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2010 - 20112010 - 2011
AnnualAnnualReportReport
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Our mission is to ensure thatevery individual and every
enterprise has completeaccess to financial services.
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Contents
01From the Chairperson
06From the President
13Our Investee Companies
21People and Values
28Financials
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Financial inclusion is not a new goal for India and it has always been
the stated aim of financial sector policy to seek to include four critical
segments: project finance, small and medium enterprises, low-income
households and farmers. More recently, infrastructure and municipal finance
have been added to the list. I can think of three distinct phases in
the Indian journey towards this goal.
The first phase was pre1994, before the arrival of the new-generation
private sector Deposit taking Institutions (DIs ). During this phase,
post the nationalisation of DIs almost two decades earlier, the system was
dominated by the government owned DIs that sought to achieve
financial inclusion largely through branchbased efforts, for small businesses,
low-income households and farmers and through specialised Development
Finance Institutions (DFIs), for project finance. While researchers
(Pande and Burgess, 2005) found clear impact on poverty wherever branches
were opened by these DIs, the impact on the overall challenge of financial
inclusion was very limited. In addition, asset quality/solvency and
costtoserve were the serious challenges associated with the model and even
led to a few DIs ending up with a negative Net Worth. These solvency
problems were however, not visible to their depositors since the DIs werelargely government owned and were, almost automatically, recapitalised.
Liquidity was also not much of a challenge during this period due to the
limited nature of interDI trading and liquidity transfers therefore largely
taking place between various internal divisions of the DIs. For a variety of
reasons, the efforts on DFI led project finance also did not make the desired
level of progress. Post the 1991 liberalisation of the Indian economy,
most of the DFIs eventually became insolvent and transformed themselves
into full service DIs by raising capital through either commercial sources or
recapitalisation by the government and for a period of time almost entirely
ceased project finance activities.
In the second phase post1994, several new-generation private sector DIs were
licensed and parallely there was the emergence of high-quality institutional
equity market infrastructure (SEBI, NSE, NSDL) coupled with the entry of
Foreign Institutional Investors (FIIs). As a direct consequence of these
developments, there were some improvements on the inclusion front,
From the Chairperson
01IFMR Trust Annual Report 2010 - 2011
Pre
1994:Dominated by
governmentowned DIs
Post
1994:Emergence ofhigh-quality
institutional equity
market
infrastructure
and Foreign
Institutional
Investors
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02 IFMR Trust Annual Report 2010 - 2011
particularly for middle-income households for products such as home and
two-wheeler loans offered to them through a combination of branchbased
efforts and a few specialised intermediaries, as well as for larger companies
seeking equity finance directly through capital markets. There was however,
very limited progress on the inclusion of lowincome households, small and
medium enterprises and farmers. During this phase there were distinct
improvements in asset quality and solvency of DIs on account of the fact that
there were more DIs that were closer to the customer and some degree
of interDI transfer of assets created visibility on asset quality. However,
for this very reason and because of the fact that the government was no longer
the sole owner of all the large DIs, there was a definite increase in the risk
of liquidity and solvency shocks.
The third phase started in the late nineties and has seen the emergence
of specialised Non-Deposit Taking Institutions (NDIs) focussing on
financial inclusion. They have started to make contributions to inclusion for
various segments including short-term liquidity needs of low-income
households through jewel loans and microfinance; second-hand vehicle
finance and other kinds of equipment and commercial vehicle finance
at the retail end of the spectrum; and debt finance for infrastructure anddistressed assets at the wholesale end. These NDIs have largely accessed
liquidity via the DIs with some access to debt-capital markets and have
brought to bear additional equity capital of their own to cushion the DIs
against possible credit risks arising from these less familiar businesses.
With the exception of asset problems arising out of the challenge posed by
the Andhra Pradesh government to the RBI on the regulation of financial
institutions (both DIs and NDIs), the quality of assets originated by
these specialised NDIs has been consistently strong. This approach,
even though narrowly product-focussed, seems promising and was also
underscored by RBIs Narasimhan Committee in 1998.
However, during this period for some reason, official policy seems to have
become considerably more hawkish towards these specialised NDIs viewing
them as competitors of DIs instead of, as had been originally envisioned by
the Narasimhan Committee, as extenders of the outreach that DIs could
provide on their own and as innovators and risk takers that would cushion
Late
90s:Emergence of
specialised NDIs
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From the Chairperson
03IFMR Trust Annual Report 2010 - 2011
the DIs from credit losses and costs arising from these newer businesses,
through their additional capital and their much lower-cost delivery structure.
Rather than encourage the deployment of additional capital by these NDIs and
the naturally emerging specialisation in roles between DIs and NDIs,
policy seems much more supportive of direct efforts by DIs (through owned
branch networks or agents who dont have capital at risk) almost to the point
of compelling them to do this, even though the rising tide of non-performing
assets amongst the DIs, particularly in the priority sectors and the failure
of the no-frills savings accounts to take off, seems to challenge the wisdom
of such an approach and harks back to the first, pre-1994, phase of this
journey. In my view, this approach is not only not serving the interests
of high-quality financial inclusion but is also potentially building-up
a non-performing asset bubble even in systemically important DIs that may
become too large for fresh rounds of recapitalisations and farm-loan waivers
by the central government to be feasible. This could therefore start to weaken
systemic stability because the institutions at risk will no longer be small
Regional Rural Banks and Cooperative Banks, as in the past, but large
systemically important DIs.
The third phase has also seen the emergence of another set of very importantphenomena - the increase in the use of non-branch channels such as ATMs
for cash and non-cash channels for payments (credit cards and electronic
transfers) and integrated customer level sales channels for multiple financial
products (bancassurance, Business Correspondents). These trends, which are
currently in their early stages, coupled with efforts such as the Universal Identity
(Aadhaar), have the potential, over time, to bring about some fundamental
change in the very architecture of financial services and their regulation.
In my view, all of these experiences and concerns need to be borne in mind
as we think ahead on the directions we should pursue if we want to
significantly impact inclusion while ensuring that depositor protection,
systemic stability and national growth objectives are not compromised.
We must not repeat phase one mistakes or fail to capitalise on the momentum
of phase three. It seems clear to me that issues such as customer protection
are going to become more and more important even while we are pursuing
financial inclusion goals. And, while the country definitely needs to improve
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04 IFMR Trust Annual Report 2010 - 2011
outreach in a manner that achieves these objectives, it also needs to ensure
that there is the rise of very large financial institutions that are equal
to the task of meeting the project, infrastructure and municipal finance needs
of one of the fastest growing economies in the world while simultaneously
ensuring systemic stability.
IFMR Trusts (the Trust) goal has been to identify and make progress
on directions that make access to financial services universal but do not
compromise systemic stability. The Trust has taken the carefully considered
view that the only way to do this is to build on the separate natural strengths
of DIs and specialised NDIs. In the Trusts view the DIs need to grow
into directly regulated, very transparent, very large institutions while the NDIs
need to proliferate with regulatory oversight coming not from the regulator
directly, but indirectly from the DIs and the capital markets. One of the goals
that the Trust has set for itself has been to demonstrate that NDIs that
simultaneously meet the goals of extremely low-cost financial inclusion
and very high-quality of customer protection are not merely a utopian ideal
but are indeed feasible to build and operate. Since 2008, the Trust team has
made excellent progress on this goal. Through IFMR Rural Finance and
its Kshetriya Gramin Financial Services (KGFS) companies, they havedelivered on a new approach to origination that takes a Wealth Management
approach (rather than a product-selling approach) and yet keeps costs low
by bringing to bear cutting-edge technologies and superior training of locally
hired staff. This approach tightly customises a portfolio of financial products
for a household depending on its unique needs and in the process, transfers
complexity from the household to the provider while holding the provider
responsible for the quality of guidance and the appropriateness of the
products offered to the household on a longer term basis.
On the issue of provision of liquidity from the DIs to the NDIs, while
maintaining enhanced oversight of the NDIs, the view that the Trust has taken
is that there is a need for large national level bridge institutions that focus
entirely on linking the myriad NDIs that are necessary for financial inclusion
with the large DIs and capital markets and effectively transmit systematic
Since
2008the Trust has
demonstrated that
it is feasible for
NDIs tosimultaneously
meet the goals of
extremely low-cost
financial inclusion
and very high
quality of customer
protection
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05IFMR Trust Annual Report 2010 - 2011
From the Chairperson
risk and liquidity, while retaining idiosyncratic risk with the original NDIs.
Towards this goal, through IFMR Capital, they have made important
contributions towards demonstrating the manner in which large volumes
of liquidity can be provided from DIs and capital markets to NDIs and have
innovated several products that enable this liquidity transfer to happen
smoothly and without moral hazard.
The Trust has also contributed strongly to the emerging dialogue on national
regulatory systems with regard to customer protection and to the direction
in which the regulation of DIs and NDIs must proceed.
