. There are 98 branches of SRFS as on 31.03.2015. The position of the branches as per rating awarded during the year 2014-15 as compared to the year 2013-14 is as under. 24 2014-2015 Previous Current Type of Rating year year 2013-14 2014-15 (Number of branches) 1. Efficiently Run 9 34 2. Well Run 52 49 3. Satisfactorily Run 15 10 4. Not Satisfactorily Run NIL NIL 5. New branches yet to be 14 5 audited Total no of branches 90 98 As can be seen from above, the number of Efficiently Run branches has increased From 9 to 34. While number of Well Run branches remains almost same the number of satisfactorily run branches has come down from 15 branches during 2013-14 to 10 branches as compared to the corresponding period last year. We are happy to inform that there is no ‘Not Satisfactorily Run branch’ even after increase in number of branches, during the current year. Further the number of Efficiently Run branches has drastically improved which is the result of efficient audit system in place. We are continuing our efforts to bring down number of Satisfactorily run branches, in the coming year. MANAGEMENT AUDIT: Management Audit of Regional office is conducted with a view to ensure managerial efficiency of the Regional office functionaries. The aspects like performance of Region, for the past 3 years, Operational efficiency, administration, turnaround time taken for completion of sanction process, Business development, Control/supervision and follow up of advances, NPA management, Cost effectiveness etc are looked in to. We have conducted management audit of Chattarpur (M.P.), Kalaburgi and Latur Regional offices during the year. We have plans to conduct the management audit of other regional offices during the ensuing year. External Audit : We have to inform that the Company’s Accounts have been audited every quarter and placed before the Board for approval every quarter; besides the yearly audit which is mandatory (Statutory Audit) is also conducted as per Company’s Act. Book Debts/Stock Audit by External Agencies: As decided in the Project Implementation Committee meeting of Bankers held on 28.02.2014 of, the common stock/book debts audit of SRFS was conducted by M/s. NSVM & Associates on behalf of 2014-2015 25 all the Banks/Financial Institutions, covering the book debts up to the half year ending 30.09.2014. The Book Debts audit of all the Banks as at the end of March 2015 was also done by M/s. NSVM and Associates and the report was submitted to all the lending Banks. Vigilance : There was one case of misappropriation of funds reported during the previous year to the tune of ` 5,64,365/-. We were able recover an amount of ` 1,42,679/- during the previous year. During the year under review, we have recovered ` 3,32,840/- from 26 groups. We continued our efforts to recover the remaining amount from the fraudulent staff. Further, we are happy to inform that due to continuous follow up of the court case filed against another Credit officer at Chitradurga court, during the year 2010, we were able to recover ` 44,923/- during the year under review ; we had recovered a sum of ` 67,200/- during the previous year. Thus, we have been able to recover a sum of ` 1,12,123/- being the fully claim amount including a vehicle loan. CONTROL AND SUPERVISION OF INSPECTION AUDIT & VIGILANCE DEPARTMENT : The Chief Manager (Inspection and Audit and Vigilance) reports directly to the Chief Executive officer; monitors and ensures smooth conduct of audit of branches by the auditors according to a stipulated time frame. He also looks after Vigilance matters and keeps close watch to ensure that systems and procedures are meticulously followed. FINANCIAL RESULTS Particulars 2014-15 2013-14 Gross income including other income 2530.03 2246.63 Gross Income from operations 2456.39 2203.06 Gross operating expenditure excluding depreciation 1845.29 1669.55 Add: Depreciation 18.29 6.39 Total Expenditure 1863.58 1675.94 Gross operating margin 592.81 527.12 Net surplus 666.45 570.69 Provision for loan losses (prudential) 62.75 108.08 Provision for Software And Technology 20.00 18.00 Capacity Development Fund 6.00 6.00 Net surplus after Appropriation 577.70 438.61 Following are the charges levied by us on the loans provided to the Self Help Affinity Groups. Registration Charge : It was decided to levy `100/- as registration charge at the time of fresh sanction and every renewal, with effect from 01.12.2013; the details of individual members are now being captured as also Base Line Survey of individual members which involves a great deal of work. 26 2014-2015 Interest: As mentioned elsewhere in the report, interest rates was rationalized based on the slab system with effect from 01.10.2014 in respect of General Purpose Loans as detailed below, in all the states except Madhya Pradesh where interest rate is 16% on reducing basis. Loan upto ` One lac - 18% Above ` one lac upto ` 3 lac - 20% Above ` 3 lac - 21% Processing fee : We have totally waived the processing fee of 1% to reduce the burden on SHGs. Penal interest: We have waived the penal interest on account of delayed repayment and bulk repayment. Cheque “bounce” charges : We have increased the “cheque bounce” charges from ` 100/- to ` 200/; it serves to prevent issuance of cheques without maintaining adequate balance in SHG account; banks are debiting Sanghamithra ` 200/- to ` 250/- for every bounced cheque. DEPOSITS: Our Company is registered under Section 25 of the Companies Act and as such is not permitted to accept deposits either from the public or from the SHG members. We have respected this. Operational Highlights: During the year under review, your Company disbursed a sum of ` 13340 lac to 6752 groups. Of them, new groups (first linkage) number 3424 and the loan given was ` 4957.63 lac, the balance amount of ` 8382.37 lac was lent to the existing groups (3328) as repeat loans. This was achieved through the network of 98 branches spread across four states. Thus, we have extended cumulative credit linkage to 55799 SHGs (859481 households) with aggregate amount of ` 74538.12 lac. YEARWISE DISBURSEMENT (Rs. in lac) 2014-2015 27 Sanghamithra Rural Financial Services Highlights of the Activities during the end of March 2015 I Operations The following are some of the Highlights of our performance during the period under review: 28 Cuml No.of Households (in Disbursed during Cuml loan disbursed Loan amount Cuml No.of No. of groups % age % age % age % age households % age outstanding % age the year 2014-15 amount outstanding groups assisted outstanding State Districts of of of of assisted of groups) of No.of growth growth growth growth growth growth Amount 2014-15 2013-14 2014-15 2013-14 2014-15 2013-14 2014-15 2013-14 2014-15 2013-14 2014-15 2013-14 groups 2014-2015 Bengaluru Rural 153 507.73 5648.71 5141.98 9.85 590.29 624.74 -5.51 3868 3705 4.40 283 322 -12.11 65292 62898 3.81 3310 5342 -38.04 Bellary 157 346.55 1179.60 834.05 41.43 341.37 277.63 22.96 836 679 23.12 259 281 -7.83 10718 8810 21.66 3276 3435 -4.63 Bidar 107 158.35 603.30 444.95 35.59 132.04 100.15 31.84 570 463 23.11 142 84 69.05 7531 6185 21.76 1788 1429 25.12 Bijapur 166 274.27 409.67 135.40 202.56 240.90 121.59 98.12 268 102 162.75 200 100 100.00 3682 1445 154.81 2729 1410 93.55 Chamarajnagar 341 768.83 5017.81 4249.98 18.07 881.13 876.8 0.49 4149 3798 9.24 636 649 -2.00 68839 63941 7.66 9159 10062 -8.97 Chikkaballapura 15 29.7 113.90 32.50 250.46 35.94 0 125 20 525.00 33 31 6.45 1663 263 532.32 505 409 23.47 Chitradurga 307 571.35 4723.39 4153.04 13.73 633.38 547.44 15.70 4949 4632 6.84 504 514 -1.95 74329 70367 5.63 6525 6984 -6.57 Davangere 227 621.66 3915.76 3295.10 18.84 625.33 477.89 30.85 3634 3397 6.98 357 361 -1.11 51009 48078 6.10 4598 4737 -2.93 Gulbarga 1225 2015.55 8505.29 6489.74 31.06 2001.05 1663.38 20.30 7578 6343 19.47 1921 1809 6.19 119275 101337 17.70 28486 27710 2.80 Kolar 157 357.25 1714.61 1409.06 21.68 363.65 305.10 19.19 1331 1260 5.63 263 278 -5.40 20347 19143 6.29 3840 4408 -12.89 Karnataka Mandya 0 0.00 1199.35 1200.35 -0.08 1.53 13.00 -88.23 1056 1056 0.00 4 19 -78.95 19558 19558 0.00 72 302 -76.16 Mysuru 419 1169.06 12813.94 11646.27 10.03 1376.74 1427.46 -3.55 10079 9654 4.40 875 968 -9.61 166642 158971 4.83 12960 14746 -12.11 Ramanagara 92 329.50 2479.45 2149.95 15.33 383.40 306.56 25.07 1057 965 9.53 185 160 15.63 17756 16314 8.84 3123 2662 17.32 Shimoga 108 330.00 2992.70 2662.70 12.39 376.57 328.84 14.51 2347 2239 4.82 196 186 5.38 34533 33084 4.38 2648 2464 7.47 Tumkur 39 77.35 77.35 0.00 80.49 0 39 43 0 481 245 0 Yadgir 269 442.13 