Building A Model Microfinance Institution: The Case of Sanghamithra Rural Financial Services 1

Building A Model Microfinance Institution: The Case of Sanghamithra Rural Financial Services 1 H.S. Shylendra 2 Institute of Rural Management Anand (IRMA) 1. MFI with a Difference The Sanghamithra Rural Financial Services (SRFS) is a microfinance institution (MFI) with a difference, claims its founder Chairman Mr. A.P. Fernandez. SRFS has been created primarily as a model so that it is able to demonstrate convincingly to the banks that the poor are bankable, further says Mr. Fernandez. SRFS is a not-for-profit microfinance institution established in 1995 under the Companies Act, 1956. SRFS commenced its operations in February 2000. During the interval between 1995 and 2000, SRFS was mainly involved in obtaining necessary legal permissions, tax concessions and funds for its operations. The corporate office of SRFS is located in Mysore of Karnataka state in South India. SRFS is operating in fifteen districts of three southern states viz., Karnataka, Tamil Nadu and Andhra Pradesh. SRFS provides loans to self-help groups (SHGs) promoted by various non-governmental organizations (NGOs). As of March 2007, SRFS, under its rural programme, had cumulatively lent a sum of Rs. 921.5 million to 15,788 groups with an estimated outreach of 258,074 poor households. The main objectives of SRFS as a MFI are (Fernandez 2004): 1 2 Case prepared for teaching/training purposes under support from MFMI Chair, IRMA The invaluable comments on the draft case received from Mr. A. P Fernandez, the Chairman of SRFS and Mr. Gadiyappanavar, CEO of SRFS, and the kind help of Mr. SM. Adiga, ex-ceo of SRFS and Mr. Madhu, Chief Manager of SRFS in preparing the case are gratefully acknowledged. 63

a) To work with the poor to build on their efforts to rise and remain above the poverty line. b) To provide credit, on interest or otherwise, to groups of poor persons who come together on the basis of affinity, both in rural and urban areas, and c) To create replicable models in the area of financial services for the economically poor and socially exploited sections of society. 2. How SRFS was Conceived? SRFS is promoted by MYRADA, a South Indian NGO based in Bangalore. MYRADA has been focusing on building self-managed institutions of the poor for making a sustainable impact on poverty. Since 1984, MYRADA has been making efforts to build alternate credit management systems by organizing the poor into SHGs in its project areas. These groups were formed initially in response to the break down of the formal rural credit co-operatives which were supposed take care of the needs of the rural households. Based on its initial success with the credit management groups, MYRADA entered into a collaborative project with the National Bank for Agricultural and Rural Development (NABARD), the apex rural financial institution in the country, during 1987-91 to further strengthen the capacities of the SHGs and to link them to the formal system. MYRADA identified NABARD as the institution best placed to bring about any change in the formal policy toward the SHGs. MYRADA obtained a Research and Development Grant of Rs. 1 million from NABARD for the purpose. The insights gained from the experiments carried out under the project convinced both MYRADA and NABARD that the linkage of SHGs with the banks can serve as a viable option to bring about financial inclusion of the poor on a wider scale. As a result, MYRADA decided to advocate strongly the idea of group linkage so that it is adopted by the financial institutions on a large scale in the country. 64

Having contributed to the innovation of the idea of SHG-Bank linkage, MYRADA took up the role of a catalyst to build the capacities of agencies involved in facilitating the linkage. To its dismay MYRADA however found that the commercial banks in general were reluctant to adopt the SHG linkage model to reach out to the poor. MYRAD discovered that not only the attitude of the bankers was non-conducive but at the same time the banks in rural areas started feeling the adverse impact of the financial sector reforms launched in the country since 1991. Due to the pressure of reforms, the banks even had started contacting their rural outreach. As a result, the SHG-Bank Linkage Programme launched in 1992 by NABARD was initially receiving only a lukewarm response from the banks. MYRADA even found a large number of its own quality groups suffering due to the poor response from the commercial banks. Meanwhile, with the growth of the NGO based microfinance interventions, MYRADA was being approached by many apex institutions to borrow funds for on-lending to the groups. MYRADA, which had decided to play the role of a catalyst, was not keen to accept the offers to become a microfinance institution. MYRADA believed that it would be an aberration for an NGO to become or function as an MFI. Incidentally, in 1993 MYRADA received a proposal from NABARD to float a microfinance institution which will work as a charitable organization based on group method. The idea was shared with the staff. Based on the positive response received from the staff, MYRADA decided to promote a MFI to demonstrate the idea of bankability of SHGs and to create an alternate institution which could both supplement and complement the banks in reaching out to the poor. It was also decided that given the philosophy of MYRADA as a development organization, the MFI would be created as a not-for-profit entity. Thus, SRFS came to be registered as a not-for-profit company under Section 25 of the Companies Act, 1956. Initially SRFS was registered as a non-banking financial company with the Reserve Bank of India (RBI) and was subsequently 65

