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This is to certify that
Seba Rahara
has been assigned
a SMERA Comprehensive Grading of
SMERA M3C2
This grading indicates Above Average Capacity of the MFI to manage its operations in a sustainable
manner
and Good performance on code of conduct dimensions
D&B D-U-N-S® Number: 87-083-0563Location: Kolkata
Entity Type: Society
This Rating is valid from Apr 30, 2019 to Apr 28, 2020
Disclaimer: SMERA is a division of Acuité Ratings & Research Limited that offers various rating and grading services to MSMEs. SMERA’s Ratings / Gradings / Due Diligence and other credit assessment related services are based on the information provided by the rated entity and obtained by SMERA from sources it considers reliable. Although reasonable care has been taken, SMERA/Acuité makes no representation or warranty, expressed or implied with respect to the accuracy, adequacy
or completeness of any information used. SMERA/Acuité is not responsible for any errors or omissions in the Rating / Grading / Assessment or the Rating / Grading / Assessment Report. SMERA/Acuité has no financial liability, whatsoever, for any direct, indirect or consequential loss of any kind arising from the use of its Ratings / Gradings / Assessments. SMERA’s Ratings / Gradings / Due Diligence and other credit assessment related services do not constitute an audit of the rated
entity and should not be treated as a recommendation or opinion or a substitute for buyer’s or lender’s independent assessment.
For SMERA
A Division of Acuité Ratings & Research Limited
Sankar Chakraborti
Chief Executive Officer
To verify this certificate click:
www.smeraonline.com/verify-certificate-870830563
or scan the QR Code
Comprehensive Grading
SEBA RAHARA
To verify the grading, please scan the QR Code
Date of Report:
30th April, 2019
Valid Till:
28th April, 2020
SMERA
Comprehensive
Grading
M3C2
(Above Average
capacity of the MFI to
manage its operations
in a sustainable manner
and good performance
on code of conduct
dimensions)
The grading is done on 8 x 5 matrix. The matrix assesses the entity on two broad parameters:
Capacity to manage their microfinance operations in a sustainable manner
Performance on COCA dimensions
Scale C1 C2 C3 C4 C5
M1
M2
M3 M3C2
M4
M5
M6
M7
M8
The MFI obtains comprehensive MFI grading of “M3C2”. It signifies above average capacity of
the MFI to manage its operations in a sustainable manner and good performance on code of
conduct dimensions.
SMERA’s MFI Comprehensive Grading Scale
Grading Rationale
Microfinance Capacity Assessment Grade
Seba obtains “M3” as its performance grade which signifies “Above average capacity of the organization to carry out its activities in a sustainable manner”.
Code of Conduct Assessment Grade
Seba obtains “C2” as its Code of Conduct Assessment Grade which signifies good performance on COCA dimensions.
Comprehensive MFI Grading provides opinion of the Rating Agency on MFI’s capacity to carry out its microfinance operations in a sustainable manner and its adherence to Industry code of conduct. MFI Capacity Assessment Grading has been done on the dimensions of Capital Adequacy, Governance, Management Quality and Risk Management Systems. Assessment on Code of Conduct has been done on the indicators pertaining to Transparency, Client Protection, Governance, Recruitment, Client Education, Feedback & Grievance Redressal and Data Sharing. Some of these indicators have been categorized as Higher Order indicators consisting of indicators on Integrity and Ethical Behaviour and Sensitive Indicators.
To verify the grading, please scan the QR Code
Conflict of Interest Declaration The Rating Agency (including its holding company and wholly owned subsidiaries) has not been involved in any assignment of advisory nature for a period of 12 months preceding the date of the comprehensive grading. None of the employees or the Board members of the Rating agency have been a member of the Board of Directors of the MFI during for a period of 12 months preceding the date of the comprehensive grading.
Disclaimer SMERA is a division of Acuité Ratings & Research Limited that offers various rating and grading services to MSMEs. SMERA’s Ratings / Gradings / Due Diligence and other credit assessment related services are based on the information provided by the rated entity and obtained by SMERA from sources it considers reliable. Although reasonable care has been taken, SMERA/Acuité makes no representation or warranty, expressed or implied with respect to the accuracy, adequacy or completeness of any information used. SMERA/Acuité is not responsible for any errors or omissions in the Rating / Grading / Assessment or the Rating / Grading / Assessment Report. SMERA/Acuité has no financial liability, whatsoever, for any direct, indirect or consequential loss of any kind arising from the use of its Ratings / Gradings / Assessments. SMERA’s Ratings / Gradings / Due Diligence and other credit assessment related services do not constitute an audit of the rated entity and should not be treated as a recommendation or opinion or a substitute for buyer’s or lender’s independent assessment.
Historical Rating Grades
Date Rating Agency Rating/Grading
27-Apr-2018 SMERA M3C2
11-Aug-2017 CARE Ratings M4C2
22-July-2016 CARE Ratings MFI 3+
26-March-2015 CARE Ratings MFI 3+
4
Microfinance Capacity Assessment Grading Symbols and Definitions
Grading Scale Definitions
M1 MFIs with this grade are considered to have highest capacity to manage their microfinance operations in a sustainable manner.
M2 MFIs with this grade are considered to have high capacity to manage their microfinance operations in a sustainable manner.