1656.26 1214.13 36.42 428.12 457.26 -6.37 1193 924 29.11 508 466 9.01 18152 14095 28.78 7694 7091 8.50 Chikkamagaluru 44 79.35 159.45 80.10 99.06 86.28 74.82 15.32 107 63 69.84 83 86 -3.49 1479 896 65.07 1127 1226 -8.08 Total 3826 8078.63 53210.54 45139.30 17.88 8578.21 7602.66 12.83 43186 39300 9.89 6492 6314 2.82 681286 625385 8.94 92085 94417 -2.47 Dharmapuri 163 587.90 5676.19 5088.29 11.55 648.88 778.13 -16.61 2648 2485 6.56 306 396 -22.73 45898 43195 6.26 5075 6773 -25.07 Erode 283 788.45 4921.55 4133.10 19.08 863.35 1023.73 -15.67 3055 2772 10.21 515 599 -14.02 41063 37505 9.49 5862 7628 -23.15 Krishnagiri 566 1522.85 5487.99 3965.14 38.41 1538.83 1249.15 23.19 2818 2252 25.13 888 702 26.50 43585 35400 23.12 12146 10573 14.88 Namakkal 0 0.00 0.00 10.80 67.46 0.00 0 3 44 0 0 39 -100.00 580 0 Salem 51 124.35 242.00 112.75 114.63 182.85 201.40 -9.21 103 52 98.08 131 117 11.97 1415 747 89.42 2018 1692 19.27 Tamil Nadu Ooty 300 762.25 2511.45 1749.20 43.58 969.39 729.65 32.86 1062 762 39.37 564 421 33.97 13271 9836 34.92 6804 5393 26.16 Tiruppur 50 163.10 163.10 162.12 50 50 0 585 977 0 Total 1413 3948.90 19002.28 15059.28 26.18 4432.88 3982.06 14.56 9736 8326 179.35 2498.00 2235.00 35.68 145817 126722 63.21 33462 32059 12.09 Ananthapur 0 0.00 288.36 273.01 5.62 0.97 4.74 -79.54 449 422 6.40 2 7 -71.43 5145 5145 0.00 30 89 -66.29 Kadapa 0 0.00 19.25 21.45 -10.26 0.00 0 25 27 -7.41 0 0 308 331 -6.95 0 0 Andra Kadiri 0 0.00 0.00 13.15 0.00 0 25 -100.00 0 0 0 298 -100.00 0 0 Pradesh Total 0 0.00 307.61 307.61 0.00 0.97 4.74 -79.54 474 474 0.00 2 7 -71.43 5453 5774 -5.56 30 89 -66.29 Latur 837 860.00 1492.15 632.15 136.04 601.15 334.24 79.86 1572 735 113.88 940 520 80.77 17468 8298 110.51 10350 5912 75.07 Osmanabad 60 44.40 44.40 88.56 60 141 0 702 1469 Maha rasthra Total 897 904.40 1536.55 632.15 143.07 689.71 334.24 79.86 1632 735 113.88 1081.00 520.00 80.77 18170 8298 110.51 11819 5912 75.07 Chhatarpur 210 151.28 184.01 32.73 462.21 123.37 14.35 759.72 277 67 313.43 252 35 620.00 3147 775 306.06 2837 396 616.41 Tikamgrah 194 127.21 143.56 16.35 778.04 107.18 31.15 244.08 232 38 510.53 205 67 205.97 2493 428 482.48 2293 777 195.11 Panna 212 130.07 153.57 23.50 553.49 115.24 22.19 419.33 262 50 424.00 262 50 424.00 3115 626 397.60 2990 624 379.17 Madhya Pradesh Total 616 408.56 481.14 72.58 562.91 345.79 67.69 410.84 771 155 397.42 719 152 373.03 8755 1829 378.68 8120 1797 351.86 Grand Total 6752 13340.49 74538.12 61210.92 21.77 14047.56 11991.39 17.15 55799 48990 13.90 10792 9228 16.95 859481 768008 11.91 145516 134274 8.37 YEARWISE GROUPS LINKED YEARWISE OUTSTANDING (Rs. in lac) STATEWISE OUTSTANDING (Rs. in lac) 2014-2015 29 KEY PARAMETERS Portfolio Indicators Outstanding Size: Your Company’s financial outstanding portfolio as on 31.03.2015 was ` 14047.56 lac against an outstanding portfolio of ` 11991.39 lac during the corresponding period last year registering a moderate growth of 17.15%. The average loan size per group has marginally increased from ` 1,22,995/- to ` 1,30,000/- during the year under review. Number of groups assisted: 6752 groups have been assisted during the year under review as against 5633 groups during the corresponding period last year. The number of groups linked has increased by 19.86% over the previous year even though we discontinued lending in urban and peri-urban areas, and discontinued fresh lending to Stree Shakthi groups in Mysuru, Mandya, Ramanagaram, Chitradurga and Shimoga districts. New linkages have came predominantly from our new areas of operations viz., Madhya Pradesh, Maharashtra and Northern Karnataka. Number of households assisted: During the year 91473 families have been assisted as compared to 80316 families during the previous year. Cumulative Loans extended: ` 74538.12 lac has been lent upto the year end as against ` 61210.92 lac lent upto last year end, registering an increase of 21.77%. Cumulative number of groups assisted: 55799 groups have been assisted since inception. FINANCIAL INDICATORS Financial Sustainability ratio: Interest on our borrowings for 2014-15 was ` 1219.25 lac as against ` 1160.12 lac in the last year; an increase of 5.10% over the year. Additional provisioning on bad debts of ` 62.75 lac has been made during the year as against ` 108.08 lac provisioning made during the corresponding period last. Despite incurring additional expenditure, the sustainability ratio has improved from 124.26% to 129.59% during the year under review. Productivity The number of loan accounts per employee has marginally gone up to 110 despite increase in number of field staff, because the total number of active groups increased to 10792 from 9228 over the year. The number of groups handled by each field staff varies from centre to centre depending on geographical spread of groups. The average business per Credit Officer has increased to ` 139 lac from 30 2014-2015 ` 123.62 lac over the corresponding period last year. The average loan size per group has also gone up from `1,29,000/- to ` 1,30,000/-. Cost of operation The operating cost has increased to 4.74% from 4.21% during the previous year. Our endeavor is to contain avoidable expenses and keep cost of operations under control. Yield on advances Yield on loans and advances is 19.56% against 19.71% over the year. Consequently, the net interest margin (NIM) is 7.61% against 7.19% over the year. Capital Adequacy Ratio CAR has improved from 18.52% to 19.84% over the corresponding period last year which is well above Reserve Bank of India stipulation of 15%. Similarly, Return On Net Worth (RONW) increased over the previous year from 19.75% to 20.72% and Return on Assets (ROA) has increased to 4.60% from 3.92% over the previous year. LENDING PATTERN Linkagewise disbursement As on 31.03.2015 Linkage No. of Amount groups 1st linkage 3424 4957.63 2nd linkage 1391 3094.21 3 linkage rd 750 1786.36 4th linkage 462 1274.98 5th linkage 364 1078.16 6 linkage th 231 700.24 7th linkage 81 271.36 8th linkage 49 177.55 TOTAL 6752 13340.49 2014-2015 31 Amountwise disbursement As on 31.03.2015 500001 upto 1,00,000 1% Description 13% No of Amount groups 300001 to 500000/- Up to 1,00,000 2478 1785.56 38% 100001 To 200000 1864 3038.97 1,00,000 to 200001 To 300000 1214 3281.82 200000 23% 300001 To 500000 1167 5065.99 > 500001 29 168.15 200001 to 300000/- 25% TOTAL 6752 13340.49 DONORS DURING PREVIOUS YEARS Canadian International Development Agency (CIDA): CIDA has provided grants of one million Canadian Dollars, which was equivalent to ` 320 lac approximately. Out of this, ` 300 lac has been capitalized for core activities. Ms. Rohini Nilekani: Ms. Rohini Nilekani had gifted 2000 Infosys Equity Shares of ` 5/- face value each and we realized a sum of ` 94.57 lac in the year 2001 by selling these shares in open market. Another ` One Crore was given by means of cheque in 2004-05 for on-lending to SHGs. Further, she gave a grant of ` 7 lac for purchase of Hand Held Billing Machines in 2007. She has given a grant assistance of ` One Crore to start lending operations in Madhya Pradesh which enabled us to lend to SHGs at reduced rate of interest at 16% p.a. In all, she has supported Sanghamithra by way of grant to the tune of ` 301.57 lac till 2013-14. Sir Dorabji Tata Trust (SDTT): SDTT had sanctioned a sum of ` 87.50 lac (spread over three financial years) as grant, commencing form August 2004. Out of this a sum ` 60 lac has been utilized towards on lending to SAGs and ` 27.50 lac for Capacity Building of SAGs / staff of SRFS. During the period 2006-07, SDTT released an amount of ` 10.50 lac towards Capacity Building, Impact Study, Research and Publications. The amount has been fully used during 2007-08. Care India Project: Care India Project funded a project “Learning On Wheels” and Kiosk Banking during the year 2003-04 of ` 25.35 lac. 32 2014-2015 Hope International Development Agency (HIDA): HIDA donated Canadian Dollars 1,28,000/- equivalent to ` 49.77 lac upto the financial year 2007- 08. A review of the functioning of Gulbarga Programme was conducted by the Donors during their visit to Kalaburgi on 18th November 2008. The team also visited Bengaluru Office on 20th November 2008. They were pleased to release an additional grant of Canadian Dollars 40000/- equivalent to ` 16.68 lac during the year under review. Thus, our Gulbarga Programme has received a total grant of ` 66.45 lac which has been utilised for onlending to SHGs and for meeting administrative expenses in the ratio of 70:30. Micro Credit for Mothers, Netherlands: We did not receive any revolving fund assistance