reclassified as a MFI not accepting any public deposit and hence exempted from certain provisions of the RBI Act 1934 like the maintenance of liquid assets. SRFS also obtained exemption from income tax by registering it under Section 12 A of the Income Tax Act as a charitable entity after duly convincing the tax authorities that it is a MFI which has been set up primarily to lend to the poor without any motive of earning profit for its promoters. 3. How is SRFS Different? With a strong conviction in the potential of SHGs, MYRADA wanted SRFS to adopt carefully chosen strategies so that it emerges as a MFI with a real difference. Let us look at the major strategies and approaches adopted by SRFS in realising its mission. 3.1 Detached Yet Closely Linked MYRADA believed that microfinance is an activity which cannot be carried out by an organization having typical NGO characteristics. Hence, MYRADA was clear that SRFS should emerge as an independent organization with a clear identity and culture of its own. In terms of its location, SRFS was set up away from MYRADA but close to its project areas. SRFS has been recruiting its staff mainly keeping in view the needs of a MFI. SRFS so far has recruited three chief executive officers who all had extensive banking experiences in the past. SRFS was keen to draw upon their formal banking knowledge in carrying out its operations. Similarly, the other staff of SRFS have been recruited following procedure and norms self evolved by SRFS. Though, initially SRFS had recruited a few staff members who had the experience of working with MYRADA, but presently all the staff have been recruited from the open market. The staff are given regular training, both internal and external, to equip them with the skills of microfinance. Through 66

a professional approach focused on microfinance, SRFS has been aiming at building an efficient and a self-reliant organization. Though independent in its functioning, SRFS is still very much closely linked to MYRADA in many ways and for many valid reasons. Mr. Fernandez who is the Chairman of SRFS since inception is also the Executive Director of MYRADA. At the same time, many other senior staff members associated with MYRADA have been on the Board of SRFS since the beginning (see Annexure 1). Mr. Fernandez feels that MYRADA and SRFS should work together to supplement and complement each other. While SRFS is helping MYRADA in realising its goal of proving the bankability of the SHGs; MYRADA, in turn, is trying to guide SRFS to achieve the goal without losing focus on the developmental concerns. MYRADA would like SRFS to strike a balance in its functioning by focusing on developmental issues like targeting the poor and ensuring affordability of services to them. The staff of SRFS are made aware of this philosophy while they execute their microfinance responsibilities. At the same time, SRFS depends on MYRADA along with other NGOs for promotion of groups and introducing them to various agencies delivering developmental services. 3.2 A Not-For-Profit MFI SRFS has been conceived basically as an MFI which would demonstrate the bankability of SHGs along with attaining its own sustainability. The primary motive of the promoters of SRFS is to help achieve this idea and not to earn any profit in the process. SRFS has been established under Section 25 of the Companies Act, 1956. Being a Section 25 company, neither the members contribute any share capital, nor the company pays any dividends or bonus to the members. The members of the Board of Directors also are not paid any remuneration for their service to the Board. The company s income and properties are to be utilized only for promoting the company s objects. SRFS as a not-for-profit company has obtained exemption from income tax. As a result, 67