M3 MFIs with this grade are considered to have above average capacity to manage their microfinance operations in a sustainable manner.
M4 MFIs with this grade are considered to have average capacity to manage their microfinance operations in a sustainable manner
M5 MFIs with this grade are considered to have inadequate capacity to manage their microfinance operations in a sustainable manner.
M6 MFIs with this grade are considered to have low capacity to manage their microfinance operations in a sustainable manner.
M7 MFIs with this grade are considered to have very low capacity to manage their microfinance operations in a sustainable manner.
M8 MFIs with this grade are considered to have lowest capacity to manage their microfinance operations in a sustainable manner.
Code of Conduct Assessment Scale and Definitions
Grading Scale Definitions
C1 MFIs with this grade have excellent performance on Code of Conduct dimensions
C2 MFIs with this grade have good performance on Code of Conduct dimensions
C3 MFIs with this grade have average performance on Code of Conduct dimensions
C4 MFIs with this grade have weak performance on Code of Conduct dimensions
C5 MFIs with this grade have weakest performance on Code of Conduct dimensions
To verify the grading, please scan the QR Code
SMERA’s MFI Grading Scale
5
Name of the MFI Seba Rahara
Organization Head – Microfinance Business
Name Mr. Subrata Ghosh
Designation Secretary
Mobile No. 9830141845
Email ID [email protected]
Date of Joining 28-Mar-2006
Date of Incorporation/Establishment 28-Mar-2006
Date of commencement of microfinance business
28-Mar-2006
Legal Status Society under West Bengal Societies Registration Act, 1961
Business of the company Microfinance activity under Self Help Group Model (SHG)
Correspondence Address
Aakanksha-II", Ground Floor, Saibon Road, PO-Rahara, Kolkata, West Bengal – 700118 India
Geographical Reach (As on 31/Mar/2019)
No. of States 2
No. of Districts 4
No. of Branches 9
No. of Active Borrowers 15,380
No. of Total Employees 66
No. of Field/Credit Officers 30
Company Profile
6
Product Profile
Products Description Loan Size (Rs)
Interest Rate (A)
(In %)
Processing Fee (B)
(In %)
APR (Interest Rate and
Processing fees) (In %)
(C=A+B)
Sopan Income Generating
Loan 10,000-30,000 26.00 1.00 27.00
Sujala Income Generating
Loan 10,000-30,000 26.00 1.00 27.00
Nirmal Dhara Sanitation Loan 20,000 26.00 1.00 27.00 Surya Dhara Solar Loan 1,500 26.00 1.00 27.00
7
Promoters Profile
Name Position Qualification Brief Profile
Mr. Ranjib Kumar Ghosh
President Graduate
He has more than decade of experience in the field of microfinance and social development.
He is associated with Seba as a President.
Mrs. Banani Sarkar
Vice President
M.Com. & M.B.A.
She has 8 years of experience in MFI space, as a Social Worker & Trainer.
She is associated with Seba as a Vice President.
Mr. Subrata Ghosh
Secretary M.Com. & M.B.A.
He has 16 years of experience in microfinance sector and social development.
He was associated with Bandhan Financial Service Private Limited as a management trainee.
He is the key person of Seba Rahara associated as a Secretary.
Mr. Sibendra Prasad Chakraborty
Assistance Secretary
M.Com. & B.A.
He is an ex-Govt. officer, worked in different co-operative society as a Secretary.
Associated with different Tea Garden & Real estate group as a Manager.
At present he is associated with Khardha Municipality as a special secretary.
Mr. Sunil Kumar Chakraborty
Treasurer Graduate
He has more than two decade of experience in banking sector.
He was associated with UCO bank as an officer and Branch manager.
He is associated with Seba as a Treasurer.
Mr. Pijush Saha Member Graduate
He is associated with Seba as a Manager H.R.
He is looking after recruitment, and other related activity related to H.R.
Mr. Sudhangshu Ghosh
Member Pre-University He is a social worker and involved
in social development work.
8
Management Profile
Name Position Qualification Brief Profile
Mr. Subrata Ghosh Secretary M.Com. & M.B.A.
He has 16 years of experience in the field of micro-finance and social development.
He was associated with Bandhan Financial Service Private Limited as a management trainee.
He is the key person of Seba Rahara associated as a Secretary.
Mr. Shyama Prasad Chakraborty
Finance Manager
B.Com. (Ex. A.G.M. – IDBI
Bank Limited)
He has more than 36 years of experience in the banking sector.
He was associated with IDBI bank in the department Human resource and Administration.
Associated as a branch in-charge with IDBI Mizoram.
Worked as Relationship Manager and Assistant General Manager in Corporate Banking Group, Kolkata.
He is associated with Seba Rahara as a Finance Head, looking after fund mobilization and relationship with the Banks/FIs.
Mr. Biswajit Sarkar Divisional Manager
M.Sc.
He has 12 years of experience in Proshika as a Branch Manager, Divisional Manager and 7 years of experience in Seba as Divisional Manager.
Associated with Seba since 2011. Working as a divisional Manager looking after the branches monitoring, daily function of branches to protect the fraud and misappropriation of funds.
Mr. Subhash Chandra Paul
Head - Legal & Risk
C.S., C.A. (Inter)
30 years’ experience in various sector like Britannia Industries Limited, Saraswati Press Limited (Govt. of West Bengal) in legal matter & 07 years’ of experience in Asa International India Microfinance Limited in legal department.
