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Information Memorandum

Chaitanya India Fin Credit Pvt. Ltd.

PRIVATE & CONFIDENTIAL

Disclaimer

1

Chaitanya India Fin Credit Pvt. Ltd. (“CIFCPL” or “the Company”) is engaged in microfinance business across Karnataka, India. Chaitanya

Rural Intermediation and Development Services Pvt Ltd (Chaitanya Rural IDSPL “or” the holding company”) is a holding company that is

currently non operating and holds 100% equity in CIFCPL.

CIFCPL is a NBFC-MFI, and Chaitanya Rural IDS-PL is a holding Company

This Confidential Information Document (the “Memorandum”) is based on management estimates and is being provided to you (hereinafter

referred to as the “Recipient”) only for information purposes. The sole purpose of this Memorandum is to provide preliminary information on

the background of the Company, an overview of the business and operations. This Memorandum does not purport to be all inclusive nor

does it necessarily include all information that a prospective partner may desire in evaluating the Company. The Company expressly

disclaim any and all liability for any errors and/ or omissions, representation or warranties, expressed or implied as contained in this

document.

This Memorandum has been prepared for information purposes relating to the Company only and upon the express understanding that it will

be used only for the purposes set forth above. This Memorandum may not be photocopied, reproduced or distributed to others at any time

without the prior consent of the Company or the Advisors. Upon request, the Recipient will promptly return all material received from the

Company and/or the Advisors without retaining any copies thereof.

Neither this Memorandum, nor its delivery to any prospective partner/ investor/ financier, nor any information contained in it or

representations supplied or made in connection with any negotiation shall constitute an offer to subscribe or the solicitation of an offer to

acquire any part of the business nor shall it form any basis or part of any agreement or arrangement of any kinds with the Company.

In furnishing this Memorandum, the Company, and the Advisors do not make any obligation to provide the Recipient with access to any

additional information on CIFCPL or their affiliates. This Memorandum should not be deemed an indication of the state of affairs of CIFCPL

nor shall it constitute an indication that there has been no change in the business or state of affairs of CIFCPL since the date of publication of

this Memorandum.

Any clarifications/ queries on the proposal as well as any future communication regarding the proposal should be addressed to the

Company.


Index

2

1 Executive Summary

2 Chaitanya Profile

4 Business Plan

5

3 Chaitanya Strategy Overview

Appendix


Executive Summary – A Rural Financial Inclusion Opportunity

3

Formal Players in rural finance are the PSBs, RRBs, Cooperatives and few NBFC, MFIs

Market Growth and Potential in rural finance is not limited by customer demand but by last

mile capabilities to distribute, deliver and manage risk at an effective cost.

Migration from Informal sources to Formal Institutions accelerating growth in financial services

Micro Finance Institutions have created a viable distribution architecture but have a single

product focus (JLG)

Chaitanya -

A Sound track

record of

sustainable

execution on a

high growth

path

Equity base of Rs 22 Cr with promoters and associates holding more than 97%

83% growth y-o-y since 2010 and Profitable since March 2011

Portfolio of Rs 75 cr with losses of less than 0.1% since inception. Total Cumulative loss of Rs

4.5 Lakh on Rs 130 cr of repayments till March 2014.

Successfully executed viable models for 2 Wheeler Loans, Gold Loans and Micro Housing

Loans in synergy with Micro Finance delivery structure

Organization structure and processes designed to deliver multiple financial products and

services through the MFI set up

Professional Board, Committed and Competent Top Management

Increasingly Supportive Regulatory Architecture has revitalized growth in Micro Credit

and “SMALL FINANCE BANKS” could over time be the significant game changer in

rural finance

A Business with a Strong Foundation in an attractive market

with an opportunity to capitalize on unique regulatory circumstances

Financial

Services for

Rural Low

Income Families

Game Changing

Opportunity


Key Equity Capital Fund Raise Milestones and Current Offer

4

Historical Fund Raise

Current Offer – Series B

SKS Microfinance

Market Cap

(Rs cr)

4,343

AUM

(Rs cr)

3,210

Current

Price (Rs)

342.25

P / BV

(30-Sep-

2014)

4.5 x

Public Market Peer

Comparison

Note: SKS data sourced from SKS website and results for QE 30-Sep-2014

Significant head room to grow both Price to Book Multiple and the Book Value

SKS Microfinance is the

only listed microfinance

company and has been

sighted only as a

reference

S.No

Type of

Fund Raise Year

Total Fund

Raised (Rs cr)

No. of

Shares

Share

Price (Rs)