from the donor during the year under review. We continue to revolve the same amount of ` 26.40 lac and interest accrued thereon for on lending to vulnerable Soukhya groups extending loans upto ` One lac at 9% interest; for Soukya groups who are availing loans over ` One lac, 20% interest is being charged. Cordaid : We could not avail ECB loan of € 350000/- (` 20 million) approved by Cordaid, a Netherlands based International Development Organization as the ECB Loan was to be hedged as per RBI guidelines. The cost of hedging in a volatile currency market was considered very high; it was working out at 8 – 9% over and above the 5.5% rate of interest charged by them. Therefore, we requested them to cancel the loan. However, we had received € 10000/- by way of grant from them towards improving the quality of lending. The amount received by way of grant ` 6.41 lac was fully utilized towards meeting part of the salary of Auditors/Manager (Operations) towards re-assessment of the groups as also meeting expenses relating to development of software for incorporating the grading of the group done. DONORS DURING THE YEAR Water.org: We have partnered with US based non-profit organization in implementation of water and sanitation project for which we have received a grant of ` 39.92 lac during the year, taking the total grant received since September 2011 to ` 147.35 lac PROJECT FINANCE: During the year under review your company borrowed from the following financial institutions for onlending to SHGs : State Bank of India sanctioned a Cash Credit limit of ` 22 Crore with a allocated amount of ` 2 Crore to Gulbarga in May 2011 which was renewed from time to time. Indian Bank renewed but reduced the Cash Credit limit from `10 Crore to ` 8 Crore in 2012-13, as your Company refused to give guarantee of the Directors; the same limit is being renewed. State Bank of Mysuru renewed with enhancement of the CC limit from ` 15 Crore to ` 20 Crore in 2013; the same limit is continued this year too. 2014-2015 33 Canara Bank renewed with enhancement of the CC limit from ` 20 Crore to ` 25 Crore in 2014-15. State Bank of Hyderabad renewed with enhancement CC limit from ` 10 Crore to ` 15 Crore during the year under review. SIDBI we have applied for a term loan of ` 15 Crore for onlending. The proposal is under their consideration. IMEF loan of ` 5 Crore by way of sub-ordinated debt repayable in eight years with a gestation period of five years at 8% interest was disbursed in Maharashtra. Union Bank of India, we have applied for a term loan of ` 15 Crore which is under consideration. New banking connection during the year: Rabobank International sanctioned a term loan of ` 5 Crore repayable in two years. Bank of Maharashtra sanctioned a term loan of ` 5 Crore repayable in three years. Vijaya Bank sanctioned a CC limit of ` 5 Crore In all, ` 25 Crore loans were sanctioned/disbursed by the above mentioned Banks. Your Company did not face any financial crunch as there was adequate liquidity. We have also approached Corporation Bank, UCO Bank, Andhra Bank and State Bank of Travancore for new facilities which is under their consideration. Summary of the borrowings (Rs. in lacks) March 2015 March 2014 Name of the Bank Nature of Limit Outstanding ROI Limit Outstanding ROI facility State Bank of India 2200 CC 2099.64 12.75 2200 1582.99 13.25 State Bank of Mysuru 2000 CC 1650.99 12.75 2000 1987.35 11.75 Canara Bank 2500 CC 2457.45 12.20 2000 1884.13 11.95 Union Bank of India - - - 12.50 500 20.41 12.50 Union Bank of India - - - 12.50 500 185.05 12.50 (TL-2) Union Bank of India 1000 TL 264.71 12.50 1000 617.65 12.50 (TL-3) Union Bank of India 1000 TL 588.24 12.25 1000 941.18 12.50 (TL-4) SUB TOTAL 852.95 1764.29 SIDBI 1000 TL 90.91 13.00 1000 454.55 13.00 SIDBI 500 Sub- 500.00 8.00 500 500.00 8.00 ordinated debt SUB TOTAL 590.91 954.55 State Bank of 1500 CC 1499.04 12.50 1000 981.72 12.50 Hyderabad 34 2014-2015 Inidan Bank 800 CC 783.91 12.55 1000 772.76 12.55 NABARD (RFA) 500 TL 120.00 9.50 500 220.00 9.50 Rabobank 500 TL 375.00 12.00 - - - International Bank of Maharashtra 500 TL 486.08 12.75 - - - Rotary Club 8 8.00 - - - - Vijaya Bank 500 CC 500.24 12.50 - - - TOTAL 11424.21 10147.79 ASSET CLASSIFICATION AND PROVISIONING Provisioning Norms : Reserve Bank of India (RBI) has issued revised guidelines in regard to introduction of new category of NBFCs ie., NBFC-MFIs vide their Circular No. RBI/2011-12/290 DNBS.CC.PO.No.250/03-10- 01/2011-12 dated 01.12.2011, wherein, among other things, it has stipulated revised provisioning norms meant for NBFC-MFIs. Although your Company is not an NBFC-MFI, we have decided to follow the new provisioning norms from 2011-12, though RBI has required NBFC-MFIs to follow the new norms from April 2013 only. 2014-2015 35 Revised RBI Norms (accepted by us) Asset category Provision Standard 1% Overdue above 90 days but less than 50% 180 days Overdue for 180 days or more 100% As mentioned elsewhere in this report we have accepted the provisioning norms as applicable to NBFC-MFIs from 2011-12 itself as per Reserve Bank of India guidelines issued on 01.12.2011. The details of asset classification are furnished as on 31.03.2015 (Rs. in lac) As per RBI guidelines dated 02.12.2011, Portfolio At Risk(PAR) outstanding in respect of Amount Asset category As on As on 31.03.2015 31.03.2014 On time repayment 13941.81 11863.90 Overdues - 1 to 30 days 2.09 3.05 Overdues – 31-60 days 3.58 6.06 Overdues – 61-90 days 6.58 11.18 Overdues – 91-180 days 20.20 19.49 Above 180 days 73.30 87.71 TOTAL 14047.56 11991.39 Provisioning (Rs. in lac) On standard asset (1%) ` 139.54 Below 180 days (50%) ` 10.10 Above 180 days (100%) ` 73.30 Total provisioning required ` 222.94 Already held ` 216.35 Balance now provided ` 62.75 Total provision made ` 279.10 Amount written off ` 56.30 Net provision available ` 222.80 The total provisioning of ` 222.80 lac held as on 31.03.2015 36 2014-2015 As could be seen from the above, the standard assets has reached 99.24%, up by 0.14% over the previous year. We have been able to recover ` 23.94 lac from NPA accounts, but at the same time fresh NPAs were added to the tune of ` 62.86 lac. Due to write off of bad debt of ` 56.30 lac, the sub- standard and doubtful assets percentage to the total advances has come down. We had made a provision of ` 216.35 lac upto the previous year. During the year we have made an additional provision of ` 62.75 lac taking the total provision to ` 279.10 lac. Of the total provision held, your Company decided to write off an amount of ` 56.30 lac (sub-standard and doubtful debts) accrued over three years, which was considered to be bad advances which cannot be recovered. Thus the resultant balance held in provision account for bad debt is ` 222.80 lac as against total overdue outstanding of ` 102.97 lac. Thus, the provisioning has been made as per Reserve Bank of India guidelines. NPA Position: One of the major concerns of your Company as mentioned in previous reports, was the annual increase of NPAs. However, as a result of several initiatives to contain this trend, the overall NPA related to the total outstanding has declined. In this connection, I had placed a detailed note on the NPA/Portfolio position before the 78th Board Meeting. The matter was discussed at length. Several loans sanctioned during the years of 2010, 2011, 2012 and 2013 have become NPAs due to various reasons. I would like to share with you a few major reasons which contributed to this situation. 1. Faulty assessment of the group. 2. Loan amount appropriated by one or two members of the group. 3. Loan waiver scheme of Government 4. Over indebtedness of the borrowers due to multiple borrowing After examining various factors that have culminated in adding to NPAs, the Board gave in principle approval to write off such accounts to the tune of ` 60 lac subject to review/scrutiny and based on the merit of each case. Follow up action has been taken as directed. Bad debts write-off : After obtaining in principle approval by the Board, your Company made a detailed analysis of the individual NPA accounts. Chances of recovery were completely bleak in 92 group accounts with an outstanding amount of ` 60.00 lac; accordingly ` 56.30 lac was written off. However, in order to continue our efforts to recover this amount, we have created Head of Account called “Advances Under Collection Account (AUCA)”. This head of account is created to ensure that these accounts are not forgotten even though they are not shown as assets of the Company. This accounting system ensures proper monitoring and follow-up; it does not give an impression to our field staff that these accounts have gone out of the books of the Company. As a result, during the year under review, we were able to recover a sum of ` 23.83 lac as against last year recovery of ` 20.19 lac registering substantial improved recovery of 18% over the previous year. Risks and Concerns : As an MFI, we are exposed to various kinds of risks. We place below certain risks associated with our lending to SHGs and corrective actions initiated to mitigate the risks. 