SRFS can set aside only up to 15 percent of the income earned for creating reserves, with the rest 85 percent required to be directly utilised on primary activities of the company. Mr. Fernandez, the Chairman of SRFS says, The motive behind creating a notfor-profit company has been influenced by the developmental ideology. SRFS was set up to prove the worthiness of a developmental innovation and it should not drift away from its basic mission due to the compulsion of earning profit. Mr. Fernandez further says, However, a not-for-profit company does not mean that it will not earn any profit or surplus from its operations. SRFS would like to break even and plough back the earnings for its operations. SRFS would like to utilise its earnings for the purpose of group promotion. SRFS depends on NGOs for promotion and nurturing of groups. Group formation is a major activity involving significant cost. The NGOs need funds both to promote groups as well as to build their capacity and quality. SRFS has created a Development and Training Fund (DTF). The surplus earned annually from its operations are transferred to the DTF which is utilized for activities like supporting NGOs for SHG formation, providing incentives to NGOs, and training of staff and SHGs (see Table 6 and 7). Mr. Fernandez argues here that the investment SRFS is making in SHG development is enabled greatly by its notfor-profit nature. Otherwise MFIs may have to depend upon donors for the purpose (Fernandez 2005) Mr. Fernandez adds, Moreover, our aim as a not-for-profit entity is to create affordable services to the poor. SRFS need not be worried excessively about rate of interest charged as long as it is able to breakeven. SRFS has arrived at a reasonable rate of interest on its loans to make them affordable. 68

3.3 `Limits to Growth SRFS believes that in its attempt to build a replicable model, it cannot be dictated by the pressures of growth. While the not-for-profit nature is meant to ward off the threat of profiteering; the challenges of compulsive growth are to be addressed by a self-imposed limit to growth. SRFS neither wants to grow too big nor would like to establish any kind of a monopoly position. SRFS started off by setting itself a growth limit of Rs. 250 million for it loan portfolio. The slogan is `not bigger but best. SRFS do not like to get caught in the web of year-on-year growth. Focusing excessively on growth, Mr. Fernandez believes, is likely to bring in high target orientation. In their desire to grow, MFIs tend to push loans on their members causing increased debt burden for the poor. To achieve its growth target, an MFI may start focusing on individuals who are also better-off ignoring the poor. The limit also plays another important role. SRFS strongly believes that in reaching out to the poor, it does not want to supplant the formal financial institutions. Through demonstration, it would like to induce the commercial banks to take up lending to SHGs. If the commercial banks come forward, SRFS likes to withdraw and give space to them. Such an approach is possible only when an MFI is not concerned excessively with its own growth. SRFS is ready to sacrifice its business for the cause of mainstreaming the SHGs with the banks. The staff of SRFS have been convinced, by the management, of the need to handover the groups and their business to formal financial institutions if they readily come forward. While SRFS has set a limit to its growth, the target is not taken very rigidly. As said by the CEO of SRFS, We can relax the limit which is now taken more in spirit than in a literal sense. The combined rural and urban loan portfolio outstanding of SRFS has already crossed the limit during 2005-06. SRFS has also been moving to new and needy areas which is also making its portfolio to 69

grow in size. As a long term strategy, SRFS would like new MFIs to come up in other areas to carry forward its mission. MYRADA has even conceived the idea of a Fund Management Company which would take up the responsibility of promoting such new MFIs. The urban programme of SRFS primarily covering the urban district of Bangalore has been hived-off into a new MFI starting from August 2006. 3.4 Work with SHGs In order to reach out to its target population, SRFS has adopted the strategy of working with SHGs. MYRADA, the promoter of SRFS has a strong faith in the group mechanism. MYRADA believes that the group mechanism can simultaneously help address many developmental and operational challenges of microfinance interventions. MYRADA has evolved its own approach to promotion of SHGs under which it prefers groups to emerge voluntarily based on the affinity and common interest of the members. Affinity can be a strong binding factor in the functioning and survival of the groups. MYRADA even calls these groups as Self-help Affinity Groups (SAGs) to emphasise the role of social capital in their formation and development (Fernandez, 2004). SRFS envisages working only through SHGs. SRFS believes that group mechanism as compared individual lending method can be helpful in targeting the poor. Individual lending method tends to target mainly the better-off sections as compared to groups. Moreover, SHGs can be empowering for the poor and women as the SHG based model emphasises the role of self-management. In a typical SHG promoted by MYRADA, members are trained to handle all the functions and responsibilities of group management. For an MFI, SRFS believes that SHGs can contribute significantly in reducing the transaction cost of intermediation. As SHGs internalise many of the costs of intermediation, lenders would find it attractive to deal with the groups. SRFS initially started working with the SHGs promoted by MYRADA. In order to scale 70