Price /

BV

1 Seed 2009-10 2.35 2,354,000 10 1.00

2 Seed Sep-10 2.92 2,920,000 10 1.00

3 Series A Apr-11 7.19 3,992,926 18 1.80

4 Rights Dec-14 6.75 2,700,000 25 1.55

Target Closed Date 15-Jan-15

Target Amount (Rs Cr) 18.00

Offer Price (Rs) 28

Ticket Size

Indicative Pre-Money P / BV 1.54

Indicative Post-Money P / BV 1.30

Rs 5 Lakhs and above


Index

5

1 Executive Summary

2 Chaitanya Profile

4 Business Plan

5


Appendix


Chaitanya’s Mission – Double Bottom Line

Chaitanya engages with customers only if it believes it can make a positive impact in the lives

of the customers and only if it can profitably serve them on a sustainable basis

Note: Double Bottom Line refers to emphasis on equity holders returns coupled with improving lives of low income families.

Ensuring sustainable

Shareholder Returns

Improving Lives of Low

Income Families

through Financial

Services

Focus on Sustainable Shareholder

returns, ensures long term viability of business and

access to capital

Improvement in customers‟ lives is vital to secure

quality portfolio performance and sustainable

operations

Explicitly stated financial expectations, creates

organizational discipline to ensure commercial

viability for product and customer choice

Employees are inducted into a culture of delivering

both customer value and commercial value

6


Chaitanya Operational Highlights – Focus on Growth + Profitability + Product Scope

7

Profitable from 2nd Year of operation – Operating structure aligned and scaled with business size

83% AUM CAGR between 2011-14

Overall repayment rate has consistently been over 99.9%

‒ Total accumulated loan loss of Rs 4.5 Lakh from total cumulative repayments of Rs 130 cr

Incremental Cost / Incremental Portfolio (Incremental OCR) in 2013-14 is 7.82%

9 out of 14 middle management employees have been with the company for more than 4 years

Over Rs 70 cr of current borrowings from Banks and FIs

First Activity Based Lending - Live Stock Loans with Live Stock Insurance for 4,000 customers

Successful foray in multi-product lending (c. 11% of AUM in non-microfinance products)

‒ Vehicle Loan portfolio of Rs 5.0crs in 2 regions with 2 years of operational experience

‒ Gold loan portfolio of Rs 2.5crs in 2 branches with 2.5 years of experience in the product

‒ Pilots in Micro-Housing loans leading to collaboration with Two leading micro HFCs. 12% of current JLG

loans are for housing

A credible rural focused multi product NBFC-MFI scaled systematically

with sound risk management and a process oriented business model


Corporate Structure – Residents hold more than 65% in Chaitanya Rural IDS

The current corporate structure consists of two

companies

‒ (“Chaitanya Rural IDS”): Holding company which

holds 100% of the microfinance company.

‒ Chaitanya India Fin Credit Pvt. Ltd. (“CIFCPL”) the

NBFC-MFI providing loans in the Joint Liability

Group is 5 years old

‒ Gold, Vehicle and other loans will be moved to the

Holding Co after obtaining a NBFC License

The structure has been designed so that the NBFC-

MFI is complaint with RBI requirements for MFI Assets

while the Holding Company can scale up the other

financial services businesses

The holding company can start operations after it

obtains a NBFC license from the RBI

Unique Shareholding Structure - Promoters and close

associates (c..50 individuals) of promoters own 97% of

shares

Funds Raised through friends, family and colleagues of

the promoters

8

Operating Hold Co.

(Chaitanya Rural IDS )

(Rs 22cr)

Microfinance Entity

(CIFCPL) (Rs 21.5 cr)

100%

PromotersOther

Shareholders

New

Share

holders

Present Shareholding Structure

Fully Committed First Generation Entrepreneurs backed by High Quality Professionals as

Investors

Other

Shareholders

51%Promoters

49%


Promoters & Board of Directors – Diverse and Committed Team

Samit Shankar Shetty

Set Up and led Olam‟s coffee business in Brasil as its

Country Manager which is now a 1$Bn Business.