I want to wish the team the very best in their journey ahead.
Nachiket Mor
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06 IFMR Trust Annual Report 2010 - 2011
It is our belief thatgood origination
follows a Wealth
Management
approach with the
customer.
Origination
includes all the
customer facing
functions across
various financial
services
From the President
The mission of IFMR Trust is to ensure that every individual and every
enterprise has complete access to financial services. I take this opportunityto share our progress towards the mission.
In order to achieve and sustain the mission, it is our belief that the three pillars
of the Indian financial system have to be significantly strengthened: Origination,
Risk Transmission and Risk Aggregation. Within these three pillars, we have
chosen to directly focus more on Origination and Risk Transmission while staying
broadly engaged on the Risk Aggregation issues.
I briefly summarise our progress so far under each pillar below:
1. Origination
1.1: The IFMR Trust Vision for Origination:
This pillar includes all the customer facing functions across various financial
services - be it underwriting a loan, selling/settling an insurance policy
or accepting savings/money market fund deposits. It is our belief that good
origination follows a Wealth Management approach with the customer. The key
elements of this approach are: 1. A deep understanding of the circumstances
and aspirations of each household; 2. An ability to execute a customised financial
plan for every household, of which products are the instruments to do so;
3. Origination processes that are characterised by the Jonathan Morduch tests
of continuity, reliability, flexibility and convenience; 4. All success metrics of the
originator to be linked to financial wellbeing of the customer household, including
ex-post liability for poor outcomes that result from mis-sale of financial services;
5. Originator to deploy capital against associated credit, market and operational
risks even when performing the role of an agent for a national entity;
6. Originator to be local in character with a population served not exceeding
5 million individuals (typically two to three districts of the country); 7. Operations
to be branch based with a strong physical presence, supported by very high levels
of automation and technology to keep costs low.
1.2: Strategy:
Our key intervention here is the development and replication of the
Kshetriya Gramin Financial Services (KGFS) model as the gold standard of
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07IFMR Trust Annual Report 2010 - 2011
high-quality origination. In the process of building out the KGFS, we will engage
with the practical and regulatory barriers that are constraints. We will put in thepublic domain all our learning associated with this process.
Through advocacy, we will participate actively in the process of re-defining
the standards and expectations of an originator.
While KGFS Capital Partners will own a set of KGFS directly; through IFMR Rural
Finance, we expect to work with a wide variety of institutions to replicate the KGFS
model. We estimate that the country needs at least 300 KGFS-type entities.
In addition, we will continue to provide product design and other forms
of support to other originators (such as Microfinance Institutions, Regional Rural
Banks, Cooperative Banks, Local Area Banks, Housing Finance Companies,
Business Correspondents, Business Facilitators, SME focussed Non-Bank Finance
Companies) recognising that in order to serve under-banked populations
a multiplicity of approaches would be needed, not just the KGFS model.
1.3: Progress to date:
The key milestones on this function to date are:
- Implementation of the KGFS model in three distinct regions of Tamil Nadu,
Orissa and Uttarakhand with a network of 106 branches serving about
1415 villages and a client base of 150,000.
- Articulating and implementing the Wealth Management approach on the
ground. We have overcome the perception that while being a worthy goal,
the execution of this approach is not possible at scale. We have addressed this
through codification of the process and building back-end diagnostic
capability that aids the wealth managers to do their roles. Today, across all
106 KGFS branches, Wealth Managers practise their daily ritual of discussing
a customer case, are able to understand and share with the customer
a financial wellbeing strategy based on the Plan-Grow-Protect-Diversify
framework and take moral responsibility for the customers financial
wellbeing. We have demonstrated the validity of the business model.
A significant cohort of branches across all three regions has achieved
break-even and the path to the entitys profitability is visible. This is an
Our key
intervention here is
the development
and replication of
the Kshetriya
Gramin Financial
Services (KGFS)
model as the gold
standard of
high-quality
origination.
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As of March 31,
2011, more than
800,000customers were
enrolled under theNew PensionSchemeLite
through variousAggregators
08 IFMR Trust Annual Report 2010 - 2011
important pre-condition for replication.
- We have built out a product suite that is more complete than anything offered
by a rural financial institution to date. The product range today includes
unsecured and secured loans (for households and businesses), insurance
(life, personal accident, and livestock), pensions, and remittances.
Any interested originator can leverage this product development effort.
- More broadly, we have brought to the fore the need to take a demand-centric
approach to financial inclusion. Through a variety of research projects that we
have supported and through incubation support to research institutions such
as the Centre for Micro Finance, the Centre for Innovations in Financial
Design and Inner Worlds, there is a lot of attention to the demand side issues.
- We have had good success with the Pension Funds Regulatory and
Development Authority (PFRDA) in persuading them of the validity of the
Accredited Intermediary (AI) model as an approach to origination for pension
products. As a direct consequence of our work with them, they have
formulated the Aggregator guidelines. As of March 31, 2011, more than
800,000 customers were enrolled under the New Pension SchemeLite
through various Aggregators.
- We have built a strategic partnership with the State Bank of India (SBI)
with a view to impact their own origination strategy in the long-term.
In the short-term, we have worked with them to refine their BC/BF models.
We have incubated IFMR Mezzanine to increase the base of local high-quality
originators in the country.
1.4: Key priorities for the future:
- We need to build regulatory support for the notion of specialised high-quality
originators or Accredited Intermediaries (AIs). AIs can be of multiple legal
forms, but will have adequate operating capability and an ability to commitcapital to the relevant Financial Institution that they partner with. The current
regulatory/policy framework is aligned to direct large aggregators to originate
directly/through remote operations rather than to partner with specialised
originators who are able to deploy risk capital.
- Achieving regulatory clarity and certainty of frameworks for non-bank
originators like KGFS, such that a unified front-end is feasible for
the customer. Currently, multiple regulatory frameworks have resulted
As a directconsequence of our
work with thePFRDA, they have
formulated theAggregatorguidelines.
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09IFMR Trust Annual Report 2010 - 2011
From the President
in restrictions on services that can be offered at the front-end.
We are pursuing the Accredited Intermediary approach with the Securities
Exchange Board of India (SEBI) for origination of money market and index
funds.
- Entering into strategic alliances with domestic financial institutions
and others to take forward the KGFS replication in a non-linear manner.
- Solving the product gap for a high-quality short-term savings product.
- Product/model development for rural infrastructure (roads, sanitation) finance.
- Defining and building regulatory support for the notion of originators
responsible for financial wellbeing with ex-post liability.
2. Risk Transmission
2.1: The IFMR Trust vision for transmission:
Here, the attempt is to ensure that systematic risk (defaults due to exogenous factors
such as rainfall failure and political events, for example) can be transferred in an
orderly manner from local originators to national aggregators, who are much better
placed to diversify these risks across multiple originators and geographies. This is an
important complement to the notion of local originators so that their access to
liquidity can be smooth without compromising on the principles of sound origination.
Our vision is to create infrastructure that will enable such risk transmission as well as
create a conducive policy environment for the same. For most other products while
this is relatively straight forward through the use of technology directly at the level
of the originator, for transmission of credit risk since, in our thinking, the local
originator is expected to continue to hold on to idiosyncratic risk and only shed
systematic risk, a special effort needs to be launched to address the challenges
of credit risk transmission.
2.2: Strategy:We have incubated IFMR Capital as a vehicle in order to enable systematic credit risk
transmission for local originators such as KGFS and Microfinance Institutions (MFIs)
to begin with. We will grow IFMR Capital to be a significant-sized Financial
Institution that can provide risk transmission to a large number of originators across
diverse asset classes: microfinance, low-income housing finance, small business
finance and others.
Our vision is to
create
infrastructure that
will enable risk
transmission as
well as create a
conducive policyenvironment
for the same
We will grow
IFMR Capital to be
a significant-sizedFinancial Institution
that can provide
risk transmission
to a large number
of originators
across diverse
asset classes
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10 IFMR Trust Annual Report 2010 - 2011
In our advocacy work, we are opposed to the notion of warehousing of systematic
risks by small, under-capitalised entities. For instance, we have expressed
concern regarding the proposed legislation to permit deposit taking for small
NGOs in the country. We will continue to advance this position.
2.3: Progress to date:
IFMR Capital
- Through its work, IFMR Capital has been successful in providing capital markets
access to 15 small and medium sized MFIs in India and unlocked cumulative debt
of INR 8.00 billion for these entities.
- IFMR Capital has received a first-time credit rating of A (long term) and is a
profitable entity (INR 16.0 million PAT in 2010-2011).
- The underwriting guidelines developed by IFMR Capital are rapidly emerging
as a robust framework to assess MFI risk.