He is associated with Seba Rahara looking after the Govt. statutory and relationship with Bank & FI’s.
9
Name Position Qualification Brief Profile
Mr. Jayanta Samanta
Senior Manager (MIS & Accounts)
B.Com.
Associated with Seba since 2011. Working as a Senior Manager (MIS
& Accounts). He has attended various training
and conference conducted by Sa-dhan, AMFI, FIs etc.
Mr. Sandipta Sinha Roy
Manager (M.I.S.)
B. Sc.
Associated with Seba since 2015. Working as a Manager M.I.S. He has attended various training
and conference conducted by Sa-dhan, AMFI, FIs etc.
Mr. Pijush Saha Manager (H.R.)
Graduate
He is associated with Seba as a Manager H.R.
He is looking after recruitment, and other activity related to H.R.
10
Highlights of Microfinance Operations
Particulars 31/Mar/2016 31/Mar/2017 31/Mar/2018 31/Mar/2019 No. of States 2 2 2 2 No. of Districts 3 4 4 4 No. of Branches 8 9 10 9 No. of Active Members 14,737 16,693 17,960 20,471 No. of Active Borrowers 13,527 14,562 15,712 15,380
No. of Total Employees 60 64 66 66
No. of Field/Credit Officers 30 30 33 30
No. of SHGs 726 771 880 933 No. of Individual Loans 0 0 0 0
OWNED PORTFOLIO Particulars 31/Mar/2016 31/Mar/2017 31/Mar/2018 31/Mar/2019 Total loan disbursements during the year (in crore)
21.88 27.73 34.76 42.42
Total portfolio outstanding (in crore)
12.01 15.89 20.40 23.63
11
RBI’s Direction SEBA Status Compliance
85% of total assets to be in the nature of qualifying assets
More than 85% of assets are qualifying assets as on 31/Dec/2018.
Complied
Net worth to be in excess of Rs 5 Crore Not applicable Not
applicable Income of borrower not to exceed Rs 100,000 in the rural areas and Rs 160,000 in the urban and semi-urban areas*
Seba extends loans to households whose income does not exceed Rs. 100,000 in rural and Rs. 160,000 in urban areas.
Complied
Loans size not to exceed Rs 60,000 in first cycle and Rs 100,000 in subsequent cycles*
Seba offers loan in the range of Rs. 20,000 in the first cycle and Rs. 30,000 in the subsequent cycle depending on client repayment capacity, type of activity etc.
Complied
Total indebtedness of the borrower not to exceed Rs 100,000 (excl medical and education loans)*
Apart from taking declaration from the client, Seba conducts credit check on the loans outstanding through credit bureau.
Complied
Tenure of loans not to be less than 24 months for loan amount in excess of Rs 30,000, with prepayment without penalty*
Seba does not provide loans in excess of Rs. 30,000.
Complied
Pricing guidelines are to be followed. The maximum interest on loan products offered by Seba is 26.00% on reducing basis.
Complied
Transparency in interest rates to be maintained.
Interest, Processing Fees and Insurance Premium charged are duly mentioned in the loan card provided to the client.
Complied
Not more than two MFIs lend to the same client
Seba verifies the same though credit check from credit bureau.
Complied
Compliance with RBI’s Directives for MFIs
12
RBI’s Direction SEBA Status Compliance
Loan pricing to include processing fee
(not exceeding 1% of the loan amount)
Seba is charging processing fee of
1.00% on the disbursed loan
amount. Complied
Collateral free loans Seba does not accept any collateral
for extending the credit. Complied
MFIs shall not collect any Security Deposit
/ Margin from the borrower.
Seba does not collect any security
deposit / margin from the
borrower. Complied
No late payment or prepayment
penalties
Seba does not take late payment or
prepayment penalties from the
clients.
Complied
Share complete client data with at least
one Credit Information Company (CIC)
established under the CIC Regulation Act
2005, as per the frequency of data
submission prescribed by the CIC.
Seba shares its client data with
Equifax only. Complied
Aggregate amount of loans, given for
income generation, is not less than 50
per cent of the total loans given by the
MFIs
Seba provides loans for income
generation activities. The aggregate
amount of loans is over 50% as on
March 31, 2019.
Complied
NBFC-MFIs shall maintain a capital
adequacy ratio consisting of Tier I and
Tier II Capital which shall not be less
than 15 percent of its aggregate risk
weighted assets.
Seba has a CRAR of 23.27% as on
March 31, 2018. Complied
The aggregate loan provision to be
maintained by NBFC-MFIs at any point of
time shall not be less than the higher of
a) 1% of the outstanding loan
portfolio or b)
50% of the aggregate loan installments
which are overdue for more than 90 days
and less than 180 days and 100% of the
aggregate loan installments which are
overdue for 180 days or more’.
SEBA has made appropriate loan
loss provisions. Complied
13
Operating Environment
SMERA estimates the MFI sector to grow at a CAGR of 25%-30% and is expected to touch Rs.
180000 crore by the end of FY2019.
MFIs have reported an increase of ~27% in total loan outstanding FY2018 as compared to
FY2017. SMERA believes seasoned customer profile over multiple loan cycles along with the
inclusion of fresh borrowers have helped MFI industry to increase its total loan outstanding.
