Ujjivan Small Finance Bank Annual Report FY14 Notes

This is the eighth post of the series, where I will share notes taken by me while reading the annual reports of this business. I will be sharing an excel sheet at the end of the series which will capture all the relevant data throughout the years of its operation. Notes will mostly contain intangible non-financial data which will reveal subjective characteristics of the business and management. I have restrained from adding my comments and recommendations on specific subjects as I do not want to introduce my biases in this exercise. Shorthand abbreviations are used from time to time and should be logical. For any clarification, please use the comments section. This is not a buy or sell stock recommendation, just an exercise in researching and understanding the business.

2014 - 9th best company to work in India, 2nd best in Financial Services, among the 1st MFIs to meet the Smart Campaign standards of customer protection, awarded as an innovator in responsible business category, Client protection certification from Smart Campaign and won the mix 2013 Socially transparent and responsible MFI award.

In the business of creating Hope

Every year at Ujjivan, we make an effort to improve on the benchmarks we set the previous year. For the simple reason that we sincerely believe that with financial inclusion, what we bring our customers, is hope. The hope of a better future, the hope of a better life, hope for a new generation free from poverty. This year, we were able to reach out to more customers, registering 25% growth and closing at 1.3 million happier Indians. And we shall endeavour harder in the year to come. To create hope, to build better lives for many, many more.

Letter from MD

8th year of operation, Our mission was to provide microfinance to the urban and semi-urban poor across India. They constitute a major section of our society with the fastest growth rate due to urban migration. the Ujjivan team of over 4,600 employees serves over 1.3 million families across 22 states and union territories in India, through 350 branches and four regional offices. We disbursed over Rs. 21,050 million of loans last year, which is the 4th highest in the industry. Our loan book grew by 44% during the year to Rs. 16,173 million and we have been ranked the 4th largest NBFC-MFI, excluding MFIs based in Andhra Pradesh, which are under Corporate Debt Restructuring program.

Why we consider ourselves the best of the best?

Our active customers increased 29% from 1.1 to over 1.3 million during the year. This compares favorably with the industry growth of 20%. We introduced a comprehensive service quality department in 2009, which is unique to the industry. The standard customer satisfaction surveys do not work with this segment of customers. They are too beholden to us and especially to our field staff. At the same time, we along with the industry were plagued by high customer dropout rates. Customers voted with their feet. We researched the reasons for dropouts and worked out programs to improve customer retention. From the nadir of 68.5% during the crisis years 2009-10, this year, we achieved ~85% customer retention.

Our employee strength grew by 28%, well above the industry average growth at 10%. Had management development program in 2008, today national leadership team has 2 members from the 1st batch of management trainees.

Our profits before taxes grew by 71% over the previous year at Rs. 838.4 million with a return on equity of 15.86%, among the highest in the industry. Our business gross loan book grew by 44% to Rs. 16,173 million with a return on assets at 3.20%. Our consistent business performance and dividend payout from 2009-10 (dividend was not paid in 2011-2012 on account of modest profits during the crisis), which is also unique in the industry has kept our existing investors happy and attracts a lot of new investors.

Our repayment rate was 99.90% at the year-end,, with Portfolio at Risk over 30 days at 0.1%.This reflects the outstanding credit management processes at Ujjivan. We are one of the very few in the industry to have an independent credit function to manage the overall credit process and quality.

We have the most diversified customer base and loan portfolio across the geographical expanse of India balanced by regions and states, avoiding concentration of risk. Since inception Ujjivan has a comprehensive business and risk assessment system to open individual branches or start operations in a state. This led to our decision not to operate in Andhra Pradesh well before the crisis despite the state being considered the center of microfinance in India. Our wide geographical base gives us a very large launching pad for the next phase of business and helps us play an important role in financial inclusion across the country.

Our initial focus was the urban and semi-urban poor and we opened branches in both these areas. Today, we serve both customers living in towns and also rural customers living in villages. This gives us access to customers in all three areas: urban, semi-urban, rural.

The biggest threat to Ujjivan when the crisis hit the industry in 2010 was not portfolio quality but, our highly expensive and inefficient operating base. The Malegam Committee recommended interest rate of 26% and margin caps 12-10%. Our operating expense ratio (OER) was 17.6% with the cost of funds of around 13%. We embarked on an extensive re-engineering program covering all aspects of our business and introduced new technology: bringing branches online and processing paperless transactions. Today our OER is at 8.8%, which is at par with the best in the industry.