up its operations, SRFS also decided to work with SHGs promoted by other NGOs. As group formation and development requires huge investment, SRFS provides some support to the NGOs from the Development and Training Fund created using its operational surplus. SRFS is particular about both the quality and the composition of SHGs. It insists on NGOs to target the poor while forming the SHGs and also build their quality through necessary training and exposure. SRFS has been providing some incentives to NGOs for credit linking the SHGs. Till 2005, an NGO would get up to 8 per cent of the administrative charges (interest) collected from an SHG credit linked by the NGO, provided the SHG has successfully closed the loan account. Currently, NGOs are getting an amount of Rs. 250 for the first time linking of an SHG, Rs. 200 for the second time linking, and Rs. 150 for the third time linking, irrespective of whether the SHG has closed the loan account successfully or not. Before sanctioning a loan, SRFS makes an assessment of the SHG to find out whether it is eligible for borrowing or not. SRFS has developed its own SHG assessment tool which focuses on parameters like profile of the members, quality of management of SHGs and financial soundness. SRFS sanctions loan in the name of the group. The group in turn disburses loan to the members as per their need. The field staff, both portfolio mangers and credit officers, placed in different districts, directly reaches out to the SHGs. All financial transactions with the groups are carried out through banks by using cheques. Each SHG opens a savings account with the nearest bank. SRFS does not take any security or collateral from the SHGs. However, SHGs are supposed to provide post-dated cheques to SRFS on a regular basis till the repayment is complete. SRFS does not sanction loans for any particular purpose. The SHGs decide the purpose of loan for the members based on their needs. SRFS believes that such a mechanism gives a lot of flexibility to SHGs to meet loan demand for diverse purposes like consumption, education and enterprise development 71

purpose. The size of loan to an SHG mainly depends upon the assessment and its past performance, and can vary from Rs. 10,000 to Rs. 5,00,000. The loan period varies from one to three years. SRFS has also launched a separate loan product for housing purpose based on the demand from the SHGs. The housing loan is sanctioned on individual basis which is routed through the groups. The loan can be sanctioned up to a limit of Rs. 30,000 per borrower. SRFS till April 2007 charged 12 per cent interest rate (called administrative charges) per annum on a declining basis. From May 2007, SRFS is charging an interest rate of 15 per cent per annum on a declining basis. The SHGs also pay an upfront service charge of 1 per cent in the first year, 2 per cent in the second year and 2.5 per cent in the third year. The SHGs in turn decide the interest rate to be charged on the loans to their members. Generally, SHGs are found charging an interest rate 2 percent per month to their members. In case of default by an SHG, a penal interest of 6 per cent is levied for the delayed period by SRFS. Under the urban programme, which has been hived off from 2006 onwards, SRFS was charging 24 percent interest rate per annum on the loans to the SHGs. SRFS does not offer any savings facilities. However, SHGs are required to mobilise regular savings from the members. The savings are retained by the SHGs, normally in their savings bank account and used for internal lending. SRFS believes such a mechanism ensures safety of savings as well as control by members over their own resources (Fernandez, 2005). 3.5 From Grants to Loans : Towards Self-Sufficiency SRFS has been working to build an institutional model which not only reaches out to the poor proactively but also becomes self-sustainable in the process. Many strategies have been adopted to attain the goal. MYRADA, as mentioned earlier, wanted SRFS to emerge as an MFI with a difference. Being a not-forprofit entity, SRFS at the outset decided to charge only a reasonable rate of 72