The fund flow to the sector has improved on account of increased confidence on MFI sector
Further large MFIs are exploring the route of Non-convertible debentures (NCDs) and Pass
through Certificates (PTCs); whereas small –mid size MFIs have an increased access to funds
from banks and financial institutions. SMERA believes that the RBI guidelines on co-origination
of priority sector loans by NBFCs and banks are significant step towards an efficient framework
for micro lending in India. SMERA estimates Rs.25,000-30,000 crore of potential lending every
year under this origination mechanism over the medium term.
Support systems such as Self-Regulatory Organizations (SRO), Credit Information Bureaus
(CIB) among others have been established to ensure credit check and process adherence among
MFIs. This regulatory framework has brought more accountability and transparency within the
sector.
On the contrary, recent demonetization drive restrained MFIs disbursement and collection
process which has moderated microfinance sector growth in FY2016-17 as compared to the
previous year. Post demonetization Asset Quality has declined, however it has improved and
Portfolio at Risk (PAR) > 30 stood at 2.4% in Q2 FY 18-19.
Section 1: Microfinance Capacity Assessment Grading
14
Reasonable track record of microfinance operations and satisfactory industry experience of key promoters Seba Rahara was incorporated in the year 2006, and it is registered under West Bengal
Societies Registration act 1961. Seba has been working with disadvantage and deprived
segments of the society with a prime focus on poor women so that they can attain socio -
economic empowerment and substantial social and economic development. With a vision of a
just, enlighten healthy and democratic India free from the evils of gender discrimination,
illiteracy, secured hunger, poverty and exploitation where men and women move forward to
achieve highest levels of humanity and solidarity.
Seba carries microfinance activities in the state of West Bengal and Bihar in SHG model.
The day-to-day operations of the company are managed by Mr. Subrata Ghosh, Secretary and
key person of the entity. He has 15 years of experience in the field of micro-finance and social
development. He was associated with Bandhan Financial Service Private Limited as a
management trainee. Seba’s management team has relevant experience in the MFI industry and
good understanding in banking, microfinance and social development segment.
As on March 31, 2019, Seba has seven members in its board with relevant experience in the
banking, finance and microfinance space. Ranjib Kumar Ghosh, President of Seba has more than
decade of experience in the field of microfinance and social development.
Name Position Ranjib Kumar Ghosh President Banani Sarkar Vice President Subrata Ghosh Secretary Sibendra Prasad Chakraborty Assistance Secretary Sunil Kumar Chakraborty Treasurer Pijush Saha Member Sudhangshu Ghosh Member
Diversified Resource Profile Seba has developed funding relationships with a large number of lenders i.e. 16 lenders
(including PSU Banks/Private Bank/Financial Institutions). Out of total debt outstanding of Rs.
20.64 crores, the borrowing from PSU Banks contributes ~57 per cent of external borrowings
and the rest from Private Banks/NBFCs as on March 31, 2019.
These relationships have helped Seba in meeting its funding requirements to meet the
projected growth. The debt availed from the PSU Banks/Private Banks have been drawn at an
interest rate in the range between 11.00%-12.80%.
The cost of funds (COF) for Seba has been stable at 12.75% as on March 31, 2019 as compared
to 12.58% in the previous year on account increase of borrowing cost.
15
Moderate capitalisation and comfortable liquidity profile
Seba has a comfortable gearing marked by gearing of 3.81 times as on March 31, 2019 as
compared to 4.42 times in the previous year. CRAR has declined marginally and it stood at
23.27% in FY2018, as compared to 24.40% in FY2017. The CRAR has declined due to increase
in the risk weighted assets and the risk weighted asset has increased mainly on account of
increase in the loan portfolio.
SEBA has a comfortable liquidity position due to well matched maturity of assets and liabilities.
The tenure of loans is about 12-24 months, whereas the incremental bank funding is typically
with tenure of about 24-36 months. However regular flow of funds is critical to maintain the
projected growth and the same would have a key bearing on its liquidity profile.
Sound Asset Quality
Seba has maintained sound asset quality with on-time repayment rate of 99.53% as on March
31, 2019.
Period FY 2016 FY 2017 FY 2018 FY 2019
Portfolio o/s (in crore)
Portfolio o/s (in crore)
Portfolio o/s (in crore)
Portfolio o/s (in crore)
On-time 12.01 15.77 20.32 23.52
1-30 days 0.00 0.025 0.013 0.001
31-60 days 0.00 0.032 0.012 0.008
61-90 days 0.00018 0.020 0.008 0.009
91-180 days 0.00 0.018 0.021 0.01
181-360 days 0.004 0.024 0.027 0.031
> 360 days 0.00 0.001 0.0001 0.026
Write-off 0.0007 0.006 0.015 0.025
Total 12.01 15.90 20.41 23.63
The PAR 1-30 days stood at 0.00% as on March 31, 2019 as compared to 0.06% as on March 31,
2018. PAR >30 days stood at 0.35% as on March 31, 2019 as compared to 0.34% as on March
31, 2018. Adequate credit appraisal processes, monitoring and risk management mechanisms
have supported the company to keep asset quality indicators under control.
High Geographical Concentration
Seba’s operations are spread in two states i.e. West Bengal and Bihar. However ~95% of the
loan portfolio is concentrated in West Bengal.