2014-2015 37 Four elements of risk management and control : i) Quality of board and senior management oversight ii) Adequacy of policies limiting risk activity iii) Quality of risk management and monitoring iv) Adequacy of internal controls to prevent frauds Operational risks and credit risks: a) SHG members are member in more than one SHG. b) SHGs also availing loan from other Banks under SHG-Bank linkage program and borrowing from MFIs in their individual capacity leading to over indebtedness. c) Non-adherence in following KYC norms strictly. d) One member of the SHG taking away the major part of the loan amount. e) Loans to fictitious groups. Risk Mitigation: We have become member of Credit Bureaus. We verify whether individual members have borrowed from more than two MFIs and their credit history. To obviate one member taking away the major part of the loan amount, we telephone to members immediately after disbursement and verify whether each member has got the loan amount as sought. KYC norms have been made stringent by obtaining address proof and identification proof of the borrower as envisaged by RBI. We have also introduced system of assessment of the loan required by individual members within the SHG. Reassessment of the proposals are done by Manager (Operations) to ensure all the norms/guidelines are followed and that the proposal meets the eligibility criteria as laid down by the Company; this also ensures that the group is genuine and not fictitious. Internal control and fraud prevention Collection by cash Since cash recovery is done in almost 65% of the cases, the Company is exposed to high risk. In this connection, we have introduced, the receipts generated by Hand Held Billing Machine with GPRS Technology, which is reported into our server at Head Office; the system generated receipt creates confidence among the borrowers. We also ensure the days collection are remitted to the Bank into our account on the same day without fail. The Inspection and Audit of the branch is conducted once in three months. All the transactions are verified for the period. We also ensure that balances between the Branch and Regional Office 38 2014-2015 are tallied every month. Added to that, the officials from controlling office, make frequent visits to the branches and verify the books of accounts. Thus, an effective control is exercised relating to the functioning of the branches. This kind of control also prevents possible frauds. We have revised the systems and procedures from time to time to plug the loopholes in the operational systems. Other risks such as interest rate risk, market risk, political risk, attrition risk are being discussed by the Board and top management and timely appropriate action is taken to mitigate the same. PROJECT REVIEW This committee was initially constituted under the Chairmanship of NABARD DGM/AGM; the CEO of Sanghamithra is the convener of the committee. Its objective is to review the performance of Sanghamithra in utilizing the revolving fund granted by NABARD. Later, the committee was enlarged by enrolling all the financing Bank Managers as members of this committee. The members of the committee are Assistant General Manager of State Bank of India, Chief Managers of Canara Bank, Union Bank of India, State Bank of Mysuru, Managers of Indian Bank and SIDBI. The committee met 4 times during the year under review and deliberated on various issues. All the members actively participated and made valuable suggestions for improvement in performance. Financing Bankers are seen reviewing the performance of our Company in one of the Project Implementation and Monitoring Committee meetings. Project Advisory Committee (PAC) This committee has been constituted at the instance of SIDBI to review the performance/ operational issues of Sanghamithra. This committee has met thrice during the year and several issues were discussed and decisions arrived at particularly in respect of release of loan granted by SIDBI and utilization of subordinated loan of ` 5 Crore. 2014-2015 39 HUMAN RESOURCES: Creation of the post of Chief Financial Officer-Chief Operating Officer Over the years, expansion of the area of operation and increased growth was managed by the CEO with the help of Regional Managers. In order that the CEO can devote more time to larger issues, it was decided by the Board to appoint a Chief Financial Officer – cum- Chief Operating Officer who is expected to shoulder certain tasks now performed by the CEO. Accordingly, a recruitment committee comprising Mr Anal Jain, Mr Ashok D(both Directors) and the CEO was constituted. The committee interviewed candidates for the post of CFO-COO and selected a candidate who has joined the Company in March 2015. The staff position as on 31.03.2015 is as under : Total no. of Total No. of Sl As on As on employees employees left CATEGORY No 31.03.2015 31.03.2014 joined during the job during the year the year Chief Finance Officer/ 1 1 - 1 0 Chief Operations Officer 2 Regional Managers 7 7 0 0 3 Chief Managers 5 3 2 0 4 Manager Office 14 14 3 3 5 Manager Field 23 27 3 7 6 Credit Officers 101 97 52 48 7 Water & sanitation Staaff 11 8 5 2 8 Other Office Staff 26 19 10 3 TOTAL 188 175 76 63 Further, 76 staff were recruited during the year under review, while 63 staff left the organisation, resulting in attrition rate of 25%. There has been a marginal improvement in retaining the staff over the previous year. H R Committee The HR committee met and discussed the working of HR committee and the usefulness of HR committee. It was felt by the CEO, HR Manager and others that the revised Performance Management System (PMS) seems to have positively impacted the performance of the company and the attrition levels. The company has for the first time achieved its budgeted disbursements; besides there is a reduction in fresh NPAs. It was also felt that the mid-term appraisals are greatly appreciated by employees. However, while the PMS is now better understood, the implementation of the PMS needs to further improve. In particular, the appraising officers need to better understand how to set KRAs, also how to better appraise performance against the KRAs set, also to appraise performance more objectively. It was suggested that more frequent feedback may help in achieving the goals set under KRAs. 40 2014-2015 To adopt more uniform and relevant rating, better understanding of rating as under was explained to the appraisers : Excellent - Consistently exceeds expectations Very Good - Occasionally exceeds expectations Good - Meets expectations Unsatisfactory - Does not meet expectations During the year, the increments were given to the employees based on their KRA rating at the rate of 20 % for Excellent,15% for Very Good and 8% for Good . Rewards and Recognition As in the past, a day-long recognition Ceremony was conducted in 3rd July 2015 to felicitate the best performers from among the staff and also the SHPIs which have linked their SHGs to Sanghamithra. All the field staff participated in the colorful event organized at Mysuru. Gulbarga Region was adjudged as the best region for the year 2014-15. The region has got this award for the fourth time. Members of the staff of Gulbarga Region are seen with Mr. Aloysius P Fernandez, Founder Chairperson and other dignitaries. Gender We are an equal opportunity organization, but the women staff strength is only 10.63%, though almost 99% of beneficiaries from our main activity of SHG financing are women. We have endeavored to ensure a safe, secure and congenial work environment at Sanghamithra where all employees can deliver their best without any fear or inhibition. In pursuance of this objective, we have evolved a “Sexual Harassment at the workplace (Prevention, prohibition and redressal) policy” and complied with the Sexual Harassment at the Workplace Act,2013. 