Dependence on cash for disbursing and collecting loans is one of the biggest problems in the microfinance industry. This makes the operations both inefficient and highly risky. Our staff is frequently attacked by criminals and we are also susceptible to fraud. In addition dependence on cash tarnishes the objective of financial inclusion as MFIs withdraw cash from banks and inject it into the cash economy by disbursing loans in cash. We embarked on a program to introduce cashless customer transactions from 2012. This year we disbursed 50% amounting to more than Rs. 10,000 million directly to customers’ accounts. This was possible by helping customers open bank accounts; activating dormant accounts and training them to operate bank accounts, including using ATMs through Parinaam Foundation's efforts with the Diksha Financial Literacy Program. The Diksha program was started on August 20, 2012. It is widely acknowledged as one of the best programs of its kind. The Reserve Bank of India (RBI) is highly appreciative of this program. We have trained and certified 98,737 customers under Diksha and opened 45,157 bank accounts.

Parinaam spent Rs. 24 million on this program funded by Citi Foundation and Michael & Susan Dell Foundation. In addition, Ujjivan has contributed Rs. 7.4 million, bringing the total spend to Rs. 31 million. This achievement is unparalleled in the industry.

The company raised Rs. 13,600 million during the year, an increase of 90% over the previous year's borrowing. The company also received additional funding through Non-convertible debentures apart from redeeming Rs. 1000+ million NCD during the year. This demonstrates the continued confidence of debt stakeholders in Ujjivan. CRISIL awarded Ujjivan an MFI grading of mfR1, the highest rating for

MFIs, during 2013-14.

We started the Social Development Program from the first year after we broke even and generated a profit (2010-11). Our initial focus was on programs which benefit children and education. We have undertaken 803 programs across the country at cost of Rs. 22.6 million. This is one of the many remarkable achievements that earn us a lot of goodwill from across society.

The group lending business is reaching a saturation stage with the industry serving 25 million customers outside Andhra Pradesh. This comprises around 10% of the families who are financially excluded. In order for microfinance institutions to expand into the 90% which still remain unserved, we need to break into new customer segments and develop loans for different loan purposes: micro-enterprise, agriculture, animal husbandry, housing, education etc. These new customer segments do not find group loans attractive given the loan size, standard instalment structure, group guarantee, time commitments for center meetings etc. We need to break into new products and customer base to widen our net of financial inclusion.

The regulatory environment has seen a positive sea change. Fresh licensing of NBFC-MFIs by the RBI as a specialized category is a recognition of the key role we play in financial inclusion. This has been reinforced with RBI awarding the coveted banking license to the largest NBFC-MFI in India - Bandhan.

The discipline of extending every loan based on satisfactory credit history of over 25 million customers has resulted in reducing the risk of over-lending and substantially improved the portfolio quality of the entire industry. The future regulatory changes being initiated with specialized banks and banking licenses available on tap has completely changed the future regulatory landscape for the industry. The long-term aspiration of every NBFC-MFI is to convert itself into a bank. The industry will not require the protection of the Microfinance Bill in the future.

It has been a great journey so far and Ujjivan's list of achievements last year is the crowning glory. It was a year of a great personal loss. Elaine, my wife and partner, passed away suddenly on November 28, 2013, after a brief period of illness. Without Elaine's support, I would not have had the courage or energy to build Ujjivan. A lot of the values of Ujjivan originate from her. She built her pristine Parinaam Foundation to march in step with Ujjivan. In a fitting conclusion to her professional life, Parinaam's Urban Ultra Poor Program received international recognition and was awarded the prestigious Urban Ingenuity Award - sponsored by Financial Times and Citi Foundation for the most innovative urban program in Asia in New York on December 10, 2013. Elaine was fully committed to Ujjivan's mission to provide financial inclusion to the poor and help alleviate poverty. She would not like us to miss a step in our long march to help achieve this goal.

Individual Lending Program

Background

The Group Lending (GL) business has seen robust growth over the past years and will continue to grow in the coming years. However, GL has its limitations as it revolves largely around a single product structure. There are many prospective customers who are not willing to form groups and stand guarantee for each other. They also have very specific needs. These customers usually want to borrow loan amounts higher than Rs. 50,000 and request flexibility in terms of repayment tenor, mode of repayment and disbursement, etc. Banks are not willing to cater to the needs of this segment of urban, semi-urban and rural poor with a high concentration of micro-entrepreneurs, tenant farmers, piece-rate workers, organized and unorganized workers who support themselves and their families with monthly household incomes between Rs. 15,000 - 30,000. And most importantly, MFIs are not able to cater to them.