16
Name of the State
No. of Branches
No. of Borrowers
Portfolio o/s (in crore)
PAR % (>30 days)
% of Total Portfolio o/s
West Bengal 9 14628 22.56 0.35% 95.47%
Bihar 0 752 1.07 0.00% 4.53%
Total 9 15,380 23.63 0.35% 100.00
The entity is exposed to high level of political uncertainty in the state of West Bengal where the
company has majority of the microfinance operations. Any political intervention in the existing
states would significantly affect the company’s asset quality indicators. It would also be key
grading sensitivity factor for the company to replicate its systems, processes and sound asset
quality in the newer geographies while improving portfolio diversity.
Improvement in operational performance in FY2019
The company has reported net profit of Rs.1.12 crore on operating income of Rs.5.89 crore as on 31st March,2019 (as per the provisional financials provided by the management), as compared to net profit of Rs.0.79 crore on operating income of Rs.4.83 crore in the previous year. Operating income has increased mainly on account of increase in interest and fee revenue from microfinance loans.
The operational self-sufficiency (OSS) of the company has increased over the past year. The OSS
stood at 123.58% as on 31st March, 2019 as compared to 119.54% in the previous year due to
increases in the total operating income.
As on Mar 31, 2019, the company has an outstanding loan portfolio of Rs.23.63 crore spread
over 9 branches with about 15,380 borrowers. Saba’s Assets under Management (AUM)
witnessed a moderate growth of ~16% in FY2019 over the previous year. The Company’s
operating expense stood comfortable at 8.62% as on 31st March, 2019.
Adequate MIS & IT infrastructure considering the current scale of operations
Seba’s management information system (MIS) and Information Technology (IT) infrastructure
is moderate for its current scale of operations. It has dedicated MIS and IT team at Head Office
to ensure smooth flow of operational data between Head Office and branches.
The current MIS system deployed in Seba is ‘BIJLI’ customized software which seems to be
moderate to handle the current and projected growth. The company also has an internal
auditor which undertakes branch and borrower audit once in three months.
Inherent risk prevalent in the microfinance sector
Seba’s business risk profile is susceptible to regulatory and legislative risks, along with the
inherent risk exist such as unsecured nature of lending, cash handling, vulnerable customer
profile and exposure to vagaries of political situation in the area of operation.
17
COCA Grading – C2 (Good Performance on Code of Conduct dimensions)
SCORES ON PARAMETERS
Code of Conduct Parameters Code % Performance
Sensitive SEN 94%
Integrity and Ethical Behavior IEB 80%
Transparency TRP 91%
Client Protection CLP 86%
Governance GOV 83%
Recruitment REC 92%
Client Education CLE 89%
Feedback & Grievance Redressal FGR 64%
Data Sharing DSR 83%
94%
80%
91%
86% 83% 92%
89%
64%
83%
SEN
IEB
TRP
CLP
GOVREC
CLE
FGR
DSR
COCA Dimension Scores
Max
Section 2: Code of Conduct Assessment
18
Seba with an overall grade of “C2”, indicate Good Performance on Code of Conduct dimensions.
83%
86%
87%
87%
Observance
Dissemination
Documentation
Approval
ADDO Scores
19
The Code of Conduct report for SEBA evaluates the company’s adherence to various Code of
Conduct parameters. The study examines and comments upon the common minimum indicators
such as:
Sensitive Indicators Integrity and Ethical Behaviour Transparency Client Protection Governance Recruitment Client Education Feedback and Grievance Redressal Data Sharing
SMERA believes that SEBA exhibits good on COCA dimensions. This document details SMERA’s
approach and methodology for this study and gives observations of its assessment team while
conducting the evaluation. The Approval; Documentation; Dissemination and Observance (ADDO)
framework has been used for assessment and measuring SEBA’s adherence towards ethical
operational practices.
Code of Conduct Assessment Summary
20
Strengths Weaknesses
Board with rich experience from
banking, finance and social development
sector.
Experienced and qualified management
who have considerable experience in
microfinance industry are instrumental
in growth of Seba till date.
Transparency in loan pricing and
policies.
Compulsory training on products terms
and conditions to client prior to every
loan.
Compulsory check on over indebtedness
of every borrower.
Board approved policies, compliant with
the RBI guidelines.
Credit policies are well established
documented and communicated.
Adequate loan appraisal & monitoring
systems.
Seba take written consent from the
client for sharing client data for third
party disclosure.
Company has vigilant process to prevent
and control risk involved in the process
of disbursing loans to customers. Risk
Control Unit has been formed to handle
day to day operational activities under
the supervision of Credit head to bring
down operational risks.
Key financial and operational indicators
are displayed on Seba’s website.
Awareness among the staff on RBI
compliance was found to be moderate.
Seba does not have a policy to provide
written undertaking to the client
whenever grievance is received.
However customer grievances are
recorded in the branch as well as Head
Office as soon as the grievance is
received.
Seba does not provide
acknowledgement to the borrowers
when they apply for a loan.
Strengths and weaknesses pertaining to Code of Conduct
21
HIGHER ORDER INDICATORS
Integrity and Ethical Behaviour
The MFI have the policy to place reports on COC compliance
before the board at the end of every financial year.
The audit committee of the Board reviews the adequacy of audit
staff strength and scope of Internal Audit.