- We have developed a number of capital market products that allows originators
to transfer risk. This includes securitisation for MFIs, multi-originator
securitisation for small MFIs, Non-Convertible Debentures and rated portfolio
assignments.
- We have diversified the base of investors in MFIs by bringing in Mutual Funds,
Non-Banks and Private Wealth. This creates a buffer against liquidity shocks
and increases the intensity of market supervision.
- We have participated in shaping regulation for securitisation and the listing
of securitised debt.
Savings, Insurance and Derivatives
- Through the work of the Agricultural Terminal Markets Network Enterprise
(ATMNE), we have developed a model for small farmers to access national
commodity spot markets to manage post-harvest commodity price risk.
2.4: Key priorities for the future:
For IFMR Capital
- Increasing the scope of work to include originators beyond MFIs to also include
originators of other products such as home improvement loans, housing loans,
small business working capital and asset-backed finance
(gold, light commercial vehicles).
- Ensuring that the policy framework for securitisation is enabling.
Through the work
of the Agricultural
Terminal Markets
Network
Enterprise
(ATMNE), we have
developed a model
for small farmers
to access national
commodity spot
markets
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From the President
11IFMR Trust Annual Report 2010 - 2011
Savings, Insurance and Derivatives
- Expanding the scope of the risk transmission work into insurance markets
to understand barriers to reinsurance in life and non-life products.
- Developing products for interest rate risk management for local originators.
- Strengthening the Business Correspondent framework so that the case for
small originators taking deposits on their own is weakened.
- Product development to improve ability of farmers and farm enterprises
to transfer price and weather risk.
3. Risk Aggregation:
This pillar entails the presence of a set of well-capitalised, well-managed,
well-supervised and large financial institutions (Commercial Banks,
Asset Management Companies, Insurance Companies) that can manage risk
effectively. In the absence of this, the ability of originators to access liquidity
smoothly is constrained. This pillar largely speaks to the depth of the
financial sector and therefore its capacity to intermediate. Since this is an issue
that many groups and institutions are engaged with, we have felt that
our comparative advantage is low here. However, through a proposed Summer
Conference series commencing in August 2011, we will shine the light
on issues to do with adequacy and performance of Aggregators. We will engage
with a group of financial market researchers in India and abroad who are
tracking this issue over a long-term.
I hope the report was successful in conveying my sense that we have unique
opportunities as a country to make rapid advances on financial inclusion without
in any way compromising the stability of our financial system, some of which
we are leveraging and others where we are dithering. At IFMR Trust, we remain
deeply committed to participate in and accelerate this process. Success here
is critical to realising the national goal of growth with inclusion.
Risk aggregation
entails the presence
of a set ofwell-capitalised,
well-managed,
well-supervised and
large financial
institutions
that can manage
risk effectively
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12 IFMR Trust Annual Report 2010 - 2011
I want to thank the Governing Council of IFMR Trust for their constant support
and guidance. I also thank the team at IFMR Trust and our investee companies
for bringing deep expertise and commitment to the achievement of our mission.
Bindu Ananth
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Our Investee Companies
IFMR Capital
IFMR Capital connects high-quality originators so that they may deepen
their presence and provide access to financial services to millions of under-served
households. IFMR Capital does this by, (i) identifying high-quality originators
using its stringent Underwriting Framework; (ii) catalysing debt capital markets
by investing its capital and providing financial guarantees; (iii) using financial
structuring expertise to achieve efficient pricing for clients and (iv) by utilising
financial tools such as repackaging, securitisation, and credit enhancement
to tailor products to match the risk profiles of different categories of investors.
IFMR Capital commenced the last financial year with a commitment to scale up
its impact, strengthen its risk management and develop new products which wouldprovide complete debt financing solutions. IFMR Capital was able to achieve
significant progress in these objectives, despite the microfinance sector facing
significant headwinds. Presented below is a snapshot, capturing IFMR Capitals
achievements over the past year.
Loans to Originate Securitisation
Volume of Transactions
2009 2010 2011
11
157638
313 945
5100
INR 168mn INR 951mn INR 6045mn
Total volume of Debt
13IFMR Trust Annual Report 2010 - 2011
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14 IFMR Trust Annual Report 2010 - 2011
Geographic Distribution of Portfolio
Asirvad Micro Finance
Cashpor Micro Credit
Capital Trust
Disha Micro Finance
Equitas Micro Finance
Grama Vidiyal Micro Finance
Grameen Financial Services
Mimoza Enterprises Finance Pvt. Ltd.
Pudhuaaru Kshetriya Gramin Financial Services
Sahayata Microfinance
Samasta Microfinance
Satin Creditcare
Sonata
Shalom Microfinance
Suryoday Micro Finance
SV Creditline Private Limited
Utkarsh Micro Finance
Vistaar Livelihood Finance
Janalakshmi Financial Services
Ujjivan
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Investor Classes
2009
2010
2011
Banks Mutual
Funds
NBFCs Private
Wealth
Offshore
Funds
IFMR Rural Finance
IFMR Rural Finance has developed the Kshetriya Gramin Financial Services
(KGFS) model. These geographically focused entities, covering a population
of around five million, provide customised financial products and services that are
relevant to the customers in an efficient and convenient manner through
a network of branches in remote rural areas.
IFMR Rural Finance has, over the years, developed several innovative financial
products spanning assets, investments, insurance and remittances. In the last
financial year, KGFS expanded its product portfolio with the launch of Livestock
and Housing Finance products; NPS-Lite (National Pension Scheme - Pension
Fund Regulatory and Development Authority (PFRDA)); Group Term Life
Insurance and Shopkeepers Insurance Policy (Sahastradhara KGFS);
and International Remittance and Domestic Remittance.
The Core Banking Solution (CBS) is used in KGFS Branches to capture and
update transaction data on a real-time basis. The Fidelity Information Services (FIS)
Core Banking Solution (CBS) was operationalised on April 1, 2010.
All KGFS Branches access the Fidelity profile on a real-time basis. A full
Customer Management System (CMS) acts as an online centralised warehouse
of all customer data. The CMS is a comprehensive enrollment and transaction
processing system, developed in-house and supports multi-product and multi-tenant
architecture. It provides interfaces to integrate with other service providers
15IFMR Trust Annual Report 2010 - 2011
Our Investee Companies
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systems like Insurance and Computer Age Management Systems (CAMS).
Forms and transactions are generated and submitted electronically to reduce
paper usage. The Learning Management System (LMS) platform is a one-stop
shop for all learning and content management needs of KGFS. This platform has
been developed using open source tools. The Centralised Audit System (CAS) is
an online system developed using open source tools, which captures the audit
findings of KGFS Branches in a structured manner. It tracks audit issues
as per the scheduled routine and captures them in a format that renders data
warehousing easy and the same can be used for analysis at a later stage.
16 IFMR Trust Annual Report 2010 - 2011
PRODUCT
PORTFOLIO
AssetProducts
Liability and
InvestmentProducts
Joint Liability Group Loan
Emergency Loan
Jewel Loan
Housing Finance
Retailer Loan(Working Capital and Term Loan)
Gold Plan
Salary Loan
Livestock Loan
Personal Accident Insurance
Term Life InsuranceLivestock Insurance
Money Market Mutual Funds
National Pension Scheme-Lite
Gold Coin Scheme
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KGFS Capital Partners (KCP)
KGFS Capital Partners (KCP) invests in Kshetriya Gramin Financial Services
(KGFS) companies. KCP owns three KGFS - Pudhuaaru KGFS, Dhanei KGFS
and Sahastradhara KGFS.
As of March 2011, all three KGFS together had an extensive network of 104
branches with more than 150,000 enrolled customers, and 481 staff members,
including 389 Wealth Managers. KGFS ended the financial year with an asset
portfolio of INR 560 million, over 50,000 borrowers and more than 76,000
customers availing of non-asset products. KGFS added four new funding partners,
both banks and non-banks, raising a total of INR 536 million, INR 337 million
as senior debt and INR 66 million through portfolio sale. Pudhuaaru KGFS alsocompleted its first securitisation transaction worth INR 133 million. It received
a rating of alpha minus (-) from M-CRIL and LBB from ICRA.
KGFS undermanagement
Pudhuaaru
Sahastradhara Dhanei
17IFMR Trust Annual Report 2010 - 2011
Our Investee Companies
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Sahastradhara
Tehri Garhwal
682villages
Pudhuaaru
Thanjavur
119villages
Dhanei
Ganjam
614villages
18 IFMR Trust Annual Report 2010 - 2011
Geographic Spread
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19IFMR Trust Annual Report 2010 - 2011
Our Investee Companies
IFMR Mezzanine
IFMR Mezzanine believes that access to adequate long-term risk capital can
provide a fillip to existing players that have strong systems and processes, but are
unable to attract equity or capital from mainstream institutions for reasons such as
legal structure or size. IFMR Mezzanine focuses on identifying such institutions
in the microfinance sector, needing access to risk capital but unable to access it,
by providing access through instruments like deeply subordinated debt.