Profitably Scaled it to a turnover of $ 300 Mn, in 4 years

Spent 4+ years in operations intensive procurement , trade

financing, farmer financing and processing operations in

Africa, as a Territory Head and 2 years as a Profit Centre

Head

MBA from IIM, Ahmedabad

Handles Operations and IT in Chaitanya

4 years leadership position at an international non-profit

organization, S3IDF; Setup over 25 innovative enterprises

that deliver infrastructure services to the poor at S3IDF

Worked for 2 years with International Non-Profit

Organization – World Resources Institute

3 years corporate experience at Pepsico & Bosch India

MA in International Relations from Syracuse

University, USA and MBA from IIT, Bombay

Handles Internal Audit, Finance, Accounting and Risk

9

Anand Rao

Promoters Board of Directors

Ramesh

Sundaresan

Investor‟s nominee Director at Chaitanya

MD of Invenio, Singapore based company,

engaged in providing market making and

risk management solutions in agricultural

derivatives

Global Head / President of Risk

Management solutions at Olam

K S Ravi

CA by profession being the Managing

Partner of M/s Ravi & Shrihari

Advices on statutory matters to institutions

in the social sector for the last 20 years

Involved in mentoring NGOs

A Narasimha

Retd. GM with 37 years of banking

experience in IOB, Vijay Bank and Andhra

Bank

Nanda

Kumar R

Retd. VP at ING-Vysya with 30 years of

banking experience

Currently working as Group CEO of

Emmvee Group

Team Chaitanya Brings together experience in professional corporates

and rural community based organizations


Corporate Timeline

The Right Foundation for Sustained Long Term Growth

10

2009 2010 2011 2012 2013 2014

Achieved profitability in

Sep 2010

Regional Structure Put

up for Jagalur Region

SIDBI extends first loan

of Rs One Crore

Mar: Incorporated

Oct: Started

operations in Jagalur

Delphix Nano Core

MFI Solution

Implemented

Raised Series A

funding – Mar 11

Belgaum and

Kushtagi Region

Started

Term loan availed

from a Bank- SBI

Pilot of Gold Loan

product started

Foray into 2W loans

in Kushtagi

First Securitization

transaction concluded

Divisional Office

Set up in Dharwad

with Divisional

Manager

AUM Crosses Rs.

50 cr

Manager to handle

Social Initiatives

appointed


Chaitanya – Growth Over the Last 3 Years

All numbers in Rs Lakh unless otherwise stated

Profitability with Growth, Scope and Scale

* PAT for FY 2013-14, impacted by RBI guideline to increase provisions on standard assets to 1% of the Portfolio from 0.25%. On a like to like basis, PAT would be Rs 103 Lakh

11

Organization GrowthPortfolio & Profitability Growth

8 14 24 29 62

100

156

237

11,644 18,268

28,062 46,329

2011 2012 2013 2014

Branches Employees Customers

AUM BreakupPerformance Metrics

JLG89%

Vehicle (2W)7%

Gold4%

924 1,679

3,180

5,648

15.2 69.7 51.3 79.6

2011 2012 2013 2014

AUM (Rs Lakh) PAT

17.73%15.44%

11.88%13.55% 11.76%7.82%

8.23% 7.92%

11.06%

2012 2013 2014

OCR Incremental OCR Interest Spread


Product Offerings – Customized Mix of JLG Loans

12

Catering to diverse customer requirements of loan sizes and repayment abilities within the JLG, through

credit risk management skills , risk culture at the branch level and IT support systems at the back end

JLG Gold 2W Microhousing New Products

Product Current Portfolio

(Rs cr)

Max Exposure (Rs)

2Y Multiple Disbursal Loan 26.94 30,000

1Y Basic Loan 13.79 15,000

2Y Loan with Top-up Option 5.3 35,000

Short Term Loan 2.90 8,000

2Y Asset Purchase Loan 0.51 40,000

Livestock Loan 12.75 40,000

Proposed / Recently Introduced Products

Housing Construction & Repair 50,000

Small Enterprise Loans 50,000

Agriculture Investment Loan 50,000

Small Business Investment Loans 50,000

Joint Liability Group in the Grameen Model, 80% of loans for income generation, between Rs 5,000 - 50,000.

Process Oriented Risk Management to assure group homogeneity, Customer and Group Intent, Financial

Discipline, savings and repayment ability.

Clock work Repayments Mechanism ensures high efficiency and engagement with customers.

Very Suitable for repayment levels less than Rs. 2,500 per month and for Income Generating Purposes.

JL

G L

oan

s S

plit

by P

urp

ose

Total JLG AUM: Rs 62cr

23.8%

23.6%

17.9%

11.6%

9.7%

13.4%

Live Stock

Agri Related

Working Capital for Small Businesses

House Repair / Construction

Vehicle / Auto Purchase, Maintainence

Others


Product Offerings – Other Products

13

JLG Gold 2W Microhousing New Products

Gold Loans

Vehicle Loans

(2 W)

Micro housing

Loans

Enterprise

Loans and

Agri- Asset

Loans

Pawn Brokers have the lion‟s share of the rural market followed by

PSBs. Size of business not attracting Gold Loan Cos as yet.