interest (12 percent per annum) to its members. At the same time, SRFS also decided to set for itself a business limit of Rs. 250 million so that it is not influenced excessively by the urge to grow. Having set for itself these two overarching constraints, SRFS had to work with other parameters to attain sustainability. Starting off with a grant component, SRFS focused on attaining the break even quickly through economies of scale. SRFS started expanding its area of operations to newer districts (Table 1). The strategy of SRFS has been to move away from grant based to loan based funds. SRFS has been approaching various financial institutions to mobilize funds on a commercial basis (see Table 3 and 4). Simultaneously, SRFS has made efforts to reduce the cost of operations through increased productivity and efficiency. To increase productivity, SRFS has not only tried to keep its staff size, both in the field and in administration, to a reasonable limit but at the same has been trying to increase the number of SHGs covered per staff and the average loan amount lent to SHGs. To improve efficiency, SRFS has been trying to build the professional capacities of the organization. The staff are being trained regularly to improve their skills and abilities. SRFS also has put in place a staff compensation package consisting of suitable allowances, increments, benefits in kind, and promotion to make it fair and to attractive and sustain the necessary motivation for work. Moreover, as Mr. Fernandez said, SRFS recruits staff mainly from the local areas and trains them. There are no professionals with us who are either from any management school or returned from abroad. A computerized MIS system has been adopted for an efficient data base management to aid in quick decision making. Further, in order to reduce the cost of risk, SRFS has been focusing on managing the non-performing assets (NPA) through systematic efforts involving regular monitoring of SHGs and overdue assets. No effort is spared to curtail any unnecessary expenses. 73

The CEO of SRFS said, We have been even operating from a modest building to economise on the rent. 4. Achievements of SRFS Mr. Fernandez, the Chairman of SRFS argues that SRFS has been able to achieve many of the goals set for itself within a limited period, with the major achievement being that of blending together the concerns of development and sustainability in delivering microfinance. Some of the major achievements of SRFS as highlighted by Mr. Fernandez (2004) are as follows: Outreach: SRFS has been able to target overwhelmingly the poor households, if not the poorest. As per an impact study commissioned by SRFS, bulk of the members of the groups belong to households who own less than two acres of land and pursue agricultural labour work (see Table 2). The client base of SRFS, thus, consists mostly of landless or near landless. Also, almost 99 per cent of the members are women. According to Mr. Fernandez, the targeting of poor has been helped by the thrust of SRFS to work mostly in backward areas. The exclusive focus on the group method and the not-for-profit philosophy are identified as the other contributory factors in the targeting. Sustainability: SRFS claims that it has been able to achieve both operational and financial sustainability within a very short period of time without losing the focus on the poor. In a matter of three years of operation, SRFS was able to breakeven and attain operational self-sufficiency (OSS) (Table 5). SRFS is now able to meet all its operating costs from its operating revenue. SRFS claims in its annual report that the OSS has been attained after making adequate provision for loan losses. Though statutorily SRFS is not required to make any loan loss provision, voluntarily SRFS has been making provision based on the standard norms. While on the regular loan accounts the provisioning made by SRFS is to the extent of 5 percent of the loan outstanding; on the default accounts the 74

provisioning default. varies from 20 to 100 per cent depending on the duration of the Going a step further, SRFS claims that it is not only operationally self-sufficient but also has been able to attain financial sustainability. In order to account for the cost of subsidy and growth, SRFS has been notionally imputing its net owned funds at the rate of 6 per cent per annum, and is able to cross the minimum threshold level (100 percent) required for attaining financial self-sufficiency. In achieving all this, Mr. Fernandez argues, SRFS has not put any additional burden on the poor. Along with the service charge, the effective rate of interest to groups was only 14.23 per cent. The Annual Report of SRFS for 2005-06 claims, Pricing of our product is done, to cover cost of operation, cost of fund and loan loss reserve, all at an affordable level to poor person and yet earning a little surplus which is added to capital regularly after making enough provision to manage any sort of financial risks. The company has proved that our microfinance model is viable and poor people are bankable. The CEO of SRFS said, SRFS has the lowest rate of interest among MFIs in the country. Only recently we have increased our rate of interest from 12 to 15 percent mainly because of the increasing cost of funds. The average cost of borrowed funds has continuously gone up from 3.11 percent in 2004 to 7.6 percent in 2007. Influence on Banks: Mr. Fernandez believes that SRFS has influenced significantly the rural banks working in its area of operation to proactively lend to SHGs. By competing as well as complementing, SRFS has made banks to feel that lending to groups is a viable proposition. Because of its quick and easy lending, SRFS has made its loan services attractive for the groups. As SRFS does all its transactions through the banks, the banks have been able to directly see for themselves the potential of lending to SHGs. The findings of an impact study carried out (by Ms. Girija Srinivasan in 2003) on the functioning of SRFS revealed that as a result of the competition from SRFS, Regional Rural Banks (RRBs) operating in the area of SRFS have developed a very positive attitude 75