In the past year, IFMR Mezzanine conducted preliminary due diligence on over
fifty MFIs including Societies, NBFCs and Section 25 companies. The company
also completed its first investment in an NBFC-MFI based in Bihar, Saija Finance
Private Limited.
IFMR Ventures
IFMR Ventures is focused on enabling access to finance for Small, Medium
and Micro Enterprises.
Small, Medium and Micro Enterprises (SME) viability is hard to establish and
risks are hard to quantify. There are a set of external risks that can threaten the
viability of a well-run SME. Lenders are usually deterred by the high exposure
of SMEs to these risks.
As the primary reason behind the lack of flow of debt funds into SMEs is their
exposure to risks, a suitable solution to this problem would entail a set of
measures which address these external risks that the SMEs face. In order
to enable that, IFMR Ventures is incubating multiple sector focussed supply chain
companies, called Network Enterprises (NEs), which are looking at SMEs from a
supply chain lens and are designing solutions which address the external risks
faced by the SMEs in that sector. Through different pilots across India, these NEs
are trying to validate the business model around the solutions.
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20 IFMR Trust Annual Report 2010 - 2011
Focus Sectors
Highlights
AgriculturalTerminal
Markets
AgriNE
Rural
Energy
RENE
DairyDNE
Rural
Tourism
RTNE
Agri NE:1000 Farmer Customers.10 Procurement Agents.Total Volume (Total of bothexchange traded volumeand volume tradedoff-exchange) -INR 28,910,594 and812 Metric Tonnes.
DNE:Facilitated cattle insuranceproduct development andsale to 600 farmers.
25 village level entrepreneurnetworks built in TamilNadu.
RTNE:500 home stays.15 active agents.Total room nights sold: 3157.
Total Value of Salesfacilitated: INR 6,764,787.
RENE:30 agents network built inThanjavur.19 innovative productcompanies and a total of 30products listed on goScale(www.goscale.in).
Presented below are the highlights of the year for IFMR Ventures' incubatee companies.
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Our Values
1. We have a deep belief in the power of financial markets to positively impact
wealth and wellbeing. Individuals should have the freedom to access
financial markets independently. We strongly believe in decision making
capabilities of individuals using market information.
2. We will bring a sense of ownership and urgency towards every aspect of our
work and to the achievement of our mission. Our work is important and
the time to act is NOW. Our collective mission to ensure complete access
to finance to every individual and every enterprise will be realised through
our collective efforts and each of us has a responsible role to play. We will
not rest until our mission is accomplished.3. We will bring deep expertise and excellence to bear in everything that we do.
We recognise the importance of investing in our skills. Our work has a deep
impact in the lives of many households. Our expert advice will positively
impact their lives. We will continuously sharpen our skills to stay ahead
of the curve and set benchmarks for others to follow.
4. We recognise that profitability is essential to the achievement of our mission.
We recognise that if every individual and every enterprise has to have
complete access to financial services that are continuous and reliable, then
these services must be sustainable in the long term.
Governing Council
Nachiket Mor
Nachiket Mor is a Yale World Fellow; has a Ph.D. in
Economics from the University of Pennsylvania with a
specialisation in Finance from the Wharton School; an MBA
from the Indian Institute of Management, Ahmedabad;
and an undergraduate degree in Physics from the Mumbai
University.
While completing his Ph.D., he was associated with a Philadelphia based hedge
fund (Quantitative Financial Strategies) for three years. He has worked with
ICICI from 1987 to 2007 in a variety of jobs, including Corporate Planning,
Project Finance, Rural Finance and Treasury and was a member of its
Board of Directors from 2001 to 2007. From October 2007 to August 2010, he
assisted ICICI in setting up a philanthropic foundation, the ICICI Foundation for
21IFMR Trust Annual Report 2010 - 2011
People and Values
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Inclusive Growth and served as its founding President. He is now the Chairman
of the Boards of Sughavazhvu Health Care, CARE India and IFMR Trust
and is closely involved in the evolution of these three organisations in India.
He is currently also an independent member of a few other Boards including
CRISIL, IKP Trust and IKP Centre for Technologies in Public Health and
the Institute for Financial Management and Research. He was a member of three
recent Central Government Committees: the High Powered Expert Committee
on Urban Infrastructure, the Technical Advisory Group on Unique Projects and
the Committee to Review Implementation of Informal Sector Pension. In the past
he has served as the Chairman of the Fixed Income Money Market and
Derivatives Association of India for two years and as a Board Member of WiproLimited for five years.
Deidra Wager
Deidra Wager, Executive Vice President, Starbucks Coffee
Company, retired in 2005 to pursue an interest in
non-profit work and sustainable agriculture. She is on
the board of CARE USA and is a founding member and
board member of The Lacewing Foundation dedicated
to girls' education and maternal health. She is also on the
board of YouthCare, a Seattle-based agency serving
homeless youth.
During her 13-year tenure at Starbucks, Ms. Wager was instrumental in
developing the company's operating infrastructure. She has a consulting practice
specialising in retail strategy development and implementation.
Dr. Tilman Ehrbeck
Dr. Tilman Ehrbeck joined CGAP as its CEO in October
2010. Prior to CGAP, Dr. Ehrbeck was a partner with
management consulting firm McKinsey & Company, where
he held a series of leadership positions in the firms global
Banking & Securities and Healthcare Payor & Provider
Practices.
He has worked in Africa, Asia, Europe, and North America. He was part of the
leadership of the firms Indian operations in 20052009.
22 IFMR Trust Annual Report 2010 - 2011
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Over the past 10 years, he has advised a number of governments, microfinance
networks, foundations, and commercial players on a variety of financial inclusion
issues ranging from new products and services aimed at better meeting
underlying end-user needs, to new business models significantly lowering
operating costs, to enabling infrastructure and policy interventions.
Dr. Ehrbeck holds a Ph.D. in Economics from the European University Institute,
the graduate school and research centre sponsored by the European Union,
and an undergraduate degree from the University of Hamburg.
W Bowman Cutter
Bowman Cutter joined the Roosevelt Institute inNew York City on October 1, 2009 after retiring
as a Managing Director from Warburg Pincus.
Prior to Warburg Pincus, Mr. Cutter came directly from
a senior economic policy role in the Administration of
President William Clinton. He has served with distinction
during two Democratic presidencies: as Director of the
National Economic Council and Deputy Assistant to the President from 1992 to
1996 during the Clinton Presidency; and as Executive Director for Budget
at the Office of Management and Budget (OMB) from 1976 to 1981 during the
Carter Presidency. Mr. Cutter also served as leader of the OMB transition team
after the election of President Obama.
From 1981 to 1993 Mr. Cutter was Vice Chairman and Managing Partner at
Coopers & Lybrand, the large, decentralised global accounting and consulting
firm that subsequently merged with Price Waterhouse.
Mr. Cutter's central public policy interest has been the development and
management of economic policy, and in particular the issues related to economic
growth, development, and the alleviation of poverty. He has worked extensively
with the World Bank; he is currently the Chairman of the Board of CARE, and is
also a founder and current Chairman of MicroVest.
Mr. Cutter holds degrees from Harvard University, the Woodrow Wilson School at
Princeton University, and Oxford University, where he was a Rhodes Scholar.
He is a member of the Executive Committee and immediate past Co-chairman of
23IFMR Trust Annual Report 2010 - 2011
People and Values
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the Committee for Economic Development, a Board member of Resources for the
Future; and a Board member of the Russell Sage Foundation. He is also a member
of the New York Council on Foreign Relations.
H N Sinor
H.N. Sinor is a graduate in Commerce and Law.
His illustrious career has spanned 43 years in the banking
sector. He has had exposure to the working of both public
sector and private sector banks and has hence, had the
experience of both the phases of nationalisation and
liberalisation in this sector.
He started his career in 1965 with Central Bank of India and in 1969 moved to
Union Bank of India where he worked for 28 years. In 1996, he was appointed
as Executive Director of Central Bank of India. After serving for 7 months in
Central Bank of India, he moved to ICICI Bank in July 1997 as Executive Director.
On June 1, 1998, he took over as Managing Director & CEO of ICICI Bank.
After the merger of ICICI and ICICI Bank in 2002, he was the Joint Managing
Director of ICICI Bank Limited and retired from the services of the Bank w.e.f.
May 31, 2003. Thereafter, he joined Indian Banks Association as Chief Executive
on June 1, 2003 and held this position till July 31, 2008. Currently he is the
Chief Executive of the Association of Mutual Funds in India, to which post
he was appointed on February 25, 2010.