2014-2015 41 Staff trainings- Internal We recognize the value of training targeted to meet the specific needs of our staff. During 2014-15, trainings organized for our staff were as under: Orientation/refresher programmes for our credit officers – 4 programmes were conducted reaching out to 123 employees in 4 batches (at Hosur); Training programmes were conducted in our Gulbarga and Madhya Pradesh regions for 38 credit officers during the year. CEO seen addressing a refreshers training An exclusive training program for the credit officers program for the senior Credit Officers. of Latur and Chhatarpur Regions was organized at H.D. Kote. The credit officers are seen actively participating in the program. Since training of staff is an integral part of organisational development, we propose to hold 3 days training programme once in 6 months, besides deputing staff to other reputed institutions for exposure. Staff trainings- External India Microfinance Award 2013 – International Training You are aware that Sanghamithra got a prestigious award in 2013 – Microfinance Organization of the year (Medium Category) sponsored by Access Development Services and HSBC Bank. As mentioned in the previous year annual report, UKAID of UK Government had provided a scholarship to attend the training program at prestigious Boulder Institute of Microfinance, Turin (Italy) which was attended by Chief Executive Officer for a period of 21 days, from 25.06.2014 to 15.07.2014. This has given him international perspective of microfinance. 42 2014-2015 Mr. R.D.Gadiyappanavar, CEO, seen receiving a certificate of participation in the training from Mr. Robert Peck Christen, President, Boulders Institute of Microfinance, Turin (Italy). In order to enhance the capabilities of our employees, a few selected employees were provided with opportunity to acquire/improve their knowledge/skill by participating in the following programmes: A Chief Manager was deputed for the 5- day “Financial Analysis” programme conducted by M/s. Accion global training team in collaboration with SIDBI;(5th to 9th May 2014 at Mumbai) Two managers were deputed for the “Leadership skills for microfinance mid level managers” programme conducted by M/s. Accion global training team; (10th to 14th Nov 2014 at Bengaluru) HR manager participated in “HRM for social sector” workshop conducted jointly by Bodhitree and Innobridge; (7th Nov 2014 at Bengaluru) A manager was deputed for “Making microfinance work” programme conducted by ACCION global training team; the programme was conducted in 2 sessions of 5 days each.(15.12.2014 to 19.12.2014 and 12.01.2015 to 16.01.2015 at Bengaluru). A Regional Manager was deputed for the “Advanced reflective education and training on Microinsurance” programme conducted by INAFI; (08.12.2014 to 11.12.2014 at Madurai) One Regional Manager and one Chief Manager participated in “Smart practices in client complaint resolution”- webinar services programme organized by ACCION. Guidelines / Action Plan for 2015-16 : I would like to list out a few initiatives which your Company has planned for the coming year. Intensify lending in least default areas and stop fresh lending to Stree Shakthi Groups promoted by WCDPO in the districts of Mysuru, Chitradurga, Ramangaram and Shimoga. Renewals only will be entertained in respect of Stree Shakthi Groups provided the groups 2014-2015 43 follow SHG norms strictly. No fresh groups will be added. This would continue for the ensuing year as well. Business expansion strategies: Mysuru Region: As in the previous year, our focus will be to reach out to unreached interior rural areas. A detailed survey will be made in Hassan district for opening of branches at Belur, Hale Mysuru and Arsikere as also Madikeri district viz., Kushalnagar and Somavarpet. Davanagere Region : Business will be intensified in Kadur and Tarikere taluks of Chikmagaluru district. New branches will be opened in Ranebennur and Hirekerur taluk of Haveri district. We will liaise with KMF, Dharwad and Shimoga Milk Unions for credit linkage to the groups promoted by them. Dharmapuri Region : Last year we opened branches in Omlur, Gobi and Palacode as planned. This year we propose to open a branch at Mettupalyam and Palani. Bengaluru Region: Two more branches will be opened at Krishnagiri (Tamilnadu) and Chikkanayakanahalli and Turuvekaere (Karnataka). Gulbarga Region: New branches will be opened in Indi and Basavana Bagewadi both in Bijapur district and Humnabad in Bidar district. Maharashtra Region: We were able to open nine branches last year taking the total number of branches to 13. This year we propose to open four branches, two each in Latur and Osmanabad districts. Madhya Pradesh Region: As mentioned in the previous report, we were able to open 12 branches as against 10 branches planned in the districts of Panna, Chattarpur and Tikamgarh. During the year, we propose to open two branches taking the total number of branches in Madhya Pradesh to 14. Each branch should ensure to provide credit to minimum of 100 groups. Initiatives to improve quality of credit and to reduce NPAs: One of the major challenges faced by your Company is that of accretion of non-performing assets (NPA); this will be addressed during the ensuing year by adopting the following strategies. 44 2014-2015 o An appreciation letter/certificate will be given and noted in the service record of those staff who have excelled in recovery; this will be considered for the purpose of promotion/ postings as in the past. o Training of SHGs for undertaking livelihood activities will be organised in collaboration with CIDOR, NGOs etc,. o The Credit Officer will attend /participate as observer in a minimum of 15 SHG meetings in a month. o At least one program in financial literacy and client protection program will be held in a branch in a month. o To ensure that the loan disbursed to the group reaches every eligible member the Credit Officer / Manager (Operations) will telephone members two days after handing over the cheque to the group. o Since training of staff is an integral part of organisational development, we will hold 3 days training programme once in 6 months, besides deputing staff to other reputed institutions for exposure. o The branches and the Regional Office will track the recovery of instalments from 15th every month and ensure that there are no overdues below 90 days. o Branches will strive to ensure no fresh NPAs are added. o Loan assessment in respect of individual members of the SHG will be done without exception. Disbursement Target : Considering the growth potential in un/under-tapped areas and credit expansion in new geographical areas, we propose to disburse around ` 175 Crore during the ensuing year. Bottom up budgeting has been done with a view to involve field staff in budgeting exercises so that they increase ownership of the business plan. The projected business plan for the year is as under: Amount Particulars (Rs. In lac) Level of advance as at the end of March 2015 14047.00 Projected disbursement 17500.00 TOTAL 31547.00 Less: Expected recovery 14509.00 Level of advances as at the end of March 2016 17038.00 Net Growth 2991.00 2014-2015 45 It is proposed to raise the level of advances portfolio to `17038 lac. The regionwise breakup of disbursement is furnished below: (Rs. in lac) Region No. of groups Amount Bengaluru 1510 3500.00 Mysuru 1000 2200.00 Dharmapuri 1107 3500.00 Davanagere 1351 2600.00 Gulbarga 2456 3500.00 Latur 1064 1200.00 Chhatarpur 1314 1000.00 TOTAL 9802 17500.00 Recovery Target: We have already settled the NPA recovery target as also AUCA target of recovery. We have also enhanced the incentives for recovery of such loans to 7.5% shared by all the field staff including Regional Managers. In view of this, every effort will be made to achieve the recovery targets as accepted. Recovery target Name of the Region (Rs. in lac) NPA AUCA Bengaluru 8.35 7.00 Mysuru 12.37 14.00 Dharmapuri 25.10 8.00 Davanagere 13.05 3.00 Gulbarga 1.13 18.00 TOTAL 60.00 50.00 Loan sanction committee meetings The loan committees in the Seven Regions met 432 times during the year and sanctioned loans for 6752 groups amounting to `13340 lac. We thank the committee members on the Board namely, Mr. William D’ Souza and Ms. Yasmin Master for their commitment and support. Governance : Sanghamithra is governed by a 8 member Board of Directors, consisting of eminent personalities representing different fields. 