Tenure: 3-12 months, Interest charged: 24 %, 2 branches for 2.5 years

1 Non Microfinance assets are restricted to 15% of the total assets as per NBFC-MFI norms – restricting full scale up of other products

Typical tenure: 18 months, Interest charged: 26 %

Traditional 2Wheeler loans are through dealer network in district Head

quarters. Sales at the Taluk places through sub-dealer is growing

Nearness to villages and branch presence supports the 2Wheeler biz

Typical tenure:24-60 months; Interest charged: 19% - 22 %, 50K-500K

For loans above 1 lakh registered mortgage is insisted

Group Methodology adopted for loans up to Rs One Lakh

Piloting the partnership Models in 3 branches

Working Capital and Asset acquisition loans for Shops, Food

Businesses, Skilled Professionals, Vendors greater than Rs.50,000

Loans > 50,000 for irrigation systems, wells and other Agri-Assets

Typical tenure: 24months, Interest charged: 24 %

Rs 2.5 cr

Product Description Current Portfolio1

Pro

du

cts

in S

ca

le U

p P

ha

se

Pro

du

ct

Pip

elin

e

Tie-up with

2 Rural

Micro

Housing

Finance Cos

Plan to

launch it in

the next 12

months in

partnership

Leverage the Micro Credit Channel to Capitalize on Untapped Potential, driving Synergies

Rs 5.0 cr


139 177

384

552

2011 2012 2013 2014

Geographical Footprints – 17 Districts Currently Covered

14

Jagalur

KushtagiGokak

Kittur

Holalkere

1

2

3

4

5

Base in Central Karnataka and expanding into all districts of North Karnataka through 21 regions

571 770

1,218

1,893

2011 2012 2013 2014

100 148

475

1,080

2011 2012 2013 2014

100

349

672

1,324

2011 2012 2013 2014

AUM in Rs Lakhs

Existing

Regions

Newly opened

Regions

Planned

Regions (by

Jun‟15)

1

5

4B

C

D

3

2A

Divisions

Division

GulbargaDivision

Hospet

Division

Dharwad

Division

Chitradurga

A Region is contiguous area of around

50 Km Radius with a closely Knit Team

of 30-50, led by a Regional Manager

A Division is envisaged as Semi

Independent Business Unit with 5-6

regions and c. 30 rural Branches


Management Team – Rich Operational Experience in Rural Markets

15

Operations Support Functions

Jeyaseelan L

Divisional

Manager

5

Worked as Regional Manager for 3 years

16 years of experience in the NGO sector

with the last assignment at Sampark as

Project Manager

Specialist in Self Help Group (SHG)

microfinance model

Vinayak S. Patil

Divisional

Manager

3

Has worked with NGOs for 7 years and in

a NBFC, IDF Financial Services

Experience in training SHG members in

various livelihoods and Financial literacy

Nagaraj C

Regional

Manager, Jagalur5

Joined as a Branch Manager

Worked with SNEHA for 4+ years, a

NGO involved in social awareness and

community development

Other Key

Management

Raj Saxena (Head, Gold and SME Loans)

‒ 3+ years with IDBI (SME and housing)

Iranna R Shelwadi (Regional Manager)

‒ 10+ years in Community Development

Prakash S. (Regional Manager)

‒ 8+ years in MFI space

Sandeep Adhyanhta (Regional Manager

‒ 5+ years with SELCO

Vasudeva S.B.

Financial

Controller

5

CA with >25 years of experience in

India and Abroad.

Expertise in financial management,

taxation and corporate affairs.

Shreepad

Mohan Vaze

HR Manager4

6+ years in Azim Premji Foundation

and 3 years in Deshpande Foundation

Expertise in training young

professionals

S Vijayakumar

GM, Banking

and Vigilance

1

35 Years in a PSU Bank in diverse

areas like audit, credit, factoring

services.

Other Key

Personnel

5Rakesh Mattar: Accounts & MIS

Manager

5 Jignesh Bhalani: IT Manager

4 Guruswamy M.: Audit Manager

4Shilpa Kalyani, Manager - Social

Initiatives

Note: Numbers in middle column represent years with Chaitanya

A capable leadership team built by complementing their experience with management nous


SMS/GPRS based tracking system to track punctuality and presence

Custom built Integrated Risk management System based on attendance, loan utilization, economic

activities, household Occupations, staff assessment and audit feedback

Methodology to grade repayment centers using risk indicators and rigorous tracking of the grading

Escalation mechanism to ensure attention of Regional and Branch Managers linked to risk grading