Bindu Ananth
Bindu Ananth is currently the President of IFMR Trust
and has held that position since January 2008. In this
capacity, she also chairs the Boards of all investee
companies of IFMR Trust. Prior to this, Ms. Ananth
worked in ICICI Banks microfinance team between 2001
and 2005 and was Head of the new product development
team within the Rural Banking Group in 2007.
She has an under-graduate degree in Economics from Madras University
and masters degrees from the Institute of Rural Management (IRMA) and
Harvard Universitys John. F. Kennedy School of Government. She is a Fellow
of the Global Economic Society.
24 IFMR Trust Annual Report 2010 - 2011
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People and Values
25IFMR Trust Annual Report 2010 - 2011
Ms. Ananth has published in the Economic and Political Weekly, OECD Trade
Paper Series and the Small Enterprise Development Journal. She is also
a member of the FICCI taskforce on financial inclusion.
Our Team
We are a team of professionals with a deep belief in the transformational impact
of finance and well-functioning finance markets, particularly for low-income
households.
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26 IFMR Trust Annual Report 2010 - 2011
IFMR Trust Executive Group
Bindu Ananth
Puneet Gupta
Puneet Gupta has been working with IFMR Trust since
October 2007. Prior to his joining IFMR Trust,
Mr. Gupta worked for ICICI Bank for a period
of 6 years in the areas of education, microfinance and
rural finance. He was responsible for identification and
development of new channels and products for
delivering microfinance and financial services to rural
households. He was also involved in developing models
for attracting private equity investment in the microfinance sector.Mr. Gupta is a commerce graduate with a masters degree in Rural Management
from Institute of Rural Management, Anand (India).
Sucharita Mukherjee
Sucharita Mukherjee led the origination and structuring
effort in credit derivatives and structured finance for
corporates at Morgan Stanley in London before she
joined IFMR Trust. Her work included developing
innovative asset-backed financing structures in such
areas as intellectual property and health-care
receivables. She was also part of the credit derivatives
team at Deutsche Bank in London, structuring
credit-derivatives-linked repackaged investments for financial institutions.
Ms. Mukherjee holds an MBA from IIM, Ahmadabad.
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People and Values
27IFMR Trust Annual Report 2010 - 2011
S G Anil Kumar
Anil Kumar spearheads the establishment of a
nationwide network of Regional Financial Institutions
called Kshetriya Gramin Financial Services. Mr. Kumar
has been in the Rural and Microfinance space since 2005
as Head of Micro Finance Institution Development Team
in ICICI Bank prior to this assignment. This team has
been behind the creation of a footprint of over 200 MFIs
across the country for ICICI bank. Mr Kumar holds
a masters degree in Management from Asian Institute of Management, Manila,
Philippines, and a bachelors degree from Osmania University, Hyderabad.
Dave Wallack
Dave Wallack served as a political campaign operative
and consultant for dozens of political candidates
throughout the United States of America and worked as
an agent of several committees of the national
Democratic Party in the United States of America.
After completing his MBA he advised technology and
entertainment ventures, nonprofit organizations, and
political organizations on organizational and leadership
development. Mr. Wallack earned his MBA from
Stanford University after completing graduate study in Demography and
Population Studies at Georgetown University.
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28 IFMR Trust Annual Report 2010 - 2011
Financials
Auditors Report to the Trustees of IFMR Trust
1. We have audited the attached Balance Sheet of IFMR TRUST (the Trust)
as of March 31, 2011, the Profit and Loss Account and the Cash Flow
Statement of the Trust for the year ended on that date, both annexed thereto.
These financial statements are the responsibility of the Trusts Management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
2. We conducted our audit in accordance with the auditing standards generally
accepted in India. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatements. An audit includes examining,
on a test basis, evidence supporting the amounts and the disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and the significant estimates made by the Management,
as well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
3. We report that:
(a) We have obtained all the information and explanations which to the
best of our knowledge and belief were necessary for the purposes of our audit.
(b) In our opinion, proper books of account as required by law have been
kept by the Trust so far as it appears from our examination of those books.
(c) The Balance Sheet, the Profit and Loss Account and the Cash Flow
Statement dealt with by this report are in agreement with the books of account.
(d) In our opinion, the Balance Sheet, the Profit and Loss Account and the Cash
Flow Statement dealt with by this report are in compliance with the Accounting
Standards issued by the Institute of Chartered Accountants of India.
(e) In our opinion and to the best of our information and according to the
explanations given to us, the said accounts give a true and fair view in
conformity with the accounting principles generally accepted in India:
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29IFMR Trust Annual Report 2010 - 2011
(i) In the case of the Balance Sheet, of the state of affairs
of the Trust as of March 31, 2011
(ii) In the case of the Profit and Loss Account, of the loss
of the Trust for the year ended on that date and
(iii) In the case of the Cash Flow Statement, of the cash flows
of the Trust for the year ended on that date.
For DELOITTE HASKINS & SELLS
Chartered Accountants
(Registration No. 008072S)
Bhavani Balasubramanian
Partner
(Membership No. 22156)
Place: Chennai
Date: June 1, 2011
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30 IFMR Trust Annual Report 2010 - 2011
IFMR Trust
Balance Sheet as of March 31, 2011Amount in INR
Schedule
As of As of
March 31, 2011 March 31, 2010
I. SOURCES OF FUNDS
General fund 1,000 1,000
Loan funds
Unsecured loan
Term loan from bank 1,500,000,000 1,500,000,000
(Refer Note No.3.2 of Schedule 12)
Revocable grants from bank 564,628,532 564,628,532
(Refer Note No.3.2 of Schedule 12)
Total 2,064,629,532 2,064,629,532
II. APPLICATION OF FUNDS
Fixed assets 1
Gross block 88,892,959 33,137,653
Less: Accumulated depreciation 70,024,483 12,917,352
Net block 18,868,476 20,220,301
Capital advances - 30,481,553
Investments 2 1,093,637,831 811,091,459
Advance subscription towards proposed
investment in equity shares 3 509,396,801 453,632,609
(Refer Note 3.1 of Schedule 12)
Deferred tax ssset - -
(Refer Note 3.10 of Schedule 12)
Current assets, loans and advances
Cash and bank balances 4 89,926,137 179,979,288
Loans and advances 5 355,385,590 458,982,354
445,311,727 638,961,642
Less: Current liabilities and provisions
Current liabilities 6 228,346,612 23,921,702
Provisions 7 1,635,000 1,270,000
229,981,612 25,191,702
Net current assets 215,330,115 613,769,940
Profit and loss account 227,396,309 135,433,670
Total 2,064,629,532 2,064,629,532
Notes forming part of accounts 12
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Financials
31IFMR Trust Annual Report 2010 - 2011
Schedules referred to above form an integral part of this Balance Sheet
In terms of our report attached
For Deloitte Haskins & Sells For and on behalf of IFMR Trust
Chartered Accountants
Bhavani Balasubramanian Bindu Ananth K.R. Chandra
Partner President Vice President-Finance
Place: Chennai
Date: June 1, 2011
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IFMR TRUST
Profit and Loss Account for the year ended March 31, 2011
Amount in INR
Schedule For the For the
year ended year ended
March 31, 2011 March 31, 2010
INCOME
Interest on loans
(CY TDS INR 824,180 Previous Year
INR 6,242,290) 12,031,485 58,944,229
Interest on fixed deposits with bank
(CY TDS INR 557,515 Previous Year
INR 5,347,952) 5,355,034 50,295,306
Interest on investments 756,189 -
Other income 8 75,654,823 23,203,752
Total 93,797,531 132,443,287
EXPENDITURE
Staff costs 9 43,458,553 29,654,625
Administrative and other expenses 10 84,793,295 172,429,965
Interest 11 161,072 19,598,139
Depreciation 57,347,250 7,995,015
Total 185,760,170 229,677,744
Loss for the year (91,962,639) (97,234,456)
Taxation
-Current tax - -
-Deferred tax - 11,348,213
-Fringe benefit tax relating to earlier years 46,051 -
11,394,264
Loss after tax (91,962,639) (108,628,721)
Loss brought forward from previous year (135,433,670) (26,804,949)