At each of our branches, we have successfully disbursed group loans and we may be serving 5,000 - 7,000 families. However, in the same urban work-areas, there may be up to 100,000 families who are financially excluded. With group loans, we have achieved a mere 5 - 7% penetration. Our objective in the next five years is to increase our penetration to 50%. We can do so by widening the range of our loan products, which meet the specific needs of different sub-segments of the financially excluded population. Hence, the need of the hour is to innovate and design need specific products and processes to build a viable business on the Individual Lending (IL) platform.

The IL Growth Story

In the beginning of FY13-14, the IL portfolio, with an OSP of less than Rs. 500 million, constituted approximately 4% of our total loan portfolio outstanding. During the year, the portfolio grew by over 100% and contributed approximately 7% to Ujjivan's loan book by the end of the year. This growth is a result of a focused approach taken by Ujjivan to cater to the needs of the segment which is left out both by the traditional group lending facilities of MFIs and the document-oriented commercial banks. One of the major steps taken during the year was breaking out of the captive GL customer base and looking outwards to understand the financial needs of micro-entrepreneurs and small farmers in the catchment areas of our branches.

The team from Women's World Bank who worked with us to scale up the IL program referred to our IL product as 'GL Plus’. Consequently, the products were revamped, piloted and relaunched. The IL product basket now consists of Individual Business Loan (IBL) for the micro-entrepreneurial upper layer of our GL customers with a similar offering named as Individual Bazaar Loan (IBZL) for the open market customers. Home Improvement Loan, a Livestock Loan for the GL customers and an Open Market Livestock Loan were also launched, in addition to the newly introduced Higher Education Loan (HEL) which is in its pilot phase. We are currently in the process of designing a Secured Business Loan and will shortly be initiating the structuring of the secured Home Loan product. Unlike their precursors, the current IL products are based on sound appraisal techniques rather than relying on cyclic process-based methodology.

Introduction of an independent credit methodology into the IL process is one of the major highlights of this year. The individual loan proposals undergo a field-based credit underwriting and verification before being presented to the sanctioning committees. as a measure of preventive vigilance, the fraud prevention unit is being piloted with joint efforts of the credit and vigilance departments. With the help of a WWB team of experts, model sanctioning committees were organized and replicated in all IL hubs.

IL hubs are the basic structural units of the new IL organizational structure which came into existence during the year. Each IL hub is a cluster of Ujjivan branches manned by a number of Individual Loan Officers and Credit Officers and led by an IL Program Manager. Each such hub has the entire requisite infrastructure to carry out the IL business on an almost standalone basis. The IL hubs are an integral part of the IL vertical which has been set up almost like an organization within an organization till the regional level. At the corporate office level, IL has been set as a program unit and the same is responsible for strategic planning, organizing and business development.

However, this initial growth is just an indicator of what lies ahead. In the next 3 years, we are committed to keep our focus on the IL program and reach out to many more customers - not only to those who are desirous of graduating from the group lending structure but also those in the open market who never connected with microfinance institutions or banks in anticipation of a fitting solution to fulfill their financial needs. In FY15 and FY16, we plan to extend loans to over 50,000 and 100,000 customers respectively. The IL portfolio is expected to grow to over Rs. 17,000 million by the end of FY17.

Livestock Loan

When India is gearing up to retain her position as world leader in the dairy industry, Ujjivan is planning to make a humble contribution in the form of microloans to dairy farmers. Majority of the dairy businesses are concentrated in semi-urban cities and villages of India. And invariably, ladies of the household are wholly or partly responsible in managing the livestock business. These farmers are mostly dependent on money-lenders and other informal financial set-ups for credit. Banks shy away from lending to these customers, who are mostly marginal farmers, owing to low ticket sizes and extensive and conventional due diligence process. Many of our branches are in semi-urban areas. A part of our GL portfolio in semi-urban branches comprised of loans to customers to purchase cows and buffaloes. But it followed a different appraisal and loan utilization approach.

The loan product was capped at Rs. 35,000 and a fixed 24-month repayment schedule. But dairy entrepreneurs were expecting much more from Ujjivan in terms of loan amount, flexibility in tenure and additional finance for ancillaries. These differences lead to the conceptualization of a new IL product which focused primarily on livestock purchase. We are planning to disburse loans up to Rs. 0.1 million for the purchase of livestock (cows and buffaloes only), feed/fodder, equipment and machinery and also for farm renovation and expansion. We have conducted extensive training for field staff for the same. We have also hired technical officers with a background in animal husbandry to ensure training of staff and a healthy product portfolio. We kept improvising the product after pilot studies and product restructuring to suit the needs of the customer.

