Trident Microfin Private Limited

(TMPL) MFI Grading Report

July 2009

MFI Grading –Trident Microfin Private Limited (TMPL)

Trident Microfin Private Limited (TMPL) ‘mfR4’ Year of incorporation : August 1996 Mr. Kishore Kumar Puli Managing Director Legal Status: NBFC Trident Microfin Private Limited Type of Institution: MFI No.11-8-15,MIG 33, Shree Sai Arcade, 1st and 2 nd floor, Saroor Nagar, Lending Model: Grameen bank model, joint -500035, liability group (JLG) and individual loans Tel : 040-23443210 Email: [email protected]

CRISIL’s institution (MFI) grading is a current opinion on the MFI Grading ability of an MFI to conduct its operations in a scalable and sustainable manner. mfR1 The grading is assigned on an eight-point scale, with ‘mfR1’ being the highest, mfR2 mfR3 and ‘mfR8’ the lowest. The MFI grading is a measure of the overall performance mfR4 of an MFI on a broad range of parameters under CRISIL’s MICROS framework. mfR5 mfR6 It includes a traditional creditworthiness analysis using the CRAMEL approach, mfR7 modified to be applicable to the microfinance sector. The acronym MICROS mfR8 mfR1:highest stands for Management, Institutional arrangement, Capital adequacy and asset mfR8: lowest quality, Resources and asset-liability management, Operational effectiveness, and Scalability and sustainability.

Disclaimer: CRISIL's MFI grading reflects CRISIL’s current opinion on the ability of an MFI to conduct its operations in a scalable and sustainable manner. The MFI grading does not constitute an audit of the graded MFI by CRISIL. In the case of NGO-MFIs, CRISIL’s MFI gradings apply only to their microfinance programmes. CRISIL MFI gradings are based on information provided by the graded MFI, or obtained by CRISIL from sources it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions for the results / opinions obtained from the use of such information. CRISIL especially states that it has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this report

This grading does not opine on the MFI’s ability for timely payment of interest and principal. Nor is it a recommendation to purchase, sell, or hold any financial instrument issued by the graded MFI, or to make loans / donations/ grants to the graded MFI. The MFI grading assigned by CRISIL cannot be used by the MFI/NGO-MFI in any form for mobilizing deposits/savings/thrift from its members or general public.

© 2009- CRISIL-All rights reserved For any information of the MFI gradings assigned by CRISIL, please contact the Rating Desk on +91 22 6691 3047/64 or email to CRISILratingdesk@.com

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MFI Grading –Trident Microfin Private Limited (TMPL)

1 Rationale

The microfinance institution (MFI) grading of ‘mfR4’ assigned to Trident Microfin Pvt Ltd ’s

(TMPL) reflects the MFI’s:

 Management’s experience in microfinance

 Strong shareholder support  Acquisition of a well-managed microfinance programme

 Good asset quality

The abovementioned grading strengths are partially offset by:

 Modest resource profile

 High geographic concentration

Profile Trident, formerly Annapurna Financial Services Pvt Ltd (Annapurna), is a non-deposit taking non-banking financial company (NBFC-ND) that has a registered office in Amritsar, Punjab. Annapurna, which was incorporated in 1996, did not carry out any business activity at the time of acquisition by Trident’s promoters. In January 2008, Trident acquired the microfinance loan portfolio of Trident Seva Society, which started its operations in 2007. In September 2008, the NBFC acquired the two-year-old microfinance programme of the Maxwealth Trust (Maxwealth), a trust started by the Institute of Chartered Financial Analysts of (ICFAI), Hyderabad. At the time of acquisition, Maxwealth had a loan portfolio of Rs.192 million, with 23 branches in and around Hyderabad while Trident had a loan portfolio of Rs.80 million and seven branches in the region of Andhra Pradesh (AP) and ’s Vidarbha region. Annapurna was renamed as Trident in April 2009.