Loss carried to Balance Sheet (227,396,309) (135,433,670)
Notes forming part of accounts 12
Schedules referred to above form an integral part of this Profit and Loss Account
In terms of our report attached
For Deloitte Haskins & Sells For and on behalf of IFMR Trust
Chartered Accountants
Bhavani Balasubramanian Bindu Ananth K.R. Chandra
Partner President Vice President-Finance
Place: Chennai
Date: June 1, 2011
32 IFMR Trust Annual Report 2010 - 2011
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IFMR TRUST
Cash Flow Statement for the year ended March 31, 2011
Amount in INR
For the For the
Particulars year ended year ended
March 31, 2011 March 31, 2010
A. CASH FLOW FROM OPERATING ACTIVITIES:
Loss for the year before Tax (91,962,639) (97,234,456)
Adjustments for:Depreciation 57,347,250 7,995,015
Interest on bank loan - 19,554,506
Interest income on fixed deposit (5,355,034) (50,295,306)
Interest income on investments (756,189) -
Interest income recognised in previous year charged off - 3,008,573
Loss on assets written off 896,614 34,362
Profit on sale of investments (2,692,379) -
Provision for gratuity 365,000 -
Provisions for:Provision for doubtful loans and advances 3,725,857 69,486,085
Provision for other advances considered doubtful 6,847,271
Provision for diminution in value of investments 4,096,240 25,092,200
Bad debts written off 456,187 4,904,771
Amounts written back:Provision for bad debts provided in
earlier years now written back (3,328,429) (18,699,302)
Excess gratuity provision of earlier years written back - (258,000)
Operating profit before working capital changes (30,360,251) (36,411,552)
Adjustments for:Decrease in loans and advances 100,249,026 190,598,496
Increase/(Decrease) in current liabilities and provisions 186,875 (12,319,025)
Cash generated from operations 70,075,650 141,867,919
Direct taxes - including fringe benefit taxes paid - 156,051
Net cash generated from operating activities 70,075,650 141,711,868
B. CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of fixed assets (Net) (25,364,777) (17,636,878)
Capital advances (asset) - (30,481,553)
Investment in subsidiaries - (138,284,498)
Investment in associates - (49,000)Investments - Others companies 16,700,000 -
Other investments (13,350,033) -
Subscription towards purchase of equity shares (Net) (350,111,463) (453,632,609)
Advance received towards sale of shares 203,192,328 -
Investment in deposits on lien (Net) - 328,000,000
Proceeds from/(Investment in) fixed deposits
with banks (Net) 33,600,000 (115,500,000)
Interest received - FD 8,074,150 75,146,859
Interest received - Other investment 730,994 -
Net cash used in investing activities (126,528,801) (352,437,679)
33IFMR Trust Annual Report 2010 - 2011
(Continued on next page)
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C. CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of borrowings - (300,205,479)
Interest paid - (19,554,506)
Net cash (used in)/generated from financing activities - (319,759,985)
Net decrease in cash and cash equivalents (A+B+C) (56,453,151) (530,485,796)
Opening balance of cash and cash equivalents 64,479,288 594,965,084
Closing balance of cash and cash equivalents 8,026,137 64,479,288
Reconciliation of cash and cash equivalents:
Cash and cash equivalents as per Balance Sheet 89,926,137 179,979,288
Less: Deposits maturing beyond a period of three months 81,900,000 115,500,000
Closing balance of cash and cash equivalents
as per Cash Flow Statement 8,026,137 64,479,288
In terms of our report attached
For Deloitte Haskins & Sells For and on behalf of IFMR Trust
Chartered Accountants
Bhavani Balasubramanian Bindu Ananth K.R. Chandra
Partner President Vice President-Finance
Place: Chennai
Date: June 1, 2011
IFMR TRUST
Cash Flow Statement for the year ended March 31, 2011
Amount in INR
For the For the
Particulars year ended year ended
March 31, 2011 March 31, 2010
34 IFMR Trust Annual Report 2010 - 2011
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35IFMR Trust Annual Report 2010 - 2011
IFMRTRUST
SCHEDULEOFFIXEDASSETSFO
RTHEYEARENDEDMarc
h31
,2011
Sc
he
du
le1
Grossblock
Depreciation
Netblock
Asset
Asof
Add
itions
Assets
Adjustments
Deletio
ns
Asof
Asof
Forthe
Assets
Adjustments*
On
Asof
Asof
Asof
April1,2
010
reclassified
March31,2
011
April1,2
010
year
reclassified
deletions
Ma
rch31,2
011
March31,2
011March31,2
010
Tangible
assets
Furnitureand
fittings
7,3
14,2
39
2,94
0,2
07
(880,7
06)
1,1
01,9
88
8,2
71,7
52
530,1
07
733,1
25
(19,7
86)
-
(209,3
78)
1,0
34,0
69
7,2
37,6
83
6,7
84,1
32
Computers*
16,4
20,9
39
66
2,4
36
38,5
00
17,0
44,8
75
9,4
10,8
39
4,4
71,1
20
28,8
52
-1
3,8
53,1
07
3,1
91,7
68
7,0
10,1
00
Office
equipments
3,1
92,5
45
4,10
7,9
52
(1,4
91,1
77)
5,5
41
5,8
03,7
79
246,8
05
696,9
22
(23,2
87)
-
(1,5
38)
918,9
02
4,8
84,8
77
2,9
45,7
40
Vehicles
536,0
66
6,7
35
542,8
01
148,2
58
58,6
09
-
-
206,8
67
335,9
34
387,8
08
Leasehold
improvements
-
45,70
6,9
29
2,3
71,8
83
48,0
78,8
12
-
48,0
35,7
39
43,0
73
4
8,0
78,8
12
-
Intangible
assets
--
Software**
5,6
73,8
64
3,47
9,1
91
2,1
15
9,1
50,9
40
2,5
81,3
43
3,3
51,7
35
351
-
5,9
32,7
26
3,2
18,2
15
3,0
92,5
21
-
-
-
Total
33,
137,
653
56,
903,
450
-
40,
615
1,
107,5
29
88,
892,
959
12,
917,
352
57,
347,
250
-
29,
203
(210,
916)
70
,024,
483
18,
868,
476
20,
220,
301
Previousyear
15,
642,
437
19,
148,
241
-
1,
555,
039
97,9
86
33,
137,
653
5,
674,
426
7,
995,
015
-
688,
465
63,
624
1
2,
917,
352
20,
220,
301
9,
968,
011
*Adjustmenttocomputerrepresentscostandaccumulateddepreciationoftheass
etstransferredduringtheyeartoentitieswi
thinthegroup.
**Adjustmenttosoftwarerepresentsservicetaxportioncapitalisedinearlieryears,
takencreditduringthecurrentyear.
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36 IFMR Trust Annual Report 2010 - 2011
IFMR TRUST
Schedules to the Balance Sheet as of March 31, 2011
Amount in INR
As of As of
March 31, 2011 March 31, 2010
2. Investments
Investments unquoted
(Long term - At cost):
In fully paid-up equity shares
of subsidiary companies:
IFMR Capital Finance Private Limited 602,432,843 602,432,843
(59,999,999 equity shares (PY 59,999,999
equity shares) of INR 10 each)
IFMR Rural Finance Services Private Limited
(Formerly IFMR Holdings Private Limited) 123,099,900 49,099,900
(12,309,990 equity shares (PY 4,909,990equity shares) of INR 10 each)
Megha Holdings Private Limited 5,093,300 5,093,300
(249,999 equity shares (PY 249,999
Equity Shares) of INR 10 each )
IFMR Mezzanine Finance Private Limited 100,400,000 40,400,000
(1,000,000 equity shares (PY 400,000
Equity Shares) of INR 100 each)
IFMR Finance Foundation 99,900 99,900
(9,990 equity shares (PY 9,990
equity shares) of INR 10 each)
IFMR Ventures India Private Limited 999,900 999,900
(99,990 equity shares (PY 99,990
equity shares) of INR 10 each)
Pudhuaaru Financial Services Private Limited 202,992,328 49,492,328
(15,839,600 Equity Shares (PY 489,600
Equity Shares) of INR 10 each )
Pudhuaaru Kshetriya Gramin Financial Services 100,000 100,000
(1,000 equity shares (PY 1,000 equity shares)
of INR 100 each)
Dhanei Kshetriya Gramin Services 100,000 100,000
(1,000 equity shares (PY 1,000 Equity Shares)
of INR 100 each)
Sahastradhara Kshetriya Gramin Services 100,000 100,000
(1,000 equity shares (PY 1,000 equity shares)
of INR 100 each)
NE Aqua Private Limited 99,900 99,900
(9,990 equity shares (PY 9,990 equity shares)
of INR 10 each )
(Continued on next page)
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37IFMR Trust Annual Report 2010 - 2011
IFMR TRUST
Schedules to the Balance Sheet as of March 31, 2011
Amount in INR
As of As of
March 31, 2011 March 31, 2010
NE Crafts Apparel and Furnishings Company
Private Limited (9,990 equity shares 99,900 99,900
(PY 9,990 equity shares) of INR 10 each)
NE Education Private Limited 99,900 99,900
(9,990 equity shares (PY 9,990 equity shares)
of INR 10 each )
NE Emerging Channels Services Private Limited 99,990 99,990
(9,999 equity shares (PY 9,999 equity shares)
of INR 10 each) (99,990) -
Less: Provision for diminution
(Refer Note no. 3.3 of Schedule 12)
NE Green Power Private Limited 99,900 99,900
(9,990 equity shares ( PY 9,990 equity shares)
of INR 10 each )
NE Housing Company Private Limited* - 99,900
(NIL equity shares (PY 9,990 equity shares)
of INR 10 each )
Less: Provision for diminution - - (99,900) -
(Refer Note no. 3.3 of Schedule 12)
NE Medicare Private Limited* - 99,900
(NIL equity shares (PY 9,990 equity shares)
of INR 10 each )
Less: Provision for diminution - - (99,900) -
(Refer Note no. 3.3 of Schedule 12)
NE Milkrush Private Limited 99,900 99,900
(9,990 equity shares (PY 9,990 equity shares)
of INR 10 each )
NE Processed Foods Private Limited* - 99,900
(NIL equity shares (PY 9,990 equity shares)
of INR 10 each )
NE Rural BPO Company Private Limited 99,900 99,900
(9,990 equity shares (PY 9,990 equity shares)
of INR 10 each )
Less: Provision for diminution (99,900) - (99,900) -