Home Improvement Loan

A proportion of the group loans disbursement is being used for the purpose of house repair by the customers. Most of the customers live in small and unfurnished houses which need to be repaired or renovated at regular intervals. It was this need and demand from Ujjivan customers that led to the designing of the Home Improvement Loan product. The loan product is available for customers who have had a good repayment track record when servicing their group loans. Ujjivan, with its Home Improvement Loan, has helped fulfil dreams of more than 5,000 families to have a better place to live. Currently, the outstanding for Home Improvement Loan is more than Rs. 200 million.

Business Strategy

The year 2014-15 will see Ujjivan providing a wider range of products to meet different types of housing finance requirements of customers such as finance for self-construction, property purchase and more.

IT

Mobile Transactions at Field, handheld devices pilot at various branches for IL processing are some of the critical initiatives this year. We are setting up a call center for inbound and outbound calling for future business and for customer support

Customer Service

Key highlights and achievements of 2013-14

• Customer retention rates have improved considerably from 70% in the previous year to 85%

• More than 85,000 dormant and dropout customers were met by Customer Care Representatives (CCRs) for exit interviews and 40% (34,000) of them were retained

• 16,000+ customers were retained through special customer retention campaigns

• 69,000+ customer inquiries and grievances were attended and resolved through our grievance redressal mechanism

• 96,000+ centers were visited by Ujjivan's supervisory team from all departments for client feedback directly from the field

The key drivers of the improved retention rate were innovative field, credit and back-end processes supplemented with strong comprehensive service quality programs listed below:

• Strong and independent credit approval systems

• Innovative field and back-end processes. i.e. pre-approved loans and reduction in loan turnaround-time through Document Management System (DMS)

• Strong customer feedback and grievance redressal mechanism to proactively resolve service issues

• Greater transparency of our services, effective dissemination of terms and conditions to customers through various channels

• Exit interviews to retain dormant and dropout customers conducted by Customer Care Representatives at all mature branches

• Customer retention campaigns with rewards and recognition for branches

Note: 28,918 customers of total 62,938 who expressed their willingness to rejoin were not retained due to their multiple borrowing, bad credit history, migration and other reasons.

Outbound Call-Center

To maintain a continuous relationship with our customers and as part of the initiatives taken by Ujjivan for expanding the Individual Loan portfolio, Service Quality department initiated an Outbound Call Center Program.

Key functions of the Outbound Call Center

• Lead generation for Individual Loans (IL) by calling eligible Group Loan customers and explaining the product features most suited to them

• Welcome calls to New IL Customers as part of relationship management and to seek their feedback on our services

• Repayment reminders include calls to ECS Repayment mode customers 3 days prior to repayment

Proposed activities to be undertaken by outbound call-centre for next year

• Assist collections management through follow up with overdue customers

• Exit Interviews for dropout and idle customers of IL and GL verticals

• Calling ECS repayment mode rejection customers to find out the reason for rejection

• Periodic feedback/survey calls and on-demand services

Operational Efficiency

Earlier our mode of repayment was only cash and now we are offering ECS & ACH as options to our customers for making their regular monthly loan repayments. ECS is being piloted for Individual loan customers across regions. The pilot for ECS repayment for Group Lending customers is ongoing in some of our branches. We are also providing SMS alerts to our customers, reminding them of their repayment and also confirmation upon receipt of payments.

Presently, pre-printed customer profile forms are being piloted across regions so that customer details will only require validation by our field staff and they need not fill up the entire form on their own. Branches today have access to all reports and are being envisioned as individual business units catering to customer transaction and services.

The year started with 6% of our pan-India disbursements through bank accounts and ended at 50% of our total disbursements being cashless. Our customers today are aware of how to do basic banking

transactions. They are able to use ATM cards and read SMS alerts from the bank. It gives them a sense of empowerment as they are able to handle these on their own! One of the significant benefits of cashless disbursements is the reduction in cash-in-transit risk. Branch staff are now able to spend their time productively during disbursements which otherwise was spent in counting cash, a tedious and risky task. Field level efficiency has improved. Staff ensures that customers are aware of the process of cashless disbursements during center meetings and house visits.