Multi Level Decision Making in Other Collateral based Loan Products

Core Financial and Operations System implemented from Day one. Day - Close in Financial systems

is before 7:00 pm every day followed by automatic control reporting

Continuous audit of repayments and customer interaction processes is structured to be random

Quarterly Branch Audits are done by an external agency and are systematic

10 Well defined Activities (Plans) lasting 1- 3 hr constitute the field operating process

The Activity Proposed for the next day is logged in on the previous day

Customer outreach is achieved by managing the process activities instead of outcomes

Scalable but Spread Out Recruitment Framework brings in employees from the community

Multi Dimensional Performance Assessment is done at every level

Operational Backbone – Process Oriented Business Model

16

Custom Built

IT Products

MIS

Framework

Risk

Management

Field Process

Framework

Random Audit

Process

Quality HR

Processes

The business is process driven and manpower Intensive. HR processes are key to incentivize

behavior that support long term business sustainability


Index

17

1 Executive Summary

2 Chaitanya Profile

4 Business Plan

5


Appendix


Rural Finance Model – Operationally Difficult, More Rewarding in the

Long Run

Advantages

Stronger bond among customers, lead to better

enforceability of the JLG mechanism

Very high entry barriers

‒ Stickiness for a known/old player in the market

‒ Dispersed geographies makes it economically

difficult to replace an existing player

Rural customers are dispersed, separated by villages

and the domino effect in MFI defaults has been observed

primarily in urban pockets

Challenges

Lower population density and larger coverage area

Rural women customers take longer to educate

It takes longer to reach good penetration levels

Recruitment needs to be local, to work effectively in

rural geographies

Training and development takes longer, however a

settled employee is usually more stable

18

Rural FIs have to be differently enabled to capitalize on the potential and be effective

Opportunities

68% of the population live in villages with less than

1,000 households

Significantly lower MFI penetration

SBLP (SHG Bank Linkage Program ) slow down

increases the opportunities for rural focused MFIs

Lower competition in Non-JLG products - An opportunity

to leverage the network and profitably add newer

products like Gold and 2 Wheeler loans, housing.

Licensing norms for small banks / universal banks favor

rural MFIs.

Very few rural focused pan India competitors

Concerns

Dependency on Monsoons

Scalability within a geography is slower and scalability

across geographies needs localization efforts in every

location


Microfinance Industry – Outlook for Growth is Robust

Joint Liability Group based Micro Credit is expected to continue on a high growth trajectory by increasing

rural penetration and taking market share from the SHG program.

19

The potential size of the microfinance market is

estimated to be between Rs 140,000 – 250,000 cr3

‒ Formal micro lending market is currently c. Rs

70,000 cr. Our estimates of latent demand in

Karnataka is Rs 10,000 cr and of the country is

above Rs 200,000 cr

MFI credit is expected to grow at 25-30% over the

next decade

80% of the districts in the country have <20% MFI

penetration and rural areas further under penetrated

Stabilization of credit bureau assists sustenance

NBFC-MFIs continue to take market share from the

Government led SHG- Bank Linkage Program

Supportive regulatory moves are SRO recognition

to MFIN, Priority sector status for NBFC-

MFIs, guidelines for small banks

Total Projected Microfinance Market (Rs cr)1

61,675 72,378

198,375

474,858

2013 2014E 2019P 2024P

1 Assumption: The total potential market grows at 15% (inflation adj.) and the penetration of formal sources increases from 48% (presently) to 78% by 2024.2 Source: MFIN; represents 465 districts covered by MFIN members3 Source: ICRA report on Industry Outlook and Performance of Microfinance Institutions, June 2014.

District Level Breakup by MFI Penetration Level2

20

35

119

124

167

>30%

20-30%

10-20%

5-10%

<5%

The above represents number of districts (465) with different penetration levels


2 Wheeler Loan Market – Rural Market expected to Drive Growth

Lack of formal 2W loan providers in the rural segment presents significant potential for rural focused 2W loan

companies, however the current lower base volume at each location makes it unviable for traditional players

20

Source: 2W Industry report by IndiaNivesh, 2W Industry Report by ICRA, Bajaj Fin Serve Investor Presentation

Rural40%

Urban60%

Rural | Urban Split

Total Size:

~Rs 100,000 cr

Proportion of Financed 2W stabilized between

2008-14 at 20%

ICRA projects 9% CAGR through 2016-17 to reach a size of

23 mn units. Current 2W market is close to 100,000 Crores.

Finance„s share of the market has stabilized around 20%

and 2014 lending is est at Rs18,300 Crores by bajaj finance

Rural market has been growing at a faster rate primarily due

to

‒ Much lower penetration (c. 22%) in Rural areas

‒ Faster growth of people out of Poverty in Rural India in

the last 7-8 years

Most NBFCs are very strong in the semi urban district

locations and work through dealers located at the districts.