Although a start-up, Trident, following the acquisition of the loan portfolio of Rs.192 million, has rapidly grown in the past nine months. As on June 30, 2009, it had more than 88,000 borrowers and a loan outstanding of Rs.451 million (includes managed loans). As on the above date, the

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MFI Grading –Trident Microfin Private Limited (TMPL)

company had 31 branches across six districts in Telangana (includes Hyderabad), and four districts in Vidarbha. Trident offers seven loan products; the loan amounts range from Rs.6,000 to Rs.100,000. The company follows three different lending models: the Grameen Bank model (interest rate of 12.5 per cent on a flat rate basis in AP and 15 per cent on a flat rate basis in Maharashtra), the joint liability group model (interest rate of 15 per cent on a flat rate basis) and the individual lending model. Loans under the Grameen Bank model (amounts ranging from Rs.6,000 to Rs.15,000) accounted for more than 90 per cent of the loan portfolio outstanding as on March 31, 2009. It also offers life insurance to its members through a tie-up with Bajaj Allianz Life Insurance Co Ltd. In June 2009, Trident also tied up with Kotak Mahindra Old Mutual Life Insurance Ltd for offering group term insurance products to cover its borrowers.

Management Trident has adequate monitoring and recovery practices, and internal controls. The company’s client identification, group formation, approval, and loan-monitoring systems are comparable with those of most other large Indian MFIs. Trident’s management has been successful in integrating the microfinance operations of a much larger entity with itself during the past nine months. In CRISIL’s opinion, the acquisition of Maxwealth’s operations have not only provided Trident a sizeable client base and a branch network in Hyderabad, but also seasoned field staff with experience in the Grameen Bank model of group lending, middle management and access to a superior loan-tracking system. Most of Maxwealth’s field staff had prior work experience with other leading MFIs and its management team comprised those with experience in rural banking and marketing of fast-moving consumer goods in rural markets.

Institutional Arrangement Trident’s board and top management have Chart 1 : Share holding pattern adequate experience in microfinance. All the as on March 31, 2009 board members are currently engaged in the Bellwether microfinance sector and three of the directors Microfin. P.Ltd Bellwether 33% Microfin. (including the promoter) have worked earlier Trust 15% Promoter with the BASIX group, one of early players in 2% the microfinance sector. Although the promoter’s (who is also the managing director) IFIF stake is very small, he (Mr. Kishore Kumar P) 50%

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MFI Grading –Trident Microfin Private Limited (TMPL) enjoys the support of two principal investors-- microfinance investment vehicles (MIVs) (state names)--both managed by the same fund manager, Caspian Advisors P Ltd (headed by the former chief executive officer of Bhartiya Samrudhhi Finance Ltd). Although a relatively new company, the principal investors’ interest in Trident is evident in the fact that they had played an active role in Trident’s acquisition of Maxwealth’s microfinance operations. Both MIVs have a long investment horizon of more than five years and CRISIL expects this to provide the company flexibility to scale up and stabilise its operations over the next two to three years.

Capital Adequacy and Asset Quality As on March 31, 2009, Trident had a tangible net worth of Rs.177 million, which is adequate to support its business growth over the medium term. Trident, however, is expected to become a systemically important non-deposit taking NBFC in 2009-10 (refers to financial year, April 1 to March 31), when its assets cross Rs.1 billion. Therefore, it would need to maintain a capital adequacy ratio above 15 per cent by March 2011. Moreover, the company’s projections assume high double digit growth in advances during the next 3-4 years (refer annexure 2.3) which would require regular capital infusion. Therefore, timely capital infusion to maintain adequate capitalisation levels would remain a key grading sensitivity factor for future grading assessments by CRISIL.