Going forward, we are aiming to scale up cashless disbursements to at least 80% of our customers. We are also looking at collecting loan repayments through ECS/ACH. Our goal is to move from cash base model to a cashless base model in future.

ECS is an automated bank transfer of the EMI from the customers' bank account into Ujjivan's account on a fixed day every month. This mode of repayment is not uncommon in the banking industry, however, it's a first within the MFI industry. The main reason for initiating a cashless repayment system was to ensure convenience for our customers. A sizable number of our customers are either small entrepreneurs or belong to the working class and have trouble coming to the branch every month to make cash payments. ECS was piloted clearly only for Individual Lending customers. We had worked extensively on modifying our technology infrastructure and MIS reporting for a successful launch of the ECS. Loan officers and cashiers were trained in the process. Backend 'Operations and IT which are the backbone of Ujjivan worked, day and night, with software vendors to customize reports, developing a structured and efficient foundation for the new initiative. On the field, customers were educated on the process and benefits of ECS. We are also introducing Automated Clearing House (ACH) collections in select pockets. This will help reduce TAT for collections and also bring in a significant increase in efficiency in the process. We hope to scale up this initiative to all our customers across regions and products in the future.

Management

Samit Ghosh, Chief Executive Officer and Managing Director

Samit has been in international banking for over thirty years. At Citibank, he co-pioneered consumer banking in India in 1985. He led the launch of retail banking for Standard Chartered in the Middle  East and South Asia, and for HDFC Bank in India. His last assignment was as Chief Executive (India) of  Bank Muscat. He founded Ujjivan in 2005 as a pioneering microfinance firm for the urban poor. He is an alumnus of Jadavpur University and Wharton School. “Having grown up in post-independence India, in the eras of economic scarcity and painfully slow growth, like a lot of young men, I wanted to be a millionaire before I was forty. Thirty years later,  when I found Ujjivan, professionally I wanted to take up the challenge of becoming a 'Banker to the Poor'.  My other aspiration was to positively impact a million lives.”

Sudha Suresh, Chief Financial Officer

Sudha is a Chartered Accountant with a rich corporate career spanning over two decades. Her expertise and contributions include areas of fiscal management, strategic planning, capital and debt syndication, MIS and compliances in private and public limited companies. She is on the CFO 100 Roll of Honour for 2013 awarded by CFO India. She is also a qualified Cost Accountant and Company Secretary. “Ujjivan has been a unique experience throughout stages of growth, industry crisis and resurgence. From top class corporate governance in action to a vibrant team, from an inclusive approach to leadership to total ownership of responsibilities on an equal platform for the new as well as the  experienced, this is indeed a great place to work in!”

Carol Furtado, Chief Operating Officer - South

Carol has been with Ujjivan since inception. She is a Finance professional with over 15 years of experience, having worked in ANZ Grindlays and Bank Muscat, where she specialized in modern retail banking operations. In 2009, she won the Financial Women's Association (FWA) of New York Leadership Award. Carol is an MBA from Mount Carmel Institute of Management, Bangalore. “My career in Ujjivan has been a dream run till date. We have a well-knit team which together pulls Ujjivan to be recognized as the best in all that we do. An amazing set of individuals with a single-minded approach working towards building better lives makes each day for me seem like a masterpiece.”

Jolly Zachariah, Chief Operating Officer - West

Jolly has over 22 years of International Banking experience with Citibank. Jolly led and managed consumer banking and credit card businesses in India and overseas. His last assignment was with Citigroup's CitiCards as Senior Vice President and Director, Agent and Affinity Banking, in New  York. He is responsible for establishing Ujjivan as the leading microfinance service provider in urban Maharashtra and Gujarat. “My journey has been a roller coaster ride. At Ujjivan, I learnt to appreciate that my 22 plus years as a banker with global exposure had not prepared me for what I experience every day. What excites me is that I continue to learn. What inspires me, is the balance that has to be maintained in making what seems impossible, possible. Thank you, Ujjivan ”

Rajat Singh, Chief Operating Officer - North

Rajat joined Ujjivan in 2007 as a financial analyst. His first assignment was to build and expand the organizational finance function. Rajat was instrumental in developing and implementing organizational budgeting processes and basic business analytics structures. In June 2010 he was appointed Chief of Staff for the Eastern region, overseeing the regional business and was soon promoted to COO - East in October 2011. Recently, in April 2013, Rajat became COO - North.  Rajat has a B.Tech degree in Agricultural and Food Engineering from IIT, Kharagpur. “Seeing Ujjivan grow from a startup to one of the most admired MFIs in India is an amazing experience. It is young forever in its true sense, evolving faster than you think we can. Such is my story over the last 7 years - full of action. Switching gears from a financial analyst to a business leader, Ujjivan has given me ample opportunity to explore and experiment, nothing less than my college days. I could not have asked for anything better.”