towards the SHGs besides increasing the average loan amount to SHGs along with reducing the time taken to process the loan requests. In few areas like Anantapur District, SRFS has even withdrawn from operating when the local RRB has come forward to deal with the SHGs. At the same time the Annual Report of SRFS for 2006-07 admits that the formal financial institutions are also getting influenced by other factors like importance being given by government to SHG-Bank linkage programme, and the low default rates of loans to SHGs. Questions for Discussion 1. Identify the rationale and goals of creating SRFS? Do you agree with them? 2. Identify and critically analyse the strategies adopted by SRFS in order to achieve its goals? 3. Make an over all assessment of the performance and achievement of SRFS? 4. Can SRFS be Replicated? Analyse with reasons? References Fernandez, Aloysius.P (2004) Sanghamithra: a Micro Finance Institution With A Difference, Mysore: Sanghamithra Rural Financial Services. Fernandez, Aloysius. P (2005) Why Sanghamithra is Different, Online. Available at http://www.sanghamithra.org/ WHY SANGHAMITHRA IS DIFFERENT NEW.pdf (accessed December, 2007) 76

Table 1: Growth and Outreach of SRFS Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 (a) Rural 1. No. of Districts 7 7 9 12 12 15 15 2. No. of groups 465 795 1052 2108 3514 4908 6615 with outstanding loan 3. Members in 7643 13443 17617 37994 63682 84882 103614 groups with outstanding loan 4. Loan disbursed 12.25 26.4 45.11 77.89 176.00 242.79 340.28 (Rs. in Million) 5. Loan outstanding 9.23 23.05 41.29 72.54 152.24 230.47 331.32 (Rs. in Million) 6. % Annual Growth - 149.7 79.1 75.7 109.9 51.4 43.8 in Loan Outstanding (b) Urban 1. No. of Districts 1 1 1 1 1 1-2. No. of groups 26 118 335 608 930 1325 - with outstanding loan 3. Members in 400 1781 4853 8703 13529 19160 - groups with outstanding loan 4. Loan outstanding (Rs. in Million) 0.35 (3.65) 2.08 (8.27) 6.75 (14.05) 20.07 (21.61) 46.40 (23.36) 87.38 (27.49) - Total Loan 9.58 25.13 48.04 92.61 198.64 317.85 - Outstanding (a5+b4) NB: The Urban Programme was hived off from SRFS from 1-8-06 onwards. Figures in brackets in (b)3 are the share of Urban Programme in the total overall loan portfolio of SRFS. Source: Annual Reports of SRFS and Fernandez (2004). 77

Table 2: Profile of Members (Rural) Particulars 2001 2002 2003 2004 2005 1. Members belonging to 33.0 57.0 70.0 65.0 70.0 agriculture labour (%) 2. Members with 0-2 acres 64.0 70.0 82.0 82.0 86.5 of land (%) 3. Women Members (%) - - - - 98.9 Source: For 2001 to 2003, the estimations are based on an impact study quoted in Fernandez (2004). For 2004 and 2005, the estimations are by SRFS. Year/ Period Table 3: Sources of Funds of SRFS (Rural) (Rs. in Million) Reserve Loans Grants & Donations and Surplus Amount % to total For Portfolio Lending Capacity Building & Operating Expenses 1. 1999-02 27.18 0.0 0.0 30.00* 0.26 2. 2002-03 32.14 15.63 37.9-1.86 3. 2003-04 32.54 42.51 58.6 - - 4. 2004-05 52.00 103.16 67.8 16.00 1.71 5. 2005-06 51.60 188.14 81.6-3.11 6. 2006-07 60.17 270.85 81.8-3.39 * Of the total fund received from CIDA of Rs. 30.26 million; Rs. 30 million are estimated to have been capitalized for lending. Source: Annual Reports of SRFS. 78