Trident has good asset quality with 100 per cent of its loan portfolio being current for March 2009; the on-time repayment rate has been consistently high since the start of operations in January 2008. The on-time repayment rate has similarly been high on Maxwealth’s loan portfolio. CRISIL, however, believes that the credit risks remain very high on account of high concentration of the loan portfolio in Hyderabad and adjoining areas (more than 60 per cent as on June 30, 2009). There are several large MFIs operating in Hyderabad and adjoining districts and, therefore, the risk of over-financing a borrower by multiple lenders is very high. CRISIL’s experience indicates that the debt-servicing behaviour of microfinance borrowers is uncertain in times of adverse media and government attention faced by MFIs. Such attention increases when borrowers are overleveraged and face difficulty in repaying MFI loans.

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MFI Grading –Trident Microfin Private Limited (TMPL)

Resources and Asset-Liability Management The MFI had borrowings of Rs.319 million (includes direct assignment) from three private banks, one foreign bank and a public sector bank as on June 30, 2009. Trident raised Rs.90 million during the first quarter of 2009-10, and has approached several scheduled commercial banks and apex MFIs to raise the remaining borrowing requirement of Rs.1.25 billion for 2009-10. A portion of this is also expected to be met through direct assignments. Given the short operating track record, however, CRISIL believes that raising incremental resources to meet its aggressive growth plans will be a task. The manner in which the MFI is able to raise and diversify its borrowings will be a key monitorable. The majority of assets are funded by longer maturity borrowings; therefore, it faces no asset liability mismatches over the short to medium term.

Operational Effectiveness The company achieved a net profit of Rs.4.94 million and operating self sufficiency (OSS) of 120 per cent (excluding standard loan loss provisioning) in 2008-09. CRISIL expects the OSS to remain at current levels during 2009-10 despite increase in fund-based yields. The increase in fund-based yields would be offset by higher cost of borrowings and operating expense levels. The ratio of interest to average cost of borrowings was lower in 2008-09 as the bulk of Trident’s borrowings were in the second half of the financial year and the full impact of the same would be visible in 2009-10. Moreover, the cost of incremental borrowings is expected to increase during the second half of 2009-10. Similarly, operating expense levels during 2009-10 are expected to increase on account of roll out of new branches.

Much of Trident’s non-acquired loan portfolio is in regions within Andhra Pradesh and Maharashtra, where the MFI had limited competition as of now, providing opportunities for growth. Given the senior management’s past experience in offering loans to joint liability groups (JLG) and individual loans, Trident is keen to expand its non-Grameen-Bank-model loans. This shift towards higher interest-yielding loans together with increase in exposure to Maharashtra (where Trident charges a flat rate of 15 per cent under the Grameen Bank model as against 12.5 per cent it charges in AP) is expected to result in higher yields and consequently higher spreads. CRISIL, however, believes that the high lending rates may not be sustainable over the long term and, therefore, the MFI will need to attain high levels of branch and employee productivity if it is to maintain adequate levels of profitability.

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MFI Grading –Trident Microfin Private Limited (TMPL)

Scalability and Sustainability Trident had three years of experience Chart 2: Region wise loan distribution as on June 30, 2009 (including Maxwealth) and a member base of more than 99,000 spread across Hyderabad, Telangana and Vidarbha as on June 30, 2009. Telangana 27% The grading largely draws comfort from Trident’s acquisition of a well-run microfinance Hyderabad & adj. areas Vidarbha programme and its ability to successfully 62% 11% integrate Maxwealth’s operations with itself. The key challenge for Trident would be its ability to retain and provide growth opportunities to experienced field staff, which have joined Trident following Maxwealth’s acquisition.

The other key challenge would be Trident’s ability to reduce its geographic concentration and expand its non-Grameen-Bank-model loan portfolio, which is very small as of March 2009. As indicated above, much of the current business is driven by the erstwhile Maxwealth’s operations and the management’s ability to diversify its loan portfolio (in terms of markets and products) to minimise risks is yet to be demonstrated. Positive grading actions at the time of subsequent assessments will depend on whether the company is able to maintain good asset quality, raise adequate borrowings, diversify, improve earnings, and maintain healthy capitalisation levels. On the other hand, a negative grading action would occur if high loan growth is not matched by further capital increases and if there are high delinquencies.