Abhiroop Chatterjee, Chief Operating Officer - East

Abhiroop joined Ujjivan in April 2008 as part of the first batch of Management Trainees. His first assignment was to establish operations at Jharkhand as Area Manager. He later went on to take up the role of Distribution Manager in May 2010. Later Abhiroop worked across all the states of operations in East. In January 2014, he was appointed Chief of Staff for the Eastern Region and was soon promoted to COO - East in April 2014. Abhiroop has a PGDM - Rural Management from Xavier  Institute of Management, Bhubaneswar. “6 years since we started our operations in East and it still seems we have just started. Travelling across the region and opening branches was a great opportunity. Indeed an enriching and exciting time where I could build myself professionally and personally. Seeing Ujjivan through its peaks and troughs, it has been a fabulous journey! Look  forward to taking Ujjivan to greater heights!”

Martin Pampilly, Head of Operations

Martin has over 13 years of retail banking experience with ANZ Grindlays, Bank Muscat and  Centurion Bank. Martin was a core member in setting up the centralized back office and Customer Services unit for Centurion Bank. He joined Ujjivan in 2009 as Regional Operations Manager - South, and also managed the successful testing, training and implementation of the Core Banking Project. Martin attended the strategic leadership program at Harvard in April 2013. He also served as the COO  -East for some time. Martin is a Computer Science graduate from St.Joseph's College, Bangalore. “As a Regional Operations Manager at Bangalore, the operations department was my lab to experiment. I started with setting up the help desk to creating controls to working on the CBS  project. I was then heading Operations across Ujjivan where we worked towards various efficiency parameters. I was heading the East business for a brief period which was an insightful experience. I am fortunate to be part of this great team.”

Sneh Thakur, Head of Credit

Sneh joined Ujjivan in April 2008 in the first batch of Management Trainees. She was a corporate financial analyst and handled corporate finance and investor relationships for over two years. During this time she stewarded two rounds of equity fundraising. In 2011, Sneh was appointed as the  Regional Credit Manager - South, overseeing the transition phase of Credit Bureau verifications and compliance to regulatory changes. Recently, in April 2013, she was appointed Head of Credit. Sneh has an  MBA in Finance from SDM, Mysore. “The spirit of Ujjivan is to change with the changing times and I am fortunate to have been given the opportunity to learn about different institutions, countries and cultures. One of the most unforgettable experiences was getting robbed at gunpoint in Amsterdam during a leadership course. The course taught me many leadership lessons and  I realized they are worth only when I applied it during a crisis. I decided not to part with my valuables and fight it out with the robber, and  YES I succeeded. I live by a few golden lessons - Have presence of mind, Lead by example, Have the courage to face difficult situations  and work out solutions and to believe in yourself, else there is no reason for others to do so!”

Alagarsamy AP, Head of Audit

Alagar is a Banking and Financial Services professional with over 19 years of experience in sales, credit, risk and audit. Alagar was with ICICI Bank for over 8 years in Retail Assets and Rural  Business Groups handling various roles in Sales, Credit and Risk functions. His last assignment was as Assistant Vice President - Risk, with Fullerton India Credit Company. He was part of the core team which launched their Rural Business and also handled Audit. Alagarsamy is a Management  Graduate from Osmania University, Hyderabad. “Working with Ujjivan has given me an immense sense of fulfilment and job satisfaction. It has given me an opportunity to serve the economically marginalized section of the society and to contribute my bit towards inclusive growth. As a professional Ujjivan has broadened my outlook and helped me understand and learn a completely new business  segment and more importantly, it has helped me grow into a better human being.”