Sub Dealer networks have come up in Taluk locations to

enhance reach and provide service support but financing at

these locations is mainly through co-op banks

Chaitanya conducted a survey in two districts of Karnataka

and found out that the monthly sales was c. 2,500 units, out

of which 1,000 units were sold to buyers located in villages

‒ Out of 1000 only 100 were financed through formal

channels (compared to 30% in district headquarters)

Higher social cohesion, permanent residency and linkage to

economic activity make rural 2W loans less risky

Spread and lower population density are challenges in rural

areas overcome by synergy with the micro finance network

Penetration Per 1,000

261

181

100

86

84

82

76

Indonesia

Malaysia

China

Denmark

Taiwan

Brazil

India

0% 10% 20% 30% 40% 50% 60%

2013-14

2010-11

2009-10

2008-09

2007-08

2006-07


57.8% 60.7% 57.6% 52.4% 52.3%

16.4% 16.5%14.4%

13.1% 13.0%

11.3% 10.7% 18.3% 24.8% 25.0%

14.50% 12.10% 9.70% 9.70% 9.70%

2008 2009 2010 2011 2012

PSU Banks Pvt. Banks NBFCs Cooperatives

Gold Loan Market – Shift from Unorganized to Organized

An Emergency Loan Option for most low income families, and a product that complements the other field

based products for a MFI. Resource sharing in Cash Management, Risk management, transaction processing

21

The Organised Gold Loan Market was over Rs. 160,000

cr in March 2012 (est share of 25%) with NBFCs having c.

25% market share at over 40,000 Crores.

The AUM of the 2 dominant players has declined by

16.7% between Mar-12 and Mar-14 and we estimate

NBFCs have de-grown by 16%-20%

Last 2-3 quarters indicate stabilization of AUM of NBFCs.

In Urban and Semi Urban pockets gold loan borrowing

has shifted from unorganized to organized players. This

is driven by increasing accessibility of the organized

players, better systems, processes, interest rates and

security offered by the organised segment.

Gold Loan Focused NBFCs have easier loan processing .

They focus on repeatable process to expand network.

It is estimated that out of total gold reserve in the

country, rural India accounts for 65%. Rural areas are

served by unorganized players, PSBs and cooperatives.

Amongst the branch locations of Chaitanya, 70% do not

have any Gold NBFC branch creating an opportunity.

Geographical proximity, service-agility, respect, fairness

and transparency in dealing drive business growth.

Complementary to Micro Finance, as business growth is

not staff intensive but security of gold is a significant risk.

Organized Gold Loan Market (Rs cr)

Organized Gold Loan Market Breakup

Source: Muthoot Finance, Aug 2011, Surveying the India Gold Loan Market Report by Cognizant (Jan 2012), RBI report on Issues related to Gold Imports and Gold Loans by NBFCs

21,722 33,126

53,863

90,059

160,576

2008 2009 2010 2011 2012

The above assumes cooperative share to remain constant in 2011 & 2012 as data NA


Microhousing Market – Demand much higher than Supply

Micro Housing Finance has 3-7 year Tenure and higher interest rates . Liquidity of the assets in the rural areas is low

and origination is dispersed. Hence Rural Reach and customer assessment Skills of MFIs at the field level are crucial

22

Source: “Housing Microfinance in India: Benchmarking the Status” report by Access Assist, published in Dec 2013

Housing Finance Market Size

<5L Housing Loans as % of Total Housing Loans

Rural Value Housing has a potential size of Rs. 4,26,100

Crores plus a equally large home improvement market

Loan Sizes of Rs 1-1.5Lakh cater to families with Income less

than Rs.10,000 p.m (core MFI Customers) and from 1.5

Lakhs to Rs 5 Lakh for families with higher agriculture or

business income .

90% of the rural housing shortage is in amongst the BPL

(Below Poverty Line) families

Lack of institutional financing mechanism is evident

‒ 66% of financing of new construction in rural areas is

through own resources, 27% from informal sources and

9% from institutional channels incl. Govt. Schemes.

Though, loans for repair up to Rs 2 Lakhs and up to Rs. 5 lakh

for new houses is classified as PSL, affordable housing

finance (sub Rs 5 Lakh) has not attracted Banks and

traditional HFCs, as it involves field level cash flow

assessment of each client and needs a differentiated structure

NHB and other agencies including the World Bank now

recognise that MFIs with their JLG network, cash flow visibility

and understanding, can help in reach and assessment leading

to Specific Housing Micro finance thrust in the future policy

In the Pilot Study it was noted that there is an annual potential

demand of 1,000 loans (a.10 Crores) in one Chaitanya branch

significantly dwarfing potential of all other products.