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MFI Grading –Trident Microfin Private Limited (TMPL)

2 Annexures

2.1 BUSINESS ...... 9 2.1.1 Outreach summary ...... 9 2.1.2 Productivity indicators ...... 9 2.1.3 Loan product details ...... 10 2.1.4 Insurance product details ...... 10 2.1.5 Loan product wise distribution details ...... 11 2.1.6 Borrowing details as on June 30, 2009 ...... 11 2.2 FINANCIAL STATEMENTS OF TRIDENT MICROFIN PVT . LTD ...... 12 2.2.1 Income and Expenditure Statement ...... 12 2.2.2 Balance Sheet ...... 13 2.2.3 Key Financial Ratios ...... 14 2.3 PROJECTED FINANCIAL STATEMENTS AS PROVIDED BY TRIDENT ...... 15 2.3.1 Income and Expenditure Statement ...... 15 2.3.2 Balance sheet ...... 16 2.3.3 Key financial ratios based on projections ...... 16

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MFI Grading –Trident Microfin Private Limited (TMPL)

2.1 Business

2.1.1 Outreach summary

For the period ending March 31, Unit 2009 2008 Members No. 89,525 8,200 Borrowers No. 81,042 8,200 Branches No. 31 7 Districts No. 9 2 Women borrowers % 100 100 Loans disbursed No. 119,557 8,260 Disbursements Rs.Mn 596.19 64.77 Loan outstanding(own) Rs.Mn 422.52 47.15 Loan outstanding(managed) Rs.Mn 28.63 - Total loan outstanding Rs.Mn 451.15 47.15

2.1.2 Productivity indicators

For the period ending March 31, Unit 2009 2008 Total employees No. 227 29 Credit officers No. 130 29 Members / credit officer No. 689 283 Borrowers / credit officer No. 623 283 Members/branch No. 2,888 1,171 Loan accounts/ branch No. 2,614 1,171 Loan outstanding/ credit officer Rs.Mn 3.47 1.63 Loan outstanding/branch Rs.Mn 14.55 6.74

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MFI Grading –Trident Microfin Private Limited (TMPL)

2.1.3 Loan product details Micro Agri- Group Enterp allied Crop Housing/ Staff Loan type loan loan loan loan Infra ** Personal loan 6,000 - 15 ,000 - 15 ,000 - 25 ,000 - 15 ,000 - 25 ,000 - Loan amount(Rs.) 16,000 1,00,000 1,000,000 6,000-25,000 3,00,000 1,00,000 1,00,000 Interest rate(% @ flat rate) 12.5-15 15.00 15 21# 21# 15 12.5** Loan processing fees (%) 3 3.00 3 3 3 3 - Registration fee(Rs.) 100 100 100 100 100 100 - Cash security(%) 10* - - 10* - - - Monthly/ Weekly/ half Repayment Monthly Monthly Monthly Half yearly yearly Monthly Monthly 50 W & Tenure 12-24 M 18-36 18-36 11 12 '-36 18-36 12 '-36^ 60 (int) & 180(Pri) 2-6 Moratorium - 45 days 60 days days months 60 days 60 days *for monthly repayments #declining rate **for vehicle loan charges at 15% declining rate, ^vehicle loan to staff with 60 months tenure ** yet to be launched as on July 2009

2.1.4 Insurance product details in Rs. Group loans weekly and monthly Premium for Premium for monthly Loan amount Sum assured weekly loans loans 4,000 5,000 50 100 6,000 10,000 100 200 8,000 10,000 100 200 10,000 15,000 150 300 12,000 15,000 150 300 14,000 15,000 150 300 16,000 20,000 200 40 0 JLG, Individual & crop loans Sum assured Insurance Rs.10 per Rs.1000 1.5 times of loan amount and Rs.500-1000 sum assured

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MFI Grading –Trident Microfin Private Limited (TMPL)