Vittal Rangan, Head of Human Resource

Vittal has over 17 years of HR experience, largely with Financial Services. Vittal has worked with  Birla Sun Life Insurance, Cholamandalam DBS Finance, HDFC Standard Life and Asian Paints, where he played leadership roles heading Sales HR and Corporate verticals. His areas of interest include organization development, institution building and leadership. Vittal is an alumnus of SRCC, Delhi and Symbiosis, Pune. “When I was delivering the ESOP session to the CRS at Ramnagar branch in 2011, I observed one of our staff in tears. When I enquired, I was surprised to see her response when she said, “In my husband's company, when they made losses, they laid him off. In our company, in spite of our branch making loss due to local issues, Ujjivan trusted us and gave us ESOPs. We will make it No.1 branch again. We not only build a better life for customers, we build a better life for our staff as well. That’s what brought tears to my eyes”. I had been an HR Framework person for the most part of my life. This experience taught me that an effective implementation of HR Policy can go a long way in employee engagement. Ujjivan indeed made me a strong HR Practitioner. Today, I can claim to be a complete HR Person, largely because of Ujjivan.”

Deepak Ayare, Chief Technology Officer

Deepak is an IT professional with 23 years of experience in different aspects of Technology. He worked in the Gulf and in East Africa for 14 years. His core strengths lie in implementing ERP and developing business systems for organizations in different verticals, IT Vision and cost saving with Open Source Technology. He graduated from Bombay University. Additionally, Deepak has good knowledge about Animal Husbandry and related businesses at a rural level. “In the last 6 years, I have seen Ujjivan growing from 85 Branches, 850 Employees and 1.5 Lac customers to 350 Branches, 4500 Employees and 14 Lac Customers. Being Head Of Technology,  every day it is a new challenge for us to keep the ball rolling and support business. I am proud to have mentored a wonderful team of dedicated and hardworking individuals who have helped in transforming the face of technology at Ujjivan. While working with Ujjivan every day is special and every achievement is a proud moment for me. I feel, directly or indirectly, my work is helping my society to which I belong. This gives me big job satisfaction, which I never got in my earlier jobs”.

Premkumar G, Head of Vigilance and Corporate Administration

Premkumar has over 14 years of experience in administrative positions with One World Hospital and Paul D'Souza & Associates, a leading law firm. Prem was Head of Administration for 4 years, prior to his current role. He has recently moved as Head of Vigilance. Prem holds a Commerce degree and is a member of the Indian Society of Ergonomics (ISE). “People often say take up a job that you will love to do or you will muck it up. It’s very true in my life too. I always dreamt of working at a place which not only motivates but also gives me the freedom to think, and helps me perform beyond the ordinary; that's Ujjivan for me. I love what I do. What strikes me  here, is the importance accorded to people, and a fair and transparent work environment.”

Murli Manohar, National Program Manager - Individual Lending

Murli comes with a work experience of a decade, distributed equally between government and private sectors. He was with ICICI Bank until February 2013 where his last assignment was in Small Enterprises (Finance) Group. He had studied economics and education before joining Xavier Institute of Management - Bhubaneswar, from where he graduated in 2008 with a gold medal in PGDM-Rural Management. He has interests in the areas of financial inclusion, micro-enterprise finance and business development. “Joining Ujjivan in 2013 was in a sense, a dream come true. I currently work in the Individual  Lending Program, which is catering to the financial requirements of the missing middle. The team is great.  There is a lot of enthusiasm and hard work! I have learnt the intricacies of working in a young business and dealing with multiple stakeholders. I  look forward to giving my best.”

MD&A

Competitive Position: Ujjivan ranks 6th overall (3rd at 5.3 days excluding CDR MFIs) in Loan Portfolio and Borrower Base*

Opened 49 new branches. 37% growth in disbursements over the last fiscal year.

Ujjivan approached its business during the year with a two-pronged growth strategy. Ujjivan wanted to position itself as a multi-product company with steady growth in the Group Lending (GL) business as the market reaches a high penetration for group lending along with setting a base for an exponential growth in Individual Lending (IL) business with greater thrust on new, customized products, agricultural and allied loans, open market loans and secured lending products. There is immense potential in the metros/ big cities for the individual lending business given the customer base and we are looking at leveraging our geographically diverse presence to focus on region/branch specific products.

The IL Business was reorganised with the rationalisation of product programs, formulation of new products, recruitment of exclusive IL staff and comprehensive training. A new field level organization structure (Hub and Spoke) was rolled out across regions for greater accountability and efficiency. Regular follow-up and branch visits by core IL team members were undertaken to increase IL business pan-India. Region-wise campaigns were launched to ring in IL sales with rewards and recognition for stellar performance above-set thresholds. Further, mentors were assigned for special attention to new products - IBL and Housing.

Sponsored exposure trips to Philippines and Colombia helped us learn best practices in the IL business. Centre-wise marketing campaigns for better customer awareness and daily tracking of potential leads along with constant guidance by WWB and IFC on stream rolling our policies and processes aligned to the IL business.