(Refer Note no. 3.3 of Schedule 12)
NE Rural Supply Chain Private Limited* - 99,900
(NIL equity shares (PY 9,990 equity shares)
of INR 10 each )
NE Rural Tourism Private Limited 99,900 99,900
(9,990 equity shares (PY 9,990 equity shares)
of INR 10 each )
(Continued on next page)
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38 IFMR Trust Annual Report 2010 - 2011
IFMR TRUST
Schedules to the Balance Sheet as of March 31, 2011
Amount in INR
As of As of
March 31, 2011 March 31, 2010
NE Agri Services Private Limited 3,999,900 3,999,900
(399,990 equity shares (PY 399,990
equity shares) of INR 10 each )
In fully paid-up equity shares of associates:
IKP Center For Advancement in Agricultural
Practices (4,900 equity shares 49,000 49,000
(PY 4,900 equity shares) of INR 10 each)
Grameen Capital India Limited 24,750,000 24,750,000
(2,475,000 equity shares (PY 2,475,000
equity shares) of INR 10 each)
In fully paid up shares of other companies:
Aarusha Homes Private Limited 483,580 483,580
(48,358 equity share (PY 48,358
equity shares) of INR 10 each)
Desi Power (Kosi) Private Limited 1,750,000 1,750,000
(3,198 preference shares (PY 3,198
preference shares) INR 100 each)
Less: Provision for diminution (1,750,000) - (1,750,000) -
(Refer Note no. 3.3 of Schedule 12)
Financial Information and Network
Operations Limited 5,000,000 5,000,000
(500,000 equity shares (PY 500,000
equity shares) of INR 10 each)
Education Initiatives Private Limited ^ 5,991,497 19,999,118
(43,638 equity shares (PY 145,660
equity shares) of INR 1 each)
In debentures of:
Earthy Goods & Services Private Limited 15,985,000 15,985,000
(91,(PY 91) 15% debentures of
INR 100,000 each)
Less: Provision for diminution (11,988,750) 3,996,250 (7,992,500) 7,992,500
(Refer Note no. 3.3 of Schedule 12)
Sandhi HandCrafts Private Limited # - 15,050,000
(47,(PY 47) 15% debentures of
INR 100,000/- each)
(40,(PY 40) 10% debentures of
INR 100,000/- each)
Less: Provision for diminution - - (15,050,000) -
(Refer Note no. 3.3 of Schedule 12)
(Continued on next page)
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39IFMR Trust Annual Report 2010 - 2011
IFMR TRUST
Schedules to the Balance Sheet as of March 31, 2011
Amount in INR
As of As of
March 31, 2011 March 31, 2010
Short term - Quoted:
In mutual funds:
Baroda Pioneer PSU Equity Fund 2,000,000.00 -
Short term - Unquoted:
Investment in loan portfolio of:
Dhanei Kshetriya Gramin Services 5,275,223 -
Sahastradhara Kshetriya Gramin Services 6,074,810 -
1,093,637,831 811,091,459
* The Companies have gone into liquidation
during the year 2010-2011
# Investment written off during the year^ The Investee company has bought back
102,022 shares under a scheme of buy back
3. Advance subscription towards proposed
investment in equity shares
Advance for purchase of shares made 516,244,072 453,632,609
(Refer Note 3.1 of Schedule 12)
Less:- Amount considered doubtful (6,847,271) -
509,396,801 453,632,609
4. Cash and bank balances
Cash and cheques on hand (Cheques on hand
NIL (PY 99,000)) - 99,000
- in savings account 3,026,137 17,630,288
- in deposit account 86,900,000 162,250,000
89,926,137 179,979,288
5. Loans and advances (Unsecured)
considered good
Advances recoverable in cash or in kind or for
value to be received including
advances to creditors 5,643,461 16,477,084
Loans to group companies 52,346,745 39,826,987
Loans to others 180,805,684 275,893,828
Deposits 70,224,267 74,357,300
Advance tax and tax deducted at source
(Net of provision for tax) 39,442,308 29,681,164
(Provision for tax - INR 5,714,051
(PY INR 5,714,051)
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Schedules referred to above form an integral part of this Balance Sheet
In terms of our report attached
Bhavani Balasubramanian Bindu Ananth K.R. Chandra
Partner President Vice President-Finance
Place: Chennai
Date: June 1, 2011
IFMR TRUST
Schedules to the Balance Sheet as of March 31, 2011
Amount in INR
As of As of
March 31, 2011 March 31, 2010
Interest accrued but not due:
- on loans given 4,924,378 17,495,806
- on fixed deposits 1,931,354 5,207,987
- on investments 25,195 6,880,927 - 22,703,793
Amount recoverable towards remuneration 82,198 62,198
Less: Remuneration payable to Trustees (40,000) 42,198 (20,000) 42,198
Considered doubtful
Loans to others 19,782,918 80,888,840
Less: Provision for doubtful advances (19,782,918) - (80,888,840) -
(Refer Note no. 3.3 of Schedule 12)
355,385,590 458,982,354
6. Current liabilities
Sundry creditors 5,543,188 6,106,193
Advance received towards sale of shares 203,192,328
(Refer Note no.3.6 of Schedule 12)
Other liabilities 19,611,096 17,815,509
(Refer Note no. 3.11 of Schedule 12)
228,346,612 23,921,702
7. Provisions
Provision for gratuity 1,635,000 1,270,000
1,635,000 1,270,000
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IFMR TRUST
Schedules to the profit and loss account for the year ended March 31, 2011
Amount in INR
As of As of
March 31, 2011 March 31, 2010
8. Other income
Excess provision for gratuity made in earlier
years, written back - 258,000
Excess provision for doubtful advances made
in earlier years no longer required written 3,328,429 18,699,302
back fees for professional services rendered
(TDS CY 3,05,019 (Previous year NIL)) 2,719,857 3,541,659
Income from shared services (TDS CY
29,57,858 (Previous year NIL)) 27,096,841 -
Income from infrastructure services
(TDS CY 50,38,411 (Previous year NIL)) 38,671,786 -
Profit on sale of investments 2,692,379 -
Rent received (TDS CY 75,000(Previous year NIL)) 679,965 -
Others 465,566 704,791
Total 75,654,823 23,203,752
9. Staff costs
Salaries, allowances and bonus 38,200,063 25,828,952
Company's contribution to provident fund 1,899,855 3,045,111
Staff welfare expenses 2,993,635 780,562
Gratuity 365,000 -
Total 43,458,553 29,654,625
10. Administrative and other expenses
grants 5,000,000
Incubation expenses 22,047,402 28,693,588
(Refer Note 3.9 of Schedule 12)
Rent and amenities 8,612,136 2,060,560
Repairs & maintenance
- Computers 462,029 457,893
- Building 7,186,548 2,107,316
- Others 247,889 7,896,466 408,686 2,973,895
Postage & telegrams 97,040 156,303
Printing & stationery 961,543 662,958
Telephone expenses 2,405,288 949,723
Travelling & conveyance 3,783,458 3,694,614
Consultancy charges 2,798,660 4,058,480
Legal & professional charges 4,177,147 13,596,408
Brokerage & commission 36,761 35,946
Advertisement charges - 152,212
Conference & seminar expenses 453,471 2,885,944
Recruitment charges 91,571 228,090
Office expenses 7,233,406 3,732,812
Subscription 95,211 108,121
Sponsorship charges 679,637 2,058,337
Software development exp 110,939 608,891
Loss on assets written off 896,614 34,362
Exchange variation (Net) 876 18,186
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IFMR TRUST
Schedules to the profit and loss account for the year ended March 31, 2011
Amount in INR
As of As of
March 31, 2011 March 31, 2010
42 IFMR Trust Annual Report 2010 - 2011
Website maintenance and internet expenses 879,080 712,210
Auditors' remuneration
For Statutory audit
(inclusive of service tax) 1,200,000 1,103,000
For Tax audit 75,000 -
For Reimbursement of expenses - 1,275,000 35,825 1,138,825
Provision for doubtful loans and advances 3,725,857 69,486,085
Provision for other advances 6,847,271 -
Provision for diminution in value of investments 4,096,240 25,092,200
Bad debts 77,209,337 4,904,771
Less: Transfer from provision for
Doubtful debts (76,753,150) 456,187
Interest income recognised in previous
year charged off - 3,008,573Miscellaneous expenses 136,034 1,377,870
Total 84,793,295 172,429,965
11. Interest and finance charges
Interest on bank loan - 19,554,506
Bank charges 20,753 43,633
Interest on service tax 90,252 -
Intererst on TDS 50,067 -
Total 161,072 19,598,139
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43IFMR Trust Annual Report 2010 - 2011
IFMR TRUST
SCHEDULE 12
NOTES ON ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2011
1. BACKGROUND
IFMR Trust is a private Trust established under the Indian Trusts Act 1882 on October 19, 2006 at Chennai represented by
IFMR Trusteeship Services Private Limited acting in its capacity as trustee to IFMR Trust. IFMR Trusts mission is to ensure that
every individual and every enterprise has complete access to financial services. The names and the business of the major
Companies which are incubated/acquired by the Trust have been elucidated below:
IFMR Capital Finance Private Limited (IFMR Capital): IFMR Capitals mission is to act as a bridge to mainstream capital
markets for entities and asset classes of relevance to low-income households. It's objective is to provide liquidity and
developing access to debt-capital markets for critical sectors such as, rural financial service providers, urban financial
service providers that focus on low-income households, municipalities, rural infrastructure.