Table 4: Details of Bank wise Loan Funds Received by SRFS (Rural) (Rs. in Million) Particulars 2002-03 2003-04 2004-05 2005-06 2006-07 Rate of Interest during 06-07 (%) 1. NABARD 13.90 23.36 17.79 11.51 5.24 7.5 2. Corporation 1.73 - - - - - Bank 3. Canara Bank - 19.14 73.00 122.19 149.50 9.25 4. Indian Bank - - 12.37 23.84 15.22 10.0 5. SBM - - - 0.60 - - 6. HDFC Bank - - - - 49.59 11.0 7. ING Vysya - - - - 29.86 8.75 8. SIDBI - - - 30.00 21.46 8.0 Total 15.63 42.51 103.16 188.14 270.85 - NB: SRFS has mainly started borrowing from 2002-03 only, though it had taken a small cash credit loan of Rs. 34,939 during 2001-02 Table 5: Productivity and Financial Performance of SRFS (Rural) Items 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 1 No. of Staff 12 16 13 20 34 71 82 2 SHGs per field 66 159 150 151 160 140 158 staff 3 Average portfolio 1.31 4.61 5.89 5.18 6.92 6.58 7.88 per field staff (Rs. in Million) 4 Average loan 19,849 28,993 39,249 34,411 43,323 46,958 50,086 balance per SHG (Rs) 5 Operating expenses ratio (%) 25.16 12.82 13.35 6.72 5.23 4.30 4.81 6 Operational selfsufficiency 51.44 101.0 109.0 128.80 114.42 116.75 121.74 (%) 7 Financial selfsufficiency NA 71.57 72.33 102.05 109.54 104.19 111.20 (%) 8 On time repayment ( %) 99.95 99.99 99.31 98.48 97.18 97.20 97.36 Source: Annual Reports of SRFS and Fernandez (2004) Mix Market, http://www/mixmarket.org/en/demand. 12/24/2007 79

Table 6: Surplus Generation and its Utilisation by SRFS (Rural) (Rs. in Million) Details 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Total Surplus -1.1 0.50 1.35 2.07 4.45 2.24 4.01 generated (After provisioning) 1 Development - - 0.60 1.20 2.10 1.00 2.00 & Training Fund 2 Gulbarga - - - - - 0.50 - Project 3 Building Fund - - - - 1.50 0.50 0.50 4 Towards - 0.50 0.75 - - - - Deficit 5 To Capital Reserve - - - 0.77 0.85 0.24 1.51 Source: Annual Reports of SRFS Table 7: Utilisation of Development and Training Fund (Rural) (Rs. in Lakh) Details 2004-05 2006-07 1. Trainees salary 4.40 13.70 2. Incentives to NGOs 5.06 6.38 3. Staff s training 1.13 2.21 4. Advertisement 0.05-5. Honorarium to NGOs 3.31-6. Impact Study - 0.20 Total 13.94 22.49 Source: Annual Reports of SRFS 80

Annexure 1: Board of Directors of SRFS (March 2007) Mr. Aloysius P. Fernandez, Chairman (Executive Director, MYRADA) Mr. Ramesh Ramanathan, Vice Chairman (Programme co-ordinator, Janaagraha) Mr. William D' Souza, Vice Chairman (Program Officer, MYRADA) Ms. Rohini Nilekani, Director (Journalist and Philanthropist ) Ms Vidya Ramachandran, Director (Program Officer, MYRADA) Mr. K R Pradeep, Director (Financial Management Consultant) Ms Yasmin Master, Director (Programme Officer, MYRADA) Mr. S. Natarajan, Director (Financial Consultant on Corporate Finance) Dr. M K Bhat, Director (Development Support Initiatives) Prof. M. S. Sriram, Director (Professor, Indian Institute of Management, Ahmedabad) Mr. R. D. Gadiyappanavar, CEO (Formerly with State Bank of India) 81

Annexure 2: Organogram of SRFS Board of Directors Chairman Chief Executive Officer Statutory Auditor Concurrent auditor, Internal inspection and systems Head of Operations Chief Manager Planning and Development Portfolio Managers Chief Manager Operations/Training and HR Development Manager Operation and Administration Chief Manager Finance Accounts & Fund Management Data Entry Operator Manager Accounts & Fund Management Officer Accounts Credit Officers / Managers Officer Administration and Secretariat Officer Operations Field Assistants Office Assistants Data Entry Operator cum Operations Assistant 82