Efficiency

Implementation of DMS across regions, consistent branch level monitoring of processes, monthly best branch awards to create healthy competition among branches and motivate branch staff, saw our TAT dip to 5.3 days. We plan to push ourselves further to bring our TAT down to 4 days for our group lending products and 5 days for our individual lending products

The comfortable fund position of Rs. 4,020 million coupled with undrawn limits and proposals in the pipeline are great enablers for significant business momentum up to the first quarter of the next financial year. Key focus areas for FY 2014 - 15 will be to add to diversification with a mix of long and short-term funding including ECB, asset sale and securitization, Commercial Paper and NCDs. Long-term borrowings and Sub-ordinated debt structures are also in active consideration aiding in matching the asset maturity profile, especially longer-term loans under the individual lending business line.

Credit Risk

The structured branch-wise credit policies aligned to occupation and income levels of clients along with the credit bureau reports have helped attract quality clients, thereby containing the overall default risk to <0.1% of the total loans disbursed during this year. Introduction of the branch and regional credit performance scorecards have further strengthened portfolio management. Online credit underwriting through DMS (Document Management System) has substantially increased approver productivity by nearly 60%, reducing the turnaround time for credit decisions. We launched our first ever collections campaign in collaboration with the bureaus and recovered Rs. 0.4 million from previously written off loans in the South and East regions over a period of 2 months.

Ujjivan is on the cusp of a significant transition - a paradigm shift from intrinsic group lending to diversifying our product suite of individual loans. Suitable products for individual loans secured and unsecured will be the next growth area for us. We are now in the process of setting up independent and standard underwriting practices, business intelligence and reporting, structured in-house and field collections management, credit risk management and building resource capabilities and capacities. Exposure visits and knowledge enhancement supported by external resource partners and consultants have set the ball rolling for this evolution process.

Operational Risk

Managing employee turnover and the transition has been a key focus area and we have been successful at containing the attrition at 17.2% this year as against 25% in the last year.

Cash handling risk is being mitigated by cashless disbursement and payment acceptance. Also increases operational efficiency as cash handling is labour intensive.

Ujjivan's priorities for the next financial year would predominantly be to maintain steady growth in our core area - group lending business, drive exponential growth in our individual lending business, explore alternative income streams and strive for greater efficiencies in our processes and systems to be able to deliver better services to our customers, attract and retain quality talent and march faster towards our greater goal of financial inclusion, within the ambit of all the applicable laws and regulations.

HR

Over the last 3 years, Ujjivan has steadily increased its scores across all major parameters measured and has scored significantly higher than the Top 50 Best Employer scores. 'Pride' being the highest across years - we are proud of our work, of our teams and of our organization. The graph shows the same.

The table below also shows some very important statements (as per GPTW Institute) that are  measured in the survey and how Ujjivan compares to the top best 50 employers:

The secret to success in Mr Samit Ghosh's words, “Our employees are the most important of  Ujjivan's stakeholders. We are in the service industry and our customers can be happy only if our employees are. We care for our employees at work and home, during good and bad times. All employees are treated fairly. We are a performance-driven organization and expect everyone to pull their weight. That is the culture of Ujjivan!”

All employees are aligned with our mission of 'Building a Better Life' for our customers. This reflects in the job satisfaction that our employees have despite working in very challenging conditions. As Mr Ghosh puts it, “There is a tremendous job satisfaction, one feels fulfilled when we see the kind of change we can bring in our customers’ lives. There are targets but this is not like selling Coca-Cola. You may sell a maximum number of bottles of Coke, but what impact would that make on society?"

There are a baseline satisfaction and pride in our employees that is evident to anyone who visits our branches. Varied causes like candid communication, opportunities for career growth, mandatorily leaving office by 7:00 p.m., always getting the salary on the last day of the month, taking care of employee's family in case of mishap or death, everything adds up. And then there are some major stepping stones and best practices we have had over the years that adds to the flavour. A great place to work is defined by the GPTW Institute as a place where you trust the people you work for, take pride in what you do and enjoy the company of people you work with. In Ujjivan, we build better lives not only of our customers but also of our employees. In Ujjivan, we make a difference.

During the year based on internal study and approved by the board of director, the company is revised its policy regarding term loan processing fee to charge off the entire expenses in the year the loan is taken instead of amortising over the loan period /term of loan, which resulted in loan processing fee being higher by Rs. 60,506,360/- and profit for the year being lower by that  amount.