2.1.5 Loan product wise distribution details in per cent Loan product Mar-09 Mar-08 Group loans 99.46 99.53 Micro Enterprise loan 0.10 0.30 Agri . allied group loans 0.20 - Agri . allied loans 0.17 - Crop loans 0.03 - Personal loans 0.04 0.17 Total 100 100

2.1.6 Borrowing details as on June 30, 2009 Rs. million Tenor Bank Name Sanctioned Outstanding (in months) Ltd 87.50 70.99 30 DCB Bank Ltd 30.00 16.28 18 ABN Amro Bank 107.52 62.07 36 HDFC Bank Ltd 119.50 89.81 18 70.00 70.00 36 Bellwether Micro Finance Fund 40.00 10.00 12 Total 454.52 319.16

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MFI Grading –Trident Microfin Private Limited (TMPL)

2.2 Financial Statements of Trident Microfin Pvt. Ltd

2.2.1 Income and Expenditure Statement Rs. million Combined Trident Maxwealth (Trident+ Max wealth) # For the year ended March 31, 2009 2008 2008 2008 Fund based income Interest income from loans * 51.44 2.42 9.39 11.81 Income from investments /bank deposits 0.52 - - - Total fund based income 51.96 2.42 9.39 11.81 Interest and finance charges On borrowings * 19.55 0.30 - 0.30 Finance charges 0.98 0.05 0.23 0.28 Total interest and finance charges paid 20.53 0.35 0.23 0.58 Gross spread 31.43 2.07 9.16 11.24 Fee based income Membership fee 3.30 0.39 1.48 1.86 Processing charges & insurance commission 18.25 1.21 2.63 3.84 Total fee based income 21.55 1.59 4.11 5.70 Total income 73.51 4.01 13.50 17.52 Gross surplus 52.98 3.67 13.27 16.94 Expenses Personnel expenses 21.47 0.06 12.40 12.46 Administrative expenses 11.44 2.15 2.72 4.87 Loss on sale of asset 0.02 - - - Amortization on intangible assets 5.65 - - - Total expenses 38.58 2.21 15.12 17.34 Provision for standard assets 3.16 - - - Depreciation 1.65 0. 07 0.47 0.54 Profit before tax 9.59 1.39 -2.32 -0.93 Tax 4.65 0.49 0.00 0.49 Profit after tax 4.94 0.90 -2.32 -1.42

Notes: # The combined Income and Expenditure (Trident and Maxwealth) for 2007-08 has presented here for ease of comparison with 2008-09 financials. * Interest income includes interest income on loan portfolio assigned to a bank. The monthly payout to the bank has been factored as financial expense

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MFI Grading –Trident Microfin Private Limited (TMPL)

2.2.2 Balance Sheet

Rs. million Combined Trident Max Wealth (Trident+ Max wealth) Balance sheet as at March 31, 2009 2008 2008 2008 Liabilities Paid-up capital 86.79 18.98 - 18.98 Corpus - - 0.10 0.10 Reserves and surplus 121.09 0.85 -2.43 -1.58 Intangibles -30.82 - - - Tangible net worth 177.06 19.83 -2.33 17.50 Borrowings 296.96 31.61 155.01 # 186.62 Borrowings (managed) 28.63 - - - Total borrowings 325.59 31.61 155.01 186.62 Security deposits 3.59 0.22 - 0.22 Provision for loan loss 3.16 - - - Other liabilities 10.23 1.78 1.27 3.05 Total current liabilities 13.40 1.78 1.27 3.05 Total liabilities 519.64 53.45 153.94 207.39 Assets Loans and advances 422.52 47.15 143.32 190.47 Loans and advances- managed portfolio 28.63 - - - Loans outstanding 451.15 47.15 143.32 190.47 Cash & bank balances 39.84 2.78 6.20 8.97 Deposits with banks 19.04 - 0.92 0.92 Other current assets 2.12 2.10 0.80 2.90 Total current assets 60.99 4.88 7.91 12.79 Total funds deployed 512.14 52.02 151.24 203.26 Net fixed assets 7.50 1.42 2.71 4.13 Total assets 519.64 53.45 153.94 207.39