50% of the members are independent directors. The board members 46 2014-2015 have an overwhelming desire/urge to develop the lives of the marginalised; with their vast experience in the sector they take active interest in the affairs/work of Sanghamithra and strive to guide the organisaton in the right direction. As a sign of their commitment, they do not accept any sitting fee or transport costs. Mr. K. Sambasivan joined the Board during the year under review. The Board of Directors met four times during the past year; the details of these meetings are as under:- Board Met four times during the year 2014-15 No. of times Sl. meeting Name of the Director %age No. attended by each Director 1 Mr. Aloysius P Fernandez 4 100% 2 Mr. Anal K Jain 4 100% 3 Mr. William D Souza 3 75% 4 Mr. Arvind G Risbud 3 75% 5 Ms. Vidya Ramachandran 3 75% 6 Ms. Yasmin Master 3 75% 7 Mr. Doraisamy Ashok 3 75% 8 Mr. K Sambasivan 2 50% Board of Directors under the Chairmanship of Mr. Aloysius P Fernandez are seen reviewing the performance of the Company. 2014-2015 47 AUDITORS M/s. B.S.Chandrashekar & Co., Chartered Accountants, Bengaluru will retire at the forthcoming Annual General Meeting. They being eligible, have offered themselves for reappointment as Auditors for the year 2015-16. I recommend to the General Body to consider and approve appointing M/s. B.S.Chandrashekar & CO., as the Auditor for the current year, at a suitable remuneration to be fixed by the Board. DIRECTORS RESPONSIBILITY STATEMENT (SECTION 217 (2A) OF THE COMPANIES ACT 1956) The Directors confirm: a) that in preparation of the annual accounts, the applicable accounting standards have been followed and proper explanation have been provided relating to material departures, if any; b) that the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March 2015 and its profits and loss of the period ended on that date. c) that the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities and d) that the Directors have prepared and annual accounts on a going concern basis. ACKNOWLEDGEMENTS The guidance/suggestions of my colleagues in the Board has given me all the strength to lead Sanghamithra and to make it one of the replicable and respected models of an alternative Financial Institution. The lenders like NABARD, SIDBI, Canara Bank, Indian Bank, State Bank of India, State Bank of Mysuru, Union Bank of India and State Bank of Hyderabad also the donors CIDA, HIDA, CARE INDIA, Sir Dorabji Tata Trust (SDTT) and Ms.Rohini Nilekani, Micro Credit for Mothers, Netherlands have shown concern about the development of the Company, by not only giving financial assistance but also by their timely suggestions and guidance. This has given us strength and courage to take the right decisions. My sincere thanks to Water.org institution for supporting Sanghamithra in providing potable drinking water and sanitation program for the underprivileged members of SHGs. The role of partner NGOs, SHPIs, Resources Centres and people institutions in developing the loan portfolio, in identification of SAGs and assessment of credit needs and in follow up and recovery etc., is commendable and appreciated. I sincerely thank Mr. Anal K Jain, H R Committee Head and members of the committee Ms. Vidya Ramachandran and Ms. Yasmin Master for sparing their valuable time to address HR related issues including successful implementation of KRA systems. 48 2014-2015 I also place on record the services of Mr. William D’Souza, Vice Chairperson, Ms. Vidya Ramachandran and Ms. Yasmin Master for their valuable services rendered as loan sub-committee members. The transmission of funds was possible through the network of branches of commercial banks particularly the branches of, Canara Bank, Corporation Bank, State Bank of Mysuru, State Bank of India, Indian Bank, Vijaya Bank, Syndicate Bank, Union Bank of India, Bank of India & Grameena Banks like Cauvery Kalpatharu Grameena Bank, Pragathi Grameena Bank and the DCC Banks of Mysuru and Bengaluru; our sincere thanks to all of them. I am placing before you the audited financial statement of the Company thanks to the timely auditing of the books of accounts by our Statutory Auditors M/s. B.S.Chandrashekar & Co., Bengaluru. During the year they have rendered other assistance in consolidating the Balance Sheet of the Company. I sincerely thank them. The Company has proved that our micro-finance model is viable and poor people are bankable. In this respect the support and guidance extended by MYRADA and its several projects are note worthy. My sincere thanks to all the above institutions and personalities for their generous support and assistance. Last but not the least, I record my great appreciation for the splendid performances recorded during the review period to all the committed and dedicated staff members led by Mr. R.D. Gadiyappanavar, Chief Executive Officer. Place: Bengaluru Aloysius P. Fernandez Date: 28.05.2015 Founder Chairperson 2014-2015 49 SOME ENCOURAGING CASES OF LIVELIHOOD STRATEGIES Sanghamithra has financed over 55742 groups with a total financial assistance of ` 74551.41 lac since inception and as many as 859491 households for undertaking livelihood activities. We had entrusted to outside agencies to undertake impact studies of our finance. We keep doing such impact studies on an ongoing basis. It is proved beyond doubt that the people (SHG members) after availing loans for livelihood activities from Sanghamithra have improved a lot. There have been several successful ventures undertaken by the members of SHGs with our financial support. We furnish here below a few success stories which can be replicated by others. TRANSFORMATION IN LIVELIHOOD ACTIVITIES Sri Basaveshwara Mahila Swa Sahaya Sangha, Adiwala,Hiriyur From Agricultural laborer to Entrepreneur The Group was initially formed on 04.11.2007 with 10 members by WCDPO, Hiriyur. The members were earlier earning their livelihood by working as agricultural labors in the fields owned by others in the village. The members started with a small monthly savings of ` 1,230/-. Before availing the loan from Sanghamithra, they had approached some commercial Banks in their area for linkage but none of them came forward to finance them. It is almost 5 years after formation of the group finally, Sanghamithra came to their rescue and considered their request of ` 2.50 lac for first linkage on 29.09.2012. With this financial help, the members undertook making of thatched sheets of out of dry coconut leaves. The group members found it very lucrative as there was lot of demand for the same and started earning an attractive and regular income from the activity. They repaid the first loan promptly within the time schedule. Once again the members availed second linkage loan of ` 3.50 lac in 2014which was equally shared by all the members of the group. With this increased loan amount, they doubled the production of thatched sheets and income generation also went up considerably. The members are very happy now and express their deep gratitude to Sanghamithra for the timely help in a record time. The timely help by Sanghamithra brought not only smiles on their faces but also improved their standard of living enabling them to live with dignity and honor. 50 2014-2015 Ameen Mahila Swa Sahaya Sangha, Molkalmuru AWARD NGO promotes entrepreneurship among SHGs The above group was formed on 15.08.2004 with 15 members promoted and nurtured by AWARD NGO, Molkalmuru. Initially, the group started with a small savings of ` 848/- per month. Before availing the loan from Sanghamithra, the members were earning their livelihood by working in the fields as day wage labors. Sanghamithra came to their rescue and sanctioned first linkage loan of ` 60,000/- in the year 2008. With this financial assistance; the members undertook manufacturing of jeans pants and readymade garments. In the beginning, the members were selling the same in the open markets. Later, they availed ` 80,000/- in the second linkage on 31.03.2010. With this, they expanded their activity and had a tie up with the reputed whole sellers in Davangere and Chitradurga for marketing the products. This not only boosted their income earning capacity but also doubled their confidence in the business. Subsequently, satisfied with their regular repayments, Sanghamithra sanctioned ` One lac, and ` One lac fifty thousand on 30.08.2011 and 31.05.2012 under third and fourth linkages respectively. Income generation was thus gone up by three times. Six members of the group approached Sanghamithra for enhanced limit of ` 3.50 lac under 5th linkage for expansion of tailoring activity which was sanctioned expeditiously. The members are very happy that their production has gone up now and they are able to give employment to their own family members. The members remember with great pride that Sanghamithra is a unique MFI which helped them to stand on their own legs when no other Banks came forward to finance them. The members are very happy now and express their deep gratitude to Sanghamithra for the timely help in a record time. The timely help by Sanghamithra brought not only smiles on their faces but also improved their standard of living enabling them to live with dignity and honor. 