Board has approved policy of recovering delinquent loans.
MFI does not prepare monthly reports about the number, nature
and resolution of grievances and feedback received for
management review and same is presented to audit committee set
up at board level.
The MFI has a practice that when it recruits staff from another
MFI, the said staff will not be assigned to the same area he/she
was serving at the previous employer for a period of one year;
however the same have not been documented in HR manual.
In all the branches visited, the contact number and address of
Grievance Redressal officer was properly displayed.
Awareness among client on the company’s Grievance Redressal
mechanism was found to be moderate.
Fixed Component compensation of staff is not impacted in event
of overdues. Seba, in its fair practices code provides importance
for transparency in pricing and clear communication to the
clients.
Sensitive Indicators
Clients interviewed were aware of the charges and price for all
services availed.
Interactions with clients revealed that they had not been made to
pay for a service or product as a precondition for loan.
There are no adverse observations in the Auditor's report
regarding accounting standards followed by the MFI.
Seba shares accurate data with credit bureaus.
Seba does not charge any extra fees from client apart from
processing fee and insurance premium. The loans are issued to
the clients without any collateral and no security deposit is
accepted. Further no penalty is charged for overdue and pre-
closure of loans.
The MFI gets an external CA agency to certify its compliance with
RBI's directions for NBFC-MFIs.
Seba provide repayment schedule to the clients including break-
up of principle and interest.
Awareness among the staff on RBI compliance was found to be
Significant Observations
22
moderate.
BUILDING BLOCKS
Transparency
Seba has documented the pricing of its loan products in its
operational manual. In the branches visited loan documents had
been maintained in local languages.
Circulars with the most recent directions were available in the
visited branches.
Seba’s in its fair practices code provides importance for
transparency in pricing and clear communication to the clients.
The loan interest rate and processing fees is mentioned on the
loan passbook.
Clients interviewed were moderately aware of the charges and
price for all services availed.
Audit committee verifies through the audit reports whether all
clients have received the necessary loan documents.
Displays the details of the loan products including their interest
rate.
Seba does not provide acknowledgement to the borrowers when they apply for a loan.
Seba enters into loan agreement to the clients when they apply for
a loan; however the copy of the loan agreement is not shared with
the borrowers.
Code of conduct compliance report of Seba & previous financial
year annual financial statement and report is available in the
public domain.
Client Protection
Seba has a board-approved policy regarding client data security.
Employees are trained on aspects of appropriate behavior with
the clients.
Seba has documented policy on client data security which forms
part of its fair practice code.
Seba takes written consent from the client for third party
disclosures.
Seba has framed a Fair Practice Code and has also adopted the RBI
fair practices code.
Employees are given training on aspects of appropriate behavior
with the clients.
Staffs were found to be aware of the need to have professional
conduct with the clients.
Governance
Seba maintain high standards of governance by inducting persons
with good and sound reputation as members of Board /Governing
body.
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Seba has seven-member on its board as on March 31, 2019 having
extensive experience in the banking and finance segment.
The MFI has got its accounts audited in a timely manner after the
end of the most relevant financial year.
No adverse observations in the Auditor's report regarding
accounting standards followed by the MFI.
Action taken report based on the last audit report is available in
the branches visited.
Staff satisfaction related to compensation and incentive is not
covered under scope of Internal Audit.
Recruitment
Seba’s board has reviewed its recruitment policies at least once
annually.
Seba has a defined and documented process for responding to
reference check requests.
As informed by the management, Seba has honored the notice
period for all employees who have left the organization.
Seba obtain NOC or relieving letter from the previous employee,
in case employees are recruited from other MFIs.
The MFI has a practice that when it recruits staff from another
MFI, the said staff will not be assigned to the same area he/she
was serving at the previous employer for a period of one year.
Client Education
Seba in its fair practices code provides importance for raising
clients' awareness of the options, choices and responsibilities
regarding financial products and services.
Seba does not charge clients for the trainings provided to clients,
itself or through a related party.
Awareness to its clients/members pertaining to interest rate and
insurance claim settlements found average.
Feedback and Grievance Redressal
The Board has approved a policy for redressal of its clients’
grievances, which requires board to be updated on the functioning
of grievance redressal mechanism.
It has an effective system to record complaints received at the
branches and toll free number at Head Office.
SEBA does not prepare monthly report about the number, nature
and resolution of grievances and feedback received for
management review.
SEBA does not take declaration letter from the client that the
complaints lodged have been satisfactorily resolved by the
Redressal officer.
Clients were found to be moderately aware of the helpline
number.
Feedback mechanisms are tracked and monitored. In all the
branches visited, the contact number and address of customer
grievance officer was properly displayed.
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Awareness among client on Grievance Redressal mechanism was
found to be moderate.
Dedicated team at HO level to documents and follow up on the
client complaints.
Data Sharing
Operational data and financial data of FY2019 are available on the
website of Seba.
The entity has a well-defined process for sharing data with the
credit bureaus.
MFI has provided data called for by MFIN and RBI as and when
required as per compliance.
Seba shares accurate data with Equifax only.
Seba performs compulsory credit bureau checks for all its clients.
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Microfinance Grading Methodology
A) Operational Track Record
Business Orientation and Outreach of the MFI is an important parameter to gauge the growth strategies of the MFI and to assess its strategies for development. This parameter is analysed using the following sub-parameters.