Urban Rural

Housing Shortfall (mn units) 18.78 43.70

Avg. cost of an affordable house (Rs mn) 0.50 0.13

Loan-to-value ratio (LTV) 75% 75%

Avg. Loan per house (Rs mn) 0.38 0.10

Total financing requirement (Rs bn) 7,043 4,261

PSU Banks HFCs

26.20%24.20%

16.60%18.50%

16.20%

9.30%

2010 2011 2012


New Products – Exploring the Potential of the Rural Network

23

Multiple products – Viability, Risk Capability, Customer Need intersect at Product Choice

Visible demand or perceived need in target customers, lower

and middle Income rural HHs.

Potential in rural areas and is the potential driven by migration

from Informal sources.

Lack of an efficient and strong local player in branch location;

possible to gain business competing on reach and service

Should have potential to generate 3% ROA for asset based /

20% Net Margin for Fee based

Capability to manage risk of the new product.

‒ Is customer and collateral assessment risks manageable

by specifically trained Credit Officers

‒ Is technical / business assessment manageable by

specially trained branch manager equivalent employees

Are there possibility of synergistic partnerships

Criteria for Choice of New Loan Products

Gold Loans - 2 Branches,

2.5 yrs

Vehicle Loans - 2 Regions, 2

yrs

Live Stock Loans with

insurance - 4,000 loans

Micro Housing Loans – Pilot

in 3 branches, 3 months

JLG Based House

Refurbishment Loans

New Products

Business Loans for Small

Enterprise

Investment Loans for Small

Enterprises

Agriculture Asset Loans

Small Savings Account – BC

Micro Recurring Deposits –

BC

National Pension Scheme –

Aggregator

Already Introduced Pipeline

Use branch network and JLG customers to enhance reach

Replace informal lenders by a responsive and transparent

lending mechanism that is economically viable and secure

Shared branch infrastructure to reduce operational costs

Tie-Up with partners to minimize risk and enhance learning

New Product Strategy


Organization – Structured to Distribute Multiple Financial Products and Manage Risks

24

Dummy Text

Branch

Manager

Credit

Officer (Two

Wheeler)

Regional

Manager

Regional

Product (2W)

Manager

Divisional

Manager

Product

Head - D

(2W)

Responsibilities

A professional Set up in

local rural geographies

First level of leadership

teams from the local

geography

Hi- Quality local risk

management skills, and

empowered local

manpower structure

needs training and time

to build

Coordination within

divisional teams

IT Systems

Equity Investments

Audit /Control/Reporting

Capability of Customer Interface at the branch level, supported by product credit expertise, team leadership at

the regional level and business/product management at the Divisional level

Key Aspects of Structure

Customer interface /

assessment

Transaction handling

Admin support

Manpower & resource

allocation

Customer house visits

Repayment/Recovery

Credit Assessment based on

customer Intent, background

check and house visit

Branch Level Product Expert

Policy and Process

adherence

Business growth

through branches

Local Supervisory

Support / Leadership

Train / Monitor / Support /

Key Product Resource in

every branch

Drive Portfolio Quality,

Technical assistance in

Credit Sanction

Business analysis and

Planning

Policy formulation

Coordination within

Regional teams

IT/Accounts Support

Training of regional

product managers

Marketing inputs

Product level training

Product Business planning

Product design

Financial control & MIS

Funding

Risk management


Professional

Corporate

Core

Chaitanya Strategy – An Aligned Organization

25

Responsive Branch Interface …

Staff Strategy

Locally recruited regional teams for

right presence

Branch teams to manage customer

accounts and relationships

Divisional team to skill, organize

support and control

Expanding Reach

Focus on rural market

Choose geographies where Top 3

position in 80% of the villages is likely

Move to other states after a strong

foothold in North Karnataka

Right Mix of Values

A strong risk mitigation culture in front

line staff

Deliver customer value like a

community based organization

Professional culture in rural

surroundings

Enhancing Depth

Use JLG Loans as the entry in every

rural Location and add products after

manpower stabilization

Evolution of capabilities of manpower

structure determines Growth

Depth over expanse

Structured for Local Leadership

Decentralised customer and operational

decisions; centralized product credit.