# Maxwealth had borrowed from ICFAI and a group entity

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MFI Grading –Trident Microfin Private Limited (TMPL)

2.2.3 Key Financial Ratios in per cent Year ended March 31, 2009 Yield Fund based yield 18.42 Portfolio yield 20.65 Total income / Avg. funds deployed 26.06 Cost of funds Interest paid/Avg. funds deployed 7.28 Interest paid/Avg. borrowings 11.50 Interest spread Gross spread/Av g. funds deployed 11.14 Spreads on lending 6.93 Overheads Operating expenses / disbursements 59.56 Operating expense ratio 14.26 Personnel expense ratio 7.61 Administrative expense ratio 4.65 Profitability Return on net worth 5.01 Return on funds deployed 1.75 Operational self suff iciency (adj. for std. loan loss provision) 120.99 Asset quality Provisioning & write-off/Avg. loan outstanding 1.56 Capitalisation Total debt/net worth (times) 1.84 Capital adequacy 40.14

Notes:

a) includes managed loans, where appropriate b) For capital adequacy computation: I. 100% risk weight assumed on managed loans II. Upfront security deposit deducted from loans outstanding while arriving at risk weighted assets

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MFI Grading –Trident Microfin Private Limited (TMPL)

2.3 Projected Financial Statements as provided by Trident

2.3.1 Income and Expenditure Statement Rs. million For the year ended March 31, 2013 2012 2011 2010 Fund based income 1524 876 496 231 Interest paid on borrowings 838 494 283 125 Gross spread 686 383 213 105 Fee based income 451 258 147 84 Total income 1975 1134 643 314 Gross surplus 1137 641 360 189 Expenses Personnel expenses 382 247 139 89 Administrative expenses 139 75 41 23 Total expenses 520 321 180 112 Provision for loan loss 15 9 5 2 Depreciation 18 15 12 10 Profit before Tax 584 296 164 65 Tax 204 103 57 23 Profit after tax 380 192 107 42

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MFI Grading –Trident Microfin Private Limited (TMPL)

2.3.2 Balance sheet Rs. million Balance sheet as at 2013 2012 2011 2010 Liabilities Share capital 704 404 254 204 Reserves and surplus 724 344 152 45 Net worth 1428 748 406 249 Long term borrowings 7014 4156 2425 1348 Other current liabilities 15 15 15 15 Total liabilities 8456 4919 2846 1612 Assets Loans and advances 8101 4661 2669 1474 Cash & bank balances 25 67 67 75 Other current assets 293 153 71 24 Total current assets 317 220 139 100 Total funds deployed 8418 4881 2808 1574 Net fixed assets 38 38 38 38 Total assets 8456 4919 2846 1612

2.3.3 Key financial ratios based on projections

in per cent Year ended 2013 2012 2011 2010 Yield Fund based yield 22.91 22.79 22.64 22.12 Portfolio yield 23.88 23.90 23.95 23.97 Total income /Avg. funds deployed 30.14 29.37 29.50 29.70 Cost of funds Interest paid/Av g. funds deployed 12.60 12.84 12.92 12.03 Intere st paid/Av g. borrowings 15.00 15.00 15.00 15.00 Interest spread Gross spread/Av g. funds deployed 10.32 9.95 9.73 10.09 Interest spread 7.91 7.79 7.64 7.12 Overheads Operating expense ratio 8.10 8.75 8.75 11.67 Profitability Return on net worth 34.89 33.29 32.57 18.55 Return on funds deployed 5.71 5.00 4.87 4.07 Operational self sufficiency 141.97 135.24 134.26 126.19 Asset quality Provisioning / Avg. loan outstanding 0.23 0.24 0.22 0.19 Capitalization Total debt/net worth (times) 4.91 5.56 5.97 5.41 Capital adequacy 16.93 15.42 14.61 16.22

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