Direction & Clarity Ability to raise funds Degree of association with promoter institution Alternate avenues for funds Outreach (No. of offices, No. of clients, No. of employees, Portfolio diversification)
B) Promoters & Management Profile
The elements in this parameter helps in assessing the Promoter & management quality evaluated on the basis of the basic educational qualification, professional experience of the entrepreneur; and business attitude that is related to the motivation of carrying out the business and pursuing business strategies. This parameter is analysed using the following sub-parameters.
Past experience of the management Vision and mission of the management Profile of the Board Members Policies and Processes Transparency and corporate governance
C) Financial Performance
SMERA analyses the credit worthiness of the organization through the following financial parameters. Various financial adjustments are done to get more accurate ratios for comparison. Financial analysis helps the MFI to know its financial sustainability. This parameter is analysed using the following sub-parameters.
Capital adequacy Profitability/Sustainability ratios Productivity and efficiency ratios Gearing and Liquidity ratios
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D) Asset Quality
The loan portfolio is the most important asset for any MFI. SMERA analyses the portfolio quality of the MFIs by doing ageing analysis, sectoral analysis, product wise analysis etc. SMERA compares the portfolio management system with organizational guidelines and generally accepted best practices. This parameter is analysed using the following sub-parameters.
Ageing schedule Arrears Rate / Past Due Rate Repayment Rate Annual Loan Loss Rate
E) System & Processes
SMERA analyses the polices and processes followed by the MFIs, their ability to handle volume of financial transactions, legal issue and disputes, attrition among the employees and client drop out which impact the productivity of the organization. SMERA also analyses asset liability maturity profile of the MFI, liquidity risk and interest rate risk. This parameter is analysed using the following sub-parameters.
Operational Control Management Information System Planning & Budgeting Asset Liability Mismatch
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COCA Methodology
The Code of Conduct Assessment (COCA) tool was developed as a response to the need expressed
in a meeting of stakeholders in Indian microfinance by the Small Industries Development Bank of
India (SIDBI) and the World Bank in December 2009. The code of conduct dimensions were
identified by reviewing the various norms for ethical finance. These included RBI’s fair practices
guidelines for Non-Banking Financial Companies, industry code of conduct (Sadhan-MFIN) and
Smart Campaign’s Client Protection Principles (CPP).
In 2016, need was felt to harmonize COCA to the most recent industry code of conduct and to
standardize COCA tools of different rating/assessment agencies. This grading is based on the
harmonized COCA tool. In the harmonized COCA tool, the dimensions were classified in three
categories – highest order, higher order and building blocks. This grading is based on the
harmonized COCA tool.
Highest Order
Sensitive Indicators
Higher Order
Integrity & Ethical Behaviour
Building Blocks
Governance Client Protection, Recruitment
Transparency Feedback/Grievance Redressal
Client Education Data Sharing
Chart: COCA Indicators Framework
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Number of indicators in each category is presented below
Higher Order Indicators Number of Indicators Integrity and Ethical Behaviour 32 Sensitive indicators 26 Building Blocks Number of Indicators Transparency 40 Client Protection 122 Governance 30 Recruitment 13 Client Education 14 Feedback & Grievance Redressal 25 Data Sharing 6 Total 250
Methodology
The Code of Conduct exercise is spread over four to eight days. The first day is spent at the head
office. The assessment team visits the branches over the next three to eight days. Depending upon
the size and the operational area of the MFI, eight to fifteen branches and between 120 and 300
clients are sampled for primary survey (except in cases where number of branches in an MFI is less
than eight).
Sampling guidelines
The following is taken as the guideline to determine the sample size for a COCA exercise.
MFI Size No. of branches to be visited
No. of borrowers to be visited
Small MFI (Less than 8 branches)
All branches 15 clients per branch covering minimum two centers.
Small / Mid-size MFI (up to 2,50,000 borrowers)
8 – 10 branches (geographically distributed)
120-150 clients (15 clients per branch covering minimum two centers).
Large MFI (>2,50,000 borrowers)
12 – 15 branches (geographically distributed)
240-300 clients (20 clients per branch covering minimum two centers).
Large MFI (>2,50,000 borrowers) and having gross loan portfolio (GLP)> Rs 500 crore
18 – 20 branches (geographically distributed)
360-400 clients (20 clients per branch covering minimum two centers).
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Code of Conduct Assessment exercise requires:
1. Discussions with key staff members and the senior management at the head office, particularly the senior operational management team as well as the human resources team. These discussions focus on key issues of the code of conduct identified above.
2. Review of policy documents and manuals at the head office. These are reviewed in order to assess the policy as well as documentation regarding important aspects of the code of conduct. The last audited financial statements will also be required.
3. Sampling of branches at the head office. The assessment team samples branches for review. The branches are chosen in across different states in case the MFI operates in more than one state. Care is exercised to include older branches as well as branches that are distant from the head office or the regional office. The sampling of the branches is performed at the head office of the MFI.
4. Discussions with the branch staff at the branch office. Discussions with branch managers and the field staff is carried out to assess their understanding of the key code of conduct principles.
5. Sampling of respondents in the selected branches. A judgmental sampling is performed on the MFI’s clients by the assessment team to draw respondents from the interest group, in order to maximize the likelihood that instances of non-adherence can be detected.