Leverage local knowledge, relationships

and customs

Empower branches and control through

domain experts, audits and HR

processes

Leveraging IT Systems

Flexible, economical, reliable, transacti

onal - IT Platform

Complemented by custom built

process and decision support - IT tools

… Grounded in the Local Community

A Responsive Branch Interface grounded in the local community with a professional corporate core


Chaitanya Strategy – Achievements and Aspirations

26

2010-14 2014-19

The Initial Years

Rural Karnataka focused NBFC-MFI

Stabilization of team, processes and

execution capabilities

Viable operational model to deliver multiple

financial products to villages

Business growth coupled with profitability with

emphasis on risk management

Intent - 5 years

Strategically and financially sustainable

‒ Reach 90% of villages in coverage area

‒ Be amongst the Top 2 Financial Institution

in regions under operations

‒ Non JLG products to deliver more than

1/3rd the revenue

‒ Credit losses < 0.25%

Be a Rs 1,000 cr AUM – Rural focused multi

product financial Institution. Pursue Small

Financial Bank Opportunity

ROE > 15%

Stabilized the business model in 5 regions,

Chaitanya is now expanding its operations to 20+ regions in Central and North Karnataka

Vision: To be a strategically sustainable multi product rural financial institution delivering a

sustainable return on equity in 5 years


Index

27

1 Executive Summary

2 Chaitanya Profile

4 Business Plan

5


Appendix


Business Plan – Financial Summary

Gross Loan Portfolio (Rs cr) Annual Revenue (Rs cr)

PAT (Rs cr)

28

32 56 99204

400

710

1,078

2013A 2014A 2015E 2016E 2017E 2018E 2019E

6 11 2243

86

160

253

2013A 2014A 2015E 2016E 2017E 2018E 2019E

0.51 0.80 1.39

5.328.13

12.55

24.31

2013A 2014A 2015E 2016E 2017E 2018E 2019E


Business Plan – Financial Statements

All numbers in Rs cr unless otherwise stated

29

2014A 2015E 2016E 2017E 2018E 2019E

Net Worth 14.5 25 107 115 128 181

Total Borrowings 47.7 91 122 351 685 1,050

Loans & Advances 48.3 99 204 400 710 1,078

Deposits | Cash | Liquid Funds 15.9 19 29 74 120 181

Net Revenue (Rev less Finance Cost) 6.3 11 27 50 83 125

Employee Benefit Expense 2.9 6 12 24 41 59

Depreciation & Overheads 1.9 3 6 11 19 25

Provisions & Bad Debts 0.4 1 2 3 5 6

PAT 0.8 1 5 8 13 24

OCR 11.9% 11.2% 11.2% 11.1% 10.2% 8.9%

ROA 2.0% 1.6% 3.1% 2.3% 2.0% 2.4%

ROE 5.5% 7.1% 8.1% 7.3% 10.3% 15.7%

Branches 29 47 89 153 211 238

Employees 237 386 765 1,376 2,036 2,466

Credit Officers 136 228 438 783 1,185 1,466

Customers 46,329 71,904 147,161 289,931 484,754 659,576

Key Balance Sheet Items

Key Income Statement Items

Key Operational Data


Business Plan – Product Wise AUM Growth

All numbers in Rs cr

30

2014 2015 2016 2017 2018 2019

JLG 54 87 163 298 498 719

Gold 2 4 14 34 71 124

Vehicle (2W) 4 8 19 45 89 142

Other Loans 1 8 24 52 93

Total 61 99 204 400 710 1,078

Micro-housing 2 19 66 144 232

2014 2015 2016 2017 2018 2019

JLG Gold Vehicle (2W) Other Loans

66.7%

11.5%

13.2%

8.6%

89%

4%

7%

0%

87%

8%

1%

4%80%

9%

4%

7%

74%

11%

6%

9%

67%

13%

9%

11%

Note: Micro-housing lending through partnership model


Business Plan – OCR Bridge

31

Branch Cost Region Cost Division Cost Head Office Cost Total OCR

2013-14 2014-15 2016-17 2018-19

6.7

%

11.9

%

2.0%

3.2%

6.1

%

11.2

%

2.0%

1.2%

1.9%

7.1

%

11.1

%

2.1%

1.2%

0.6%

6.3

%

8.9

%

1.6%

0.8%

0.3%

0%

2%

4%

6%

8%

10%

12%

14%

16%


Index

32

1 Executive Summary

2 Chaitanya Profile

4 Business Plan

5


Appendix – Industry Overview

Industry Overview and more detailed

financials would be sent on request

Documents

FinFirst Capital Advisors - Chaitanya India Fin Credit Pvt Ltdchaitanyaindia.in/docs/other-reports/Chaitanya Investors... · 4 Business Plan 5 3 Chaitanya Strategy Overview Appendix