2014-2015 51 Nirmala Mahila Swa Sahaya Sangha, Bhadravati Agriculture laborers becoming skilled entrepreneurs The above group was formed on 20.01.2002 with 20 members under Jawahar MM NGO, Bhadravati. Initially, the group started with a meager savings of ` 1,012/- per month. Before availing the loan from Sanghamithra, the members were earning their livelihood by working in the fields as day wage labors. Being all living below poverty line (BPL), they were struggling hard to make their both ends meet. Sanghamithra came to their rescue and sanctioned first loan of ` 50,000/- on 29.04.2005. With this financial assistance; the members undertook manufacturing of readymade meal plates out of betel nut leaves which are in high demand in the area for hygienic reason. Enthused by increased sale of their product in the market, they thought of expanding their activity and availed ` One lac, ` Two lac, ` Four lac and ` Five lac on 26.09.2006, 28.11.2008, 26.11.2010 and 30.12.2012 under 2nd, 3rd, 4th and 5th linkages respectively. The members were highly encouraged by speedy sanction of repeat loans by Sanghamithra. The loan repayment has been very prompt. 10 members shared the loan amount. With a view to encouraging them further, Sanghamithra sanctioned ` 5.00 lac on 31.01.2015 under 6th linkage. One of the members, K S Pongathayi availed ` 50,000/- loan and engaged fully in the above activity. She is now guiding and leading the group as an example for other members and village as well. With this activity and Sanghamithra’s timely financial help, their income level has gone up from ` 6,000/- to ` 15,000/- per month. Members are sending their children to better schools. All the members remember Sanghamithra with great pride that it is a unique MFI which helped them to come out of poverty and improve their standard of living when no other Bank came forward to finance them. The members are very happy now and express their deep gratitude to Sanghamithra for the timely help in a record time. The timely help by Sanghamithra brought not only smiles on their faces but also improved their standard of living enabling them to live with dignity and honor. 52 2014-2015 Amman Mahalir Suya Uthavikulu, Kurumpatti, Palani, Tamil Nadu Manual to power driven coir making unit This SHG was formed on 20.04.2008 by 12 women members who hail from a traditional coir rope making family. The group started with a small savings of ` 946/- in 2008 and now their savings has touched ` 1,00,800/- in their account with Punjab National Bank, Palani. All the members being wage earners, wanted to improve their earnings and their standard of living by installing power driven coir rope making machines in place of manually operated twisters. The group members approached Punjab National Bank to avail loan for 6 machines at cost of ` 1.00 lac each. However, the bank sanctioned only ` 3,00,000/- and the Balance amount was contributed by them by resorting to private borrowing at a very high rate of interest. After closing their bank loan, the members of SHG approached Sanghamithra Rural Financial Services for a financial assistance of ` 5,00,000/- to meet their working capital requirement for purchase of raw materials directly from the suppliers in Pollachi, Ayakudi and Chattrapatti with direct cash payment. This not only helped them to buy the raw material at a very competitive rate but also sell their finished product to the whole sellers in the market at very attractive rate. Now every member of the group is earning daily an amount of ` 170/- to ` 200/-. With the timely help from Sanghamithra, their monthly earnings have gone up to ` 5,000/- to ` 6,000/- and thereby boosting the group’s income from ` 60,000/- to ` 72,000/-. Repayment of ` 26,400/- towards EMI payment is no difficulty for them. The children of the members are going to the good schools. They have now fully repaid their private loans borrowed for purchase of machines. The members remember and say that the association with Sanghamithra is really memorable. The members are very happy now and express their deep gratitude to Sanghamithra for the timely help in a record time. 2014-2015 53 Sri Santoshi Mata Stree Shakti Mahila Swa Sahaya Sangha, Batgera(K), Sedam, Gulbarga. Transformation in livelihood activities The above group comprising of 11 members was formed on 27.02.2011. The group was maintaining savings bank account with Canara Bank with a total savings of ` 2,05,000/-. Despite having Savings Bank Account with the Bank for five years and repeated requests by the group for loan, Canara Bank could not sanction any loan. However, the group came in contact with another group in the area having availed loan from Sanghamithra. The group approached Sanghamithra on 11.12.2007 for a loan of ` 50,000/- for purchase of a small vermicelli making machine. The loan was repaid within one year and the members decided to expand their activity by adding some more vermicelli making machines. So far, the group has availed a loan of ` 1,45,000/- under various linkages and repayment has been very prompt. Under 7th linkage, Sanghamithra has sanctioned ` 5.00 lac on 28.02.2015 for purchase of noodle making machines for the members. Each of the members manufactures daily around 50 kg of noodle and sells it for ` 15/- each thereby earning an income of ` 18,000/- to ` 20,000/- each per month. This has not only helped the members to improve their standard of living but also enabled the people in the surrounding villages to improve their standard of living. With the timely help from Sanghamithra, the members have improved their social, educational and economic status for which they express their deep gratitude to Sanghamithra which is instrumental in transforming their lives. Sri Bhagyawanti Stree shakti Mahila Swa sahaya sangha, Batgera(K), Sedam, Gulbarga. Sanghamithra encourages rural artisans The above group comprising of 10 members was promoted by WCDPO and formed on 02.09.2010. The members basically belonged to village artisan and handicraft group. The group was maintaining savings bank account with Prathamika Krushi Pattina Sahakari Bank Ltd., Sedam with a total savings of ` 58,000/-. Despite maintaining regular savings and satisfactory conduct of account, the above Bank could not sanction any loan to the group. However, having heard of Sanghamithra’s reputation in the 54 2014-2015 area, the group approached Sanghamithra on 15.09.2011 for a loan of ` 50,000/- for manufacturing traditional and handicraft items like “mara”, “butti” and “kolu” out of bamboo strips which are unique in nature in that area. The loan was repaid within one year and the members decided to expand their activity by taking additional loan. Under 4th linkage, Sanghamithra has sanctioned ` 1, 20,000/- in February 2015. Each of the members manufactures daily 10 to 15 items and sells them for ` 60/- to ` 70/- each thereby earning an income of ` 15,000- to ` 18,000/- each per month. This has considerably helped the members to improve their standard of living. With the timely help from Sanghamithra, the members have improved their social, educational and economic status for which they express their deep gratitude to Sanghamithra which is instrumental in transforming their lives. Sri Manjunatha Mahila Swa Sahaya Sangha, Uddanuru, Kollegal, Mysuru From House wife to Woman Entrepreneur 2014-2015 55 The above Sangha consisting of 16 members was promoted by Spandana CMRC, Hanur and formed on 24th June 2012. The group conducts group meeting every week and remitting the savings to the Savings Bank account maintained at State Bank of Mysuru, Hanur. Aggregate Savings of the group which was ` 21,765/- in 2012-13 has increased gradually to ` 45,580/- in 2013-14 and ` 85,600/- in 2014-15. One of the members of the group, Smt. Maheshwari w/o Sri Jadeswamy, aged 29 years; a house wife with two children is a member of the group since inception. She has studied up to SSLC. She is married to Sri Jadeswamy who worked for six years in Pani Poori shop at Mysuru. Smt. Maheshwari had availed a loan of ` 5,000/- out of ` 30,000/- and ` 10,000/- out of ` 60,000/- sanctioned by Sanghamithra and utilized it for the purpose of purchasing the ingredients