IFMR Ventures India Private Limited (IFMR Ventures): IFMR Ventures is an Asset Management Company that has launched
its first private equity fund, Network Enterprises Fund (NEF). The NEF intends to make investments in some key missing
links in rural supply chains. The Network Enterprise Fund has been registered as a Private Equity Fund with SEBI;
The Fund is proposed to make its first commercial investment in 2011-2012.
IFMR Rural Finance Services Private Limited (formerly known as IFMR Holdings Private Limited) (IFMR Rural Finance):
High quality delivery of financial services requires delivering them in a convenient, flexible, reliable and continuous
manner. IFMR Rural Finance therefore has been set up by IFMR Trust with a mandate to design a model that can
withstand scrutiny on the aforementioned essential parameters and thus pave the way towards complete financial
inclusion in rural remote India.
IFMR Finance Foundation: IFMR Trusts principal strategy for ensuring complete access to financial services is advocacy.
IFMR Finance Foundation is looking to complement existing efforts in the arena of access to financial services by
supporting practice-relevant action research and pilot projects on access to finance, and by influencing thinking
and action among key sectoral actors.
IFMR Mezzanine Finance Private Limited (IFMR Mezzanine): IFMR Mezzanine is established with the aim to facilitate
access to risk capital to microfinance institutions (MFIs). It is intended that this Company will make investments inmicrofinancial institutions in the form of subordinated debt instruments with a quasi-equity nature that can be leveraged
by the microfinance institutions with other lenders, allowing them to access funds that were hitherto unavailable to
them. This is the first attempt to enable MFIs to use a new class of liability to leverage their equity capital for further
expansion.
Megha Holdings Private Limited (Megha Holdings) is a non-deposit taking NBFC, wholly owned by IFMR Trust. The Company
was incorporated in September 1985, and was acquired by IFMR Trust from its erstwhile promoters in December 2009.
During the year, this entity has acquired 2 non-deposit taking NBFCs, Radaur Holdings Private Limited and Ankur
Securities Private Limited. Consequently the acquired entities have become the subsidiaries of the Trust.
Kshetriya Gramin Financial Services (KGFS); KGFS is a working model for financial inclusion that seeks to assure financial
wellbeing for every individual and enterprise in remote rural India. The first KGFS Company, Pudhuaaru KGFS, started
operations in Thanjavur district of Tamil Nadu in June 2008. Two other KGFS entities were launched subsequently:
Sahastradhara KGS in Uttarakhand, with operations in the districts of Tehri Garhwal, Pauhri, Haridwar and Dehradun, andDhanei KGS in Orissas Ganjam district.
Pudhuaaru Financial Services Pvt. Ltd is a non-deposit taking NBFC, wholly owned by IFMR Trust. The Company was
incorporated on March 4, 1993, and is engaged in the business of providing financial services in remote rural parts of
Thanjavur & Thiruvarur District.
Network Enterprises: Network Enterprises represents a cluster of Private Limited enterprises set up by IFMR Trust that
engage in incubation of sector specific business activities such as Rural Tourism, Agricultural Terminal Markets,
Clean Drinking Water, Dairy Development and so on. IFMR Trust has set up a Network Enterprise Fund and envisages
investment therefrom into the Network Enterprises that reach viability in terms of business model.
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44 IFMR Trust Annual Report 2010 - 2011
2. SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of preparation of financial statements:
The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and
in accordance with accounting principles generally accepted in India and comply with the accounting standards issued
by the Institute of Chartered Accountants of India (ICAI).
The Trust is classified as a Level I enterprise as defined by the scheme of applicability of accounting standards issued
by ICAI. Accordingly, the Trust is required to comply with all mandatory accounting standards prescribed by the ICAI.
2.2 Use of estimates:
The preparation of the financial statements in conformity with the generally accepted accounting principles requires
estimates and assumptions to be made that affect the reported amount of assets and liabilities on the date of
financial statements and the reported amount of revenues and expenses during the reporting period. Management
believes that the estimates used in the preparation of financial statements are prudent and reasonable. Future results
could differ from these estimates.
2.3 Fixed assets and depreciation:
Fixed Assets are stated at cost less accumulated depreciation. Depreciation on assets is provided on the Written Down
Value Method at the following rates:
Asset Category Depreciation Rate
Furniture and fittings 10%
Computers and software 60%
Office equipment 15%
Vehicles 15%
Leasehold improvements 100%
2.4 Impairment of assets:
The Trust determines whether there is any indication of impairment of the carrying amount of its assets.
The recoverable amount of such assets are estimated, if any indication exists and impairment loss is recognizedwherever the carrying amount of the assets exceeds its recoverable amount.
2.5 Investments:
Long-term investments are stated at cost of acquisition. Provision for diminution is made if such diminution is
considered as being other than temporary in nature. Investments in mutual funds are valued at lower of cost or
market value, prevailing as at the Balance Sheet date.
2.6 Revenue recognition:
Interest income is recognized on accrual basis. Income arising from shared services and Infrastructure services
between the group companies is recognised on accrual basis, in accordance with mutually agreed terms.
2.7 Leases:
Leases are classified as finance or operating leases depending upon the terms of the lease agreements.
Finance leases
Finance leases, which effectively transfer substantially all the risks and benefits incidental to the ownership of the
leased item, are capitalised at the lower of the fair value or present value of the minimum lease payments at the
inception of the lease term and disclosed as leased assets. Lease payments are apportioned between the finance
charges and the reduction of the lease liability based on the implicit rate of return. Finance charges are charged
directly against income.
Operating leases
Leases of assets under which all risks and rewards of ownership are effectively retained by the lessor are classified
as operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basis over
the lease term.
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45IFMR Trust Annual Report 2010 - 2011
2.8 Foreign currency transactions:
Transaction in foreign currencies is accounted at the exchange rates prevailing on the date of the transaction and the
realized exchange loss/gain are dealt with in the Profit & Loss account. Monetary assets and liabilities denominated
in foreign currency are restated at the rates of exchange as on the Balance Sheet date and the exchange gain/loss
is suitably dealt with in the Profit and Loss account.
2.9 Employee benefits:
Defined contribution plans:
Fixed Contributions to Provident Fund made on monthly basis with relevant authorities are absorbed in theprofit and loss account.
Defined benefit plans (long term employee benefits):
Gratuity
The Trust accounts its liability for future gratuity benefits based on the actuarial valuation as at the Balance Sheet
date, determined using the Projected Unit Credit method and is provided for.
Compensated absences
Benefits of Compensated Absences are not provided to the employees of the Trust.
2.10 Taxation:
Current tax is determined in accordance with the provisions of Income tax act, 1961.
Deferred tax is calculated at the tax rates and laws that have been enacted or substantively enacted as at the
Balance Sheet date and is recognised for all the timing differences. Deferred Tax assets in respect of unabsorbed
depreciation and carry forward of losses are recognised if there is virtual certainty that there will be sufficient future
taxable income available to realize such losses. Other deferred tax assets are recognised if there is reasonable
certainty that there will be sufficient future taxable income available to realise such assets.
2.11 Provisions, contingent liabilities and contingent assets:
Provisions are recognised only when there is a present obligation as a resul