6. Interview with the clients. Information from the clients is collected ideally during the group meetings. If this is not possible, visits are made to the clients’ locations for collecting information.
7. Review of loan files at the branch office. This review focuses on loan appraisal performed before disbursing loans as well as the documents collected from the clients.
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As part of this assessment, SMERA has covered following branches of the MFI. The details of the
branches are provided below.
Sr. No. Branch State No of clients interviewed
1 Rahara West Bengal 28
2 Naihati West Bengal 18
3 Surjapur West Bengal 25
4 Torial West Bengal 18
5 Sahapur West Bengal 20
6 Rasakhowa West Bengal 22
7 Pransagar West Bengal 19
8 Mahipal West Bengal 21
Total 171
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Profit & Loss Account (Rs. In Thousands)
Period FY 2017 FY 2018 FY 2019
Months 12 12 12
Financial revenue from operations 39,278 48,279 58,895
Less - Financial expenses from operations 16,652 23,199 28,098
Gross financial margin 22,626 25,080 30,797
Provision for Loan Loss / Write off 455 604 578
Net financial margin 22,171 24,476 30,219
Less - Operating Expenses
Personnel Expense 9,327 10,625 13,154
Depreciation and Amortization Expense 838 1,291 797
Other Administrative Expense 4,343 4,668 5,032
Net Income 7,663 7,892 11,236
Note: Above financials are taken from audited statements except of financials of FY 2019.
Financial Strength Financial Statements
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Balance Sheet (Rs in Thousands)
As on Date 31/Mar/17 31/Mar/18 31/Mar/19 Audited Audited Provisional Sources Of Funds Corpus 40,681 48,347 59,253 Total Equity 40,681 48,347 59,253 Liabilities Short-term liabilities
Short-term borrowings Commercial Loans from banks/FI for microfinance
10,509 0 0
Concessional Loan/Subordinated Debt 8,400 3,600 0 Account payable &Other short-term liabilities
1,921 1,756 2,240
Total Short Term Liabilities 20,830 5,356 2,240
Long-term liabilities Long-term borrowings Commercial Loans from banks/FI for microfinance
1,22,520 1,90,856 2,06,478
Unsecured Loans from directors / friends / relatives
13,650 19,350 20,375
Total Long Term Liabilities 1,36,170 2,10,206 2,26,853 Total Other Liabilities 1,57,000 2,15,562 2,29,093 Total Provision 1,589 2,040 2,363 TOTAL LIABILITIES 1,99,270 2,65,949 2,90,709
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As on Date 31/Mar/17 31/Mar/18 31/Mar/19 APPLICATION OF FUNDS Fixed Assets Net Block 5,532 5,684 5,240 Cash and Bank Balances 6,564 9,171 11,120 Investment in FD 26,024 46,124 36,038 Loan Portfolio * Gross Loan Portfolio Net Loan Portfolio 1,58,947 2,04,038 2,36,312
Accounts Receivable and Other Assets 2,197 892 1,969 Intangible Assets 6 40 30 TOTAL ASSETS 1,99,270 2,65,949 2,90,709
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Financial Ratios 31/Mar/17 31/Mar/18 31/Mar/19
12 12 12 Capital Adequacy Ratio
Capital Adequacy Ratio (%) 24.40 23.27 24.32 Productivity/Efficiency Ratios No. of Active Borrowers Per Staff Member 228 238 233 No. of Active Borrowers per field executives
485 476 513
No. of members per Branch 1,618 1,571 1,709 Gross Portfolio o/s per field executive (in thousands)
5,298 6,183 7,877
Average Outstanding Balance per client (in Rs)
10,915 12,986 15,365
Cost per Active client(in Rs) 996 1,055 1,234
Asset/Liability Management Cost of funds ratio 10.74 12.58 12.85 Yield on Portfolio(nominal) 26.91 25.24 25.74 Profitability / Sustainability Ratios Operational Self Sufficiency (%) 124.24 119.54 123.58 Operating Expense Ratio (OER) (%) 10.20 9.14 8.62 Return on Assets (RoA) (%) 2.23 3.39 4.04 Portfolio at Risk (>30 days) (%) 0.64 0.34 0.35 Return on Equity (RoE) (%) 18.84 16.32 18.96 Leverage Ratios Total Outside Liabilities to Tangible Networth Ratio (Times)
3.86 4.46 3.87
Debt/Equity Ratio (Times) 3.81 4.42 3.83
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About SMERA SMERA is a division of Acuité Ratings & Research Limited dedicated to providing SME ratings & grading services to MSMEs. SMERA began its operations in year 2005 as SME Rating Agency of India Limited, a joint initiative of Small Industries Development Bank of India (SIDBI), Dun & Bradstreet Information Services India Private Limited (D&B) and leading public and private sector Banks in India. SMERA is empanelled for 'Performance & Credit Rating Scheme for Micro & Small Enterprises’ of the Ministry of MSME, Government of India, administered by the National Small Industries Corporation (NSIC). Acuité Ratings & Research Limited is registered with the Securities and Exchange Board of India (SEBI) as a Credit Rating Agency and is accredited by Reserve Bank of India (RBI) as an External Credit Assessment Institution (ECAI), under BASEL-II norms for undertaking Bank Loan Ratings.
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