for preparing Poori manually and repaid the installments promptly. She used to buy 8-10 kgs of ingredients at the beginning and prepare Poori and supply to the vendors who used to sell the Pani Poori in the push cart to the customers. Gradually she increased the quantity of the ingredients to 15-16 Kg by employing 4-5 persons to assist her. She thought of buying a poori making machine to increase production and entering into a tie-up arrangement with whole sellers in Bengaluru. The Group approached Sanghamithra through CMRC,Hanur and requested for a loan of `100000/- in Feb 2015. The loan of `1,000,00/- was sanctioned on 28th Feb 2015 and out of `.100000/-, the group members have given ` 50,000/- to Smt. Maheshwari to purchase the required machine and to purchase the ingredients. Smt. Maheshwari purchased a Poori pressing machine at a cost of ` 25,000/- and the remaining amount was utilized for purchase of raw materials. Other family members also supported her in the activity. Now she is preparing 14000 to 15000 quality Poories per day. They are now proposing to buy two more pressing machines, improved heating equipments and employ 10-15 persons after clearing the present loan of ` 50000/-. Today, her gross income is ` 4,500/- and net income is `1,500/- per day. Now the monthly income has increased from `12,000/- to ` 45,000/- besides, the family getting fully employed, she has given employment to 8-10 people in the village. The group members along with the whole family of Smt. Maheshwari express their sincere thanks to Sanghamithra for timely financial support and encouraging them to take up new ventures. Sanghamithra has brought a new light in their life. 56 2014-2015 SANGHAMITHRA RURAL FINANCIAL SERVICES (A Not-For-profit company incorporated under section 25 of The Indian Companies’ Act 1956-A company limited by guarantee) 29. SIGNIFICANT ACCOUNTING POLICIES & NOTES FORMING PART OF ACCOUNTS 1. SIGNIFICANT ACCOUNTING POLICIES I. BASIS OF PREPERATION: The financial statements have been prepared in conformity with generally accepted accounting principles to comply in all material aspects with notified Accounting Standards (‘AS’) under the provision of the Companies Act, 1956 (‘the Act’) read with General Circular 8/2014 dated April 01,2014. Issued by the Ministry of Corporate Affairs. The financial statements have been consistently applied by company and are consistent with those used in the previous year. The complete financial statements have been prepared along with all disclosures. II. FIXED ASSETS: Fixed assets are stated at cost. Cost includes all expenses includes all expenses incurred to bring the assets to working condition for its intended use. Depreciation is provided on the bases of prescribed in Schedule II to the Companies Act, 2013. III. DEPRECIATION: Depreciation is provided on the bases prescribed in Schedule II to the Companies Act, 2013. IV. REVENUE RECOGNITION: A) Registration charges: It was decided to levy ` 100/- as registration charge at the time of fresh sanction and every renewal, instead of once in three years with effect from 01.12.2013 as the details of individual members are now being captured as also Base Line Survey of individual members which involves a great deal of work. B) Interest: The rate of interest for lending to SHGs was different for different products and also different geographical areas, especially in respect of general purpose loans. In order to bring about uniformity in the interest rate structure, the rationalization of interest rates task was taken up; the Board approved the same as mentioned below in respect of General Purpose Loans which constitutes around 92% of the total portfolio. • Loans upto ` one lac – 18% of interest p.a. on declining basis. • Loans above ` one lac upto 3 lac – 20% of interest p.a. on declining basis. • Loans above ` 3 lac – 21% of interest p.a. on declining basis. 2014-2015 57 I. PROVISION: Provisioning made against Financial Assistance portfolio: The company have adopted provisioning & income recognition norms as per RBI guidelines vide notification no. DNBS CC PD.250/03.10.01/2011-12 DATED 2nd December 2011. II. CAPITAL FUND: To account for capital fund when funds are received from the Donors with specific instructions to form such a fund. 1. The company is registered under section .25 of the companies Act. 1956. Share capital is not applicable to the company 2. Claim against the company not acknowledged as debt Rs. Nil (Previous Year Nil) 3. The company has put Internal Audit System & Internal Control procedures by way of Corporate Office Audit & Verification Audit commensurate with the increased lending activities. 4. Service Tax: The company has pre-deposited an amount of ` 50,00,000/- (Rupees Fifty lac only) as directed by Honorable Appellate Tribunal, Company has filed an application on13.08.2013 for early hearing of the case. We understand from the management that the tribunal has been reconstituted recently. The early hearing request is pending with the Tribunal. The position continues. 5. Income Tax: The Income Tax authorities had levied a tax of ` 7,56,872/- for the assessment year 2009-10 against which Company had gone on an appeal. The stay was given after making payment of 50% of the demand. However, the case has not come for hearing despite our regular follow-up. In fact, Company has made provisioning for the balance amount as well in the year 2011-12 Profit and Loss Account. The case came up for hearing on 27.05.2015 and awaiting the order. 6. Figures for the previous year are restated/ regrouped wherever necessary to be in conformity with current year figures. For and behalf of the board As per our Report of even date For B.S. CHANDRASEKHAR & CO., CHARTERED ACCOUNTANTS (CHANDRASEKHAR B.S) (Aloysius P. Fernandez) (William D’ Souza) Proprietor Founder Chairperson Vice – Chairman Membership No: 204488 Firm Reg No: 007189s (R. D. Gadiyappanavar) Chief Executive Officer Date: 17-05-2015 Place: Bangalore 58 2014-2015 REPORT OF THE AUDITOR TO THE MEMBERS OF SANGHAMITHRA RURAL FINANCIAL SERVICES. We have audited the attached balance Sheet of SANGHAMITHRA RURAL FINANCIAL SERVICES as at 31st march 2015 and also the income & Expenditure Account for the year ended that date annexed thereto. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material mis-statement. An audit includes examining, on test basis evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentations. We believe that our audit provides a reasonable basis for our opinion. This report does not include a statement on the matters specified in paragraph 4 of the Companies (Auditor’s Report) order2003, issued by the Central Government of India in terms of sub-section (4A) of sec.227 of the companies Act, 1956, since sub-clause (iii) of clause 10 of the order specifically exempts companies licensed to operate under Sec.25 of the Companies Act, 1956. Further to our comments referred to above, we report: 1. We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of our audit. 2. In our opinion, proper books of account, as required by law, have been kept by the Company so far as appears from our examination of those books. 3. The Balance sheet and the income & expenditure account dealt with by this report are in agreement with the books of account. 4. In our opinion, the Income & Expenditure account and Balance Sheet comply with the requirements of the Accounting Standards referred to in sub –section (3c) of Sec,211 of the companies Act, 1956 5. As per the representation made by company and all its Directors, no Director is disqualified from being appointed as Director u\s.274 (1)(G) of the Companies Act of 1956. 6. In our opinion and to the best of our information and according to the explanation given to us, the said Balance Sheet and Income & Expenditure Account read together with the notes, there on give the information required by the Companies Act,1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted India: i) In the case of the Balance Sheet, of the state of affairs of the company as at 31st March 2015. ii) In the case of the Income & Expenditure Account, of the excess of income over expenditure of the company for the year ended on that date. As per our Report of even date For B.S. CHANDRASEKHAR & CO., CHARTERED ACCOUNTANTS (CHANDRASEKHAR B.S) Proprietor Date: 17-05-2015 Membership No: 204488 Place: BANGALORE Firm Reg No: 007189s 2014-2015 59 60 2014-2015 2014-2015 61 62 2014-2015 2014-2015 63 64 2014-2015 2014-2015 65 66 2014-2015 2014-2015 67 68 2014-2015 2014-2015 69 70 2014-2015 72 2014-2015